New
Bookmarks
Year 2012 Quarter 4: October 1 - December 31 Additions to
Bob Jensen's Bookmarks
Bob Jensen at
Trinity University
For
earlier editions of New Bookmarks go to
http://www.trinity.edu/rjensen/bookurl.htm
Tidbits Directory ---
http://www.trinity.edu/rjensen/TidbitsDirectory.htm
Click here to search Bob Jensen's web site if you have
key words to enter --- Search Site.
For example if you want to know what Jensen documents have the term "Enron"
enter the phrase Jensen AND Enron. Another search engine that covers Trinity and
other universities is at
http://www.searchedu.com/.
Bob Jensen's Threads ---
http://www.trinity.edu/rjensen/threads.htm
574 Shields
Against Validity Challenges in Plato's Cave ---
http://www.trinity.edu/rjensen/TheoryTAR.htm

Choose a
Date Below for Additions to the Bookmarks File
2012
December
31
November
30
October 31

December 31, 2012
Bob
Jensen's New Bookmarks December 1-31, 2012
Bob Jensen at
Trinity University
For
earlier editions of Fraud Updates go to
http://www.trinity.edu/rjensen/FraudUpdates.htm
For earlier editions of Tidbits go to
http://www.trinity.edu/rjensen/TidbitsDirectory.htm
For earlier editions of New Bookmarks go to
http://www.trinity.edu/rjensen/bookurl.htm
Click here to search Bob Jensen's web site if you
have key words to enter --- Search Box in Upper Right Corner.
For example if you want to know what Jensen documents have the term "Enron"
enter the phrase Jensen AND Enron. Another search engine that covers Trinity and
other universities is at
http://www.searchedu.com/
Bob
Jensen's Blogs ---
http://www.trinity.edu/rjensen/JensenBlogs.htm
Current and past editions of my newsletter called
New Bookmarks ---
http://www.trinity.edu/rjensen/bookurl.htm
Current and past editions of my newsletter called
Tidbits ---
http://www.trinity.edu/rjensen/TidbitsDirectory.htm
Current and past editions of my newsletter called
Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
Bob Jensen's
Pictures and Stories
http://www.trinity.edu/rjensen/Pictures.htm
All
my online pictures ---
http://www.cs.trinity.edu/~rjensen/PictureHistory/
FASB Accounting Standards Updates ---
http://www.fasb.org/cs/ContentServer?site=FASB&c=Page&pagename=FASB/Page/SectionPage&cid=1176156316498
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
2013 IFRS Blue Book
(Not Free) ---
http://shop.ifrs.org/ProductCatalog/Product.aspx?ID=1717
Links to
IFRS Resources (including IFRS Cases) for Educators ---
http://www.trinity.edu/rjensen/Theory01.htm#MethodsForSetting
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
Center for Financial Services
Innovation ---
http://cfsinnovation.com/
"Guide to PCAOB Inspections," Center for Audit Quality, 2012 ---
http://www.thecaq.org/resources/pdfs/GuidetoPCAOBInspections.pdf
Note this has a good explanation of how the inspection process works.
PCAOB Inspection Report Database ---
http://pcaobus.org/inspections/reports/pages/default.aspx
Bob
Jensen's taxation helpers ---
http://www.trinity.edu/rjensen/Bookbob1.htm#010304Taxation
Subtle Distinctions in Technical
Terminology
Machine Learning, Big Data, Deep Learning, Data Mining, Statistics, Decision &
Risk Analysis, Probability, Fuzzy Logic FAQ ---
http://wmbriggs.com/blog/?p=6465
Humor Between December 31, 2012 ---
http://www.trinity.edu/rjensen/book12q4.htm#Humor123112
Humor Between November 1-30, 2012 ---
http://www.trinity.edu/rjensen/book12q4.htm#Humor113012
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
Rest in Peace Herb and Lenore Miller
After a long illness, Herb Miller joined his long-time wife Lenore on the other
side. Herb was a very important mentor to me early in my career. He came a long
way from being a clarinet player in a traveling dance band to one of the best
known accounting professors in the world.
His Accounting Hall of Fame profile is at
http://fisher.osu.edu/departments/accounting-and-mis/the-accounting-hall-of-fame/membership-in-hall/herbert-elmer-miller/
Please Don't Forget Stratified Sampling Expert Will Yancey
I remind readers of my good friend Will Yancey (now deceased) who left academe
to build an exceptionally lucrative consulting practice in compliance testing
other than GAAP compliance. The main
comparative advantages that Will brought to the table were his exceptional
skills in stratified sampling. Perhaps Will made four times as much
per year in compliance consulting than even our best professors make in the
Academy compensation unless they too are making exceptional money in outside
consulting and/or textbook publishing.
Bob Jensen's Tribute to Will Yancey ---
http://www.trinity.edu/rjensen/Yancey.htm
To the possible benefit of students, practitioners, and professors Will Yancey's
widow maintains Will's fabulous Website ---
http://www.willyancey.com/
Especially note the section of Will's Website devoted to Sampling and
Statistics. And keep in mind that, like
Rumpelstiltskin, Will wove this section into gold, much gold.
Personally, I think the largest curriculum deficiency in schools of business is
the failure to create a concentration tracks in compliance testing. This could
be a natural for business statistics professors who want to do more than teach
from statistics textbooks.
Think of the compliance testing cases that Will Yancey could have written if
his life had not been cut so short.
The Going Concern Editor's Picks, some controversial picks, for 2012
---
http://goingconcern.com/post/zombie-cpas-grant-thornton-temporary-tattoos-and-porn-stars-going-concern-editors-picks-2012
"The Top Ten Stories of 2012: While the biggest news concerned
ObamaCare, perennial CFO subjects like budgeting and planning and the use of
spreadsheets were highly popular," by David M. Katz, CFO.com,
December 28, 2012 ---
http://www3.cfo.com/article/2012/12/benchmarking_obamacare-health-exchanges-romney-budgeting-excel-spreadsheets-pdf-internal-audit-benefits-
"The 10 Dumbest Things on Wall Street in 2012," by Greg Greenberg, The
Street, December 28, 2012 ---
http://www.thestreet.com/story/11800972/1/the-10-dumbest-things-on-wall-street-in-2012.html
"Ball and Brown and the Usefulness of EPS." by Robert Lipe, FASRI,
August 9, 2012 ---
http://www.fasri.net/index.php/2012/08/ball-and-brown-and-the-usefulness-of-eps/
At the AAA meeting in DC, I attended a presidential
address by Ray Ball and Phil Brown regarding their seminal research paper
(JAR 1968). They described the motivation for their study as a test of
existing scholarly research that painted a dim picture of reported earnings.
The earlier writers noted that earnings were based on old information
(historical cost) or, worse yet, a mix of old and new information (mixed
attributes). The early articles concluded that earnings could not be
informative, and therefore major changes to accounting practice where
necessary to correct the problem.
Ball and Brown viewed this literature as providing
a testable hypothesis – market participants should not be able to use
earnings in a profitable manner. Stated another way, knowing the amount of
earnings that would be reported at the end of the year with certainty could
not be used to profitably trade common stocks at the beginning of the year.
Evidence to the contrary would suggest the null that earnings are
non-informative does not hold.
While the methods part of the paper is probably
difficult for recent accounting archivalists to follow, Ball and Brown
produce perhaps the single most famous graph in the accounting literature.
It shows stock returns trending up over the year for companies that
ultimately report increases in earnings and trending down for companies that
report decreases in earnings. Thus they show that accounting numbers can be
informative even if the aggregate number is not computed using a single
unified measurement approach across transactions/events. Subsequent research
would show that numbers from the income statement have predictive ability
for future earnings and cash flows.
As I sat listening to these two research icons, I
could not help but think about some comments I have heard recently from a
few standard setters and practitioners. Those individuals express contempt
for EPS in a mixed attribute world. They appear to wish they could jump in a
time machine and eliminate per share computations related to income. I
readily admit that EPS does not explain much of the variance in returns over
periods of one year or less ( e.g., Lev, JAR 1989). However the link is
clearly significant, and over longer periods, the R2’s are quite high
(Easton, Harris, and Ohlson, JAE 1992). Can the standard setters make
incremental improvements to increase usefulness of EPS? I sure hope so, and
maybe the recent paper posted by Alex Milburn will help. But dismissing a
reported number because it is not derived from a single consistent
measurement attribute – be it fair value or historical cost – seems to
revert back to pre-Ball and Brown views that are rejected by years of
research.
Jensen Comment
Given the balance sheet focus of the FASB and the IASB at the expense of the
income statement I don't see how net income or eps could be anything but
misleading to investors and financial analysts. The biggest hit, in my opinion,
is the way the FASB and IASB create earnings volatility not only unrealized fair
value changes but the utter fiction created by posting fair value changes that
will never ever be realized for held-to-maturity investments and debt. This was
not the case at the time of the seminal Ball and Brown article. Those were olden
days before accounting standards injected huge doses of fair value fiction in
eps numbers so beloved by investors and analysts.
Sydney Finkelstein, the Steven Roth professor of management at the Tuck School
of Business at Dartmouth College, also pointed out that Bank of America booked a
$2.2 billion gain by increasing the value of Merrill Lynch’s assets it acquired
last quarter to prices that were higher than Merrill kept them. “Although
perfectly legal, this move is also perfectly delusional, because some day soon
these assets will be written down to their fair value, and it won’t be pretty,”
he said
"Bank Profits Appear Out of Thin Air ," by Andrew Ross Sorkin, The New
York Times, April 20, 2009 ---
http://www.nytimes.com/2009/04/21/business/21sorkin.html?_r=1&dbk
This is starting to feel like amateur hour for aspiring magicians.
Another day, another attempt by a Wall Street bank to pull a bunny out of
the hat, showing off an earnings report that it hopes will elicit oohs and
aahs from the market. Goldman Sachs, JPMorgan Chase, Citigroup and, on
Monday, Bank of America all tried to wow their audiences with what appeared
to be — presto! — better-than-expected numbers.
But in each case, investors spotted the attempts at sleight of hand, and
didn’t buy it for a second.
With Goldman Sachs, the disappearing month of December didn’t quite
disappear (it changed its reporting calendar, effectively erasing the impact
of a $1.5 billion loss that month); JPMorgan Chase reported a dazzling
profit partly because the price of its bonds dropped (theoretically, they
could retire them and buy them back at a cheaper price; that’s sort of like
saying you’re richer because the value of your home has dropped); Citigroup
pulled the same trick.
Bank of America sold its shares in China Construction Bank to book a big
one-time profit, but Ken Lewis heralded the results as “a testament to the
value and breadth of the franchise.”
Sydney Finkelstein, the Steven Roth professor of management at the Tuck
School of Business at Dartmouth College, also pointed out that Bank of
America booked a $2.2 billion gain by increasing the value of Merrill
Lynch’s assets it acquired last quarter to prices that were higher than
Merrill kept them.
“Although perfectly legal, this move is also perfectly delusional, because
some day soon these assets will be written down to their fair value, and it
won’t be pretty,” he said.
Investors reacted by throwing tomatoes. Bank of America’s stock plunged 24
percent, as did other bank stocks. They’ve had enough.
Why can’t anybody read the room here? After all the financial wizardry that
got the country — actually, the world — into trouble, why don’t these
bankers give their audience what it seems to crave? Perhaps a bit of simple
math that could fit on the back of an envelope, with no asterisks and no
fine print, might win cheers instead of jeers from the market.
What’s particularly puzzling is why the banks don’t just try to make some
money the old-fashioned way. After all, earning it, if you could call it
that, has never been easier with a business model sponsored by the federal
government. That’s the one in which Uncle Sam and we taxpayers are offering
the banks dirt-cheap money, which they can turn around and lend at much
higher rates.
“If the federal government let me borrow money at zero percent interest, and
then lend it out at 4 to 12 percent interest, even I could make a profit,”
said Professor Finkelstein of the Tuck School. “And if a college professor
can make money in banking in 2009, what should we expect from the highly
paid C.E.O.’s that populate corner offices?”
But maybe now the banks are simply following the lead of Washington, which
keeps trotting out the latest idea for shoring up the financial system.
The latest big idea is the so-called
stress test
that is being applied to the banks, with results expected at the end of this
month.
This is playing to a tough crowd that long ago decided to stop suspending
disbelief. If the stress test is done honestly, it is impossible to believe
that some banks won’t fail. If no bank fails, then what’s the value of the
stress test? To tell us everything is fine, when people know it’s not?
“I can’t think of a single, positive thing to say about the stress test
concept — the process by which it will be carried out, or outcome it will
produce, no matter what the outcome is,” Thomas K. Brown, an analyst at
Bankstocks.com, wrote. “Nothing good can come of this and, under certain,
non-far-fetched scenarios, it might end up making the banking system’s
problems worse.”
The results of the stress test could lead to calls for capital for some of
the banks. Citi is mentioned most often as a candidate for more help, but
there could be others.
The expectation, before Monday at least, was that the government would pump
new money into the banks that needed it most.
But that was before the government reached into its bag of tricks again. Now
Treasury, instead of putting up new money, is considering swapping its
preferred shares in these banks for common shares.
The benefit to the bank is that it will have more capital to meet its ratio
requirements, and therefore won’t have to pay a 5 percent dividend to the
government. In the case of Citi, that would save the bank hundreds of
millions of dollars a year.
And — ta da! — it will miraculously stretch taxpayer dollars without
spending a penny more.
Bob Jensen's threads on accounting theory ---
http://www.trinity.edu/rjensen/Theory01.htm
Question
Why is Francine fuming?
"Accountants Skirt Shareholder Lawsuits," by Jonathan D. Glater,
The New York Times, December 27, 2012 ---
http://dealbook.nytimes.com/2012/12/27/accountants-skirt-shareholder-lawsuits/
The accountants who service publicly traded
companies are likely to have something to be thankful for this year:
shareholders are not filing federal securities fraud lawsuits against them.
Just 10 years ago, public company accountants were
in the cross hairs of shareholders, regulators and prosecutors. A criminal
indictment destroyed
Enron’s auditor, Arthur Andersen. Congress created
a new regulator, the
Public Company Accounting Oversight Board,
to oversee the profession. And in dozens of lawsuits in the years afterward,
shareholders named accountants as co-defendants when alleging accounting
fraud.
But things have changed. According to NERA Economic
Consulting, which tracks shareholder litigation and reported on the decline
in accounting firm defendants in
its midyear report in July, not one accounting
firm has been named a defendant so far this year. One of the study’s
co-authors, Ron I. Miller, confirmed that the trend has continued at least
through November.
That prompts the question, why don’t shareholders
sue accountants anymore?
“To the extent that firms have been burned for a
lot of money, they have some pretty strong incentives to try to behave,” Mr.
Miller said. “That’s the hopeful side of the legal system: You hope that if
you put in penalties, that those penalties change people’s actions.”
The less positive alternative, he added, is that
public companies “have gotten better at hiding it.”
From 2005 to 2009, according to the NERA report, 12
percent of securities class action cases included accounting firm
co-defendants. The range of federal securities fraud class action cases
filed per year in that period was 132 to 244.
The absence of accounting firm defendants this year
can probably be explained at least in part by court decisions; the Supreme
Court has issued rulings, as in
Stoneridge Investment Partners LLC v. Scientific-Atlanta Inc.
in 2008, making it more difficult to recover damages
from third parties in fraud cases.
So perhaps more shareholder suits would take aim at
accountants, if the plaintiffs believed that their claims would survive a
defendant’s motion to dismiss. And it is possible that plaintiffs will add
accounting firm as defendants to existing cases in the future, if claimants
get information to support such claims.
Over all, fewer shareholder class action lawsuits
are based on allegations of accounting fraud, as opposed to other types of
fraud. The NERA midyear report found that in the first six months of 2012,
about 25 percent of complaints in securities class action cases included
allegations of accounting fraud, down from nearly 40 percent in all of 2011.
Perhaps the Sarbanes-Oxley Act, the legislative
response to the accounting scandals of the early 2000s, actually worked, Mr.
Miller said.
“There’s been a lot of complaining about SOX, and
certainly the compliance costs are high for smaller publicly traded
companies,” he said, but accounting fraud “is to a large extent what SOX was
intended to stop.”
Public company accountants still have potential
civil liability to worry about, said Joseph A. Grundfest, a former
commissioner of the
Securities and Exchange Commission who teaches at
Stanford Law School. Regulators, he said, are investigating potential
misconduct involving accounting firms.
Continued in article
Bob Jensen's threads on lawsuits where CPA firms have not been so lucky
---
http://www.trinity.edu/rjensen/Fraud001.htm
To a fault I've argued that accountics scientists do not challenge each other
or do replications and other validity tests of their published research ---
http://www.trinity.edu/rjensen/TheoryTAR.htm
By comparison the real science game is much more a hard ball game of
replication, critical commentary, and other validity checking. Accountics
scientists have a long way to go in their quest to become more like real
scientists.
"Casualty of the Math Wars," by Scott Jaschik, Inside Higher Ed,
October 15, 2012 ---
http://www.insidehighered.com/news/2012/10/15/stanford-professor-goes-public-attacks-over-her-math-education-research
. . .
The
"math wars" have raged since the 1990s. A series
of reform efforts (of which Boaler's work is a part) have won support from
many scholars and a growing number of school districts. But a traditionalist
school (of which Milgram and Bishop are part) has pushed back, arguing that
rigor and standards are being sacrificed. Both sides accuse the other of
oversimplifying the other's arguments, and studies and op-eds from
proponents of the various positions appear regularly in education journals
and the popular press. Several mathematics education experts interviewed for
this article who are supportive of Boaler and her views stressed that they
did not view all, or even most, criticism from the "traditionalist" camp as
irresponsible.
The essay Boaler published Friday night noted that
there has been "spirited academic debate" about her ideas and those of
others in mathematics education, and she says that there is nothing wrong
with that.
"Milgram and Bishop have gone beyond the bounds of
reasoned discourse in a campaign to systematically suppress empirical
evidence that contradicts their stance," Boaler wrote. "Academic
disagreement is an inevitable consequence of academic freedom, and I welcome
it. However, responsible disagreement and academic bullying are not the same
thing. Milgram and Bishop have engaged in a range of tactics to discredit me
and damage my work which I have now decided to make public."
Some experts who have been watching the debate say
that the reason this dispute is important is because Boaler's work is not
based simply on a critique of traditional methods of teaching math, but
because she has data to back up her views.
Keith Devlin, director of the Human Sciences and
Technologies Advanced Research Institute at Stanford, said that he has
"enormous respect" for Boaler, although he characterized himself as someone
who doesn't know her well, but has read her work and is sympathetic to it.
He said that he shares her views, but that he does so "based on my own
experience and from reading the work of others," not from his own research.
So he said that while he has also faced "unprofessional" attacks when he has
expressed those views, he hasn't attracted the same level of criticism as
has Boaler.
Of her critics, Devlin said that "I suspect they
fear her because she brings hard data that threatens their view of how
children should be taught mathematics." He said that the criticisms of
Boaler reach "the point of character assassination."
Debating the Data
The Milgram/Bishop essay that Boaler said has
unfairly damaged her reputation is called
"A Close Examination of Jo Boaler's Railside Report,"
and appears on Milgram's Stanford website. ("Railside"
refers to one of the schools Boaler studied.) The piece says that Boaler's
claims are "grossly exaggerated," and yet expresses fear that they could be
influential and so need to be rebutted. Under federal privacy protection
requirements for work involving schoolchildren, Boaler agreed to keep
confidential the schools she studied and, by extension, information about
teachers and students. The Milgram/Bishop essay claims to have identified
some of those schools and says this is why they were able to challenge her
data.
Boaler said -- in her essay and in an interview --
that this puts her in a bind. She cannot reveal more about the schools
without violating confidentiality pledges, even though she is being accused
of distorting data. While the essay by Milgram and Bishop looks like a
journal article, Boaler notes that it has in fact never been published, in
contrast to her work, which has been subjected to peer review in multiple
journals and by various funding agencies.
Further, she notes that Milgram's and Bishop's
accusations were investigated by Stanford when Milgram in 2006 made a formal
charge of research misconduct against her, questioning the validity of her
data collection. She notes in her new essay that the charges "could have
destroyed my career." Boaler said that her final copy of the initial
investigation was deemed confidential by the university, but she provided a
copy of the conclusions, which rejected the idea that there had been any
misconduct.
Here is the conclusion of that report: "We
understand that there is a currently ongoing (and apparently passionate)
debate in the mathematics education field concerning the best approaches and
methods to be applied in teaching mathematics. It is not our task under
Stanford's policy to determine who is 'right' and who is 'wrong' in this
academic debate. We do note that Dr. Boaler's responses to the questions put
to her related to her report were thorough, thoughtful, and offered her
scientific rationale for each of the questions underlying the allegations.
We found no evidence of scientific misconduct or fraudulent behavior related
to the content of the report in question. In short, we find that the
allegations (such as they are) of scientific misconduct do not have
substance."
Even though the only body to examine the
accusations made by Milgram rejected them, and even though the Milgram/Bishop
essay has never been published beyond Milgram's website, the accusations in
the essay have followed Boaler all over as supporters of Milgram and Bishop
cite the essay to question Boaler's ethics. For example, an article she and
a co-author wrote about her research that was published in a leading journal
in education research, Teachers College Record, attracted
a comment that said the findings were
"imaginative" and asked if they were "a prime example of data cooking." The
only evidence offered: a link to the Milgram/Bishop essay.
In an interview, Boaler said that, for many years,
she has simply tried to ignore what she considers to be unprofessional,
unfair criticism. But she said she was prompted to speak out after thinking
about the fallout from an experience this year when Irish educational
authorities brought her in to consult on math education. When she wrote
an op-ed in The Irish Times, a commenter
suggested that her ideas be treated with "great skepticism" because they had
been challenged by prominent professors, including one at her own
university. Again, the evidence offered was a link to the Stanford URL of
the Milgram/Bishop essay.
"This guy Milgram has this on a webpage. He has it
on a Stanford site. They have a campaign that everywhere I publish, somebody
puts up a link to that saying 'she makes up data,' " Boaler said. "They are
stopping me from being able to do my job."
She said one reason she decided to go public is
that doing so gives her a link she can use whenever she sees a link to the
essay attacking her work.
Bishop did not respond to e-mail messages
requesting comment about Boaler's essay. Milgram via e-mail answered a few
questions about Boaler's essay. He said she inaccurately characterized a
meeting they had after she arrived at Stanford. (She said he discouraged her
from writing about math education.) Milgram denied engaging in "academic
bullying."
He said via e-mail that the essay was prepared for
publication in a journal and was scheduled to be published, but "the HR
person at Stanford has some reservations because it turned out that it was
too easy to do a Google search on some of the quotes in the paper and
thereby identify the schools involved. At that point I had so many other
things that I had to attend to that I didn't bother to make the
corrections." He also said that he has heard more from the school since he
wrote the essay, and that these additional discussions confirm his criticism
of Boaler's work.
In an interview Sunday afternoon, Milgram said that
by "HR" in the above quote, he meant "human research," referring to the
office at Stanford that works to protect human subjects in research. He also
said that since it was only those issues that prevented publication, his
critique was in fact peer-reviewed, just not published.
Further, he said that Stanford's investigation of
Boaler was not handled well, and that those on the committee considered the
issue "too delicate and too hot a potato." He said he stood behind
everything in the paper. As to Boaler's overall criticism of him, he said
that he would "have discussions with legal people, and I'll see if there is
an appropriate action to be taken, but my own inclination is to ignore it."
Milgram also rejected the idea that it was not
appropriate for him to speak out on these issues as he has. He said he first
got involved in raising questions about research on math education as the
request of an assistant in the office of Rod Paige, who held the job of U.S.
education secretary during the first term of President George W. Bush.
Ze'ev Wurman, a supporter of Milgram and Bishop,
and one who has posted the link to their article elsewhere, said he wasn't
bothered by its never having been published. "She is basically using the
fact that it was not published to undermine its worth rather than argue the
specific charges leveled there by serious academics," he said.
Critiques 'Without Merit'
E-mail requests for comment from several leading
figures in mathematics education resulted in strong endorsements of Boaler's
work and frustration at how she has been treated over the years.
Jeremy Kilpatrick, a professor of mathematics
education at the University of Georgia who has chaired commissions on the
subject for the National Research Council and the Rand Corporation, said
that "I have long had great respect for Jo Boaler and her work, and I have
been very disturbed that it has been attacked as faulty or disingenuous. I
have been receiving multiple e-mails from people who are disconcerted at the
way she has been treated by Wayne Bishop and Jim Milgram. The critiques by
Bishop and Milgram of her work are totally without merit and unprofessional.
I'm pleased that she has come forward at last to give her side of the story,
and I hope that others will see and understand how badly she has been
treated."
Alan H. Schoenfeld is the Elizabeth and Edward
Conner Professor of Education at the University of California at Berkeley,
and a past president of the American Educational Research Association and
past vice president of the National Academy of Education. He was reached in
Sweden, where he said his e-mail has been full of commentary about Boaler's
Friday post. "Boaler is a very solid researcher. You don't get to be a
professor at Stanford, or the Marie Curie Professor of Mathematics Education
at the University of Sussex [the position she held previously], unless you
do consistently high quality, peer-reviewed research."
Schoenfeld said that the discussion of Boaler's
work "fits into the context of the math wars, which have sometimes been
argued on principle, but in the hands of a few partisans, been vicious and
vitriolic." He said that he is on a number of informal mathematics education
networks, and that the response to Boaler's essay "has been swift and, most
generally, one of shock and support for Boaler." One question being asked,
he said, is why Boaler was investigated and no university has investigated
the way Milgram and Bishop have treated her.
A spokeswoman for Stanford said the following via
e-mail: "Dr. Boaler is a nationally respected scholar in the field of math
education. Since her arrival more than a decade ago, Stanford has provided
extensive support for Dr. Boaler as she has engaged in scholarship in this
field, which is one in which there is wide-ranging academic opinion. At the
same time, Stanford has carefully respected the fundamental principle of
academic freedom: the merits of a position are to be determined by scholarly
debate, rather than by having the university arbitrate or interfere in the
academic discourse."
Boaler in Her Own Words
Here is a YouTube video of Boaler discussing and
demonstrating her ideas about math education with a group of high school
students in Britain.
Continued in article
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 so that
we don't get along so well
http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm
During a goodly number of years of my career I was rather deep into cluster
analysis that in biology is known as numerical taxonomy ---
http://en.wikipedia.org/wiki/Cluster_analysis
Also see
http://en.wikipedia.org/wiki/Numerical_taxonomy
Some of my presentations and publications on this topic include the following:
"Isotropic Scaling of the Interior Components Inside Joiner
Scaler Block Clusterings
of Entities (Cases) and Variates (Attributes):
An Application to United Nations Voting Records,"
University of Manchester, England, October 3, 1988.
"Extension of Consensus Methods For Priority Ranking Problems:
Eigenvector Analysis of 'Pick-the-Winner'
Paired Comparison Matrices,"
Decision Sciences, Vol. 17, Spring 1986, 195-211.
"Aggregation (Composition) Schema for Eigenvector Scaling of Priorities
in Hierarchial Structures,"
Multivariate Behavioral Research,
Vol. 18, January 1983, 63-84.
"Accounting Futures Analysis: An Eigenvector Model for Subjective
Elicitations of Variations in Cross-Impacts Over Time,"
Decision Sciences, January 1982, Vol.
13, 15-37.
"Scenario Probability Scaling: An Eigenvector Analysis of Elicited
Scenario Odds Ratios," Futures,
December 1981, Vol. 13, 489-98.
"The Evaluation of Generic Cross-Impact Models: A Revised Balancing Law
for the R-Space Model," Futures,
June 1981, 217-220.\
"A Dynamic Programming Algorithm for Cluster Analysis,"
Mathematical Programming in Statistics,
Edited by Arthanari and Dodge, 1979, New York,
John Wiley & Sons.
Seminar on cluster analysis, sponsored by The
Institute for Advanced Technology, January 10 and 11, 1972, New
York City.
"A Cluster Analysis Study of Financial Performance of Selected Business
Firms," The Accounting Review,
Vol. XLVI, No. 1, January 1971, 36-56.
Here's a paper that was rejected by a referee who later plagiarized part
of it in his own name
Working Paper 127
Comparisons of Eigenvector, Least Squares, Chi Square, and Logarithmic Least
Squares Methods of Scaling a Reciprocal Matrix
http://www.trinity.edu/rjensen/127wp/127wp.htm
Therefore it's of some interest to me that neuroscientists are now learning
how the brain seems to perform a natural cluster analysis for terminology:
"Data + Design Project How Do Our Brains Semantically Map the Things We See?"
December 23. 2012
Posted by Paul Caridad
http://www.visualnews.com/2012/12/23/how-do-our-brains-semantically-map-things/
I always thought there was great potential for cluster analysis in financial
statement analysis, but along the way I got distracted by other lines of
research. But I still think there is great potential for basic research in
clustering and pattern recognition. Now there may be some research idea
potential in numerical taxonomy of XBRL taxonomy.
Visualization of Multivariate Data (including faces) ---
http://www.trinity.edu/rjensen/352wpvisual/000datavisualization.htm
"Irving Fisher, the First Celebrity Finance Professor," by Colin Read,
Bloomberg, November 27, 2012 ---
http://www.bloomberg.com/news/2012-11-27/irving-fisher-the-first-celebrity-finance-professor.html
When speculative bubbles form, as they did in the
1920s and the late 1990s, the financial community invariably listens to
academic entrepreneurs peddling their pet philosophies about the financial
boom.
There have been many such financial celebrities,
though Irving Fisher, the son of an itinerant minister from New York and
Connecticut, may have been the first.
Fisher was born Feb. 27, 1867, in Saugerties, New
York. Throughout his footloose youth, he thrived at public and private
schools that demanded mathematical rigor. Eventually, he entered Yale
University as a science major. He ended up in a new area of study called
economics. He received his doctorate with one of Yale’s first economics
dissertations, and remained associated with the university for the rest of
his life.
Fisher was obviously brilliant, though health
problems stemming from a bout of tuberculosis early in his career forced him
to postpone his plans. This mishap also gave him a taste of his own
vulnerability and a lifelong concern for health and eugenics, the
now-discredited study of methods designed to improve the genetics of the
population. Consumption Decisions
Once returned to health, Fisher developed
revolutionary insights into financial theory that are still invoked today.
He explained that the market interest rate coincides with the human tendency
to discount an uncertain future when compared with the more pressing
present. He argued that we distribute our present and expected future wealth
over the consumption decisions we make now and in the future. In doing so,
he anticipated the life-cycle hypothesis that would demonstrate, half a
century later, why we save and how we consume.
And, he showed that we make our financial decisions
based on real wealth and real interest rates. Consequently, he devoted his
career to designing financial instruments that are immune to inflation.
Indeed, he proposed the first inflation-protected Treasuries that offer a
fixed real interest rate by allowing the coupon payments to rise along with
prices.
Fisher was zealously entrepreneurial for his new
financial instruments and his economic theories. He lobbied presidential
candidates to promote his inflation-protected bonds, but he showed a
remarkable tendency to back the wrong horse.
He also put his money where his mouth is. First, he
accumulated data on inflation so that he would be prepared to help calculate
the necessary coupon on inflation-protected bonds. To keep track of the data
he maintained on index cards, Fisher designed a large revolving-file system
to allow for their quick retrieval. When he felt he perfected his system, he
sold a version of the idea that allowed the New York City telephone company
to organize and quickly retrieve telephone numbers.
His concept eventually became the Rolodex system.
When another business company merged with him to form Remington Rand, Fisher
became a multimillionaire. His self-made fortune and his financial theories
became the stuff of legend on Wall Street during the Roaring Twenties and
made Irving Fisher as close to a household name as any academic financial
economist.
Fisher absolutely believed in the manifest destiny
of the U.S. as it became the world’s economic superpower. The media sought
him out to provide regular doses of financial-market optimism. Even when
trouble loomed, and the stock market crashed in October 1929, Fisher offered
reassurance that the market was just taking a breather before it expanded
again. Momentary Irrationality
Fisher succumbed to his own optimism, as had
millions of others. By the late 1920s, he had lost most of his considerable
fortune. In the early 1930s, he devoted his remaining assets to one
long-shot investment after another, always in the belief that the market
would soon overcome its momentary irrationality.
He would have lost everything had it not been for
the generous decision by Yale University to accept the donation of his home
under the provision that he and his wife could remain there until they died.
Continued in article
Bob Jensen's threads on accounting history ---
http://www.trinity.edu/rjensen/Theory01.htm#AccountingHistory
"The 'Be Yourself' Myth," by Karen Kelsky, Inside Higher Ed,
January 30, 2012 ---
http://www.insidehighered.com/advice/2012/01/30/essay-why-candidates-academic-jobs-cant-just-be-themselves
. . .
Toward the end of our work together, in a Skype
conversation, she asked if I had any final thoughts on how to advise people
to prepare for interviews and campus visits. She said, "Of course I always
tell them to just be themselves. I mean, that’s always the best advice,
isn’t it?"
"Oh good god, Margaret!" I burst out. "Are you
kidding me? THAT’S what you tell them?"
A started silence, followed by a sheepish laugh.
"Really? That’s not good advice? Why?"
O, Margaret…. O, job candidates…. Where do I begin?
The exchange took me back to the day oh so many
years ago, when my very own adviser had also told me, when I asked her for
some advice for an upcoming campus visit, to just be myself.
And not knowing any better, I heeded that advice.
And went out and made a complete ass of myself.
The fact is, Dear Readers, "yourself" is the very
last person you want to be. Why?
Continued in article
Bob Jensen's threads on higher education controversies ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm
TODAY'S PH.D. STUDENTS
IS THERE A FUTURE GENERATION OF ACCOUNTING ACADEMICS OR ARE THEY A DYING BREED -
A UK PERSPECTIVE
by Vivien Beatte and Mary Jane Smith
Source: ICAS
Country: UK
Date: 20/12/2012
Web:
http://icas.org.uk/smith-beattie.pdf
Thank you Andy Lymer for the heads up.
Contents
Foreword
..................................................................................................................
1
Acknowledgements
.....................................................................................................
3
Executive summary
....................................................................................................
5
1. Introduction
.........................................................................................................
12
2. Literature review
...................................................................................................
15
3. Research methods
.................................................................................................
20
4. Results: PhD students
...........................................................................................
26
5. Results: PhD supervisors/academic
members of staff .................................................... 41
6. Results: Professional accounting
bodies and ASB ....................................................... 56
7. Summary and conclusions
......................................................................................
60
References
.................................................................................................................
69
About the authors
......................................................................................................
72
About SATER
.........................................................................................................
73
EXECUTIVE SUMMARY
I’m a new PhD
[recently graduated]. What
I notice most about our new faculty is that they are all culturally quite
different from those departing [retiring].
Background
One of the defining characteristics of a profession is the
existence of a related academic discipline, which engages in teaching and
research activities that support the profession. The linkage of the
profession with the university sector legitimises claims to professionalism.
In the US, severe faculty shortages in accounting have been documented and
attributed to inadequate renewal in terms of PhD graduates (AAA, 2008;
AAA/AAPLG, 2005). In the UK, too, there is a very thin academic labour
market for both the accounting and finance disciplines, despite a large
increase in PhD student numbers in these disciplines in recent years. This
rapid increase in numbers has created concern regarding the quality of
doctoral education generally (THES, 2009).
Aims of study and research approach
The aims of this study are to:
1. Document the current state of
the market for PhD studies in the UK in the accounting and finance
disciplines, in terms of supply, demand, student demographics and
employment destinations.
2. Investigate the degree of
satisfaction with current PhD supervisory processes.
3. Explore the implications for
accounting education and training in the UK, for the academic accounting
profession and for the public accounting profession. This includes
eliciting the views of organisations with an interest in the academic
accounting profession (i.e. professional accounting bodies, the UK
accounting standard-setter) regarding PhD and faculty issues.
To address these issues, databases
were compiled to allow questionnaire surveys to be undertaken of three
groups: current PhD students, recently graduated PhD students and
supervisors across pre-1992 and post-1992 institutions. The year 1992 marked
a structural shift in the UK university sector. Government policy sought to
increase the proportion of school leavers entering university from
approximately 12% to 40% by awarding university status to polytechnic
institutions. In the present study, these new, less research-focused
universities are labelled ‘post-1992’ while the established, more
research-focused institutions are labelled ‘pre-1992’. It was anticipated
that this difference in research emphasis could affect certain PhD
supervisory issues.
One hundred and seventy-six
respondents completed the current PhD student survey, with variations being
completed by 73 recently graduated students and 299 academic staff. Across
the three groups, the 548 responses represent a 22% response rate.
Ninety-seven follow-up interviews were conducted to explore the issues
further. An additional five interviews were conducted with representatives
from the UK professional bodies (ICAS, ICAEW, and ACCA) and the UK
Accounting Standards Board (ASB).
Key findings
Current market for PhD studies in the UK (research aim 1)
•
Nationality. The
proportion of current PhD students of British nationality is found to be
very low (approximately 20%) and markedly lower than the comparable
proportion of US nationals in the US (50%). The vast majority of PhD
students come from outside Europe, with a significant proportion coming
from Asia (33% of current students). Interview evidence suggested that
the trend of students coming from Asia may start to reverse due to a
relaxation in the entry requirements applied by US institutions (a key
competitor nation for PhDs).
•
Disincentives for British students. British students are discouraged
from undertaking a PhD by the lower levels of financial reward
associated with an academic career in comparison to the
profession/industry.
• Mode of
study. In pre-1992 institutions, the vast majority of students are
enrolled full-time (87%), with part-time study being more common in
post-1992 institutions (only 65% full-time).
• Funding
of PhD studies. Thirty percent of current students are financed by
university/departmental scholarships, some of which have significant
teaching/ administrative duties attached. Employer or overseas
government sources are also common (31%) and are generally linked to a
requirement for the student to return home after the PhD is completed.
•
Professional qualification. In pre-1992 institutions, only 23% of
current PhD students are members of a professional accounting body,
rising to 38% in post-1992 institutions. The corresponding figures for
recently graduated students are 13% and 29%, respectively, while those
for supervisors are 39% and 66%, respectively. Looking to the future, a
continuation in the documented UK decline in the proportion of
professionally qualified academics (Brown et al., 2007) can be
predicted.
•
PhD topic area. From the
questionnaire survey of current students, a more or less even split
between finance and accounting topics is apparent. However, from the
questionnaire survey of recently graduated students, finance appears
more popular than financial accounting. Only a very small proportion of
current students appear to be researching in management accounting, a
phenomenon that is attributed, at least in part, to the lack of
databases.
• Career
plans. The
vast majority of current PhD students intended to pursue an academic
career (64%), however, only 34% of current students in pre-1992
institutions were intending to apply for an academic position in the UK,
with the proportion being even lower in post-1992 institutions (23%).
Approximately one-third of current students intended to other countries
to work in academia, many of them obligated to do so by way of their
funding.
Satisfaction with current PhD supervisory processes
(research aim 2)
•
Overall satisfaction.
Current and recently graduated students are generally very satisfied
with their supervisors’ availability, assistance and encouragement.
•
Additional pastoral support. Some overseas students sought additional
emotional and practical support which was not always available.
• Adverse
consequences of institutional pressure to increase PhD numbers. These
included student perceptions of poor value-for-money (especially for
privately funded students); supervisors taking students outside their
areas of expertise; and supervisors taking students of inadequate
quality.
•
Additional supervisory problems. Supervisor relocations disrupted the
PhD, especially if alternative supervisors did not have the same level
of knowledge in the topic area. Significant pressure to complete within
three to four years, due to university performance indicators and
funding restrictions, adversely impacted the quality of the final thesis
and placed supervisors under stress.
• PhDs fit
for purpose.
The ability of PhD programmes to produce accounting academics who are
fit for purpose in terms of teaching was seriously questioned. The
purpose of researching in areas so far removed from teaching and of
interest/ assistance to the profession was also cause for concern.
Policy implications, including profession/regulator
concerns (research aim 3)
•
Changing demographics. In
contrast to the current student sample, a large majority of those
responding to the supervisor survey were British across both pre-1992
and post-1992 institutions (71% and 84%, respectively). A substantial
proportion of these academic staff moved from the profession several
decades earlier without a PhD qualification.
•
Dissatisfaction of current generation of academic staff. Many current
faculty doubted that they would make the same career decision in today’s
academic environment. This was due to the decreased freedom and
flexibility of an academic career, the lack of career prospects for new
lecturers, the reduced prestige associated with academia, and the severe
lack of financial rewards compared to the profession. The potential to
lose members of the current generation to academic institutions outside
the UK was also evident.
• Need for
professionally-qualified accounting academics. This need in terms of
teaching, research, and other service provision to students was strongly
advocated, yet severe structural difficulties in fulfilling this need
exist as the PhD is now seen as a pre-requisite for securing a research
and teaching contract in universities. Although some accounting and
finance academics expressed scepticism as to the value placed on the
academic function by the profession, representatives from the accounting
profession were keen to acknowledge the necessity of
professionally-qualified academics.
•
Consequences of lack of professionally-qualified accounting academics.
Representatives from the profession were aware that the inability of
institutions to recruit professionally-qualified academics had led to
the loss of course accreditations (in particular in the areas of audit
and tax) and the employment of staff on teachingonly contracts. However,
this was perhaps less of a concern to the profession than might be
expected, due to the low overall proportion of entrants with ‘relevant’
degrees.
•
Policy-relevance of academic research. All interested parties expressed
concern regarding the general lack of policy-relevance of academic
research and the increasing divergence between the accounting
profession and academia.
• Future
of the discipline.
Creating a future generation of accounting academics in the UK relies
heavily on recruiting those completing UK PhD programmes into UK
institutions. The potential, in terms of the number of students enrolled
on PhD programmes, is currently there. However, only a minority are
potential candidates for UK academia, as they are either required to (or
chose to) return to their home country. Current members of the academic
accounting community foresee a bleak future, in which the discipline
withers, due to staff shortages, the emergence of a clear demarcation
between teaching and research institutions and/or a loss of
distinctiveness by becoming subsumed within business schools.
Representatives from the profession were concerned by this prospect,
feeling that it would adversely impact upon claims to be a profession.
For some, accounting academics were predicted as a dying breed!
Conclusions and recommendations
Continued in article
Jensen Comment
Among the parts not quoted above, the complaint is repeated that in the U.K. the
ties between Ph.D. programs and the practicing profession are weaker than in
other parts of Europe. This is also a huge complaint raised in the United States
in the AAA Pathways Commission Report.
Although every time I mention the Pathways Commission Report accountics
scientists run for cover, I will repeat parts of it here from
http://www.trinity.edu/rjensen/Theory01.htm#DoctoralPrograms
Accountics is the mathematical science of values.
Charles Sprague [1887] as quoted by McMillan [1998, p. 1]
http://www.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm
"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
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."
Jensen Conclusion
It would seem that the complaints about accounting doctoral programs in the
United Kingdom and the United States have common threads, especially in
complaints about the way accounting doctoral programs and curricula have
divorced themselves from the practicing profession. As I mentioned above, if you
mention this to a group of accountics scientists they will run for cover in an
effort to preserve their pretense of being scientists in the accounting
profession, scientists who rarely replicate findings, will not publish
commentaries on their findings, and do not communicate in the social media such
as the AAA Commons. They don't give a damn about much of anything except
counting their publications that nobody in the practicing profession wants to
read.
But having a
good idea is only the start. What you have to do is make it
into a story. Some people think that all they need in order to be a writer is
inspiration. Not a bit of it! Plenty of people have good ideas, but very few of
them
actually go on and write story. That's where the hard work starts.
Phillip Pullman, "How do Writers Think of
Their Ideas?"
Big Questions From Little People, Edited by Gemma Elwin Harris, Faber & Faber,
Ltd., ISBN 978-0-16-222322-7, 2012, Page 168
Also see the video at
http://www.openculture.com/2012/11/adam_savage_host_of_mythbusters_explains_how_simple_ideas_become_great_scientific_discoveries.html
Every today that is, and that will be, Is sculptured by all that was
Bob
Schlag - January 24, 1982
Thank
you Auntie Bev for the heads up
Editing is "the lifeblood of the profession," Hutner
remarked. He emphasized that tasks like putting out new editions, compiling
anthologies, and editing journals, among other things, "matter to members of the
professoriate as much as, if not more than, writing thesis-length books," which
are otherwise the gold standard in the humanities.
"The Editor as Power Broker," by Jeffrey J. Williams, Chronicle of Higher
Education's Chronicle Review, December 17, 2012 ---
http://chronicle.com/article/The-Editor-as-Power-Broker/136259/?cid=cr&utm_source=cr&utm_medium=en
Jensen Comment
As I read this piece I kept thinking that this is not about Gordon Hutner. It's
about Tony Hopwood who founded Accounting, Organizations and Society in
1976 and was the AOS Editor until just before he died ---
http://fisher.osu.edu/departments/accounting-and-mis/the-accounting-hall-of-fame/membership-in-hall/anthony-george-hopwood/
Tony published quite a few accountics science articles, but the main
contribution of AOS was to go beyond the limits of big data and limiting
assumptions of mathematics to encompass a much more scholarly view of
accounting, organizations, and society. He was willing to publish accounting
research papers that contained no equations and statistical inference tables
Some Accounting Blogs That I Should View More Frequently
Building Business Value by Lynn Northrup -
http://www.accountingweb.com/blogs/accountingweb/building-business-value
Lynn has some good posts but they are very infrequent
Ethics Sage by Steven Mintz ---
http://www.ethicssage.typepad.com/
This is a good blog that I intend to view more frequently
FraudBytes by Mark Zimbelman ---
http://fraudbytes.blogspot.com/
Mark covers some the same fraud modules that I cover, but he goes into more
types of fraud other than accounting, finance, and business fraud
re:TheAuditors by Francine McKenna---
http://retheauditors.com/
Francine once told me she never writes anything nice about CPA firms because
she figures there are many other sites that have something nice to say about
accounting and auditing firms. I used to visit her re:TheAuditors daily
until her postings became so infrequent. In part this is probably due to the
column she now writes frequently for Forbes. Her column is mostly a
muckraking column about accounting and auditing firms.
Jim Peterson's re:Business
---
http://www.jamesrpeterson.com/home/
Jim is a liberal lawyer who teaches auditing and usually blogs progressive
modules that are sometimes cleverly written with humanities references.
Jim's blog is mostly a muckraking site but with a bit more of an academic
flavor than Francine's blog.
Canada's Jerry Trites eBusiness Blog
---
http://trites-e-business.blogspot.com/
Canada's Jerry Trites IS Assurance Blog ---
http://uwcisa-assurance.blogspot.com/
Jerry is a good friend with infrequent and highly specialized postings.
Jerry started blogging under the name Zorba and has been blogging
persistently for many years.
Richard
Torian's Managerial Accounting Information Center ---
http://www.informationforaccountants.com/
This is more of a resources database for those teaching and doing research
in managerial and cost accounting
David Albrecht's Summa Blog ---
http://profalbrecht.wordpress.com/
David is an accounting teacher who bubbles with humor and enthusiasm for
social networking. His blogs are often clever and informative. However, they
are not especially frequent.
John Stancil's Tax Blog ---
http://www.thetaxdocspot.com/
John posts infrequently, but his posts are worthwhile in the field of
taxation
Zane Swanson's Askerif XBRL Blog ---
http://blog.askaref.com/
Zane has great intentions for this but posts very infrequently
Jensen Comment
There are many more accounting professor blogs that I visit much more
frequently, at least weekly and sometimes daily.
These are listed at
http://www.trinity.edu/rjensen/ListservRoles.htm
Also see David Albrecht's listing of bloggers ---
http://profalbrecht.wordpress.com/links/
I like bloggers who let me know that they've posted something that might be
of interest to me and the AECM. These include Tom Selling (The Accounting Onion)
and Andrew Priest (AccountingEducation.com). I also get email notices from
commercial bloggers like SmartPros, AccountingWeb. and the Big Four.
There are some tremendous Websites where blogging is almost incidental. My
best example here is Jim Martin's tremendous MAAW open-sharing Website ---
http://maaw.info/
Please let me know if there are important
accounting blogger sites that I've overlooked at
http://www.trinity.edu/rjensen/ListservRoles.htm
Of course there are nearly 50 other sites that I visit almost daily, but
most of these are not accounting professor sites.
From PwC
"Setting the standard -- What you need to know about the FASB's and IASB's
standard setting activities" -- December 2012" ---
Click Here
http://www.pwc.com/us/en/cfodirect/publications/setting-the-standard/setting-the-standard-fasb-and-iasb-standard-setting-activities-december-2012.jhtml?display=/us/en/cfodirect/publications/setting-the-standard
"PCAOB Delivers Bad Inspection News to 3 More Firms, by Tammy
Whitehouse, Compliance Week, December 26, 2012 ---
http://www.complianceweek.com/pcaob-delivers-bad-inspection-news-to-3-more-firms/article/273958/
Three major audit firms received less than glowing
inspection reports from the Public Company Accounting Oversight Board,
continuing a theme of high failure rates that the audit regulator is
hammering firms to fix.
The latest reports for
Deloitte & Touche,
Ernst & Young, and
Grant Thornton say that in four cases concerns
raised by inspectors ultimately led to restatements, two for Deloitte and
one each for E&Y and Grant Thornton. Deloitte showed a slight improvement in
its failure rate from 2010 to 2011, but the failure rates rose for both E&Y
and Grant Thornton, according to the reports.
Inspectors dug into 56 audit reports at E&Y and
found problems with 20 of them for a failure rate of 36 percent. That's a
big increase over the 21 percent rate of problem audits in the firm's
2010 inspection report. Grant Thornton, likewise,
saw a jump in the rate of problem audits from
37 percent in 2010 to
43 percent in 2011. Deloitte, however, showed some improvement from a
problem rate of
45 percent in 2010 to 42 percent in 2011.
None of the three firms challenged the PCAOB
findings in their letters to the PCAOB that are attached to their inspection
reports. Each firm simply acknowledged the PCAOB's findings, indicated they
complied with auditing and documentation standards in making adjustments
called for by inspectors, and said they are working internally to improve
audit quality.
The PCAOB earlier published its latest inspection
findings for
PwC and
KPMG. While KPMG's failure rate held fairly steady
around 22 percent, the rate jumped for PwC, from 37 percent in 2010 to 41
percent in 2011. The board also offered
no improvement in its findings at McGladrey.
The most commonly cited audit problems for all the
major firms center on many of the same areas that have been problematic for
several years -- issues around allowance for loan losses, impairments, fail
value, revenue recognition, and problems with internal control over
financial reporting. In its letter to the board, PwC challenged the PCAOB to
step up progress on some auditing standards that would give auditors more
concrete guidance on how to handle some of the toughest areas of auditing
that are most often cited by inspectors.
PCAOB Member Jeanette Franzel
recently warned the board is not seeing the
improvement in its 2011 inspection cycle that it hoped for after 2010
inspections were complete. The board recently published a
summary report of the problems it sees most
frequently among the major firms in the audit of internal control over
financial reporting, and it is developing another report that will summarize
its greatest concerns with respect to financial statement audits. The board
also is working on an additional report to summarize the themes it has
identified in audits performed by smaller firms, or those that audit fewer
than 100 issuers.
Jensen Comment
The big auditing firms seem to not much care anymore about their bad PCAOB
inspection reports. This could possibly be due to the client market not caring
about that the PCAOB says about large audit firms. Or it could be that all the
big auditing firms have such bad inspection reports that the none of the firms
rise to the top due to great PCAOB inspection reports.
December 27, 2012 reply from Steve Kachelmeir
Bob, as always, I thank you for calling these
developments to our attention. This is the primary reason I tune into AECM.
I also tend to agree with your interpretation of this particular document.
Among other reasons, one has to take the PCAOB inspection "failure rate"
with a big grain of salt, give that by the PCAOB's own admission, the sample
of audits selected for inspection is anything but random. Rather, the PCAOB
picks on audits with the toughest issues, for which the ability to
second-guess the auditor is the highest.
Steve
PCAOB Inspection Report Database ---
http://pcaobus.org/inspections/reports/pages/default.aspx
The PCAOB That Stole Christmas: Lumps of Coal Stocking Stuffers
"The PCAOB Has Conveniently Released 2011 Inspection Reports For Deloitte,
Grant Thornton and Ernst & Young the Friday Before Christmas," by Adrenne
Gonzalez, December 21, 2012 ---
http://goingconcern.com/post/pcaob-has-conveniently-released-2011-inspection-reports-deloitte-grant-thornton-and-ernst-young
Bob Jensen's threads on audit firm professionalism and independence ---
http://www.trinity.edu/rjensen/Fraud001c.htm
"Advantages of Low Capital Gains Tax Rates," by Chris Edwards, Cato
Institute, December 2012 ---
http://www.cato.org/sites/cato.org/files/pubs/pdf/tbb-066.pdf
. . .
Eleven OECD countries do not impose taxes on
longterm capital gains, nor do some jurisdictions outside of the OECD, such
as Hong Kong, Malaysia, and Thailand.4 The nontaxation of long-term gains
used to be the norm in many countries. Britain did not tax capital gains
until 1965 because policymakers thought “that capital gains were not income
… hence were not subject to taxation.”5 Capital gains taxation was also
imposed relatively recently in Canada (1972), Ireland (1975), and Australia
(1985). And only in the last few years have long-term gains been taxed in
Austria, Germany, and Portugal.
. . .
Inflation
If an individual buys a stock at $10 and sells it years later for $12, much
of the $2 in capital gain may represent inflation, not a real return. In an
economy with inflation, capital gains taxes can substantially reduce
returns, and even turn them negative. And uncertainty about future inflation
makes returns from capital gains more risky. Thus, inflation and capital
gains taxes together suppress investment, particularly in growth companies.
This problem is widely appreciated, and one solution is to index capital
gains for inflation. For investments in corporate equities, indexing would
be a straightforward process of adjusting a stock’s purchase price by a
measure such as the consumer price index, which was the approach used by
Australia between 1985 and 1999. However, most countries do not index
capital gains, but instead roughly compensate for inflation by reducing the
statutory rate on gains or providing an exclusion. In 1999, for example,
Australia abandoned inflation indexing in favor of a 50 percent exclusion
for gains.
. . .
Table 1. Top
Individual Capital Gains Tax Rates, 2012
Australia
22.5%
Italy
20.0%
Austria
25.0%
Japan
10.0%
Belgium
0.0%
Luxembourg
0.0%
Britain
28.0%
Mexico
0.0%
Canada
22.5%
Netherlands
0.0%
Chile
18.5%
New Zealan
0.0%
Czech Rep.
0.0%
Norway
28.0%
Denmark
42.0%
Poland
19.0%
Estonia
21.0%
Portugal
25.0%
Finland
32.0%
Slovakia
19.0%
France
32.5%
Slovenia
0.0%
Germany
25.0%
South Korea
0.0%
Greece
0.0%
Spain
27.0%
Hungary
16.0%
Sweden
30.0%
Iceland
20.0%
Switzerland
0.0%
Ireland
30.0%
Turkey
0.0%
Israel
25.0%
United States
19.1%
OECD Average 16.4%
. . .
Conclusions
Economists since Irving Fisher have called for ending capital gains
taxation. In the 1980s, economist Bruce Bartlett looked at the positive
effects of prior capital gains tax cuts and called for abolishing the tax
altogether.22 In the 1990s, Federal Reserve chairman Alan Greenspan
testified that the tax’s “major impact is to impede entrepreneurial activity
and capital formation. While all taxes impede economic growth to one extent
or another, the capital gains tax is at the far end of the scale. I argued
that the appropriate capital gains tax rate was zero.”23 Unfortunately,
policymakers are going in the opposite direction with capital gains tax
increases in 2013. Class warfare rhetoric has sadly overwhelmed the lessons
learned here and abroad about the benefits of low capital gains taxes.
Short-term expediency has replaced an interest in tax policies that promote
long-run growth. Hopefully, policymakers will reconsider capital gains tax
policy in coming months. They should reverse course and cut the capital
gains tax rate again in order to boost innovation, spur entrepreneurship,
and help America regain its competitive edge.
Jensen Comment
One of the most puzzling outcomes in Table 1 is how capital gains rates vary
within Europe from 0.0% in Belgium and The Netherlands to much higher rates in
some other European nations like neighboring France having a 32.0% rate.
The welfare states having generous national health and education programs are
also somewhat confusing. New Zealand has a 0.0% rate in comparison with
Denmark's huge 42.0% rate.
Welfare States Don't Come Cheap
"U.S. Taxes and Government Benefits in an International Context," by
Bruce Bartlett, TaxProf Blog, December 26, 2012 ---
http://taxprof.typepad.com/files/137tn1429.pdf
Bruce Bartlett reviews new international
data on taxes and healthcare spending as a share of GDP in OECD
countries and suggests that Americans' antipathy to taxes may be a
function of the modest benefits they receive from government in contrast
to those in high-tax countries.
Table 1. Total Tax Revenue, 2010
Country Percent of GDP
Denmark 47.6
Sweden 45.5
Belgium 43.5
Italy 42.9
Norway 42.9
France 42.9
Finland 42.5
Austria 42.0
Netherlands 38.7
Hungary 37.9
Slovenia 37.5
Luxembourg 37.1
Germany 36.1
Iceland 35.2
United Kingdom 34.9
Czech Republic 34.2
Estonia 34.2
OECD average 33.8
Israel 32.4
Spain 32.3
Poland 31.7
New Zealand 31.5
Portugal 31.3
Canada 31.0
Greece 30.9
Slovakia 28.3
Switzerland 28.1
Ireland 27.6
Japan 27.6
Turkey 25.7
Australia 25.6
Korea 25.1
United States 24.8
Chile 19.6
Mexico 18.8
Source
: OECD.
Jensen Comment
Comparing nations on this index is difficult, particularly due to how health
care is provided.
Nations like Denmark that are high in egalitarian living have difficulty
motivating workers to work overtime and invest savings in risky ventures. This
is partly the reason all the highest ranked nations above reduced top tax rates
from what they were in the 1970s ---
http://www.cs.trinity.edu/~rjensen/temp/SunsetHillHouse/SunsetHillHouse.htm
From Grumpy Old Tony Catenach
"H-P Throws Its Accountants Under the Bus! But Why?" by Anthony H.
Catenach, Jr., Grumpy Old Accountant Blog, December 18, 2012 ---
http://grumpyoldaccountants.com/blog/2012/12/19/h-p-throws-its-accountants-under-the-bus-but-why
Well, with grumpy Ed Ketz’s retirement from blogging,
here is my first attempt to carry on his vision solo. I really preferred
being part of the dynamic duo that fought for financial reporting
transparency.
Recently, the business press has
flooded the markets with countless stories of H-P’s striking write-off of
$8.8 billion in assets related to its 2011 acquisition of British software
company Autonomy. What’s gotten my attention, and that of many “bean
counters,” is that over $5 billion of this “impairment charge” was
attributed to questionable accounting practices (i.e.,
irregularities) that were not detected by three of the major international
auditing firms, as well as a number of “respected” investment advisors.
But what really makes my blood boil is the market’s cavalier attitude toward
this “big bath” loss, which may well be one of the most cleverly
executed earnings management strategies in recent financial history.
A review of H-P’s 2011 10-K
(notes 6 and 7) reveals that the Company recorded a total of $11.2 billion
of intangible assets ($6.6 billion of goodwill and $4.6 billion of developed
and core technology and patents). The sizeable goodwill amount indicates
that H-P paid more than “market value” for the $4.6 billion in technology
assets that it acquired from Autonomy, as goodwill is nothing more than an
excess purchase premium. Given that goodwill represents almost 59 percent
of the purchase price, it seems reasonable to assume that H-P spent some
time tying down the numbers needed to come up with a purchase price. In
fact, according to Jim Petersen at Re:Balance, H-P’s
acquisition team included some 300 financial and legal experts from KPMG,
Perella Weinberg, Barclays, and a number of law firms. So, one might
reasonably conclude that H-P knew what is what it was paying for, right?
But on November 20, 2012, the
Company wrote off $8.8 billion (almost 79 percent) of the intangible assets
that it had acquired from Autonomy on October 3, 2011! So, what happened?
Well, if you believe
Meg Whitman, Autonomy made
misrepresentations that created “financial illusions” upon which H-P relied
in pricing the deal. But should we be surprised that a seller
would paint the best possible picture of the asset
being sold? Isn’t that what seller’s do…isn’t that what we call “puffing?”
And isn’t that why your merger
team does due diligence? So, what does Meg do? She blames Deloitte,
Autonomy’s auditor, and KPMG, an H-P due diligence team member, for not
detecting the Autonomy accounting irregularities that allegedly caused over
half of the recent write-off. According to
Peter Svensson of the AP, Meg stated:
"What I will say is that the
board relied on audited financials. Audited by Deloitte—not 'Brand X'
accounting firm, but Deloitte. During our very extensive due diligence
process, we hired KPMG to audit Deloitte. And neither of them saw what we
now see after someone came forward to point us in the right direction."
Yes, she threw her accountants
under the bus! And since she’s playing the blame game, why not include her
own H-P auditors, Ernst & Young, who probably should have spotted the
accounting irregularities at Autonomy, if they were material?
Now those of you that have
followed the Grumpy Old Accountants in the past know that we are
not Big Four softies. In fact, the grumpies have been downright tough on
the major accounting firms during 2012 by writing blogs with titles like
Arrogance or Ignorance: Why the Big Four Don’t Do Better Audits
and
The Auditors Expectations Gap…Not Again!
But in this case, I am inclined to give the big accounting firms a pass.
Why you ask?
Well, first of all, the three
Autonomy “accounting irregularities” to which Meg takes exception are NOT
exactly unexpected or unknown financial reporting issues in the technology
space.
Andrew Peaple
of the Wall Street Journal does an excellent job summarizing these as:
- Accelerated revenue recognition in
software and service sales. This is the classic multiple
deliverables accounting issue. See
The Beauty of Internet Company Accounting.
- Recording discounts (losses) on hardware
sales as marketing expenses rather than cost of sales. Autonomy
bought hardware and sold it at discounts to customers as part of
software transactions. By recording the discounts as marketing expenses
rather than as a cost of sales, Autonomy inflated gross profit. Net
income (loss) was NOT affected by this practice.
- Accelerated revenue recognition by
recording revenue from sales via agents when those agents had not yet
agreed to an onward sale. This particular issue is complicated by
the vagaries of IFRS and its flexibility vis-a-vis US GAAP.
To blame the accountants in this case is simply
ludicrous because these are precisely the type of reporting issues that
experienced big accounting firms routinely look for in technology audits.
To imagine that Deloitte missed these red flags at Autonomy is believable
given the firms
recently troubles. However, to believe
that both KPMG and Ernst & Young AND Deloitte also failed to uncover the
alleged “accounting irregularities” is preposterous. And don’t lend any
credence to PwC’s forensic findings as they’re just doing what any
consultant does…give the client what it wants. In this case, if you want
us to find accounting problems, we will. However, if you must find
fault with an accountant, try the accounting standard-setters who crafted
the ambiguous and judgmental revenue recognition rules in question…but not
the auditors.
Continued in article
Bob Jensen's threads on audit firm professionalism and independence ---
http://www.trinity.edu/rjensen/Fraud001c.htm
The Worst CEOs in 2012 ---
http://www.businessweek.com/articles/2012-12-13/the-worst-ceos-of-2012
Ross School (University of Michigan) Nearly Erases MBA Gender Pay Gap
-(for graduates) ---
http://www.businessweek.com/articles/2012-12-14/ross-school-nearly-erases-mba-gender-pay-gap
At the University of Texas women MBAs beat out the men ---
http://www.businessweek.com/articles/2012-12-12/mccombs-women-beat-mba-gender-salary-gap
Jensen Comment
This does not mean that there were no differences between majors. For example,
women finance graduates earned about $6,500 less than men majoring in finance,
but they may have been paid more than women in management and marketing.
I do not know that this is the case, but as in the case of comparing inequality
between nations, it's important to note that the degree of equality is not
nearly as important as the level of poverty. For example, the Gini Coefficients
of equality are about the same for Canada and North Korea, but the absolute
differences in poverty are immense.
Accounting firms probably do not hire many MBA graduates from Michigan since
Michigan has a separate Masters of Accounting Program ---
http://www.bus.umich.edu/Admissions/Macc/Whyross.htm
It would surprise me if there were any gender differences in salary offers in
this MAC program, although there may be some racial differences where top
minority graduates have higher offers than whites.
The one question about all this that I would raise is job location. At
Trinity University when I was still teaching we sometimes placed a single
graduate from our very small MS in Accounting graduating class at a higher
salary in San Francisco or some other city having very high living costs.
The ANOVA statistician in me questions gender comparisons across geographic
cells having greatly varying living costs. For example the MBA woman landing a
consulting job for $140,000 in San Francisco or Geneva really cannot compare her
salary with the woman who gets $140,000 in Detroit. In Detroit some relatively
nice houses are being given away free to people who will occupy them full time.
The exact same house in San Francisco might sell for $845,000. So much for
declaring that both women are being paid the same.
It's also difficult to compare salary offers that are variable. For example,
it's common to offer base salary plus commissions for majors in marketing and
finance for stock brokers and other sales jobs.
In the 1990s it would've also been difficult to compare some salary offers
for graduates in finance and computer science. For example, I know about a
Stanford Computer Science graduate who was paid minimum wage plus $1 million in
stock options. I think this type of hiring declined when the 1990s technology
bubble burst and FAS 126R went into effect. FAS 123R pretty much killed stock
option compensation.
Bob Jensen's threads on gender salary differences ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm#GenderSalaryDifferences
At the University of Texas MBA women graduates edged out men in terms of
compensation offers
At the University of Michigan female and male MBA graduates average about the
same compensation offers
Why are women MBA graduates from Stanford not faring as well as their male
counterparts?
"Why Stanford MBA Men Make So Much More Than Women?" by Alison Damast,
Bloomberg Business Week, December 21, 2012 ---
http://www.businessweek.com/articles/2012-12-21/why-stanford-mba-men-make-so-much-more-than-women
The gender pay gap at Stanford’s
Graduate School of Business has female graduates
earning 79˘ on the male dollar, the widest discrepancy in earnings between
men and women at any of the top 30 business schools, according to
new research from Bloomberg Businessweek.
That disparity may seem large, but it isn’t
startling to many of the women in the Stanford Class of 2012, who say the
figures largely indicate the wide range of career choices they are making.
Take Shan Riku, who worked as a consultant at
McKinsey before business school and is now working as head of new business
development at Cookpad, Japan’s largest recipe-sharing website. Riku admits
she took a pay cut in accepting the position but says she was more
interested in taking on a role that would challenge her. It also didn’t hurt
that Cookpad encourages families to cook and spend time together. “Many
women at Stanford tend to make choices that are a little bit more focused on
‘how do I want to balance my life,’ rather than ‘how can I earn a lot of
money,’” she says.
Pulin Sanghvi, director of the career management
center at Stanford’s business school, says most of the pay gap at his school
can be “attributed to industry choice.” According to Sanghvi, women and men
at Stanford who go into the consulting or Internet technology sectors tend
to have average starting salaries that are close or equivalent in size.
Those 2012 MBA graduates who headed into the consulting field received a
mean base salary of $130,636, while others who went into the technology
sector earned $118,050, according to the business school’s most
recent employment report.
The wage gap comes about partly because fewer women
are heading into some of the more lucrative finance fields. For example, 16
percent of male students took jobs in private equity and leveraged-buyout
firms, compared with just 5 percent of women, Sanghvi says. The top four
industries that Stanford women went into in 2012 were information
technology, management consulting, consumer products, and venture capital.
“I think a part of the story of this generation of
students is that they have a much larger playing field in terms of career
choices,” Sanghvi says. “I don’t think the level of income in a job is
necessarily the primary motivator for why someone makes an empowered choice
to pursue a career.”
That’s not to say that women at the school aren’t
thinking long and hard about their salary offers and how to best negotiate
them.
Continued in article
Jensen Comment
This says very little about graduates wanting to become CPAs since Stanford does
not offer a career track for taking the CPA examination. The few graduates who
do seek to become auditors or tax accountants most likely were CPAs before
entering Stanford's MBA program. After graduating they most likely will no
longer seek to work for CPA firms as auditors and tax accountants.
Bob Jensen's threads on the gender pay gap in academe ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm#GenderSalaryDifferences
From the CFO Journal on December 18, 2012
Going-concern warnings decline.
The ranks of companies getting new warnings from their auditors about their
ability to continue functioning as a going concern have been thinning since
2007, and hit a 12-year low this year. Just 545 companies that didn’t
receive going-concern warnings the previous year got one on their 2011
annual reports, down from a peak of 1,177 in 2007, according to research
firm Audit Analytics. Companies have “gotten more resilient after the
recession,” Don Whalen, the firm’s director of research,
tells Emily Chasan.
He added that many struggling companies entered
bankruptcy, merged or were taken private during the financial crisis.
Disclosures about Risks and Uncertainties and the Liquidation Basis of
Accounting (Formerly Going Concern) ---
http://www.fasb.org/jsp/FASB/FASBContent_C/ProjectUpdatePage&cid=900000011115
Project Update
The Liquidation Basis of
Accounting and Going Concern (Formerly Disclosures about Risks and
Uncertainties)
Last updated on November 6,
2012. Please refer to the
Current Technical Plan for information about the expected release dates
of exposure documents and final standards.
(Updated sections are indicated with an asterisk *)
The staff has prepared this
summary of Board decisions for information purposes only. Those Board
decisions are tentative and do not change current accounting. Official
positions of the FASB are determined only after extensive due process and
deliberations.
Project Objective
*Due
Process Documents
Decisions Reached at Last Meeting
Summary of Decisions Reached to Date
Next Steps
Board/Other Public Meeting Dates
Background Information
Contact Information
Project Objective
Phase I:
The objective of this phase of the project is to provide guidance about how
and when an entity should apply the liquidation basis of accounting.
Phase II: The objective of this
phase of the project is to provide guidance about (a) whether and how an
entity should assess its ability to continue as a going concern and (b) if
so, the nature and extent of any related disclosure requirements.
*Due
Process Documents
Phase I: The Liquidation
Basis of Accounting
On July 2, 2012, the FASB issued a proposed Accounting Standards Update,
Presentation of Financial Statements (Topic 205): The Liquidation Basis of
Accounting, for a 90-day comment period. The comment period ended on
October 1, 2012.
Exposure Draft
Comment Letters
Comment Letter Summary
Phase II: Going
Concern
On October 9, 2008, the Board issued an Exposure Draft, Going Concern,
for a 60-day comment period. The comment period ended on December 8, 2008.
Exposure Draft
Comment Letters
Comment Letter Summary
Decisions Reached at Last
Meeting (May 2, 2012)
The Board also decided that it will
revisit the question of whether management should be required to assess
whether there is doubt about an entity’s ability to continue as a going
concern in light of its recent decision not to pursue going-concern-type
disclosures in the project about liquidity and interest rate risk
disclosures. The Board directed the staff to consider this question in the
context of a separate phase of this project.
The effect of the Board’s decision is that the project has been divided into
two separate and distinct phases.
For decisions related to The Liquidation Basis of Accounting, see minutes
below.
Summary of Decisions Reached to
Date
The Board has reached the following
decisions based on discussions surrounding issues raised in comment letters
on the Exposure Draft, in other outreach meetings, and in redeliberations.
Phase I: The Liquidation Basis of Accounting
See proposed Accounting Standards Update above.
Phase II: Going Concern
Project Objective
During initial deliberations, the Board decided to develop guidance that
would require an entity’s management to evaluate the entity’s ability to
continue as a going concern and require disclosures when either financial
statements are not prepared on a going concern basis or there is substantial
doubt about the entity’s ability to continue as a going concern.
In October 2008, the Board issued an Exposure Draft, Going Concern.
The Board received 29 comment letters in response to that Exposure Draft,
and respondents’ comments were considered by the Board during
redeliberations. The Board decided that the following matters warranted
further deliberations:
- Reconsideration of defining
and incorporating the terms going concern and substantial
doubt into U.S. GAAP
- The time horizon over which
management would evaluate the entity’s ability to meet its obligations
- The type of information that
management should consider in evaluating the entity’s ability to meet
its obligations
- The effect of subsequent
events on management’s evaluation of the entity’s ability to meet its
obligations
- Whether to provide guidance on
the liquidation basis of accounting.
The Board then modified the objective
of the project to require an entity to provide earlier disclosures (early
warning disclosures) as it became increasingly likely that the entity would
be unable to meet its obligations as they become due. This objective
replaced the project’s initial objective of incorporating AU 341 into U.S.
GAAP because the Board came to believe that users of financial statements
would benefit more from ongoing and incremental disclosures about risk than
they would if such disclosures were required only when management concluded
that there was substantial doubt about the entity’s ability to continue as a
going concern. Because of comments from stakeholders that the guidance about
when and how an entity should apply the liquidation basis of accounting was
unclear, the Board also added a separate objective to provide guidance
related to that topic.
Before the Board commenced its redeliberations on this project, it added a
separate project to its agenda (as part of the accounting for financial
instruments project) about improving disclosures about liquidity and
interest rate risk. During the outreach phase of the project on going
concern and the liquidation basis of accounting, many users of financial
statements commented that sufficient liquidity is the most critical factor
when assessing an entity’s ability to continue as a going concern. Given the
similarities between the early warning disclosures in this project and the
disclosures proposed in the separate project about liquidity and interest
rate risk, the Board decided that those disclosures were unnecessary and
that they would no longer be an objective of this project.
The Board then decided not to pursue going concern-type disclosures in the
separate project about liquidity and interest rate risk disclosures. In
light of that decision, the Board decided that to revisit in this project
the question of whether management should be required to assess whether
there is doubt about an entity’s ability to continue as a going concern.
Superseded Tentative Decisions
Early Warning Disclosures
The Board previously decided to require certain early warning
disclosures when management, applying commercially reasonable business
judgment, is aware of conditions and events that indicate, based on
current facts and circumstances, that it is reasonably foreseeable that
an entity may not be able to meet its obligations as they become due
without substantial disposition of assets outside the ordinary course of
business, restructuring of debt, issuance of equity, externally or
internally forced revisions of its operations, or similar actions.
Subsequently, the Board decided not to pursue these disclosures as part
of this project because of questions about their incremental value over
and above the liquidity risk disclosures that are being proposed in the
financial instrument project.
Subsequent Events
If management were required to make a going concern assessment, the
Board decided that management would update its assessment if a
subsequent event that significantly affects the assessment occurs before
the financial statements are issued or are available to be issued. The
time horizon for the reassessment would be extended to include the
foreseeable future beginning as of the date of the subsequent event. The
determination of whether the related disclosures are required would be
based on that updated assessment. The entity would still be required to
apply the guidance in Topic 855, Subsequent Events, for recognition and
disclosure of specified subsequent events.
Time Horizon
If management were required to make a going concern assessment, the
Board decided that management should take into account available
information about the foreseeable future, which is generally, but not
limited to, 12 months from the end of the reporting period. Certain
events that are expected to occur or are reasonably foreseeable beyond
12 months that would materially affect the assessment are considered
part of the foreseeable future. The time frame beyond 12 months is
limited to a practical amount of time thereafter in which significant
events or conditions that may affect the evaluation can be identified.
The Board decided to use this time horizon because it avoids the
inherent problems that a bright-line time horizon would create and
requires management to consider events or conditions occurring beyond
the one-year time horizon that are significant and most likely would
have to be disclosed. The Board does not intend for the assessment of
the period beyond a year to be open ended or an indefinite period.
Next Steps
The Board will consider feedback
received on the proposed Update during redeliberations on the liquidation
basis of accounting (Phase I). The Board directed the staff to prepare
materials for discussion at a future Board meeting about (a) whether and how
an entity should conduct a going concern assessment and (b) if so, the
nature and extent of any related disclosure requirements.
Board/Other Public Meeting Dates
The Board meeting minutes are
provided for the information and convenience of constituents who want to
follow the Board’s deliberations. All of the conclusions reported are
tentative and may be changed at future Board meetings. Decisions become
final only after a formal written ballot to issue a final standard.
The following are links to the
minutes for each meeting.
May 2, 2012 |
Board Meeting—Liquidation Basis of Accounting
and Project Objective |
February 15, 2012 |
Board Meeting—Liquidation Basis of Accounting |
January 11, 2012 |
Board Meeting—Project Scope and Objective |
October 26, 2011 |
Board Meeting—Project Scope and Objectives |
December 1, 2010 |
Board Meeting—Subsequent Events and Limited
Life Entities |
November 10, 2010 |
Board Meeting—Issues Raised by External
Reviewers |
March 31, 2010 |
Board Meeting—Disclosure Threshold and
Liquidation Basis |
January 13, 2010 |
Board Meeting—Project Scope |
June 3, 2009 |
Board Meeting—Analysis of Additional Constituent
Outreach |
February 18, 2009 |
Board Meeting—Comment Letter Discussion |
August 27, 2008 |
Board Meeting—Codification Discussion |
September 19, 2007 |
Board Meeting—Removal from Board agenda |
May 30, 2007 |
Board Meeting—Add Project to Board agenda |
Background Information
The U.S. guidance for when and how
to apply the liquidation basis of accounting is located in the AICPA
Statement on Auditing Standards No. 1, Codification of Auditing
Standards and Procedures, Section 9508, “Reports on Audited Financial
Statements: Auditing Interpretations of Section 508,” and states that a
liquidation basis of accounting may be considered GAAP for entities in
liquidation or for which liquidation appears imminent. The objective of the
liquidation basis of accounting is to provide financial statement users with
relevant information about an entity’s resources and obligations by
measuring and presenting assets and liabilities in the entity’s financial
statements at the estimated amount of cash the entity expects to collect or
the amount of cash the entity expects to pay to settle its obligations
during the course of liquidation. Some constituents have expressed a need
for accounting literature in this area because there currently may be
diversity in practice.
Originally, the Board undertook this project to incorporate AICPA Statement
on Auditing Standards No. 1, Codification of Auditing Standards and
Procedures, Section 341, “The Auditor’s Consideration of an Entity’s
Ability to Continue as a Going Concern,” (AU Section 341) into GAAP. AU
Section 341 states that the auditor has a responsibility to evaluate whether
there is substantial doubt about the entity’s ability to continue as a going
concern for a reasonable period of time, not to exceed one year beyond the
date of the financial statements being audited.
Contact Information
Brian North
Project Manager
bnorth@fasb.org
Daghan Or
Practice Fellow
dor@fasb.org
Kathryn Cantlon
Postgraduate Technical Assistant
kscantlon@fasb.org
Jensen Comment
The biggest embarrassment for audit firms is their failure to provide going
concern warnings for over a thousand banks that failed in 2008.
Where Were the Auditors? ---
http://www.trinity.edu/rjensen/2008Bailout.htm#AuditFirms
Boehner's Plan B was killed in the House of Representatives on December 20,
2012
Many portions of this plan (including the million dollar threshold) were
originally proposed by House Minority Leader Nancy Pelosi.
From the TaxProf (Paul Caron) Blog on December 21, 2012
The Competing Obama and Boehner Tax Plans
- Center on Budget and Policy Priorities (Robert Greenstein),
A Bonanza for Scrooge, But a Lump of Coal for Tiny Tim
- Center on Budget and Policy Priorities (James Horney),
Program Cuts Far Exceed Revenue Increases Under Latest Obama Offer
- Center on Budget and Policy Priorities (Chye-Ching Huang),
Two Things You Probably Don't Know About "Plan B"
- Center on Budget and Policy Priorities (Chuck Marr),
Plan B's Harshness Belies GOP Rhetoric on Poverty and Opportunity
- Citizens for Tax Justice,
Comparing Speaker Boehner’s “Plan B” Tax Proposal and President Obama’s
Latest Proposal
- Don't Mess With Taxes (Kay Bell),
Boehner's Plan B, Hated by Everyone
- Forbes (Janet Novack),
A Closer Look at Boehner's Plan B: Tax Hikes for Parents and Workers
- Forbes (Robert Wood),
Plan B: Who Wants To Be A Millionaire?
- Tax Foundation (Stephen J. Entin & William McBride),
The Impact of Speaker Boehner's Millionaire Tax
- Tax Vox Blog (Howard Gleckman),
Should Working Class Families Pay Higher Tax so High Income People Can Pay
Less?
"Brother of Suspected Newtown Shooter Is Ernst & Young Employee," by
Caleb Newquist, Going Concern, December 14, 2012 ---
http://goingconcern.com/post/reports-brother-suspected-newtown-shooter-ernst-young-employee
Clarified Auditing Standards and Risk-Based Auditing
December 24, 2012 message from Ken Yaotsung Chen
Hi, All,
Merry Christmas and Happy New Year!
Let me briefly describe some background
information, and then my humble opinion.
I started to teach ISA auditing since summer 2011,
because I was invited to teach an intensive auditing course in the
conversion program (funded by one of the Big 4) in H.K., which fully adopts
ISAs (see Basis of ISA Adoption by Jurisdiction (2010)). Before that, I use
U.S. textbook or follows GAAS to teach Auditing, and touched only a little
bit ISAs in class, and always hesitate to teach Auditing by totally using
ISAs.
In Taiwan we started to adopt ISAs several years
ago, and IFRS adoption for listed companies will go into effect on Jan.1,
2013. Therefore, I decided to teach ISA auditing starting Fall semester
2011, after I returned from H.K. I am so lucky that I can get help from my
friend (colleague when I worked at a cpa firm more than 20 years ago) who is
an ISA expert in one of the Big 4 in Taiwan, but I still have to spend time
reading ISAs in order to incorporate them into the lectures.
Generally, there are 6 sections of the Clarified
ISAs (200-General Principles and Responsibilities, 300~499-Risk Assessment
and Response to Assessed Risk, 500-Audit Evidence, 600-Using the Work of
Others, 700-Audit Conclusions and Reporting, 800-Special Considerations, not
including 900-Special Considerations in the United States).
I use ISA instead of AU C section, although it
should be the same.
The ISA 200 is the most important one to read,
because it covers the basic concepts that link to other ISAs.
Since the Clarified ISAs is a risk-based auditing
standard, I think the key ISAs (AU_C section) are ISA315, and ISA330 (AU_C
315, and 330 as in SAS No. 122) for identifying, assessing and responding
risk of material misstatements. For auditors to perform audit procedures to
respond assessed risk of material misstatement, the concept of ISA 500 (AU_C
500 as in SAS No. 122, sufficient and appropriate audit evidence) is also
important, which also links to ISA 330.
The materiality concept is also important, as in
planning and performing audit procedures during the audit. The clarified
ISAs discussed it in ISA 320 and ISA450, which are also important.
For audit conclusion and report, ISA 700,
705,706,710, and 720, are also important. However, we should note that IAASB
plan to revise the future auditor report to provide useful additional
information and increase the relevance and value of the audit report.
To better focus on the clarified standards (related
to audit process), my humble opinion is to read at least ISA 200, 315, 330,
320, 450, 500, 700, 705, 706, 710, and 720, although it is even better to
read the whole set of clarified standards.
Best Regards,
-- Ken Y. Chen
Professor of Accounting Department of Accounting
National Taiwan University
85 Sec. 4, Roosevelt Road,
Taipei, 10617
Phone: 886-2-3366-9780
Email: kenchen@ntu.edu.tw
December 25, 2012 reply from Bob Jensen
Hi Professor Chen,
It is terrific to have a new voice on the AECM, and I thank you for such
a value-added message.
The one thing I worry about is the that "risk-based" standards become
excuses for cost cutting by audit firms. In particular, the area where audit
firms like to cut costs is in the area of detail testing. The most notorious
risk-based auditing firm was Andersen that traded off detail testing for
analytical review risk-based auditing of Enron, Worldcom, and all the other
clients that got the worst audits in history before Andersen imploded ---
http://www.trinity.edu/rjensen/FraudEnron.htm
Arguably the world's worst audits in the history of large international
CPA firms were Andersen's audits of Worldcom. It's rumored that the there
was no detail testing in the Purchasing Department of Worldcom for over
three years. Other large CPA firms were falling into the same cost-cutting
ploys.
PricewaterhouseCoopers also fell prone to faulty risk assessments. In July,
the SEC forced Tyco, the industrial conglomerate, to restate its profits,
which it inflated by $1.15 billion, pretax, from 1998 to 2001. The next
month, the SEC barred the lead partner on the firm's Tyco audits from
auditing publicly registered companies. His alleged offense: fraudulently
representing to investors that his firm had conducted a proper audit. The
SEC in its complaint said that the auditor, Richard Scalzo, who settled
without admitting or denying the allegations, saw warning signs about top
Tyco executives' integrity but never expanded his team's audit procedures.
"Behind Wave of Corporate Fraud: A Change in How Auditors Work: 'Risk Based'
Model Narrowed Focus of Their Procedures, Leaving Room for Trouble,' " by
Jonathan Weil, The Wall Street Journal, March 25, 2004, Page A1---
http://www.trinity.edu/rjensen/Fraud001.htm
"Behind Wave of Corporate Fraud: A Change in
How Auditors Work: 'Risk Based' Model Narrowed Focus of Their Procedures,
Leaving Room for Trouble,' " by Jonathan Weil, The Wall Street Journal,
March 25, 2004, Page A1
The recent wave
of corporate fraud is raising a harsh question about the auditors who
review and bless companies' financial results: How could they have
missed all the wrongdoing? One little-discussed answer: a big change in
the way audits are performed.
Consider what
happened when James Lamphron and his team of Ernst & Young LLP
accountants sat down early last year to plan their audit of HealthSouth
Corp.'s 2002 financial statements. When they asked executives of the
Birmingham, Ala., hospital chain if they were aware of any significant
instances of fraud, the executives replied no. In their planning papers,
the auditors wrote that HealthSouth's system for generating financial
data was reliable, the company's executives were ethical, and that
HealthSouth's management had "designed an environment for success."
As a result,
the auditors performed far fewer tests of the numbers on the company's
books than they would have at an audit client where they perceived the
risk of accounting fraud to be higher. That's standard practice under
the "risk-based audit" approach now used widely throughout the
accounting profession. Among the items the Ernst & Young auditors didn't
examine at all: additions of less than $5,000 to individual assets on
the company's ledger.
Those numbers
are where HealthSouth executives hid a big part of a giant fraud. This
blind spot in the firm's auditing procedures is a key reason why former
HealthSouth executives, 15 of whom have pleaded guilty to fraud charges,
were able to overstate profits by $3 billion without anyone from Ernst &
Young noticing until March 2003, when federal agents began making
arrests.
A look at the
risk-based approach also helps explain why investors continue to be
socked by accounting scandals, from WorldCom Inc. and Tyco International
Ltd. to Parmalat SpA, the Italian dairy company that admitted faking
$4.8 billion in cash. Just because an accounting firm says it has
audited a company's numbers doesn't mean it actually has checked them.
In a September 2003 speech, Daniel Goelzer, a member of the auditing
profession's new regulator, the Public Company Accounting Oversight
Board, called the risk-based approach one of the key factors "that seem
to have contributed to the erosion of trust in auditing." Faced with
difficulty in raising audit fees, Mr. Goelzer said, the major accounting
firms during the 1990s began to stress cost controls. And they began to
place greater emphasis on planning the scope of their work based on
auditors' judgments about which clients are risky and which areas of a
company's financial reports are most prone to error or fraud.
Auditors still plow through "high risk" items, such as derivative
financial instruments or "related party" business dealings between a
company and its executives. But ostensibly "low risk" items -- such as
cash on the balance sheet or accounts that fluctuate little from year to
year -- often get no more than a cursory review, for years at a stretch.
Instead, auditors rely more heavily on what management tells them and
the auditors' assessments of a company's "internal controls."
Old and New
A
2001 brochure by KPMG LLP, which claims to have pioneered the risk-based
audit during the early 1990s, explained the difference between the old
and new ways. Under a traditional "bottom up" audit, "the auditor gains
assurance by examining all of the component parts of the financial
statements, ensuring that the transactions recorded are complete and
accurate." By comparison, under the "top down" risk-based audit
methodology, auditors focus "less on the details of individual
transactions" and use their knowledge of a company's business and
organization "to identify risks that could affect the financial
statements and to target audit effort in those areas."
So, for instance, if controls over a company's sales and customer IOUs
are perceived to be strong, the auditor might mail out only a limited
number of confirmation requests to companies that do business with the
audit client at the end of the year. Instead, the auditor would rely
more on the numbers spit out by the company's computers.
For inventory, the lower the perceived risk of errors or fraud, the less
frequently junior-level accountants might be dispatched on surprise
visits to a client's warehouses to oversee the company's procedures for
counting unsold goods. If cash and securities on the balance sheet are
deemed low risk, the auditor might mail out only a relative handful of
confirmation requests to a company's banks or brokerage firms.
In theory, the risk-based approach should work fine, if an auditor is
good at identifying the areas where misstatements are most likely to
occur. Proponents advocate the shift as a cost-efficient improvement.
They also say it forces auditors to pay needed attention to areas that
are more subjective or complex.
"The problem is that there's not a lot of evidence that auditors are
very good at assessing risk," says Charles Cullinan, an accounting
professor at Bryant College in Smithfield, R.I., and co-author of a 2002
study that criticized the re-engineered audit process as ineffective at
detecting fraud. "If you assess risk as low, and it really isn't low,
you really could be missing the critical issues in the audit."
Auditors can't check all of a company's numbers, since that would make
audits too expensive, particularly in an age of sprawling
multinationals. The tools at auditors' disposal can't ensure the
reliability of a company's numbers with absolute certainty. And in many
ways, they haven't changed much over the modern industry's 160-year
history.
Auditors scan the accounting records for inconsistencies. They ask
people questions. That can mean independently contacting a client's
customers to make sure they haven't struck undocumented side deals --
such as agreeing to buy more products today in exchange for a
salesperson's oral promises of future discounts. They search for
unrecorded liabilities by tracing cash disbursements to make sure the
obligations are recorded properly. They examine invoices and the terms
of sales contracts to check if a company is recording revenue
prematurely.
Auditors are supposed to avoid becoming predictable. Otherwise, a
client's management might figure out how to sneak things by them. It's
also important to sample-test tiny accounting entries, even as low as a
couple of hundred dollars. An old accounting trick is to fudge lots of
tiny entries that appear insignificant individually but materially
distort a company's financial statements when taken together.
Facing a crush of shareholder lawsuits over the accounting scandals of
the past four years, the Big Four accounting firms say they are pouring
tens of millions of dollars into improving their auditing techniques.
KPMG's investigative division has doubled to 280 its force of forensic
specialists, some hailing from the Federal Bureau of Investigation.
PricewaterhouseCoopers LLP auditors attend seminars run by former
Central Intelligence Agency operatives on how to spot deceitful managers
by scrutinizing body language and verbal cues. Role-playing exercises
teach how to stand up to a company's management.
But the firms aren't backing away from the concept of the risk-based
audit itself. "It would really be negligent" not to take a risk-based
approach, says Greg Weaver, head of Deloitte & Touche LLP's U.S. audit
practice. Auditors need to "understand the areas that are likely to be
more subject to error," he says. "Some might believe that if you cover
those high-risk areas, you could do less work in other areas." But, he
adds, "I don't think that's been a problem at Deloitte."
Mr. Lamphron, the Ernst & Young partner, and his firm blame
HealthSouth's former executives for deceiving them. Mr. Lamphron
declined to comment for this article. Testifying before a congressional
subcommittee in November, he said he had looked through his audit papers
and "tried to find that one string that, had we yanked it, would have
unraveled this fraud. I know we planned and conducted a solid audit. We
asked the right questions. We sought out the right documentation. Had we
asked for additional documentation here or asked another question there,
I think that it would have generated another false document and another
lie."
The pioneers of the auditing industry had a more can-do spirit. In
Britain during the 1840s, William Deloitte, whose firm continues today
as Deloitte & Touche, made a name for himself by helping to unravel
frauds at the Great Eastern Steamship Co. and Great Northern Railway. A
growing breed of professionals such as William Cooper, whose name lives
on in PricewaterhouseCoopers, began advertising their services as an
essential means for rooting out fraud.
"The auditor who is able to detect fraud is -- other things being equal
-- a better man than the auditor who cannot," wrote influential British
accountant Lawrence Dicksee in his 1892 book, "Auditing," one of the
earliest on the subject.
But in the U.S., the notion of the auditor as detective never quite took
off. The Securities and Exchange Commission in the 1930s made audits
mandatory for public companies. The auditing profession faced its first
real public test in 1937, when an accounting scandal broke open at
McKesson & Robbins: More than 20% of the assets reported by the drug
company were fictitious inventory and customer IOUs. The auditors had
been fooled by forged documents.
The case triggered some reforms. Auditing standards began requiring that
auditors perform more substantive tests, such as contacting third
parties to confirm customer IOUs and physically inspecting clients'
warehouses to check inventories. However, the American Institute of
Certified Public Accountants, the group that set auditing standards,
repeatedly emphasized the limitations on auditors' ability to detect
fraud, fearing liability exposure for its members.
By the 1970s, a new force emerged to erode audit quality: price
competition. For decades, the AICPA had barred auditors from publicly
advertising their services, making uninvited solicitations to rival
firms' clients or participating in competitive-bidding contests. The
institute was forced to lift those bans, however, when the federal
government deemed them anticompetitive and threatened to bring antitrust
lawsuits.
Bidding wars ensued. The pressures to hold down hours on a job
"inadvertently discouraged auditors to look for" fraud, says Toby
Bishop, president of the Association of Certified Fraud Examiners, a
professional association.
Increasingly, audits became a commodity product. Flat-fee pricing became
common. The big accounting firms spent much of the 1980s and 1990s
building more-lucrative consulting operations. Many audit clients soon
were paying their independent accounting firms far more money for
consulting than auditing. The audit had become a mere foot in the door
for the consultants. Economic pressures also brought a wave of mergers,
winnowing down the number of accounting firms just as the number of
publicly traded companies was exploding and corporate financial
statements were becoming more complex.
Even before the recent rash of accounting scandals, the shift away from
extensive line-by-line number crunching was drawing criticism. In an
October 1999 speech, Lynn Turner, then the SEC's chief accountant, noted
that more than 80% of the agency's accounting-fraud cases from 1987 to
1997 involved top executives. While the risk-based approach was focusing
on information systems and the employees who fed them, auditors really
needed to expand their scrutiny to include top executives, who with a
few keystrokes could override their companies' systems.
Looking back, the risk-based approach's flaws are on display at a
variety of accounting scandals, from WorldCom to Tyco to HealthSouth.
When WorldCom was a small, start-up telecommunications company, its
outside auditor, Arthur Andersen LLP, did things the old-fashioned way.
It tested the thousands of details of individual transactions, and it
reviewed and confirmed the items in WorldCom's general ledger, where the
company's accounting entries were first logged.
But as WorldCom grew, Andersen shifted toward what it called a
risk-based "business audit process." By 1998, it was incurring more
costs to audit WorldCom than it was billing, making up the difference
with fees for consulting and other work, according to an investigative
report last year by WorldCom's audit committee. In its 2000 audit
proposal to WorldCom, Andersen said it considered itself "a committed
member of [WorldCom's] team" and saw the company as a "flagship client
and a crown jewel" of the firm.
Under the revised audit approach, Andersen used sophisticated software
to analyze WorldCom's financial statements. The auditors gathered for
brainstorming sessions, imagining ways WorldCom might cook its books.
After identifying areas of high risk, the auditors checked the adequacy
of internal controls in those areas by reviewing the company's
procedures, discussing them with some employees and performing sample
tests to see if the procedures were followed.
'Maximum Risk'
When questions arose, the auditors relied on the answers supplied by
management, even though their software had rated WorldCom a "maximum
risk" client, according to a January report by WorldCom's bankruptcy
examiner, former U.S. Attorney General Richard Thornburgh.
One question that Andersen auditors routinely asked WorldCom management
was whether they had made any "top side" adjustments -- meaning unusual
accounting entries in a company's general ledger that are recorded after
the books for a given quarter had closed. Each year, from 1999 through
2002, WorldCom management told the auditors they hadn't. According to
Mr. Thornburgh's report, the auditors conducted no testing to
corroborate if that was true.
They did check to see if there were any major swings in the items on the
company's consolidated balance sheet. There weren't any, and from this,
the auditors concluded that follow-up procedures weren't necessary.
Indeed, WorldCom executives had manipulated its numbers so there
wouldn't be any unusual variances.
Had the auditors dug into specific journal entries -- the debits and
credits that are the initial entries of transactions or events into a
company's accounting systems -- they would have seen hundreds of huge
entries of suspiciously round numbers that had no supporting
documentation.
The sole documentation for one $239 million journal entry, recorded
after the close of the 1999 fourth quarter, was a sticky note bearing
the number "$239,000,000," according to the WorldCom audit committee's
report. Sometimes the "top side" adjustments boosted earnings by
reversing liabilities. Other times they reclassified ordinary expenses
as assets, which delayed recognition of costs. Other unsupported journal
entries included one for precisely $334 million in July 2000, three
weeks after the second quarter's books were closed. Another was for
exactly $560 million in July 2001.
Andersen signed its last audit report for WorldCom in March 2002, saying
the numbers were clean. Three months later, WorldCom announced that top
executives, including its former chief financial officer, had improperly
classified billions of dollars of ordinary expenses as assets. The final
tally of fraudulent profits hit $10.6 billion. WorldCom filed for
Chapter 11 reorganization in June 2002, marking the largest bankruptcy
in U.S. history. Now out of business, Andersen is appealing its June
2002 felony conviction for obstruction of justice in connection with its
botched audits of Enron Corp.
"No matter what kind of audit you do, it is virtually impossible for an
auditor to detect purposeful fraud by management," says Patrick Dorton,
an Andersen spokesman. "And that's exactly what happened at WorldCom."
PricewaterhouseCoopers also fell prone to faulty risk assessments. In
July, the SEC forced Tyco, the industrial conglomerate, to restate its
profits, which it inflated by $1.15 billion, pretax, from 1998 to 2001.
The next month, the SEC barred the lead partner on the firm's Tyco
audits from auditing publicly registered companies. His alleged offense:
fraudulently representing to investors that his firm had conducted a
proper audit. The SEC in its complaint said that the auditor, Richard
Scalzo, who settled without admitting or denying the allegations, saw
warning signs about top Tyco executives' integrity but never expanded
his team's audit procedures.
Mr. Scalzo declined to comment. A PricewaterhouseCoopers spokesman
declined to comment on the SEC's findings in the Tyco matter.
Like Tyco and WorldCom, HealthSouth grew mainly by buying other
companies, using its own shares as currency. So it needed to keep its
stock price up. To do that, the company admitted last year, it faked its
profits.
In their audit-planning papers, Ernst & Young auditors noted HealthSouth
executives' "excessive interest" in maintaining or increasing its stock
price and earnings. Twice since the 1990s, the Justice Department had
filed Medicare-fraud suits against HealthSouth.
But none of that shook the Ernst & Young audit team's confidence in
management's integrity, members of the team later testified. And at
little more than $1 million annually, Ernst & Young's audits were fairly
low cost. The firm charged slightly less to audit HealthSouth's
financial statements than it did for one of its other services for
HealthSouth: performing janitorial inspections of the company's 1,800
health-care facilities. The inspections, performed by junior-level
accountants armed with 50-point checklists, included checking to see
that the toilets and ceilings were free of stains, the magazine racks
were neat and orderly, and the trash receptacles all had liners.
Most of HealthSouth's fraud occurred in an account called "contractual
adjustments." This is an allowance on the income statement that
estimates the difference between the gross amount charged to a patient
and the amount that various insurers, including Medicare, will pay for a
specific treatment. The company manipulated the account to make net
revenue and bottom-line earnings look higher. But for every dollar of
illicit revenue, HealthSouth executives had to make a corresponding
entry on the balance sheet, where the company listed its assets and
liabilities.
An Ernst & Young spokesman, Charlie Perkins, says the firm "performed
appropriate procedures" on the contractual-adjustment account.
At an April 2003 court hearing, Ernst & Young auditor William Curtis
Miller testified that his team mainly had performed "analytical type
procedures" on the contractual adjustments. These consisted of
mathematical calculations to see if the account had fluctuated sharply
overall, which it hadn't. As for the balance-sheet entries, prosecutors
say HealthSouth executives knew the auditors didn't look at increases of
less than $5,000, a point Ernst & Young acknowledges. So the executives
broke up the entries into tiny pieces, sprinkling them across lots of
assets.
The company's ledger showed thousands of unusual journal entries that
reclassified everyday expenses -- such as gasoline and auto-service
bills -- as assets. Had the auditors seen those items, one congresswoman
noted at a November hearing, they would have spotted that something was
wrong. Mr. Lamphron conceded her point.
March 27, 2004 reply from MacEwan
Wright, Victoria University [Mac.Wright@VU.EDU.AU]
-----Original
Message-----
From:
Sent: Saturday, March 27, 2004 10:29 PM
Subject: Re: Attacks on Risk-Based Auditing
Dear Bob,
I wonder if
this is not a case of throwing the baby out with the bathwater. I mean
the idea of risk based auditing is not in itself a bad idea, The problem
is that the idea of what constitutes risk is not properly understood. As
I interpret it - risk means probability of event multiplied by cost of
event. Risk as used in audit planning means probability of event. It is
obvious that the team did not do enough to properly evaluate the
inherent risk or more properly stated - the probability that management
wouold lie and cheat for profit.
It is am
American attitude problem. An American executive posted to an Australian
company found the amount of work put into finding out how honest
potential employees were a waste of time - "just bond them and sack them
and claim the bond insurance if they cheat". Bonding is virtually
unheard of in Australia.
I feel that
attitude may encourage fraud - the game is what can each party get away
with!
Sorry about the
social implications.
Kind regards,
Mac Wright
March 27, 2004 reply from
Bob Jensen
Hi Mac,
You are correct about the fact that
risk-based auditing has led to game playing. Somehow the HealthSouth
executives figured out that the risk of getting caught with fraudulent
transactions under $6,000 each was nearly zero under their auditor's
(E&Y) risk-based model, so they looted the company with transactions
under $6,000 each.
I agree with you that some form of
risk-based auditing should be utilized.
I think this was the case
long before KPMG formalized the concept. However, in addition
the fear of detailed testing of small
transactions must still remain high among client employees. Auditors
must invest more in unpredictable detailed testing up to a point where
the probability of being audited for even small transactions is
significant.
Probably the worst-case scenario that
virtually eliminated fear of getting caught was Andersen's notoriously
defective audits of Worldcom. I'm told (rumor mill) that an Andersen
auditor had not even been seen in Worldcom's purchasing department for a
number of years. What is the first department an auditor should
investigate for fraud?
Bob
March 28, 2004 reply from Glen L Gray
[vcact00f@CSUN.EDU]
I know a treasurer of a
major company. It used to bug him that the auditors came by every year
and take up her staff's time collecting & reconciling bank and
investment information. Then a few years ago, they just stopped showing
up in the treasury dept. I've always wondered what the auditor's risk
model was if suddenly cash and investments were no longer important.
Jensen Comment
One thing that we will never be able to measure is the value that audits bring
to prevention of fraud and error. Perhaps the greatest value of having the
auditors on site performing detail testing is not what they discover. Rather
it is what they prevent due to anticipation that they might discover in future
detail testing. It's a bit like having cops walking the beat as opposed to
whizzing by in squad cars. The cop on the beat provides an image of presence as
well as making genuine PR with local business establishments and residents
walking about.
Bob Jensen's threads on risk-based auditing ---
http://www.trinity.edu/rjensen/fraud001.htm#RiskBasedAuditing
Bloom's Taxonomy in accounting education at Kansas State University
Hi David and Zane and others,
One of the Accounting Education Change Commission experiments focused on
Bloom's Taxonomy in accounting education at Kansas State University. I should
point out that KSU had one of the most successful and popular traditional
accounting education programs in the USA before attempting this Bloom Taxonomy
revision of the program.
In particular, note the link at
http://aaahq.org/AECC/changegrant/chap3.htm
-
- Other Readings
-
Volume No. 13. Position and Issues Statements of the Accounting Education
Change Commission
http://aaahq.org/AECC/PositionsandIssues/cover.htm
- By Accounting Education Change Commission (AECC). Published 1996, 80
pages.
During its 7-year existence the AECC adopted two position statements and six
issues statements. The purpose of this publication is to provide a
convenient resource document for all of these statements.
Members No charge–print or online
Nonmembers No charge–print or online
-
Volume
No. 14. The Accounting Education Change Commission Grant Experience: A
Summary
http://aaahq.org/AECC/changegrant/cover.htm
- Edited by Richard E. Flaherty. Published 1998, 150 pages.
Members No charge–print or online
Nonmembers No charge–print or online
Kansas State Grant Experience --- Chapter 3
http://aaahq.org/AECC/changegrant/chap3.htm
-
Volume No.
15. The Accounting Education Change Commission: Its History and Impact
http://aaahq.org/AECC/history/cover.htm
- By Gary L. Sundem. Published 1999, 96 pages.
Members No charge–print or online
Nonmembers No charge–print or online
From the University of Pennsylvania (Wharton): The U.S. Deficit is
Tremendously Understated
"A Proper Accounting: The Real Cost of Government Loans and Credit Guarantees,"
Knowledge@Wharton, December 5, 2012 ---
http://knowledge.wharton.upenn.edu/article.cfm?articleid=3126
InfoGraphic on How the Tax Burden Has Changed ---
http://www.nytimes.com/interactive/2012/11/30/us/tax-burden.html
Case Studies in Gaming the Income Tax Laws ---
http://www.cs.trinity.edu/~rjensen/temp/TaxNoTax.htm
"How Do You Spot The Thief Inside Your Company?" by Marc Weber Tobias,
Forbes, December 21, 2012 ---
Click Here
http://www.forbes.com/sites/marcwebertobias/2012/12/21/how-do-you-spot-the-thief-inside-your-company/?utm_campaign=techtwittersf&utm_source=twitter&utm_medium=social
The vast majority of annual losses that result from
criminal activity in business and government entities are not caused by
shoplifters or burglars in the United States. It is employee-thieves cloaked
in many forms who commit their crimes, which are often discovered long after
their various schemes begin.
Their many schemes are identified as occupational
fraud in the
Report to the Nations, produced every two years
since 1996 by the
Association of Certified Fraud Examiners, or ACFE.
The current report is based upon an analysis of 1388 cases that were
investigated and documented by Certified Fraud Examiners in more than 100
countries on six continents. It provides a detailed look at the prevalence
and culture of business thieves in categories such as misappropriation and
theft of assets and cash, skimming, payroll fraud, financial statements and
reporting schemes, conversion of assets, and corruption and misuse of
influence.
Based upon the
Gross World Product, the ACFE estimates that
global losses from fraud may be $3.5 trillion. In my career in both the
public and private sectors, my colleagues and I have been involved in
thousands of criminal and civil investigations involving thieving employees,
vendors, contractors and suppliers. We’ve caught perpetrators trying to
steal, defraud, and convert assets that included anything from cash to
precious metals, and trade secrets and intellectual property. No entity is
exempt and, in our world, just about everyone can be engaged in some form of
fraudulent activity and theft, be it office supplies, time, gasoline,
telephone calls, cash, assets, food, liquor, pictures hanging on the wall,
bed sheets, dishes, narcotics, credit cards, checks, information, and
whatever else is available for the taking or diversion. They pad time sheets
and expense reports, submit false medical claims, forge mortgage documents,
submit phony bills to clients and customers, and anything else that can be
imagined.
Our rule and mantra: “If it can be stolen, it will
be, and often.”
No one is exempt. We have worked cases in
businesses, retail stores, banks, factories, hospitals, clinics, nursing
homes, cruise ships, copper mines, construction sites, car dealerships,
restaurants, bars, casinos and literally hundreds of other venues. Any
entity can and has been a target, even law enforcement agencies and jails
and prisons, where inmates, correctional officers, teachers and senior staff
have been caught in a variety of schemes to steal, corrupt, defraud, extort
and improperly obtain or divert assets and use their influence for personal
gain.
It is a multi-faceted problem but is rooted in two
simple premises: everyone wants things they may not be able to afford
(although that is often not the prime motivation for stealing) or they have
a financial crisis that drives them to steal.
The message for every reader: any entity can be the
subject of losses. Sometimes you may not even know it for
many months, years, or ever, with the average scheme taking eighteen months
to discover.Companies, governments, and other entities must understand how
to mitigate or reduce losses from a multitude of criminal schemes designed
to siphon assets, in many forms, which ultimately destroy many
enterprises. The best protection against fraud is to prevent it before it
can occur. If your entity or enterprise is operating without the proper
controls and anti-fraud programs in place then you likely have been, are, or
will be a victim. There are fraudsters everywhere and they are often
destroying productivity, profitability, morale, and ultimately many
businesses. They are able to get away with their crimes because the
operation of almost all business is based upon trusting employees with
resources and responsibility.
This was going to be a simple article on the best
way to alert companies about occupational fraud and their employees, and
then describe one solution. After reviewing many investigations, discussing
this with my colleagues, and examining the latest ACFE report, I decided
that this article should profile the company thief and the companies that
are most at risk, and then talk about one of the most effective means to
stop people we work with from engaging in illegal activities in the
workplace. So in this article I will look at who and what the looters are,
and in the follow-up I will describe the work of a retired FBI Special Agent
whom I first met forty years ago in Omaha when I was in law school.
The businesses or entities most at risk
The businesses most at risk to internal fraud and
theft, in the order of losses from highest to lowest, are banking and
financial services, government, and public administration, and the
manufacturing sectors. Small employers (fewer than 100 workers) are more
commonly victimized than larger companies because they usually cannot afford
strong anti-fraud measures. They’re also often not in a financial position
to absorb losses and less likely to recover either what was stolen or, in
some cases, keep their business going as a viable entity.
The implementation of anti-fraud control measures
is highly correlative with significant decreases in the cost and duration of
occupational fraud. While these controls cost money, not to implement them
usually costs a lot more in terms of dollars, business reputation,
litigation, and other costs. Those organizations that had implemented any of
these controls had fewer losses and detection time than those entities that
did not put such safeguards in place.
Some sobering statistics about losses
Businesses, on a global basis, experience losses of
about 5% a year from schemes executed by and with employees. The median loss
was about $400,000, and in one-fifth of businesses that were surveyed in the
ACFE study, the loss was at least $1,000,000. In the least costly forms of
fraud, the cost to business was about $120,000.
In about 87% of the cases the appropriation of
assets was the leading cause of losses. While financial statement fraud
accounted for only about eight percent of all cases, it had the highest
median loss of about $1,000,000 for each occurrence. Finally, corruption and
various phony billing schemes made up about one third of all cases but more
than fifty percent of the dollar losses, for an average of $250,000. This
type of fraud was shown to pose the greatest overall risk on a global basis.
Many cases will never be detected, and of those
that are discovered, the actual amount of the losses may never be known or
reported. Almost half of the victim organizations do not recover any of
their losses. In cases that are referred to law enforcement, 55% of the
offenders plead guilty, 19% of prosecutions are declined, and 16% are
convicted at trial.
A profile of the thieves within the
workforce
The ACFE report analyzed a number of parameters to
identify who he or she is: education, criminal history, employment history,
job description, administrative level and responsibilities, gender,
lifestyles, and other factors that tell the story. In my world I have found
that long-term employees are the most suspect because of their knowledge of
the inner workings of the entity and understanding of the controls that they
must circumvent.
Report to the Nations
by the Association of Certified Fraud Examiners
http://www.acfe.com/uploadedFiles/ACFE_Website/Content/rttn/2012-report-to-nations.pdf
How Not to Catch a Thief
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
What a surprise. I thought she could gallop faster than the posse.
"U.S. Attorney: Ex-Dixon comptroller to plead guilty," Chicago Tribune, November
13, 2012 ---
http://www.chicagotribune.com/news/local/breaking/chi-us-atorney-exdixon-comptroller-to-plead-guilty-20121113,0,227018.story
Former Dixon comptroller Rita Crundwell plans to
plead guilty Wednesday to a federal fraud charge that alleges she siphoned
more than $53 million from the small northwestern Illinois city’s coffers,
according to the U.S. Attorney's office.
The office released a statement saying Crundwell
will change her plea to guilty at a hearing Wednesday morning before U.S.
District Judge Philip G. Reinhard in federal court in Rockford.
It was unclear from the release how Crundwell’s
guilty plea to the federal charge will impact separate state charges she
faces for the same wrongdoing. She also faces 60 counts of theft tied to her
alleged embezzlement from the city's accounts.
Crundwell is accused of stealing the money over two
decades and using it to sustain a lavish lifestyle and a nationally renowned
horse-breeding operation.
Federal authorities have auctioned off about 400
horses and a luxury motor home that Crundwell allegedly bought with the
stolen city funds. If Crundwell is convicted, much of the money will be
returned to Dixon – after the federal government takes its cut for caring
for the horses for months.
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
Bob Jensen's Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
That
some bankers have ended up in prison is not a matter of scandal, but what is
outrageous is the fact that all the others are free.
Honoré de Balzac
Bankers bet with their
bank's capital, not their own. If the bet goes right, they get a huge bonus; if
it misfires, that's the shareholders' problem.
Sebastian Mallaby. Council on Foreign Relations, as quoted by
Avital Louria Hahn, "Missing: How Poor Risk-Management Techniques Contributed
to the Subprime Mess," CFO Magazine, March 2008, Page 53 ---
http://www.cfo.com/article.cfm/10755469/c_10788146?f=magazine_featured
Now that the Fed is going to
bail out these crooks with taxpayer funds makes it all the worse.
"Horribly Rotten, Comically Stupid: Even as they rigged LIBOR rates,
UBS bankers displayed a warped loyalty to their co-manipulators," CFO.com,
December 21, 2012 ---
http://www3.cfo.com/article/2012/12/capital-markets_ubs-libor-euribor-financial-service-authority-barclays
For any who doubted whether there was honour among
thieves, or indeed among investment bankers, solace may be found in the
details of a settlement between UBS, a Swiss bank, and regulators around the
world over a vast and troubling conspiracy by some of its employees to rig
LIBOR and EURIBOR, key market interest rates. Regulators in Britain and
Switzerland have argued that manipulation of interest rates that took place
over a long period of time, involved many employees at UBS and that,
according to Britain’s Financial Service Authority, was so “routine and
widespread” that “every LIBOR and EURIBOR submission, in currencies and
tenors in which UBS traded during the relevant period, was at risk of having
been improperly influenced to benefit derivatives trading positions.” In
these settlements UBS agreed to pay 1.4 billion Swiss Francs ($1.5 billion)
to British, American and Swiss regulators. CFO.com (http://s.tt/1xxaa)
Yet, even in
the midst of this wrongdoing there was evidence of a sense of honour,
however misplaced. One banker at UBS, in asking a broker to help
manipulate submissions, promised ample recompense:
"I will fucking do one humongous deal with
you ... Like a 50, 000 buck deal, whatever. I need you to keep it as low
as possible ... if you do that ... I’ll pay you, you know, 50,000
dollars, 100,000 dollars ... whatever you want ... I’m a man of my
word."
Further hints emerge of the warped
morality that was held by some UBS employees and their conspirators at
brokers and rival banks. In one telling conversation an unnamed broker
asks an employee at another bank to submit a false bid at the request of
a UBS trader. Lest the good turn go unnoticed the broker reassures the
banker that he will pass on word of the manipulation to UBS.
Broker B: “Yeah, he will know mate.
Definitely, definitely, definitely”;
Panel Bank 1 submitter: “You know,
scratch my back yeah an all”
Broker B: “Yeah oh definitely, yeah,
play the rules.”
The interchanges published by the FSA
also reveal a comical stupidity among people who, if judged by their
above-average pay, ought to have been expected to display above-average
insight and intelligence. Sadly, they showed neither.
In one instance, two UBS employees, a
manager and a trader (who also submitted interest rates) discuss an
article in the Wall Street Journal raising doubt over the accuracy of
bank’s LIBOR submissions. “Great article in the WSJ today about the
LIBOR problem” says one. “Just reading it” his colleague replies.
Yet according to the FSA, some two hours
later they were happily conspiring to submit manipulated bids:
Trader-Submitter D: “mate any axe in [GBP]
libors?”
Manager D: “higher pls”
Trader-Submitter D: “93?”
Manager D: “pls”
Trader-Submitter D: “[o]k”
In another moment of comical stupidity
one employee sends out a request on a public chat forum at the bank
asking the 58 participants if there are any requests for a manipulated
rate. Later, after being admonished to “BE CAREFUL DUDE” in a private
note from a manager, he replies “i agree we shouldnt ve been talking
about putting fixings for our positions on public chat (sic)”.
Apart from the salacious glimpse that
these settlements give into the foul-mouthed and matey culture (as well
as atrocious grammar) of investment banking trading desks, they also
reveal worrying suggestions that this conspiracy was bigger than
previously suspected. Information released by the FSA shows it involved
not just banks, as was previously known from a settlement earlier this
year by Barclays, but that it also involves the collusion of employees
at inter-broker dealers, the firms that stand between banks and help
them to trade with one another.
Regulators found that brokers at these
firms helped coordinate false submissions between banks, posted false
rates and estimates of where rates might go on their own trading
screens, and even posted spoof bids to mislead market participants as to
the real rate in the market.
The details in these settlements suggest
that lawyers representing clients in a clutch of class-action lawsuits
in America against banks including UBS will have a field day.
The first reason they are cheering is
because UBS didn’t simply submit false estimates of interest rates on
its own. According to the settlement documents, UBS tried and apparently
succeeded in some cases in getting other firms to collude in
manipulating rates. That collusion strengthens the case of civil
litigants in America who are arguing in court that banks worked together
to fix prices. It also undermines one of the defences filed by banks in
American courts that their submissions, although possibly incorrect in
some cases, were simply the individual acts of banks that happened by
chance to be acting in parallel. The latest settlements may also make it
easier for civil litigants to claim damages from UBS since the Swiss
regulator found that it had profited from its wrongdoing.
Continued in article
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
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
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
Bob Jensen's Rotten to the Core threads ---
http://www.trinity.edu/rjensen/FraudRotten.htm
Best 2012 Performing Currencies Against the U.S. Dollar ---
world's top performing currencies against the dollar
Not a good time for Polish jokes
http://soberlook.com/2012/12/the-2012-winner-for-best-performing.html
"Real Estate with a Cause: Identifying Investments that Serve a Triple
Bottom Line," Knowledge@Wharton, December 19, 2012 ---
http://knowledge.wharton.upenn.edu/article.cfm?articleid=3141
A derelict medical center for veterans in Salem,
Va., that was transformed into an energy efficient place to live and work --
thanks to a mélange of private and public funds -- proves that investors can
make money and support social change at the same time.
That was the message of a panel discussion at the
recent Wharton Social Impact Conference focused on innovative approaches to
financing socially responsible projects in the real estate sector. How much
money is potentially available for building while also serving social and
environmental benefits is anybody's guess. One expert, who manages a large,
San Francisco-based investment fund dedicated to creating quality jobs in
low-income areas of California, estimated $20 trillion. Figures from
JPMorgan, however, came in substantially lower -- $400 billion to $1
trillion within the next eight years.
Douglas P. Lawrence, managing principal for 5 Stone
Green Capital, a small investment fund that is focused on green
technologies, called the veterans' medical complex in Virginia, a "win-win"
because "investors get an 8% return, and homeless veterans get a modern,
light-filled place to live, stellar medical care and a chance to make some
money in a year-round greenhouse. For the environment, we reduced energy
consumption by 30%. For the military, this project has impact because it
cares deeply about veterans," said Lawrence, a former co-portfolio manager
for JPMorgan's urban green property fund.
In addition, the Virginia veterans' project was a
rock-solid investment because construction loans and rents were government
guaranteed, Lawrence noted, adding that he "wouldn't even look at a building
project today that does not incorporate green technologies."
Socially responsible or sustainable real estate
development does more than turn a profit. While investors expect gains,
there is a growing number who also want to do something for the greater
good, whether it is in urban housing, green technology, job creation,
preserving historic treasures, providing access to health care, education,
clean water, healthy food or numerous other areas around the world in need
of capital for change.
"Building green does not cost more. It costs
different because the savings are over the long haul," said Lawrence. "With
the population expected to grow to seven billion by 2050 and the depletion
of our fossil fuels, it only makes sense that we employ the best
technologies to keep operating costs as low as possible."
Forget Bamboo Floors and Bike Racks
Lawrence's fund is targeted to three types of real
estate: multi-family housing in cities, old industrial buildings suitable
for rehabilitation because they are likely to spawn new companies and jobs,
and construction of grocery stores and pharmacies because they will "always
be essential." He derided what he called "merchant builders who build as
cheaply as possible, then move out and leave the problems for the next guy."
On the contrary, he noted, "building green is not
about bamboo floors and bicycle racks. It is about improving the bottom line
by driving down expenses. It's also about learning how to be a better
steward of the resources we have on the planet and how to build better in
the first place. This is nothing more than old-fashioned asset management,
instead of financial engineering, as a way to increase profits."
While impact investing is gaining momentum in these
post-recessionary times, it is far from mainstream, said panel moderator
Benjamin Blakney, an investment consultant and former treasurer of the city
of Philadelphia. He credited a subtle shift in language for an uptick in
interest.
"There is movement away from the term 'socially
responsible' investing because it sounds a bit inferior, like maybe the
investor should expect a compromise in returns," he noted. "The term 'impact
investing' shifts the emphasis to the target. It acknowledges that cash is
king and that investment conversations are mercenary. Show me the money.
Don't forget money managers have a fiduciary responsibility to seek out
market-rate or above market-rate returns."
Other buzz words for the practice that are growing
in popularity are "venture philanthropy" or "responsible capitalism." Bill
Gates' name surfaced repeatedly during the conference to illustrate the need
to make money first before having enough to give away.
Better Analytics Align Money with Passion
Real estate development is inherently complex.
Sometimes the desire to add impact investing can make a tentative deal
collapse, warned Blakney. A major obstacle, according to The Gallin Group, a
market research firm that surveyed 51 leading impact investors last year, is
the dearth of high-quality investments along with too few investment
managers, consultants and entrepreneurs who can construct and promote
measurable investments.
"Asset owners say they would put more capital to
work if they were able to find high-quality investments," the study said.
"They recognize that their investments serve as demonstration projects, and
success may be able to catalyze the flow of additional capital. Therefore,
the management teams of the investments must be solid."
Industry pioneers, such as the $3 billion
Rockefeller Foundation in New York, view impact investing as a way to reduce
poverty and other social problems, but more importantly as a carrot to
attract wealth from the largest private capital markets.
More investors are beginning to poke around for
social benefit investments because "traditional investments in the last few
years have left them dry," noted panelist Joseph J. Haslip, managing
director of Blue Harbour Group, a hedge fund. Previously, he was the city of
New York's representative to four pension funds with assets in excess of
$100 billion. "The atmosphere is definitely getting better. Increased
availability of analytics is also helping investors align their money with
their passions, he said. "For example, data has shown that corporations with
minorities and women on their boards actually outperform those that have
none."
While some observers consider green construction to
be the "new normal," panelist Stuart Brodsky, a professor at New York
University's Schack Institute of Real Estate, predicted that U.S. commercial
markets are still 15 years away from "building totally green." The market
has made progress, "but there is still a lot of wasted money in
construction. The industry would benefit from greater standardization of
requirements and government leadership," said Brodsky, who served as the
national manager for ENERGY STAR, a program that resulted in a 24 million
metric ton reduction in greenhouse gas emissions and a savings of $7.5
billion in energy operating costs.
Tax credits and other government-sponsored
redevelopment strategies incentivize private investors to put their money
into public projects. Approximately 20 states already mandate or encourage
public pension funds to invest in initiatives with a social benefit and, in
particular, to support local economies.
A 'Second Downtown' for D.C.
Panelist Elinor R. Bacon, president of a real
estate development company in Washington, D.C., and a former deputy
assistant secretary for the U.S. Department of Housing and Urban
Development's office of public housing investments, noted that the amount of
private capital invested in public housing in the last decade has increased
four-fold. Her latest project is a 23-acre waterfront site in southwest
Washington that is a private-public partnership between the District of
Columbia and a team of six development companies, including Bacon's.
Construction on The Wharf is expected to begin
early next year and be completed in 2020. It is a poster child for socially
responsible real estate development, Bacon added, because it will transform
a swath of blighted and isolated waterfront land, owned by the District,
into a vibrant place to live, work, shop, study and play. By creating what
some are calling a "second downtown" for D.C., as opposed to pushing into
the suburbs where building costs are lower, the project exemplifies smart
growth, she noted.
Continued in article
Bob Jensen's threads on Triple Bottom Reporting ---
http://www.trinity.edu/rjensen/Theory02.htm#TripleBottom
"Fantasy Academe: a Role for Sabermetrics Fantasy Academe: a Role for
Sabermetrics 1," by Robert Zaretsky, Chronicle of Higher Education,
December 17, 2012 ---
http://chronicle.com/article/Fantasy-Academe-a-Role-for/136325/?cid=at&utm_source=at&utm_medium=en
Jensen Comment
The above article was triggered by an unfavorable accreditation review at the
University of Houston. Interestingly, before the 1990s the AACSB accreditation
standards were filled with bright lines that were essentially "sabermetrics,"
such as student/faculty ratio thresholds and the minimum proportion of
terminally qualified faculty in each department, with "terminally qualified"
defined as not being doctoral faculty with degrees outside the field of
business such as non-qualifying doctoral degrees in education, economics,
mathematics, statistics, history, etc.
Then, for complicated reasons and excuses, the AACSB moved toward eliminating
bright line sabermetrics with squishy standards rooted in mission-driven
criteria. AACSB mission-driven accreditation standards are analogous to
principles-based accounting standards. Now business administration departments
may define "terminally qualified" in terms of the unique missions of the college
of business.
I might add that top university officials hate bright line, rules-based
accreditation standards. In the old days some astute college presidents (I know
one personally) absolutely refused to allow a college of business to seek
AACSB accreditation. This is because when the number of business major credit
hours soar relative to humanities and science, business deans would blackmail
the college president for increased budgets on the basis that the falling behind
the bright lines of the AACSB would result in losing accreditation. Losing
accreditation is much more serious than not having had such accreditation in the
first place. It's a bit like getting a divorce versus not ever having been
married in the first place. Divorces can be expensive. As Jerry Reed sang, "she
got the gold mine and I got the shaft."
http://www.youtube.com/watch?v=U-p0zn3PijY
Mission-based AACSB standards are a bit more like bypassing rules-based
marriage laws with squishy standards where the business school in College A has
a much different faculty-student profile than business school B. My college
president friend mentioned above readily funded our quest for AACSB
accreditation when the AACSB restated its standard setting to be mission-based.
This meant that this president couldn't be blackmailed out of using his own
discretion in setting budgets for all departments on campus.
I might add that the AACSB has not been at all flexible with regard to the
distance education mission. Distance education cannot be the primary mission,
and no for-profit university is accredited by the AACSB whether or not it has
onsite campuses to supplement its distance education degree alternatives.
What should be the role of sabermetrics in accreditation?
"New Business-School (AACSB) Accreditation Is Likely to Be More
Flexible, Less Prescriptive," by Katherine Mangan, Chronicle of Higher
Education, February 2012 ---
http://chronicle.com/article/New-Business-School/130718/
New accreditation standards for business schools
should be flexible enough to encourage their widely divergent missions
without diluting the value of the brand that hundreds of business schools
worldwide count among their biggest selling points.
That message was delivered to about 500 business
deans from 38 countries at a meeting here this week.
The deans represented the largest and most
geographically diverse gathering of business-school leaders to attend the
annual deans' meeting of AACSB International: the Association to Advance
Collegiate Schools of Business.
The association is reviewing its accreditation
standards, in part to deal with the exponential growth in the number of
business schools overseas, many of which are seeking AACSB accreditation.
The committee that is drawing up proposed new
standards gave the deans a glimpse at the changes under consideration, which
are likely to acknowledge the importance of issues like sustainable
development, ethics, and globalization in today's business schools. A
council made up of representatives of the accredited schools will have to
approve the changes for them to take effect, and that vote is tentatively
scheduled for April 2013.
Joseph A. DiAngelo, the association's chair-elect
and a member of the committee reviewing the standards, said that when the
rules are too prescriptive, schools' mission statements, which drive their
curricula and hiring patterns, all start to look the same.
"It's all vanilla. I want to see the nuts and the
cherries and all the things that make your school unique," said Mr. DiAngelo,
who is also dean of the Erivan K. Haub School of Business at Saint Joseph's
University, in Philadelphia.
The last time the standards were revised, in 2003,
schools were put on notice that they would have to measure how much students
were learning—a task some tackled with gusto. One business school Mr.
DiAngelo met with on a recent accreditation visit "had 179 goals and
objectives, and they only have 450 students," he said. "I said, You can't be
serious."
The committee's challenges include providing a more
flexible accreditation framework to allow schools to customize their
approaches without angering members that have already sweated out the more
rigorous and prescriptive process.
And even though many schools outside the United
States have trouble meeting the criteria for accreditation, especially when
it comes to having enough professors with Ph.D.'s, "We don't think it's
appropriate to have dual standards for schools in the U.S. and those outside
the U.S.," said Richard E. Sorensen, co-chair of the accreditation-review
committee and dean of the Pamplin College of Business at Virginia Tech.
Continued in article
Bob Jensen's threads on accreditation issues ---
http://www.trinity.edu/rjensen/Assess.htm#AccreditationIssues
Julie Smith David, who is now a full-time
administrator in the American Accounting Association, posted the following on
the AAA Commons: She needs to update her profile following her move to Sarasota
---
http://commons.aaahq.org/people/687f7dcd30
I always
enjoy reflecting on the year, and finding out what others think
has made a difference...so from many of the "best of" lists that
come out at this time of year, the one that first caught my eye:
7 Most Important Tech Trends Of 2012 posted
on CIO's web site...
What struck me
as interesting was how many of these technologies (5 out of 7)
have implications for accountants:
1. Big data -
if we're not analyzing it, are we doing our job?
3. Near-field
communications - what are the audit implications? Privacy
issues?
4. Biometrics -
sure it helps with security, but, again, what about privacy?
6. Bring Your
Own Device (BYOD—oh, don't I wish it was a "---B"?) - the
technology challenges with consumer devices are huge, as are
implications for processes (and SOX compliance), security, and
potentially privacy
7. 3-D Printing
- We have entered the Enterprise and can have replicators in our
homes! Think how this could turn manufacturing on its head: no
more "work in progress" and a lot less inventory! Would ABC
costing still be needed?
My questions to
all of you - are you including these in your classes and your
research? Do you think the accounting profession sees these
initiatives as ones they should be involved in? Do you think
the article missed anything important?
And if these
aren't too interesting, here are a few more "best of's" for
2012:
Happy New Year
to you, and yours!
"Six Social-Digital Trends for 2013,"
by David Armano, Harvard Business Review Blog, December 12, 2012 ---
Click Here
http://blogs.hbr.org/cs/2012/12/six_social-digital_trends_for.html?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date
Bob Jensen's threads on technology trends are
at
http://www.trinity.edu/rjensen/Bookbob4.htm
Bob Jensen's threads on education technology
trends are at
http://www.trinity.edu/rjensen/000aaa/0000start.htm
December 22, 2012 message from Rick Lillie on the AAA Commons
This weekend, I participated in the AAA Council
meeting held at the Anaheim Hilton Hotel in Anaheim, California. The
meeting opened with a talk by
Lloyd
Armstrong titled
Which Way Higher Education? In preparation for Armstrong's
presentation, we were asked to read the article
College is Dead. Long Live College!
Armstrong explored the traditional
college/university business model and described "big forces" causing the
business model to change. Below is a concept diagram summarizing key points
from Armstrong's talk. It was interesting to hear his comments about the
growth and impact of online learning for all aspects of university-level
education. Armstrong briefly described recent events such as a consortium
of universities agreeing to offer courses online that could be taken for
credit by students at other universities.
Times are rapidly changing. Armstrong's question
to us was whether accounting (and university) education will be prepared for
the change.
Rick Lillie
CSU San Bernardino
Bob Jensen's threads on education technology and learning ---
http://www.trinity.edu/rjensen/000aaa/0000start.htm
According to Hoyle
"EVERYONE CHANGES OVER TIME," by Joe Hoyle, Teaching Blog, December 14,
2012 ---
http://joehoyle-teaching.blogspot.com/2012/12/everyone-changes-over-time.html
. . .
I am always shocked by how many well intentioned
faculty members turn testing over to a textbook test bank. I want to run
screaming into the night when I hear that. In my opinion, an overworked
graduate student who does not know you or your students is not in any
position to write a legitimate test for your students. When writing this
blog, I sometimes discuss what I would do if I were king of education.
Burning all test banks would be one of my first royal acts.
Yes, I know you are extremely busy. But abdicating
this valuable task to a person who might never have taught a single class
(or a class like yours) makes no sense. Any test in your class should be
designed for your students based on what you have covered and based on what
you want them to know. It should not be composed of randomly selected
questions written by some mysterious stranger. To me, using a test bank is
like asking Mickey Mouse to pinch hit for Babe Ruth. You are giving away an
essential element of the course to someone who might not be up to the task.
Over the decades, I have worked very hard to learn
how to write good questions. During those years, I have written some
questions that were horrible. But, I have learned much from that experience.
--The first thing I learned about test writing was
that a question that everyone could answer was useless. --The second thing
that I learned was that a question that no one could answer was also
useless.
As with any task, you practice and you look at the
results and you get better. You don’t hand off an essential part of your
course to a test bank.
As everyone who has read this blog for long
probably knows, one of the things I started doing about 8 years ago was
allowing students to bring handwritten notes to every test. That immediately
stopped me from writing questions that required memorization because the
students had all that material written down and in front of them.
That was a good start but that was not enough.
Allowing notes pushed me in the right direction but it did not get me to the
tests I wanted. It takes practice and study.
About 3 weeks ago, I wrote a 75 minute test for my
introduction to Financial Accounting class here at the University of
Richmond. This test was the last one of the semester (prior to the final
exam). By that time, I surely believed that everyone in the class had come
to understand what I wanted them to accomplish. So, I wanted to test the
material in such a way as to see how deeply they really did understand it.
I wrote 12 multiple-choice questions designed to
take about 4-8 minutes each. For accounting tests that are often numerically
based, I like multiple-choice questions because I can give 6-8 potential
answers and, therefore, limit the possibility of a lucky guess.
In writing the first four of these questions, I
tried to envision what an A student could figure out but that a B student
could not. In other words, I wanted these four questions to show me the
point between Good and Excellent. These were tough. For those questions, I
really didn’t worry about the C, D, or F students. These questions were
designed specifically to see if I could divide the A students from the B
students.
The next four questions were created to divide the
B students from the C students. They were easier questions but a student
would have to have a Good level of understanding to figure them out. I knew
the A students could work these questions and I knew the D students could
not work them. These four were written to split the B students from the C
students.
The final four questions were created to divide the
C students from those with a lesser level of understanding. They were easier
but still not easy. I wanted to see who deserved a C and who did not. If a
student could get those four questions correct, that (to me) was average
work. Those students deserved at least a C. But, if a student could not get
those four, they really had failed to achieve a basic level of understanding
worthy of a C.
Then, I shuffled the 12 questions and gave them to
my students.
How did this test work out in practice? Pretty
well. When it was over, I put the papers in order from best to worse to see
if I was comfortable with the results. I genuinely felt like I could tell
the A students from the B students from the C students from everyone else.
And, isn’t that a primary reason for giving a test?
Okay, I had to create a pretty interesting curve to
get the grades to line up with what I thought I was seeing. But I am the
teacher for this class. That evaluation should be mine. I tell my students
early in the semester that I do not grade on raw percentages. Getting 66
percent of the questions correct should not automatically be a D. In fact,
in many cases, getting 66 percent of the questions correct might well be a
very impressive performance. It depends on the difficulty of the questions.
After the first test, students will often ask
something like, “I only got four questions out of 12 correct and I still got
a C, how can that be?” My answer is simple “by answering those four
questions, you have shown me how much you have understood and I thought that
level of understanding deserved a C.”
Continued in article
Jensen Comment
I think professors who use publisher test banks are totally naive on how easy it
is to get publisher test banks. Some who aren't so naive contend that learning
from memorizing test banks is so tremendous that they want to give student A
grades for memorizing a test bank. I think that's a cop out!
The following appears in RateMyProfessor for a professor that will remain
unnamed ---
http://www.ratemyprofessors.com/
She is a really easy teacher-especially if you have
old tests!! There are always repeat questions from the year before! It is
always easy to see what will be on the test if you go to class...she always
picks one question from each topic she talked about in class! You won't even
need to buy the book bc everything is from her lecture!
She tries to indoctrinate all of her pupils with
her liberal views on the the environment, business, and religion. She's
patronizing, rude, her voice is annoying, and she NEVER speaks on econ. she
pushes her views on us daily. cares more about the environment than econ and
won't listen to other opinions. treats students like they're idiots.
"How You Test Is How They Will Learn," by Joe Hoyle,
Teaching Financial Accounting Blog, January 31, 2010 ---
http://joehoyle-teaching.blogspot.com/2010/01/how-you-test-is-how-they-will-learn.html
Bob Jensen's threads on higher education controversies ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm
"TWO STUDENTS I MISJUDGED," by Joe Hoyle, Teaching Blog, December 26,
2012 ---
http://joehoyle-teaching.blogspot.com/2012/12/two-students-i-misjudged.html
I am now halfway through my 42nd year as a college
teacher. This semester (like all semesters) had its ups and downs. There
were days when every student seemed brilliant and days when no one seemed to
be able to count to four. I don’t think I taught any geniuses but almost
every student appeared capable and, hopefully, gained something of lasting
benefit. I started with 73 students and a total of 16 finished with the
grade of A. I always hope for more excellent work but 21.9 percent was not
bad. I try not to contribute too heavily to grade inflation.
At the end of every semester, there are always a
few students that I wish I had handled differently. I often ponder them long
after class has ended. With 73 students, it can be difficult to get an
accurate read on each student at the beginning of the semester. Some need
carrots to do well and some need sticks. Often, I feel frustrated because I
do not have the time needed to determine what buttons to push to get
individual students excited about the learning process. In those cases, I am
left wondering if I helped or hindered the student’s learning.
When I travel around the county speaking to
teachers, I get to talk with a lot of folks. One common theme I hear is that
students do not always appreciate what teachers do for them. “If I work them
hard, they are unhappy.” “If I challenge them to go deeper, they rebel.”
“Why should I work so hard when the students prefer the easy way?” Teaching
can be really frustrating.
And, in truth, human beings (even teachers) need
motivation. Everyone needs a pat on the back as often as possible. It is
hard to beat your head against a wall if no one really appreciates what you
do.
Occasionally, though, I am brought back to reality
and reminded that many (if not most) students really do care about their
education. But, they do not always have an easy way to show their
appreciation for what you do. Last week, I got emails from two of my fall
students, two students that I never expected to hear from because I was not
sure whether I had taught them anything or not. Until I got their emails, I
would have included them on the list of: “I didn’t get through to these
students very well.” I guess that is my point: Sometimes you just never
know.
Student A
Student A seemed extremely quiet. He was a student
in my Introduction to Financial Accounting class. When I called on him each
day, he would take a long time to answer and his answers frequently seemed
very hesitant and unsure. As a result, if you had asked me, I would have
said that he was not well prepared. I assumed his hesitancy was because he
was not terribly interested in the material. From my vantage point, that was
how it appeared.
The email I got from Student A last week was 1,276
words long. I cannot remember ever getting such a long email from a student.
All semester, I thought he was a relatively nonverbal student when, in fact,
he was just quiet. He was not uninterested, he was quiet. If this email was
any indication, he was actually a very very verbal student.
This student that I thought was basically
uninterested in financial accounting was, in fact, one of the most
interested. I would have said that he did not appreciate what I did when he
really did. I misjudged him completely. I am not sure how I should have
taken advantage of that knowledge but I judged him incorrectly and probably
should have pushed him harder.
Here are just a few (494) of those 1,276 words.
Continued in article
Here are the ten
highest paid private college presidents:
- Bob Kerrey (The New School), $3,047,703
- Shirley Ann Jackson (Rensselaer Polytechnic Institute), $2,340,441
- David Pollick (Birmingham-Southern College), $2,312,098
- Mark Wrighton (Washington University), $2,268,837
- Nicholas Zeppos (Vanderbilt University), $2,228,349
- Steven Sample (USC), $1,963,710
- Lee Bollinger (Columbia University), $1,932,931
- Richard Levin Yale University $1,616,066
- Robert Zimmer (University of Chicago) $1,597,918
- Jack Varsalona (Wilmington University) $1,550,218
Bob Jensen's threads on higher education controversies ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm
"Ohio State Researcher Guilty of Falsifying Federal Studies,"
Inside Higher Ed, December 24, 2012 ---
http://www.insidehighered.com/quicktakes/2012/12/24/ohio-state-researcher-guilty-falsifying-federal-studies
The federal Office of Research Integrity
has concluded that an Ohio State University
pharmacology professor fabricated data in studies sponsored by the National
Institutes of Health. The agency announced last month that two
investigations by the university and its own inquiry had uncovered evidence
that Terry S. Elton falsified data in five published papers, all of which
the university recommended be retracted. Elton has been barred from
participation in federal studies for three years.
Bob Jensen's threads on professors who cheat ---
http://www.trinity.edu/rjensen/Plagiarism.htm#ProfessorsWhoPlagiarize
For Jim Hunton maybe the world did end on December 21, 2012
"Following Retraction, Bentley Professor Resigns," Inside Higher Ed,
December 21, 2012 ---
http://www.insidehighered.com/quicktakes/2012/12/21/following-retraction-bentley-professor-resigns
James E. Hunton, a prominent accounting professor
at Bentley University, has resigned amid an investigation of the retraction
of an article of which he was the co-author, The Boston Globe reported. A
spokeswoman cited "family and health reasons" for the departure, but it
follows the retraction of an article he co-wrote in the journal Accounting
Review. The university is investigating the circumstances that led to the
journal's decision to retract the piece.
An Accounting Review Article is Retracted
One of the article that Dan mentions has been
retracted, according to
http://aaajournals.org/doi/abs/10.2308/accr-10326?af=R
Retraction: A Field Experiment Comparing the
Outcomes of Three Fraud Brainstorming Procedures: Nominal Group, Round
Robin, and Open Discussion
James E. Hunton, Anna Gold Bentley University and
Erasmus University Erasmus University This article was originally published
in 2010 in The Accounting Review 85 (3) 911–935; DOI:
10/2308/accr.2010.85.3.911.
The authors confirmed a misstatement in the article
and were unable to provide supporting information requested by the editor
and publisher. Accordingly, the article has been retracted.
November 15, 2012 reply from Bob Jensen
Hi Richard,
Is this the first example of a
retracted TAR, JAR, and JAE article in since the 1960s?
Thank you for the heads up on the Hinton
and Gold article. This is sad, because Steve Kachelmeier pointed
out this article to me last year as an example of where the researchers
used real-world experimentation data using subjects from a large CPA
firm as opposed to students. Another factor that surprised me was was
sample size of supposedly 2,614 auditors.
Bob Kaplan wrote the following in
"Accounting Scholarship that Advances Professional Knowledge and
Practice," AAA Presidential Scholar Address by Robert S. Kaplan,
The Accounting Review, March 2011, pp. 372-373
Some scholars
in public health schools also intervene in practice by
conducting large-scale field experiments on real people in their
natural habitats to assess the efficacy of new health and safety
practices, such as the use of designated drivers to reduce
alcohol-influenced accidents. Few academic accounting scholars,
in contrast, conduct field experiments on real professionals
working in their actual jobs (Hunton and Gold [2010] is an
exception). The large-scale statistical studies and field
experiments about health and sickness are invaluable, but,
unlike in accounting scholarship, they represent only one
component in the research repertoire of faculty employed in
professional schools of medicine and health sciences.
One thing I note is that the article
has not been removed from the TAR database. The article still
exists with a large "Retracted" stamp that appears over every page
of the article
I attached the picture of a sample page.
Would the Techies on the AECM
explain this:
The "Retracted" stamp is transparent in terms of copying any
passage or table in the article. In other words, the article can be
quoted as easily by copy and paste as text without any interference from
the "Retracted Stamp." It cannot, however, be copied as a picture
without interference from the "Retracted Stamp."
Is this the first example of a retracted
TAR, JAR, and JAE article in since the 1960s
Years ago Les Livingstone was the first
person to detect a plagiarized article in TAR (back in the 1960s when we
were both doctoral students at Stanford). This was long before digital
versions articles could be downloaded. The TAR editor published an
apology to the original authors in the next edition of TAR. The article
first appeared in Management Science and was plagiarized in
total for TAR by a Norwegian (sigh).
Not much can be done to warn readers about
hard copy articles if they are subsequently "retracted." One thing
that can be done these days is to have an AAA Website that lists
retracted publications in all AAA journals. The Hunton and Gold
article may be the only one since the 1960s.
Respectfully,
Bob Jensen
November 28, 2012 forward from Dan Stone
Anna Gold sent me the following statement and also
indicated that she had no objections to my posting it on AECM:
Explanation of Retraction (Hunton & Gold 2010)
On November 9, 2012, The Accounting Review
published an early-view version of the voluntary retraction of Hunton & Gold
(2010). The retraction will be printed in the January 2013 issue with the
following wording:
“The authors confirmed a misstatement in the
article and were unable to provide supporting information requested by the
editor and publisher. Accordingly, the article has been retracted.”
The following statement explains the reason for the
authors’ voluntary retraction. In the retracted article, the authors
reported that the 150 offices of the participating CPA firm on which the
study was based were located in the United States. In May 2012, the lead
author learned from the coordinating partner of the participating CPA firm
that the 150 offices included both domestic and international offices of the
firm. The authors apologize for the inadvertently inaccurate description of
the sample frame.
The Editor and the Chairperson of the Publications
Committee of the American Accounting Association subsequently requested more
information about the study and the participating CPA firm. Unfortunately,
the information they requested is subject to a confidentiality agreement
between the lead author and the participating firm; thus, the lead author
has a contractual obligation not to disclose the information requested by
the Editor and the Chairperson. The second author was neither involved in
administering the experiment nor in receiving the data from the CPA firm.
The second author does not know the identity of the CPA firm or the
coordinating partner at the CPA firm. The second author is not a party to
the confidentiality agreement between the lead author and the CPA firm.
The authors offered to print a correction of the
inaccurate description of the sample frame; however, the Editor and the
Chairperson rejected that offer. Consequently, in spite of the authors'
belief that the inaccurate description of the sample does not materially
impact either the internal validity of the study or the conclusions set
forth in the Article, the authors consider it appropriate to voluntarily
withdraw the Article from The Accounting Review at this time. Should the
participating CPA firm change its position on releasing the requested
information in the future, the authors will request that the Editor and the
Chairperson consider reinstating the paper.
Signed:
James Hunton Anna Gold
References: Hunton, J. E. and Gold, A. (2010), “A
field experiment comprising the outcomes of three fraud brainstorming
procedures: Nominal group, round robin, and open discussions,” The
Accounting Review 85(3): 911-935.
December 1, 2012 reply from Harry Markopolos <notreallyharry@outlook.com>
Harry Markopolos <notreallyharry@outlook.com>
The explanation provided by the Hunton and Gold
regarding the recent TAR retraction seems to provide more questions than
answers. Some of those questions raise serious concerns about the validity
of the study.
1. In the paper, the audit clients are described as
publically listed (p. 919), and since the paper describes SAS 99 as being
applicable to these clients, they would presumably be listed in the U.S.
However, according to Audit Analytics, for fiscal year 2007, the Big Four
auditor with the greatest number of worldwide offices with at least one SEC
registrant was PwC, with 134 offices (the remaining firms each had 130
offices). How can you take a random sample of 150 offices from a population
of (at most) 134?
Further, the authors state that only clients from
the retail, manufacturing, and service industries with at least $1 billion
in gross revenues with a December 31, 2007 fiscal year-end were considered
(p. 919). This restriction further limits the number of offices with
eligible clients. For example, the Big Four auditor with the greatest number
of offices with at least one SEC registrant with at least $1 billion in
gross revenues with a December 31, 2007 fiscal year end was Ernst & Young,
with 102 offices (followed by PwC, Deloitte and KPMG, with 94, 86, and 83
offices, respectively). Limiting by industry would further reduce the pool
of offices with eligible clients (this would probably be the most limiting
factor, since most industries tend to be concentrated primarily within a
handful of offices).
2. Why the firm would use a random sample of their
worldwide offices in the first place, especially a sample including foreign
affiliates of the firm? Why not use every US office (or every worldwide
office with SEC registrants)? The design further limited participation to
one randomly selected client per office (p. 919). This design decision is
especially odd. If the firm chose to sample from the applicable population
of offices, why not use a smaller sample of offices and a greater number of
clients per office? Also, why wouldn’t the firm just sample from the pool of
eligible clients? Finally, would the firm really expect its foreign
affiliates to be happy to participate just because the US firm is asking
them to do so? Would it not be much simpler and more effective to focus on
US offices and get large numbers of clients from the largest US Offices
(e.g., New York, Chicago, LA) and fill in the remaining clients needed to
reach 150 clients from smaller offices?
3. Given the current hesitancy of the Big Four to
allow any meaningful access to data, why would the international offices be
consistently willing to participate in the study, especially since each
national affiliate of the Big Four is a distinct legal entity? The
coordination of this study across the firm’s international offices seems
like a herculean effort, at least. Further, even if the authors were not
aware that the population of offices included international offices, the
lead author was presumably aware of the identity of the partner coordinating
the study for the firm. Footnote 4 of the paper and discussion on page 919
suggest that the US national office coordinated the study. It seems quite
implausible that the US national office alone would be able to coordinate
the study internationally.
4. In the statement that has been circulated among
the accounting research community, the authors state:
“The second author was neither involved in
administering the experiment nor in receiving the data from the CPA firm.
The second author does not know the identity of the CPA firm or the
coordinating partner at the CPA firm. The second author is not a party to
the confidentiality agreement between the lead author and the CPA firm.”
However, this statement is inconsistent with
language in the paper suggesting that both authors had access to the data
and were involved in discussions with the firm regarding the design of the
study (e.g. Footnote 17). Also, isn’t this kind of arrangement quite odd, at
best? Not even the second author could verify the data. We are left with
only the first author’s word that this study actually took place with no way
for anyone (not even the second author or the journal editor) to obtain any
kind of assurance on the matter. Why wouldn’t the firm be willing to allow
Anna or Harry Evans to sign a confidentiality agreement in order to obtain
some kind of independent verification? If the firm was willing to allow the
study in the first place, it seems quite unreasonable for them to be
unwilling to allow a reputable third party (e.g. Harry) to obtain
verification of the legitimacy of the study. In addition, assuming the firm
is this extremely vigilant in not allowing Harry or Anna to know about the
firm, does it seem odd that the firm failed to read the paper before
publication and, therefore, note the errors in the paper, including the
claim that is made in multiple places in the paper that the data came from a
random sample of the firm’s US offices?
5. Why do the authors state that the paper is being
voluntarily withdrawn if the authors don’t believe that the validity of the
paper is in any way questioned? The retraction doesn’t really seem
voluntary. If the authors did actually offer to retract the study that
implies that the errors in the paper are not simply innocent mistakes.
Given that most, if not all US offices would have
had to be participants in the study (based on the discussion above), it
wouldn’t be too hard to obtain some additional information from individuals
at the firms to verify whether or not the study actually took place. In
particular, if we were to locate a handful of partners from each of the Big
Four who were office-managing partners in 2008, we could ask them if their
office participated in the study. If none of those partners recall their
office having participated in the study, the reported data would appear to
be quite suspect.
Sincerely,
Harry Markopolos
For Jim Hunton maybe the world did end on December 21, 2012
"Following Retraction, Bentley Professor Resigns," Inside Higher Ed,
December 21, 2012 ---
http://www.insidehighered.com/quicktakes/2012/12/21/following-retraction-bentley-professor-resigns
James E. Hunton, a prominent accounting professor
at Bentley University, has resigned amid an investigation of the retraction
of an article of which he was the co-author, The Boston Globe reported. A
spokeswoman cited "family and health reasons" for the departure, but it
follows the retraction of an article he co-wrote in the journal Accounting
Review. The university is investigating the circumstances that led to the
journal's decision to retract the piece.
An Accounting Review Article is Retracted
One of the article that Dan mentions has been
retracted, according to
http://aaajournals.org/doi/abs/10.2308/accr-10326?af=R
Retraction: A Field Experiment Comparing the
Outcomes of Three Fraud Brainstorming Procedures: Nominal Group, Round
Robin, and Open Discussion
James E. Hunton, Anna Gold Bentley University and
Erasmus University Erasmus University This article was originally published
in 2010 in The Accounting Review 85 (3) 911–935; DOI:
10/2308/accr.2010.85.3.911.
The authors confirmed a misstatement in the article
and were unable to provide supporting information requested by the editor
and publisher. Accordingly, the article has been retracted.
November 15, 2012 reply from Bob Jensen
Hi Richard,
Is this the first example of a
retracted TAR, JAR, and JAE article in since the 1960s?
Thank you for the heads up on the Hinton
and Gold article. This is sad, because Steve Kachelmeier pointed
out this article to me last year as an example of where the researchers
used real-world experimentation data using subjects from a large CPA
firm as opposed to students. Another factor that surprised me was was
sample size of supposedly 2,614 auditors.
Bob Kaplan wrote the following in
"Accounting Scholarship that Advances Professional Knowledge and
Practice," AAA Presidential Scholar Address by Robert S. Kaplan,
The Accounting Review, March 2011, pp. 372-373
Some scholars
in public health schools also intervene in practice by
conducting large-scale field experiments on real people in their
natural habitats to assess the efficacy of new health and safety
practices, such as the use of designated drivers to reduce
alcohol-influenced accidents. Few academic accounting scholars,
in contrast, conduct field experiments on real professionals
working in their actual jobs (Hunton and Gold [2010] is an
exception). The large-scale statistical studies and field
experiments about health and sickness are invaluable, but,
unlike in accounting scholarship, they represent only one
component in the research repertoire of faculty employed in
professional schools of medicine and health sciences.
One thing I note is that the article
has not been removed from the TAR database. The article still
exists with a large "Retracted" stamp that appears over every page
of the article
I attached the picture of a sample page.
Would the Techies on the AECM
explain this:
The "Retracted" stamp is transparent in terms of copying any
passage or table in the article. In other words, the article can be
quoted as easily by copy and paste as text without any interference from
the "Retracted Stamp." It cannot, however, be copied as a picture
without interference from the "Retracted Stamp."
Is this the first example of a retracted
TAR, JAR, and JAE article in since the 1960s
Years ago Les Livingstone was the first
person to detect a plagiarized article in TAR (back in the 1960s when we
were both doctoral students at Stanford). This was long before digital
versions articles could be downloaded. The TAR editor published an
apology to the original authors in the next edition of TAR. The article
first appeared in Management Science and was plagiarized in
total for TAR by a Norwegian (sigh).
Not much can be done to warn readers about
hard copy articles if they are subsequently "retracted." One thing
that can be done these days is to have an AAA Website that lists
retracted publications in all AAA journals. The Hunton and Gold
article may be the only one since the 1960s.
Respectfully,
Bob Jensen
November 28, 2012 forward from Dan Stone
Anna Gold sent me the following statement and also
indicated that she had no objections to my posting it on AECM:
Explanation of Retraction (Hunton & Gold 2010)
On November 9, 2012, The Accounting Review
published an early-view version of the voluntary retraction of Hunton & Gold
(2010). The retraction will be printed in the January 2013 issue with the
following wording:
“The authors confirmed a misstatement in the
article and were unable to provide supporting information requested by the
editor and publisher. Accordingly, the article has been retracted.”
The following statement explains the reason for the
authors’ voluntary retraction. In the retracted article, the authors
reported that the 150 offices of the participating CPA firm on which the
study was based were located in the United States. In May 2012, the lead
author learned from the coordinating partner of the participating CPA firm
that the 150 offices included both domestic and international offices of the
firm. The authors apologize for the inadvertently inaccurate description of
the sample frame.
The Editor and the Chairperson of the Publications
Committee of the American Accounting Association subsequently requested more
information about the study and the participating CPA firm. Unfortunately,
the information they requested is subject to a confidentiality agreement
between the lead author and the participating firm; thus, the lead author
has a contractual obligation not to disclose the information requested by
the Editor and the Chairperson. The second author was neither involved in
administering the experiment nor in receiving the data from the CPA firm.
The second author does not know the identity of the CPA firm or the
coordinating partner at the CPA firm. The second author is not a party to
the confidentiality agreement between the lead author and the CPA firm.
The authors offered to print a correction of the
inaccurate description of the sample frame; however, the Editor and the
Chairperson rejected that offer. Consequently, in spite of the authors'
belief that the inaccurate description of the sample does not materially
impact either the internal validity of the study or the conclusions set
forth in the Article, the authors consider it appropriate to voluntarily
withdraw the Article from The Accounting Review at this time. Should the
participating CPA firm change its position on releasing the requested
information in the future, the authors will request that the Editor and the
Chairperson consider reinstating the paper.
Signed:
James Hunton Anna Gold
References: Hunton, J. E. and Gold, A. (2010), “A
field experiment comprising the outcomes of three fraud brainstorming
procedures: Nominal group, round robin, and open discussions,” The
Accounting Review 85(3): 911-935.
December 1, 2012 reply from Harry Markopolos <notreallyharry@outlook.com>
Harry Markopolos <notreallyharry@outlook.com>
The explanation provided by the Hunton and Gold
regarding the recent TAR retraction seems to provide more questions than
answers. Some of those questions raise serious concerns about the validity
of the study.
1. In the paper, the audit clients are described as
publically listed (p. 919), and since the paper describes SAS 99 as being
applicable to these clients, they would presumably be listed in the U.S.
However, according to Audit Analytics, for fiscal year 2007, the Big Four
auditor with the greatest number of worldwide offices with at least one SEC
registrant was PwC, with 134 offices (the remaining firms each had 130
offices). How can you take a random sample of 150 offices from a population
of (at most) 134?
Further, the authors state that only clients from
the retail, manufacturing, and service industries with at least $1 billion
in gross revenues with a December 31, 2007 fiscal year-end were considered
(p. 919). This restriction further limits the number of offices with
eligible clients. For example, the Big Four auditor with the greatest number
of offices with at least one SEC registrant with at least $1 billion in
gross revenues with a December 31, 2007 fiscal year end was Ernst & Young,
with 102 offices (followed by PwC, Deloitte and KPMG, with 94, 86, and 83
offices, respectively). Limiting by industry would further reduce the pool
of offices with eligible clients (this would probably be the most limiting
factor, since most industries tend to be concentrated primarily within a
handful of offices).
2. Why the firm would use a random sample of their
worldwide offices in the first place, especially a sample including foreign
affiliates of the firm? Why not use every US office (or every worldwide
office with SEC registrants)? The design further limited participation to
one randomly selected client per office (p. 919). This design decision is
especially odd. If the firm chose to sample from the applicable population
of offices, why not use a smaller sample of offices and a greater number of
clients per office? Also, why wouldn’t the firm just sample from the pool of
eligible clients? Finally, would the firm really expect its foreign
affiliates to be happy to participate just because the US firm is asking
them to do so? Would it not be much simpler and more effective to focus on
US offices and get large numbers of clients from the largest US Offices
(e.g., New York, Chicago, LA) and fill in the remaining clients needed to
reach 150 clients from smaller offices?
3. Given the current hesitancy of the Big Four to
allow any meaningful access to data, why would the international offices be
consistently willing to participate in the study, especially since each
national affiliate of the Big Four is a distinct legal entity? The
coordination of this study across the firm’s international offices seems
like a herculean effort, at least. Further, even if the authors were not
aware that the population of offices included international offices, the
lead author was presumably aware of the identity of the partner coordinating
the study for the firm. Footnote 4 of the paper and discussion on page 919
suggest that the US national office coordinated the study. It seems quite
implausible that the US national office alone would be able to coordinate
the study internationally.
4. In the statement that has been circulated among
the accounting research community, the authors state:
“The second author was neither involved in
administering the experiment nor in receiving the data from the CPA firm.
The second author does not know the identity of the CPA firm or the
coordinating partner at the CPA firm. The second author is not a party to
the confidentiality agreement between the lead author and the CPA firm.”
However, this statement is inconsistent with
language in the paper suggesting that both authors had access to the data
and were involved in discussions with the firm regarding the design of the
study (e.g. Footnote 17). Also, isn’t this kind of arrangement quite odd, at
best? Not even the second author could verify the data. We are left with
only the first author’s word that this study actually took place with no way
for anyone (not even the second author or the journal editor) to obtain any
kind of assurance on the matter. Why wouldn’t the firm be willing to allow
Anna or Harry Evans to sign a confidentiality agreement in order to obtain
some kind of independent verification? If the firm was willing to allow the
study in the first place, it seems quite unreasonable for them to be
unwilling to allow a reputable third party (e.g. Harry) to obtain
verification of the legitimacy of the study. In addition, assuming the firm
is this extremely vigilant in not allowing Harry or Anna to know about the
firm, does it seem odd that the firm failed to read the paper before
publication and, therefore, note the errors in the paper, including the
claim that is made in multiple places in the paper that the data came from a
random sample of the firm’s US offices?
5. Why do the authors state that the paper is being
voluntarily withdrawn if the authors don’t believe that the validity of the
paper is in any way questioned? The retraction doesn’t really seem
voluntary. If the authors did actually offer to retract the study that
implies that the errors in the paper are not simply innocent mistakes.
Given that most, if not all US offices would have
had to be participants in the study (based on the discussion above), it
wouldn’t be too hard to obtain some additional information from individuals
at the firms to verify whether or not the study actually took place. In
particular, if we were to locate a handful of partners from each of the Big
Four who were office-managing partners in 2008, we could ask them if their
office participated in the study. If none of those partners recall their
office having participated in the study, the reported data would appear to
be quite suspect.
Sincerely,
Harry Markopolos
Bob Jensen's threads on professors who cheat ---
http://www.trinity.edu/rjensen/Plagiarism.htm#ProfessorsWhoPlagiarize
July 1964 Plagiarized Article in The Accounting Review
Hi Dan,
You really should verify everything I wrote below with Les Livingstone, my
partner in crime in the accounting doctoral program at Stanford. By the way,
even though there were three of us in that doctoral program in the 1960s, I
don't think Bob Jensen, Les Livingstone, and Jay Smith ever took a course
together. I was more the quant guy and took most of my courses outside the
business school in mathematics, statistics, and operations research. Les from
South Africa started in the MBA program and then delved more deeply into
economics. Jay Smith was more the BYU accountant of the bunch. Jay and Les were
both married with young children. I was the single gadfly chasing wild women
(not really). To chase wild women it takes money, and I certainly did not have
much of that. I did, however, have a cool 1956 pinkish and white Oldsmobile
convertible that I wish I still owned. I think we all had Ford Foundation
Fellowships that were money laundered by Stanford University. I taught in the
Economics Department for a little extra money.
As I recall, the article you asked about is as follows:
"Using Mathematical Probability to Estimate the Allowance for Doubtful
Accountants," by Goran Schroderheim, The Accounting Review, Vol. 39,
No. 3, July 1964 ---
http://www.jstor.org/discover/10.2307/242463?uid=3739712&uid=2&uid=4&uid=3739256&sid=21101586066737
The first page of the article (Page 679) states "Goran Schroderheim is Chief
Chemist for materials development and mechanical rubber goods manufacturing in
an industrial concern."
My colleague in the accounting doctoral program at Stanford University, Les
Livingstone, was the person who first discovered the plagiarism. In
communications with the TAR Editor at the time, it was later disclosed to Les
that the plagiarist was from Norway. Purportedly, the plagiarist's excuse is
that he wanted the article originally published in Management Science to
be available to accounting professors. However, he did not cite or reference the
article in Management Science. The title and some early paragraphs were
modified. Other than that it's the same article as the one cited below:
"Estimation of the
Allowance
for
Doubtful
Accounts by Markov Chains," by
R.M. Cyert, H.J. Davidson, and G.L Thompson,
Management Science
1962 8:287-303;
doi:10.1287/mnsc.8.3.287
http://mansci.journal.informs.org/content/8/3/287.full.pdf+html?sid=8d91d926-0557-4675-a9dd-a8288b50b429
The above article is one of the all-time classics published by Management
Science. I taught this article for years as a theory article when I was
teaching operations research at Michigan State first and then the University of
Maine later on. It was not, however, a very practical article due to
difficulties in estimating robust transition probabilities in the Markov
transition matrix.
Les may remember more details about this incident. There were no electronic
versions of articles back in 1964. At best the article could've been typed onto
IBM cards and transferred to magnetic tape. Main frame omputers could be
telephone networked somewhat between universities in those days, but this type
of data transmission was not at all reliable. My guess is that Goran
Schroderheim retyped the article before he submitted it to TAR in 1964.
"Psychopathy, Academic Accountants’ Attitudes towards Ethical Research
Practices, and Publication Success," by Charles D. Bailey, SSRN,
December 8, 2012 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2186902
Abstract:
Psychopathy is one of the “Dark Triad” of personality variables, along with
Machiavellianism and narcissism. It has received no attention, to my
knowledge, in accounting literature, yet it has powerful implications for
fraud in many areas. Psychopathy is characterized by deficits of conscience
and empathy, rendering the rationalization of fraud easy or completely moot.
Empirical research is an area in which two sides of the “Fraud Triangle,”
motive and opportunity, are in place, awaiting only rationalization.
Widespread fraud has been uncovered in scientific research, and studies
indicate that accounting is not exempt. Using a sample of 545 accounting
faculty who have published in leading accounting research journals, I find a
positive effect of psychopathy on publication count. The effect is fully
mediated (via an indirect-only mediation) through the influence of
psychopathy on attitudes about the ethicality of questionable or blatantly
unethical acts in the research and publication process. Implications and
limitations are discussed.
December 11, 2012 reply from Paul Williams
Charlie and Dan,
The juxtaposition of your two recent contributions to AECM prompts me to
recommend to you a wonderful little book written by a philosopher named
Aaron James. The book's title implies it is not a serious scholarly work.
Though tongue-in-cheek, it isn't frivolous. It's titled Assholes: A Theory.
In short: "Our theory is simply this: a person counts as an asshole when,
and only when, he systematically allows himself to enjoy special advantages
in interpersonal relations out of an entrenched sense of entitlement that
immunizes him against the complaints of other people (pages 4 - 5 of
Assholes: A Theory)." [The author notes he used the masculine pronoun
because most assholes are men, though there are some exceptionally
paradigmatic examples among women, as well] Dan, if only accounting were
analogous to a guild that made clocks, even if we burned 90% of them. At
least a clock is a useful thing. But what if the guild is merely in the
business of producing assholes -- you end up with an elite of really, really
impressive ones. James' chapter seven (titled Asshole Capitalism) speculates
on the prospect of institutions being so arranged as to encourage the
creation of more and more such folks in society, i.e., assholes are not
merely born, but are made.
"The Data Vigilante: Students aren’t the only ones cheating—some
professors are, too. Uri Simonsohn is out to bust them. inShare48," by
Christopher Shea, The Atlantic, December 2012 ---
http://www.theatlantic.com/magazine/archive/2012/12/the-data-vigilante/309172/
Uri Simonsohn, a research psychologist at the
University of Pennsylvania’s Wharton School, did not set out to be a
vigilante. His first step down that path came two years ago, at a dinner
with some fellow social psychologists in St. Louis. The pisco sours were
flowing, Simonsohn recently told me, as the scholars began to indiscreetly
name and shame various “crazy findings we didn’t believe.” Social
psychology—the subfield of psychology devoted to how social interaction
affects human thought and action—routinely produces all sorts of findings
that are, if not crazy, strongly counterintuitive. For example, one body of
research focuses on how small, subtle changes—say, in a person’s environment
or positioning—can have surprisingly large effects on their behavior.
Idiosyncratic social-psychology findings like these are often picked up by
the press and on Freakonomics-style blogs. But the crowd at the restaurant
wasn’t buying some of the field’s more recent studies. Their skepticism
helped convince Simonsohn that something in social psychology had gone
horribly awry. “When you have scientific evidence,” he told me, “and you put
that against your intuition, and you have so little trust in the scientific
evidence that you side with your gut—something is broken.”
Simonsohn does not look like a vigilante—or, for
that matter, like a business-school professor: at 37, in his jeans, T-shirt,
and Keen-style water sandals, he might be mistaken for a grad student. And
yet he is anything but laid-back. He is, on the contrary, seized by the
conviction that science is beset by sloppy statistical maneuvering and, in
some cases, outright fraud. He has therefore been moonlighting as a
fraud-buster, developing techniques to help detect doctored data in other
people’s research. Already, in the space of less than a year, he has blown
up two colleagues’ careers. (In a third instance, he feels sure fraud
occurred, but he hasn’t yet nailed down the case.) In so doing, he hopes to
keep social psychology from falling into disrepute.
Simonsohn initially targeted not flagrant
dishonesty, but loose methodology. In a paper called “False-Positive
Psychology,” published in the prestigious journal Psychological Science, he
and two colleagues—Leif Nelson, a professor at the University of California
at Berkeley, and Wharton’s Joseph Simmons—showed that psychologists could
all but guarantee an interesting research finding if they were creative
enough with their statistics and procedures.
The three social psychologists set up a test
experiment, then played by current academic methodologies and widely
permissible statistical rules. By going on what amounted to a fishing
expedition (that is, by recording many, many variables but reporting only
the results that came out to their liking); by failing to establish in
advance the number of human subjects in an experiment; and by analyzing the
data as they went, so they could end the experiment when the results suited
them, they produced a howler of a result, a truly absurd finding. They then
ran a series of computer simulations using other experimental data to show
that these methods could increase the odds of a false-positive result—a
statistical fluke, basically—to nearly two-thirds.
Just as Simonsohn was thinking about how to follow
up on the paper, he came across an article that seemed too good to be true.
In it, Lawrence Sanna, a professor who’d recently moved from the University
of North Carolina to the University of Michigan, claimed to have found that
people with a physically high vantage point—a concert stage instead of an
orchestra pit—feel and act more “pro-socially.” (He measured sociability
partly by, of all things, someone’s willingness to force fellow research
subjects to consume painfully spicy hot sauce.) The size of the effect Sanna
reported was “out-of-this-world strong, gravity strong—just super-strong,”
Simonsohn told me over Chinese food (heavy on the hot sauce) at a restaurant
around the corner from his office. As he read the paper, something else
struck him, too: the data didn’t seem to vary as widely as you’d expect
real-world results to. Imagine a study that calculated male height: if the
average man were 5-foot‑10, you wouldn’t expect that in every group of male
subjects, the average man would always be precisely 5-foot-10. Yet this was
exactly the sort of unlikely pattern Simonsohn detected in Sanna’s data.
Simonsohn launched an e-mail correspondence with
Sanna and his co-authors; the co-authors later relayed his concerns to
officials at the University of North Carolina, Sanna’s employer at the time
of the study. Sanna, who could not be reached for comment, has since left
Michigan. He has also retracted five of his articles, explaining that the
data were “invalid,” and absolving his co-authors of any responsibility. (In
a letter to the editor of Psychological Science, who had asked for more
detail, Sanna mentioned “research errors” but added that he could say no
more, “at the direction of legal counsel.”)
Not long after the exchange with Sanna, a colleague
sent Simonsohn another study for inspection. Dirk Smeesters of Erasmus
University Rotterdam, in the Netherlands, had published a paper about
color’s effect on what social psychologists call “priming.” Past studies had
found that after research subjects are prompted to think about, say, Albert
Einstein, they are intimidated by the comparison, and perform poorly on
tests. (Swap Einstein out for Kate Moss, and they do better.) Smeesters
sought to build on this research by showing that colors can interact with
this priming in strange ways. Simultaneously expose people to blue (a
soothing hue), for example, and the Einstein and Moss effects reverse. But a
strange thing caught Simonsohn’s eye: the outcomes that Smeesters had
predicted ahead of time were eerily similar, across the board, to his actual
outcomes.
Simonsohn ran some simulations using both
Smeesters’s own data and data found in other papers, and determined that
such a data array was unlikely to occur naturally. Then he sent Smeesters
his findings, launching what proved to be a surreal exchange. Smeesters
admitted to small mistakes; Simonsohn replied that those mistakes couldn’t
explain the patterns he’d identified. “Something more sinister must have
happened,” he recalled telling Smeesters. “Someone intentionally manipulated
the data. This may be difficult to accept.”
“I was trying to give him any out,” Simonsohn said,
adding that he wasn’t looking to ruin anyone’s career. But in June, a
research-ethics committee at Smeesters’s university announced that it had
“no confidence in the scientific integrity” of three of his articles. (The
committee noted that it had no reason to suspect Smeesters’s co-authors of
any wrongdoing.) According to the committee’s report, Smeesters said “he
does not feel guilty” and also claimed that “many authors knowingly omit
data to achieve significance, without stating this.” Smeesters, who could
not be reached for comment, resigned from the university, prompting another
Dutch scholar to publicly remark that Simonsohn’s fraud-detecting technique
was “like a medieval torture instrument.”
That charge disturbs Simonsohn, who told me he
would have been content with a quiet retraction of Smeesters’s article. The
more painful allegation, however, is that he is trying to discredit social
psychology. He adores his chosen field, he said, funky, counterintuitive
results and all. He studied economics as an undergrad at Chile’s Universidad
Católica (his father ran a string of video-game arcades in Santiago;
Simonsohn initially hoped to go into hotel management), but during his
senior year, an encounter with the psychologist Daniel Kahneman’s work
convinced him to switch fields. He prefers psychology’s close-up focus on
the quirks of actual human minds to the sweeping theory and deduction
involved in economics. (His own research, which involves decision making,
includes a recent study titled “Weather to Go to College,” which finds that
“cloudiness during [college] visits has a statistically and practically
significant impact on enrollment rates.”)
So what, then, is driving Simonsohn? His
fraud-busting has an almost existential flavor. “I couldn’t tolerate knowing
something was fake and not doing something about it,” he told me.
“Everything loses meaning. What’s the point of writing a paper, fighting
very hard to get it published, going to conferences?”
Continued in article
Bob Jensen's threads on professors who cheat ---
http://www.trinity.edu/rjensen/Plagiarism.htm#ProfessorsWhoPlagiarize
"Grant Thornton Int'l Reports Double-Digit Growth," by Daniel Hood,
Accounting Today, December 23, 2012 ---
http://www.accountingtoday.com/news/Grant-Thornton-International-Reports-Double-Digit-Growth-65155-1.html
Paul A Beswick, the Acting Chief Accountant at the US Securities and Exchange
Commission (SEC), has been named to the position permanently. Mr Beswick, so far
the SEC Deputy Chief Accountant, had been serving as Acting Chief Accountant
since James L Kroeker left the Commission in July ---
http://www.iasplus.com/en/news/2012/december/paul-beswick-named-sec-chief-accountant
"PwC and Thomson Reuters: Too Close For Comfort," by Francine McKenna,
re:TheAuditors, December 26, 2012 ---
http://retheauditors.com/2012/12/26/pwc-and-thomson-reuters-too-close-for-comfort/
A few days ago I reported at Forbes.com on
a new business alliance between PwC China and Thompson Reuters, a
PwC audit client. The three-year agreement is a license to use Thomson
Reuters tax software exclusively – in an ironic twist of fate
the software was originally developed by Deloitte –
for client service in China. PwC UK already uses the
software for its clients.
PwC US is also a
“Certified Implementer” of Thomson Reuters One
Source software. That means
PwC consulting professionals implement Thomson Reuters
for third-parties, perhaps at times in joint
engagements with Thomson Reuters. Are there incentives paid? There must be a
joint marketing and training arrangement at least. There is a certainly a
shared benefit to teaming up to sell software and consulting services. You
can agree or disagree whether such arrangements should be prohibited, but
under existing rules in the UK and for US listed audit clients of the global
firms, they are prohibited.
Why isn’t the SEC and PCAOB enforcing auditor
independence rules prohibiting business alliances between auditors and their
audit clients?
PwC and Thomson Reuters would not comment for
Forbes.com.
Professor Paul Gillis, a PCAOB SAG member and
author of the
China
Accounting Blog, thinks I “jumped the shark” with
this one.
Here’s the thing… According to the SEC’s Final
Rule: Revision of the Commission’s Auditor Independence Requirements
effective February 5, 2001,
the perception of auditor of independence is as important,
or maybe even more important, than the fact of auditor independence.
This is not new.
The independence requirement serves two
related, but distinct, public policy goals. One goal is to foster high
quality audits by minimizing the possibility that any external factors
will influence an auditor’s judgments. The auditor must approach each
audit with professional skepticism and must have the capacity and the
willingness to decide issues in an unbiased and objective manner, even
when the auditor’s decisions may be against the interests of management
of the audit client or against the interests of the auditor’s own
accounting firm.
The other related goal is to promote investor
confidence in the financial statements of public companies. Investor
confidence in the integrity of publicly available financial information
is the cornerstone of our securities markets. Capital formation depends
on the willingness of investors to invest in the securities of public
companies. Investors are more likely to invest, and pricing is more
likely to be efficient, the greater the assurance that the financial
information disclosed by issuers is reliable. The federal securities
laws contemplate that that assurance will flow from knowledge that the
financial information has been subjected to rigorous examination by
competent and objective auditors.
The two goals — objective audits and investor
confidence that the audits are objective — overlap substantially but are
not identical. Because objectivity rarely can be observed
directly, investor confidence in auditor independence rests in large
measure on investor perception. For this reason, the
professional literature, such as the AICPA’s Statement on Auditing
Standards (SAS) No. 1, has long emphasized that auditors “should not
only be independent in fact; they should also avoid situations that may
lead outsiders to doubt their independence.” The Supreme Court has
emphasized the importance of the connection between investor confidence
and the appearance of independence:
The SEC requires the filing of audited
financial statements in order to obviate the fear of loss from reliance
on inaccurate information, thereby encouraging public investment in the
Nation’s industries. It is therefore not enough that financial
statements be accurate;
the public must also perceivethem
as being accurate. Public faith in the reliability of a corporation’s
financial statements depends upon the public perception of the outside
auditor as an independent professional. . . . If investors
were to view the auditor as an advocate for the corporate client, the
value of the audit function itself might well be lost.
Here’s my column at Forbes.com.
Apparently, PwC ad Thomson Reuters believe what
happens in China stays in China.
Thomson Reuters announced it
signed a three-year contract with PwC, the
company’s auditor, to provide use of the Thomson Reuters ONESOURCE
Corporate Tax solution for China. PwC U.K. also uses this Thomson
Reuters software for its tax clients. Business alliances between a
company and its auditor are prohibited under U.S. law and U.K. auditor
regulations. Thomson Reuters, headquartered in New York, has its shares
listed on the Toronto and New York Stock Exchanges.
Rule 2-01(b) of Regulation S-X (17 CFR
210.2-01.), amended under the Sarbanes-Oxley Act of 2002 to enhance
auditor independence after the Enron and Arthur Andersen failures,
provides the standard used to judge a business relationship between a
company and its auditor or services provided to an audit client:
- Does the relationship create a mutual or
conflicting interest between the accountant and the audit client?
- Does the relationship place the accountant
in
the position of auditing his or her own work?
- Does the relationship result in the
accountant acting as management or an employee of the audit client?
- Does the relationship place the accountant
in a position of being an advocate for the audit client?
For business relationships specifically, the
law allows contracts between a auditor and its client only if the
auditor is a consumer in the normal course of business and receives no
incentives, special pricing or other advantage that other customers
would not receive.
Continued in article
Bob Jensen's threads on PwC ---
http://www.trinity.edu/rjensen/Fraud001.htm
Bob Jensen's threads on audit firm professionalism ---
http://www.trinity.edu/rjensen/Fraud001c.htm
"Recent developments in Islamic banking, finance and accounting,"
IAS
Plus from Deloitte, December 27, 2012 ---
http://www.iasplus.com/en/news/2012/december/islamic-banking-and-finance
The
rapid global growth in Islamic finance has brought increased
international attention to the questions of what Islamic finance is, how
it differs from conventional finance and and whether accounting for
Islamic and conventional finance transactions can be harmonised.
The papers for
the AAOIFI - World Bank Annual Conference on Islamic Banking and
Finance held earlier this month and recently posted to the
AAOIFI (Accounting and Auditing Organisation for Islamic Financial
Institutions) website offer a good overview of current topics in
Islamic Finance. However, they also illustrate that the definitions
of Sharia-compliant operations are still diverse and can differ from
jurisdiction to jurisdiction, which make a single approach to
accounting difficult. Yet, as one of the speakers at the conference
pointed out: "Ethics, transparency and accountability are values not
alien to [the] Islamic world view." Please click for
access to the conference papers on the AAOFI website.
The need to
harmonise the treatment of Islamic finance first in itself and then
with international standards has lead to the publication of a series
of papers over the last months. In
September 2012, the Islamic Financial
Services Board (IFSB) published a report from a high-level
roundtable offered jointly with the International Organisation of
Securities Commissions (IOSCO), which was to be a first step towards
the development of international regulatory standards for Islamic
capital market products. In
November 2012, the Malaysian Accounting
Standards Board (MASB) published a staff paper discussing Islamic
finance, accounting treatments for various Islamic finance
instruments, and the reasons why the MASB chose to require Islamic
financial institutions to follow Malaysian Financial Reporting
Standards, which are equivalent to IFRS.
Finally, the
Association of Chartered Certified Accountants (ACCA) followed suit
with a report published on its
website calling on the International
Accounting Standards Board (IASB) and the Islamic finance industry
to work together to develop guidance, standards and educate the
investor community on key issues. ACCA points out that:
- the IASB should
consider issuing guidance on the application of IFRSs to the
accounting for certain Islamic financial products;
- it should also
consider issuing guidance on additional disclosures in relation
to Sharia-compliant operations;
- the IASB should
work with leading Islamic Finance standard-setters and
regulators in establishing differences and developing harmonised
solutions; and
- the Islamic
Finance Institutes (IFIs) should support the IASB by forming an
expert advisory group.
The IASB has
responded to the repeated calls and has asked the MASB to help with
setting up an expert advisory group on Islamic accounting. This
development was first announced at the fourth meeting of the Asian-Oceanian
Standard-Setters Group (AOSSG) at the
end of November 2012 in Kathmandu where
the IASB staff briefed the members on the plans. The IASB has since
confirmed these plans in the
feedback-statement to the agenda consultation:
The IASB could benefit from learning more about Islamic (Shariah-compliant)
transactions and instruments - neither the IASB nor our staff
have expertise in this area. The IASB is establishing a
consultative group to assess the relationship between Shariah-compliant
transactions and instruments and IFRS and to help educate the
IASB, mainly through public education sessions. Work undertaken
by some standard-setters suggests that IFRS provides relevant
information about Shariah-compliant transactions and that there
is little, if anything, the IASB would need to do to bring this
sector of the economy within IFRS. However, the IASB needs more
information before it can make that assessment itself. We have
asked the Malaysian Accounting Standards Board to assist us with
setting up this group, reflecting the helpful analysis they
provided to the AOSSG on Shariah-compliant matters.
More information on developments
in Islamic accounting and useful links are available on our
dedicated IAS Plus page.
Sukuk ---
http://en.wikipedia.org/wiki/Sukuk
Islamic Bond Excitement in Financial Markets
"Interested in buying sukuk? by Sabine Vollmer, CGMA Magazine,
October 5, 2012 ---
http://www.cgma.org/magazine/news/pages/20126503.aspx
Following financial crises in the US and
Europe, investors are increasingly attracted to raising funds for
investments through Islamic bonds called “sukuk.”
Sukuk are an alternative to conventional bonds
that governments and companies sell regularly to raise funds. They
comply with sharia law, the moral code of conduct based on the Quran,
which prohibits charging interest and trading in debt.
Ernst & Young’s Global Islamic Banking Centre
of Excellence projects that global demand for sukuk is likely to triple
to $900 billion in 2017. Here are a few
reasons for the surge:
- The world’s Muslim population is growing
at about twice the rate of the non-Muslim population, the
Pew Research Center estimates, driving the
growth of the Islamic banking industry.
- Banks in the Middle East are flush with
cash because of high oil prices. Islamic banks, particularly those
that were not hard hit by the financial crises in the US and Europe,
are looking for opportunities to park their cash. Worldwide, Islamic
assets held by banks account for an estimated $1.1 trillion,
according to Ernst & Young’s
Islamic banking report. Their share of all
commercial bank assets varies from country to country. In the Middle
East and North Africa, Islamic assets constitute an average 14% of
banks’ assets.
- Muslim countries have increased government
spending to stimulate, develop and sustain economic activity since
the beginning of the Arab Spring.
- Investors worldwide are seeking safer
investments following global financial crises. Sukuk are unsecured,
asset-based loans. Unlike asset-backed loans, which use buildings,
land or patents as collateral, sukuk must be based at least 51% on
an asset that generates rent, such as a building. The sukuk issuer
can make amortised payments or a bullet payment at the end to pay
off the sukuk. While the majority of the payments must come from the
rent, a smaller portion can come from profits that a business
generated.
“Would the growth be the same if the US and the
European market weren’t in crisis? Perhaps yes, but not at the rate you
see now,” said Rizwan Kanji, a lawyer who specialises in sukuk
transactions in the Dubai office of the law firm King & Spalding. “… The
growth of sukuk will continue while the Western markets recover.”
Establishing a global standardised sukuk
trading platform that is open to all financial institutions would go a
long way toward spurring more supply, according to Ashar Nazim, E&Y’s
MENA Islamic finance services leader.
Continued in article
"Islamic Accounting," IAS Plus, January 3, 2011 ---
http://www.iasplus.com/islamicfinance/islamicaccounting.htm
Accounting Standards for financial reporting by
Islamic financial institutions have to be developed because in some
cases Islamic financial institutions encounter accounting problems
because the existing accounting standards such as IFRSs or local GAAP
were developed based on conventional institutions, conventional product
structures or practices, and may be perceived to be insufficient to
account for and report Islamic financial transactions. Shariah compliant
transactions that observe the prohibition to charge interest may not
have parallels in conventional financing and therefore, there may be
significant accounting implications. Likewise, the Islamic finance
industry is under considerable pressure to enhance practice and improve
risk management systems and protect investors.
On this page, we maintain a history of recent
developments in Islamic accounting requirements and practices.
August 24, 2011 message from Mohammad Asim Raza
Hi Robert -
Read your response on the AECM listserv - I think you would find the Thomas
McElwain's writing on interest in his Islam in Bible to be interesting. Here
is excerpt.
Usury
Islamic banking is well-known in the financial
world and is becoming popular as an investment alternative even outside the
sphere of Islam. The prohibition of usury or charging interest on any
lending is described in the literature of every Islamic school of
jurisprudence. In justification of the prohibition Ali (1988, 141a) quotes
Qur'an 2:275 `Those who swallow interest will not (be able to) stand (in
resurrection) except as standeth one whom Satan hath confounded with his
touch.'
The Bible is also very clear on the matter of
usury. It is in perfect harmony with Islam. The Arabic term for usury, raba,
is rather neutral, coming from a root meaning to remain over or increase.
The Biblical term for usury, neshek, is strongly negative, coming from a
root whose basic meaning is to strike as a serpent.
The term neshek itself is used twelve times in the
Bible, but related words are used several times as well. All of them either
prohibit usury or speak of it in deprecating terms.
Leviticus 25:36,37. `Take thou no usury of him, or
increase: but fear thy God; that thy brother may live with thee. Thou shalt
not give him thy money upon usury, nor lend him thy victuals for increase.'
The Hebrew term for increase here, tarbath, is a cognate of the Arabic riba.
The word `or' in the translation of verse 36 is an interpretation of the
undesignated copula we-. This is an example of the typical Hebrew habit of
pairing synonyms.
Exodus 22:25. `If thou lend money to any of my
people that is poor by thee, thou shalt not be to him as a usurer, neither
shalt thou lay upon him usury.' This text already brings up the question of
whether usury in general is prohibited, or merely usury of a brother, that
is one under the covenant of God. The Torah has been interpreted to permit
usury from unbelievers.
Deuteronomy 23:19-20. 'Thou shalt not lend upon
usury to thy brother; usury of money, usury of victuals, usury of any thing
that is lent upon usury: Unto a stranger thou mayest lend upon usury; but
unto thy brother thou shalt not lend upon usury: that the Lord thy God may
bless thee in all that thou settest thine hand to in the land whither thou
goest to possess it.'
Here the import of the passage in Exodus becomes
clear. Usury is prohibited from those under the covenant, but permitted from
strangers, that is, unbelieving heathens. Beyond this clarification there is
an interesting remark on economy. The strength and well-being of the
economic situation is considered to depend on the avoidance of usury.
Psalm 15:1-5. `Lord, who shall abide in thy
tabernacle? Who shall dwell in thy holy hill? He that putteth not out his
money to usury...' The prohibition of usury in the Psalms is universal,
whether the loan is made to believers or unbelievers.
Jeremiah 15:10. `Woe is me, my mother, that thou
has borne me a man of strife and a man of contention to the whole earth! I
have neither lent on usury, nor men have lent to me on usury; yet every one
of them doth curse me.' The words of Jeremiah imply not only a prohibition
on lending with interest, but on borrowing with interest as well. The guilt
is thus attached to both parties in the transaction.
As part of the divine definition of justice we find
in Ezekiel 18:8-9, `He that hath not given forth upon usury, neither hath
taken any increase... he is just, he shall surely live, saith the Lord God.'
This is a positive approach to the problem, as well as another affirmation
that neshek and tarbith are equivalent.
Ezekiel 18:13 makes the point negatively, `Hath
given forth upon usury, and hath taken increase: shall he then live? he
shall not live: he hath done all these abominations; he shall surely die;
his blood shall be upon him.' The context suggests that the abomination of
usury is one of the sins provoking the Babylonian captivity. Verses
seventeen and eighteen release the innocent children of the effects of their
parents' sins in taking usury.
Ezekiel 22:12. `In thee have they taken gifts to
shed blood; thou has taken usury and increase, and thou hast greedily gained
of thy neighbours by extortion, and hast forgotten me, saith the Lord God.'
The taking of usury is equated here with bribes in judgement resulting in
the execution of the innocent, and with extortion. Ezekiel thus defines more
carefully what he means by `abominations' in chapter eighteen.
After the captivity the matter of usury arose
again, and was put to a quick end by the intervention of Nehemiah.
Nehemiah's argument is not based on fear of renewed captivity as a result of
usury. Rather, he appeals directly to law and justice. Having authority as
governor, his measures were met with success: Nehemiah five.
The Gospel references to usury are neither
legislative nor normative. In a parable we find Jesus quoting a master
scolding a servant for neglecting his property. Matthew 25:27 'Thou oughtest
therefore to have put my money to the exchangers, and then at my coming I
should have received mine own with usury.' The same story is repeated in
Luke 19:23. Jesus makes no comment here on usury as such. The text does
reveal that Jesus' hearers were familiar with the practice and that at least
some, those having capital, approved of it. The context might well be
lending to unbelievers.
In sum, usury is prohibited in the Torah when
between believers. The prophets suggest usury to be one of the factors
resulting in the Babylonian captivity. Ezekiel uses very strong language
against usury, equating it with bribery and extortion. The Psalms seem to
apply the prohibition not merely within the context of believers but in
general.
Although it appears that the Torah at least might
permit usury in some contexts, the sum of Biblical teaching comes down
firmly against it. The Islamic form of banking finds support not only in the
Qur'an but in the Bible as well.
http://www.al-islam.org/islaminthebible/index.htm
Regards, Mohammad Asim Raza, CPA
Baltimore, MD 21208
Bob Jensen's threads on Islamic Accounting ---
http://www.trinity.edu/rjensen/Theory01.htm#IslamicAccounting
Type I and Type II Errors ---
http://en.wikipedia.org/wiki/False_positive#Type_I_error
Also see
http://www.stats.gla.ac.uk/steps/glossary/hypothesis_testing.html
"Psychopathy, Academic Accountants’ Attitudes towards Ethical Research
Practices, and Publication Success," by Charles D. Bailey, SSRN, December 8,
2012 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=218690
"The Data Vigilante: Students aren’t the only ones cheating—some
professors are, too. Uri Simonsohn is out to bust them. inShare48," by
Christopher Shea, The Atlantic, December 2012 ---
http://www.theatlantic.com/magazine/archive/2012/12/the-data-vigilante/309172/
Uri Simonsohn, a research psychologist at the
University of Pennsylvania’s Wharton School, did not set out to be a
vigilante. His first step down that path came two years ago, at a dinner
with some fellow social psychologists in St. Louis. The pisco sours were
flowing, Simonsohn recently told me, as the scholars began to indiscreetly
name and shame various “crazy findings we didn’t believe.” Social
psychology—the subfield of psychology devoted to how social interaction
affects human thought and action—routinely produces all sorts of findings
that are, if not crazy, strongly counterintuitive. For example, one body of
research focuses on how small, subtle changes—say, in a person’s environment
or positioning—can have surprisingly large effects on their behavior.
Idiosyncratic social-psychology findings like these are often picked up by
the press and on Freakonomics-style blogs. But the crowd at the restaurant
wasn’t buying some of the field’s more recent studies. Their skepticism
helped convince Simonsohn that something in social psychology had gone
horribly awry. “When you have scientific evidence,” he told me, “and you put
that against your intuition, and you have so little trust in the scientific
evidence that you side with your gut—something is broken.”
Simonsohn does not look like a vigilante—or, for
that matter, like a business-school professor: at 37, in his jeans, T-shirt,
and Keen-style water sandals, he might be mistaken for a grad student. And
yet he is anything but laid-back. He is, on the contrary, seized by the
conviction that science is beset by sloppy statistical maneuvering and, in
some cases, outright fraud. He has therefore been moonlighting as a
fraud-buster, developing techniques to help detect doctored data in other
people’s research. Already, in the space of less than a year, he has blown
up two colleagues’ careers. (In a third instance, he feels sure fraud
occurred, but he hasn’t yet nailed down the case.) In so doing, he hopes to
keep social psychology from falling into disrepute.
Simonsohn initially targeted not flagrant
dishonesty, but loose methodology. In a paper called “False-Positive
Psychology,” published in the prestigious journal Psychological Science, he
and two colleagues—Leif Nelson, a professor at the University of California
at Berkeley, and Wharton’s Joseph Simmons—showed that psychologists could
all but guarantee an interesting research finding if they were creative
enough with their statistics and procedures.
The three social psychologists set up a test
experiment, then played by current academic methodologies and widely
permissible statistical rules. By going on what amounted to a fishing
expedition (that is, by recording many, many variables but reporting only
the results that came out to their liking); by failing to establish in
advance the number of human subjects in an experiment; and by analyzing the
data as they went, so they could end the experiment when the results suited
them, they produced a howler of a result, a truly absurd finding. They then
ran a series of computer simulations using other experimental data to show
that these methods could increase the odds of a false-positive result—a
statistical fluke, basically—to nearly two-thirds.
Just as Simonsohn was thinking about how to follow
up on the paper, he came across an article that seemed too good to be true.
In it, Lawrence Sanna, a professor who’d recently moved from the University
of North Carolina to the University of Michigan, claimed to have found that
people with a physically high vantage point—a concert stage instead of an
orchestra pit—feel and act more “pro-socially.” (He measured sociability
partly by, of all things, someone’s willingness to force fellow research
subjects to consume painfully spicy hot sauce.) The size of the effect Sanna
reported was “out-of-this-world strong, gravity strong—just super-strong,”
Simonsohn told me over Chinese food (heavy on the hot sauce) at a restaurant
around the corner from his office. As he read the paper, something else
struck him, too: the data didn’t seem to vary as widely as you’d expect
real-world results to. Imagine a study that calculated male height: if the
average man were 5-foot‑10, you wouldn’t expect that in every group of male
subjects, the average man would always be precisely 5-foot-10. Yet this was
exactly the sort of unlikely pattern Simonsohn detected in Sanna’s data.
Simonsohn launched an e-mail correspondence with
Sanna and his co-authors; the co-authors later relayed his concerns to
officials at the University of North Carolina, Sanna’s employer at the time
of the study. Sanna, who could not be reached for comment, has since left
Michigan. He has also retracted five of his articles, explaining that the
data were “invalid,” and absolving his co-authors of any responsibility. (In
a letter to the editor of Psychological Science, who had asked for more
detail, Sanna mentioned “research errors” but added that he could say no
more, “at the direction of legal counsel.”)
Not long after the exchange with Sanna, a colleague
sent Simonsohn another study for inspection. Dirk Smeesters of Erasmus
University Rotterdam, in the Netherlands, had published a paper about
color’s effect on what social psychologists call “priming.” Past studies had
found that after research subjects are prompted to think about, say, Albert
Einstein, they are intimidated by the comparison, and perform poorly on
tests. (Swap Einstein out for Kate Moss, and they do better.) Smeesters
sought to build on this research by showing that colors can interact with
this priming in strange ways. Simultaneously expose people to blue (a
soothing hue), for example, and the Einstein and Moss effects reverse. But a
strange thing caught Simonsohn’s eye: the outcomes that Smeesters had
predicted ahead of time were eerily similar, across the board, to his actual
outcomes.
Simonsohn ran some simulations using both
Smeesters’s own data and data found in other papers, and determined that
such a data array was unlikely to occur naturally. Then he sent Smeesters
his findings, launching what proved to be a surreal exchange. Smeesters
admitted to small mistakes; Simonsohn replied that those mistakes couldn’t
explain the patterns he’d identified. “Something more sinister must have
happened,” he recalled telling Smeesters. “Someone intentionally manipulated
the data. This may be difficult to accept.”
“I was trying to give him any out,” Simonsohn said,
adding that he wasn’t looking to ruin anyone’s career. But in June, a
research-ethics committee at Smeesters’s university announced that it had
“no confidence in the scientific integrity” of three of his articles. (The
committee noted that it had no reason to suspect Smeesters’s co-authors of
any wrongdoing.) According to the committee’s report, Smeesters said “he
does not feel guilty” and also claimed that “many authors knowingly omit
data to achieve significance, without stating this.” Smeesters, who could
not be reached for comment, resigned from the university, prompting another
Dutch scholar to publicly remark that Simonsohn’s fraud-detecting technique
was “like a medieval torture instrument.”
That charge disturbs Simonsohn, who told me he
would have been content with a quiet retraction of Smeesters’s article. The
more painful allegation, however, is that he is trying to discredit social
psychology. He adores his chosen field, he said, funky, counterintuitive
results and all. He studied economics as an undergrad at Chile’s Universidad
Católica (his father ran a string of video-game arcades in Santiago;
Simonsohn initially hoped to go into hotel management), but during his
senior year, an encounter with the psychologist Daniel Kahneman’s work
convinced him to switch fields. He prefers psychology’s close-up focus on
the quirks of actual human minds to the sweeping theory and deduction
involved in economics. (His own research, which involves decision making,
includes a recent study titled “Weather to Go to College,” which finds that
“cloudiness during [college] visits has a statistically and practically
significant impact on enrollment rates.”)
So what, then, is driving Simonsohn? His
fraud-busting has an almost existential flavor. “I couldn’t tolerate knowing
something was fake and not doing something about it,” he told me.
“Everything loses meaning. What’s the point of writing a paper, fighting
very hard to get it published, going to conferences?”
Continued in article
Bob Jensen's threads on professors who cheat ---
http://www.trinity.edu/rjensen/Plagiarism.htm#ProfessorsWhoPlagiarize
Jensen Comment
As I look back on my own career, including the last 24 years at Trinity
University, I was lucky because I never had a medical event in my 40-year
academic career that prevented me from meeting my classes. If that should have
happened I most likely would not have resigned before using up my short-term
disability benefits that the University provided free to me.
Those of you who have not closely examined your disability benefits should
closely examine the short-term disability benefits provided by your employer.
Trinity University's Disability Leave contact is quoted below. Trinity
University carried its own employee disability insurance policy to cover this
type of leave at zero out-of-pocket costs to employees. I considered disability
insurance so important that I also carried the maximum long-term coverage at my
own out-of-pocket expense. Most of the time this was a TIAA disability plan that
kept premiums lower by no having to pay for short-term disability leave. My
long-term TIAA disability plan would have kicked in automatically when my
Trinity University short-term coverage expired. Payments were based upon salary
at the time of becoming disabled.
Unlike my TIAA term life insurance, I paid for my long-term TIAA disability
insurance right up thru the day I retired from Trinity University. With my
children became grown and earning their own livings, I ended my term life
insurance coverage when I was 55 years of age. With advancing age the annual
premiums for this life insurance became absurdly expensive at a time when I had
built up comfortable personal savings plus my TIAA-CREF retirement account. But
becoming disabled before retirement age without disability insurance might have
clobbered my personal savings.
Note that if you're disabled on the job Worker Compensation will probably
reduce, but not eliminate, the short-term disability benefits that you receive
from your employer. Disabilities not related to your job will nearly all be
covered until the short-term disability leave coverage expires. The fact that
this coverage will eventually expire makes it extremely important in most
instances to have your own long-term disability coverage that will then kick in.
At Trinity University the short-term disability for full salary and benefits
coverage expires after six months. Added details are quoted below. If I ever had
become disabled I would have taken advantage of this coverage for six months at
which time my TIAA long-term coverage would have kicked in to cover me until
nearly retirement age. As I dimly recall, my coverage would have ceased
at retirement age. Long-term disability insurance plans vary considerably
regarding termination. I know some folks in other occupations who have
disability coverage for as long as they live.
Trinity University Faculty and Contract Staff Handbook ---
http://web.trinity.edu/Documents/Academic Affairs/minutes/handbook2012-2013.pdf
III. DISABILITY LEAVE
A. Faculty
Trinity University will provide protection of remuneration
(salary and other benefits) to any fulltime employee who through protracted
physical or psychological disability is unable to perform the tasks and/or
meet the responsibilities normally associated with the duties of his/her
position. This protection of remuneration will be for a period of no more
than six months from the commencement of the disability. The protection is
only for the actual remuneration due under the applicable contract or pay
grade classification. Due to the nature of the protection plan, the
University will not continue payments for periods beyond the completion of a
terminal contract or provide remuneration protection for periods not
otherwise covered by the contract (e.g., summer recess for nine-month
faculty) even though these periods will be counted toward the six-month
limit. An employee who becomes disabled as a result of a work-related injury
will have his/her short-term disability payments reduced by any compensation
received from the University’s Worker Compensation Insurance Company
.
During short-term disability leave, all accruals of vacation and sick leave
will be suspended. Eligibility for remuneration protection will be based
upon clear and convincing medical evidence, and a change to disability
status shall be made
1. at the request of an affected
employee by presentation of a request to commence disability status and
presentation of such medical evidence as may be necessary to demonstrate
the existence of a physical or psychological disability which precludes
that individual from performing the tasks or meeting the
responsibilities normally associated with the discharge of his/her
duties, and that such is expected to be protracted;
or,
2. at the request of the
University by presentation to the affected employee of a determination
of long-term disability. For faculty members action is to be initiated
by the University pursuant to
Chapter 3A, Article
V: Termination of Tenured or Unexpired Appointments.
All of the various due process
provisions contained in this
Handbook
shall apply.
Every effort will be made to assure
that disability coverage provided by the Teachers Insurance and Annuity
program or other such disability program will become applicable upon the
conclusion of the period of remuneration protection; however, in no event
will the University’s obligation to provide remuneration protection continue
past six calendar months from the commencement of the disability period.
The University’s obligation for
remuneration protection will cease effective upon the affected
individual’shaving obtained another position of employment. Further, the
University reserves the right to deduct from any remuneration provided
hereunder the amount of earnings received by the affected individual from
such employment during the period of disability.
In the event of a request by either
the affected faculty member or the University for long-term disability
status, the commencement of such disability will be presumed to be the date
of a recognizable event that resulted in the disability. In the event of a
request by the faculty member, if the University disputes the existence
and/or extent of disability, the University may require the affected faculty
member to be examined by a physician or other professional of its choosing
at the University’s expense.
Where necessary, each faculty member’s
contract will be modified to reflect agreement to the
foregoing.
Additionally, the relevant provisions of this
Handbook
above will be restated to reflect the
foregoing.
The University will require a medical
release before the employee returns to work. This action will be taken to
certify that the employee is capable of returning to work and performing
normal duties. Should the University require a second opinion, this will be
at the University’s expense.
Once the six-month disability benefit
has been used and if the employee later returns to work, he/she must work
for two years before a similar benefit can again be used.
If the faculty member is eligible for
leave under the Family and Medical Leave Act, such leave will be taken
concurrently with any disability leave.
Failure to apply for disability leave in a timely
manner will not extend the six-month period.
Jensen Comment
A worse situation perhaps arises where a faculty member, for medical reasons, no
longer wants to perform faculty duties for his/her employer but has a medical
condition that does not qualify for short-term or long-term disability coverage.
Purportedly there are a lot of those folks seeking Social Security Disability
Benefits and Medicare. The son of one of my neighbors is currently in this
situation down in Florida. He was turned down for short-term disability benefits
from his former employer. He does have chronic back pain, although he could
probably do just as well faking the pain. For reasons I won't go into, in
Florida especially, there's so much fraud in this area that people with zero
medical justification can obtain lifetime SS Disability Benefits and Medicare.
Purportedly their are a lot of sleazy physicians and shyster lawyers both in in
Florida and in the other 49 states. The law firms even advertise on national
television to get clients seeking SS Disability.
Generally, it takes much longer than six months for the sleazy physicians and
shyster lawyers to accomplish the job. Hence they are not of much use when
seeking short-term disability benefits from employers. But SS Disability
Benefits, when obtained, can cover a lot of years between age 43 and when Social
Security and Medicare set in between Age 65 and 70.
It is exceptionally difficult -- for all practical
purposes, impossible," writes Eberstadt, "for a medical professional to disprove
a patient's claim that he or she is suffering from sad feelings or back pain. In
other words, many people are gaming or defrauding the system. This includes not
only disability recipients but health care professionals, lawyers and others who
run ads promising to get you disability benefits. Between 1996 and 2011, the
private sector generated 8.8 million new jobs, and 4.1 million people entered
the disability rolls.
Michael Barone, "Men Find
Careers in Collecting Disability," ---
Click Here
http://townhall.com/columnists/michaelbarone/2012/12/03/men_find_careers_in_collecting_disability?utm_source=thdaily&utm_medium=email&utm_campaign=nl
Jensen Comment
Even after one or more spine surgeries it is virtually impossible to determine
whether remaining pain is real or faked. I can claim first hand that after 15
spine surgeries and metal rods from neck to hip that my wife's suffering is
real. However, I know of at least two instances where the disability careers are
faked in order to get monthly lifetime disability payments and access to
Medicare long prior to age 65. This seems to be one of the unsolvable problems
in society that becomes even more problematic when a disability career is easier
to enter than a job-like career.
December 3, 2012 reply from Glen Gray
There was (and continues to be) a sad story in
L.A. regarding a hospital that closed partly because employees basically
saw it as a lottery. The number of disability claims were far above the
average and I believe the most common stated reason for the claim was
falling backwards out of folding chairs in the cafeteria.
I recall that Goodwill Industries ran into a
similar problem. They were paying people some money to work at Goodwill
to supplement the work of volunteers. These workers would quickly file
work comp claims, which in turn made Goodwill's worker comp insurance to
skyrocket. Goodwill had to stop the outreach program.
Glen L. Gray, PhD, CPA
Dept. of Accounting & Information Systems
College of Business & Economics
California State University,
Northridge 18111 Nordhoff ST Northridge, CA 91330-8372
"Corporate Shams," by Joshua D. Blank and Nancy C. Staudt, SSRN,
March 23, 2012 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2035057
Abstract:
Many
people — perhaps most — want to make money and lower their taxes, but few
want to unabashedly break the law. These twin desires have led to a range of
strategies, such as the use of “paper corporations” and offshore tax havens,
that produce sizable profits with minimal costs. The most successful and
ingenious plans do not involve shady deals with corrupt third parties, but
strictly adhere to the letter of the law. Yet the technically legal nature
of the schemes has not deterred government lawyers from challenging them in
court as “nothing more than good old-fashioned fraud.”
In this Article, we focus on government challenges to corporate financial
plans — often labeled “corporate shams” — in an effort to understand how and
why courts draw the line between legal and fraudulent behavior. The scholars
and commentators who have investigated this question nearly all agree:
Judicial decision making in this area of the law is erratic and
unpredictable. We build on the extant literature with the help of a new,
large dataset, and uncover important and heretofore unobserved trends. We
find that courts have not produced a confusing morass of outcomes (as some
have argued), but instead have generated more than a century of opinions
that collectively highlight the point at which ostensibly legal planning
shades into abuse and fraud. We then show how both government and corporate
attorneys can exploit our empirical results and explore how these results
bolster many of the normative views set forth by the scholarly and
policymaking communities.
Bob Jensen's Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
Teaching Case from The Wall Street Journal Accounting Weekly Review on
December 13, 2012
Hostess Maneuver Deprived Pension
by:
Julie Jargon, Rachel Feintzeig and Mike Spector
Dec 10, 2012
Click here to view the full article on WSJ.com
TOPICS: Pension Accounting
SUMMARY: "Hostess Brands Inc. said it used wages that were supposed
to help fund employee pensions for the company's operations as it sank
toward bankruptcy....Hostess had 115 different collective-bargaining
agreements with employees represented by the bakers union. Each contract let
those workers choose an amount of wages to direct to the pension plan. For
example, John Jordan, a union official and former Hostess employee, said
workers at a Hostess factory in Biddeford, Maine, agreed to plow 28 cents of
their 30-cents-an-hour wage increase in November 2010 into the pension plan.
Hostess was supposed to take the additional 28 cents an hour and contribute
it to the workers' pension plan....[However, ] in the five months before
this past January's bankruptcy filing, the company missed payments to
the...pension fund totaling $22.1 million...After that, forgone pension
payments added up at a rate of $3 million to $4 million a month...As the
company's financial condition deteriorated, 'whatever cash it had was being
used to fund the business, to keep it afloat'...."
CLASSROOM APPLICATION: The article may be used to discuss issues in
payroll accounting and cash flows.
QUESTIONS:
1. (Advanced) Summarize the payroll accounting process, showing a
basic journal entry for a weekly payroll and describing the calculation that
supports the entry.
2. (Advanced) What is the difference between gross and net pay?
What must a company do with federal income taxes and other items withheld
from gross pay?
3. (Introductory) What was Hostess supposed to do with the amounts
withheld from employee wages for pension plan contributions? What did the
company do instead?
4. (Introductory) According to a letter from the former chief
executive officer (CEO) of Hostess, Brian Driscoll, why did Hostess
"temporarily suspend" its contributions to the employees' pension plans?
5. (Advanced) Now that Hostess has filed for bankruptcy, what do
you think is the status of the withheld wages that were not paid over to the
employees' pension funds?
Reviewed By: Judy Beckman, University of Rhode Island
"Hostess Maneuver Deprived Pension," by Julie Jargon, Rachel Feintzeig
and Mike Spector, The Wall Street Journal, December 10, 2012 ---
http://professional.wsj.com/article/SB10001424127887323316804578165813739413332.html?mod=djem_jiewr_AC_domainid&mg=reno64-wsj
Hostess Brands Inc. said it used wages that were
supposed to help fund employee pensions for the company's operations as it
sank toward bankruptcy.
It isn't clear how many of the Irving, Texas,
company's workers were affected by the move or how much money never wound up
in their pension plans as promised.
After the company said in August 2011 that it would
stop making pension contributions, the foregone wages weren't put toward the
pension. Nor were they restored.
The maker of Twinkies, Ho-Hos and Wonder Bread
filed for bankruptcy protection in January and shut down last month
following a strike by one of the unions representing Hostess workers. A
judge is overseeing the sale of company assets.
Gregory Rayburn, Hostess's chief executive officer,
said in an interview it is "terrible" that employee wages earmarked for the
pension were steered elsewhere by the company.
"I think it's like a lot of things in this case,"
he added. "It's not a good situation to have."
Mr. Rayburn became chief executive in March and
learned about the issue shortly before the company shut down, he said.
"Whatever the circumstances were, whatever those decisions were, I wasn't
there," he said.
A spokeswoman for Hostess's previous top executive,
Brian Driscoll, declined to comment.
Hostess hasn't previously acknowledged that the
foregone wages went toward its operations.
The maneuver probably doesn't violate federal law
because the money Hostess failed to put into the pension didn't come
directly from employees, experts said.
"It's what lawyers call betrayal without remedy,"
said James P. Baker, a partner at Baker & McKenzie LLP who specializes in
employee benefits and isn't involved in the Hostess case. "It's sad, but
that stuff does happen, unfortunately."
The decision to cease pension contributions angered
many employees. After the bankruptcy filing, Hostess tangled with the
International Brotherhood of Teamsters and the Bakery, Confectionery,
Tobacco and Grain Millers International Union to renegotiate labor
contracts.
While the Teamsters union agreed in September to a
compromise, resistance from the bakers union was fierce.
Halted pension contributions were a major factor in
the bakers union's refusal to make a deal with the company. After a U.S.
bankruptcy judge granted Hostess's request to impose a new contract, the
union's employees went on strike. Hostess then moved to liquidate the
company.
The bakers union represented about 5,600 of the
company's 18,500 employees.
"The company's cessation of making pension
contributions was a critical component of the bakers' decision" to walk off
the job, said Jeffrey Freund, a lawyer for the union.
"If they had continued to fund the pension, I think
we'd still be working there today," said Craig Davis, a 44-year-old forklift
operator who loaded trucks with Twinkies, cupcakes and sweet rolls at an
Emporia, Kan., bakery, for nearly 22 years.
Hostess's retirees receive payments mostly from
so-called multiemployer pension plans. Such pensions get contributions from
various companies in a particular industry. Hostess's pension plans still
are making payouts to retirees.
Most companies provide pensions through
single-employer plans that they fund themselves. When companies with these
plans file for bankruptcy protection, they sometimes terminate the plans,
leading the Pension Benefit Guaranty Corp., the government agency that
insures corporate pensions, to take over the plans and make payouts to their
retirees.
With the multiemployer plans from which most
Hostess retirees receive benefits, the PBGC doesn't step in unless the plans
become insolvent. If that happened, the PBGC would send roughly $12,870 for
each employee with at least 30 years of service, according to an agency
spokesman.
The Bakery & Confectionary Union & Industry
International Pension Fund, the largest fund covering Hostess bakers, was
72% funded when Hostess stopped making contributions, the company said.
Teamster-represented employees at Hostess didn't
contribute a portion of their wages toward pensions, a union spokesman said.
But among workers in the bakers union, it was "standard practice," said Mr.
Rayburn, Hostess's CEO.
Hostess had 115 different collective-bargaining
agreements with employees represented by the bakers union. Each contract let
those workers choose an amount of wages to direct to the pension plan.
For example, John Jordan, a union official and
former Hostess employee, said workers at a Hostess factory in Biddeford,
Maine, agreed to plow 28 cents of their 30-cents-an-hour wage increase in
November 2010 into the pension plan.
Hostess was supposed to take the additional 28
cents an hour and contribute it to the workers' pension plan.
"This local was very aggressive about saving for
the future," he said.
Employees in Biddeford began directing wages toward
pensions in 1955, and the amount grew to $4.28 an hour per employee.
Amounts varied by location, and it isn't clear how
many unionized employee groups participated in the arrangement.
In five months before this past January's
bankruptcy filing, the company missed payments to the main baker pension
fund totaling $22.1 million, Mr. Freund said. After that, forgone pension
payments added up at a rate of $3 million to $4 million a month until
Hostess formally rejected its contracts with the union. The figures include
company contributions and employee wages that were earmarked for the
pension, according to Mr. Freund.
Continued in article
Bob Jensen's threads on pension accounting are at
http://www.trinity.edu/rjensen/Theory02.htm#Pensions
Patent Troll ---
http://en.wikipedia.org/wiki/Patent_troll
"Intellectual Ventures: Don't Mind Our 2000 Shell Companies, That's
Totally Normal from the nothing-nefarious-at-all dept," TechDirt, December
20, 2012 ---
http://www.techdirt.com/articles/20121220/02365821447/intellectual-ventures-dont-mind-our-2000-shell-companies-thats-totally-normal.shtml
Back in 2010, we wrote about a report suggesting
that Intellectual Ventures was using somewhere around
1000 shell companies to hide many of its patent
shakedown attempts. For years, IV itself liked to say that it wasn't
involved in any patent litigation directly (that changed not so long ago),
but we had seen some IV patents
showing up from some small patent trolls, where it
was impossible to determine who actually controlled the patent or the
lawsuits. However, at times, other companies have argued that the shell
lawsuits were really
IV in disguise.
A few months ago, we wrote about an attempt to
crowdfund an
investigation into all of IV's shell companies.
While that attempt to raise money did not reach its goal, it has helped put
renewed attention on IV's use of a massive number of shell companies. In
response, IV has been trying very hard to play down the whole thing. It
published a ridiculous blog post arguing that
the use of thousands of shell companies is just a normal business procedure:
This is a common practice for asset management
firms, and it’s just common sense. Do stock brokers broadcast tips to
their competitors? Does Warren Buffet tell the world where he’s
investing next? Does Disney broadcast which plots of land it is planning
to buy for its next theme park? Of course not, and IV takes a similar
approach to our investments.
Ah, sure, this is all to throw other companies off the
scent of what IV is "investing" in. That makes sense if IV were actually an
investment company, rather than a shakedown play. The idea that publicly
stating what patents it owns would somehow "broadcast tips" to "competitors"
is ridiculous. Who out there is really an IV competitor? No, what IV is
almost certainly worried about is that, if the extent of its activities were
known, there would be more fodder for real and necessary reform against
trolling -- and, more importantly, it's worried about tipping off the
companies it's about to go after. It's not about competition -- it's about
avoiding a smart company going to court to get a declaratory judgment
against IV, which they admit later on in the post:
Moreover, were we to publish the entirety of
our holdings we, or any other company for that matter, could find
ourselves mired down in a series of tactical declaratory judgments and
reexaminations.
Shocking. Perhaps if you didn't go around demanding huge sums of money from
companies with a giant stack of vague and overly-broad patents you wouldn't
face a series of declaratory judgments and re-exams.
In fact, no one has ever suggested that
transparency is needed in the real estate world, yet properties are
routinely held in the name of holding companies. When it comes to
property ownership, patents shouldn’t be held to a different of set of
rules
Well, if property holding companies routinely used
their assets to shake down every other real estate owner out there, perhaps
there would be calls for the practice to end. Plus, sorry, patents
are not "property" like real estate is property. And, in fact, this is the
key to IV's entire business model. If patents properly delineated the
boundaries of what the patents covered, there wouldn't be much room for
trolling. But, instead, IV relies on the fact that patents are broad and
vague and "might" apply to all sorts of things.
In response to an article about all of this, IV also
claimed that anyone who wanted to know about what
patents IV holds can simply "search the USPTO's public database." Of course,
this is a snarky and misleading answer for a number of reasons. First, it
ignores the shell company patents. Second, it assumes that the USPTO's
search actually works well (it does not).
Thankfully, however, the good folks at PlainSite, who try to shine some
light on the hidden corners of the legal system, decided to take
Intellectual Ventures up on its offer -- and actually
went through the data to see what was lurking:
Like all of the USPTO's on-line systems, the
assignment database is a technological abomination--sadly ironic for the
agency that effectively manages the nation's technology rights. (The
USPTO does deserve credit for making raw XML data available through
Google, which is where our project began.) It must be noted that
Intellectual Ventures would have had a much harder time lurking in the
shadows all these years if government information technology systems,
such as the USPTO assignment database and different states' corporation
databases, were kept up to par. In fact, its business model would likely
be impossible, as the courts would be likely to label the company as a
vexatious litigant if they only knew how many lawsuits it filed.
In the end, after digging through the database, PlainSite has identified --
and released for all your enjoyment -- the names of what appear to be
over 2,000 shell companies, though they
admit that some of them may be fully independent. But... many of them
apparently had "some obvious overlaps" like sharing "managing corporations,
telephone numbers, and other factors." Oops. They're hoping not to "crowdfund"
the efforts here, but rather to crowdsource the data. As they note,
they're spreading this information, because "we hope that Congress and the
courts take notice of one of the largest racketeering schemes ever
perpetrated on the nation, with some of its richest billionaires acting more
like thugs than visionaires."
Continued in article
Bob Jensen's Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
Mary S. Stone is listed in the University of Alabama Website as the
Current Director of the Culverhouse School of Accounting
http://cba.ua.edu/academics/departments/accountancy#Faculty%20and%20Staff
Mary is also a former President of the American Accounting Association
More About the Mary Stone Controversy
"Other House of Morgan Spawns a Web of Scandals," by Jonathan Weil, Bloomberg
News, December 13, 2012 ---
http://www.bloomberg.com/news/2012-12-13/other-house-of-morgan-spawns-a-web-of-scandals.html
It has been more than five years since a group of
mutual funds run by Morgan Keegan & Co. crashed in an accounting debacle,
costing investors about $1.5 billion. Now the scandal has reached the
boardroom at one of the U.S. accounting profession’s highest bodies.
This week the Securities and Exchange Commission
accused eight former Morgan Keegan fund directors of shirking their
oversight responsibilities when it came to the funds’ asset valuations.
One former director, Mary Stone, is a trustee for
the Norwalk, Connecticut-based Financial Accounting Foundation, which
oversees the board that sets U.S. accounting standards.
After the SEC’s enforcement division filed its
claims on Dec. 10, the foundation issued a news release saying Stone had
requested and been granted a leave of absence from its board of trustees. It
didn’t say why. The SEC previously had accused the funds of fraudulently
overstating their asset values.
That the foundation appointed Stone to its
board in the first place was a serious lapse. It was a matter of public
record when Stone was selected that she had been the funds’ audit-committee
chairman during the time when the SEC said the fraud occurred. The SEC filed
its complaint accusing Morgan Keegan and two employees of accounting fraud
in April 2010. Stone was named a trustee of the accounting foundation in
November 2010, while the SEC’s investigation was ongoing. Settlement Terms
Stone, who is an accounting professor at the
University of Alabama in Tuscaloosa, didn’t return phone calls. Through
their attorneys, the eight former directors have denied the SEC’s
allegations, saying they acted diligently and in good faith. Morgan Keegan
agreed to pay $200 million in June 2011 to settle fraud claims by the SEC
and other regulators. The two employees at the Memphis, Tennessee-based
securities firm also paid fines.
The SEC’s order this week said the fund directors
“delegated their responsibility to determine fair value to a valuation
committee without providing any meaningful substantive guidance on how those
determinations should be made.” Additionally, it said “they made no
meaningful effort to learn how fair values were actually being determined”
for illiquid securities.
You have to wonder what the accounting foundation’s
trustees were thinking when they selected Stone. Of all the people they
might have tapped, surely they could have found someone who hadn’t been on
the audit committee of an outfit accused by the SEC of accounting fraud. The
foundation should be setting a positive example when choosing its leaders.
Trustees’ backgrounds should be pristine.
Stone’s job as an audit-committee member was to
oversee the financial integrity of the Morgan Keegan funds. Regardless of
whether the funds’ violations were Stone’s fault, they happened on her
watch. Stone already was a defendant in numerous investor lawsuits when she
was named a trustee.
So how did Stone, 62, manage to get picked?
Robert Stewart, a spokesman for the foundation, said he “can’t comment on
any specific case.” Speaking generally, he said candidates are interviewed
by members of the trustees’ appointments committee, and that names of
finalists are submitted to the SEC chief accountant’s office. He also said
that the foundation conducts background checks on finalists, and that SEC
commissioners have the opportunity to express their views.
Obviously, the foundation’s trustees knew or
should have known about Stone’s role at the Morgan Keegan funds before
hiring her. All anyone had to do was a Google search. Likewise, they should
have realized there was a risk the SEC would file claims against her
individually, as it did this week. It isn’t clear what the SEC told the
foundation about Stone, if anything, or what the board’s rationale was for
choosing her.
An SEC spokesman, John Nester, declined to answer
questions about Stone’s appointment process. Different Animal
The accounting foundation is no ordinary private
party. It oversees the Financial Accounting Standards Board, which sets U.S.
generally accepted accounting principles, as well as the Governmental
Accounting Standards Board, which determines accounting rules for state and
local governments. It’s up to the SEC to decide whether the FASB continues
as a designated standard-setter for U.S. companies.
The foundation’s 17-member board is filled with
luminaries from the worlds of accounting and finance. Its chairman when
Stone was appointed was John Brennan, the former chief executive officer of
the investment manager Vanguard Group Inc. Brennan, who remains a trustee,
was succeeded as chairman this year by Jeffrey Diermeier, the former CEO of
the CFA Institute, which is the global accreditation body for chartered
financial analysts.
Continued in article
Message from Denny Beresford on December 11, 2012
I happened to stumble across this SEC enforcement
action -
http://www.sec.gov/litigation/admin/2012/ic-30300.pdf
The Financial Accounting Foundation just announced
that Trustee Mary S. Stone, who is named in the SEC enforcement release and
is a former AAA President, is taking a leave of absence from the Foundation
Denny
SEC Release 2012-259
SEC Charges Eight Mutual Fund Directors for Failure to Properly Oversee
Asset Valuation
FOR IMMEDIATE RELEASE
2012-259
Washington, D.C., Dec. 10, 2012 — The Securities and Exchange
Commission today announced charges against eight former members of the
boards of directors overseeing five Memphis, Tenn.-based mutual funds for
violating their asset pricing responsibilities under the federal securities
laws.
The funds, which were invested in some securities backed by subprime
mortgages, fraudulently overstated the value of their securities as the
housing market was on the brink of financial crisis in 2007. The SEC and
other regulators
previously charged the funds’ managers with fraud, and the firms later
agreed to pay $200 million to settle the charges.
Under the securities laws, fund directors are responsible for determining
the fair value of fund securities for which market quotations are not
readily available. According to the SEC’s order instituting administrative
proceedings against the eight directors, they delegated their fair valuation
responsibility to a valuation committee without providing meaningful
substantive guidance on how fair valuation determinations should be made.
The fund directors then made no meaningful effort to learn how fair values
were being determined. They received only limited information about the
factors involved with the funds’ fair value determinations, and obtained
almost no information explaining why particular fair values were assigned to
portfolio securities.
“Investors rely on board members to establish an accurate process for
valuing their mutual fund investments. Otherwise, they are left in the dark
about the value of their investments and handicapped in their ability to
make informed decisions,” said Robert Khuzami, Director of the SEC’s
Division of Enforcement. “Had the board not abdicated its responsibilities,
investors may have stood a better chance of preserving their hard-earned
assets.”
The SEC Enforcement Division’s Asset Management Unit continues to
prioritize asset valuation investigations, with recent enforcement actions
including charges against
three top executives at New York-based KCAP Financial and
two
executives at former $1 billion hedge fund advisory firm Yorkville Advisors
LLC.
The eight fund directors named in today’s SEC enforcement action are:
- J. Kenneth Alderman of Birmingham, Ala.
- Jack R. Blair of Germantown, Tenn.
- Albert C. Johnson of Hoover, Ala.
- James Stillman R. McFadden of Germantown
- Allen B. Morgan Jr. of Memphis
- W. Randall Pittman of Birmingham
- Mary S. Stone of Birmingham
- Archie W. Willis III of Memphis
According to the SEC’s order, the eight directors’ failure to fulfill
their fair value-related obligations was particularly inexcusable given that
fair-valued securities made up the majority of the funds’ net asset values –
in most cases more than 60 percent. The mutual funds involved were the RMK
High Income Fund, RMK Multi-Sector High Income Fund, RMK Strategic Income
Fund, RMK Advantage Income Fund, and Morgan Keegan Select Fund.
The SEC Enforcement Division alleges that the directors caused the funds
to violate the federal securities laws by failing to adopt and implement
meaningful fair valuation methodologies and procedures and failing to
maintain internal control over financial reporting. For example, the funds’
valuation procedures did not include any mechanism for identifying and
reviewing fair-valued securities whose prices remained unchanged for weeks,
months, and even entire quarters.
“While it is understood that fund directors typically assign others the
daily task of calculating the fair value of each security in a fund’s
portfolio, at a minimum they must determine the method, understand the
process, and continuously evaluate the appropriateness of the method used,”
said William Hicks, Associate Regional Director of the SEC’s Atlanta
Regional Office.
According to the SEC’s order, the funds’ valuation procedures required
that the directors be given explanatory notes for the fair values assigned
to securities. However, no such notes were ever provided to the directors,
and they never followed up to request such notes or any other specific
information about the basis for the assigned fair values. In fact, Morgan
Keegan’s Fund Accounting unit, which assigned values to the securities, did
not utilize reasonable procedures and often allowed the portfolio manager to
arbitrarily set values. As a result, the net asset values of the funds were
materially misstated in 2007 from at least March 31 to August 9.
Consequently, the prices at which one open-end fund sold, redeemed, and
repurchased its shares were inaccurate. Furthermore, other reports and at
least one registration statement filed by the funds with the SEC contained
net asset values that were materially misstated.
The SEC’s order alleges that the fund directors caused the funds’
violations of Rules 22c-1, 30a-3(a) and 38a-1 under the Investment Company
Act of 1940.
The SEC’s investigation was conducted by members of the SEC’s Atlanta
Regional Office and the Asset Management Unit.
Bob Jensen's Fraud Updates are at
http://www.trinity.edu/rjensen/FraudUpdates.htm
Theft in the State of Georgia (the one that's north of Florida)
"Postal employees stole millions in federal checks: Georgia supervisor,
coworkers and four others cashed 1,300 U.S. Treasury checks before authorities
caught them. More than 171 Postal workers arrested in 2012," by Phillip
Swarts, Washington Guardian, December 19, 2012 ---
Neither snow nor rain nor heat nor gloom of night
could stop these postal employees from stealing checks.
The former supervisor at an Atlanta mail
distribution facility, a coworker and four others pled guilty this month to
stealing $3 million in U.S. Treasury checks, including veterans benefits,
tax refunds and Social Security checks. By the time authorities figured out
the scheme, the small theft ring had stolen or cashed 1,300 federal checks,
officials said.
And the Georgia workers aren't alone. Between April
and September of this year, 171 Postal Service employees were arrested for
theft, willful delay or destruction of mail, according to a new report by
the USPS inspector general. The Service has about 546,000 employees. "We
have taken two corrupt postal workers, including a supervisor, off the
streets who were responsible for stealing thousands of checks worth over $3
million," U.S. Attorney Sally Quillian Yates in Atlanta said. "We will
continue to target these theft rings, both those on the inside and their
network of check cashers, to address this serious problem.”
Gerald Eason, 47, pled guilty to stealing more than
1,300 checks while working at the postal facility. His accomplice, mail
handler Deborah Fambro-Echols, 49, has also pled guilty.
The two employees pled guilty to conspiracy and
theft of government money. Eason pleaded guilty to several other charges
including possession of stolen Treasury checks. There's a wide range of jail
time they could be serving, though. Each charge carries anywhere from five
to 30 years in prison.
Investigators became aware there was a problem in
December 2010, USPS Office of Inspector General spokeswoman Agapi Doulaveris
said. Federal agents watched and investigated Eason and his accomplices
before they were arrested in early March, Doulaveris said.
"Eason and Fambro-Echols reflect just a very small
percentage of employees who failed to uphold the trust and integrity placed
in them," said Paul Bowman, the U.S. Postal Service Office of Inspector
General's special agent in charge. "The majority of Postal Service employees
are honest, hardworking, and committed to providing the timely and reliable
service that customers expect and deserve."
Four other defendants also pled guilty to helping
the Atlanta scheme, including cashing the stolen checks, acting as brokers
and using fake ID's. Two were arrested in a Georgia bank when they tried to
impersonate the intended recipient of the check. None of the four are U.S.
Postal Service employees.
In 2011, Georgia "ranked third in the country in
the number of federal tax refund, Social Security, and Veterans checks
reported stolen by their intended recipients," Yates said, prompting the
creation of the U.S. Attorney's Stolen Treasury Check Task Force, a
coalition of 14 federal, state and local law enforcement agencies to
investigate the problem of stolen checks in northern Georgia.
The Post Office is facing a multi-billion dollar
budget deficit and is looking for ways to save money, but Doulaveris said
any measures aren't expected to affect investigations and the service's
ability to respond to illegal behavior.
Continued in article
Bob Jensen's Fraud Updates are at
http://www.trinity.edu/rjensen/FraudUpdates.htm
"Controller finds more accounting problems in parks payroll," Los Angeles Times, December 18, 2012 ---
http://latimesblogs.latimes.com/california-politics/2012/12/california-parks-accounting-scandal-payroll.html
A review of the scandal-plagued California parks
department found that managers were circumventing payroll policies and
boosting employee salaries, according to the state controller's office on
Tuesday.
"The deliberate disregard for internal controls
along with little oversight and poorly trained staff resulted in improper
payouts to parks' employees," said Controller John Chiang in a statement.
"When security protocols and authorization requirements so easily can be
overridden, it invites the abuse of public funds."
One of the apparent abuses involved "out of class"
payments, which is extra money paid to employees for handling duties outside
their regular responsibilities. The controller's office said managers were
circumventing proper procedures to award payments totaling $520,000 to 203
employees from July 1, 2009, through June 30, 2012.
Although a lack of paperwork made it impossible for
officials to determine exactly how much of that money was wrongfully paid,
some policies were violated, resulting in excessive payments, according to
the controller's office.
A spokesman for the parks department did not
immediately respond to a request for comment.
[Updated, 11:58 a.m. Dec. 18: "We acknowledge and
it is widely known that some very unfortunate events occurred at the
Department of Parks and Recreation, in particular with the mismanagement of
payroll systems and data," said Roy Stearns, a parks spokesman, in a
statement. He said the department is using the controller's findings to
"continue to improve and safeguard our payroll systems."]
The controller's review was launched after
officials revealed the parks department had hidden away $54 million in two
accounts over a period of several years. The department's director, Ruth
Coleman, was ousted, and Gov. Jerry Brown appointed a retired Marine
general, Anthony Jackson, to replace her last month. Jackson is awaiting
Senate approval.
Continued in article
Bob Jensen's Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
TheStreet gets caught with accounting fraud on Wall Street
SEC Charges Financial Media Company and Executives Involved in Accounting
Fraud
|
FOR IMMEDIATE RELEASE
2012-270Washington, D.C., Dec. 18, 2012 — The Securities and
Exchange Commission today charged a digital financial media company
and three executives for their roles in an accounting fraud that
artificially inflated company revenues and misstated operating
income to investors.
The SEC alleges that TheStreet Inc., which operates the website
TheStreet.com, filed false financial reports throughout 2008 by
reporting revenue from fraudulent transactions at a subsidiary it
had acquired the previous year. The co-presidents of the subsidiary
– Gregg Alwine and David Barnett – entered into sham transactions
with friendly counterparties that had little or no economic
substance. They also fabricated and backdated contracts and other
documents to facilitate the fraudulent accounting. Barnett is
additionally charged with misleading TheStreet’s auditor to believe
that the subsidiary had performed services to earn revenue on a
specific transaction when in fact it did not perform the services.
The SEC also alleges that TheStreet’s former chief financial officer
Eric Ashman caused the company to report revenue before it had been
earned.
The three executives agreed to pay financial penalties and accept
officer-and-director bars to settle the SEC’s charges.
“Alwine and Barnett used crooked tactics, Ashman ignored basic
accounting rules, and TheStreet failed to put controls in place to
spot the wrongdoing,” said Andrew M. Calamari, Director of the SEC’s
New York Regional Office. “The SEC will continue to root out
accounting fraud and punish the executives responsible.”
According to the SEC’s complaints filed in federal court in
Manhattan, the subsidiary acquired by TheStreet specializes in
online promotions such as sweepstakes. After the acquisition,
TheStreet failed to implement a system of internal controls at the
subsidiary, which enabled the accounting fraud.
The SEC alleges that through the actions of Ashman, Alwine, and
Barnett, TheStreet:
- Improperly recognized revenue based on sham transactions.
- Used the percentage-of-completion method of revenue
recognition without meeting fundamental prerequisites to do so,
including reliably estimating and documenting progress toward
the completion of relevant contracts.
- Prematurely recognized revenue when the subsidiary had not
performed actual work and therefore had not really earned the
revenue.
According to the SEC’s complaint, when the subsidiary’s financial
results were consolidated with TheStreet’s financial results for
financial reporting purposes, the improper revenue on the
subsidiary’s books resulted in material misstatements in the
company’s quarterly and annual reports for fiscal year 2008. On
Feb. 8, 2010, TheStreet restated its 2008 Form 10-K and disclosed a
number of improprieties related to revenue recognition at its
subsidiary, including transactions that lacked economic substance,
internal control deficiencies, and improper accounting for certain
contracts.
Ashman agreed to pay a $125,000 penalty and reimburse TheStreet
$34,240.40 under the clawback provision (Section 304) of the
Sarbanes-Oxley Act, and he will be barred from acting as a director
or officer of a public company for three years. Barnett and Alwine
agreed to pay penalties of $130,000 and $120,000 respectively, and
to be barred from serving as officers or directors of a public
company for 10 years. Without admitting or denying the allegations,
the three executives and TheStreet agreed to be permanently enjoined
from future violations of the federal securities laws.
The SEC’s investigation was conducted by Senior Counsel Maureen
P. King and Staff Accountant Nandy Celamy of the New York Regional
Office. Aaron Arnzen served as Senior Trial Counsel in the matter.
http://www.sec.gov/news/press/2012/2012-270.htm |
Other Alleged Frauds as of December 19, 2012
Bob Jensen's Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
Lehman Repo 105/109 Scandal Involving Ernst & Young ---
http://www.trinity.edu/rjensen/ecommerce/eitf01.htm#Repo
"Lehman Troubles Not Over For Ernst & Young," by Francine McKenna,
Forbes, December 13, 2012 ---
http://www.forbes.com/sites/francinemckenna/2012/12/13/lehman-troubles-not-over-for-ernst-young/
Ernst & Young chalked up one small victory in
New York
State Supreme Court this week over claims by the New
York Attorney General that the firm committed fraud leading to the failure
of Lehman Brothers in 2008. Justice Jeffrey Oing said the New York Attorney
General cannot claim $150 million in fees that Ernst & Young earned from
Lehman Brothers Holdings from 2001-2008, when the firm filed bankruptcy.
Attorney David Ellenhorn of the NYAG claimed the
fees represented “disgorgement” of “ill gotten gains” since the Attorney
General says Ernst & Young repeatedly committed “fraudulent acts” as auditor
of Lehman Brothers all those years. When Ellenhorn tried to explain this to
the judge, Oing told Ellenhorn he had the wrong remedy.
Not good when you have to explain too much to the
judge.
Fortunately for the New York Attorney General, the
fees disgorgement strategy is Plan B. (It’s literally
“Letter B” in the list of remedies the NYAG seeks
for Ernst & Young’s alleged fraudulent acts.) The New York Attorney General
can still pursue its request that Ernst & Young “pay restitution,
disgorgement and damages caused, directly or indirectly, by the fraudulent
and deceptive acts and repeated fraudulent acts and persistent illegality
complained of herein plus applicable pre-judgment interest.”
The New York Attorney General,
you may recall from my previous reports, has the
powerful Martin Act on its side. Back in December of 2010, The
Wall Street
Journal’s
Ashby Jones at the Law Blog explained
just how powerful this law is.
In the
lawsuit filed against accounting firm Ernst & Young, Andrew Cuomo
brought four claims, three of them under New York’s Martin Act, one of
the most powerful prosecutorial tools in the country. Technically
speaking, the Martin Act allows New York’s top law enforcer to go after
wrongdoing connected to the sale or purchase of securities. Nothing too
noteworthy there.
But what
is noteworthy is the power the act confers upon its user. It enables him
to subpoena any document from anyone doing business in New York and, if
he so desires, keep an investigation entirely secret. People subpoenaed
in Martin Act cases aren’t afforded a right to counsel or the right
against self-incrimination. “Combined, the act’s powers exceed those
given any regulator in any other state,” wrote Nicholas Thompson in this
2004 Legal Affairs article.
And we
haven’t even gotten to the kicker. Courts in civil Martin Act cases have
held that “fraud” under the Martin Act “includes all deceitful practices
contrary to the plain rules of common honesty and all acts tending to
deceive or mislead the public, whether or not the product of scienter or
intent to defraud.” In other words, in order to prove a Martin Act
violation, the attorney general is not required to prove that the
defendant intended to defraud anyone, only that a defrauding act was
committed…
Mr. Ellenhorn, however, is all, “We’ll never make
it…”, like
Glum in
Gulliver’s Travels. He worried aloud to the judge,
according to Reuters, that the private class
action litigation still facing Ernst & Young over Lehman will beat him to
the punch in claiming compensation for investor losses.
In July of 2011, New
York Federal Court Judge Lewis Kaplan decided to
allow substantially all of the allegations against Lehman executives and at
least one of the allegations against Ernst & Young to move forward to
discovery and trial. That
case is proceeding.
The remaining allegation in the class action
litigation against Ernst & Young? That Ernst & Young had reason to know that
Lehman’s 2Q 2008 financial statements could be materially misstated because
of the extensive use of Repo 105 transactions.
Ellenhorn is worried because the NYAG’s remaining
remedy is for investors’ damages. Investors, however, have their own ongoing
lawsuits against Ernst & Young to recover the same damages. If the investors
are successful first in their lawsuits, the state cannot pursue a double
recovery for the same damages.
Ernst & Young claimed victory at the time of Judge
Kaplan’s decision, too. To me, however, the threat of a trial is formidable.
It’s costing Ernst & Young a lot of time and money to address.
Continued in article
Bob Jensen's threads on the Repo 105/109 scandal ---
http://www.trinity.edu/rjensen/ecommerce/eitf01.htm#Repo
Bob Jensen's threads on Ernst & Young ---
http://www.trinity.edu/rjensen/Fraud001.htm
"Fresh Design Brightens Evernote 5," by Katherine Boehret, The Wall
Street Journal, December 18, 2012 ---
http://professional.wsj.com/article/SB10001424127887323723104578187450194767998.html?mg=reno64-wsj
Ever miss the simplicity of file cabinets and
manila folders? Although today's digital lifestyle is supposed to be easier,
it can quickly turn into a muddled mess of out-of-sync devices, forgotten
account passwords and misplaced files.
Since its debut in 2008, Evernote has tried to
change that. This free service gives people a place to store all kinds of
documents and uses a system of virtual notebooks to sort things like PDFs,
text notes, audio snippets and drawings. One of Evernote's strongest
features has been its usability on almost all devices and operating systems,
including Macs, Windows PCs, BlackBerrys, devices running iOS (Apple's AAPL
-0.96% mobile operating system) or Android, and browsers and printers.
But like a ho-hum, reliable car that merely got you
where you wanted to go, Evernote hasn't always been a particularly
delightful thing to use.
Meet Evernote 5, a revamped version of the service
that purrs with fluid features and playful design elements. In place of a
dull list view of notes and notebooks, a handsome Cards view shows better
images and details for saved items; on iOS, each card spins around and
floats toward you when it's selected.
A new Atlas section sorts all Evernote entries by
where they were captured, displaying attractive maps that bring life to
boring notes. Searching has improved. And a handy left-side panel includes
new sections for Shortcuts to notebooks or notes, which you set up, and
Recent Notes, which displays the five most recent things saved to your
Evernote account.
Evernote 5 recently launched on Apple's Mac
computers and iOS mobile devices, and the company will bring out versions
for Windows, Android and the Web early next year. A free Evernote account
gives you 60 megabytes of usage a month, while a Premium account includes 1
gigabyte of usage each month, no ads, offline usage and other extras.
Premium costs $45 a year or $5 monthly.
Last summer, when I finished my final project for
graduate school, I relied on Evernote to organize all of my notes, files,
emails, photos and interviews. It did the job, but Evernote 5 is simply
better looking, more functional and more enjoyable to use.
If you like collaborating with other people on
notes, you can share anything from your Evernote account with others via
Facebook, FB -0.69% Twitter, LinkedIn LNKD -0.81% or email. Evernote 5 has a
smarter way of displaying notebooks, with a small people icon in the top
right of each shared notebook. The covers of these notebooks also tell who
owns them, and notebooks can now be sorted by Name, Note Count or Owner in
one simple step.
Evernote makes seven different apps and works with
various products from other companies. To keep track of all these offerings,
a Trunk section in Evernote 5 sorts them and directs people to links where
they can buy or download products.
My favorite app is the Evernote Web Clipper, which
works with browsers including Google GOOG -0.36% Chrome, Firefox, Internet
Explorer and Apple's Safari to help you save anything you find on the Web.
This can include entire Web pages or just a particular image or selection of
text. I used Evernote to gather gift ideas for family and friends, keeping
them all in a notebook labeled Christmas 2012.
I also like using Evernote's Clearly, which is a
browser add-on for Chrome and Firefox that works like the Reader tool in
Apple's Safari browser. I use it with Chrome, and anytime I click on the
Clearly icon, the text of the blog page or website that I'm reading appears
without cluttered ads and other distractions. I can adjust the background
color and text size on the page, or clip pages directly to Evernote.
A few keyboard shortcuts are extra helpful when
using Evernote on your computer. Pressing Control + N on Windows, or Command
+ N on Macs, will instantly create a new note. On Macs, tapping Command + Z
will undo your last action in Evernote and pressing Command + ; will check
spelling.
One of the little-known Evernote features is its
integration with email. Each account, free or Premium, is assigned an email
address. This address is your account name added to a forgettable string of
letters and numbers, but it can be added to your email contacts. Anything
you email to your Evernote account gets saved just like a note would.
Continued in article
"Zotero vs. EndNote," by Brian Croxall, Chronicle of Higher
Education, May 3, 2011 ---
http://chronicle.com/blogs/profhacker/zotero-vs-endnote/33157
"Taking Better Notes in Zotero," by Lincoln Mullen, Chronicle of
Higher Education, October 10, 2011 ---
http://chronicle.com/blogs/profhacker/taking-better-notes-in-zotero/36561?sid=wc&utm_source=wc&utm_medium=en
Bob Jensen threads on Zotero and EverNote ---
http://www.trinity.edu/rjensen/Bookbob4.htm#WebData
"The Top Five Career Regrets," by Daniel Gulati, Harvard Business
Review Blog, December 14, 2012 ---
Click Here
http://blogs.hbr.org/cs/2012/12/the_top_five_career_regrets.html?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date
I had just finished a guest lecture on business and
innovation at
Parson's School
for Design, and a particularly attentive front-row
audience member kicked off question time with the curliest one of the day. I
answered quickly with the hope of getting back on target. But judging from
the scores of follow-up questions and the volume of post-lecture emails I
received, a talk on career regret would have been the real bull's-eye.
Ever since that afternoon, I've been on a mission
to categorically answer the awkward but significant question of exactly what
we'd do if we could magically rewind our careers. The hope? That by exposing
what others are most disappointed about in their professional lives, we're
maximizing our chances of minimizing regret in our own.
To this end, I sat down with 30 professionals
between the ages of 28 and 58, and asked each what they regretted most about
their careers to date. The group was diverse: I spoke with a 39-year-old
managing director of a large investment bank, a failing self-employed
photographer, a millionaire entrepreneur, and a Fortune 500 CEO.
Disappointment doesn't discriminate; no matter what industry the individual
operated in, what role they had been given, or whether they were soaring
successes or mired in failure, five dominant themes shone through.
Importantly, the effects of bad career decisions and disconfirmed
expectancies were felt
equally across age groups.
Here were the group's top five career regrets:
1. I wish I hadn't taken the job for the
money. By far the biggest regret of all came from those who opted
into high-paying but ultimately dissatisfying careers. Classic
research proves that compensation is a "hygiene"
factor, not a true motivator. What was surprising, though, were the feelings
of helplessness these individuals were facing. Lamented one investment
banker, "I dream of quitting every day, but I have too many commitments."
Another consultant said, "I'd love to leave the stress behind, but I don't
think I'd be good at anything else." Whoever called them
golden handcuffs wasn't joking.
2. I wish I had quit earlier.
Almost uniformly, those who had actually quit their jobs to pursue their
passions wished they had done so earlier. Variable reinforcement schedules
prevalent in large corporations, the visibility of social media, and the
desire to log incremental gains are
three reasons that the
80% of people dissatisfied with their jobs don't
quit when they know they should. Said one sales executive, "Those years
could have been spent working on problems that mattered to me. You can't
ever get those years back."
3. I wish I had the confidence to start my
own business. As their personal finances shored up, professionals I
surveyed yearned for more control over their lives. The logical answer? To
become an owner, not an employee in someone else's company. But in the words
of Artful Dodger,
wanting it ain't enough. A
recent study found that 70% of workers wished
their current job would help them with starting a business in the future,
yet only 15% said they had what it takes to actually venture out on their
own. Even Fortune 500 CEOs dream of entrepreneurial freedom. Admitted one:
"My biggest regret is that I'm a 'wantrepreneur.' I never got to prove
myself by starting something from scratch."
4. I wish I had used my time at school more
productively. Despite all the
controversy currently surrounding student loans,
roughly
86% of students still view college as a worthwhile
investment. This is reflected in the growing popularity of college: In
writing
Passion & Purpose, my coauthors and I found
that 54% of Millennials have college degrees, compared to 36% of Boomers.
Although more students are attending college, many of the group's
participants wished they had thoughtfully parlayed their school years into a
truly rewarding first job. A biology researcher recounted her college
experience as being "in a ridiculous hurry to complete what in hindsight
were the best and most delightfully unstructured years of my life." After
starting a family and signing up for a mortgage, many were unable to carve
out the space to return to school for advanced study to reset their careers.
5. I wish I had acted on my career hunches.
Several individuals recounted windows of opportunity in their careers, or as
one professional described, "now-or-never moments." In 2005, an investment
banker was asked to lead a small team in (now) rapidly growing Latin
America. Sensing that the move might be an upward step, he still declined.
Crushingly, the individual brave enough to accept the offer was promoted
shortly to division head, then to CEO. Recent theories of psychology
articulate the importance of identifying these sometimes unpredictable but
potentially rewarding
moments of change, and jumping on these
opportunities to non-linearly advance your professional life.
Continued in article
Jensen Comments
Outside the realm of mathematics and the natural sciences, writers should
probably avoid use of the words "proof" and "proves." In the social sciences and
business about the only things that can be "proven" are tautologies. Classic
research does not prove compensation is not a true motivator in many (most?)
instances. Ask any prostitute on the streets? Ask most (not all) any con men or
women? Ask most any bank robber? Ask most any Wall Street executive selling out
the best interest for shareholders so he can get a bigger bonus?
Some of the above "career regrets" can be turned inside out. For example, I
know a number of professors who gave up tenured faculty positions to follow
business interests that turned into disasters. Now the best they can do is
struggle in life with low-paid and part-time adjunct teaching contracts.
The term "using school more productively" has various meanings. For example,
it might be confused with not choosing a major having more career opportunities.
This can also vary. Some students have such high GRE/GMAT/LSAT scores that they
can turn around most any undergraduate major into a successful graduate school
major in an Ivy League university. Most other students are not so successful on
admissions tests. Using "school more productively" can even mean something apart
from academics and grades. Some Harvard Business School graduates with average
grades maximized career success by making use of student and alumni networking
opportunities afforded by the HBS.
And many other workers quit or retired too soon. Ask most any old person in a
second career as a Wal-Mart greeter.
"Mortgages in Reverse: Taxpayers get hit by another federal housing
money loser," The Wall Street Journal, December 14, 2012 ---
http://professional.wsj.com/article/SB10001424127887324640104578165683785829580.html?mg=reno64-wsj#mod=djemEditorialPage_t
Spare a thought for
Shaun Donovan, who must be tired of crafting
nuanced explanations of how his agency costs taxpayers billions of dollars.
The latest example came this month when the Housing and Urban Development
Secretary told the Senate that the Federal Housing Administration's
once-modest reverse-mortgage program is the latest drain on taxpayers thanks
to gross mismanagement.
Or as Mr. Donovan delicately put it to Tennessee
Senator
Bob Corker, the FHA's reverse-mortgage business is
an "important" issue that the agency needs "to make changes on." You don't
say.
HUD's independent actuary estimated last month that
the FHA will lose $2.8 billion this fiscal year on reverse mortgages, and in
the worst case $28.3 billion, with the losses stretching through 2019. The
feds have no idea how big the pool of red ink might be.
For those who haven't seen former Senator Fred
Thompson's TV ads, reverse mortgages are a type of home-equity loan for
Americans age 62 and older who have mostly or fully paid off their mortgage.
If the borrower can pay real-estate taxes, insurance and other fees, he can
borrow against the home and stay in it until death. Then the lender demands
repayment with interest.
The problem is that taxpayers, via the FHA, insure
lenders against the funds they advance plus accrued interest, and borrowers
can also borrow to pay the fees. FHA did fewer than 50,000 reverse-mortgage
deals a year until 2006, when the housing mania went galactic. By 2007, the
agency was insuring more than 100,000 reverse mortgages, and by 2009 the
average FHA-backed reverse mortgage reached $262,763, often paid in a lump
sum.
At least FHA guarantees for home purchases foster
Congress's professed goal of homeownership—though we've seen in the housing
bust how that misallocates capital. But guarantees for reverse mortgages go
to people who are already homeowners who want to cash out of a real-estate
asset. That's fine if they want to do it at their own risk. FHA's guarantees
are essentially a subsidy for older Americans to spend down their savings.
FHA crowded out competitors and now accounts for 90% of outstanding reverse
mortgages.
The FHA's analysts didn't foresee an extended
period of house price declines and didn't price mortality risk properly.
Many loans are now worth more than the house itself, and heirs decided to
walk away. FHA has to foot the bill for selling the house and make good on
the shortfall between the net proceeds and what lenders are owed on the
insurance. Taxpayers are ultimately on the hook.
So now comes the usual Beltway talk about reform to
try to save a program that shouldn't exist. The National Reverse Mortgage
Lenders Association wants to limit the amount that borrowers can draw
upfront and have lenders do more stringent underwriting and set aside money
to cover taxes and insurance. Mr. Donovan told the Senate he wants to make
the program "much more effective and safe."
Continued in article
The sad state of governmental accounting (it's all done with smoke and
mirrors) ---
http://www.trinity.edu/rjensen/Theory02.htm#GovernmentalAccounting
From the CFO Journal on December 14, 2012 (including a $1 billion UBS
settlement in the LIBOR scandal)
Senate allows TAG expiration to proceed.
A bill that would have extended unlimited FDIC coverage on non-interest
bearing bank accounts failed in the Senate,
Emily Chasan reports.
As a result, after Dec. 31, only the first $250,000 in
the accounts will have the insurance. The financial-crisis era guarantee
made the accounts popular for companies to park large amounts of cash.
Treasurers have been evaluating other options like money market funds and
Treasurys ahead of the program’s end.
New IPOs take a pass on JOBS Act exemptions.
A study by Ernst & Young indicates that nearly three quarters of all new IPO
registrations have been classified as “emerging growth company,” but many
aren’t taking advantage of accounting provisions that designation entitles
them to under the JOBS Act,
Emily Chasan reports.
Companies with less than $1 billion in annual revenue
only have to provide two years of audited financial information in lieu of
the usual three, but only 39% of such companies have done so, the report
said. The decision to not use the exemptions is often “at the advice of
bankers and attorneys and others,” said Jackie Kelley, E&Y’s America’s IPO
leader. “With a limited amount of capital available to the market and so
many IPOS in the pipeline, they are competing against companies doing
secondary and other follow-on offerings.”
UBS to agree to $1 billion rate-rigging
settlement.
UBS is
close to an agreement to pay more than $1 billion
to resolve allegations that it tried to rig interest-rate benchmarks to
boost trading profits, according to the WSJ, citing people briefed on the
negotiations. A settlement may be announced as soon as early next week, but
discussions may yet unravel. The settlement would be more than double the
$450 million or so Barclays paid.
Financial Statement Fraud: Strategies for Detection and Investigation
by Gerard M. Zack
Wiley
ISBN: 978-1-1183-0155-5
Hardcover 288 pages November 2012 US $85.00
http://www.wiley.com/WileyCDA/WileyTitle/productCd-1118301552.html
"Grasping the Power of Social Networking for Financial Services,"
American Banker White Paper, November 12, 2012 ---
http://www.americanbanker.com/papers/-1054313-1.html
"Banking on Analytics: How High-Performance Analytics Tackle Big Data
Challenges in Banking," American Banker White Paper, August 30, 2012 ---
http://www.americanbanker.com/papers/-1054313-1.html
This could just have easily have been a
Joe Hoyle blog
"How am I doing? Reflections on What Teaching Entails," by Rosalie
Arcala Hall, Inside Higher Ed, December 13, 2012 ---
http://www.insidehighered.com/blogs/university-venus/how-am-i-doing-reflections-what-teaching-entails
Jensen Comment
I agree with Professor Hall states, but I think she has not perhaps studied or
experienced the power of intense electronic communications that are both more
spontaneous and often more revealing than face-to-face office hour encounters.
The power of such electronic communications was discovered early on in the SCALE
experiments at the University of Illinois ---
http://www.trinity.edu/rjensen/255wp.htm#Illinois
Tax Professor Amy Dunbar also demonstrated the power of such online
communications between an instructor and her students ---
http://www.cs.trinity.edu/~rjensen/002cpe/Dunbar2002.htm
Obviously such intense online communications are not generally feasible when
there are hundreds or thousands of student online or onsite. There may, however,
be smaller recitation sections with teaching assistants who communicate
intensely with students.
Just how far has the culture in government schools
devolved? School district efforts to professionalize staff is now considered an
affront to teachers. At least that’s the attitude emanating from teachers in the
Hampton, New Hampshire SAU 90 school district. The school board is considering
an update to its dress-code policy for teachers, and, according to
Seacoastonline.com,
“several teachers are insulted such a policy exists, telling them blue jeans,
sneakers, flip-flops and tank tops are off limits.”
Kyle Olson, Townhall, December 2, 2012 ---
Click Here
http://townhall.com/columnists/kyleolson/2012/12/02/new_hampshire_teachers_call_flipflop_tank_top_ban_condescending?utm_source=thdaily&utm_medium=email&utm_campaign=nl
Jensen Comment
Before he died last year, my cousin Mark Jensen and his wife Terri devoted
almost full time to volunteer work in Tanzania. As a long-time farmer, Mark
focused on genetic adaptation of corn to the Tanzania climate. Terri devoted her
time to a school. What was noteworthy is how important school uniforms were in
the eyes of these African children. Whereas most of our public school children,
even those in ghetto schools, in the U.S. shudder at the thought of uniforms,
the African children associate uniforms with school and learning. I think they
also respect teachers more if those teachers are professionally dressed.
Before I retired I was on the faculty at four universities and taught part
time in two other universities while in graduate school. Except for when I
taught as a graduate student in the Economics Department at Stanford, I was
always in the Business Administration department. Although I don't think I ever
encountered a written dress code, I think there was more peer pressure in
business schools to dress professionally when teaching classes.
As for my accounting students, however, in some instances I did not even
recognize them as they waited for internship interviews dressed as I'd never
seen them dressed before.
December 11, 2012 message from Denny Beresford
Bob,
I happened to stumble across this SEC enforcement
action -
http://www.sec.gov/litigation/admin/2012/ic-30300.pdf
The Financial Accounting Foundation just announced
that Trustee Mary S. Stone, who is named in the SEC enforcement release and
is a former AAA President, is taking a leave of absence from the Foundation
Denny
December 11, 2012 reply from Bob Jensen
Hi Denny,
Thanks for the SEC link.
I was on an AAA Executive Committee with Mary and
was relieved that she survived a horrible auto accident some years back on
one of her commutes between Birmingham and Tuscaloosa. Her long-time husband
is an attorney in Birmingham.
Mary seems to be an unsung hero with a lot of irons
in the fire behind the scenes and is a voice for linking academia with the
profession.
Bob
Proposed Accounting Standards Update
Financial Instruments—Credit Losses (Subtopic 825-15)
Exposure Draft Issued on December 20, 2012
---
Click Here
http://www.fasb.org/cs/ContentServer?c=Document_C&pagename=FASB%2FDocument_C%2FDocumentPage&cid=1176160587228
Jensen Comment
This proposal lacking bright lines can best be described as a principles-based
standard allowing either discounted cash flow or anticipated cash flows or fair
value of the contract depending upon which is deemed most appropriate by the
client and its auditors. The former probability threshold would no longer apply.
Nearly all debt contracts receivable would receive and "Allowance for Credit
Impairment" based on the present value of contractual cash flows that the client
does not expect to collect.
This proposal abandons the infamous three-bucket model proposed by the FASB
and the IASB jointly.
Proposed Accounting Standards Update
Financial Instruments—Credit Losses (Subtopic 825-15)
Exposure Draft Issued on December 20, 2012
---
Click Here
http://www.fasb.org/cs/ContentServer?c=Document_C&pagename=FASB%2FDocument_C%2FDocumentPage&cid=1176160587228
Why Is the FASB Issuing This Proposed Accounting Standards Update
(Update)?
Before the global economic crisis that began in
2008, both the Financial Accounting Standards Board (FASB) and the
International Accounting Standards Board (IASB) began a joint project to
revise and improve their respective standards of accounting for financial
instruments. In the aftermath of the global economic crisis, the
overstatement of assets caused by a delayed recognition of credit losses
associated with loans (and other financial instruments) was identified as a
weakness in the application of existing accounting standards. Specifically,
because the existing ―incurred loss‖ model delays recognition until a credit
loss is probable (or has been incurred), the Financial Crisis Advisory
Group1 recommended exploring alternatives to the incurred loss model that
would use more forward-looking information. The inherent complexity of
having multiple credit impairment models was identified as an additional
weakness of existing accounting standards.
1The Financial Crisis Advisory Group (FCAG) was
created in October 2008 by the FASB and the IASB, as part of a joint
approach to dealing with the reporting issues arising from the global
financial crisis. The FCAG was asked to consider how improvements in
financial reporting could help enhance investors’ confidence in financial
markets.
The main objective in developing this proposal is
to provide financial statement users with more decision-useful information
about the expected credit losses on financial assets and other commitments
to extend credit held by a reporting entity at each reporting date. This
objective would be achieved by replacing the current impairment model, which
reflects incurred credit events, with a model that recognizes expected
credit risks and by requiring consideration of a broader range of reasonable
and supportable information to inform credit loss estimates. These proposed
amendments also would reduce complexity by replacing the numerous existing
impairment models in current U.S. GAAP with a consistent measurement
approach.
Who Would Be Affected by the Amendments in This Proposed Update?
All entities that hold financial assets that are
not accounted for at fair value through net income and are exposed to
potential credit risk would be affected by the proposed amendments. Loans,
debt securities, trade receivables, lease receivables, loan commitments,
reinsurance receivables, and any other
receivables that represent the contractual right to
receive cash would generally be affected by the proposed amendments.
What Are the Main Provisions?
The proposed amendments would require an entity to
impair its existing financial assets on the basis of the current estimate of
contractual cash flows not expected to be collected on financial assets held
at the reporting date. This impairment would be reflected as an allowance
for expected credit losses. The proposed amendments would remove the
existing ―probable‖ threshold in U.S. generally accepted accounting
principles (GAAP) for recognizing credit losses and broaden the range of
information that must be considered in measuring the allowance for expected
credit losses. More specifically, the estimate of expected credit losses
would be based on relevant information about past events, including
historical loss experience with similar assets, current conditions, and
reasonable and supportable forecasts that affect the expected collectibility
of the assets’ remaining contractual cash flows. An estimate of expected
credit losses would always reflect both the possibility that a credit loss
results and the possibility that no credit loss results. Accordingly, the
proposed amendments would prohibit an entity from estimating expected credit
losses solely on the basis of the most likely outcome (that is, the
statistical mode).
As a result of the proposed amendments, financial
assets carried at amortized cost less an allowance would reflect the current
estimate of the cash flows expected to be collected at the reporting date,
and the income statement would reflect credit deterioration (or improvement)
that has taken place during the period. For financial assets measured at
fair value with changes in fair value recognized through other comprehensive
income, the balance sheet would reflect the fair value, but the income
statement would reflect credit deterioration (or improvement) that has taken
place during the period. An entity, however, may choose to not recognize
expected credit losses on financial assets measured at fair value, with
changes in fair value recognized through other comprehensive income, if both
(1) the fair value of the financial asset is greater than (or equal to) the
amortized cost basis and (2) expected credit losses on the financial asset
are insignificant.
The Board expects that different types of entities
can leverage their current risk monitoring systems in implementing the
proposed approach (for example, by a bank using regulatory risk categories
or an industrial company using an aging analysis). However, the inputs used
to estimate the allowance for credit losses may need to change to implement
the expected credit
How Would the Main Provisions Differ from Current U.S. GAAP and Why Would
They Be an Improvement?
Current U.S. GAAP includes five different incurred
loss credit impairment models for instruments within the scope of the
proposed amendments. The existing models generally delay recognition of
credit loss until the loss is considered ―probable.‖ This initial
recognition threshold is perceived to have interfered with the timely
recognition of credit losses and overstated assets during the recent global
economic crisis. The credit loss recognition guidance in the proposed
amendments would eliminate the existing ―probable‖ initial recognition
threshold in U.S. GAAP and instead reflect the entity’s current estimate of
expected credit losses.
Furthermore, when credit losses are measured under
current U.S. GAAP, an entity generally only considers past events and
current conditions in measuring the incurred loss. The proposed amendments
would broaden the information that an entity is required to consider in
developing its credit loss estimate. Specifically, the proposed amendments
would require that an entity’s estimate be based on relevant information
about past events, including historical loss experience with similar assets,
current conditions, and reasonable and supportable forecasts that affect the
expected collectibility of the financial assets’ remaining contractual cash
flows. As a result, an entity would consider quantitative and qualitative
factors specific to the borrower, including the entity’s current evaluation
of the borrower’s creditworthiness. An entity also would consider general
economic conditions and an evaluation of both the current point in, and the
forecasted direction of, the economic cycle (for example, as evidenced by
changes in issuer or industry-wide underwriting standards).
How Would the Main Provisions Differ from the FASB’s Previously Proposed
Accounting Standards Update?
In May 2010, the FASB issued a proposed Accounting
Standards Update,
Accounting for Financial Instruments
and Revisions to the Accounting for Derivative Instruments and Hedging
Activities. For purposes of measuring credit impairment, the May 2010
proposed Update would have required that an entity assume that the economic
conditions existing at the reporting date would remain unchanged for the
remaining life of the financial assets. In contrast, the proposed amendments
in this 2012 proposed Update would broaden rather than limit the information
set that an entity is required to consider in developing its credit loss
estimate. Specifically, the proposed amendments would require that an
entity’s estimate be based on relevant information about past events,
including historical loss experience with similar assets, current
conditions, and reasonable and supportable forecasts that affect the
expected collectibility of the financial assets’ remaining contractual cash
flows. Also, the credit loss allowance objective in the credit loss
approach, as explained in the examples.
May 2010 proposed Update differed on the basis of
whether the asset was originated or purchased. The proposed amendments have
a single measurement objective, one in which expected credit losses should
reflect management’s estimate of the contractual cash flows not expected to
be collected from a recognized financial asset (or group of financial
assets). Furthermore, the May 2010 proposed Update proposed to dramatically
change the interest income recognition approach by measuring interest income
on the basis of the effective interest rate multiplied by the net carrying
amount (that is, amortized cost minus the associated allowance). Unlike the
May 2010 proposed Update, the proposed amendments would maintain the
approach in current U.S. GAAP that measures interest income and credit
losses separately.
. . .
825-15-55-3
Paragraph 825-15-25-4
requires that an estimate of expected credit losses reflect the time value
of money either explicitly or implicitly. A
discounted cash flow model is an example of a method that explicitly
reflects the time value of money by forecasting future cash flows (or cash
shortfalls) and discounting these amounts to a present value using the
effective interest rate. Other methods
implicitly reflect the time value of money by developing loss statistics on
the basis of the ratio of the amortized cost amount written off because of
credit loss and the amortized cost basis of the asset and by applying the
loss statistic (after updating it for current conditions and reasonable and
supportable forecasts of the future) to the amortized cost balance as of the
reporting date to estimate the portion of the recorded amortized cost basis
that is not expected to be recovered because of credit loss. Such methods
may include loss-rate methods, roll-rate methods, probability-of-default
methods, and a provision matrix method using loss factors. The requirement
in paragraph 825-15-25-4 is met when the method used to estimate expected
credit losses either explicitly or implicitly reflects the time value of
money.
825-15-55-4
For collateral-dependent
financial assets, an entity may use, as a practical expedient, methods
that compare the amortized cost basis with the fair value of
collateral. Such an approach is considered a practical expedient because
there is an inherent inconsistency in how the time value of money is
reflected in an amortized cost amount (wherein the discount rate implicit in
the present value is a historical rate) and a fair value amount for
collateral (wherein the discount rate implicit in the present value is a
current rate). If an entity uses the fair value of the collateral to measure
expected credit losses on a collateral-dependent financial asset and
repayment or satisfaction of the asset depends on the sale of the
collateral, the fair value of the collateral should be adjusted to consider
estimated costs to sell (on a discounted basis). However, if repayment or
satisfaction of the financial asset depends only on the operation, rather
than the sale of the collateral, the estimate of expected credit losses
should not incorporate estimated costs to sell the collateral.
> > Estimation of Expected Credit Losses—Multiple
Possible Outcomes
825-15-55-5
Paragraph 825-15-25-5 requires
that an estimate of expected credit losses, always reflect both the
possibility that a credit loss results and the possibility that no credit
loss results. However, in making this estimate, a variety of credit loss
scenarios are not required to be identified and probability weighted to
estimate expected credit losses, when a range of at least two outcomes is
implicit in the method.
825-15-55-6
Some measurement methods (such
as a loss-rate method, a roll-rate method, a probability-of-default method,
and a provision matrix method using loss factors) rely on an extensive
population of actual historical loss data as an input when estimating credit
losses. Therefore, they implicitly satisfy the requirement in paragraph
825-15-25-5 as long as the population of actual loss data reflects items
within that population that ultimately resulted in a loss and those items
within that population that resulted in no loss. Similarly, as a practical
expedient, an entity may use the fair value of collateral (less estimated
costs to sell, as applicable) in estimating credit losses for
collateral-dependent financial assets. Such an approach is considered a
practical expedient because the fair value of collateral reflects several
potential outcomes on a market-weighted basis and may result in expected
credit losses of zero when the fair value of collateral exceeds the
amortized cost basis of the asset.
> > Estimation of Expected Credit Losses—Lease
Receivables
825-15-55-7
This Subtopic requires that an
entity recognize an allowance for all expected credit losses on lease
receivables recognized by a lessor in accordance with Topic 840. When
measuring expected credit losses on lease receivables using a discounted
cash flow method, the cash flows and discount rate used in measuring the
lease receivable under Topic 840 would be used in place of the contractual
cash flows and effective interest rate discussed in Section
825-15-25.
> > Estimation of Expected Credit Losses—Loan
Commitments
825-15-55-8
This Subtopic requires that an
entity recognize all expected credit losses on loan commitments that are not
measured at fair value with qualifying changes in fair value recognized in
net income. In estimating expected credit losses for such loan commitments,
an entity would estimate credit losses over the full contractual period over
which the entity is exposed to credit risk via a present legal obligation to
extend credit, unless unconditionally cancellable by the issuer. For that
period of exposure, the estimate of expected credit losses should consider
both the likelihood that funding will occur (which may be affected by, for
example, a material adverse change clause) and an estimate of expected
credit losses on commitments expected to be funded.
Continued in article
Jensen Comment
This proposal lacking bright lines can best be described as a principles-based
standard allowing either discounted cash flow or anticipated cash flows or fair
value of the contract depending upon which is deemed most appropriate by the
client and its auditors. The former probability threshold would no longer apply.
Nearly all debt contracts receivable would receive and "Allowance for Credit
Impairment" based on the present value of contractual cash flows that the client
does not expect to collect.
This proposal abandons the infamous three-bucket model proposed by the FASB
and the IASB jointly.
I think this exposure draft is the answer to a long awaited charge of the SEC
to issue a new standard on credit impairment accounting.
"SEC ISSUES DETAILED STUDY ON MARK-TO-MARKET ACCOUNTING,"
by Gia Chevis, Accounting Education.com, February 19, 2009 ---
http://accountingeducation.com/index.cfm?page=newsdetails&id=148980
The report was issued on December 31, 2008
At the direction of the U.S.
Congress, the SEC prepared and released on 30 December 2008 a study on
mark-to-market accounting and its role in the recent financial crises.
Though it concluded that mark-to-market accounting was not responsible
for the crisis, it did make eight recommendations.
The 259-page document, a result of the Emergency Economic Stabilization
Act of 2008, details an in-depth study of six issues identified by the
Act: effects of fair value accounting standards on financial
institutions' balance sheets; impact of fair value accounting on bank
failures in 2008; impact of fair value accounting on the quality of
financial information available to investors; process used by the FASB
in developing accounting standards; alternatives to fair value
accounting standards; and advisability and feasibility of modifications
to fair value accounting standards. Its eight recommendations are:
1) SFAS No. 157 should be improved, but not suspended.
2) Existing fair value and mark-to-market requirements should not be
suspended.
3) While the Staff does not recommend a suspension of existing fair
value standards, additional measures should be taken to improve the
application and practice related to existing fair value requirements
(particularly as they relate to both Level 2 and Level 3 estimates).
4) The accounting for financial asset impairments should be readdressed.
5) Implement further guidance to foster the use of sound judgment.
6) Accounting standards should continue to be established to meet the
needs of investors.
7) Additional formal measures to address the operation of existing
accounting standards in practice should be established.
8) Address the need to simplify the accounting for investments in
financial assets.
On February 18, the FASB
announced the addition of two short-timetable projects to its agenda
concerning fair value measurement and disclosure. The first project aims
to improve application guidance for measurement of fair value, with
issuance projected for the second quarter. The second will address
issues related to input sensitivity analysis and changes in levels; the
FASB anticipates completing that project in time for calendar-year-end
filing deadlines. Both projects were undertaken in response to the SEC's
recent study on mark-to-market accounting and input from the FASB's
Valuation Resource Group.
The full report can be freely downloaded at
http://www.sec.gov/news/studies/2008/marktomarket123008.pdf. (pdf)
SFAS No. 157’s fair value hierarchy prioritizes the inputs
to valuation techniques used to measure fair value into three broad levels. The
fair value hierarchy gives the highest priority to unadjusted quoted prices in
active markets (Level 1) and the lowest priority to unobservable inputs (Level
3). With respect to IFRS, the report states the following on Page 33:
Currently, under IFRS,
“guidance on measuring fair value is dispersed throughout [IFRS] and is
not always consistent.”52 However, as discussed in Section VII.B, the
IASB is developing an exposure draft on fair value measurement guidance.
IFRS generally defines fair
value as “the amount for which an asset could be exchanged, or a
liability settled, between knowledgeable, willing parties in an arm’s
length transaction” (with some slight
variations in wording in different standards).53
While
this definition is generallyconsistent with SFAS No. 157, it is not
fully converged in the following respects:
•
The definition in
SFAS No. 157 is explicitly an exit price, whereas the definition in IFRS
is neither explicitly an exit price nor an entry price.
•
SFAS No. 157
explicitly refers to market participants, which is defined by the
standard, whereas IFRS simply refers to knowledgeable, willing parties
in an arm’s length transaction.
•
For liabilities, the
definition of fair value in SFAS No. 157 rests on the notion that the
liability is transferred (the liability to the counterparty continues),
whereas the definition in IFRS refers to the amount at which a liability
could be settled.
Through the Banking Glass Darkly
"FASB to Propose More Flexible Accounting Rules for Banks," by
Floyd Norris, The New York Times, December 7, 2009 ---
http://www.nytimes.com/2009/12/08/business/08account.html?_r=2&ref=business
Facing political pressure to abandon “fair value”
accounting for banks, the chairman of the board that sets American
accounting standards will call Tuesday for the “decoupling” of bank capital
rules from normal accounting standards.
His proposal would encourage bank regulators to
make adjustments as they determine whether banks have adequate capital while
still allowing investors to see the current fair value — often the market
value — of bank loans and other assets.
In the prepared text of a speech planned for a
conference in Washington, Robert H. Herz, the chairman of the
Financial Accounting Standards Board, called on
bank regulators to use their own judgment in allowing banks to move away
from Generally Accepted Accounting Principles, or GAAP, which his board
sets.
“Handcuffing regulators to GAAP or distorting GAAP
to always fit the needs of regulators is inconsistent with the different
purposes of financial reporting and prudential regulation,” Mr. Herz said in
the prepared text.
“Regulators should have the authority and
appropriate flexibility they need to effectively regulate the banking
system,” he added. “And, conversely, in instances in which the needs of
regulators deviate from the informational requirements of investors, the
reporting to investors should not be subordinated to the needs of
regulators. To do so could degrade the financial information available to
investors and reduce public trust and confidence in the capital markets.”
Mr. Herz said that Congress, after the
savings and loan crisis, had required bank
regulators in 1991 to use GAAP as the basis for capital rules, but said the
regulators could depart from such rules.
Banks have argued that accounting rules should be
changed, saying that current rules are “pro-cyclical” — making banks seem
richer when times are good, and poorer when times are bad and bank loans may
be most needed in the economy.
Mr. Herz conceded the accounting rules can be
pro-cyclical, but questioned how far critics would go. Consumer spending, he
said, depends in part on how wealthy people feel. Should
mutual fund statements be phased in, he asked, so
investors would not feel poor — and cut back on spending — after markets
fell?
The House Financial Services Committee has approved
a proposal that would direct bank regulators to comment to the S.E.C. on
accounting rules, something they already can do. But it stopped short of
adopting a proposal to allow the banking regulators to overrule the S.E.C.,
which supervises the accounting board, on accounting rules.
“I support the goal of financial stability and do
not believe that accounting standards and financial reporting should be
purposefully designed to create instability or pro-cyclical effects,” Mr.
Herz said.
He paraphrased
Barney Frank, the chairman of the House committee,
as saying that “accounting principles should not be viewed to be so
immutable that their impact on policy should not be considered. I agree with
that, and I think the chairman would also agree that accounting standards
should not be so malleable that they fail to meet their objective of helping
to properly inform investors and markets or that they should be purposefully
designed to try to dampen business, market, and economic cycles. That’s not
their role.”
Banks have argued that accounting rules made the
financial crisis worse by forcing them to acknowledge losses based on market
values that may never be realized, if market values recover.
Mr. Herz said the accounting board had sought
middle ground by requiring some unrealized losses to be recognized on bank
balance sheets but not to be reflected on income statements.
Banking regulators already have capital rules that
differ from accounting rules, but have not been eager to expand those
differences. One area where a difference may soon be made is in the
treatment of off-balance sheet items that the accounting board is forcing
banks to bring back onto their balance sheets. The banks have asked
regulators to phase in that change over several years, to slow the impact on
their capital needs.
Bob Jensen's threads on fair value accounting are at
http://www.trinity.edu/rjensen/theory01.htm#FairValue
Please don't blame the accountants for the banking meltdown ---
http://www.trinity.edu/rjensen/2008Bailout.htm#FairValue
Bob Jensen's threads on banking frauds ---
http://www.trinity.edu/rjensen/FraudRotten.htm#InvestmentBanking
"FASB clarifies scope of nonpublic entity fair value disclosure exemption
(No. 2012-59)," PwC, December 19, 2012 ---
Click Here
http://www.pwc.com/en_US/us/cfodirect/assets/pdf/in-brief/in-brief-2012-59-fasb-clarifies-scope-of-non-public-entity-fair-value-disclosure-exemption.pdf
What's new?
On December 19, 2012, the
FASB (the “board”) met to clarify the applicability of an exemption from a
specific fair value disclosure for nonpublic entities.
The board decided to clarify that all nonpublic
entities are exempt from the requirement to disclose the categorization by
level of the fair value hierarchy for items disclosed but not measured on
the balance sheet at fair value.
What were the key decisions?
Certain nonpublic entities are excluded from the
requirement to disclose the fair value of their financial instruments not
measured at fair value on the balance sheet. Questions have arisen during
the adoption of ASU 2011-04, Amendments to Achieve Common Fair Value
Measurement and Disclosure Requirements in U.S. GAAP and IFRSs,
regarding which nonpublic entities are excluded from the new requirement to
disclose the categorization by level of the fair value hierarchy for items
not measured at fair value in the balance sheet but for which fair value is
disclosed. Some read the exemption to apply to only those nonpublic entities
that are able to apply the general exemption to not disclose the fair value
of their financial instruments.
The board voted to clarify that all nonpublic
entities are exempt from the requirement to disclose the level in the fair
value hierarchy for items disclosed but not measured on the balance sheet at
fair value. The board noted that this was its intent when it deliberated ASU
2011-04.
Is convergence achieved?
Although the issuance of ASU 2011-04 was the result
of a joint project on fair value conducted with the IASB, the disclosure
exemptions provided to nonpublic entities in ASU 2011-04 and confirmed at
this board meeting are only for reporting entities applying U.S. GAAP. A
similar scope exemption is not included in the IASB’s fair value standard.
Who's affected?
Nonpublic entities are affected by the
clarification.
What's the proposed effective date?
ASU 2011-04 is effective for nonpublic entities for
annual periods beginning after December 15, 2011. The clarification
described above is not expected to have a different effective date.
What's next?
A proposed ASU with the clarified language is
expected in January 2013. The board decided to provide a 15-day comment
period.
Questions?
PwC clients who have questions about this In
brief should contact their engagement partner. Engagement teams that
have questions should contact the Financial Instruments team in the National
Professional Services Group (1-973-236-780
Authored by:
Jill Butler
Partner
Phone: 1-973-236-4678
Email: jill.butler@us.pwc.com
Mia DeMontigny
Managing Director
Phone: 1-973-236-4012
Email:
mia.demontigny@us.pwc.com
Maria Constantinou
Director
Phone: 1-973-236-4957
Email:
maria.constantinou@us.pwc.com
Bob Jensen's threads on fair value controversies ---
The Controversy Over Fair Value (Mark-to-Market) Financial Reporting
Go to
http://www.trinity.edu/rjensen/theory02.htm#FairValue
Can't we sing about accounting as well?
Math and Science Sing Along Experiments
Sing About Science & Math: Lesson Plans (oceanography sing along) ---
http://singaboutscience.org/wp/lesson-plans/
Richard Sansing forwarded Monte Python's accounting sing along song ---
http://www.youtube.com/watch?v=7YUiBBltOg4
Bob Jensen's threads on Tricks and Tools of the Trade (including
Edutainment) ---
http://www.trinity.edu/rjensen/000aaa/thetools.htm
PwC In Brief: FASB agrees on changes to reporting of discontinued
operations (No. 2012-57) ---
Click Here
http://www.pwc.com/us/en/cfodirect/publications/in-brief/2012-57-fasb-agrees-on-changes-to-reporting-of-discontinued-operations.jhtml?display=/us/en/cfodirect/publications/in-brief
This proposal will align the threshold for determining whether a component
should be presented as a discontinued operation with the guidance in IFRS 5,
Non-current assets held for sale and discontinued operations. However, some of
the FASB’s proposed disclosures are incremental to those required under IFRS
"Doctoral Degrees Rose in 2011, but Career Options Weren't So Rosy,"
by Stacey Patten, Chronicle of Higher Education, December 5, 2012 ---
http://chronicle.com/article/Doctoral-Degrees-Rose-in-2011/136133/
American universities awarded a total of 49,010
research doctorates in 2011, a 2-percent increase from 2010, according to an
annual survey by the National Science Foundation.
A report describing the survey's findings, released
on Wednesday, says that almost three-quarters of all doctorates awarded last
year were in science and engineering fields, a proportion that increased by
4 percent from the previous year. During the same period, the number of
doctorates awarded in the humanities declined by 3 percent.
That decline was attributed in part to the
reclassification of most doctor-of-education degrees as professional rather
than research doctorates. Without that decrease in education degrees, the
overall number of research doctorates awarded would have exceeded 50,000,
said Mark K. Fiegener, a project officer at the NSF.
Mr. Fiegener noted that certain trends were
continuing. "There's increased representation of women in all fields, with
greater numbers in the hard sciences and engineering," he said. "The same is
true with race and ethnicity, but to a lesser degree."
Women continue to become more prevalent with each
cohort of doctorate recipients, according to the report. They earned 42
percent of doctorates in science and engineering in 2011, up from 30 percent
20 years ago. The share of doctorates awarded to black students rose to over
6 percent in 2011, up from a little over 4 percent in 1991. And the
proportion of Hispanic doctorate recipients increased from a little over 3
percent in 1991 to just over 6 percent last year.
Despite the gains in degree attainment, trends on
postgraduate career opportunities appear to reflect the broader economic
malaise. The proportion of new doctoral recipients who reported having
definite job commitments or a postdoctoral position fell in both the
humanities and sciences, and was at the lowest level in the past 10 years.
Meanwhile, the proportion of students who planned
to pursue postdoctoral positions continued rising, especially in engineering
and social-science fields. Last year more than two-thirds of doctoral
graduates in the life sciences, and over half of those in engineering, took
postdoctoral positions immediately after graduation.
Five years ago 33 percent of graduates in the
humanities had no employment or postdoctoral commitments upon completion;
that number rose to 43 percent in 2011.
The report, "Doctorate Recipients From U.S.
Universities: 2011," is available on the National Science Foundation's
Web site.
"Chemistry Ph.D. Programs Need New Formula, Experts Say," by Stacey
Patton, Chronicle of Higher Education, December 10, 2012 ---
http://chronicle.com/article/Chemistry-PhD-Programs-Need/136235/
The humanities disciplines are not alone in
grappling with how to stay relevant and prepare graduate students for jobs
that meet the demands of a rapidly changing labor market. Doctoral programs
in chemistry need to be overhauled, too, including by reducing students'
time to degree, the American Chemical Society says in a new report.
The chemical society released the report on Monday
at news conference here at which speakers discussed ways that doctoral
training needed to change to meet pressing societal needs and play a greater
role in producing new jobs. The
report, "Advancing Graduate Education in the
Chemical Sciences," focuses on five key areas of graduate education the
society says need to be overhauled: curricula, financial support, laboratory
safety, career opportunities, and mentoring of postdoctoral students.
Among the recommendations are that programs need to
be changed so that students can complete their Ph.D.'s in less than five
years and that the chemical society collect and publish data on student
outcomes in Ph.D. and postdoctoral programs.
The report is the result of a yearlong review that
was conducted by 22 scientists and other experts, mostly from universities
but also from industry, that the chemical society appointed to a commission.
Bassam Z. Shakhashiri, the chemical society's president, said at the news
conference that the report was "long overdue."
According to data from the society, nearly 25,000
jobs have been lost in chemical-manufacturing companies in the United States
since 2008, and layoffs continue. Employment patterns are also changing, as
chemical companies are hiring fewer new graduates of chemistry Ph.D.
programs than in the past. Small businesses are continuing to hire more new
chemistry Ph.D.'s but at slow rates.
Experts in the field say they face a conundrum:
Innovation in chemistry is declining at the very time that society needs
scientists to come up with solutions to problems like climate change and
obesity, to further drug discoveries, and to help find ways of improving
food generation, infrastructure, and water supplies.
Graduate education in the American sciences,
speakers at the news conference said, has not kept pace with global
economic, social, and political changes since World War II, when the current
graduate-education system evolved.
Among the members of the commission that drafted
the recommendations were Larry R. Faulkner, president emeritus of the
Houston Endowment and former president of the University of Texas at Austin,
who was the panel's chair; Paul L. Houston, dean of the College of Sciences
at Georgia Institute of Technology, who was the panel's executive director;
Hunter R. Rawlings III, president of the Association of American
Universities; and Peter J. Stang, a professor at the University of Utah, the
2013 Priestley Medal winner, and editor of the Journal of the American
Chemical Society.
The commission recommended that:
- Curricula be refreshed to sufficiently prepare
students for careers once they graduate. That includes cutting
time-to-degree to less than five years, closing gaps in students'
ability to communicate complex topics to both technical and nontechnical
audiences, teaching students to work more collaboratively across
disciplines, and requiring students to learn new science and technology
outside of their academic training. Departments also need to be more
transparent about the kinds of career opportunities available to their
Ph.D. students.
- The current system of financial support for
graduate students be overhauled. While student debt was not discussed at
length because most students in the field receive research grants and
fellowships, the speakers said that the support system now in place
rests too heavily on individual research grants and involves serious
conflicts between the education of graduate students and the needs of
grant-supported research. The committee recommended that federal and
state agencies, private foundations, and universities take steps to
"decouple" more student-support funds from specific research projects so
that students will have better balance between their teaching
responsibilities and their research as they seek to finish their degrees
in less than five years.
- Departments review the size and mix of
students in their programs. While the speakers said it was important to
welcome international students, programs need to place a high priority
on building "the domestic fraction of their graduate enrollments,"
especially students from underrepresented minority groups.
- Academic chemical laboratories adopt best
safety practices to protect students and other workers. Noting the heavy
publicity that
laboratory accidents and findings of safety
violations have drawn, speakers said that faculty need to lead by
example and create a "culture of safety" in campus labs. They also
called for uniform lab-safety standards across campuses.
- The American Chemical Society collect and
publish data on Ph.D. and postdoctoral student outcomes, organized by
department, on time-to-degree, types of job placements, salaries, and
overall student satisfaction with the graduate experience and employment
outcome.
- Institutions, departments, and faculty mentors
take greater responsibility for ensuring that postdoctoral students are
integrated into the fabric of the faculty and receive better mentoring
to support their professional development.
"This won't be a report that sits on the shelf,"
said Mr. Shakhashiri. "The ultimate goal is to have action taken."
The chemical society's board has already committed
$50,000 for "dissemination activities" to get the word out to faculty,
deans, college presidents, policy makers, agencies that provide financial
support, industries that employ chemical scientists and engineers, and
professional societies. The next phase will begin in 2013
Bob Jensen's threads on proposals for radical changes in doctoral programs
---
http://www.trinity.edu/rjensen/HigherEdControversies.htm#DoctoralProgramChange
"The Current State of Accounting Ph.D. Programs in the United States,"
by Alisa G. Brink, Robson Glasscock and Benson Wier, Issues in Accounting
Education, Vol. 27, No. 4, November 2012 ---
Not Free
http://aaajournals.org/doi/full/10.2308/iace-50254
The primary purpose of this study is to provide
evidence about current practices in accounting Ph.D. programs in the United
States. Plumlee et al. (2006) investigated the shortage of Ph.D. qualified
accounting faculty and made recommendations toward addressing this shortage.
We assess the extent to which these recommendations have been followed and
areas where additional progress might be needed. We gather data from Ph.D.
program websites, a survey of doctoral students in accounting Ph.D. programs
in the United States, and interviews with Ph.D. program coordinators. Key
findings, following Plumlee et al. (2006) indicate: (1) on average,
university Ph.D. program websites do not provide all of the specific
information about admission and program requirements that would be useful
for potential students; (2) increases in the level of financial support for
Ph.D. students; (3) considerable variability with respect to reduction in
costs to Ph.D. students; (4) Ph.D. programs may reduce the number of
students accepted in response to constrained resources; and (5) increases in
students pursuing audit and tax specialties that are attributable, at least
in part, to the Accounting Doctoral Scholars program. Based on our data, we
also identify a number of additional findings, and then discuss the larger
context within which this complex problem (the supply of Ph.D. students) is
situated. Our findings and discussion should be of interest to potential
Ph.D. candidates, Ph.D. program directors/advisors, business school deans,
and accounting department chairs, as well as the larger
accounting-professional community.
. . .
Our findings indicate several areas where changes
have occurred. For example, websites and survey respondents indicate an
average of ten students per program, which is an increase from the average
of eight students per program reported by Behn et al. (2008). In addition,
websites and survey respondents indicate that mean Ph.D. student stipends
exceed $20,000, which is a significant increase over the mean stipend of
$16,000 reported by the Committee based on the 2005 survey (Plumlee et al.
2006). Further, survey respondents and Ph.D. coordinators indicate that it
has become common practice for Ph.D. programs to provide research-related
travel support for students. We also find evidence indicating that the
number of students pursuing audit and tax specialties has increased.
Specifically, 26 and 11 percent of our respondents indicate an interest in
audit and tax research, respectively. This is a substantial increase from
the results of the 2007 survey reported by Behn et al. (2008), which
indicated that 12 and 9 percent of students were interested in audit and tax
research, respectively. However, we also find that there are several areas
where practices across doctoral programs vary widely and improvement could
be made. For example, the information about Ph.D. programs on university
websites, on average, lacks much of the specific information that
prospective students might find useful when evaluating Ph.D. programs.
Further, there is significant variation in doctoral student teaching
responsibilities with some programs giving students large teaching loads and
multiple preparations. Specifically, survey respondents indicate teaching a
mean of 4.69 courses over the course of their programs, and individual
responses range from 0 to 28 courses. In addition, the average number of
course preparations is 2.08 with a range of 0 to 8 preparations.
Interviews with Ph.D. program coordinators indicate
a desire for additional information so that they can benchmark best
practices. These coordinators indicate that recent changes in Ph.D. programs
are not driven by the shortage of academically qualified faculty. Rather,
such changes are motivated by a trade-off between constrained resources and
the desire to admit high-quality students.
Our findings are useful for several reasons. First,
we assess the progress being made toward addressing the recommendations made
by the Committee. We identify current trends and changes occurring in
accounting Ph.D. programs in the United States and identify areas where
improvement is still needed if we are to address the shortage of Ph.D.
graduates. Second, the data presented in this study will enable potential
doctoral students to have more realistic and informed expectations regarding
Ph.D. programs and the requirements of these programs. Third, the
information presented in this study is a valuable resource for Ph.D. program
coordinators and advisors, as well as deans and department chairs who must
deal with funding issues and accreditation requirements in the future.
METHODOLOGY
We gather data from three sources. First, we
perform an analysis of the websites of doctoral granting accounting programs
to gather data on program requirements and the ease of accessing this
information from these websites. Second, we survey current doctoral students
to obtain information about their demographic characteristics, doctoral
program characteristics, and their interests and expectations regarding
their research, teaching, and future careers. Third, we interview a sample
of Ph.D. program coordinators to obtain information on trends and challenges
in accounting Ph.D. programs. Table 1 lists the Ph.D. programs whose
websites are included in our analyses and the number of survey respondents
from each university.
. . .
Continued in article
Jensen Comment
The study provides some useful information about demographics of current
students (gender, age, nationality, etc.). Half of the students in these
doctoral students are CPAs and nearly half (43%) have some prior teaching
experience. The percentage of international students is 27.8%. It also provides
information about each university's number of accounting doctoral students and
funding of those doctoral students and average GMAT scores.
Although the study hints at causes for the dramatic decline in enrollments in
accounting doctoral programs it says nothing about what I view as the primary
reason why practicing accountants are shunning away from accounting doctoral
programs due to the 5-6 years required onsite beyond a masters degree and the
lack of accounting in the curriculum relative to the heavy dosage of
mathematics, statistics, econometrics, and psychometrics requirements ---
http://www.trinity.edu/rjensen/Theory01.htm#DoctoralPrograms
The study also provides no information about why doctoral students leave the
program prior to graduation.
"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
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
Jensen Comment
I've been a long-time advocated of greatly increased estate taxation. But I also
see problems if the threshold is set too high to protect family farms. Family
farm estates, along with many other estates like farm estates, have frequent
problems with liquidity. Estate taxes will exacerbate that problem to a point
where the assets of the estate (e.g., the farm land and equipment) must be
auctioned off to pay increased estate taxes. The end result will be
ever-increasing loss of family farms to big agribusiness conglomerates. Maybe
this is inevitable even without increasing estate taxes, but I would hope that
along with increases in estate taxation some innovative solutions are found to
allow farms to be passed on to family heirs rather than forcing these farms to
be victims of ever-increasing ownership of the land by giant and faceless
multinational corporations.
Question From Freakonomics:
Must there be a disconnect between introductory microeconomics and the business
world?
"Putting Microeconomics to Work," by Steven D. Levitt, Freakonomics,
November 27, 2012 ---
http://www.freakonomics.com/2012/11/27/putting-microeconomics-to-work/
I’ve long been puzzled by the almost complete
disconnect between real-world businesses and academic economics. After I
graduated from college, I
went to work as a management consultant. Almost
nothing I learned as an economics major proved helpful to me in that job.
Then, when I went back to get a Ph.D., I thought what I had learned in
consulting would help me in economics. I was wrong about that as well!
Ever since, I’ve felt that both business and
economics would benefit from a greater connection. Why don’t businesses set
prices the way economics textbooks say they should? Why are randomized
experiments so rare in business? Why do economists write down models of how
businesses behave without spending time watching how decisions are actually
made at businesses? The list goes on and on.
It’s taken a while, but the business/economics
connections are finally starting to happen with greater regularity.
John
List and I wrote
an
academic piece about field experiments in
businesses a few years back that focused on how partnering with businesses
could help academics with their research.
The benefits are also going the other way. The
Economist has
a nice article about how microeconomists are
adding value to businesses. (I’m sure the economists mentioned in the
article are delighted to be included; I’m almost as sure they will hate the
cartoon likenesses that accompany it!)
For what it’s worth, I’m trying to do my part to
improve philanthropy and business through a little firm called
The Greatest Good.
But, damn, it turns out to be a lot harder to make
things happen in the real world than it is in the ivory tower!
Jensen Comment
We could use more of this in managerial accounting, especially in such areas as
CVP Analysis and ABC Costing.
Bob Jensen's threads on managerial accounting ---
http://www.trinity.edu/rjensen/Theory02.htm#ManagementAccounting
December 11, 2012 message from Dan Stone
Forthcoming in the Fall, 2012 AAA IS section
newsletter
---------------------------------
The following is a work of fiction. It represents
the (probably mistaken) views of the author and not necessarily those of any
saner, more reasonable person or persons, including members of the IS
section of the AAA, or, any other member or officer of the IS section, or,
of the AAA.
---------------------------------
The mad clockmakers’ guild labors in the
mountain kingdom of Strayhorn, near the clear waters of Lake Mystine.
Clockmakers do two tasks: (1) making hand-crafted artisan clocks and (2)
evaluating and approving the clocks made by other guild members.
Membership in the guild is restricted to those who labor as apprentices
to master clockmakers for four to six years, and who survive the
(sometimes) harsh treatment by clockmakers of their apprentices.
Constructing a single clock requires two to seven years and is usually
done in teams of clockmakers. Clockmakers are handsomely rewarded for
clocks that their fellow clockmakers approve. They receive nothing for
clocks that are rejected by fellow clockmakers, and, they receive no
compensation for evaluating and approving the clocks of others.
Competing teams of clockmakers use different
tools and methods. Therefore, it is unsurprising that clockmakers, when
evaluating clocks, favor those constructed using similar tools and
methods as they use in making their own clocks. As in any guild, petty
rivalries abound that lead the clocks of some teams to be favored by
other teams, and eschewed by rivals - usually independent of their
quality, craftsmanship, or accuracy. Although there are no substantive
differences in their clocks, the clocks of clockmakers who live closer
to the lake, i.e., in more beautiful and desirable locations, are
approved more often than those who live in the more remote, less
hospitable regions.
The citizens of Strayhorn consider the
clockmakers mad because the clockmakers waste most of the resources
provided to them, including time, metals, wood, and tools. Guild members
approve less than 10% of the clocks made by their fellow craftsmen. The
other 90% are burned, in large bonfires, in winter, to heat the
clockmaker’s homes and studios. Clockmakers’ opinions in evaluating and
approving clocks are sacred. They cannot be questioned or challenged
without punishment by the Guild’s leaders, who are appointed by
committees of clockmakers. This is another point on which the
clockmakers are considered mad: clockmakers receive little training in
evaluating the clocks of others; many know little or nothing about the
tools and methods used by clockmakers who work in other areas. But these
same clockmakers, when making clocks, at which they are highly skilled,
have over 90% of their clocks rejected by their fellow Guild members.
Periodically, the citizens of Strayhorn call
upon the Guild to reform, and to stop its remarkable waste of resources.
In addition, in their darker moments, often in winter, the citizens ask
why guild members are paid handsome salaries from the public treasury
despite wasting 90% of their time on failed clocks. Guild leaders
inevitably argue that this is the best possible system of clock making,
that any reforms or changes would threaten the Guild’s vitality and
viability, and that, after all, the citizens should be happy that they,
now and then, actually get a working, accurate clock that is sometimes
also beautiful. The Guild’s leaders have also created a new rule that
requires Guild members to burn their discarded clocks only during
daylight hours so that the citizens of Strayhorn are less likely to see
the flames produced by the resources wasted by the Guild’s members.
However, many guild members, particularly the older ones, are well paid,
comfortable, and delight in walking, on cold winter days, by the houses
warmed by the fires produced by their competing guild members’ burning
clocks. They share the view of another learned Professor, Dr. Pangloss,
that “all is for the best in the best of all possible <clockmaker>
worlds” (Voltaire 1829)
-------------------------------------
Commentary:
My (obvious, I hope) contention is that the above
parable opines on the manuscript submission and review process that we
employ in academe. Some of the assertions of this parable, which are
supported by published evidence, or my experiences, include:
1. PhD education requires 4-6 years to complete,
2. PhD students are sometimes mistreated by their
supervisors (Fine and Kurdek 1993),
3. The criteria for acceptance in journals are
capricious (Gans and Shepard, 1994); reviewers generally disagree in their
evaluations of manuscripts (Fiske and Fogg 1990; Fogg and Fiske 1993).
4. An approximate 10% acceptance rate at journals
(see AAA editor’s reports – which indicate acceptance rates of ~ 7 to 20%),
5. Scholars receive little (i.e., inadequate)
training in a very difficult task: reviewing manuscripts.
6. The rejection of manuscripts is sometimes
motivated by petty competitions among teams of rival authors (from my
experience as an editor; see also Moizer 2009; Frey 2003).
7. Schadenfreude, i.e., pleasure derived from the
misfortune of others, i.e., the rejection of competing researchers’ papers,
is an important but largely unacknowledged motivator in manuscript
evaluations (Frey 2003)
Reforms to ameliorate some of the above problems
include:
1. Widely available online reviewer, submitting
author, and reader evaluations of academic journals, using Yelp and eBay
like evaluations that are universally accessible.
2. Removal of abusive reviewers from the peer
evaluation system through activist editors and public disclosure of their
abusive behavior by editors and other scholars.
3. Training in writing constructive reviews for
scholarly communities.
4. Ethical education of young scholars regarding
the morale obligations of the review process, including fairness,
objectivity, and constructive comments.
References
Blank, R. M., 1991, "The effects of double-blind
versus single-blind reviewing: Experimental Evidence from The American
Economic Review," The American Economic Review, 81: 5 (December), 1041-
1067.
Fine, M. A. and L. A. Kurdek (1993). "Reflections
on Determining Authorship Credit and Authorship Order on Faculty-Student
Collaborations." American Psychologist 48(11 (November )): 1141- 1147
Fiske, D. W. and L. Fogg (1990). "But the Reviewers
Are Making Different Criticisms of My Paper - Diversity and Uniqueness in
Reviewer Comments." American Psychologist 45(5): 591-598.
Fogg, L. and D. W. Fiske (1993). "Foretelling the
Judgments of Reviewers and Editors." American Psychologist 48(3): 293-294.
Frey, B. S. "Publishing as Prostitution? - Choosing
between One's Own Ideas and Academic Success.", Public Choice 116, no. 1-2
(Jul 2003): 205-23.
Gans, J. S., and G. B. Shepard, 1994, "How are the
mighty fallen: rejected classic articles by leading economists," Journal of
Economic Perspectives, 8: 1 (Winter), 165-179.
Moizer, P. "Publishing in Accounting Journals: A
Fair Game?" Accounting Organizations and Society 34, no. 2 (Feb 2009):
285-304.
Voltaire. 1829. Candide. 2 vols Paris,: Caillot.
+++ AECM Home Page (View archives, unsubscribe,
etc.): http://www.aecm.org +++ Dan Stone
3:13 PM (15 hours ago)
to AECM Forthcoming in the AAA IS section fall 2012
newsletter
----------------------------------
A Reply: Baking Better Bread by Roger Debreceny
Guilds are an important part of the functioning
of a modern economy. When managed well, guilds bring theoretical and
applied learning to a knowledge domain. There is no comparison between
the products of a German master guild baker (for example) with those of
their counterparts in the USA. The same can be said for many other
disciplines including medicine. The problem is not necessarily with the
notion of a guild but with the training in the guild. Our problems often
arise as a result of tenure and promotion performance metrics
influencing our learning and knowledge production systems. The need to
rush out two or three papers in a handful of accepted journals leads to
PhD dissertations made up of three papers ready to go to journals. This
leads in turn to concentrated and narrow PhD preparation that
discourages the wide reading that was typical of earlier iterations of
PhD study.
Within our section there is probably little
that we can do to change now strongly entrenched PhD factories. We can,
however, change the way that we do business within the section and the
Journal of Information Systems. We can do more to improve the flow of
papers through the JIS. We must not forget that reviews often
significantly improve the quality of papers. I have observed this as
author, reviewer and editor. Further, I think that we generally have
more flexible reviewers in the accounting information systems domain
than elsewhere in the discipline. There is more that we can do, however.
Here are some suggestions that might improve the process:
• Pre-submission screening .. offer authors the
opportunity to get informal feedback on a near to final draft. This
might ensure that papers going to reviewers would be of higher quality.
Talking about metrics – would a paper that came in for screening and was
not subsequently completed count as a rejection? It is curious, that we
revel in poor quality: “Look at me! I’m a high quality journal. I reject
90% of submissions!” That would never be acceptable in other areas of
knowledge creation or use.
• Naming reviewers on the paper (some MIS
journals are doing this already)
• Rating reviewers on consistent metrics
• Rewarding reviewers (financially or in some
other tangible way) -- why just have one best reviewer award? Why not as
many awards as reviewers meet five star ratings in the year? Why not
give a complimentary mid-year meeting registration for each five star
reviewer?
• Clearly stating expectations of reviewers.
• Working with authors to get the paper to
publishable form (our current editor, Miklos Vasarhelyi excels in this)
• Clearly stating expectations of authors
• Taking risks on papers and theme issues
• Experimenting with production processes
Jensen Comment on Defense Mechanisms
The publication hurdles combined with publish-or-perish obstacles to
promotion and tenure have led to some questionable defenses, especially
in accountics science.
Accounting is not alone as a discipline
questioning its doctoral programs and its promotion and tenure criteria. The
most vocal discipline seeking change is the Modern Languages Association
(MLA) ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm#MLA
Rethinking Tenure,
Dissertations, and Scholarship
A Dramatic Proposal for
Change in Humanities Education
A panel of some of the top professors of foreign
languages has concluded that the programs that train undergraduate majors
and new Ph.D.’s are seriously off course, with so much emphasis on
literature that broader understanding of cultures and nations has been lost
. . . The implications of this call for change are, several panel members
said, “revolutionary” and potentially quite controversial. For example, the
measures being called for directly challenge the tradition in which first
and second-year language instruction is left in many departments to
lecturers, who frequently play little role in setting curricular policy. The
panel wants to see tenure-track professors more involved in all parts of
undergraduate education and — in a challenge to the hierarchy of many
departments — wants departments to include lecturers who are off the tenure
track in planning the changes and carrying them out.
Scott Jaschik, "Dramatic Plan for Language Programs," Inside Higher Ed,
January 2, 2006 ---
http://www.insidehighered.com/news/2007/01/02/languages
A ‘Radical’ Rethinking of Scholarly Publishing
"Upgrading to Philosophy 2.0," by Andy Guess, Inside Higher Ed,
December 31, 2007 ---
http://www.insidehighered.com/news/2007/12/31/apa
There was no theorizing
about ghosts in the machine at an annual meeting of philosophers last
Friday. Instead, they embraced technology’s implications for their
field, both within the classroom and beyond.
. . .
Harriet E. Baber of the
University of San Diego thinks scholars should try to make their work as
accessible as possible, forget about the financial rewards of publishing
and find alternative ways to referee each other’s work. In short, they
should ditch the current system of paper-based academic journals that
persists, she said, by “creating scarcity,” “screening” valuable work
and providing scholars with entries in their CVs.
“Now why would it be a
bad thing if people didn’t pay for the information that we produce?” she
asked, going over the traditional justifications for the current order —
an incentive-based rationale she dubbed a “right wing, free marketeer,
Republican argument.”
Instead, she argued,
scholars (and in particular, philosophers) should accept that much of
their work has little market value ("we’re lucky if we could give away
this stuff for free") and embrace the intrinsic rewards of the work
itself. After all, she said, they’re salaried, and “we don’t need
incentives external [to] what we do.”
That doesn’t include
only journal articles, she said; class notes fit into the paradigm just
as easily. “I want any prospective student to see this and I want all
the world to see” classroom materials, she added.
Responding to questions
from the audience, she noted that journals’ current function of
refereeing content wouldn’t get lost, since the “middlemen” merely
provide a venue for peer review, which would still happen within her
model.
“What’s going to happen
pragmatically is the paper journals will morph into online journals,”
she said.
Part of the purpose of
holding the session, she implied, was to nudge the APA into playing a
greater role in any such transition: “I’m hoping that the APA will
organize things a little better.”
Academic Publishing in the Digital Age: Scott McLemee claims this is
a "must read"
"Sailing from Ithaka," By Scott McLemee, Inside Higher Ed, August
1, 2007 ---
http://www.insidehighered.com/views/2007/08/01/mclemee
It’s not always clear
where the Zeitgeist ends and synchronicity kicks in, but Intellectual
Affairs just got hit going and coming.
In
last week’s column,
we checked
in on a professor who was struggling to clear his office
of books. They had been piling up and possibly breeding
at night. In particular, he said, he found that he
seldom needed to read a monograph more than once. In a
pinch, it would often be possible to relocate a given
reference through a digital search – so why not pass the
books along to graduate students? And so he did.
While getting ready to shoot that
article into the Internet’s
“series of tubes,”
my editor
also passed along a copy of “University Publishing in a
Digital Age” – a report sponsored by Ithaka and JSTOR.
It was released late last week. On
Thursday, IHE ran a
detailed and informative article
about the Ithaka Report, as I
suppose it is bound to be known in due time. The groups
that prepared the document propose the creation of “a
powerful technology, service, and marketing platform
that would serve as a catalyst for collaboration and
shared capital investment in university-based
publishing.”
Clearly
this would be a vaster undertaking than JSTOR, even. The
Ithaka Report may very well turn out to be a turning
point in the recent history, not only of scholarly
publishing, but of scholarship itself. And yet only a
few people have commented on the proposal so far – a
situation that appears, all things considered, very
strange.
So, at
the risk of being kind of pushy about it, let me put it
this way: More or less everyone reading this column who
has not already done so ought (as soon as humanly
possible) to get up to speed on the Ithaka Report. I say
that in spite of the fact that the authors of the report
themselves don’t necessarily expect you to read it.
It’s
natural to think of scholarship and publishing as
separate enterprises. Each follows its own course –
overlapping at some points but fundamentally distinct
with respect to personnel and protocols. The preparation
and intended audience for the Ithaka Report reflects
that familiar division of things. It is based on surveys
and interviews with (as it says) “press directors,
librarians, provosts, and other university
administrators.” But not – nota bene! — with scholars.
Which is no accident, because “this report,” says the
report, “is not directed at them.”
The point bears stressing. But
it’s not a failing, as such. Press directors and
university librarians tend to have a macroscopic view of
the scholarly public that academic specialists, for the
most part do not. And it’s clear those preparing the
report are informed about current discussions and
developments within professional associations – e.g.,
those leading to the recent
MLA statement on tenure and
promotion.
But
scholars can’t afford to ignore the Ithaka Report just
because they were not consulted directly and are not
directly addressed as part of its primary audience. On
the contrary. It merits the widest possible attention
among people doing academic research and writing.
The report calls for
development of “shared electronic publishing
infrastructure across universities to save costs, create
scale, leverage expertise, innovate, extend the brand of
US higher education, create an interlinked environment
of information, and provide a robust alternative to
commercial competitors.” (It sounds, in fact, something
like
AggAcad, except on steroids
and with a billion dollars.)
The
existence of such an infrastructure would condition not
only the ability of scholars to publish their work, but
how they do research. And in a way, it has already
started to do so.
The
professor interviewed for last week’s column decided
to clear his shelves in part because he expected to be
able to do digital searches to track down things he
remembered reading. Without giving away too much of this
professor’s identity away, I can state that he is not
someone prone to fits of enthusiasm for every new gizmo
that comes along. Nor does he work in a field of study
where most of the secondary (let alone primary)
literature is fully digitalized.
But he’s
taking it as a given that for some aspects of his work,
the existing digital infrastructure allows him to
offload one of the costs of research. Office space being
a limited resource, after all.
It’s not
that online access creates a substitute for reading
print-based publications. On my desk at the moment, for
example, is a stack of pages printed out after a session
of using Amazon’s Inside the Book feature. I’ll take
them to the library and look some things up. The
bookseller would of course prefer that we just hit the
one-click, impulse-purchase button they have so
thoughtfully provided; but so it goes. This kind of
thing is normal now. It factors into how you do
research, and so do a hundred other aspects of digital
communication, large and small.
The implicit question now is
whether such tools and trends will continue to develop
in an environment overwhelmingly shaped by the needs and
the initiatives of private companies. The report raises
the possibility of an alternative: the creation of a
publishing infrastructure designed specifically to meet
the needs of the
community of scholars.
Continued in article
Also see "New Model for University Presses," The University of
Illinois Issues in Scholarly Communication Blog, July 31, 2007 ---
http://www.library.uiuc.edu/blog/scholcomm/
As posted in Open Access News...
It’s the nightmare-come-true scenario for many an academic:
You spend years writing a book in your field, send it off to
a university press with an interest in your topic, the
outside reviewers praise the work, the editors like it too,
but the press can’t afford to publish it. The book is
declared too long or too narrow or too dependent on
expensive illustrations or too something else. But the
bottom line is that the relevant press, with a limited
budget, can’t afford to release it, and turns you down,
while saying that the book deserves to be published.
That’s
the situation scholars find themselves in increasingly these
days, and press editors freely admit that they routinely
review submissions that deserve to be books, but that can’t
be, for financial reasons. The underlying economic bind
university presses find themselves in is attracting
increasing attention, including last week’s much awaited
report from Ithaka, “University Publishing in a Digital
Age,” which called for
universities to consider entirely new models.
One
such new model is about to start operations: The
Rice University Press, which was eliminated in 1996, was
revived last year with the idea
that it would publish online only, using low-cost
print-on-demand....
Rice is
going to start printing books that have been through the
peer review process elsewhere, been found to be in every way
worthy, but impossible financially to publish....
Some of the
books Rice will publish, after they went through peer review
elsewhere, will be grouped together as “The Long Tail
Press.” In addition, Rice University Press and Stanford
University Press are planning an unusual collaboration in
which Rice will be publishing a series of books reviewed by
Stanford and both presses will be associated with the work….
Alan Harvey,
editor in chief at Stanford, said he saw great potential not
only to try a new model, but to test the economics of
publishing in different formats. Stanford might pick some
books with similar scholarly and economic potential, and
publish some through Rice and some in the traditional way,
and be able to compare total costs as well as scholarly
impact. “We’d like to make this a public experiment and post
the results,” he said.
Another part
of the experiment, he said, might be to explore “hybrid
models” of publishing. Stanford might publish most of a book
in traditional form, but a particularly long bibliography
might appear online…
University Publishing in a Digital Age
In case you've not seen
the notices, the non-profit organization Ithaka
has just released a report on the state of
university press publishing today,
University Publishing in a Digital Age.
Based on a detailed study
of university presses, which morphed into a
larger examination of the relationship among
presses, libraries and their universities, the
report's authors suggest that university presses
focus less on the book form and consider a major
collaborative effort to assume many of the
technological and marketing functions that most
presses cannot afford; they also suggest that
universities be more strategic about the
relationship of presses to broader institutional
goals.
|
.
|
The Digital Revolution and
Higher Education ---
http://www.pewinternet.org/Reports/2011/College-presidents.aspx
Question
What is "scholarship" as a substitute for "research" as a tenure criterion?
Scholarship = the mastery of existing knowledge, including writing and
sharing via review articles, tutorials, online videos, Website content, etc.
Research = the production of new knowledge from conception to rigorous
analysis, including insignificant fleecing to new knowledge that overturns
conventional wisdom.
"‘Scholarship Reconsidered’ as Tenure Policy," by Scott Jaschik, Inside
Higher Ed, October 2, 2007 ---
http://www.insidehighered.com/news/2007/10/02/wcu
In 1990,
Ernest Boyer published Scholarship Reconsidered,
in which he argued for abandoning the traditional
“teaching vs. research” model on prioritizing faculty
time, and urged colleges to adopt a much broader
definition of scholarship to replace the traditional
research model. Ever since, many experts on tenure, not
to mention many junior faculty members, have praised
Boyer’s ideas while at the same time saying that
departments still tend to base tenure and promotion
decisions on traditional measures of research success:
books or articles published about new knowledge, or
grants won.
Scholarship
Reconsidered may make sense, but the fear has been that
too many colleges pay only lip service to its ideas,
rather than formally embracing them — at least that’s
the conventional wisdom. Indeed, a trend in recent years
has been for colleges — even those not identified as
research universities — to take advantage of the tight
academic job market in some fields to ratchet up tenure
expectations, asking for two books instead of one, more
sponsored research and so forth.
Western
Carolina University — after several years of discussions
— has just announced a move in the other direction. The
university has adopted Boyer’s definitions for
scholarship to replace traditional measures of research.
The shift was adopted unanimously by the Faculty Senate,
endorsed by the administration and just cleared its
final hurdle with approval from the University of North
Carolina system. Broader definitions of scholarship will
be used in hiring decisions, merit reviews, and tenure
consideration.
Boyer,
who died in 1995, saw the traditional definition of
scholarship — new knowledge through laboratory
breakthroughs, journal articles or new books — as too
narrow. Scholarship, Boyer argued, also encompassed the
application of knowledge, the engagement of scholars
with the broader world, and the way scholars teach.
All of
those models will now be available to Western Carolina
faculty members to have their contributions evaluated.
However, to do so, the professors and their departments
will need to create an outside peer review panel to
evaluate the work, so that scholarship does not become
simply an extension of service, and to ensure that rigor
is applied to evaluations.
Lee S.
Shulman, president of the Carnegie Foundation for the
Advancement of Teaching (through which Boyer did much of
his work), said Western Carolina’s shift was
significant. While colleges have rushed to put Boyer’s
ideas into their mission statements, and many individual
departments have used the ideas in tenure reviews,
putting this philosophy in specific institutional tenure
and promotion procedures is rare, he said. “It’s very
encouraging to see this beginning to really break
through,” he said. What’s been missing is “systematic
implementation” of the sort Western Carolina is now
enacting, he said.
What
could really have an impact, Shulman said, is if a few
years from now, Western Carolina can point to a cohort
of newly tenured professors who won their promotions
using the Boyer model.
John
Bardo, chancellor at Western Carolina, said that a good
example of the value of this approach comes from a
recent tenure candidate who needed a special exemption
from the old, more traditional tenure guidelines. The
faculty member was in the College of Education and
focused much of his work on developing online tools that
teachers could use in classrooms. He focused on
developing the tools, and fine-tuning them, not on
writing reports about them that could be published in
journals.
“So when
he came up for tenure, he didn’t have normal
publications to submit,” Bardo said. Under a trial of
the system that has now been codified, the department
assembled a peer review team of experts in the field,
which came back with a report that the professors’
online tools “were among the best around,” Bardo said.
The
professor won tenure, and Bardo said it was important to
him and others to codify the kind of system used so that
other professors would be encouraged to make similar
career choices. Bardo said that codification was also
important so that departments could make initial hiring
decisions based on the broader definition of
scholarship.
Asked
why he preferred to see his university use this
approach, as opposed to the path being taken by many
similar institutions of upping research expectations,
Bardo quoted a union slogan used when organizing workers
at elite universities: “You can’t eat prestige.”
The
traditional model for evaluating research at American
universities dates to the 19th century, he said, and
today does not serve society well in an era with a broad
range of colleges and universities. While there are top
research universities devoted to that traditional role,
Bardo said that “many emerging needs of society call for
universities to be more actively involved in the
community.” Those local communities, he said, need to
rely on their public universities for direct help, not
just basic research.
Along
those lines, he would like to see engineering professors
submit projects that relate to helping local businesses
deal with difficult issues. Or historians who do oral
history locally and focus on collecting the histories
rather than writing them up in books. Or on professors
in any number of fields who could be involved in helping
the public schools.
In all
of those cases, Bardo said, the work evaluated would be
based on disciplinary knowledge and would be subject to
peer review. But there might not be any publication
trail.
Faculty
members have been strongly supportive of the shift. Jill
Ellern, a librarian at the university (where librarians
have faculty status), said that a key to the shift is
the inclusion of outside reviews. “We don’t want to lose
the idea of evaluations,” she said. “But publish or
perish just isn’t the way to go.”
Richard
Beam, chair of the Faculty Senate and an associate
professor of stage and screen in the university’s
College of Fine and Performing Arts, said that the
general view of professors there is that “putting great
reliance on juried publication of traditional research
didn’t seem to be working well for a lot of institutions
like Western. We’re not a Research I institution —
that’s not our thrust.”
Bob Jensen's threads on tenure can be found in the following links:
(Teaching vs. Research) ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm#TeachingVsResearch
(Micro-level Research) ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm#MicroLevelResearch
(Co-authoring) ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm#JointAuthorship
(Scholarship in the Humanities) ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm#MLA
(Obsolete and Dysfunctional Tenure) ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm#Tenure
Bob Jensen's threads on the
flawed peer review process are at
http://www.trinity.edu/rjensen/HigherEdControversies.htm#PeerReviewFlaws
College campuses display a
striking uniformity of thought
Harvard professor Harvey Mansfield once famously
advised a conservative colleague to wait until he had tenure and only then
to "hoist the Jolly Roger." But few professors are getting around to
hoisting the Jolly Roger at all. Either they don't have a viewpoint that is
different from their colleagues, or they've decided that if they are going
to remain at one place for several decades, they'd rather just get along. Is
tenure to blame for the unanimity of thinking in American universities? It's
hard to tell. But shouldn't the burden of proof be on the people who want
jobs for life?
Naomi Schafer Riley, "Tenure and Academic Freedom: College campuses display
a striking uniformity of thought," The Wall Street Journal, June 23,
2009 ---
http://online.wsj.com/article/SB124571593663539265.html#mod=djemEditorialPage
The Digital Revolution and Higher Education ---
http://www.pewinternet.org/Reports/2011/College-presidents.aspx
Controversies in the anonymous blind review process of research journals
"Kill Peer Review or Reform It?" by Scott Jaschik, Inside Higher
Ed, January 6, 2011 ---
http://www.insidehighered.com/news/2012/01/06/humanities-scholars-consider-role-peer-review
Thank you Ron Huefner for the heads up.
"Blind peer review is
dead. It just doesn’t know it yet." That's the way Aaron J. Barlow, an
associate professor of English at the College of Technology of the City
University of New York, summed up his views here on the future of the
traditional way of deciding whose work gets published in the humanities.
Barlow didn't dispute
that most of the top journals in the humanities continue to select
papers this way. But speaking at a session of the annual meeting of the
Modern Language Association, he argued that technology has so changed
the ability of scholars to share their findings that it's only a matter
of time before people rise up against the conventions of traditional
journal publishing.
While others on the
panel and in the audience argued for a reformed peer review as
preferable to Barlow's vision of smashing the enterprise, and some
questioned the practicality of simply walking away from peer review
immediately, the idea that the system needs radical change was not
challenged. Barlow said that the system might have been justified once
when old-style publishing put a significant limit on the quantity of
scholarship that could be shared. But in a new era, he said, the
justifications were gone. (Reflecting the new technology era, Barlow and
one other panelist spoke via Skype, to an audience that included two
tables and wireless for bloggers and Twitter users -- and this
journalist -- to write about the proceedings as they were taking place.)
To many knowing nods in
the room, Barlow argued that the traditional system of blind peer review
-- in which submissions are sent off to reviewers, whose judgments then
determine whether papers are accepted, with no direct communication with
authors -- had serious problems with fairness. He said that the system
rewards "conformity" and allows for considerable bias.
He described a recent
experience in which he was recruited by "a prestigious venue" to review
a paper that related in some ways to research he had done. Barlow's work
wasn't mentioned anywhere in the piece. Barlow said he realized that the
journal editor figured Barlow would be annoyed by the omission. And
although he was, Barlow said he didn't feel assigning the piece to him
was fair to the author. "It was a set-up. The editor didn't want a
positive review, so the burden of rejection was passed on to someone the
author would not know."
He refused to go along,
and said he declined to review the paper when he realized what was going
on. This sort of "corruption" is common, he said.
Barlow has a long
publishing record, so his frustrations with the system can't be chalked
up to being unable to get his ideas out there. But he said that when one
of his papers was recently rejected, he simply published it on his blog
directly, where comments have come in from fans and foes of his work.
"I love the editorial
process" when comments result in a piece becoming better, he said, and
digital publishing allows this to happen easily. But traditional peer
review simply delays publication and leaves decision-making "in the
dark." Peer review -- in the sense that people will comment on work and
a consensus may emerge that a given paper is important or not -- doesn't
need to take place prior to publication, he said.
"We don't need the
bottleneck or the corruption," he said. The only reason blind peer
review survives is that "we have made appearance in peer reviewed
journals the standard" for tenure and promotion decisions. That will
change over time, he predicted, and then the traditional system will
collapse.
Peer Review Plus
While Barlow noted the
ability of digital publishing to bypass peer review, the idea of an
intense, collaborative process for selecting pieces and improving them
came at the session from the editor of Kairos, an online
journal on rhetoric and technology that publishes work prepared for the
web. Kairos has become an influential journal, but Cheryl Ball,
the editor and an associate professor of English at Illinois State
University, discussed how frustrating it is that people assume that an
online journal must not have peer review. "Ignorance about digital
scholarship" means that she must constantly explain the journal, she
said.
Kairos uses
a
three-stage review process. First, editors
decide if a submission makes sense for a review. Then, the entire
editorial board discusses the submission (online) for two weeks, and
reaches a consensus that is communicated to the author with detailed
letters from the board. (Board members' identities are public, so there
is no secrecy about who reviews pieces.) Then, if appropriate, someone
is assigned to work with the author to coach him or her on how to
improve the piece prior to publication.
As Ball described the
process, thousands of words are written about submissions, and lengthy
discussions take place -- all to figure out the best content for the
journal. But there are no secret reviewers, and the coaching process
allows for a collaborative effort to prepare a final version, not
someone guessing about how to handle a "revise and resubmit" letter.
The process is quite
detailed, but also allows for individual consideration of editorial
board members' concerns and of authors' approaches, Ball said. "Peer
reviewers don't need rubrics. They need good ways to communicate," she
said. Along those lines, Kairos is currently updating its tools
for editorial board consideration of pieces, to allow for synchronous
chat, the use of electronic "sticky notes" and other ways to help
authors not only with words, but with digital graphics and
illustrations.
Learning From
Law Reviews
Allen Mendenhall, a
Ph.D. student at Auburn University who is also a blogger and a lawyer,
suggested that humanities journals could take some lessons from law
reviews. Mendenhall is well aware of (and agrees with) many criticisms
of law reviews, and in particular of the reliance for decisions on law
students who may not know much about the areas of scholarship they are
evaluating.
Continued in article
A ‘Radical’ Rethinking of Scholarly Publishing
"Upgrading to Philosophy 2.0," by Andy Guess, Inside Higher Ed,
December 31, 2007 ---
http://www.insidehighered.com/news/2007/12/31/apa
There was no theorizing
about ghosts in the machine at an annual meeting of philosophers last
Friday. Instead, they embraced technology’s implications for their
field, both within the classroom and beyond.
. . .
Harriet E. Baber of the
University of San Diego thinks scholars should try to make their work as
accessible as possible, forget about the financial rewards of publishing
and find alternative ways to referee each other’s work. In short, they
should ditch the current system of paper-based academic journals that
persists, she said, by “creating scarcity,” “screening” valuable work
and providing scholars with entries in their CVs.
“Now why would it be a
bad thing if people didn’t pay for the information that we produce?” she
asked, going over the traditional justifications for the current order —
an incentive-based rationale she dubbed a “right wing, free marketeer,
Republican argument.”
Instead, she argued,
scholars (and in particular, philosophers) should accept that much of
their work has little market value ("we’re lucky if we could give away
this stuff for free") and embrace the intrinsic rewards of the work
itself. After all, she said, they’re salaried, and “we don’t need
incentives external [to] what we do.”
That doesn’t include
only journal articles, she said; class notes fit into the paradigm just
as easily. “I want any prospective student to see this and I want all
the world to see” classroom materials, she added.
Responding to questions
from the audience, she noted that journals’ current function of
refereeing content wouldn’t get lost, since the “middlemen” merely
provide a venue for peer review, which would still happen within her
model.
“What’s going to happen
pragmatically is the paper journals will morph into online journals,”
she said.
Part of the purpose of
holding the session, she implied, was to nudge the APA into playing a
greater role in any such transition: “I’m hoping that the APA will
organize things a little better.”
"Hear the One About the Rejected Mathematician? Call it a scholarly
'Island of Misfit Toys,' Chronicle of Higher Education, August
12, 2009 ---
Click Here
Rejecta Mathematica is an open-access online journal that publishes
mathematical papers that have been rejected by others. Rejecta's motto
is caveat emptor, which is to say that the journal has no technical
peer-review process.
As The Economist notes in its article on
the journal, there are plenty of examples of scholars who have suffered
rejection, only to go on to become giants in their field. (OK, two.)
Nonetheless, if you have lots of free time on your hands, by all means,
check out the inaugural issue.
And if deciphering mathematical formulae
isn't your thing, stand by: Rejecta says it may open the floodgates to
other disciplines. Prospective franchisees are invited to contact the
journal.
Next up: Rejecta Rejecta, a journal for
articles too flawed for Rejects Mathematica, printed on single-ply
toilet paper.
‘Scholarship Reconsidered’ as Tenure Policy," by Scott Jaschik,
Inside Higher Ed, October 2, 2007 ---
http://www.insidehighered.com/news/2007/10/02/wcu
"Time's Up for Tenure," Laurie Fendrich, Chronicle of Higher
Education's The Chronicle Review, April 18, 2008 ---
http://chronicle.com/review/brainstorm/fendrich/times-up-for-tenure?utm_source=cr&utm_medium=en
"Survey Identifies Trends at U.S. Colleges That Appear to Undermine
Productivity of Scholars," by Peter Schmidt, Chronicle of Higher
Education, June 14, 2009 ---
Click Here
"What I Wish I'd Known About Tenure," by Leslie M. Phinney,
Inside Higher Ed, March 27, 2009 ---
http://www.insidehighered.com/advice/2009/03/27/phinney
1. Striving for tenure at a university is like gambling in a
casino;
2. Becoming tenured is like joining a fraternity;
3. A tenure case is like a hunk of Swiss cheese;
4. The majority of those embarking on an academic career will end up
with tenure cases in the gray zone;
5. Just as there are risk factors for contracting a disease, risk
factors exist for not obtaining tenure;
6. True tenure is always being able to obtain another position;
7. The best type of tenure is that which matches your ideals and values;
8. Fight or flight decisions are part of the tenure process;
9. While important, tenure is only one facet in life.
Leslie M. Phinney was an assistant professor of mechanical
engineering at the University of Illinois at Urbana-Champaign from 1997
until 2003. She received a National Science Foundation CAREER Award from
2000-2004 and a 2000 NASA/ASEE Faculty Fellowship at the Jet Propulsion
Laboratories. She is now a principal member of the technical staff at
Sandia National Laboratories, in Albuquerque, N.M.
Jensen Comment
I agree with Dr. Phinney on many points, but I disagree that tenure seeking
is like casino gambling. In a fair-game casino the odds are known and always
in favor of the house. In tenure seeking there are so many unpredictable
factors (departmental colleagues, college colleagues, university-level P&T
members, etc.) that the odds are most certainly not knowable. There are many
factors that are unpredictable such as what weight decision makers will put
upon student evaluations and journal quality where published work appears.
Tenure seeking is more like running for public office than casino gambling.
One of the big problems with tenure seeking is that
decision makers are usually not held accountable, although committee chairs
are often forced to write down reasons for rejection decisions.
One of the big advantages of tenure seeking is that
most colleges now require documentation of progress toward tenure every two
years or thereabouts. Tenure decisions should not come as a huge surprise in
the sixth year of appointment.
Another controversial problem is arises when the tenure
clock is suspended, sometimes unpaid, for a variety of reasons for which
there is some justification --- health of a family member, pregnancy, leaves
of absence from teaching, etc. The reason that these tenure clock
suspensions are controversial is that in many instances the tenure candidate
can do research and writing during the tenure clock suspension and thereby
gain some advantage over other candidates given no more than six years
before a final tenure decision is reached.
"ASIC threatens auditors with mandatory rotation," by Patrick
Durkin and Agnes King, Financial Review, December 5, 2012 ---
http://afr.com/p/national/professional_services/asic_threatens_auditors_with_mandatory_T08zuuBkSqTtX6GQkelQqI?utm_source=News+Clips+12-12-12&utm_campaign=12-12-12-News+Clips&utm_medium=email
The Australian Securities and Investments
Commission has handed the audit profession its second yellow card,
threatening to push for mandatory audit firm rotation if audit quality
continues to deteriorate.
“This is the second year where we have had a
deterioration . . . if there is no improvement, next year we will consider
under our new ability under legislation . . . to report auditors to audit
committees and corporations,” ASIC chairman Greg Medcraft told a press
conference in Sydney.
ASIC’s latest review of firms, published on
Tuesday, found a 30 per cent increase in the failure of auditors to ensure
there had not been a material misstatement of company accounts in the 18
months ended June 30.
“We can’t sit by and see a further deterioration –
we’re talking about the cornerstone of commerce, to rely on financial
statements that are not misstated,” Mr Medcraft said.
He warned audit firms that he will recommend
mandatory audit-firm rotation to government if standards dropped further, to
strengthen the present requirement that audit partners change every seven
years. Mandatory rotation ‘inevitable’ in EUrope, US
Mr Medcraft sees mandatory audit-firm rotation in
Europe and the US as “inevitable”. But industry experts disagree.
“There’s been no appetite out of US Congress
whatsoever for mandatory audit-firm rotation,” said Institute of Chartered
Accountants in Australia chief executive Lee White.
“Some European countries have moved to mandatory
rotation of firms and it’s still an open discussion at the European
Commission.”
He feels audit is being used as a scapegoat and
that careful consideration should be given to whether heavy-handed tactics,
like mandatory firm rotation, would serve to improve auditor independence,
when no empirical evidence exists to support such a view.
PwC head of audit Peter Van Dongen said mandatory
firm rotation is “a solution looking for a problem” and will ultimately
reduce audit integrity.
“There are more effective, less disruptive and less
costly ways to reinforce independence,” he said.
ASIC’s review found 13 per cent of large firms
inspected had deficiencies in their audit procedures, up from 10 per cent
last period. Shortcomings at national firms also rose, to 21 per cent up
from 18 per cent. “We’ve excluded less critical areas,” Mr Medcraft said.
Lack of professional scepticism
Ernst &Young head of audit Tony Johnson said the
inspection program did not measure instances where auditors detect errors
and correct them before financial statements are released.
Mr Medcraft took aim at that lack of professional
scepticism being exercised by auditors. But professionals argue that this is
hard to measure.
ASIC’s report found failings in respect of the
audit of banks and credit unions, including insufficient evidence around the
value of complex financial instruments, including derivatives and the
adequacy of allowances for loans which may not be repaid.
For the mining and energy sector, ASIC found
insufficient scrutiny in the valuation of capitalised exploration,
evaluation or development expenditure.
And for the insurance industry, failing to properly
examine the ‘liability adequacy’ was highlighted as a concern. Link partner
pay to quality: Medcraft
In calling for standards to be lifted, ASIC said
that the pay of audit partners and managers should be linked to audit
quality as assessed independently.
The regulator also warned about big fee cuts by the
accounting firms to win more business. It will also scrutinise moves for
greater efficiency within firms to ensure it doesn’t compromise quality.
Mr Medcraft batted away complaints about price
pressure. “Saying you’re not getting paid enough is not an acceptable excuse
[for poor quality]. Don’t do the job if the fee is not good enough,” he
said.
Auditors have come under fire in the wake of major
corporate failures including Centro, Trio Capital, ABC Learning and Banksia,
accused of being asleep at the wheel.
Auditors Richmond Sinnott & Delahunty in Bendigo
approved the accounts of non-bank lender Banksia weeks before its $660
million collapse in October.
“We don’t want to see another major collapse where
it comes out that there was another material misstatement [of the
accounts],” Mr Medcraft said.
ASIC said it was considering legal action against a
smaller audit firm.
Last month, ASIC suspended former Centro auditor
and PwC partner Stephen Cougle from auditing companies for 2˝ years for
breaching accounting standards.
The corporate regulator took particular aim at
accounting firms where, in “many instances”, there was a failure to gain
appropriate evidence or question management about related-party
transactions, the risk of fraud or expert evidence provided by the company.
Continued in article
Bob Jensen's threads on the controversies of audit firm rotation ---
http://www.trinity.edu/rjensen/Fraud001c.htm#RotationIdeas
"Ex-IndyMac Executives Found Liable for
Negligent Loans," by Edvard Pettersson, Bloomberg News, December 8,
2012 ---
http://www.bloomberg.com/news/2012-12-08/indymac-executives-found-liable-for-negligent-loans.html
Three former IndyMac Bancorp Inc. executives must
pay $169 million in damages to federal regulators for making negligent loans
to homebuilders as the real estate market was deteriorating, a jury decided.
The federal court jury in Los Angeles issued the
verdict against Scott Van Dellen, the former chief executive officer of
IndyMac’s Homebuilder Division; Richard Koon, the unit’s former chief
lending officer; and Kenneth Shellem, the former chief credit officer.
Jurors yesterday found them liable for negligence and breach of fiduciary
duty.
The jury awarded the damages to the Federal Deposit
Insurance Corp., which brought the lawsuit in 2010.
The FDIC, which took over the failed subprime
mortgage lender in 2008, alleged the men caused $500 million in losses at
the homebuilders unit by continuing to push for growth in loan production
without regard for credit quality and despite being aware a downturn in the
real estate market was imminent.
The agency said the executives made loans to
homebuilders that weren’t creditworthy or didn’t provide sufficient
collateral.
“Today’s verdict is the result of a deliberate
effort by the government to scapegoat a few men for the impact that the
unforeseen and unprecedented housing collapse in 2007 had at IndyMac,” Kirby
Behre, a lawyer for Shellem and Koon, said in an e-mailed statement after
yesterday’s verdict.
“Mr. Shellem and Mr. Koon used the utmost care in
making loan decisions, and there is no doubt that all of the loans at issue
would have been repaid except for the housing crash,” Behre said.
Robert Corbin, a lawyer for Van Dellen, didn’t
immediately return a call to his office yesterday after regular business
hours seeking comment on the verdict.
The verdict was reported earlier by the Los Angeles
Daily Journal.
The case is FDIC v. Van Dellen, 10-04915, U.S.
District Court, Central District of California (Los Angeles).
Jensen Comment
Over 1,000 banks failed in 2008 due to reckless lending practices. The real
causes of the subprime mortgage scandals are explained at
http://www.trinity.edu/rjensen/2008Bailout.htm#Causes
To read about the sleaze go to
http://www.trinity.edu/rjensen/2008Bailout.htm#Sleaze
"Demand for Debt and Equity Before and After the Financial Crisis," by
Ciaran Mac an Bhaird, SSRN, November 28, 2012 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2181872
Abstract:
Supply and demand responses to financial crises result in fluctuations in
credit flow to the private sector. Policy makers concerned with the
sustainability and growth of viable firms should disaggregate these
responses. Utilizing firm level data, this study investigates
characteristics of firms applying for external finance before and after the
financial crisis, along with characteristics of successful applicants.
Notwithstanding changes in credit conditions, salient features of external
financing demand endure across the period, including ownership, asset
structure, age and size. Failure to secure debt in an earlier period does
not deter firm owners from applying for loans in a subsequent period.
Evidence suggests that the most financially distressed firms are suffering
the greatest consequences of the credit crunch.
Jensen Comment
One of the symptoms of the Fed's continued policy on low interest rates
(virtually free money to banks) is that corporations are increasingly having a
hard time finding buyers for corporate bonds. Higher rates on some bonds are
sending signals of excessive high risk. Also the 20% of tax payers are
increasingly shifting from corporate bonds into tax exempt bonds in anticipation
of higher income taxes whether or not the U.S. economy goes over the cliff.
December 1, 2012 message from Jim McKinney
The Richard C. Adkerson Gallery
on the SEC Role in Accounting Standards Setting opened today at
http://www.sechistorical.org/
This gallery walks the reader
through the development of accounting standards within the US and includes
numerous copies of source material and an interesting read. Great for the
classroom.
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
To Tom Selling and the AECM,
Tom seems to be letting me have the last word on whether bank loans should be
marked up and down by fair value versus the FASB's proposed economic loss model
revision of measuring bank loan impairment.
My "last word" is that the one thing that is lacking in Tom's posts are
citations of empirical evidence and other important documents on the successes
and failures of fair value accounting of bank loans to date. I've never bought
into the great banker (e.g. the FDIC's Bill Isaac) lament that fair value
accounting is the major cause of the banking collapse of 2008.
After Isaac proposed elimination of fair value accounting for troubled banks,
Congress ordered, in no uncertain terms, the SEC to do a research study on what
was causing so many bank failures like the huge failures of WaMu and Indy Mac.
Although the SEC has been disgraced for a lot of reasons as of late, the
particular study that emerged in a very short period of time (December 2008) is
an excellent study of why banks were failing.
See
http://www.trinity.edu/rjensen/2008Bailout.htm#FairValue
Firstly, Tom tends to blame a few FASB members for challenging mark-to-market
accounting for loan losses. Note especially his posting entitled:
"Marking Loans to (Market) Model is Far Easier and Better than Estimating Loan
Loss Allowances: It's Time to Hear from the FASB Members who Changed Their Minds
about That," by Tom Selling, The Accounting Onion, October 6, 2012 ---
Click Here
http://accountingonion.typepad.com/theaccountingonion/2012/10/marking-loans-to-model-is-far-easier-and-better-than-estimating-loan-loss-allowances-its-time-to-hear-from-the-fasb-members.html
. . .
Mr. Schroeder was not on the FASB when it voted by
a 3-2 margin to require fair value measurement for loans. The series of
events that redirected the FASB from fair value back to yet another recipe
for accounting sausage was an orchestrated comment letter campaign from
irate bankers; the sacking of the FASB chairman (a proponent of fair value)
by the Board's overseers; and the appointment of three
new board members (including Mr. Schroeder), who could be reliably counted
on to resoundingly overturn the vote for fair value.
And that, boys and girls, is how the
anything-but-fair-value movement at the FASB got its start. If Mr. Schroeder
and the other two Board members (Tom Linsmeier and Mark Siegel) who
previously supported fair values for loans are continuing to act on their
principles, it sure would be nice to know how they now came to sing in close
harmony with the bankers on such short order:
- I see nothing in the current proposals that
reflect Mr. Schroeder's views from before he became a board member.
- In the case of Mr. Linsmeier, I do know
something about his background, but I haven't looked at his academic
publications; but I can't imagine that the expected loss model looks
anything like the views he would have come to independently as an
academic. I am also compelled to point out that Mr. Linsmeier
changed his vote only a short while before his re-appointment to the
Board was announced.
The accounting for loans is important enough so
that we should hear all seven board members express their views on
all major aspects of the proposal. For starters, Mr. Schroeder should
explain why, if fair value accounting for loans is as straightforward as he
claims, he continues to align himself with the anything-but-fair-value bloc.
Mr. Linsmeier should provide a justification for changing his views in a
manner that is consistent with academic standards of intellectual rigor; and
as a model for that, I would suggest that he examine the writings, dissents
and speeches of Bob Swieringa while he was a board member.
I would suggest to Tom that, instead of only criticizing individual FASB
board members for considering a loss impairment (discounted cash flow) model,
Tom should instead examine the economic, finance, and banking literature
concerning failures and risks of his beloved fair value model for bank loans.
Even if bank loan markets were efficient and deep there's dispute about the
mark-to-market value accounting for bank loans. But the fact of the matter is
that the bank loan market is far from being deep and efficient, especially among
poorly capitalized small and often rural banks
"Fair Value Accounting," adapted from remarks by Susan Schmidt Bies, Federal
Reserve System, November 18. 2004 ---
Fed. Res. Bulletin 26 , 2005
http://heinonline.org/HOL/LandingPage?collection=journals&handle=hein.journals/fedred91&div=10&id=&page=
Fair value measures of bank loans vary greatly in quality
The FASB is not the first to issue a call to revise the
fair value model for financial assets impairment.
One of the prior calls comes for the SEC itself at the behest of the U.S.
Congress.
"SEC ISSUES DETAILED STUDY ON MARK-TO-MARKET ACCOUNTING,"
by Gia Chevis, Accounting Education.com, February 19, 2009 ---
http://accountingeducation.com/index.cfm?page=newsdetails&id=148980
The report was issued on December 31, 2008
At the direction of the U.S.
Congress, the SEC prepared and released on 30 December 2008 a study on
mark-to-market accounting and its role in the recent financial crises.
Though it concluded that mark-to-market accounting was not responsible
for the crisis, it did make eight recommendations.
The 259-page document, a result of the Emergency Economic Stabilization
Act of 2008, details an in-depth study of six issues identified by the
Act: effects of fair value accounting standards on financial
institutions' balance sheets; impact of fair value accounting on bank
failures in 2008; impact of fair value accounting on the quality of
financial information available to investors; process used by the FASB
in developing accounting standards; alternatives to fair value
accounting standards; and advisability and feasibility of modifications
to fair value accounting standards. Its eight recommendations are:
1) SFAS No. 157 should be improved, but not suspended.
2) Existing fair value and mark-to-market requirements should not be
suspended.
3) While the Staff does not recommend a suspension of existing fair
value standards, additional measures should be taken to improve the
application and practice related to existing fair value requirements
(particularly as they relate to both Level 2 and Level 3 estimates).
4) The accounting for financial
asset impairments should be readdressed.
5) Implement further guidance
to foster the use of sound judgment.
6) Accounting standards should continue to be established to meet the
needs of investors.
7) Additional formal measures to address the operation of existing
accounting standards in practice should be established.
8) Address the need to simplify the accounting for investments in
financial assets.
On February 18, the FASB
announced the addition of two short-timetable projects to its agenda
concerning fair value measurement and disclosure. The first project aims
to improve application guidance for measurement of fair value, with
issuance projected for the second quarter. The second will address
issues related to input sensitivity analysis and changes in levels; the
FASB anticipates completing that project in time for calendar-year-end
filing deadlines. Both projects were undertaken in response to the SEC's
recent study on mark-to-market accounting and input from the FASB's
Valuation Resource Group.
The full report can be freely downloaded at
http://www.sec.gov/news/studies/2008/marktomarket123008.pdf. (pdf)
Tom is overlooking some of the real problems his beloved fair value accounting
model for bank loans. For example, fair value accounting allows for profit
creation out of "thin air" and then lets the air out of the tires and leaves
banks looking flat as dead hot air balloons. Extreme volatility in unrealized
profits caused by fair value (thin air) adjustments can be very misleading to
investors, analysts, and regulators.
Sydney Finkelstein, the Steven Roth professor of management at the Tuck School
of Business at Dartmouth College, also pointed out that Bank of America booked a
$2.2 billion gain by increasing the value of Merrill Lynch’s assets it acquired
last quarter to prices that were higher than Merrill kept them. “Although
perfectly legal, this move is also perfectly delusional, because some day soon
these assets will be written down to their fair value, and it won’t be pretty,”
he said
"Bank Profits Appear Out of Thin Air ," by Andrew Ross Sorkin, The New
York Times, April 20, 2009 ---
http://www.nytimes.com/2009/04/21/business/21sorkin.html?_r=1&dbk
This is starting to feel like amateur hour for aspiring magicians.
Another day, another attempt by a Wall Street bank to pull a bunny out of
the hat, showing off an earnings report that it hopes will elicit oohs and
aahs from the market. Goldman Sachs, JPMorgan Chase, Citigroup and, on
Monday, Bank of America all tried to wow their audiences with what appeared
to be — presto! — better-than-expected numbers.
But in each case, investors spotted the attempts at sleight of hand, and
didn’t buy it for a second.
With Goldman Sachs, the disappearing month of December didn’t quite
disappear (it changed its reporting calendar, effectively erasing the impact
of a $1.5 billion loss that month); JPMorgan Chase reported a dazzling
profit partly because the price of its bonds dropped (theoretically, they
could retire them and buy them back at a cheaper price; that’s sort of like
saying you’re richer because the value of your home has dropped); Citigroup
pulled the same trick.
Bank of America sold its shares in China Construction Bank to book a big
one-time profit, but Ken Lewis heralded the results as “a testament to the
value and breadth of the franchise.”
Sydney Finkelstein, the Steven Roth professor of management at the Tuck
School of Business at Dartmouth College, also pointed out that Bank of
America booked a $2.2 billion gain by increasing the value of Merrill
Lynch’s assets it acquired last quarter to prices that were higher than
Merrill kept them.
“Although perfectly legal, this move is also perfectly delusional, because
some day soon these assets will be written down to their fair value, and it
won’t be pretty,” he said.
Investors reacted by throwing tomatoes. Bank of America’s stock plunged 24
percent, as did other bank stocks. They’ve had enough.
Why can’t anybody read the room here? After all the financial wizardry that
got the country — actually, the world — into trouble, why don’t these
bankers give their audience what it seems to crave? Perhaps a bit of simple
math that could fit on the back of an envelope, with no asterisks and no
fine print, might win cheers instead of jeers from the market.
What’s particularly puzzling is why the banks don’t just try to make some
money the old-fashioned way. After all, earning it, if you could call it
that, has never been easier with a business model sponsored by the federal
government. That’s the one in which Uncle Sam and we taxpayers are offering
the banks dirt-cheap money, which they can turn around and lend at much
higher rates.
“If the federal government let me borrow money at zero percent interest, and
then lend it out at 4 to 12 percent interest, even I could make a profit,”
said Professor Finkelstein of the Tuck School. “And if a college professor
can make money in banking in 2009, what should we expect from the highly
paid C.E.O.’s that populate corner offices?”
But maybe now the banks are simply following the lead of Washington, which
keeps trotting out the latest idea for shoring up the financial system.
The latest big idea is the so-called
stress test
that is being applied to the banks, with results expected at the end of this
month.
This is playing to a tough crowd that long ago decided to stop suspending
disbelief. If the stress test is done honestly, it is impossible to believe
that some banks won’t fail. If no bank fails, then what’s the value of the
stress test? To tell us everything is fine, when people know it’s not?
“I can’t think of a single, positive thing to say about the stress test
concept — the process by which it will be carried out, or outcome it will
produce, no matter what the outcome is,” Thomas K. Brown, an analyst at
Bankstocks.com, wrote. “Nothing good can come of this and, under certain,
non-far-fetched scenarios, it might end up making the banking system’s
problems worse.”
The results of the stress test could lead to calls for capital for some of
the banks. Citi is mentioned most often as a candidate for more help, but
there could be others.
The expectation, before Monday at least, was that the government would pump
new money into the banks that needed it most.
But that was before the government reached into its bag of tricks again. Now
Treasury, instead of putting up new money, is considering swapping its
preferred shares in these banks for common shares.
The benefit to the bank is that it will have more capital to meet its ratio
requirements, and therefore won’t have to pay a 5 percent dividend to the
government. In the case of Citi, that would save the bank hundreds of
millions of dollars a year.
And — ta da! — it will miraculously stretch taxpayer dollars without
spending a penny more.
Tom is overlooking how errors, often huge errors, in fair value measurement
are not offsetting in terms of financial assets versus liabilities. Also Tom is
overlooking geographic differences in fair value accounting ---
"Fair Value Accounting for Financial Instruments: Some Implications for Bank
Regulation," by Wayne R. Landsman, SSRN, August 2006 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=947569
Abstract:
I identify issues that bank regulators need to consider if fair value
accounting is used for determining bank regulatory capital and when making
regulatory decisions. In financial reporting, US and international
accounting standard setters have issued several disclosure and measurement
and recognition standards for financial instruments and all indications are
that both standard setters will mandate recognition of all financial
instruments at fair value. To help identify important issues for bank
regulators, I briefly review capital market studies that examine the
usefulness of fair value accounting to investors, and discuss
marking-to-market implementation issues of determining financial
instruments' fair values. In doing so, I identify several key issues. First,
regulators need to consider how to let managers reveal private information
in their fair value estimates while minimising strategic manipulation of
model inputs to manage income and regulatory capital. Second, regulators
need to consider how best to minimise measurement error in fair values to
maximise their usefulness to investors and creditors when making investment
decisions, and to ensure bank managers have incentives to select investments
that maximise economic efficiency of the banking system. Third,
cross-country institutional differences are likely to play an important role
in determining the effectiveness of using mark-to-market accounting for
financial reporting and bank regulation.
To this I might add that there are cross-country event happenings that affect
effectiveness of mark-to-market accounting. For example, the extensive drought
on 2012 in the Midwest grain belt of the U.S. has caused a wave of bankruptcies
caused by high grain prices in hog, chicken, and turkey small containment
feeding corporations who tend to have rural bank loans for which there are no
viable markets for troubled loans for such things as sewage lagoons.
"Does Fair Value Accounting Contribute to Systemic Risk in the Banking
Industry?" by Urooj Khan (Columbia University), November 15, 2012 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1911895
Abstract:
Critics have blamed fair value accounting for amplifying the subprime crisis
and for causing a financial meltdown. It has been alleged that fair value
accounting has created a vicious circle of falling prices, thereby
increasing the overall risk in the financial system. In this paper, I
investigate whether fair value accounting is associated with an increase in
the risk of failure of the banking system as a whole. I find that the extent
of fair value reporting is associated with an increase in contagion among
banks. The increase in bank contagion is most severe during periods of
market illiquidity. Further, my cross-sectional analyses suggest that
increased bank contagion associated with fair value accounting is more
likely to spread to banks that are poorly capitalized or have a relatively
higher proportion of fair value assets and liabilities.
Hence I stand by my contention that in the thousands of rural banks in the
United States having local loans (like the sewage lagoon loans of Ole versus
Sven), the fair value model for such loans is just not viable. Far better is to
do what the FDIC and Fed do when looking at bank loans. What they do is perform
stress tests that consider many things, including the granular information of
loans and the negotiations with particular customers regarding the restructuring
of loans.
Fair value accounting is great as supplemental reporting when items being
valued are fungible in deep and efficient markets. However, for many bank loans,
especially troubled loans, the items are non-fungible (unique for each borrower)
and have no external markets for the paper. Thus, fair value accounting falters
for millions of bank loans, especially troubled bank loans.
Equally bad is the way fair value accounting, even when perfectly accurate,
creates fictional volatility in profits that contribute to systematic risk in
the banking industry in the unrealized hot air adjustments that wash out on the
many, many held-to-maturity bank loans.
Conclusion
As the SEC noted, the mark-to-market model does not always work well for loan
impairments. The SEC called for reconsideration of the loan impairment model.
And the FASB followed through with an alternate proposal for troubled loans. I
don't think Tom is giving the FASB's proposal a fair shake.
"Can fair value accounting lead to dysfunctional hedging decisions?"
by Hung Tong, FASRI, November 1, 2012 ---
http://www.fasri.net/index.php/2012/11/can-fair-value-accounting-lead-to-dysfunctional-hedging-decisions/
In a forthcoming issue of the Journal of Accounting
Research, I co-author a study (titled “Fair Value Accounting and Managers’
Hedging Decisions”) that investigates how fair value accounting affects
managers’ real economic decisions.
The controversial impact of fair value accounting
has been long debated, and the recent financial crisis further accentuates
opponents’ concerns on its role in inducing volatility and market turmoil.
However, there has been little empirical evidence on whether managers’ real
economic decisions are actually adversely affected by fair value accounting.
Using a context of risk management, we investigate whether fair value
measurement of derivatives adversely influences managers’ hedging decisions.
Our primary findings are that fair value accounting measurement causes
managers to consider more accounting factors relative to economic factors,
which in turn result in suboptimal hedging decisions. This effect is more
likely when the price volatility is higher than when it is lower. We also
propose two remedies to this effect.
In our study, we conduct two experiments using
experienced accountants as participants. They were asked to make hedging
decisions after reading a case material on hedging. In the first experiment,
some participants were shown only the economic impact of hedging, while
others were shown both the economic and accounting impact of hedging. The
economic impact was positive, but the accounting impact indicated increased
earnings volatility arising from the hedging decision. At the same time, we
also varied the price volatility of the hedged asset—the price volatility
was low in one instance, but high in another. In addition, we included a
control condition where participants were provided with information on both
the economic and historical cost accounting impact when price volatility was
high and further told to assume that the company applied historical cost
accounting to recognize derivatives. We found that participants were more
likely to forgo economically sound hedging opportunities when both the
economic and fair value accounting impact information was presented than
when only the economic impact information was presented, or when both the
economic and historical cost accounting impact information was presented.
This adverse effect of fair value accounting was more likely when the price
volatility of the hedged asset was higher—paradoxically, this was a
situation where hedging was more beneficial. We also found that the effect
was mediated by participants’ relative considerations of economic factors
versus accounting factors (e.g., earnings volatility).
We conducted a second experiment to investigate the
effectiveness of two simple debiasing mechanisms — altering the salience of
accounting versus economic impact, and separately presenting net income not
from fair value remeasurements — to mitigate any adverse impact of fair
value accounting on managers’ decisions. In the experiment, we held constant
the price volatility as high and provided the information on both the
economic and accounting impact before asking for participants’ hedging
decisions. We manipulated two presentation formats: 1) whether the economic
impact information was presented first followed by accounting impact
information, or the reverse order; and 2) whether the net income not from
fair value remeasurements was reported in a separate column. The findings of
the second experiment showed that notwithstanding managers’ concerns about
the accounting impact of hedging, their propensity to hedge was increased by
making them attend to the economic impact of hedging prior to their
decisions, or by separately presenting net income not arising from fair
value remeasurements.
Continued in article
"Fair Value Accounting and Managers' Hedging Decisions," by Wei Chen,
Hun-Tong Tan, and Elaine Ying Wang, Journal of Accounting Research
Forthcoming, September 13, 2012 ---
http://onlinelibrary.wiley.com/doi/10.1111/j.1475-679X.2012.00468.x/abstract
Jensen Comment
The results are not altogether unsurprising given the negative impact that FAS
133 had on the use of derivatives for both speculation and hedging. Banks in
particular shun earnings volatility. Although perfect hedges generally keep fair
value adjustments out of earnings until settlement dates, hedging
ineffectiveness can make earnings more volatile. And hedges are more often than
not perfectly effective.
Certainly FAS 133 and IAS 39 (soon to be part of IFRS 9) were not neutral
accounting standards.
Bob Jensen's free tutorials on accounting for derivative financial
instruments and hedging activities ---
http://www.trinity.edu/rjensen/caseans/000index.htm
Answer to a Question Regarding What to Charge for Delivery of a Distance
Education Course
Hi Roger,
That is really tough because fees vary so much in terms of expertise, class
size, whether the course is for-profit, whether the course teaches something
new to the world, etc.
Here is a distribution reported by a head hunting outfit for distance
education
I think most of the courses are IT related but not all, including an
anthropology course ---
http://www.indeed.com/q-Distance-Learning-Instructor-jobs.html
Salary Estimate and number of open jobs
$30,000+ (993)
$50,000+ (713)
$70,000+ (337)
$90,000+ (157)
$110,000+ (73)
However, this does not help much until both class size and number of courses
are considered. Some courses require certified instructors such as
"Microsoft Certified." Extend of grading should also be considered. For
example, are term papers expected?
Of course any out-of-pocket expense should be considered.
And consideration should be given to the value of the opportunity to you
for the first time you've done such a thing. I suspect you will be
working pretty cheap by the hour in terms of time spent developing the
course for the first time.
I figure I made less than a dollar an hour developing my first traveling
dog and pony show on accounting for derivative financial instruments and
hedging activities. Try to imagine the time I spent just writing my
handout CD ---
http://www.cs.trinity.edu/~rjensen/Calgary/CD/
Note that this was not a distance education thing. I actually went
onsite
for companies (including GE Capital and
KPMG) to
deliver CPE
courses. Like I said the first few times the hourly pay was far below
minimum wage in terms of time spent putting my course on a CD. As time
went on, however, I made a lot of money at a time when many companies
had not yet developed their own experts on hedge accounting.
But all good things come to an end in
CPE
consulting. I made some money when education technology was an emerging
topic for most universities. Later on those universities hired or
developed their own experts and no longer needed me to teach specialists
who had more expertise than me.
The same thing happened for hedge accounting. Eventually the Big Four
and their clients hired or developed their own specialists who could
teach me a thing or even a 100+ things. But it was great fun on the road
while it lasted.
By the way my fees varied greatly from $0 to $5,000 per day. The
freebies went to hundreds of universities, although on occasion a
university gave me a sizable honorarium.
Actually I made more money consulting than delivering CPE courses,
especially for clients who came up to my cottage in the mountains and
relieved me of having to travel. The most valuable consulting for me was
consulting on how to value interest rate swaps ---
http://www.trinity.edu/rjensen/acct5341/speakers/133swapvalue.htm
But even here the opportunities waned as banks and accounting firms
developed their own swap valuation experts.
I guess the bottom line for you is to charge what the market will bear,
but don't expect to get paid well by the hour while putting your course
"in the can" as they used to say in Hollywood.
One thing I gladly would have done for free but never had the
opportunity was to be a quality control inspector at the Mustang Ranch.
Just day dreaming of course.
Respectfully,
Bob Jensen
From The Wall Street Journal Accounting Weekly Review on December 7,
2012
0% Gains Tax: Grab It Before It's Gone
by:
Arden Dale
Dec 03, 2012
Click here to view the full article on WSJ.com
TOPICS: Individual Taxation, Tax Laws, Taxation
SUMMARY: The article covers the basics of capital gains tax
treatment with an excellent graphic. It also highlights useful strategies to
take advantage of 0% rate on long term capital gains to taxpayers for whom
the amount of that income would be taxed at 15% or less if it were ordinary
income.
CLASSROOM APPLICATION: The article may be used in an individual
income tax class covering investments and long-term capital gains/losses.
QUESTIONS:
1. (Introductory) What investors currently may pay zero income
taxes on net long-term capital gains?
2. (Advanced) A 0% tax rate is applied to long term capital gains
in the case that the gain would have been taxed at 15% or less, had it been
ordinary income. Explain how this provision in the tax law is described in
the article.
3. (Introductory) When was this zero percent tax rate introduced
into the law and when is it due to expire?
4. (Advanced) What is the "kiddie tax"? Why do you think that those
subject to the "kiddie tax" do not get the advantage of the 0% tax rate on
capital gains?
Reviewed By: Judy Beckman, University of Rhode Island
"0% Gains Tax: Grab It Before It's Gone," by Arden Dale, The Wall Street
Journal, December 3, 2012 ---
Click Here
http://professional.wsj.com/article/SB10001424127887324556304578121201295337828.html?mod=djem_jiewr_AC_domainid&mg=reno64-wsj
How would like to pay no tax when you sell a stock
that's made money for you? Well, for a few more weeks some lucky investors
can get a 0% tax rate on capital gains.
The chance to book tax-free gains before the New
Year stands out amid the fog over whether Congress will allow a slate of tax
increases to take effect in 2013. Tax-free is good no matter what happens
next. If lawmakers do nothing, the 0% rate on net long-term gains for
certain investors will rise to 10%.
Taxpayers in the bottom two brackets can qualify
for the tax bonanza.
Among those who stand to benefit: retirees, couples
with one spouse who earns far more than the other, and families with adult
children. Some already have taken advantage of this break since it took
effect in 2008. Others are learning about it now.
"This is an often missed opportunity," says Robert
W. Stanley, a financial adviser in Libertyville, Ill. Even when people know
of the 0%, rate, he says, they often fail to realize how many taxpayers
qualify.
Jim Holtzman, an adviser in Pittsburgh, says people
often are incredulous when he tells them they can sell an asset and owe no
tax. A retired executive with whom Mr. Holtzman works has sold some stock in
the company he works for to book gains without paying tax. Another is
weeding the stocks of various companies from a brokerage account and paying
no tax on the gains he's cashing in. Pass It On
One father funded his daughter's wedding by making
her a gift of appreciated stock, which she then sold without having to pay
any tax, says Benjamin E. Birken, an adviser at Woodward Financial Advisors
Inc. in Chapel Hill, N.C.
Couples can get the low rate even if one spouse is
in a top bracket. A man with a far greater income than his wife, for
example, can transfer an asset to her, and she can sell it and get the 0%
rate. The two, of course, must file separate tax returns.
"You have to do it very carefully," said Melanie
Lauridsen, a technical manager at the American Institute of CPAs.
Transferring assets from one person to another is a legal move that requires
numerous steps.
Still, a lot of couples use the strategy to great
success, though most don't have quite the colorful profile of one pair Ms.
Lauridsen helped. The woman in this case had around $450 million in liquid
assets; her husband earned somewhere around $40,000 a year (before tax
deductions that brought his taxable income lower). She regularly transferred
assets to him, and he sold them with no capital-gains tax due.
A caveat: Don't hand over an asset to a spouse for
the tax break unless you are truly prepared to relinquish control. Once in
the name of someone else, it belongs to them.
Continued in article
Jensen Comment
For years I've argued that there should be no special rates for capital gains as
long as they are indexed for inflation.
"Is Accounting Blocking R&D Investments? Companies should resist the
urge to cut research expenses to meet an earnings per share target," John R.
Cryan, Joseph Theriault, CFO.com, December 5, 2012 ---
http://www3.cfo.com/article/2012/12/cash-flow_rd-eps-ebitda-accounting-treatment-of-rd
Jensen Comment
The "principles-based" IFRS allows for more subjectivity in capitalizing versus
expensing R&D relative to US GAAP having more bright lines.
From
The Wall Street Journal Accounting Weekly Review on November 12, 2009
3. (Advanced)
Focusing on accounting issues, state why cutting R&D operations quickly impact
any company's financial performance in a current accounting period. In you
answer, first address the question considering U.S. accounting standards.
4. (Advanced)
Does your answer to the question above change when considering reporting
practices under IFRS?
Pfizer Shuts Six R&D Sites After Takeover
by
Jonathan D. Rockoff
Nov 10, 2009
Click here to view the full article on WSJ.com
TOPICS: Consolidation,
GAAP, International Accounting, Mergers and Acquisitions, Research & Development
SUMMARY: "Pfizer
Inc., digesting its $68 billion takeover of rival Wyeth last month, said Monday
it will close six of its 20 research sites, in the latest round of cost cutting
by retrenching drug makers....Pfizer executives wanted to cut costs quickly so
the integration didn't stall research....'When we acquired Warner-Lambert, it
took us almost two years to get into the position we will be in 30 to 60 days'
after closing the Wyeth deal, Martin Mackay, one of Pfizer's two R&D chiefs,
said in an interview."
CLASSROOM
APPLICATION: Questions
relate to understanding the immediate implications of reducing R&D expenditures
for current period profit under both U.S. GAAP and IFRS as well as to
understanding pharmaceutical industry consolidation and restructuring.
QUESTIONS:
1. (Introductory)
What are the business issues within the pharmaceuticals industry in particular
that are driving the need to reduce costs rapidly? In your answer, comment on
industry consolidations and restructuring, including definitions of each of
these terms.
2. (Introductory)
What business reasons specific to Pfizer did their executives offer as reasons
to cut R&D costs quickly?
3. (Advanced)
Focusing on accounting issues, state why cutting R&D operations quickly impact
any company's financial performance in a current accounting period. In you
answer, first address the question considering U.S. accounting standards.
4. (Advanced)
Does your answer to the question above change when considering reporting
practices under IFRS?
Reviewed By: Judy Beckman, University of Rhode Island
RELATED ARTICLES:
Pfizer to Pay $68 Billion for Wyeth
by Matthew Karnitschnig
Jan 26, 2009
Page: A1
The Wall
Street Journal,
November 10, 2009 ---
http://online.wsj.com/article/SB10001424052748703808904574525644154101608.html?mod=djem_jiewr_AC
Pfizer Inc., digesting its $68 billion takeover of rival Wyeth last month, said
Monday it will close six of its 20 research sites, in the latest round of cost
cutting by retrenching drug makers.
Pfizer was expected to cut costs as part of its consolidation with Wyeth, and
research and development was considered a prime target because the two
companies' combined R&D budgets totaled $11 billion. In announcing the
laboratory shutdowns Monday, Pfizer didn't say how many R&D jobs it would cut or
how much it hoped to save from the shutdowns.
For much of this decade, pharmaceutical companies have been closing labs, laying
off researchers and outsourcing more work from their once-sacrosanct R&D units.
Pfizer previously closed several labs, including the Ann Arbor, Mich., facility
where its blockbuster cholesterol fighter Lipitor was developed. In January,
before the Wyeth deal was announced, Pfizer said it would lay off as many as 800
researchers.
But analysts say Pfizer Chief Executive Jeffrey Kindler and other industry
leaders haven't done enough. A major reason for the industry consolidation this
year is the opportunity to slash spending further.
Pfizer previously said it expects $4 billion in savings from its combination
with Wyeth. It plans to eliminate about 19,500 jobs, or 15% of the combined
company's total.
Merck & Co., which completed its $41.1 billion acquisition of Schering-Plough
last week, is expected to cut 15,930 jobs, or about 15% of its work force. In
September, Eli Lilly & Co. said it will eliminate 5,500 jobs, or nearly 14% of
its total. Johnson & Johnson said last week that it will pare as many as 8,200
jobs, or 7%.
Drug makers are restructuring in anticipation of losing tens of billions of
dollars in revenues as blockbuster products, such as Lipitor, start facing
competition from generic versions. Setbacks developing new treatments have made
the need to reduce spending all the more urgent, analysts say, and have reduced
resistance to closing labs. The economic slump has only worsened the
pharmaceutical industry's plight, pressuring sales.
The sites Pfizer is set to close include Wyeth's facility in Princeton, N.J.,
which has been working on promising therapies for Alzheimer's disease, including
one called bapineuzumab under development by several companies. The Alzheimer's
work will move to Pfizer's lab in Groton, Conn., which will be the combined
company's largest site. The consolidation of Alzheimer's work "allows us to
fully focus on that, rather than have to coordinate activities," said Mikael
Dolsten, a former Wyeth official and one of two R&D chiefs at the combined
company.
Besides Princeton, Pfizer said research also is scheduled to end at R&D sites in
Chazy, Rouses Point and Plattsburgh, N.Y.; Gosport, Slough and Taplow in the
U.K.; and Sanford and Research Triangle Park, N.C. Pfizer is counting as a
single site labs close to each other, such as the facilities in Rouses Point and
Plattsburgh, Slough and Taplow, and Sanford and Research Triangle Park. Along
with the Princeton facility, those in Chazy, Rouses Point and Sanford had
belonged to Wyeth.
The company is also planning to move work from its Collegeville, Pa.; Pearl
River, N.Y., and St. Louis sites to other locations.
Pfizer executives wanted to cut costs quickly after the Wyeth deal's completion
so the integration doesn't stall research. That was a problem with Pfizer's
acquisition of Warner-Lambert in 2000 and its merger with Pharmacia in 2003. As
a result, critics say the deals destroyed billions of dollars in shareholder
value. Pfizer says it has learned from its past acquisitions.
"When we acquired Warner-Lambert, it took us almost two years to get into the
position we will be in 30 to 60 days" after closing the Wyeth deal, Martin
Mackay, one of Pfizer's two R&D chiefs, said in an interview. Up next, he said,
the newly combined company will prioritize its R&D work and decide which
potential therapies to abandon.
"The Risk of Using Spreadsheets for Statistical Analysis," CFO.com
Whitepaper, 2012 ---
http://www.cfo.com/whitepapers/index.cfm/displaywhitepaper/14668959?mid=107705&rid=107705.59400.30390
Abstract:
While spreadsheets are
widely used for statistical analysis, they are useful only to a certain
point. When used for a task they?re not designed to perform, or for a task
beyond the limit of their capabilities, using spreadsheets can be risky.
Read this paper to learn about more powerful yet easy-to-use analytics
alternatives that may be more suitable.
December 27, 2012 reply from Jagdish Gangolly
Bob,
This paper nicely summarises the drawbacks of
spreadsheets for statistical analysis. It is also makes a pitch for IBM's
SPSS.
While I hate to bite the hand that fed me at least
for some time in my career, I think IBM is fighting a losing battle. Except
for some social science disciplines, SPSS has already lost the battle to
S-Plus and R. The reason is obvious: SPSS, like Stata, Statistica, SAS,...,
is a program, while S-Plus and R are (object-oriented and functional)
programming languages designed specifically for statistical computation.
Regards,
Jagdish
Jagdish S. Gangolly
Department of Informatics
College of Computing & Information
State University of New York at Albany Harriman Campus,
Building 7A, Suite 220 Albany, NY 12222
Phone: 518-956-8251, Fax: 518-956-8247
Bob Jensen's sadly neglected Excel tutorials ---
http://www.trinity.edu/rjensen/HelpersVideos.htm
Comparisons
of IFRS with Domestic Standards of Many Nations
http://www.iasplus.com/country/compare.htm
More Detailed
Differences
(Comparisons) between FASB and IASB Accounting Standards
2011 Update
"IFRS and US GAAP: Similarities and Differences" according to PwC
(2011 Edition)
http://www.pwc.com/us/en/issues/ifrs-reporting/publications/ifrs-and-us-gaap-similarities-and-differences.jhtml
Note the Download button!
Note that warnings are given throughout the document that the similarities and
differences mentioned in the booklet are not comprehensive of all similarities
and differences. The document is, however, a valuable addition to students of
FASB versus IASB standard differences and similarities.
It's not easy keeping track of what's changing and
how, but this publication can help. Changes for 2011 include:
- Revised introduction reflecting the current
status, likely next steps, and what companies should be doing now
(see page 2);
- Updated convergence timeline, including
current proposed timing of exposure drafts, deliberations, comment
periods, and final standards
(see page 7);
- More current analysis of the differences
between IFRS and US GAAP -- including an assessment of the impact
embodied within the differences
(starting on page 17); and
- Details incorporating authoritative standards
and interpretive guidance issued through July 31, 2011
(throughout).
This continues to be one of PwC's most-read
publications, and we are confident the 2011 edition will further your
understanding of these issues and potential next steps.
For further exploration of the similarities and
differences between IFRS and US GAAP, please also visit our
IFRS Video Learning Center.
To request a hard copy of this publication, please contact your PwC
engagement team or
contact us.
Jensen Comment
My favorite comparison topics (Derivatives and Hedging) begin on Page 158
The booklet does a good job listing differences but, in my opinion, overly
downplays the importance of these differences. It may well be that IFRS is more
restrictive in some areas and less restrictive in other areas to a fault. This
is one topical area where IFRS becomes much too subjective such that comparisons
of derivatives and hedging activities under IFRS can defeat the main purpose of
"standards." The main purpose of an "accounting standard" is to lead to greater
comparability of inter-company financial statements. Boo on IFRS in this topical
area, especially when it comes to testing hedge effectiveness!
One key quotation is on Page 165
IFRS does not specifically discuss the methodology
of applying a critical-terms match in the level of detail included within
U.S. GAAP.
Then it goes yatta, yatta, yatta.
Jensen Comment
This is so typical of when IFRS fails to present the "same level of detail" and
more importantly fails to provide "implementation guidance" comparable with the
FASB's DIG implementation topics and illustrations.
I have a
huge beef with the lack of illustrations in IFRS versus the many illustrations
in U.S. GAAP.
I have a
huge beef with the lack of illustrations in IFRS versus the many illustrations
in U.S. GAAP.
I have a huge beef with the lack of illustrations in
IFRS versus the many illustrations in U.S. GAAP.
Bob Jensen's threads on accounting standards setting controversies ---
http://www.trinity.edu/rjensen/Theory01.htm#MethodsForSetting
Comparisons
of IFRS with Domestic Standards of Many Nations
http://www.iasplus.com/country/compare.htm
Bob Jensen's threads on R&D accounting ---
http://www.trinity.edu/rjensen/Theory02.htm#FAS02
Question
As robots take increasingly displace labor in almost any market, are writers and
music composers safe?
"Patented Book Writing System Creates, Sells Hundreds Of Thousands Of
Books On Amazon," by David J. Hull, Security Hub, December 13, 2012
---
http://singularityhub.com/2012/12/13/patented-book-writing-system-lets-one-professor-create-hundreds-of-thousands-of-amazon-books-and-counting/
Philip M. Parker, Professor of Marketing at INSEAD Business School,
has had a side project for over 10 years. He’s created
a computer system that can write books about specific subjects in about 20
minutes. The patented algorithm has so far generated hundreds of thousands
of books. In fact, Amazon lists over 100,000 books attributed to Parker, and
over 700,000 works listed for his company,
ICON Group
International, Inc. This doesn’t
include the private works, such as internal reports,
created for companies or licensing of the system itself through a separate
entity called
EdgeMaven Media.
Parker is not so much an author as a compiler, but
the end result is the same: boatloads of written works.
Now these books aren’t your typical reading
material. Common categories include specialized technical and business
reports, language dictionaries bearing the “Webster’s” moniker (which is in
the public domain), rare disease overviews, and even crossword puzzle books
for learning foreign languages, but they all have the same thing in common:
they are automatically generated by software.
The system automates this process by building
databases of information to source from, providing an interface to customize
a query about a topic, and creating templates for information to be
packaged. Because digital ebooks and print-on-demand services have become
commonplace, topics can be listed in Amazon without even being “written”
yet.
The abstract for the U.S. patent issued in 2007
describes the system:
The present invention provides for the
automatic authoring, marketing, and or distributing of title material. A
computer automatically authors material. The material is automatically
formatted into a desired format, resulting in a title material. The
title material may also be automatically distributed to a recipient.
Meta material, marketing material, and control material are
automatically authored and if desired, distributed to a recipient.
Further, the title may be authored on demand, such that it may be in any
desired language and with the latest version and content.
To be clear, this isn’t just software alone but a
computer system designated to write for a specific genre. The system’s
database is filled with genre-relevant content and specific templates coded
to reflect domain knowledge, that is, to be written according to an expert
in that particular field/genre. To avoid copyright infringement, the system
is designed to avoid plagiarism, but the patent aims to create original but
not necessarily creative works. In other words, if any kind of content can
be broken down into a formula, then the system could package related, but
different content in that same formula repeatedly ad infinitum.
Parker explains the process in this nearly
10-minute video:
Scroll down to the video ---
http://singularityhub.com/2012/12/13/patented-book-writing-system-lets-one-professor-create-hundreds-of-thousands-of-amazon-books-and-counting/
Continued in article
Jensen Questions
If you publish an average of 1,267 books per year in your discipline can you
possibly be denied promotion and tenure?
Will you continued to require a single essay that counts 50% of the grade in
your theory course?
How do you sue an anonymous computer for plagiarism?
Bob Jensen's helpers for writers ---
http://www.trinity.edu/rjensen/Bookbob3.htm#Dictionaries
Bob Jensen's threads on Tools and Tricks of the Trade ---
http://www.trinity.edu/rjensen/000aaa/thetools.htm
Taxes: Navigating the Fiscal Cliff? AICPA Can Help ---
http://www.aicpa.org/InterestAreas/Tax/Resources/Pages/tax-fiscal-cliff.aspx
Fortune 500 Corporations Holding $1.6
Trillion in Profits Offshore
http://ctj.org/pdf/unrepatriatedprofits.pdf

Tax Law Enforcement
"South Africa maintains its PwC global tax ranking," by Amanda Visser,
Business Day Live, November 29, 2012 ---
http://www.bdlive.co.za/economy/2012/11/29/south-africa-maintains-its-pwc-global-tax-ranking
SOUTH Africa may have maintained its ranking in the
annual global Paying Taxes study that looks at tax systems from a business
perspective, but several countries have increased their tax reforms and
overtaken it on the list.
Charles de Wet, a tax director at PwC, said many of
the reforms undertaken by the Treasury and the South African Revenue Service
since the study started, such as electronic submissions of tax returns, were
still being "bedded down".
However, if the country did not continuously reform
its tax system, there was a danger that it could start falling behind in the
global rankings. This could impact on investments as other more aggressive
reformers could become more attractive destinations, Mr de Wet said.
He launched PwC’s Paying Taxes 2013 study in
Johannesburg and gave a comparison between South Africa, global economies
and African countries.
The study was done between June 2011 and June 2012.
During that time 31 reforms were recorded globally and 12 economies reduced
the profit tax rate, but 11 countries introduced new taxes, including El
Salvador, Malawi, Maldives, Nigeria and Japan.
The report showed South Africa still compared quite
favourably with international and African trends. The global total tax rate
was 44.7%, Africa 57.4% and South Africa 33.3%. The total tax rate included
corporate income tax, labour taxes and other taxes such as VAT.
The study used a company as a case study to measure
the taxes and contributions it paid, and the complexity of a particular
country’s tax compliance system.
The study looked at the cost of the taxes that were
paid by the company in each country, as well as the administrative burden of
the taxes. These were then measured using three subindicators, namely total
tax rate (the cost of all the taxes paid); the time needed to comply with
the major taxes, such as corporate income tax; and the number of tax
payments.
Countries whose total tax rate was less than that
of South Africa included Zambia, Namibia, Botswana, Rwanda and Ethiopia.
Nigeria, Eritrea and Benin were some of the countries with the highest total
tax rate on the continent.
South Africa was ranked 32 out of 179 economies
that were measured in the study in terms of paying taxes, moving up from the
36th position in the previous year.
In terms of the total tax rate, we were ranked 59th
out of all the economies, which is one move down. The country compared
favourably, in terms of the number of payments, with the rest of Africa with
a weighted average of nine payments, compared to the 37 payments in the rest
of Africa.
Mr de Wet said the report aimed to encourage
governments to increase their tax reforms, which would affect the ease of
doing business.
He said while the time to comply and the number of
payments had continued to decline from 2011, the rate of decline for the
total tax rate had slowed, mainly due to the global economic slowdown.
Globally it took the case study company 267 hours
to be compliant with all the major taxes; it made more than 27 payments; and
it had a total tax rate of 44,7%.
Continued in article
Jensen Comment
South Africa is still a corrupt nation but has improved its corruption ranking
somewhat relative to the most corrupt nations in the world.

"They have legislated themselves as untouchable as a
political class . . . "
"The Wonk (Professor) Who Slays Washington," by Peter J. Boyer,
Newsweek Magazine, November 21, 2011, pp. 32-37 ---
http://www.thedailybeast.com/newsweek/2011/11/13/peter-schweizer-s-new-book-blasts-congressional-corruption.html
Jensen Comment
The recent legislation preventing our elected officials is a sham since it does
not preclude family members from inside trading.
"They have legislated themselves as untouchable as a
political class . . . "
"The Wonk (Professor) Who Slays Washington," by Peter J. Boyer,
Newsweek Magazine, November 21, 2011, pp. 32-37 ---
http://www.thedailybeast.com/newsweek/2011/11/13/peter-schweizer-s-new-book-blasts-congressional-corruption.html
"How Corruption Is Strangling U.S. Innovation," by James Allworth,
Harvard Business Review Blog, December 7, 2012 ---
Click Here
http://blogs.hbr.org/cs/2012/12/how_corruption_is_strangling_us_innovation.html?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date
We
hang the petty thieves and appoint the great ones to public office.
Attributed to Aesop
Congress is our only native criminal class.
Mark Twain ---
http://en.wikipedia.org/wiki/Mark_Twain
We
hang the petty thieves and appoint the great ones to public office.
Attributed to Aesop
"Profitable not-for-profits," New York Post, December 7, 2012
---
http://www.nypost.com/p/news/opinion/editorials/profitable_not_for_profits_6tIH1u57fmmFSAW1SPJkMN
. . .
* Shirley Huntley, a state senator from Queens,
founded an empty-shell nonprofit called The Parents Network right before she
took office in 2006. She steered $30,000 in taxpayer money to her niece, who
ran the group, and tried to send even more before she was arrested this
year.
* Larry Seabrook, a former city councilman from
Brooklyn, was convicted of funneling $1.5 million in taxpayer funds to his
mistress, his sister, two brothers and other pals through a network of
nonprofit groups he controlled. He faces up to 180 years in prison.
* Pedro Espada, the former state senator from The
Bronx, was convicted of looting $545,000 from his federally funded nonprofit
health clinic to pay for vacations, lavish birthday parties and theater
tickets. He then tapped the nonprofit for another $1 million to cover his
legal fees.
* Brian McLaughlin, a former Queens assemblyman and
powerful labor leader, steered $95,000 meant for a local nonprofit Little
League to pals of his, just one piece of the $3.1 million he stole from
public and private enterprises. He got 10 years in prison for his crimes.
Weberman, of course, holds no elective office — but
he is a leader in his community and has abused its trust.
Just like the others.
Happily, Gov. Cuomo has noticed the pattern,
promoting legislation that would cap the often sky-high salaries at
nonprofits that benefit from state funds.
But that won’t solve the whole problem.
Attorney General Eric Schneiderman has pursued
abusers like Huntley, but since religious charities don’t have to register
with the state, Weberman’s nonprofit wasn’t on the AG’s radar before this
week.
That needs to change — fast.
Time to get cracking, Albany.
Read Deloitte's Glowing Audit Report o Autonomy
"H.P. Takes Huge Charge on ‘Accounting Improprieties’ by Michael J. De La Merced
and Quentin Hardy, The New York Times, November 20, 2012 ---
http://dealbook.nytimes.com/2012/11/20/h-p-takes-big-hit-on-accounting-improprieties-at-autonomy/
"Where were the accountants in H-P’s Autonomy deal?" by Floyd Norris,
New York Times, November 29, 2012 ---
http://www.nytimes.com/2012/11/30/business/auditors-clash-in-hp-deal-for-autonomy.html?ref=business
The battle over Hewlett-Packard’s claim that it was
bamboozled when it bought Autonomy, a British software company, has been
long on angry rhetoric and short on details about the accounting that was
supposedly wrong and led to an $8.8 billion write-down.
¶ But the eternal question asked whenever a fraud
surfaces — “Where were the auditors?” — does have an answer in this case.
¶ They were everywhere.
¶ They were consulting. They were advising,
according to one account, on strategies for “optimizing” revenue. They were
investigating whether books were cooked, and they were signing off on audits
approving the books that are now alleged to have been cooked. They were
offering advice on executive pay. There are four major accounting firms, and
each has some involvement.
¶ Herewith a brief summary of the Autonomy dispute:
¶ Hewlett-Packard, a computer maker that in recent
years has gone from one stumble to another, bought Autonomy last year. The
British company’s accounting had long been the subject of harsh criticism
from some short-sellers, but H.P. evidently did not care. The $11 billion
deal closed in October 2011.
¶ Last week, H.P. said Autonomy had been cooking
its books in a variety of ways. Mike Lynch, who founded Autonomy and was
fired by H.P. this year, says the company’s books were fine. If the company
has lost value, he says, it is because of H.P.’s mismanagement.
¶ Autonomy was audited by the British arm of
Deloitte. H.P., which is audited by Ernst & Young, hired KPMG to perform due
diligence in connection with the acquisition — due diligence that presumably
found no big problems with the books.
¶ That covered three of the four big firms, so it
should be no surprise that the final one, PricewaterhouseCoopers, was
brought in to conduct a forensic investigation after an unnamed
whistle-blower told H.P. that the books were not kosher. H.P. says the PWC
investigation found “serious accounting improprieties, misrepresentation and
disclosure failures.”
¶ That would seem to make the Big Four tally two
for Autonomy and two for H.P., or at least it would when Ernst approves
H.P.’s annual report including the write-down.
¶ But KPMG wants it known that it “was not engaged
by H.P. to perform any audit work on this matter. The firm’s only role was
to provide a limited set of non-audit-related services.” KPMG won’t say what
those services were, but states, “We can say with confidence that we acted
responsibly and with integrity.’
¶ Deloitte did much more for Autonomy than audit
its books, perhaps taking advantage of British rules, which are more relaxed
about potential conflicts of interest than are American regulations enacted
a decade ago in the Sarbanes-Oxley law. In 2010, states the company’s annual
report, 44 percent of the money paid to Deloitte by Autonomy was for
nonaudit services. Some of the money went for “advice in relation to
remuneration,” which presumably means consultations on how much executives
should be paid.
¶ The consulting arms of the Big Four also have
relationships that can be complicated. At an auditing conference this week
at New York University, Francine McKenna of Forbes.com noted that Deloitte
was officially a platinum-level “strategic alliance technology
implementation partner” of H.P. and said she had learned of “at least two
large client engagements where Autonomy and Deloitte Consulting worked
together before the acquisition.” A Deloitte spokeswoman did not comment on
that report.
¶ To an outsider, making sense of this brouhaha is
not easy. In a normal accounting scandal, if there is such a thing, the
company restates its earnings and details how revenue was inflated or costs
hidden. That has not happened here, and it may never happen. There is not
even an accusation of how much Autonomy inflated its profits, but if there
were, it would be a very small fraction of the $8.8 billion write-off that
H.P. took. Autonomy never reported earning $1 billion in a year.
¶ That $8.8 billion represents a write-off of much
of the good will that H.P. booked when it made the deal, based on the
conclusion that Autonomy was not worth nearly as much as it had paid. It
says more than $5 billion of that relates to the accounting irregularities,
with the rest reflecting H.P.’s low stock price and “headwinds against
anticipated synergies and marketplace performance,” whatever that might
mean.
Continued in article
"Business Autonomy: Five ways in which Autonomy is alleged to have
cooked the books," by Juliette Garside The Guardian, November 24,
2012 ---
http://www.guardian.co.uk/business/2012/nov/25/autonomy-five-ways-alleged-cooked-books
'CHANNEL
STUFFING'
The most serious of the allegations HP has made
against unnamed members of
Autonomy's
management team. A spokeswoman for Lynch has denied any suggestions that
the tactic was used.
Channel stuffing
involves offloading excessive amounts of product to resellers ahead of
demand. Typically, the reseller is charged little or no money up front,
and may not be obliged to pay unless they sell the product on. In
accountancy terms, a line is crossed if those deals are booked as
revenue before an end customer has actually bought the product.
Autonomy had hundreds of
resellers, one of which was Tikit, which specialises in legal and
accountancy software and has just been bought by BT. In December 2010,
Tikit reported a surge in the amount of inventory on its books, up from
Ł100,000 worth per half year to Ł4m.
Peel Hunt analyst Paul
Morland says Tikit told him that it had done a big deal to acquire
software at a discount.
Tikit declined to
comment and there is no evidence that Autonomy booked the deal as
revenue. A spokeswoman for Lynch insisted Autonomy never recognised
revenue from resellers if there was a right of return, and that such a
right was almost never granted.
US regulators have taken
high-profile scalps in their efforts to stamp out channel stuffing.
Drugs firm Bristol-Myers Squibb coughed up more than $800m in fines and
legal settlements after admitting to pumping stocks of medicines onto
wholesalers' books in order to inflate its own revenues. During the
dotcom boom, the McAfee antivirus software company engaged in practices
with a reseller called Ingram Micro which saw them eventually fined a
combined $65m.
USING
ACQUISITIONS AS A SMOKESCREEN
In Autonomy's last full
year as an independent company, it claimed to be growing at 17%. This
excluded the contribution of any acquisitions. But one financial analyst
has claimed it was using its purchases to mask the fact that there was
no growth at all.
Over six years, Autonomy
bought at least eight sizeable businesses, culminating in May 2011 with
the digital archiving arm of US group Iron Mountain. "Once they had
bought the company they would close parts of the business down," says
Daud Khan, who followed Autonomy while working at JP Morgan Cazenove,
and is now at Berenberg Bank. "Closing down a business costs money but
the restructuring charges were always very low. Through magic dust
Autonomy managed to do it with very little cost and they did that again
and again." He believed Autonomy was claiming the discontinued revenues
from acquired companies as part of its own organic growth.
Lynch's spokeswoman says
Autonomy's accountant, Deloitte, checked every acquisition. She said
there were more than 30 analysts covering Autonomy's stock, and Khan's
view was in the minority.
DESCRIBING
HARDWARE SALES AS SOFTWARE SALES
HP said Autonomy sold
hardware that was wrongly labelled in its accounts as software and sold
hardware at "negative margin", in other words at a loss, and charged it
as a marketing expense. The sale was then chalked up as licence revenue
for growth calculations. HP said these sales accounted for up to 15% of
Autonomy's total revenue, which was estimated at $1bn in 2011.
Lynch said it was "no
secret" Autonomy sold hardware, and it accounted for around 8% of
revenue. The company would sometimes supply desktop computers to clients
as part of a package. In some cases, Lynch said, deals were struck at a
slight loss, in exchange for the client agreeing to market Autonomy
products. These losses were then charged as a marketing expense.
Crucially, he claims those sales accounted for less than 2% of total
revenues.
EXAGGERATING
SEARCH REVENUES FROM OTHER SOFTWARE COMPANIES
Autonomy's client roster
reads like a software hall of fame. Its website lists most of the
biggest names, from Adobe to IBM and Oracle, and in its last financial
results, it claimed more than 400 separate products were using its
"core" technology.
Original equipment
manufacturer (OEM) licences were one of Autonomy's growth engines,
rising at 27% a year.
Autonomy's top product
is a search engine called IDOL (Intelligent Data Operating Layer), but
Autonomy has rebranded less expensive products as IDOL, such as the
document filter produced by a company called Verity it bought in 2005.
A week after HP
announced it was prepared to acquire Lynch's company at a 64% premium to
its share price, Leslie Owens at Forrester Research published a piece
entitled What is Autonomy, Without its Marketing?, in which she declared
the development of IDOL was "stagnant", with no major release in five
years.
Technology analyst Alan
Pelz-Sharpe, who reported Autonomy to the Serious Fraud Office last
year, claimed last August in his blog: "Where Autonomy is present in
3rd-party software, it is more typically the old (and very basic) Verity
engine, not IDOL."
Autonomy would not be
the first company to have overplayed the popularity of its products.
Lynch's spokeswoman said there was no exaggeration of revenues from
other software companies. The view of the analysts is simply that if
sales of its flagship search software were not soaraway, Autonomy might
not have been worth the premium HP paid.
FRONTLOADING
REVENUES
Changing the payment
model for storing large digital archives on behalf of customers is
another way in which HP believes Autonomy boosted revenues. Autonomy was
supposedly converting long-term "hosting" deals into short-term
licensing deals.
Red flags were raised by
analysts after Autonomy's 2007 acquisition of a US email archiving
company called Zantaz, whose clients included nine of the world's top 10
law firms and JP Morgan and Deutsche Bank. Khan claims Autonomy
renegotiated contracts so that instead of spreading payments over a
three- or four-year contract, it would take a big lump sum upfront and
smaller payments in subsequent years.
"There's nothing illegal
with that but it generates growth that isn't real growth," says Khan.
"If you value a business you have to ascertain whether it is growing."
Lynch's spokeswoman said
this was not an accurate characterisation of the changes: Zantaz
customers that had been pay-as-you-go committed to much larger deals
once Autonomy took over, often including on-premises software.
Jensen Comment
I view attempts to whitewash Autonomy with very legalized interpretations of
IFRS much like I view Ernst & Young's legalistic use of FAS 140 to justify the
Repo 105 and 109 deceptions for Lehman Bros. Such a defense may get auditors off
the hook in court, but use of such defenses simply justifies auditors
intentionally being party to deceptive accounting. There's such a thing as
underlying spirit and intent of an audit to avoid deception even when clients
and their auditors can get away with deception due to defects in the standards.
The irony is that some financial analysts were raising red flags about
Autonomy's accounting well in advance of when HP invested in that dubious
company. I guess it boils down to "buyers beware," and HP seems to have simply
been ignorant of accounting tricks.
Teaching Case on Autonomy from The Wall Street Journal's Accounting Weekly
Review on November 30, 2012
H-P Says It Was Duped, Takes $8.8 Billion Charge
by: Ben Worthen
Nov 28, 2012
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com ![WSJ Video]()
TOPICS: Goodwill, Intangible Assets, International Accounting,
Mergers and Acquisitions, Revenue Recognition, Advanced Financial
Accounting, Audit Quality, Financial Accounting
SUMMARY: H-P disclosed another $8 Billion Charge to write down its
software segment which includes Autonomy, a company acquired by H-P for
$11.1 billion in October 2011. H-P chief Meg Whitman says there was a
willful effort to inflate Autonomy's revenue and profitability. Autonomy
founder Mike Lynch, who was fired by H-P in May 2012 for underperformance of
the unit after H-P's acquisition, denies these allegations. In a related
article it is made clear that analysts have long questioned Autonomy's
revenue recognition practices and questioned whether H-P overpaid for the
acquisition in 2011. Deloitte Touche as Autonomy's auditor is now facing
another situation in which the quality of its work is now being questioned.
CLASSROOM APPLICATION: The article includes topics in revenue
recognition, IFRS versus U.S. GAAP, business combinations, and intangible
asset write downs.
QUESTIONS:
1. (Introductory) Summarize the announcement made by H-P on which
this article reports. What types of assets do you think were written down in
the total $8.8 billion charge?
2. (Advanced) Access the press release on which this article is
based, available through its SEC filing on Form 8-K at
http://www.sec.gov/Archives/edgar/data/47217/000004721712000033/0000047217-12-000033-index.htm.
Confirm your answer to question number 1 above about the types of assets
included in the write down.
3. (Advanced) How do classifications of revenue result in an asset
write down by an acquirer one year after completion of an acquisition?
Specifically describe how determining an asset account balance in a business
acquisition that may involve past or future revenue amounts.
4. (Introductory) Refer to the first related article. What is the
role of the Chief Financial Officer in assessing the propriety of accounting
at a target/acquired firm, both before and after establishing a price to be
paid by an acquirer?
5. (Advanced) Refer to the second related article. How is it
possible that differences between U.S. GAAP and IFRS might result in
different timing of revenue recognition?
6. (Introductory) What does analyst Dan Mahoney think are issues
that led to H-P's allegations against Autonomy? How do both U.S.GAAP and
IFRS handle these issues in timing revenue recognition?
Reviewed By: Judy Beckman, University of Rhode Island
RELATED ARTICLES:
At H-P, Judgment Goes by the Board
by Rolfe Winkler
Nov 27, 2012
Page: C10
Long Before H-P Deal, Autonomy's Red Flag's
by Ben Worthen, Paul Sonne and Justin Scheck
Nov 27, 2012
Online Exclusive
"H-P Says It Was Duped, Takes $8.8 Billion Charge," by: Ben Worthen, The
Wall Street Journal, November 28, 2012 ---
http://professional.wsj.com/article/SB10001424127887324352004578130712448913412.html?mod=djem_jiewr_AC_domainid&mg=reno-wsj
Hewlett-Packard Co. HPQ -0.50% said on Tuesday it had been duped into
overpaying for one of its largest acquisitions, contributing to an $8.8
billion write-down and a huge quarterly loss.
The technology giant said that an internal investigation had revealed
"serious accounting improprieties" and "outright misrepresentations" in
connection with U.K. software maker Autonomy, which H-P acquired for $11.1
billion in October 2011.
"There appears to have been a willful sustained effort" to inflate
Autonomy's revenue and profitability, said Chief Executive Meg Whitman.
"This was designed to be hidden."
Michael Lynch, Autonomy's founder and former CEO, fired back hours later,
denying improper accounting and accusing H-P of trying to hide its
mismanagement. "We completely reject the allegations," said Mr. Lynch, who
left H-P earlier this year. "As soon as there is some flesh put on the bones
we will show they are not true."
H-P said Tuesday it alerted the U.S. Securities and Exchange Commission
and the U.K. Serious Fraud Office and requested that they open
investigations. The SEC and Federal Bureau of Investigation are launching
inquiries, according to people familiar with the probes. Timeline: A History
of Hewlett-Packard
View Interactive Bios: On H-P's Board for the Troubled Purchase
View Interactive
The accounting-fraud claim adds to a string of recent setbacks and
controversies for Palo Alto, Calif.-based H-P, whose board faced criticism
over its handling of the departures of its last two chief executives. Mark
Hurd resigned in 2010 after he acknowledged having a personal relationship
with a company contractor. His successor, Leo Apotheker, who spearheaded the
Autonomy purchase, was forced out in 2011 and replaced by Ms. Whitman.
H-P General Counsel John Schultz said the internal investigation into the
Autonomy deal began in May when he told Ms. Whitman he had just spoken with
a senior executive in the Autonomy software business, who had alleged that
executives at Autonomy had been cooking the books before the acquisition.
The identity of that senior executive couldn't be determined.
A spokesman for Autonomy's accounting firm, Deloitte LLP, said Tuesday:
"Deloitte UK categorically denies that it had any knowledge of any
accounting improprieties or any misrepresentations in Autonomy's financial
statements, or that it was complicit in any accounting improprieties or
misrepresentations." [image]
Mr. Lynch, the former Autonomy CEO, said H-P is "completely and utterly
wrong." He said of Autonomy: "It is a business we spent 10 years building.
It was a world leader. It was destroyed in less than a year by the petty
infighting at H-P."
The accounting-fraud allegations punctuated another grim set of financial
results for H-P, one of the world's largest sellers of personal computers,
printers and other technology products and services. In recent years, it has
been hurt by executive turnover, cost cuts, mounting debt and slowing demand
for some products.
H-P said Tuesday it swung to a $6.9 billion loss for its fiscal fourth
quarter ended Oct. 31, while revenue fell 7% from a year earlier. The charge
for writing down Autonomy totaled $8.8 billion, of which more than $5
billion is related to the accounting issues, with the balance related partly
to the unit's performance. Revenue fell across H-P's PC, printer, services,
and server and networking divisions.
Hewlett-Packard has claimed that the leadership at Autonomy, the software
firm it acquired last year, misrepresented its performance as the deal was
being negotiated. WSJ's Ben Rooney profiles the company and its founder,
Mike Lynch. Photo: Bloomberg Related Coverage
Autonomy Founder: We Were Ambushed Deloitte in an Unwanted Spotlight Ex
CEO Leo Apotheker: Due Diligence of Autonomy Was Meticulous Meg Whitman:
Those Responsible for Autonomy Deal Are Gone CIO Report: CIOs to 'Keep an
Eye' on H-P Amid Autonomy Write-Down Heard on the Street: Another Fine Mess
Heard on the Street: Fresh Blow for London Law Blog: Should Lawyers Shoulder
Any Blame? Corporate Intelligence: The Warning Signs at Autonomy Deal
Journal: The Advisers on the Deal Digits: Players Behind the Buy Tech
Europe: Mike Lynch Profile Deal Journal: Hewlett-Packard Takes Second $8
Billion Deal Charge This Year Deal Journal: Remember Oracle's Accusations
Too Corporate Intelligence: Write Down Avoidable, With Autonomy Software
Transcript of H-P's Earnings Call
Previously
Autonomy CEO Fires Back at Larry Ellison (9/27/11) Deal Profile: H-P Bids
for Autonomy (8/18/11) Autonomy Shares Soar on H-P Offer (8/19/11) Search Is
Over for Autonomy (8/19/11) Tech Europe: H-P and Autonomy: A Clash of
Cultures (5/24/2012) Buyers Beware: The Goodwill Games (8/14/12) Tech
Europe: Autonomy's Lynch Says H-P Deal Marks IT Shift (8/30/11) Europe Mixed
Over Deal (8/19/11)
It was the technology giant's fifth straight quarter of big declines, a
trend Ms. Whitman said is likely to continue.
H-P's stock, which was already trading near a 10-year low, ended 4 p.m.
trading at $11.71, down $1.59, or 12%, on the New York Stock Exchange.
When the deal was announced in August 2011, Autonomy was Britain's
biggest software company and second-largest in Europe, after Germany's SAP
SAP.XE +0.38% AG. Its customers include intelligence agencies, big
corporations, banks and law firms. H-P said then that Autonomy was key to
its transformation into a higher-margin seller of software.
H-P said Tuesday that Autonomy, before it was acquired, had
mischaracterized some sales of low-margin hardware as software and had
recognized some deals with partners as revenue, even when a customer never
bought the product.
At least one year before the H-P acquisition, an Autonomy executive
brought concerns about the company's accounting practices to U.S. regulators
including the SEC, according to people familiar with the matter. Autonomy
didn't trade on U.S. exchanges prior to the H-P deal, so it is unclear
whether U.S. agencies had jurisdiction.
H-P's internal team was aware of talk about accounting irregularities at
the time the deal was struck, people familiar with the matter have said. At
the time, one of these people said, H-P was looking for a way to unwind the
deal before it closed, but couldn't find any material accounting issues.
Mr. Lynch, in an interview at the time, denied any accounting
irregularities. On Tuesday, he blamed any problems at Autonomy on poor
management by H-P and executive turnover.
Ms. Whitman said Tuesday the company relied on Autonomy's regular auditor
Deloitte and had hired KPMG for an additional review before the deal closed.
Neither firm found any irregularities then, she said. KPMG declined comment.
Mr. Schultz, H-P's general counsel, said H-P was shown "significant
documentation from former Autonomy executives refuting the allegations" of
any accounting issues. In hindsight, "it's fair to say those refutations
were questionable," he said.
After H-P completed the deal, Autonomy's sales suffered. On several
occasions, H-P said the unit didn't meet expectations.
In May 2012, Mr. Lynch left H-P. Shortly after, the unidentified Autonomy
senior executive approached Mr. Schultz. Mr. Schultz said that during a
phone call to discuss other matters, the Autonomy executive asked to speak
with him in person.
The pair met in a conference room at H-P's Palo Alto headquarters, where
the executive provided an outline of the alleged accounting fraud, Mr.
Schultz said. The executive later provided some emails and financial
information that Mr. Schultz said substantiated the claim.
Working with auditing firm PricewaterhouseCoopers LLP, an H-P team
re-created Autonomy's books. People familiar with the investigation said
that the team found that for at least two years, Autonomy booked sales of
low-margin hardware products as software and would label the cost of that
hardware as marketing or other expenses, which made products appear faster
growing and more profitable than they really were.
Continued in article
Question
Was HP as naive as many of the buyers on eBay?
"From H.P., a Blunder That Seems to Beat All," by James B. Stewart,
The New York Times, November 30, 2012 ---
http://www.nytimes.com/2012/12/01/business/hps-autonomy-blunder-might-be-one-for-the-record-books.html?pagewanted=1&_r=0
The dubious title of worst corporate deal ever had
seemed to be held in perpetuity by AOL’s acquisition of Time Warner in 2000,
a deal that came to define the folly of the Internet bubble. It destroyed
shareholder value, ended careers and nearly capsized the surviving AOL Time
Warner.
¶ The deal was considered so bad, and such an
object lesson for a generation of deal makers and corporate executives, that
it seemed likely never to be repeated, rivaled or surpassed.
¶ Until now.
¶ Hewlett-Packard’s acquisition last year of the
British software maker Autonomy for $11.1 billion “may be worse than Time
Warner,” Toni Sacconaghi, the respected technology analyst at Sanford C.
Bernstein, told me, a view that was echoed this week by several H.P.
analysts, rivals and disgruntled investors.
¶ Last week, H.P. stunned investors still reeling
from more than a year of management upheavals, corporate blunders and
disappointing earnings when it said it was writing down $8.8 billion of its
acquisition of Autonomy, in effect admitting that it had overpaid by an
astonishing 79 percent.
¶ And it attributed more than $5 billion of the
write-off to what it called a “willful effort on behalf of certain former
Autonomy employees to inflate the underlying financial metrics of the
company in order to mislead investors and potential buyers,” adding, “These
misrepresentations and lack of disclosure severely impacted H.P.
management’s ability to fairly value Autonomy at the time of the deal.”
¶ In an unusually aggressive public relations
counterattack, Autonomy’s founder, Michael Lynch, a Cambridge-educated
Ph.D., has denied the charges and accused Hewlett-Packard of mismanaging the
acquisition. H.P. asked Mr. Lynch to step aside last May after Autonomy’s
results fell far short of expectations.
¶ But others say the issue of fraud, while it may
offer a face-saving excuse for at least some of H.P.’s huge write-down,
shouldn’t obscure the fact that the deal was wildly overpriced from the
outset, that at least some people at Hewlett-Packard recognized that, and
that H.P.’s chairman, Ray Lane, and the board that approved the deal should
be held accountable.
¶ A Hewlett-Packard spokesman said in a statement:
“H.P.’s board of directors, like H.P. management and deal team, had no
reason to believe that Autonomy’s audited financial statements were
inaccurate and that its financial performance was materially overstated. It
goes without saying that they are disappointed that much of the information
they relied upon appears to have been manipulated or inaccurate.”
¶ It’s true that H.P. directors and management
can’t be blamed for a fraud that eluded teams of bankers and accountants, if
that’s what it turns out to be. But the huge write-down and the
disappointing results at Autonomy, combined with other missteps, have
contributed to the widespread perception that H.P., once one of the
country’s most admired companies, has lost its way.
¶ Hewlett-Packard announced the acquisition of
Autonomy, which focuses on so-called intelligent search and data analysis,
on Aug. 18, 2011, along with its decision to abandon its tablet computer and
consider getting out of the personal computer business. H.P. didn’t stress
the price — $11.1 billion, or an eye-popping multiple of 12.6 times
Autonomy’s 2010 revenue — but focused on Autonomy’s potential to transform
H.P. from a low-margin producer of printers, PCs and other hardware into a
high-margin, cutting-edge software company. “Together with Autonomy we plan
to reinvent how both structured and unstructured data is processed,
analyzed, optimized, automated and protected,” Léo Apotheker, H.P.’s chief
executive at the time, proclaimed.
¶ The deal was considered so bad, and such an
object lesson for a generation of deal makers and corporate executives, that
it seemed likely never to be repeated, rivaled or surpassed.
¶ Until now.
¶ Hewlett-Packard’s acquisition last year of the
British software maker Autonomy for $11.1 billion “may be worse than Time
Warner,” Toni Sacconaghi, the respected technology analyst at Sanford C.
Bernstein, told me, a view that was echoed this week by several H.P.
analysts, rivals and disgruntled investors.
¶ Last week, H.P. stunned investors still reeling
from more than a year of management upheavals, corporate blunders and
disappointing earnings when it said it was writing down $8.8 billion of its
acquisition of Autonomy, in effect admitting that it had overpaid by an
astonishing 79 percent.
¶ And it attributed more than $5 billion of the
write-off to what it called a “willful effort on behalf of certain former
Autonomy employees to inflate the underlying financial metrics of the
company in order to mislead investors and potential buyers,” adding, “These
misrepresentations and lack of disclosure severely impacted H.P.
management’s ability to fairly value Autonomy at the time of the deal.”
¶ In an unusually aggressive public relations
counterattack, Autonomy’s founder, Michael Lynch, a Cambridge-educated
Ph.D., has denied the charges and accused Hewlett-Packard of mismanaging the
acquisition. H.P. asked Mr. Lynch to step aside last May after Autonomy’s
results fell far short of expectations.
¶ But others say the issue of fraud, while it may
offer a face-saving excuse for at least some of H.P.’s huge write-down,
shouldn’t obscure the fact that the deal was wildly overpriced from the
outset, that at least some people at Hewlett-Packard recognized that, and
that H.P.’s chairman, Ray Lane, and the board that approved the deal should
be held accountable.
¶ A Hewlett-Packard spokesman said in a statement:
“H.P.’s board of directors, like H.P. management and deal team, had no
reason to believe that Autonomy’s audited financial statements were
inaccurate and that its financial performance was materially overstated. It
goes without saying that they are disappointed that much of the information
they relied upon appears to have been manipulated or inaccurate.”
¶ It’s true that H.P. directors and management
can’t be blamed for a fraud that eluded teams of bankers and accountants, if
that’s what it turns out to be. But the huge write-down and the
disappointing results at Autonomy, combined with other missteps, have
contributed to the widespread perception that H.P., once one of the
country’s most admired companies, has lost its way.
¶ Hewlett-Packard announced the acquisition of
Autonomy, which focuses on so-called intelligent search and data analysis,
on Aug. 18, 2011, along with its decision to abandon its tablet computer and
consider getting out of the personal computer business. H.P. didn’t stress
the price — $11.1 billion, or an eye-popping multiple of 12.6 times
Autonomy’s 2010 revenue — but focused on Autonomy’s potential to transform
H.P. from a low-margin producer of printers, PCs and other hardware into a
high-margin, cutting-edge software company. “Together with Autonomy we plan
to reinvent how both structured and unstructured data is processed,
analyzed, optimized, automated and protected,” Léo Apotheker, H.P.’s chief
executive at the time, proclaimed.
¶Autonomy had already been shopped by investment
bankers by the time H.P. took the bait. But others who examined the data
couldn’t come anywhere near the price that Autonomy was seeking. An
executive at a rival software maker, Oracle, a company with many successful
software acquisitions under its belt, told me: “We looked at Autonomy. After
doing the math, we couldn’t make it work. We couldn’t figure out where the
numbers came from. And taking the numbers at face value, even at $6 billion
it was overvalued.” He didn’t want to be named because he was criticizing a
competitor.
A former Autonomy executive laughed this week when
I asked if even Autonomy executives thought H.P. had overpaid. “Let’s put it
this way,” this person said. “H.P. paid a very full price. It was certainly
our duty to our shareholders to say yes.” (Former Autonomy executives
declined to be named because of the continuing investigation.)
Wall Street’s reaction to Hewlett-Packard’s
announcement was swift and harsh. Mr. Sacconaghi wrote, “We see the decision
to purchase Autonomy as value-destroying.” Richard Kugele, an analyst at
Needham & Company, wrote “H.P. may have eroded what remained of Wall
Street’s confidence in the company and its strategy” with “the seemingly
overly expensive acquisition of Autonomy (cue the irony) for over $10B.”
¶ Mr. Apotheker addressed the issue two days later,
at a Deutsche Bank technology conference. “We have a pretty rigorous process
inside H.P. that we follow for all our acquisitions, which is a D.C.F.-based
model,” he said, in a reference to discounted cash flow, a standard
valuation methodology. “And we try to take a very conservative view.”
¶ He added, “Just to make sure everybody
understands, Autonomy will be, on Day 1, accretive to H.P.,” meaning it
would add to earnings. “Just take it from us. We did that analysis at great
length, in great detail, and we feel that we paid a very fair price for
Autonomy. And it will give a great return to our shareholders.”
Continued in article
Interestingly, Autonomy is blaming IFRS for the accounting deceptions.
"Autonomy Founder Lynch Blames Accounting Standards in HP Flap," by Arik
Hesseldahl, November 23, 2012 ---
http://allthingsd.com/20121123/autonomy-founder-lynch-blames-accounting-standards-in-hp-flap
Mike Lynch says Hewlett-Packard has a problem with
math. The founder and former CEO of the British software firm Autonomy says
that at least some of the $5 billion written off by Hewlett-Packard earlier
this week can be attributed to differences in international accounting
standards.
In an interview with Reuters, Lynch, who was
dismissed from running Autonomy by HP CEO Meg Whitman in May, says he’s gone
through the books of his former firm and has found that differences between
the accounting standards observed in the U.S. and in the United Kingdom can
account for at least some of the differences in how things are interpreted.
Lynch made similar comments in an interview with
AllThingsD Tuesday, though he hasn’t sought to put any numbers behind the
contention.
Like most U.S.-based companies, HP followed GAAP,
the Generally Accepted Accounting Principles put out by the U.S.-based
non-profit Financial Accounting Standards Board (FASB). As a U.K. company,
Autonomy had adhered instead to the International Financial Reporting
Standards (IFRS) maintained by the International Accounting Standards
Committee.
Lynch has maintained that differences in how
revenue is recognized under the two systems leave a lot of room for
interpretation in some of the matters in which he and his senior managers
stand accused. One relates to licensing revenue. When a company bundles the
cost of a software license, service and support into a single ongoing
contract, GAAP accounting rules are more strict than IFRS rules in how the
payments are accounted.
Answering one of the big accusations by HP, Lynch
acknowledged that, at least some of the time, Autonomy did sell desktop
machines with Autonomy software installed at a slight loss. In those cases,
the customer would agree to help Autonomy market its product and, in those
cases, the losses were recorded as marketing expenses. HP says that these
improperly recorded hardware sales inflated Autonomy’s revenue by as much as
10 percent to 15 percent prior to its acquisition by HP.
Another difference:Cases where Autonomy would sell
its software through 400 middleman companies known as Value Added Resellers
(VAR), who turn around and sell the software as part of larger package
deals. In Autonomy’s case, some of those VARs included both IBM and India’s
Wipro. Under IFRS rules, a sale to a VAR can be booked as revenue before the
resale takes place. Under GAAP, it’s not revenue to Autonomy until the
resale takes place.
Lynch has also said that once HP took over at
Autonomy, its own practices and bureaucracy slowed things down. Salespeople
were paid commissions to sell products that compete with Autonomy, he said,
but not for selling Autonomy products. On top of that, he accused HP of
jacking up prices on the Autonomy software by 30 percent, driving loyal
customers away.
He also said in numerous interviews that HP had
“ambushed” him with all this, and that he had no idea what was coming.
That’s not quite true, according to sources in HP’s camp, who say that the
company had a conversation with him in mid-June, after a former member of
Lynch’s senior management team is said to have come forward as a
whistleblower. “He has been aware since then that we had questions about all
of this,” one source told me. HP execs considered his answers to their
questions to be “not satisfactory at all.”
At that point, I’m told, communications between HP
and Lynch and other former Autonomy executives ended. After CEO Meg Whitman
hinted, in remarks at an analysts meeting in San Francisco in October, that
more restatements might be coming, certain former Autonomy executives
started calling around to friends and former colleagues still working for
HP, trying to find out what was coming. They had reason to expect a sizable
impairment charge. What has apparently caught Lynch, et al, by surprise, is
the referral to the authorities in the U.S. and the U.K. for possible
criminal investigation. In the U.S., the FBI is said to be taking the lead.
One observation: Lynch tells Reuters he hasn’t yet
lawyered up, which, if he hadn’t said it, would be pretty obvious anyway.
Any lawyer worth their fee would have advised Lynch to stop talking publicly
about all of this.
"Deloitte, HP And Autonomy: You Lose Some But You Win Some More, Much More,"
by Francine McKenna, re:TheAuditors, December 1, 2012 ---
http://retheauditors.com/2012/12/01/deloitte-hp-and-autonomy-you-lose-some-but-you-win-some-more-much-more/
When HP announced its intention to acquire
Autonomy, the British data analysis firm now
mired in accusations of serious fraud, Deloitte
probably shed some enormous tears of joy. Deloitte was more than happy, I’m
sure, to rid itself of the
Autonomy audit albatross. That may surprise some
of you, since
Deloitte UK was the long time auditor of Autonomy,
and would lose that job and its nice fees, to
HP’s auditor Ernst & Young.
To the victor’s auditor go the audit spoils.
But that’s not how the Big Four audit industry game
is played now that
consulting is again King. What Deloitte would lose
in audit fees – reportedly Ł5.422m for Autonomy’s audits during the last
four years – the firm could now openly replace with guilt-free consulting.
According to filings, Deloitte earned an additional
Ł4.44m from Autonomy in the last four years for services such as tax
compliance, due diligence for acquisitions and other services “pursuant to
legislation”. As the preeminent Big Four tax services provider, HP’s auditor
Ernst & Young, HP’s auditor, would likely start doing everything tax related
for Autonomy. However, Deloitte was now free to team with Autonomy and all
of its technology products as an alliance partner for systems integration
engagements. That could be worth billions in consulting revenue that
Deloitte’s UK firm, at least, had given up to be the auditor of a fast
growing, highly acquisitive technology
“Fast 50” firm.
There are differences in the legislation enacted to
restore confidence in audits by the United States after Arthur Andersen’s
Enron piggishness – Sarbanes-Oxley – and the regulations that govern UK
listed companies and their auditors. For example, the UK does not bar an
auditor from also providing internal audit services to a company it audits.
Regulations in the US and UK do prohibit business
alliance relationships between an auditor and its audit client. The
Financial
Reporting Council (FRC) is the UK’s lead audit
regulator. APB Ethical Standard 2, Financial, Business, Employment and
Personal Relationships, states:
Audit firms, persons in a position to influence
the conduct and outcome of the audit and immediate family members of
such persons shall not enter into business relationships with an audited
entity, its management or its affiliates except where they involve the
purchase of goods and services from the audit firm or the audited entity
in the ordinary course of business and on an arm’s length basis and
which are not material to either party or are clearly
inconsequential to either party.
Business relationships, says the FRC, may create
self-interest, advocacy or intimidation threats to the auditor’s objectivity
and perceived loss of independence.
Examples of prohibited business relationships
include “arrangements to combine one or more services or products of the
audit firm with one or more services or products of the audited entity and
to market the package with reference to both parties or distribution or
marketing arrangements under which the audit firm acts as a distributor or
marketer of any of the audited entity’s products or services, or the audited
entity acts as the distributor or marketer of any of the products or
services of the audit firm.”
In 2010 Autonomy was named a
Deloitte UK Technology Fast 50 company, one of the
UK’s fastest growing technology companies. Deloitte UK was officially
prohibited from jointly marketing its consulting services with Autonomy or
reselling Autonomy’s products such as IDOL or popular products acquired
while it was the auditor of Autonomy. Popular Autonomy software includes
Interwoven, Verity, and Meridio for government and defense contractors.
That must have been tough.
But that didn’t stop the consulting practices of
other Deloitte member firms all over the world from taking advantage of the
popularity of Autonomy products to boost their revenues. In March of 2011,
less than six months before HP announced its acquisition of Autonomy,
Deloitte Luxembourg announced it had selected
Autonomy’s Intelligent Data Operating Layer (IDOL) as a vendor “to better
manage information and knowledge within the firm to increase productivity.”
In addition, Autonomy would further collaborate with Deloitte to “fast-track
its technology to Deloitte Luxembourg’s extensive customer base…”
Deloitte UK, and its fellow Deloitte firms all over
the world, are allowed to be customers of an audit client of one of them
such as Autonomy “in the ordinary course of business”.
They are customers of Autonomy. Autonomy lists
Deloitte entities and Ernst & Young, HP’s auditor, as customers on numerous
websites and in marketing materials and case studies. In 2011, digital
agency Roundarch, founded in June 2000 by Deloitte and WPP, also selected
Autonomy’s cloud-based comprehensive data backup and recovery solutions for
its own operation. This privately owned company was operated by its senior
management until February 2012 when Aegis Group plc acquired the digital
agency. The Aegis Group plc auditor is Ernst & Young.
But were Deloitte non-UK member firms allowed to
sign marketing and reselling contracts as Autonomy alliance partners while
Deloitte UK audited this multinational company with customers all over the
world? For example, given Autonomy’s extensive US operations and customer
base including the US government, it’s likely Deloitte’s US audit firm
supported the UK firm with the Autonomy audit. Email requests for comment
from HP and Deloitte were not returned. When it comes to irresistible
consulting revenue growth, an audit firm’s “network of seamless service
providers” bound by independence and objectivity regarding the audit of a
multinational listed company stops at each border.
In the largest market for Deloitte’s consulting
services, the United States, Deloitte Consulting’s US arm and Autonomy
worked together prior to HP’s acquisition and after on one of the most high
profile
e-discovery and document management cases ever –
the litigation over the BP Gulf oil spill. Autonomy, or rather a version of
an Autonomy acquisition called Introspect, was used for the enormous BP
Deepwater Horizon review, which employed more than 800 review attorneys at
one point.
The BP Deepwater Horizon review started in the
summer of 2010, after the explosion in April of that year. Deloitte was the
case management consultant working between the client (BP), the review team
and the hosting vendor (Autonomy). It is not clear if this was a joint
project between Deloitte and Autonomy, with Deloitte acting as a systems
integrator for the software, or if the parties contracted separately.
According to a source close to the BP engagement,
the Autonomy software was a total disaster. The larger the review got, the
worse the software performed. “Searches would hang up for long periods of
time, document images would get out of synch with their corresponding coding
records, the entire system would crash or have to be taken offline to be
reset. You name it – when it came to software problems, Autonomy had them
all at one time or another.”
Continued in article
Bob Jensen's threads on Autonomy ---
http://www.trinity.edu/rjensen/Fraud001.htm#Deloitte
Search for "Autonomy"
Sarbanes-Oxley Legislation ---
http://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act
Teaching Case From The Wall Street Journal Accounting Weekly Review on
December 13, 2012
Eyebrows Go Up as Auditors Branch Out
by:
Michael Rapoport
Dec 07, 2012
Click here to view the full article on WSJ.com
TOPICS: Audit Firms, Audit Quality, Auditing, Auditing Services,
Public Accounting, Public Accounting Firms
SUMMARY: The article discusses the conflict of interest facing
audit firms whose non-audit revenue is again growing faster than audit
revenues. The author begins the article with the Autonomy/H-P example, but
the related graphic clearly shows that Deloitte was earning less from
non-audit services provided to Autonomy than it earned from audit services.
Late in the article, a PwC lead partner is quoted as saying that 90% of
nonaudit service fee revenues are generated at that firm from nonaudit
clients. Both PwC and E&Y partners are further quoted in the article,
pointing out that the non-audit services help the firms to provide the best
audit quality.
CLASSROOM APPLICATION: The article may be used in an audit class to
discuss professional services provided by public accounting firms, conflicts
of interest in those activities, and audit quality.
QUESTIONS:
1. (Advanced) Besides auditing annual financial statements, what
types of services do public accounting firms provide?
2. (Introductory) Who has recently spoken out against auditing
firms providing non-audit services? What are their concerns?
3. (Advanced) What is the impact of Sarbanes-Oxley on these audit
firm activities? Why was Deloitte and Touche not subject to limitations of
this law with respect to its work on Autonomy? (Note that Autonomy is the
firm purchased by H-P for which H-P recently has taken significant
write-downs.)
4. (Advanced) How do you think that the non-audit services provided
by public accounting firms might help to improve the quality of audit work
also provided by the firm?
5. (Advanced) Consider your possible career advancement in a public
accounting firm. Do the consulting services provided by these firms seem
attractive to you? Explain your answer.
Reviewed By: Judy Beckman, University of Rhode Island
SOX Down Rather Than Sox Up
"Eyebrows Go Up as Auditors Branch Out," by Michael Rapoport, The Wall
Street Journal, December 6, 2012 ---
http://professional.wsj.com/article/SB10001424127887324705104578149222319470606.html?mod=WSJ_hp_LEFTWhatsNewsCollection&mg=reno64-wsj
Auditing wasn't all Deloitte LLP did for Autonomy
Corp., the software firm recently accused of accounting improprieties by its
parent company. To many observers, that sort of multitasking is potentially
an industry problem.
As auditor, the U.K. unit of Deloitte Touche
Tohmatsu was in charge of signing off on Autonomy's financial statements
before Hewlett-Packard Co. HPQ +0.07% bought the company in 2011. But
Deloitte also was paid significant fees for other work it did for Autonomy,
like due-diligence work on a potential acquisition. In 2010, Deloitte
received $1.2 million from Autonomy for nonaudit work, close to the $1.5
million the firm was paid for the audit itself.
Nonaudit businesses form a steadily increasing
portion of Deloitte's business, with 39.6% of revenue now coming from
consulting or financial advisory, up nearly a third since 2006.
The rise in Deloitte's nonaudit revenue spotlights
a recent resurgence in consulting and other nonaudit work by the Big Four
accounting firms, a decade after conflict-of-interest concerns and corporate
scandal sharply limited such work.
The firms—Deloitte, Ernst & Young, KPMG and
PricewaterhouseCoopers—say that their nonaudit businesses operate within
legal boundaries, and that their growth isn't cause for concern. They focus
their nonaudit work on U.S. companies they don't audit, and on foreign
companies that aren't U.S.-listed and thus aren't subject to the U.S.
restrictions on nonaudit work.
Even so, the move has revived fears that an
increased focus on nonaudit work compromises companies' capacity to sniff
out fraud.
"If firms become too preoccupied with consulting, I
think it hurts the authenticity of the audit," said former Federal Reserve
Chairman Paul Volcker in an interview. Mr. Volcker spoke last week at a New
York University roundtable on the comeback of consulting by accounting
firms.
Plunging too far into nonaudit services can
"distract" firms' attention from auditing and "weakens the public trust" in
audits, Paul Beswick, the Securities and Exchange Commission's acting chief
accountant, said at an accounting conference Monday. Even if it's only a
matter of perception, "negative perceptions can undermine confidence in
audits," he said.
The growing focus on consulting and other nonaudit
services "threatens to weaken the strength of the audit practice in the firm
overall," James Doty, chairman of the Public Company Accounting Oversight
Board, the U.S. government's auditing regulator, said at the conference.
H-P alleged last week that Autonomy is riddled with
accounting improprieties, though it hasn't alleged any wrongdoing by
Deloitte and hasn't cited the firm's dual role as a problem.
Deloitte said much of its nonaudit fees for
Autonomy were for "audit-related services" typically carried out by the
auditor and actually classified by Deloitte as audit revenues. The firm says
it didn't do any consulting work for Autonomy, and that Autonomy had
procedures to ensure that any nonaudit services provided by Deloitte didn't
compromise its independence.
A decade ago, there was widespread concern that the
Big Four would get too cozy with their audit clients because the same
companies also were paying them lucrative consulting fees. Those fears
peaked when Arthur Andersen imploded after shredding company documents
related to Enron Corp.; the auditor made more consulting for Enron than it
did for auditing.
The Sarbanes-Oxley Act subsequently barred most
consulting for audit clients, and all of the Big Four except Deloitte
divested themselves of their consulting businesses.
The firms have since rebuilt those businesses by
providing nonaudit services to other companies, within the new prescribed
limits. Demand for Sarbanes-Oxley compliance, forensic investigations and
merger-and-acquisition work have helped the growth in nonaudit services.
Consulting and other nonaudit lines of business are
growing at rates far outpacing auditing. At PwC, for instance, advisory
revenue rose 16.9% in fiscal 2012, versus 3.4% for auditing.
"The auditing market is pretty much saturated,"
said Martin G.H. Wu, an associate professor of accounting at the University
of Illinois at Urbana-Champaign. "Consulting, on the other hand, is pretty
unlimited."
If consulting growth continues to boom, the Big
Four effectively could become consulting firms that "dabble" in auditing,
said Joseph Carcello, a University of Tennessee accounting professor. "I
think if we get to that point, we'd have a major, major problem."
The firms disagree. "We wouldn't jeopardize audit
quality for anything," said Greg Garrison, clients and markets leader at
PwC. "I don't think there's any chance we'd take our eye off the ball, and I
don't think our competition would either."
At PwC, 90% of advisory work is for nonaudit
clients, said Dana Mcilwain, PwC's U.S. advisory leader. The Big Four also
argue that consulting provides synergies even if they don't consult for and
audit the same companies. Offering consulting gives them expertise they can
draw upon when related issues arise at their audit clients, they say.
"We believe the services we're in actually help us
on the front of audit quality," said John Ferraro, Ernst & Young's global
chief operating officer.
Jensen Question: Did Andersen say the same thing about Enron when
Andersen's billings were $25 million for auditing and #25 million for
consulting?
Continued in article
Jensen Comment
Asking audit firms to resist consulting is like kids and senior citizens in the
Littleton, NH downtown store that has the "world's longest candy counter." Even
though parents, teachers, dentists, and physicians have warned them over and
over again about the evils of candy, it's virtually impossible to leave that
store without bags of candy both arms. Even though the SEC, the AICPA, the
Courts, the laws like Sarbanes Oxley, and the professors all warn auditors over
and over again, it's hard to leave an audit without bags of money in both arms
from additional consulting. The buzz word is "rebranding" amongst auditing
firms.
Video of the World's Longest Candy Counter ---
http://www.youtube.com/watch?v=hSxpebM6SUA
Bob Jensen's threads on auditing independence and professionalism ---
http://www.trinity.edu/rjensen/Fraud001c.htm
Lastly, I mention the post-Andersen
speech of a former Andersen executive research partner:
Art Wyatt
admitted:
"ACCOUNTING PROFESSIONALISM: THEY JUST DON'T GET IT" ---
http://aaahq.org/AM2003/WyattSpeech.pdf
And they Still Don't Get It!
After PwC's Miserable 2012 PCAOB Inspection Reports
"PwC to Require More Robust Review and Supervision of Auditors, Although
“Minimum Supervision" Still Has Its Place (in Court)," by Caleb Newquist,
Going Concern, December 7, 2012 ---
http://goingconcern.com/post/pwc-require-more-robust-review-and-supervision-auditors-although-minimum-supervision-still-has
Bob Jensen's threads on PwC ---
http://www.trinity.edu/rjensen/Fraud001.htm
The Richard C. Adkerson Gallery on the SEC Role in Accounting Standards
Setting (accounting history) ---
http://www.sechistorical.org/museum/galleries/rca/index.php
Thank you Jim McKinney for the heads up.
Bob Jensen's threads on accounting history ---
http://www.trinity.edu/rjensen/Theory01.htm#AccountingHistory
Bob Jensen's threads on accounting standard setting controversies ---
http://www.trinity.edu/rjensen/Theory01.htm#MethodsForSetting
"The World’s Most and Least Livable Cities," 2417 Wall Street,
December 6, 2012 ---
http://247wallst.com/2012/12/06/the-best-and-worst-cities-to-live-in-the-world/
Jensen Comment
There's something asymmetric in this ranking. The ranks for the worst cities are
probably the same for rich and poor alike, except where those least-livable
cities allow the wealthy to live untaxed like kings on the hill with teams of
affordable servants and armed guards.
But the ranks for the "most livable" cities are definitely misleading for
most people. For example, Honolulu may be the "most livable" city for very
wealthy people. But Honolulu quickly becomes less livable as wealth declines,
because living costs in virtually all categories (especially Honolulu real
estate costs) are among the highest in the world. For example, a retirement
income of $50,000 a year goes a long ways in Temple, Texas but retirees fare
little better than street people on $50,000 a year in Honolulu. The same can be
said for any city in Switzerland.
Hence, "livable cities" are like people --- beauty is in the eyes of the
beholder.
In fairness this study also links to cities ranked by housing prices where
some California cities are high on the list. Note that Proposition 13 in
California makes some of these homes affordable to people who have lived in them
for decades. Newer buyers, however, will get hammered with unbelievable property
taxes. It may be better to rent with an option to buy from a long-time owner.
Credit Derivative ---
http://en.wikipedia.org/wiki/Credit_derivative
But some things live in a level-3 world where
there are no specific rules and no obvious markets and you rely on good faith
and estimates and conversations with your auditors. Tailored credit
derivatives where Deutsche Bank was “65 per cent of all leveraged super senior
trades” clearly fall in that bucket, so they talked to their auditors and the
auditors signed off on what they did and, that’s kind of the end. Was the
model (or series of ad-hoc models and reserves and absences-of-models) blessed
by the auditors worse than Ben-Artzi’s? Sure!
"Deutsche Bank Ignored Some “Losses” Until They Went Away," by Matt
Levine, Deal Breaker, December 6, 2012 ---
http://dealbreaker.com/2012/12/deutsche-bank-ignored-some-losses-until-they-went-away/#call02
. . .
Here’s a synopsis of what seems to have been going
on:
- Starting in 2005, Deutsche did some credit
trades where they bought protection from some Canadian pension funds and
sold protection to hedge funds, etc.
- The bought and sold protection were not
identical, with various technical bits of non-overlap that you can read
about at your leisure down below.1
- A credit crisis occurred, changing the risks
involved in those non-overlapping bits from silly, abstract, purely
theoretical risks into significantly more alarming and
more-likely-to-occur but still purely theoretical risks.2
- Deutsche’s people sort of ran around dopily
trying to figure out what to do about it. Here’s a condensed version of
the running around they did about the main risk, the “gap option” that
DB was short in its leveraged super senior trades:
[T]he bank had at one point used a model but
found it came up with “economically unfeasible” outcomes. Instead, it
used two other measures. First, a 15 per cent “haircut” on the value of
the trades … In 2008, during the crisis, instead of increasing the
haircut, the bank scrapped it. The gap risk was now supposed to be
covered by a reserve. The complainants say that the total of reserves
held by the credit correlation desk was just $1bn-$2bn, which was
supposed to cover all risks, not just the gap option. … Then, in October
2008, … Deutsche stopped any attempt to model, haircut or reserve for
the gap option but says that the company took that action because of
market disruption during the financial crisis. … At this time, to
account for the gap risk, the bank hedged it by buying S&P “put”
options.
- They got through things just fine
since after all they’d basically bought protection against world-ending
correlated defaults in investment-grade companies and those defaults
didn’t happen:
“The valuations and financial reporting were
proper, as demonstrated by our subsequent orderly sale of these
positions,” Deutsche says. … A person familiar with the matter says that
for all the sturm und drang over gap risk, at no time was the
collateral jeopardised.3
- No harm, no foul, but still a little scary, so
after things settled down they did what they could to beef up their risk
management for the next crisis, including hiring Eric Ben-Artzi, a math
Ph.D. who’d worked at Goldman, in 2010.
- Among his other talents, Ben-Artzi had at
Goldman used models for some of these risks that were (1) more justified
by the
theoretical literature and (2) more
conservative.
- Then he went around being a dick about how
they’d handled their risks ages ago – “For several months, Mr Ben-Artzi
quizzed colleagues at Deutsche on how it modelled the gap option.”
- In 2006-2008 mind you. That is, for several
months in 2010, this guy was quizzing people about the quality
of their work during the financial crisis several years ago, when he
wasn’t there.
- You’d have fired him too.
- They did.
- He went to the SEC, as did two other former DB
employees, alleging that the various kerfuffling on the Deutsche
correlation desk amounted to accounting fraud.
So: did it? I don’t know. Is that an interesting
question? Not really? A bank is just a collection of contracts entitling it
to future cash flows in various states of the world; you don’t really know
what those contracts are worth until those states of the world obtain, so
you don’t really know what a bank is worth, ever. I submit that that
– not “ooh they mismarked the gap option by $12 billion vs. the preferred
model in the literature” or whatever – has to be your starting point in
thinking about bank accounting.
When you start there, your accounting is pretty
much “whatever the rules say and your auditors allow.” Some things get
marked to an objective market even if that makes you sad – the publicly
traded stocks in your cash equities trading book, for instance. Some things
get marked to historical cost, with some fudge-y reserve, even if that looks
crazy – your whole-loan mortgages, for instance. There are good arguments
that banks should mark more things to market, and there are good arguments
that they
should mark fewer things to market.
But some things live in a
level-3
world where there are no specific rules and no
obvious markets and you rely on good faith and estimates and conversations
with your auditors. Tailored credit derivatives where Deutsche Bank was “65
per cent of all leveraged super senior trades” clearly fall in that bucket,
so they talked to their auditors and the auditors signed off on what they
did and, that’s kind of the end. Was the model (or series of ad-hoc models
and reserves and absences-of-models) blessed by the auditors worse
than Ben-Artzi’s? Sure! But so what? The model blessed by the auditors for
loans – “hold them at historical cost” – is clearly worse
than a market-based model, in the sense of “less reflective of the expected
probability distribution of future cash flows.” And loans are the bulk of
most banks’ assets. Accounting isn’t supposed to be a correct
representation of your most likely future cash flows. It’s just accounting.
Continued in article
Jensen Comment
Unlike many other nations that either did not have national accounting standards
or had weak and incomplete sets of standards, the FASB over the years produced
the best set of accounting standards in the world (although there is no such
thing a perfect set since companies are always writing contracts to circumvent
most any standard). The FASB standards were heavily rule-based due to the
continual battles fought by the FASB in the trenches of U.S. firms seeking to
manage earnings and keep debt of the balance sheet with ever-increasing contract
complexities such as interest rate swaps invented in the 1980s, SPE ploys,
securitization "sales," synthetic leasing, etc.
- The experiences of those frazzled
executives in charge of reducing risks in the credit derivatives
market are starting to resemble Alice’s adventures in Wonderland.
Alice shrank after drinking a potion, but was then too small to
reach the key to open the door. The cake she ate did make her grow,
but far too much. It was not until she found a mushroom that allowed
her to both grow and shrink that she was able to adjust to the right
size, and enter the beautiful garden. It took an awfully long time,
with quite a number of unpleasant experiences, to get there.
Aline van Duyn, "The adventure never ends in the derivatives
Wonderland," Financial Times, September 11, 2008 ---
Click Here
"FASB Issues FSP Requiring Enhanced Disclosure for Credit Derivative and
Financial Guarantee Contracts," by Mark Bolton and Shahid Shah, Deloitte
Heads Up, September 18, 2008 Vol. 15, Issue 35 ---
http://www.iasplus.com/usa/headsup/headsup0809derivativesfsp.pdf
The FASB recently issued FSP FAS 133-1 and
FIN 45-4,1 which amends and enhances the disclosure requirements for sellers
of credit derivatives (including hybrid instruments that have embedded
credit derivatives) and financial guarantees. The new disclosures must be
provided for reporting periods (annual or interim) ending after November 15,
2008, although earlier application is encouraged. The FSP also clarifies the
effective date of Statement 161.2
The FSP defines a credit derivative as a
"derivative instrument (a) in which one or more of its underlyings are
related to the credit risk of a specified entity (or a group of entities) or
an index based on the credit risk of a group of entities and (b) that
exposes the seller to potential loss from credit-risk-related events
specified in the contract." In a typical credit derivative contract, one
party makes payments to the seller of the derivative and receives a promise
from the seller of a payoff if a specified third party or parties default on
a specific obligation. Examples of credit derivatives include credit default
swaps, credit index products, and credit spread options.
The popularity of these products, coupled with the
recent market downturn and the potential liabilities that could arise from
these conditions, prompted the FASB to issue this FSP to improve the
transparency of disclosures provided by sellers of credit derivatives. Also,
because credit derivative contracts are similar to financial guarantee
contracts, the FASB decided to make certain conforming amendments to the
disclosure requirements for financial guarantees within the scope of
Interpretation 45.3
Credit Derivative Disclosures
The FSP amends Statement 1334 to require a seller
of credit derivatives, including credit derivatives embedded in hybrid
instruments, to provide certain disclosures for each credit derivative (or
group of similar credit derivatives) for each statement of financial
position presented. These disclosures must be provided even if the
likelihood of having to make payments is remote. Required disclosures
include:
In This Issue:
• Credit Derivative Disclosures
• Financial Guarantee Disclosures
• Effective Date and Transition
• Effective Date of Statement 161
1 FASB Staff Position No. FAS 133-1 and FIN 45-4,
"Disclosures About Credit Derivatives and Certain Guarantees: An Amendment
of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification
of the Effective Date of FASB Statement No. 161."
2 FASB Statement No. 161, Disclosures About
Derivative Instruments and Hedging Activities.
3 FASB Interpretation No. 45, Guarantor’s
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others.
4 FASB Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities.
• The nature of the credit derivative, including:
o The approximate term of the derivative.
o The reason(s) for entering into the derivative.
o The events or circumstances that would require
the seller to perform under the derivative.
o The status of the payment/performance risk of the
derivative as of the reporting date. This can be based on a recently issued
external credit rating or an internal grouping used by the entity to manage
risk. (If an internal grouping is used, the entity also must disclose the
basis for the grouping and how it is used to manage risk.)
• The maximum potential amount of future payments
(undiscounted) the seller could be required to make under the credit
derivative contract (or the fact that there is no limit to the maximum
potential future payments). If a seller is unable to estimate the maximum
potential amount of future payments, it also must disclose the reasons why.
• The fair value of the derivative.
• The nature of any recourse provisions and assets
held as collateral or by third parties that the seller can obtain and
liquidate to recover all or a portion of the amounts paid under the credit
derivative contract.
For hybrid instruments that have embedded credit
derivatives, the required disclosures should be provided for the entire
hybrid instrument, not just the embedded credit derivative.
Financial Guarantee Disclosures
As noted previously, the FASB did not perceive
substantive differences between the risks and rewards of sellers of credit
derivatives and those of financial guarantors. With one exception, the
disclosures in Interpretation 45 were consistent with the disclosures that
will now be required for credit derivatives. To make the disclosures
consistent, the FSP amends Interpretation 45 to require guarantors to
disclose "the current status of the payment/performance risk of the
guarantee."
Effective Date and Transition
Although it is effective for reporting periods
ending after November 15, 2008, the FSP requires comparative disclosures
only for periods presented that ended after the effective date.
Nevertheless, it encourages entities to provide comparative disclosures for
earlier periods presented.
Effective Date of Statement 161
After the issuance of Statement 161, some
questioned whether its disclosures are required in the annual financial
statements for entities with noncalendar year-ends (e.g., March 31, 2009).
To address this confusion, the FSP clarifies that the disclosure
requirements of Statement 161 are effective for quarterly periods beginning
after November 15, 2008, and fiscal years that include those periods.
However, in the first fiscal year of adoption, an entity may omit
disclosures related to quarterly periods that began on or before November
15, 2008. Early application is encouraged.
Jensen Comment
Credit derivatives (usually credit default swaps that have a periodic premium
paid for and pay periodically for credit insurance) are currently scoped into
FAS 133. I think that this is a mistake. These contracts are really insurance
contracts and financial guarantees that should be accounted for as such and not
as derivatives scoped into FAS 133 and IAS 39. Be that as it may, these
controversial contracts that brought AIG and other Wall Street banks to its
knees are accounted for as derivative contracts.
I really don’t think credit derivatives are appropriately accounted for under
either FAS 133. The problem is that the intermediary that brokers an interest
rate risk swap can guarantee the interest rate risk swap payments since these
swaps are only dealing with payments on the net changes in interest rates with
the notionals not being at risk. It seems to me that with credit default swaps,
the entire notionals themselves might be at risk and the intermediaries that
broker the swaps are not guaranteeing the swap payments equal to complete
wipeouts of notionals. Hence, I don’t thinks CDS swaps properly meet the
definitions of derivatives since notionals are at risk. It seems to me that CDS
contracts should be accounted for as insurance contracts.
This is one of those instances where I think auditors should look at the
substance of the transactions rather than rules per se.
Bob Jensen's threads on credit derivatives ---
http://www.trinity.edu/rjensen/acct5341/speakers/133glosf.htm#CreditDerivatives
Some words in English allow for multiple spellings of a word having one
meaning
When I was younger the spelling of "alright" for "all right" got a red X on a
term paper. That, it seems today, is no longer the case although I think "all
right" is still preferred. And "XMAS" is more common than "Christmas" these
days, although "XMAS" seems to be less formal.
Hanukkah begins soon, and you may be wondering why
you see it spelled different ways. There are many acceptable spellings for the
Jewish holiday also known as the Festival of Lights; the name of the celebration
is translated from Hebrew and there are multiple credible ways to make the
translation. (It's actually a transliteration rather than a straight translation
because Hebrew and English use different alphabets.) Some acceptable spellings
include Hanukkah, Chanukah, Hanukah, and Hannukah
Grammar Girl, December 4, 2012
Jensen Comment
My grandmother Regina Jensen delivered five baby boys in a Seneca, Iowa farm
house. Later two of those boys changed the spelling to Jenson for some unknown
reason. The name Jensen is more Danish although these boys were born to
immigrants that were 100% Norwegian.
Pensions primed to hit year-end deficit record
---
Click Here
http://blogs.wsj.com/cfo/2012/12/11/corporate-pensions-on-pace-to-hit-year-end-deficit-record/?mod=wsjpro_hps_cforeport
"How London became the money-laundering capital of the world,"
by Rowan Bosworth-Davies, IanFraser.org, July 15, 2012 ---
http://www.ianfraser.org/how-london-became-the-money-laundering-capital-of-the-world/
Note that this article first appeared on Roway's blog in March 26, well in
advance of the revelations of LIBOR fixing scandals by U.K. banks
. . .
This article was written by
Rowan Bosworth-Davies and
first posted on his blog on March 26th
2012. It is reused with permission. Since then, it has emerged that HSBC
faces a $1 billion penalty in the United States for weak anti money
laundering controls by the US government. At a hearing in Washington this
Tuesday, the US Senate Permanent Subcommittee on Investigations is poised to
deliver a blistering attack on the London-headquartered bank’s anti-money
laundering systems and controls, highlighting its role in transactions tied
to Iran, terrorist financing and drug cartels. In a Reuters
Special Report published July 13th 2012,
Carrick Mollenkamp and Brett Wolf have detailed how the bank’s
Delaware-based anti-money laundering hub pays lip-service to tackling the
problem of money laundering.
The lure of money laundering for Iran and the big drug cartels and Bernie
Madoff
"UK banks hit by record $2.6bn US fines," by Shahien Nasiripour and Kara
Scannell, Financial Times, December 11, 2012 ---
http://www.ft.com/intl/cms/s/0/643a6c06-42f0-11e2-aa8f-00144feabdc0.html#axzz2EkcnrVk3
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HSBC and Standard Chartered, the two biggest UK
banks by market value, have agreed to pay almost $2.6bn in fines as part of
record settlements with US authorities over money laundering allegations.
HSBC announced on Tuesday that it would pay $1.92bn
and enter a deferred-prosecution agreement to settle accusations it allowed
itself to be used by money launderers in Mexico and terrorist financiers in
the Middle East.
More On this story
Business blog Virtue and vice at HSBC and StanChart
UK ready to ‘trust’ US over failing banks HSBC sells some Central American
units Lex HSBC / StanChart – rap on the knuckles FT’s Year in Finance
On this topic
Fitch downgrades HSBC over expansion push HSBC
sells Ping An stake to Thai group HSBC left holding Amadeus stake Lombard
Ocado / HSBC and Ping An
IN Banks
Tokyo loses out as foreign banks refocus KBC to
sell €1.23bn in shares US and UK unveil failing banks plan US banks in fresh
structured finance spree
Stuart Gulliver, HSBC’s chief executive, said: “We
accept responsibility for our past mistakes. We have said we are profoundly
sorry for them, and we do so again. The HSBC of today is a fundamentally
different organisation from the one that made those mistakes.
“Over the last two years, under new senior
leadership, we have been taking concrete steps to put right what went wrong
and to participate actively with government authorities in bringing to light
and addressing these matters.”
StanChart agreed on Monday to pay $327m to several
authorities in the US to settle allegations it violated US sanctions law and
impeded government inquiries. That sum comes on top of the $340m the UK bank
agreed to pay in August to New York state’s Department of Financial
Services.
Until the HSBC settlement was reached, StanChart’s
total $667m was to be the largest combined penalty paid to US authorities by
a financial institution for allegedly breaching sanctions policy.
The broad allegations against HSBC were detailed in
a July report by the Senate permanent subcommittee on investigations. The
bank was alleged to have stripped details from transactions that would have
identified Iranian entities, which may have put the bank in breach of US
sanctions against that country.
The bank was said to have also moved billions of
dollars in cash from its affiliate in Mexico to the US – more than any other
Mexican bank – despite concerns raised with HSBC by authorities that such
sums could only involve proceeds from illegal narcotics.
Since then, HSBC has increased its reserves to some
$1.5bn to cover an agreement with US regulators that would settle the
allegations.
As noted in its agreement with US Department of
Justice, HSBC said its US subsidiary had increased its spending on
anti-money laundering approximately ninefold between 2009 and 2011, and
increased its anti-money laundering staffing almost 10-fold since 2010.
HSBC also said it had revamped its Know Your
Customer programme, including treating non-US HSBC group affiliates as third
parties subject to the same due diligence as all other customers; ended 109
correspondent relationships for risk reasons; clawed back bonuses for a
number of senior executives and spent more than $290m on remedial measures.
StanChart was accused in August of defrauding
regulators, falsifying records and obstructing government inquiries after
New York state’s banking supervisor alleged the bank hid from regulators key
details involving transactions with entities in countries including Iran.
After settling with New York – following the
regulator’s threat to revoke StanChart’s state banking licence – the bank
settled on Monday with the Federal Reserve, Department of Justice, Treasury
Department and the Manhattan district attorney.
Lanny Breuer, assistant US attorney-general, said:
“The United States expects a minimum standard of behaviour from all
financial institutions that enjoy the benefits of the US financial system.
Standard Chartered’s conduct was flagrant and unacceptable.”
The bank was accused of stripping identifying
information from hundreds of billions of dollars of transactions involving
Iran. Benjamin Lawsky, New York state’s banking regulator, had called
StanChart a “rogue institution”.
Continued in article
"HSBC auditor talks on career opportunities," by Kathleen Buechel, The
Ticker, October 10, 2011 ---
http://www.theticker.org/about/2.8218/hsbc-auditor-talks-on-career-opportunities-1.2650560#.UMc7NfJXfDM
During the month of September, EOC Jobsmart Career
Hour hosted Mark Martinelli as he spoke on emerging issues in the finance
industry as well as some career opportunities in HSBC. The event was
co-sponsored by the Baruch College Accounting Society.
Martinelli is Chief Auditor at HSBC North American
Holding Inc., as well as the Chief Auditor at HSBC Bank USA, N.A. He is also
a Certified Public Accountant and is a member of the Baruch College Board of
Trustees which he was elected to in April 2010.
Getting straight to the pint, Martinelli
immediately opened the floor up for student questions instead of spending
more time talking about himself. Now and then though he used himself as an
example.
He comes to Baruch because it gives students some
exposure to opportunity as well as having someone external to give a
different perspective on the things that he sees, as well as to give back.
"There is a real advantage of doing a diversity of
different things," said Martinelli in his regard to the various finance
careers he has held.
Martinelli believes it is extremely important to
have a strong grasp of technology. If he had the chance to go back and get
his Masters degree he would get the degree in a technology concentration.
There is a common thread in that area, whether
someone goes into marketing, managing or another area, stated Martinelli.
Martinelli worked 10 years in public accounting,
even though he made a decision early on that he wanted to work in financial
services. This is because he enjoyed it and there was a lot of growth in
financial services when he left school.
When it comes to public accounting he stated that a
person will know a lot of public audit and won't know real accounting until
they become a CFO. To be an effective CFO you need to know the product and
service, which is how the company grows, not just debits and credits in
Martinelli's opinion.
"Have a sight of what jobs you want. You can't wait
for people to offer you a job. Ideally you want to know what your skillsets
are, what you're strong at, what you're weak at and have a list of jobs you
want to do in an organization. The goal is simple, keep yourself as
financially marketable as possible," said Martinelli.
In being financial marketable as possible, he
stated that if you don't land a job with a Big 4 firm you are not a failure.
There are at least 100 firms within a few miles around Baruch that are
considered large firms.
Through networking and keeping a short term plan,
18 months to three years, and a long term plan Martinelli himself figured
out where he wanted to be in Republic National Bank (now HSBC).
According to Martinelli HSBC has about 300,000
employees, is in eight different countries and has been around for 200
years. Much of HSBC's growth has always been in emerging markets because of
HSBC's want to be a global competitor.
Its international marketing employees have come to
be known as international managers. The program is a high entry level
position where members are trained for two years in different world
locations. Martinelli stated these managers are groomed to be future leaders
of HSBC.
When gaining a presence in other countries, HSBC
will send international managers as well as hire local persons. This is
because local people know the local markets.
"You'll be in Greece today as a deputy CEO and
you'll decide to make an acquisition in Turkey and pretty much in 48 hours
notice you'll fly to Turkey," said Martinelli of the challenges of being an
International Manager.
Areas of interest for HSBC worldwide are in these
emerging markets such as China, Singapore, Malasiya as well as some other
countries. As for the United States growth areas are in commercial space,
middle markets and small business lending. HSBC is looking for retail space
for premier banking and moving away from credit cards.
Continued in article
HSBC's auditor KPMG had twice reported serious risks
regarding Madoff's investment funds, but Picard alleged that the bank chose to
ignore its accountant's warnings.
"HSBC sued for $9bn over Madoff fraud: Banking giant accused of being "wilfully
and deliberately" blind to Madoff's Ponzi scheme," New Statesman, December 2010
---
http://www.newstatesman.com/banking-and-insurance/2010/12/ponzi-scheme-madoff-hsbc-bank
Europe's biggest bank HSBC is being sued for $9bn
(Ł5.7bn) for being "wilfully and deliberately" blind to Bernard Madoff's
multibillion-pound Ponzi scheme despite warnings from its own auditor.
Irving Picard, the court-appointed trustee charged
with recouping assets for victims of the fraudster, has filed a lawsuit with
the US Bankruptcy Court in New York, alleging that HSBC ignored "red flags"
that could have brought the scam to light years earlier.
David J Sheehan, the lawyer representing Picard,
said the bank "possessed a strong financial incentive to participate in,
perpetuate, and stay silent about Madoff's fraudulent scheme."
But HSBC stated it would "defend itself vigorously"
against the allegations and said the trustee's claims of wrongdoing were
"unfounded". In the lawsuit, Picard has accused the bank of indulging in 24
counts of fraud and misconduct.
HSBC's auditor KPMG had twice reported serious
risks regarding Madoff's investment funds, but Picard alleged that the bank
chose to ignore its accountant's warnings.
HSBC is the third major bank to be named in the
lawsuit over the fraudulent Ponzi scheme that has landed Bernard Madoff in
jail for 150 years. Earlier, similar suits had been filed against JPMorgan
and Swiss lender UBS for $6.4bn and $2bn respectively.
Bob Jensen's Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
Question
What's the difference between insider trading in Congress versus private sector
insider trading?
Answer
Private sector insider trading is enforced by both the SEC and the justice
divisions of our 50 states. Congressional inside trading is enforced by
Congressional inside traders that virtually never convict one another ---
http://www.trinity.edu/rjensen/FraudRotten.htm#Lawmakers
"Insider-Trading Probe Widens U.S. Launches Criminal Investigation Into
Stock Sales by Company Executives," by Susan Pulliam, Jean Eaglesham, and
Rob Berry, The Wall Street Journal, December 10, 2012 ---
http://professional.wsj.com/article/SB10001424127887323339704578171703191880378.html?mod=djemCFO_h
Federal prosecutors and securities regulators are
taking a deeper look into how executives use prearranged trading plans to
buy and sell shares of their company stock.
The Manhattan U.S. attorney's office has launched a
broad criminal investigation into whether seven corporate executives cited
in a recent Wall Street Journal article traded improperly in shares of their
own company's stock, according to a person familiar with the matter. These
executives lead companies in industries ranging from retailing to energy to
data processing.
Meanwhile, the Securities and Exchange Commission
is examining trading by VeriFone Systems Inc. PAY +1.33% Chief Executive
Officer Douglas Bergeron, according to a person familiar with that probe.
VeriFone said Mr. Bergeron, one of those cited in the Journal article, did
nothing wrong.
The probes illustrate that authorities have opened
a new front in a three-year push to attack possible improper trading on Wall
Street and in corporate America.
Until now, prosecutors and regulators were focused
mainly on ferreting out traditional insider trading in the financial world,
involving outside investors in companies. Some 70 convictions and guilty
pleas from traders and others have resulted from such efforts.
Now, authorities, including the Federal Bureau of
Investigation, are turning more attention to trading by corporate executives
in their own company's shares. The probe follows the Nov. 28 Journal
article, which focused on highly beneficial sales by executives that
occurred before bad news about their companies hit, sparing them declines in
the value of their holdings.
Besides Mr. Bergeron, the Journal reported last
week federal prosecutors and the SEC were examining trading of another
executive cited in the article, Big Lots Inc. BIG +1.49% CEO Steven Fishman.
The company said his trades were "properly made" at a time when allowed.
Unlike many of those the federal authorities now
are looking at, Mr. Fishman didn't make his sale using a prearranged
corporate-executive trading plan. The plans, known as "10b5-1" plans, permit
executives to trade their own company's stock despite possessing important,
nonpublic information, by scheduling their trades in advance at particular
times or prices.
Having used such a plan can be a strong defense
against any suspicion that the trading was improper. But it isn't a complete
defense: Executives are vulnerable if they set up a plan at a time when they
are in possession of inside information. Executives don't have to disclose
the plans or their provisions, and they can change or discontinue them, also
without disclosure.
The Manhattan U.S. attorney's office is
investigating the circumstances surrounding seven trades cited by the
Journal, according to the person familiar with the criminal probe, most made
under trading plans. They include:
• May 2012 trades by Body Central BODY -2.68%
founder Jerrold Rosenbaum and chief merchandising officer Beth Angelo, his
daughter, before the retailer cut its earnings estimate, sending the shares
down 48.5% the next day. A Body Central spokeswoman declined to comment on
the investigation but previously said both executives' trades were made
under a 10b5-1 plan and that Ms. Angelo, who set up a plan for her father in
March 2012, wasn't aware of the trend that led to the stock drop.
• November 2008 trades by Ronald Delnevo, former
managing director of U.K. operations for Cardtronics Inc., CATM -2.98%
before lower earnings that hammered the stock. A company spokesman declined
to comment on the investigation but previously said Mr. Delnevo's sales were
part of a 10b5-1 plan he amended two months before selling, which is
permissible under the company's policies.
• July 2007 trades by Raymond Zinn, CEO of
semiconductor maker Micrel Inc., MCRL +0.86% before lower-than-expected
earnings, which sent the stock down 22%. Micrel said the sales were made
under a 10b5-1 plan, the details of which it didn't disclose.
• March 2006 sales by Jeffrey Lorberbaum, CEO of
flooring maker Mohawk Industries Inc., MHK -0.91% just days after he set up
a 10b5-1 trading plan and also days before lower-than-expected earnings sent
the stock down 5.4%. Mohawk didn't return calls or emails about either the
probe or the trades.
• July 2011 trades by Cobalt International Energy
CIE -2.36% co-founder Samuel Gillespie during the two weeks before the oil
company said it had abandoned an exploratory well. The stock slumped 39%
after nine trading days.
A Cobalt spokeswoman didn't return calls about the
investigation but earlier said the sales were in accordance with a 10b5-1
plan amended before the sales. She said the change was "in complete
compliance with our procedures and had at least a minimum of 30 days before
trades occurred." She said the well issue wasn't encountered until Mr.
Gillespie had already begun to sell shares.
In the Big Lots matter, the U.S. attorney's office
and the SEC are examining the March 2012 trading of Mr. Fishman. He
exercised stock options and sold a little over $10 million of Big Lots stock
on March 20. On April 23, Big Lots disclosed that first-quarter sales had
slowed, beginning in late March. The stock sank 24% on the news. The quarter
ended on Apr. 28.
Continued in article
Bob Jensen's Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
Shell pickers will find some of the biggest shells in Bermuda (e.g.,
Google and Accenture shells)
"Google Revenues Sheltered in No-Tax Bermuda Soar to $10 Billion," by Jesse
Drucker, Bloomberg News, December 10, 2012 ---
Click Here
http://www.bloomberg.com/news/2012-12-10/google-revenues-sheltered-in-no-tax-bermuda-soar-to-10-billion.html?mod=djemCFO_h
Google Inc. (GOOG) avoided about $2 billion in
worldwide income taxes in 2011 by shifting $9.8 billion in revenues into a
Bermuda shell
company, almost double the total from three years before, filings show.
By legally funneling profits from overseas
subsidiaries into Bermuda, which doesn’t have a corporate income tax, Google
cut its overall tax rate almost in half. The amount moved to Bermuda is
equivalent to about 80 percent of Google’s total pretax profit in 2011.
The increase in Google’s revenues routed to
Bermuda, disclosed in a Nov. 21 filing by a subsidiary in the Netherlands,
could fuel the outrage spreading across Europe and in the U.S. over
corporate tax dodging. Governments in France, the U.K., Italy and Australia
are probing Google’s tax avoidance as they seek to boost revenue during
economic doldrums.
Last week, the European Union’s executive body, the
European Commission, advised member states to create blacklists of tax
havens and adopt anti-abuse rules. Tax evasion and avoidance, which cost the
EU 1 trillion euros ($1.3 trillion) a year, are “scandalous” and “an attack
on the fundamental principle of fairness,” Algirdas Semeta, the EC’s
commissioner for taxation, said at a press conference in Brussels.
‘Deep Embarrassment’
“The tax strategy of Google and other
multinationals is a deep embarrassment to governments around
Europe,” said Richard
Murphy, an accountant and director of
Tax Research LLP in Norfolk,
England. “The political awareness now being
created in the U.K., and to a lesser degree elsewhere in Europe, is: It’s us
or them. People understand that if Google doesn’t pay, somebody else has to
pay or services get cut.”
Google said it complies with all tax rules, and its
investment in various European countries helps their economies. In the U.K.,
“we also employ over 2,000 people, help hundreds of thousands of businesses
to grow online, and invest millions supporting new tech businesses in East
London,” the Mountain View, California-based company said in a statement.
The Internet search giant has avoided billions of
dollars in income taxes around the world using a pair of tax shelter
strategies known as the Double Irish and Dutch Sandwich, Bloomberg News
reported in 2010. The tactics, permitted under tax law in the U.S. and
elsewhere, move royalty payments from subsidiaries in Ireland and the
Netherlands to a Bermuda unit headquartered in a local law firm.
Last year, Google reported a tax rate of just 3.2
percent on the profit it said was earned overseas, even as most of its
foreign sales were in European countries with corporate income tax rates
ranging from 26 percent to 34 percent.
Foreign Taxes
At a hearing last month in the U.K., members of
Parliament pressed executives from Google, Seattle-based
Amazon.com Inc. (AMZN) and
Starbucks Corp. (SBUX) to explain why they don’t pay more taxes there.
The U.K., Google’s second-biggest market, was responsible for about 11
percent of its sales, or almost $4.1 billion last year, according to
company filings. Google paid 6 million pounds
($9.6 million) in U.K. income taxes.
Matt Brittin, Google’s vice president for Northern
and Central Europe, testified that the company pays taxes where it creates
“economic value,” primarily the U.S.
Still, Google attributes some profit based on
technology created in the U.S. to offshore subsidiaries, lowering its U.S.
taxes, according to company filings and people familiar with its tax
planning. Google paid $1.5 billion in income taxes worldwide in 2011.
‘Fair Share’
In the wake of the parliamentary hearing, the
House of Commons issued a report last week
declaring that multinationals “do not pay their fair share” of tax. The
committee also criticized the U.K.’s tax collection agency,
Her
Majesty’s Revenue & Customs, for “not taking
sufficiently aggressive action” and called on the agency to “get a grip” on
corporate tax avoidance.
A spokesman for HMRC said the agency “ensures that
multinationals pay the tax due in accordance with U.K. tax law.”
The French tax authority this year proposed
increasing Google’s income taxes by about $1.3 billion. The agency searched
Google’s Paris offices in June 2011 and removed computer files as part of an
examination first reported by Bloomberg last year. Google is cooperating
with French authorities and works with them “to answer all their questions
on Google France and our service,” the company said.
Italian Audit
In
Italy,
the
Tax Police began an audit of Google last month and
recently searched the company’s Milan offices, as well as the offices of
Facebook Inc. (FB), according to a person familiar
with the matter. “It’s very common for companies to be audited, and we have
been working closely with the Italian authorities for some time,” Google
said. “So far we have not had any demands for additional tax in Italy.”
Facebook, based in Menlo Park,
California, is cooperating with the Italian tax
authority and “we take our obligations under the Italian tax code very
seriously,” a company spokeswoman said.
In
Australia, the country’s assistant treasurer gave
a speech last month outlining Google’s tax avoidance strategies.
The use of offshore shelters to avoid corporate
taxes has prompted calls for reform in the U.S. as well. The Treasury
Department has repeatedly proposed since 2009, with little success, to make
it harder for multinationals to bypass taxes by shifting profit into tax
havens.
Transfer Pricing
Multinational companies cut their tax bills using
“transfer pricing,” paper transactions among corporate subsidiaries that
allow for allocating income to tax havens and expenses to higher-tax
countries.
In Google’s case, an Irish
subsidiary collects revenues from ads sold in
countries like the U.K. and
France. That Irish unit in turn pays royalties to
another Irish subsidiary, whose legal residence for tax purposes is in
Bermuda.
The pair of Irish units gives rise to the nickname
“Double Irish.” To avoid an Irish withholding tax, Google channeled the
payments to Bermuda through a subsidiary in the Netherlands -- thus the
“Dutch Sandwich” label. The Netherlands subsidiary has no employees.
Continued in article
Jensen Comment
If a giant hurricane ever wipes out Bermuda, the shell corporations won't lose
much from their nearly-empty offices in Burmuda.
PCAOB faults auditor staffing, training for deficiencies
"'Control' Problems Cited," by Michael Rapoport, The Wall Street Journal,
December 10, 2012 ---
http://professional.wsj.com/article/SB10001424127887324478304578171280865613110.html?mod=djemCFO_h
A U.S. regulator reported an increase in the
percentage of audits of "internal controls" at companies that were flawed
because of inadequate work by major accounting firms.
The Public Company Accounting Oversight Board said
the eight biggest accounting firms failed in 22% of the audits it reviewed
last year to gather enough evidence to support opinions issued by the firms
that claimed a company's internal controls were effective.
The percentage was up from 15% of the audits the
PCAOB reviewed in 2010. PCAOB officials said the increase shows auditors are
at greater risk of letting serious financial errors or even fraud slip
through undetected.
"When audit firms do not approach their work
appropriately, they are increasing their own risk of not detecting
problems," PCAOB member Jeanette Franzel said after the findings were
released Monday. The PCAOB regulates and inspects firms that audit public
companies, while setting and enforcing standards that govern audits.
The Center for Audit Quality, which represents
major accounting firms, said in a statement that the industry "recognizes
the need to improve performance in this important area" and has already
poured "significant" resources into doing so.
"Internal controls" are safeguards meant to insure
that a company's financial statements are accurate. At all but the smallest
public companies, auditors are required by U.S. law to evaluate those
controls annually for effectiveness.
The PCAOB's conclusion that an accounting firm's
review of internal controls was deficient doesn't necessarily mean the
controls were inadequate or a company's finances are shaky. The findings are
a sign that auditors haven't done the job needed to tell. To fix the
problem, accounting firms should consider providing more training and
guidance to auditors, the PCAOB said Monday.
PCAOB members said the percentage of audits where
they found problems is too high. And when an audit of internal controls
isn't done properly, it usually means the corresponding audit of a company's
financial statements also is deficient, the PCAOB said.
The results released Monday are based on annual
inspections by the PCOAB of big accounting firms to evaluate their audit
work and compliance with professional standards.
No firms were singled out for criticism in the
report, but the findings were based on inspections of BDO Seidman LLP, Crowe
Horwath LLP, Deloitte & Touche LLP, Ernst & Young LLP, Grant Thornton LLP,
KPMG LLP, McGladrey LLP and Pricewaterhouse Coopers LLP. The regulator's
board said it has found similar problems at other auditing firms.
Continued in article
Bob Jensen's threads on audit firm professionalism are at
http://www.trinity.edu/rjensen/Fraud001c.htm
"Citigroup to Cut 11,000 Jobs, Take $1 Billion Charge," by Donal
Griffin, Bloomberg News, December 5, 2012 ---
http://www.bloomberg.com/news/2012-12-05/citigroup-to-take-1-billion-charge-cut-11-000-jobs.html
Jensen Comment
And this is even before Sen. Elizabeth Warren takes her new seat on the Banking
Committee.
Behavioral Finance: Herding Video ---
http://www.youtube.com/watch?v=BXR2PrULyW0
Thank you Jim Mahar for the heads up.
"SEC Says Big Four Audit China-Affiliates Blocked Probe," by Joshua
Gallu, Bloomberg News, December 3, 2012 ---
http://www.bloomberg.com/news/2012-12-03/sec-says-big-four-audit-china-affiliates-blocked-probe.html
Bob Jensen's Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
"Who Will Be the Next Hewlett-Packard?" by Jonathan Weil, Bloomberg,
November 29, 2012 ---
http://www.bloomberg.com/news/2012-11-29/who-will-be-the-next-hewlett-packard-.html
During the technology-stock bubble of the 1990s, it
would have been a compliment to say a company had the potential to become
the next Hewlett-Packard Co. That same line would have a very different
meaning now.
Today, if someone called a company the next
Hewlett- Packard, this would probably mean it is a prime candidate to book
huge losses because of disastrous acquisitions. What might such a company
look like? Consider Xerox Corp. (XRX)
At the start of 2007, Xerox had a stock-market
value of $16 billion. Since then, the Norwalk, Connecticut-based printer and
copier pioneer has paid about $9.1 billion to acquire 41 other companies. It
has destroyed more value than it created. At $6.79 a share, Xerox’s market
value is $8.6 billion -- equivalent to 71 percent of its common shareholder
equity, or book value.
The most glaring sign that large writedowns may be
needed at Xerox is a line on its books called goodwill, which is the
intangible asset that a company records when it pays a premium in a
takeover. Xerox’s balance sheet would have investors believe that its
goodwill alone, at $9 billion, is more valuable than what the market says
the whole company is worth.
Xerox’s goodwill obviously isn’t worth that in
reality. Goodwill exists only on paper and can’t be sold by itself. It’s a
plug number, defined under the accounting rules as the difference between
the purchase price for an acquisition and the fair value of the acquired
company’s net assets. ‘Reference Points’
Asked about the possible need for large writedowns,
a Xerox spokeswoman, Karen Arena, noted that the company will conduct its
annual goodwill-impairment test this quarter.
“Share price is just one of several reference
points we use to validate our assumptions,” she said. “We also look to our
operational results, including cash flows, revenue growth and profit
margins.”
Most of the goodwill on Xerox’s balance sheet arose
from the company’s $6.5 billion acquisition in 2010 of Affiliated Computer
Services Inc., a provider of information-technology services. Xerox
allocated $5.1 billion of the purchase price in that deal to goodwill.
Xerox’s latest balance sheet also showed $2.9 billion of other intangible
assets, the bulk of which are customer relationships acquired from
Affiliated Computer.
Suspiciously high goodwill was the same indicator I
pointed to in an Oct. 4 blog post suggesting that more large writedowns were
needed at Hewlett-Packard. (HPQ) The Palo Alto, California-based maker of
computers and printers traded for a significant discount to book value at
the time, and its goodwill exceeded its market value by $7.5 billion.
Hewlett-Packard last week disclosed an $8.8 billion
writedown of goodwill and other intangible assets from its 2011 purchase of
the U.K. software maker Autonomy Corp. It said more than $5 billion of the
charge was related to financial-reporting improprieties by Autonomy. The
disclosure sent Hewlett-Packard’s shares down 12 percent in a day.
Regardless of whether the allegation proves
correct, Hewlett-Packard paid way too much for Autonomy, which had a
reputation for aggressive accounting long before it was bought. (Just ask
the analysts at the financial-research firm CFRA in New York, who wrote 14
reports from 2001 to 2010 raising doubts about Autonomy’s accounting and
disclosure practices.)
Hewlett-Packard had allocated $6.9 billion of its
$11 billion purchase price for Autonomy to goodwill. The writedowns
disclosed last week were only the latest of their kind. Three months
earlier, Hewlett-Packard recorded a $9.2 billion writedown largely related
to its buyout of Electronic Data Systems Corp. in 2008. Dubious Leaders
A search for other companies with strangely high
goodwill values turned up several notable examples. Credit Agricole SA (ACA),
the French bank that trades for about a third of its book value, shows
goodwill of 16.9 billion euros ($21.9 billion). By comparison, its
stock-market value is 14.6 billion euros.
Telecom Italia SpA (TIT), which trades for about 60
percent of its book value, has goodwill of 36.8 billion euros and a market
capitalization of only 13.2 billion euros. Fiat SpA (F), the Italian
automaker, trades for less than half of book and shows goodwill of 10.4
billion euros -- more than twice its market value. Nasdaq OMX Group Inc.
trades for 78 percent of book and shows $5.3 billion of goodwill; its market
cap is $4 billion.
Those kinds of numbers -- where the balance sheets
are clearly out of whack with market sentiments -- don’t necessarily mean
the companies will be required to slash asset values. But they are strong
indicators that big writedowns may be needed. The test under the rules
ultimately comes down to management’s cash-flow projections, and whether
they are strong enough to justify the goodwill on the books. That’s why
goodwill writedowns can be an important signal about the future.
Continued in article
Question
What does Joe Hoyle mean by "Be the Stream and Not the Rock?"
Hint
He's not discussing the painful passing of a kidney stone.
The context is how perseverance prevails.
"BE THE STREAM AND NOT THE ROCK," by Joe Hoyle, Teaching Blog, November 26,
2012 ---
http://joehoyle-teaching.blogspot.com/2012/11/be-stream-and-not-rock.html
Deloitte Releases Sixth Edition of “SEC Comment Letters-Including Industry Insights” ---
http://deloitte.wsj.com/cfo/files/2012/11/SEC_comment_letters_highlighting_risks.pdf
"Two-thirds of millionaires left Britain to avoid 50% tax rate:
Almost two-thirds of the country’s million-pound earners disappeared from
Britain after the introduction of the 50% top rate of tax, figures have
disclosed," by Robert Winnett, The Telegraph, November 27, 2012 ---
http://www.telegraph.co.uk/news/politics/9707029/Two-thirds-of-millionaires-left-Britain-to-avoid-50p-tax-rate.html
Jensen Comment
The article doesn't reveal where the 10,000 wealthy taxpayers went, but it
certainly wasn't France or Scandinavia. I suspect that many of them moved to
Ireland and Switzerland, although they perhaps still have real estate in
England. Perhaps some sold residences with leaseback provisions for visiting
their old homes. Artists and writers can live tax free in Ireland. And just
about anybody can live tax free in Greece since Greece hasn't yet figured out
how to enforce tax laws. But Greece might make an exception by hammering down on
wealthy immigrants fleeing U.K. taxes. Then again Greece might might prefer that
the wealth is re-invested in Greece.
I suspect some of the super wealthy don't much care since they have more than
they can spend after taxes. I wonder if taxpayers living on yachts can avoid
taxes altogether if those boats are constantly on the move between nations?
Teaching Case from The Wall Street Journal Accounting Weekly Review
on November 30, 2012
Obama Sets Steep Tax Targets
by: Janet Hook and Carol E. Lee
Nov 14, 2012
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com ![WSJ Video]()
TOPICS: Governmental Accounting, Tax Law, Tax Policy, Tax Reform,
Taxes
SUMMARY: President Obama has proposed a budget to Congress that
includes $1.6 Trillion in tax increases over ten years as part of the
package needed to close the federal budget deficits as required by the
legislation which created the "fiscal cliff." House Speaker John Boehner
"hasn't specified a revenue target that would be his opening bid. He has
said he would be willing to accept new tax revenues, not higher tax rates if
Democrats accept structural changes to entitlement programs...." This
acceptance stems from the election results in which Mr. Obama won on a
platform including increased taxes for Americans earning more than $250,000
per year. Treasury Secretary Tim Geithner has said he cannot see how to
raise taxes sufficiently to meet these goals without implementing higher tax
rates, rather than limiting or eliminating tax deductions.
CLASSROOM APPLICATION: The article may be used in a tax class or in
a governmental accounting class.
QUESTIONS:
1. (Advanced) What is the fiscal cliff? Specifically state the
objective of the laws that set up these automatic, drastic actions that are
taking effect in January 2013.
2. (Introductory) Refer to the related video. What are the major
components of U.S. government spending? Why must the five components be
included in any plan to cut spending in order to reduce our federal
government's deficits?
3. (Advanced) What is the difference between generating new tax
revenues, which Republican House Majority Leader John Boehner is accepting
in negotiations, and raising tax rates, which Mr. Boehner opposes? Why is
Mr. Boehner asserting this position about the source of tax revenue
increases to close the federal deficits?
4. (Introductory) Refer to the related article. Why are U.S.
business leaders taking steps to have their voices heard as government
wrangles with plans to avoid the fiscal cliff? What steps are they taking?
Reviewed By: Judy Beckman, University of Rhode Island
RELATED ARTICLES:
CEOs Flock to Capital to Avert 'Cliff'
by Damian Paletta and Kristina Peterson
Nov 28, 2012
Page: A4
"Obama Sets Steep Tax Targets," by Janet Hook and Carol E. Lee, The Wall
Street Journal, November 14, 2012 ---
http://professional.wsj.com/article/SB10001424127887323551004578117152861144968.html?mod=djem_jiewr_AC_domainid&mg=reno-wsj
President Barack Obama will begin budget
negotiations with congressional leaders Friday by calling for $1.6 trillion
in additional tax revenue over the next decade, far more than Republicans
are likely to accept and double the $800 billion discussed in talks with GOP
leaders during the summer of 2011.
Mr. Obama, in a meeting Tuesday with union leaders
and other liberal activists, also pledged to hang tough in seeking tax
increases on wealthy Americans. In one sign of conciliation, he made no
specific commitment to leave unscathed domestic programs such as Medicare,
leaving the door open to spending cuts many fellow Democrats oppose.
Kevin Smith, a spokesman for House Speaker John
Boehner (R., Ohio), dismissed the president's opening position for the
negotiations. He said Mr. Boehner's proposal to revamp the tax code and
entitlement programs is "consistent with the president's call for a
'balanced' approach."
Enlarge Image image image Associated Press
AFL-CIO President Richard Trumka, second from left,
speaks to reporters outside the White House Tuesday after meeting with the
president. Full Coverage: The Fiscal Cliff
Capital: Writing the Next Act in the Budget Drama
Obama to Meet With CEOs When Congress Ties Its Hands Capital Journal: Past
the Cliff to Fixing Taxes Ask Seib & Wessel: The 'Fiscal Cliff' Washington
Wire: What Do CEOs Think? Live Updates: Fiscal Cliff Stream
Mr. Boehner hasn't specified a revenue target that
would be his opening bid. He has said he would be willing to accept new tax
revenues—not higher tax rates—if Democrats accept structural changes to
entitlement programs, the ultimate source of the U.S.'s long-term budget
woes.
The president's opening gambit, based on his 2013
budget proposal, signals Mr. Obama's intent to press his advantage on the
heels of his re-election last week. However, before gathering at the White
House with lawmakers on Friday, he will meet with chief executives of a
dozen companies Wednesday. Many executives have aired concerns about the
economic consequences of the looming "fiscal cliff"—and the risk of another
standoff.
Maryland Rep. Chris Van Hollen joins WSJ's Alan
Murray at the CEO Council to discuss how Congress and President Obama can
avoid falling over the fiscal cliff.
At The Wall Street Journal CEO Council in
Washington, 73% of conference participants surveyed said their primary
concern was the fiscal cliff.
One conference participant, David Crane, chief
executive of NRG Energy Inc., NRG +0.74% a power-generation and electricity
firm, said, "I think everyone just has this fear that they just do as
they've done the last four years and just lob grenades at each other."
Speaking to reporters about Mr. Obama's plans for
Friday's talks, White House spokesman Jay Carney said, "the president has
put forward a very specific plan that will be what he brings to the table
when he sits down with congressional leaders."
"We know what a truly balanced approach to our
fiscal challenges looks like," said Mr. Carney, using Democrats' language to
mean spending cuts combined with tax increases.
Republicans already have appeared willing to cut a
deal that results in Americans paying more taxes if it averts the scheduled
spending cuts and tax increases due to take effect at year-end.
"New revenue must be tied to genuine entitlement
changes," Senate Minority Leader Mitch McConnell (R., Ky.) said Tuesday.
"Republicans are offering bipartisan solutions and now it's the president's
turn. He needs to bring his party to the table."
Treasury Secretary Timothy Geithner said higher tax
rates on upper-income Americans were a central part of the White House's
deficit-reduction proposal because there was no way to raise enough revenue
by only limiting tax breaks. Mr. Geithner's comments, made at the Journal's
CEO gathering, marked the White House's most forceful defense of its tax
proposal since the election.
The president is "not prepared to extend the
upper-income tax cuts," Mr. Geithner said, referring to the White House
proposal to allow expiration of the Bush-era tax cuts on income over
$200,000 for individuals and $250,000 for couples.
The year-end budget problems represent a major test
of how Mr. Obama will lead in his second term, not just in negotiating with
Republicans but in managing his own political base.
He is under pressure to take a hard line from
activist groups as well as from many congressional Democrats, who returned
Tuesday for a lame-duck session elated by their party's gains in last week's
elections. Democrats picked up at least six seats in the House and dashed
expectations they might lose their Senate majority by picking up two more
seats in the chamber.
Senate Majority Leader Harry Reid (D., Nev.), in
his first floor speech of the session, signaled little interest in
concessions and reiterated President Obama's demand that the House pass a
Senate-approved bill extending current tax rates for middle-income
taxpayers, but not for the wealthiest 2% of taxpayers.
Mr. Obama is expected to open a Wednesday news
conference, his first since re-election, by calling on the House to pass
that bill.
The White House calls that a "partial solution,"
creating certainty for businesses and minimizing potential harm to the
economy. Absent action, all the tax rates will rise Jan. 1.
In negotiations between Messrs. Boehner and Obama
in mid-2011, the two sides neared agreement on a plan to cut the deficit by
$4 trillion over 10 years, including $800 billion in new revenue.
The deal fell apart after Mr. Obama asked to raise
the revenue component to $1.2 trillion, and to this day each side blames the
other for the collapse. Based on that history, some senior GOP aides said
they believed a likely compromise would call for about $1 trillion in new
tax revenue, possibly from capping deductions for wealthier taxpayers.
On Capitol Hill, it isn't clear how strenuously
Democrats will resist cutting entitlements. Rep. Chris Van Hollen (D., Md.)
said he and others were open to changes as long as they were done in a
measured way and were part of deal that included tax increases. Mr. Van
Hollen also said changing Social Security and increasing the Medicare
eligibility age above 65 should be part of negotiations.
"I'm willing to consider all of these ideas as part
of an overall plan," Mr. Van Hollen said Tuesday at the Journal's CEO
Council.
White House officials in 2011 were in advanced
talks with Mr. Boehner that would have agreed to some of these changes,
notably raising Medicare's eligibility age. That is one cause of liberals'
anxiety about how the coming talks may unfold.
Mr. Obama's Tuesday meeting was the first of
several this week with outside groups. He is set to meet with civic leaders
Friday before sitting down with Democratic and Republican congressional
leaders. The president's aides have said these meetings aren't meant for
negotiating but rather listening to leaders with a stake in the process.
In his meeting with leaders from liberal and labor
groups, Mr. Obama fielded questions about whether a final budget deal would
hurt recipients of Medicare and Medicaid. He made no assurances, one
attendee said, and instead pointed to his budget to explain his stance on
such changes. The president said, "You know where I am on this," the
attendee said. The budget includes some modest Medicare changes but no big
cuts to the program.
Mr. Obama reiterated his demand that the Bush tax
cuts expire for the wealthiest individuals, and asked the groups to focus
their members on getting Congress, in particular House Republicans, to pass
the tax cuts for everyone else.
Continued in article
Paying Taxes 2013: The global picture - How does your tax system compare with
other economies?
Source:
PwC
Author name:
US tax services
Published:
11/28/2012
Summary:
This is a unique study from PwC,
World Bank and IFC. Now in its eighth year, the study provides data on tax
systems in 185 economies around the world, with an ability to monitor tax
reform.
It is unique because it generates a set of
indicators (the Total Tax Rate, the time to comply and the number of
payments) that measure the world’s tax systems from the point of view of a
standardized business (using a case-study scenario).
This PwC publication is also unique in that it
covers the full range of taxes paid in 185 economies by the company,
measuring how the business complies with the different tax laws and
regulations in each economy. The study not only looks at corporate income
tax, but at all of the taxes and contributions that a domestic medium-size
case study company must pay. It considers the full impact of all these taxes
in terms of both their tax cost and their compliance burden on business.
This publication can be useful in:
-
Comparing the business tax systems of economies on a like-for-like basis
-
Benchmarking tax systems within economic and geographical groupings,
providing an opportunity to learn from peer-group economies
-
Identifying good practices and potential reforms through in-depth
comparative analysis
- Generating
robust data on tax systems around the world, including how they have
changed, and so helping to inform the development of good tax policy
This is the eighth year
that the study indicators have been included in the Doing Business project,
which is run by the World Bank Group.
Download this PwC publication ---
http://www.pwc.com/en_GX/gx/paying-taxes/assets/pwc-paying-taxes-2013-full-report.pdf
The Rain
It was a busy
Morning,
about 8:30, when an elderly
Gentleman
in his 80's arrived to have
Stitches
removed from his thumb.
He said he was in a hurry as he had an
Appointment
at 9:00 am.
I took his vital
Signs
and had him take a seat,
Knowing
it would be over an hour
Before
someone
Would
to able to see him.
I saw him looking at his watch and
Decided,
since I
Was
not busy with another patient,
I would evaluate his wound.
On exam, it was
Well
healed, so I talked to one of the
Doctors,
got the needed supplies to
Remove
his sutures and redress his wound.
While taking care of
His
wound, I asked him if he
Had
another doctor's appointment
This
morning, as
He
was in such a hurry.
The gentleman told me no, that he
Needed
to go to
The
nursing home to eat breakfast
With
his wife. I enquired as to her
Health.
He told me
that she
had been there
For
a while and that she
Was
a victim of Alzheimer's Disease.
As we
Talked,
I asked if she would be
Upset
if he was a bit late.
He
Replied
that she no longer knew
Who
he was, that she had not
Recognized
him in
Five
years now
I was surprised, and asked him,
'And you still go every
Morning,
even though she
Doesn't
know who you are?'
He smiled as
he
Patted
my hand and said,
'She doesn't
Know
me, but I still know who she is.'
I had to hold back
Tears
as he left, I had goose bumps
On
my arm, and thought,
'That is
The
kind of love I want in my life.'
True love is
Neither
physical, nor romantic.
True love is an
Acceptance
of all that is,
Has
been, will be, and will not
Be.
With all the jokes
And
fun that are in e-mails,
Sometimes
there is one that comes
Along
that has an
Important
message..
This one I thought I could share with you.
The
Happiest
people don't necessarily
Have
the best of everything;
They
just make
The
best of everything they have.
I hope you share this with someone you
Care
about. I just did.
Humor December 31, 2012
Humor Pictures and Cartoons
Set 01 ---
http://www.trinity.edu/rjensen/tidbits/Humor/2011/Set01/Humor2011Set01.htm
Set 02 ---
www.trinity.edu/rjensen/tidbits/Humor/2011/Set02/Set02.htm
Set 03 ---
http://www.trinity.edu/rjensen/Tidbits/Humor/2012/Set03/HumorSet03.htm
Humor Video: Accounting Updates for 2012 ---
http://www.youtube.com/watch?v=JgW3ATYW9F4&feature=youtu.be
Not so Funny Sidebar: One of the biggest reasons 17% of employed taxpayers
pay no income is the earned income credit
Also it's not clear why he has to yell into a microphone --- that is really
tiresome in a comedy dialog.
The Darwin Awards: Favorite Female Fatales ---
http://www.darwinawards.com/
Darwin Award Archives ---
http://www.darwinawards.com/darwin/
Hilarious Video Proof: Your Ability to Make Realistic Sound Effects Is
Gender-Based ---
http://www.openculture.com/2012/12/hilarious_video_proof_your_ability_to_make_realistic_sound_effects_is_gender-based.html
Forwarded by Gene and Joan
Punography
When chemists die, they barium.
Jokes about German sausage are the wurst.
I know a guy who's addicted to brake fluid. He says he can stop any time.
How does Moses make his tea? Hebrews it.
I stayed up all night to see where the sun went. Then it dawned on me.
This girl said she recognized me from the vegetarian club, but I'd never
met
herbivore.
I'm reading a book about anti-gravity. I just can't put it down.
I did a theatrical performance about puns. It was a play on words.
They told me I had type-A blood, but it was a Type-O.
PMS jokes aren't funny; period.
Why were the Indians here first? They had reservations.
We're going on a class trip to the Coca-Cola factory. I hope there's no
pop
quiz.
I didn't like my beard at first. Then it grew on me.
Did you hear about the cross-eyed teacher who lost her job because she
couldn't control her pupils?
When you get a bladder infection urine trouble.
Broken pencils are pointless.
I tried to catch some fog, but I mist.
What do you call a dinosaur with an extensive vocabulary? A thesaurus.
England has no kidney bank, but it does have a Liverpool.
I used to be a banker, but then I lost interest.
I dropped out of communism class because of lousy Marx.
All the toilets in New York 's police stations have been stolen. The
police have nothing to go on.
I got a job at a bakery because I kneaded dough.
Haunted French pancakes give me the crepes.
Velcro - what a rip off!
A cartoonist was found dead in his home. Details are sketchy.
Venison for dinner again? Oh deer!
Forwarded by Paula
To help save the economy, next month the Government will announce 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 ...... I'll see you
on the bus!
Forwarded by Maureen
Us
older people need to learn something new every day...
Just to keep the grey matter tuned up.
Where did "Piss Poor" come from? Interesting history.
They used to use urine to tan animal skins, so families used to all pee in a
pot.
And then once it was full it was taken and sold to the tannery...
if you had to do this to survive you were "Piss Poor".
But worse than that were the really poor folk who couldn't even afford to buy
a pot...
They "didn't have a pot to piss in" and were the lowest of the low.
The next time you are washing your hands and complain because the water
temperature
Isn't just how you like it, think about how things used to be.
Here are some facts about the 1500's
Most people got married in June because they took their yearly bath in May,
And they still smelled pretty good by June.. However, since they were starting
to smell,
brides carried a bouquet of flowers to hide the body odor.
Hence the custom today of carrying a bouquet when getting married.
Baths consisted of a big tub filled with hot water.
The man of the house had the privilege of the nice clean water,
Then all the other sons and men, then the women and finally the children.
Last of all the babies.
By then the water was so dirty you could actually lose someone in it.
Hence the saying, "Don't throw the baby out with the bath water!"
Houses had thatched roofs-thick straw-piled high, with no wood underneath.
It was the only place for animals to get warm, so all the cats and other small
animals
(mice, bugs) lived in the roof.
When it rained it became slippery and sometimes the animals would slip and fall
off the roof.
Hence the saying, "It's raining cats and dogs."
There was nothing to stop things from falling into the house.
This posed a real problem in the bedroom where bugs and other droppings
Could mess up your nice clean bed.
Hence, a bed with big posts and a sheet hung over the top afforded some
protection.
That's how canopy beds came into existence.
The floor was dirt. Only the wealthy had something other than dirt.
Hence the saying, "Dirt poor." The wealthy had slate floors that would get
slippery
In the winter when wet, so they spread thresh (straw) on the floor to help keep
their footing..
As the winter wore on, they added more thresh until, when you opened the door,
It would all start slipping outside. A piece of wood was placed in the
entrance-way.
Hence: a thresh hold.
(Getting quite an education, aren't you?)
In those old days, they cooked in the kitchen with a big kettle that always
hung over the fire.
Every day they lit the fire and added things to the pot. They ate mostly
vegetables
And did not get much meat. They would eat the stew for dinner, leaving
leftovers
In the pot to get cold overnight and then start over the next day.
Sometimes stew had food in it that had been there for quite a while.
Hence the rhyme:
“Peas porridge hot, peas porridge cold, peas porridge in the pot nine days
old."
Sometimes they could obtain pork, which made them feel quite special.
When visitors came over, they would hang up their bacon to show off.
It was a sign of wealth that a man could, "bring home the bacon."
They would cut off a little to share with guests
And would all sit around and chew the fat.
Those with money had plates made of pewter.
Food with high acid content caused some of the lead to leach onto the food,
causing lead poisoning death.
This happened most often with tomatoes,
so for the next 400 years or so, tomatoes were considered poisonous.
Bread was divided according to status..
Workers got the burnt bottom of the loaf, the family got the middle,
and guests got the top, or the upper crust.
Lead cups were used to drink ale or whisky.
The combination would sometimes knock the imbibers out for a couple of days...
Someone walking along the road would take them for dead and prepare them for
burial.
They were laid out on the kitchen table for a couple of days and the family
would gather around
and eat and drink and wait and see if they would wake up.
Hence the custom; “holding a wake."
England is old and small and the local folks started running out of places to
bury people.
So they would dig up coffins and would take the bones to a bone-house, and
reuse the grave.
When reopening these coffins, 1 out of 25 coffins were found to have scratch
marks on the inside and they realized they had been burying people alive.
So they would tie a string on the wrist of the corpse, lead it through the
coffin and up through the ground and tie it to a bell.
Someone would have to sit out in the graveyard all night (the graveyard shift)
to listen for the bell; thus, someone could be,
“saved by the bell" or was "considered a dead ringer."
And that's the truth.
Now, whoever said history was boring!!!
So get out there and educate someone!
Share these facts with a friend.
Inside every older person is a younger person wondering,
"What the heck happened?"
We'll be friends until we are old and senile.
Then we'll be new friends.
Smile, it gives your face something to do!
Forwarded by Auntie Bev
British humour- ABSOLUTELY POLITICALLY INCORRECT AND HILARIOUS. THE LAST ONE
ROCKS
Police in London have found a bomb outside a mosque.. They've told the public
not to panic as they've managed to push it inside.
============================================
During last night's high winds an African family were killed by a falling
tree. A spokesman for the Birmingham City council said "We didn't even know they
were living up there".
=============================================
Jamaican minorities in the UK have complained that there are not enough
television shows with minorities in mind, so Crimewatch is being shown 5 times a
week now.
=============================================
I was reading in the paper today about this dwarf that got pick pocketed. How
could anyone stoop so low.
=============================================
I was walking down the road when I saw an Afghan bloke standing on a fifth
floor balcony shaking a carpet. I shouted up to him, "what's up Abdul, won't it
start?"
=============================================
Do you think these Dear Santa letters were actually written by kids?
If so then you probably believe that Santa wrote the replies.
Dear Santa,
How are you? How is Mrs. Claus? I hope everyone, from the reindeer to the
elves, is fine. I have been a very good boy this year. I would like an X-Box 360
with Call of Duty IV and an iPhone 4 for Christmas. I hope you remember that
come Christmas Day..
Merry Christmas,
Timmy Jones
* *
Dear Timmy,
Thank you for you letter. Mrs. Claus, the reindeer and the elves are all fine
and thank you for asking about them. Santa is a little worried all the time you
spend playing video games and texting. Santa wouldn’t want you to get fat. Since
you have indeed been a good boy, I think I’ll bring you something you can go
outside and play with.*
Merry Christmas,
Santa Claus
* * ***********************************************
Mr. Claus,
Seeing that I have fulfilled the “naughty vs. nice” contract, set by you I
might add, I feel confident that you can see your way clear to granting me
what I have asked for. I certainly wouldn’t want to turn this joyous season into
one of litigation. Also, don’t you think that a jibe at my weight coming from an
overweight man who goes out once a year is a bit trite?
Respectfully,
Tim Jones
* *
Mr. Jones,
While I have acknowledged you have met the “nice” criteria, need I remind you
that your Christmas list is a request and in no way is it a guarantee of
services provided. Should you wish to pursue legal action, well that is your
right. Please know, however, that my attorney’s have been on retainer ever since
the Burgermeister Meisterburger incident and will be more than happy to take you
on in open court. Additionally, the exercise I alluded to will not only improve
your health, but also improve your social skills and potentially help clear up a
complexion that looks like the bottom of the Burger King fry bin most days.
Very Truly Yours,
S Claus
* **************************************************************
Now look here Fat Man, I told you what I want and I expect you to bring it. I
was attempting to be polite about this but you brought my looks and my friends
into this. Now you just be disrespecting me. I’m about to tweet my boys and
we’re gonna be waiting for your fat ass and I’m taking my game console, my game,
my phone, and whatever else I want. WHAT EVER I WANT, MAN!
T-Bone
* *
Listen Pizza Face,
Seriously??? You think a dude that breaks into every house in the world on
one night and never gets caught sweats a skinny G-banger wannabe? “He sees you
when you’re sleeping; He knows when you’re awake”. Sound familiar, genius? You
know what kind of resources I have at my disposal. I got your shit wired, Jack.
I go all around the world and see ways to hurt people that if I described them
right now, you’d throw up your Totino's pizza roll all over the carpet of your
mom’s basement. You’re not getting what you asked for, but I’m still stopping by
your crib to stomp a mud hole in you’re ass and then walk it dry. Chew on that,
Petunia.
S Clizzy
* ****************************************************************
Dear Santa,
Bring me whatever you see fit. I’ll appreciate anything.
Timmy
* *
Timmy,
That’s what I thought you little bastard.
Santa
Humor Between December 1-31, 2012 ---
http://www.trinity.edu/rjensen/book12q4.htm#Humor123112
Humor Between November 1-30, 2012 ---
http://www.trinity.edu/rjensen/book12q4.htm#Humor113012
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 December 31, 2012 with a little help from my friends.
Bob
Jensen's gateway to millions of other blogs and social/professional networks ---
http://www.trinity.edu/rjensen/ListservRoles.htm
Bob
Jensen's Threads ---
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Jensen's Homepage ---
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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
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(closed down)
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environment where issues, questions, comments, ideas, etc. related to
accounting can be freely discussed. Members are welcome to take an
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a professional accountant in public accounting, private industry,
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Yahoo (Practitioners)
http://groups.yahoo.com/group/xyztalk
This forum is for CPAs to discuss the
activities of the AICPA. This can be anything from the CPA2BIZ portal
to the XYZ initiative or anything else that relates to the AICPA. |
AccountantsWorld
http://accountantsworld.com/forums/default.asp?scope=1
This site hosts various discussion groups on such topics as accounting
software, consulting, financial planning, fixed assets, payroll, human
resources, profit on the Internet, and taxation. |
Business Valuation Group
BusValGroup-subscribe@topica.com
This discussion group is headed by Randy Schostag
[RSchostag@BUSVALGROUP.COM] |
Concerns That Academic Accounting Research is Out of Touch With Reality
I think leading academic researchers avoid applied research for the
profession because making seminal and creative discoveries that
practitioners have not already discovered is enormously difficult.
Accounting academe is threatened by the
twin dangers of fossilization and scholasticism (of three types:
tedium, high tech, and radical chic)
From
http://www.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm
“Knowledge and competence increasingly developed out of the internal
dynamics of esoteric disciplines rather than within the context of
shared perceptions of public needs,” writes Bender. “This is not to
say that professionalized disciplines or the modern service
professions that imitated them became socially irresponsible. But
their contributions to society began to flow from their own
self-definitions rather than from a reciprocal engagement with
general public discourse.”
Now, there is a definite note of sadness in Bender’s narrative – as
there always tends to be in accounts
of the
shift from Gemeinschaft to
Gesellschaft. Yet it is also
clear that the transformation from civic to disciplinary
professionalism was necessary.
“The new disciplines offered relatively precise subject matter and
procedures,” Bender concedes, “at a time when both were greatly
confused. The new professionalism also promised guarantees of
competence — certification — in an era when criteria of intellectual
authority were vague and professional performance was unreliable.”
But in the epilogue to Intellect and Public Life,
Bender suggests that the process eventually went too far.
“The risk now is precisely the opposite,” he writes. “Academe is
threatened by the twin dangers of fossilization and scholasticism
(of three types: tedium, high tech, and radical chic).
The agenda for the next decade, at least as I see it, ought to be
the opening up of the disciplines, the ventilating of professional
communities that have come to share too much and that have become
too self-referential.”
What went wrong in accounting/accountics research?
How did academic accounting research become a pseudo science?
http://www.trinity.edu/rjensen/theory01.htm#WhatWentWrong
|
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November 30, 2012
Bob
Jensen's New Bookmarks November 1-30, 2012
Bob Jensen at
Trinity University
For
earlier editions of Fraud Updates go to
http://www.trinity.edu/rjensen/FraudUpdates.htm
For earlier editions of Tidbits go to
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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
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New Bookmarks ---
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Current and past editions of my newsletter called
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Current and past editions of my newsletter called
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http://www.trinity.edu/rjensen/Pictures.htm
All
my online pictures ---
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Directory ---
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and Rosie Wyman ---
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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
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
Center for Financial Services
Innovation ---
http://cfsinnovation.com/
"Guide to PCAOB Inspections," Center for Audit Quality, 2012 ---
http://www.thecaq.org/resources/pdfs/GuidetoPCAOBInspections.pdf
Note this has a good explanation of how the inspection process works.
PCAOB Inspection Report Database ---
http://pcaobus.org/inspections/reports/pages/default.aspx
Bob
Jensen's taxation helpers ---
http://www.trinity.edu/rjensen/Bookbob1.htm#010304Taxation
Humor Between November 1-30, 2012 ---
http://www.trinity.edu/rjensen/book12q4.htm#Humor113012
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
But having a
good idea is only the start. What you have to do is make it
into a story. Some people think that all they need in order to be a writer is
inspiration. Not a bit of it! Plenty of people have good ideas, but very few of
them
actually go on and write story. That's where the hard work starts.
Phillip Pullman, "How do Writers Think of
Their Ideas?"
Big Questions From Little People, Edited by Gemma Elwin Harris, Faber & Faber,
Ltd., ISBN 978-0-16-222322-7, 2012, Page 168
Also see the video at
http://www.openculture.com/2012/11/adam_savage_host_of_mythbusters_explains_how_simple_ideas_become_great_scientific_discoveries.html
Every today that is, and that will be, Is sculptured by all that was
Bob
Schlag - January 24, 1982
Thank
you Auntie Bev for the heads up
Question
Why are accounting professors and medical school professors likely to receive
higher compensation in the Academy?
Hint
The answer varies.
"Eating an Elite Education at McDonald's," by Jerry Dickens,
Chronicle
of Higher Education, November 7, 2012 ---
http://chronicle.com/article/Eating-an-Elite-Education-at/135578/
. . .
As I bite into my first Big Mac, all of that
resonates along with some intriguing and basic facts. I can readily obtain
the average salaries for academics at public universities across America. I
can categorize the salaries by field and university profile. I can
understand the metrics for pay in many cases. I can imagine why different
academics receive different salaries. I also can read my university's
extraordinary goals, lofty visions, and glossy brochures, filled with
crisply manufactured blurbs espousing greatness, several with exclamation
points. I can pull all the sticky tabs within this framework. I can even dig
deep into the garbage for more data.
However, no matter how one minces the patties, my
salary is significantly below average compared with those of commensurate
positions across public research universities, including in my state. Other
than a few good colleagues, who have assured me that they make slightly less
or slightly more than me, I have no direct information on how my salary
compares with other faculty members' pay at my university or other private
universities. What several of us know, however, is that we, at least in
earth science, make about 10 to 12 percent less than what's reported for
similar positions in our field at public universities.
Continued in article
Jensen Comment
I wonder if this article would've ever been written by an accounting professor
or a medical school professor at Rice?
I say this remembering that Emory recently dropped its Geology (Earth
Science) Program due to lack of majors to sustain advanced courses. In turn, the
program lacked majors due to a surplus of geology graduates at both the
undergraduate and graduate levels across the U.S.
I conclude that the article may well have been written by an accounting
professor or medical school professor even if they are on the high end of
compensation due to shortages of faculty to meet increase majors in those
programs. But for them it might be more of an academic exercise rather than
a total gut experience at McDonalds. You have to read the entire article to
really, really appreciate the McDonalds metaphor.
Question
Why do accounting professors and medical school professors probably make more
than geology professors on average for professors who are successful in research
and publication in their respective disciplines?
Answer
The answer varies after factoring out the necessary condition of having rising
student demand.
Medical school professors make more largely because they have so many
opportunities to make enormously higher salaries and benefits by going to work
in private practice.
Accounting professors make higher salaries because accounting Ph.D. programs
artificially restrain supply with length of time (over five years to graduate)
and by discouraging solid accountants from applying unless they are also
interested in becoming mathematicians and statisticians.
"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
Bob Jensen's threads on the sad state of accountancy doctoral programs in
North America ---
http://www.trinity.edu/rjensen/Theory01.htm#DoctoralPrograms
What a surprise. I thought she could gallop faster than the posse.
"U.S. Attorney: Ex-Dixon comptroller to plead guilty," Chicago Tribune, November
13, 2012 ---
http://www.chicagotribune.com/news/local/breaking/chi-us-atorney-exdixon-comptroller-to-plead-guilty-20121113,0,227018.story
Former Dixon comptroller Rita Crundwell plans to
plead guilty Wednesday to a federal fraud charge that alleges she siphoned
more than $53 million from the small northwestern Illinois city’s coffers,
according to the U.S. Attorney's office.
The office released a statement saying Crundwell
will change her plea to guilty at a hearing Wednesday morning before U.S.
District Judge Philip G. Reinhard in federal court in Rockford.
It was unclear from the release how Crundwell’s
guilty plea to the federal charge will impact separate state charges she
faces for the same wrongdoing. She also faces 60 counts of theft tied to her
alleged embezzlement from the city's accounts.
Crundwell is accused of stealing the money over two
decades and using it to sustain a lavish lifestyle and a nationally renowned
horse-breeding operation.
Federal authorities have auctioned off about 400
horses and a luxury motor home that Crundwell allegedly bought with the
stolen city funds. If Crundwell is convicted, much of the money will be
returned to Dixon – after the federal government takes its cut for caring
for the horses for months.
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
When you adopt the standards and the values of
someone else … you surrender your own integrity. You become, to the extent of
your surrender, less of a human being.
Eleanor Roosevelt (see below)
The following link would make an interesting debate, especially in the
context of Kant's Categorical Imperative---
http://en.wikipedia.org/wiki/Categorical_imperitive
It is of interest in accounting theory where we are confronted with
conformity (standards) issues that sometimes stand in the way of innovation and
utility maximization.
"Eleanor Roosevelt on Happiness, Conformity, and Integrity," by Maria Popova, Brain Pickings, November 16, 2012 ---
http://www.brainpickings.org/index.php/2012/11/16/eleanor-roosevelt-on-happiness-conformity-and-integrity/
"Holiday Gadget Wish List 2012," by Terri Eyden, AccountingWeb,
November 19, 2012 ---
http://www.accountingweb.com/article/holiday-gadget-wish-list-2012/220246?source=technology
This great item comes from
Roku and is
a new format for their streaming media device. Simply plug in the USB
stick to the HDMI port of your Roku Ready TV, and the self-powered unit
will allow access to numerous services.
Netflix,
Hulu Plus, and
Amazon Video (including prime video access) are all available, among
hundreds of other apps for streaming movies, music, news content, games,
and more. For the money, Roku's products give you more flexibility than
the equivalent
Apple TV line.
Another new "cut-the-cable" addition in the
streaming media category is the new version of the
Boxee TV box,
which for the first time offers a DVR function. This first-of-its-kind
service is currently boasting unlimited online storage for recorded
media from your antenna or cable. The service fee of $15 (currently
discounted at $10) is comparable to other
TiVo style services,
but the unlimited storage will be a tempting offer for many users who
would like to start cataloging their media online. It remains to be seen
how this offer holds up and what limitations exist to file access.
The most recent offering from Amazon, the
Kindle Paperwhite, is a great upgrade over the previous units.
Eliminating one of the few downfalls of their previous e-readers,
low-light reading, the new Paperwhite technology allows for low or no
light use. This front-lit screen gives the reader the ability to read in
complete darkness while maintaining the e-ink-enabled benefit of reading
for long periods with limited eye strain. Granted, some users may not be
prone to reading over long periods; this is a great product for readers
who seek to get lost in a good read.
If that's not your preference, Apple's
newest toy might suit you for a lower price than its previous tablets.
Still not matching the price of the
Kindle Fire HD (another new viable option in this category), the
iPad
mini takes a new shape to Apple's tablet line. Shrinking the 9.7
inch screen of previous iPads to 7.9 inches, Apple has answered a common
request for a smaller version of their market-dominating line.
Interestingly, the iPad mini is actually a smaller version of multiple
generations of the iPad that combines the display quality and processor
of the second gen, with the camera of the third/fourth gen iteration. As
such, the retina display is missing, but the mini is much lighter and
slimmer than previously available versions. Additionally, cellular
versions are available, giving flexibility to users on the go.
Though not a new product or a new
technology, the
LG Tone (HBS-700) Wireless Stereo Headset delivers on an idea that
many other brands seem unable to. A favorite around the
Xcentric office, this
would make an excellent gift for anyone looking for wireless flexibility
for both calls and music. Seemingly unconventional, the chosen design
circumvents common complaints with headsets of this kind. They will fit
on anybody, are comfortable, provide the needed control functions, and
are more durable than they seem at first glance. The sound quality while
listening to music won't cut it for an audiophile, but is more than
adequate for most users. Stereo ear buds for calling gives more sound
isolation than the standard Bluetooth headset, and the mic quality seems
to be on par with other headsets. For portable wireless listening on a
larger budget, the
Bose SoundLink® Bluetooth® Mobile
Speaker II was released in September and is an excellent
alternative.
The newly released
Chromebook is another intriguing product available in time for the
2012 holidays. This third gen lighter/smaller version comes with some
great features for a price point just above the Kindle Fire HD and lower
than all Apple tablets. It remains to be seen if Google is creating a
new category or if this line will fade away. However, the newest release
might be worth a look for certain users. Primarily a browser-based
system, the newest Chromebook does include HDMI, USB 3.0, USB 2.0,
Bluetooth, a webcam, and dual band Wi-Fi, while boasting 6.5 hours of
battery, all in a slim, lightweight package. Though primarily based on
using Google's services on the web, a Citrix plug-in is available to
access more complete Cloud services. I'd want to try this out to before
banking on it, but for the price tag, Google is clearly trying to break
into this market.
Other Mentions
Here are a few other great gift ideas:
Bob Jensen's threads on gadgets ---
http://www.trinity.edu/rjensen/Bookbob4.htm#Technology
Tax ---
http://en.wikipedia.org/wiki/Tax
"Tax Time: Why we pay," by Jill Lepore, The New Yorker,
November 26, 2012 ---
http://www.newyorker.com/reporting/2012/11/26/121126fa_fact_lepore
Bob Jensen's taxation helpers ---
http://www.trinity.edu/rjensen/Bookbob1.htm#010304Taxation
"Why using cash may not protect your privacy in the future–game theory,"
Mind
Your Decisions, November 11, 2012 ---
Click Here
http://mindyourdecisions.com/blog/2012/11/13/why-using-cash-may-not-protect-your-privacy-in-the-future-game-theory/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+mindyourdecisions+%28Mind+Your+Decisions%29&utm_content=Google+Reader
Jensen's Comment
This stretches the point to fit into a game theory context. For example, I use
cash in restaurants and gas stations. I figure that in those places the odds are
quite high of geting a credit card number stolen. Using cash protects my
privacy.
But I use a credit card for Amazon, but I do use a credit card with a
relatively low credit ceiling.
I think using cash protects my privacy except in places where I cannot do
business without a credit card such as for rental cars, hotels, 800 numbers
(Erika), and Amazon (me).
Oh my! Please don't shoot the messenger.
"Finance Execs Find XBRL Useless: The SEC and other regulators had
hoped for a wider use for XBRL than just financial reporting. But finance execs
can't see past the cumbersome filing," by Kathleen Hoffelder CFO.com,
November 21, 2012 ---
http://www3.cfo.com/article/2012/11/gaap-ifrs_sec-xbrl-general-motors-mccormick-company-johnson-johnson-financial-reporting
Jensen Comment
These are the clients that provide the XBRL markups. The survey will not be
complete until we also here from financial analysts and investors.
November 24, 2012 reply from Rick Lillie
Hi
Bob and AECM,
I
teach a Seminar in Accounting Information Systems class for our Master of
Science in Accountancy (MSA) program at Cal State San Bernardino. XBRL is
one of the topics explored during the course. I worked with Skip White to
develop the approach taken in the course and used Skip's XBRL workbook.
I
partnered with
I-Metrix,
a product offered EDGR,
to develop XBRL materials and research/analysis activities for the course.
I-Metrix allowed my students to use the "ActiveFinancials for Investors
software to analyze XBRL-based financial reports as one of the XBRL
activities. I-Metrix was absolutely amazing to work with.
I-Metrix
developed an Excel plug-in tool. You can develop analysis models in Excel
and then relate components of the analysis model to a company's financial
statements found through I-Metrix/EDGR. When a company's financial
information updates, I-Metrix automatically updates the analysis model(s) in
Excel.
From what I understand, the SEC is using something similar to this process
to analyze quarterly reports submitted by publicly-traded companies. The
SEC's analysis process that used to take a significant amount of time is now
completed much quicker, resulting in analysis information much more relevant
and timely.
To
acquaint students with XBRL-tagged financial information, I created a
team-based
"seek-and-find" XBRL project. The exercise included three sections.
·
Section #1
included 20 things to find regarding Microsoft 2011 and 2012 financial
information.
·
Section #2
included 5 additional pieces of information about Microsoft 2011 financial
information.
·
Section #3
required a comparative analysis of selected items for Apple Inc. (Y/E
9/25/11) and Microsoft Inc. (Y/E 6/30/11). Students were asked to build a
"Selective Data Comparison Table" based on information found in XBRL filings
by both companies.
By
the time the XBRL project was completed, class members had a reasonable
understanding regarding differences between traditional and XBRL-related
financial information. They also developed skills working with I-Metrix and
the EDGR financial statement database.
Below are some of the resources students used to learn about XBRL.
·
Introduction to I-Metrix (ActiveFinancials for Investors)
·
Financial
Analysis - Made Easy
·
Working with I-Metrix (EDGR Online)
·
XBRL Cloud: Dashboard of EDGR SEC Filings
Students really liked learning how to use XBRL and I-Metrix. I contacted I-Metrix
about being able to use the software in my next ACCT 625 class.
Unfortunately, I-Metrix said "no" to my request. They were disappointed
that my department had not purchased a subscription to I-Metrix.
My
department includes both Accounting and Finance. I tried to get support for
purchasing an I-Metrix subscription that could be used in both Accounting
and Finance courses. Unfortunately, faculty members in my department were
more interested in archival databases that fit their research models than
working with "live, interactive financial information."
I
attended Skip White's XBRL workshop at the AAA Annual Meeting a couple of
years ago. The workshop was an intense three-day experience.
After completing the workshop, I told Skip that I understood the benefit of
XBRL-tagged financial information; however, I felt that "hand tagging" of
data would be XBRL's "Achilles' heel" when it came to wide spread adoption
in accounting practice. I told Skip that in my opinion XBRL would not
"really take off" until accounting software companies include the XBRL
tagging process "behind the scenes" (i.e., tagging would happen
automatically as transactions and reports were processed). Once this can
happen, any company (large or small) should be able to generate financial
statements in both traditional and XBRL formats.
I
hope my comments have added to the conversation. I don't wear my heart on
my sleeve. I would appreciate your feedback comments regarding the XBRL
"seek-and-find" project.
Best wishes,
Rick Lillie
Rick Lillie, MAS, Ed.D., CPA, CGMA
Associate Professor of Accounting
Coordinator, Master of Science in Accountancy (MSA)
CSUSB, CBPA, Department of Accounting & Finance
5500 University Parkway, JB-547
San Bernardino, CA. 92407-2397
Email:
rlillie@csusb.edu
Telephone:
(909) 537-5726
Skype (Username): ricklillie
November 26, 2012 reply from Louis Matherne
Bob,
While there are tools available such as EDGAR Online, CSuite (XBRL US), and
many others, I’d suggest an alternate approach that may be more valuable
from an academic perspective – build your own.
There are two keys components to accessing XBRL data.
First, you need to consume the XBRL data you are interested into a
database. I’m using database generically here as there are a variety of
ways to hold the data but your plain vanilla relational database works
fine. This database can be setup to consume the XBRL data as provided by
the SEC as the SEC makes it available, which is very close to real time with
the filings, i.e., the registrant files and it is close to instantaneously
available. Now there are a variety of things you can do with this data once
you have it in a database structure. Data aggregators will typically add
additional metadata that they find useful and they will do some data
cleansing as the XBRL data as provided by filers contains errors.
Second, once you have this database in place you can search it using SQL
Query or link it directly into Excel and take advantage of pivot tables and
other XBRL functions to perform your analysis. Once these Excel templates
are setup you can refresh them simply by pushing a button.
I think both portions would make for a great research project for any
university with both an Accounting and IS College.
J. Louis Matherne
Chief of Taxonomy Development
Financial Accounting Standards Board
LMatherne@fasb.org
|
203-956-5229 |
www.fasb.org
Bob Jensen's threads on XBRL ---
http://www.trinity.edu/rjensen/XBRLandOLAP.htm
"Global Steel Industry Faces Capacity Glut," by John W. Miller, The
Wall Street Journal, November 27, 2012 ---
http://professional.wsj.com/article/SB10001424127887324595904578116761144046732.html?mod=ITP_marketplace_0&mg=reno-wsj
Jensen Comment
In the November 2019 issue of TAR (pp. 2181-2182) there's really interesting
review of a book by Ron Huefner that deals heavily on accounting for idle
capacity. Since TAR book reviews are free to the world, I quote the entire book
review by Dennis Campbell (Harvard) below.
Revenue Management: A Path to Increased Profits, by Ronald J. Huefner
(New York, NY: Business Expert Press, 2011, ISBN 13: 978-1-60649-141-6).
In reading Ronald Huefner's book, I could not help
but be reminded of my own experiences in teaching cost accounting and
management. Teaching materials and plans in this area inevitably revolve
heavily around concepts and techniques for allocating costs and measuring
the profitability of products, services, and customers, leaving
comparatively little time for the “so what?” questions. Once the measurement
is done, how should we use the information to improve profitability?
Without a systematic framework, this part of the
discussion can quickly become a generic exercise in developing a “laundry
list” of broad approaches—such as discount pricing for large and predictable
orders, preferential pricing for “strategic” customers, and even the
wholesale “firing” of customers—with little in the way of prescription for
how to choose among these approaches, let alone facilitate their
implementation. These approaches are all variants of differential pricing,
and Huefner's book reminds us that the field of revenue management provides
the appropriate systematic framework for making these choices optimally. In
doing so, the book makes a strong case for the need to better integrate cost
and revenue management processes within organizations.
Huefner's target audience is practitioners, and the
book seems to be particularly aimed at accounting and financial managers.
Perhaps appropriately, given this target audience, the book is written at a
relatively high level and focuses on providing a general introduction to
revenue management applications and techniques as well as methods for
measuring and monitoring their efficacy. The “30,000 foot” view taken in the
book, however, presents both strengths and weaknesses. On the one hand, it
makes the topic of revenue management in all its various forms accessible at
an introductory level. On the other, it allows little in the way of detailed
guidance for developing or implementing revenue management practices within
organizations.
It is, of course, difficult to accomplish both
tasks in one book. Huefner's focus on the former makes the book most
appropriate for financial and accounting managers who need a general
introduction to the topic of revenue management. It may also be useful for
marketing and operations managers who need a general introduction to cost
accounting concepts that can be utilized to evaluate and ensure the
profitability of revenue management processes.
The first two chapters highlight the importance of
revenue management as a field and provide a brief historical overview of its
origins in airlines, along with its subsequent development and application
in a variety of other service industries. Chapter 2 provides a particularly
useful overview of industry- and firm-level characteristics that give rise
to the demand for revenue management, including the presence of fixed and
perishable capacity (e.g., airline seats, hotel rooms), high fixed costs,
and uncertain but predictable demand patterns.
Chapters 3–6 focus on the integration of revenue
management with various cost measurement and analysis techniques, ranging
from contribution margin and capacity analysis to opportunity costs and the
theory of constraints. Huefner provides a strong case in this section for
the role of cost systems in ensuring the success of revenue management
efforts. In drawing a much-needed link between cost and revenue management
techniques, this is perhaps the strongest portion of the book. However,
given the target audience of finance and accounting managers who are likely
to understand cost accounting concepts comparatively well, these chapters
tilt too heavily toward cost measurement rather than revenue management.
This is most notable in Chapter 5, where Huefner provides a very good, and
relatively detailed, overview of the