New Bookmarks
Year 2013 Quarter 1:  January 1 - March 31 Additions to Bob Jensen's Bookmarks
Bob Jensen at Trinity University

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

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

Choose a Date Below for Additions to the Bookmarks File

March 31, 2013 

February 28, 2013

January 31, 2013 

March 31, 2013

Bob Jensen's New Bookmarks March 1-31, 2013
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/

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

Today’s FBI: Facts and Figures 2013-2014—which provides an in-depth look at the FBI and its operations—is now available ---
http://www.fbi.gov/stats-services/publications/todays-fbi-facts-figures/facts-and-figures-031413.pdf/view

AICPA Fraud Resource Center --- Click Here
http://www.aicpa.org/INTERESTAREAS/FORENSICANDVALUATION/RESOURCES/FRAUDPREVENTIONDETECTIONRESPONSE/Pages/fraud-prevention-detection-response.aspx

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

Humor Between March 1-31, 2013 --- http://www.trinity.edu/rjensen/book13q1.htm#Humor033113

Humor Between February 1-28, 2013 --- http://www.trinity.edu/rjensen/book13q1.htm#Humor022813

Humor Between January 1-31, 2013 --- http://www.trinity.edu/rjensen/book13q1.htm#Humor013113

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

The Wall Street Journal increased the billing rate for me to $26 per month. This is reasonable considering that this thick thing is delivered to my mailbox six days each week.

However, if I choose only the digital electronic version with no hard copy delivery, I only save $4 per month --- which is now a bummer price, especially for students.

However, there is a simple way to read very current articles in the WSJ electronically for free using Google Advanced Search using the "All the words" search box ---
http://www.google.com/advanced_search .
Instructions are given at
http://www.businessinsider.com/how-to-read-the-wsj-for-free-online-2009-6
Thank you Chris Nolan for the heads up.

Those of you who have access to your campus library electronic databases can probably access archived WSJ articles using database subscriptions paid for by your college or university.

The New York Times has a different free-access policy. I think you get something like 15 articles free per month. However, for me this seems to increase if I change Web browsers --- say from Firefox to Internet Explorer. Please don't ask me why this works or if it is totally ethical.

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

Is Bob Jensen a hypocrite?
I feel like a hypocrite since from the first year in my first faculty appointment I had at least one less course assignment than my colleagues --- teaching two courses per term instead of three or even four like the people up and down the hall were teaching. And I was the highest paid faculty member on the floor in each of the four universities where I had faculty appointments. Forty years later I was teaching the same light loads as well as during all 38 years in between except for the various semesters I got full pay for teaching no courses due to sabbatical leaves and two years in a think tank at Stanford University.

Now I sympathize with arguments that those other faculty (and me) really should have been teaching more across the entire 40 years. I can hear some of you saying:  "That's easy for you to say now --- while you are sitting with a eastward view of three mountain ranges and teaching not one course."

The race to teach less has not served us well, and student-to-faculty ratios were driven more by U.S. News & World Report's [annual rankings] than by rigor," [Gene Nichol (North Carolina)] said. "Professors don't teach enough. The notion that [teaching more] would cripple scholarship is not true and we know it. ...
Tax Prof Blog, March 14, 2013 --- http://taxprof.typepad.com/

Law Schools are cutting expenses in expectation of smaller class sizes. While most can't think of cutting tuition in this environment, the actions they take during the next few years could determine whether legal education moves toward a more affordable future. ...

"The race to teach less has not served us well, and student-to-faculty ratios were driven more by U.S. News & World Report's [annual rankings] than by rigor," [Gene Nichol (North Carolina)] said. "Professors don't teach enough. The notion that [teaching more] would cripple scholarship is not true and we know it." ...

[T]he primary problem facing most law schools is what to do with all the faculty they have on staff. ... "Laying off untenured [faculty] would be very destructive," [Brian Tamanaha (Washington U.)] said. "They are teaching important skills and valuable classes."

Tamanaha said the better option is to offer buyouts to tenured professors. "We will see schools offer separation packages -- one or two year's compensation if you go now," he said. "The only people interested in a buyout would be people with sufficient retirement funds or professors with practices on the side." Vermont Law School and Penn State University Dickinson School of Law have discussed similar steps. ...

Brian Leiter, a law professor at the University of Chicago Law School who runs a blog on legal education, has predicted that as many as 10 law schools will go out of business during the next decade.

Rather than face closure, law schools could take more drastic steps -- even overcoming tenure. When Hurricane Katrina devastated New Orleans, Tulane University declared financial exigency and eliminated entire departments -- terminating tenured professors. The same action has happened at other universities faced with economic hardships.

"If you say this is a tsunami of a different kind -- the 100 year flood -- then a dean could let go of faculty," another law professor said. For example, a school could choose to eliminate nonessential specialties, such as a tax law program, and terminate most faculty in those areas.

In addition to eliminating tenured positions, a dean could reduce salaries out of financial necessity. "Schools under severe financial pressure may be faced with an even starker option -- closing their doors," Tamanaha said. ...

Nichol said all law schools should reconsider their current salary structures, and not just schools in the worst economic position. "In the same way that the market for graduates is adjusting, it would not be absurd for our salaries to adjust as well," he said. "I don't see why our leave packages should be more generous than other parts of the campus. We will have to fix that now before we forced to."

Nichol said schools should consider eliminating sabbaticals, trimming travel and reducing summer research grants. "Every school needs to look line by line for where it can cut costs," [David Yellen (Dean, Loyola-Chicago)] said. Faculty travel, conferences and other things can add up to a couple of professors salaries."

Jensen Comment
And I darn well "know it." I think I do all this free academic blogging in large measure out of guilt. I need to give something back!

Franco Modigliani --- http://en.wikipedia.org/wiki/Franco_Modigliani
Trinity University has a program for bringing all possible former Nobel Prize winning economists. In an auditorium they were not to discuss technicalities of their work as much as they were to summarize their lives leading up to their high achievements. One of the most inspiring presentations I can remember was that of Franco Modigliani.

What I remember most is that he asserted that some of his most productive years of research and scholarship came during the years he was teaching five different courses on two different campuses.

The Academy increasingly coddled researchers with more pay, large expense funds, the highest salaries on campus, and lighter teaching loads. I'm not certain that they, me included, were not coddled far too much relative to the the value of the sum total of their (including my) work. I think not! The sum total may have been as high or higher if they were teaching four courses per term (maybe not five).

Bob Jensen

Bob Jensen's threads on higher education controversies ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm

Reply from Jagdish Gangolly

Bob,

You are not alone. A colleague of mine at Albany, a mathematician in the Management Sciences department, who taught mathematics at Brown before coming to Albany was saying the same thing. He was most productive when he taught heavy loads.

Teaching and writing are probably the most demanding of intellectual tasks (unless of course you are resigned to teaching because you must). Even research nowadays is, thanks to statistical packages and abundant databases, by comparison a mundane task.

I was not as lucky as you were; I taught the usual 2 courses each semester except for the sabbaticals. But one semester I taught five courses, by happenstance. Two masters courses in accounting (an auditing and an AIS course), two doctoral seminars in (Knowledge Organization and in Statistical Natural Language Processing) Information Science, all at SUNY Albany, and an MBA management accounting course at Rensselaer Polytechnic Institute. And, strange as it may seem, that was my most productive year in research. I have never been as ready for summer in my life as at the end of that semester.

Regards,

Jagdish

For me the March 2013 edition of TAR is another accountics science yawn.

One article, however, struck my eye as being worthy of debate on the AECM.

If I'm asked to criticize an analytical model TAR publication, my knee jerk reaction before I've even read the article is to go for the unrealistic underlying assumptions that are valid only in Plato's Cave. I provide what I consider to be a great illustration at
 http://www.trinity.edu/rjensen/TheoryTAR.htm#Analytics

The following article illustrates how we can go after unrealistic underlying assumptions in Plato's Cave for empirical publications as well.

My bottom line conclusion is that we should evaluate empirical accountics science studies the same way we evaluate analytical modeling accountics science studies. Go after the controversial underlying assumptions before going after the other weak spots such as missing variables, missing data, use of students as surrogates for real world decision makers, failing to contact real world players such as auditors or financial analysts, multicollinearity, heteroscedasticity, non-normal distributions, etc.

"The Contagion Effect of Low-Quality Audits, by  Jere R. Francis and Paul N. Michas, The Accounting Review, March 2013 ---
http://aaajournals.org/doi/full/10.2308/accr-50322

ABSTRACT :

We investigate if the existence of low-quality audits in an auditor office indicates the presence of a “contagion effect” on the quality of other (concurrent) audits conducted by the office. A low-quality audit is defined as the presence of one or more clients with overstated earnings that were subsequently corrected by a downward restatement. We document that the quality of audited earnings (abnormal accruals) is lower for clients in these office-years (when the misreporting occurred) compared to a control sample of office-years with no restatements. This effect lasts for up to five subsequent years, indicating that audit firms do not immediately rectify the problems that caused contagion. We also find that an office-year with client misreporting is likely to have subsequent (new) client restatements over the next five fiscal years. Overall, the evidence suggests that certain auditor offices have systematic audit-quality problems and that these problems persist over time.

Jensen Comment
How valid is it to define a low-quality audit as "presence of one or more clients with overstated earnings that were subsequently corrected by a downward restatement/"

Firstly, we might find some even lower-quality audits that had corrected upward restatements of earnings.

Secondly, how justified are the authors in assuming  subsequent downward restatements are caused or even correlated with low-quality audits? Restatements are caused by many factors, only one of which might be a low quality audit. If there was a high correlation with only low quality audits it would seem to me that audit firms would be hauled into class action lawsuits most every time earnings numbers have to be restated downward.

A low-quality audit is a defined on the basis of many factors that the PCAOB is trying to get a handle in their revealing audit inspections. For example, some of the worst audits may not have entailed earnings restatements. The poor quality may simply have been what the PCAOB considers unjustified cost cutting in in detail testing and/or weak supervision of neophyte auditors. The fact that such factors did not entail downward earning revisions may be a matter of luck or as, yet, undetected errors in the earning numbers.

My bottom line conclusion is that we should evaluate empirical accountics science studies the same way we evaluate analytical modeling accountics science studies. Go after the controversial underlying assumptions before going after the other weak spots such as missing variables, missing data, use of students as surrogates for real world decision makers, failing to contact real world players such as auditors or financial analysts, multicollinearity, heteroscedasticity, non-normal distributions, etc.

"5 Dumbest Things on Wall Street This Week: March 22, 2013, The Street ---
http://www.thestreet.com/story/11876599/1/5-dumbest-things-on-wall-street-this-week-march-22.html?kval=dontmiss

1 (To Bob Jensen Cyprus is beginning to sound like the mouse that roared)
By the time you finish this sentence the nation of Cyprus may be solvent or insolvent, in or out of the European Union or possibly even reborn as Vladimir Putin's private island getaway. The situation is still too fluid for us to predict.

2 (Auditors only stick with managements they don't trust if the clients are too big to lose)
Maxwell Storage, the energy storage device maker announced the resignation of its public accounting firm McGladrey LLP in an SEC filing Tuesday. In its farewell letter to Maxwell's audit committee, McGladrey confirmed "it could no longer rely on management's representations," nor the "information obtained directly from certain third parties." Maxwell added it will be forced to delay the reporting of its 2012 financials while it looks for an accountant to replace McGladrey. Shares of the company sank 14% to $6.40 on the news.

3 (As Bob Jensen understands it these tights are no problem doing yoga as long as you don't bend over)
Give us some credit Dumbest fans. Did you really think we would forget about the sheer madness this week at Lululemon (LULU)? The athletic-apparel purveyor announced Monday it was recalling shipments of women's yoga pants with an unacceptably high "level of sheerness" from its stores. And while Lulu says it plans to see the problem through, the company admitted the issue will indeed impact its bottom line. Shares of the company got pantsed on the news, dropping 3% to $64 on Tuesday.

4 (How could any megabanks survive without "flawed risk models?"
Ina Drew, the former head of the "London Whale" trading unit at JPMorgan Chase (JPM), blamed a "flawed" risk model and "deceptive" traders for the massive $6 billion loss at the bank in her prepared testimony last Friday before the Senate Permanent Subcommitee on Investigations. Drew resigned from her position of chief investment officer in May 2012 as a result of the scandal

5 (Since when is overstating revenue a big deal. Federal and state governments do it all the time with smoke and mirrors.)
Great Lakes Dredge & Dock revealed it overstated second-quarter revenue by $3.9 million and third-quarter revenue by $4.3 million. It also said it will review $5.6 million in questionable fourth-quarter sales.

"FASB Rolls Out More XBRL Implementation Guidance," by Tammy Whitehouse, Compliance Week, March 22, 2013 ---
http://www.complianceweek.com/fasb-rolls-out-more-xbrl-implementation-guidance/article/285581/

The Financial Accounting Standards Board has issued some new guidance on XBRL intended to further refine how preparers use the U.S. GAAP Financial Reporting Taxonomy to submit their financial statements in the XBRL format.

FASB added three new pieces to its upstart series of implementation guides -- one focused on segment reporting and two more focused specifically on the insurance sector. The segment reporting guide demonstrates the modeling that FASB has in mind for disclosures related to segment reporting.

The modeling is completed using elements in the taxonomy, focusing on detail tagging only. It provides eight separate examples of common segment reporting disclosures, such as significant items of required segment information, reconciliation of segment revenue, and reconciliation of segment profit or loss. Further examples go into greater detail related to various common segment scenarios.

As with other guides in the series, FASB says the segment reporting examples are not intended to cover every possible modeling configuration or to dictate the appearance or structure of a company's extension taxonomy. The examples are only meant to help users of the taxonomy understand how the modeling for segment reporting is structured within the taxonomy, with the hope that it will drive more consistent use of the taxonomy to produce more consistent, comparable financial reporting data. The guide does not include elements for text blocks, policy text blocks, or table blocks. 

For the insurance sector, one guide focuses on the modeling of disclosures related to concentration of credit risk, as in ceded credit risk with a single credit rating, multiple credit ratings, and those that appear in more the one table. Another insurance guide focuses on disclosures related to reinsurance, providing a model for disclosing risk management objectives and retention policies, effects of reinsurance, and the supplemental schedule of reinsurance arrangements, although it does not cover concentrations of credit risk resulting from reinsurance.

Continued in article

Jensen Comment
There's a photograph of the AECM's Louis Matherne who is spearheading XBRL for the FASB. Thanks much Louis for greasing the wheels of implementation.

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

The top 51 undergraduate business schools according to Bloomberg Business Week (Slide Show) ---
http://images.businessweek.com/slideshows/2013-03-20/best-undergraduate-business-schools-2013#slide1
Notre Dame may be Number 2 in football, but it is Number 1 in undergraduate business studies according to Business Week.

Note the links on the left side for such things as explanations of how the schools were ranked and the history of such rankings.

Bob Jensen's threads on ranking controversies ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm#BusinessSchoolRankings

"The Value of a Good Visual: Immediacy," by Bill Franks, Harvard Business Review Blog, March 21, 2013 ---
 http://blogs.hbr.org/cs/2013/03/the_value_of_a_good_visual_imm.html

Visualization of Multivariate Data (including faces) ---
http://www.trinity.edu/rjensen/352wpvisual/000datavisualization.htm 

"How Deferred Tax Accounting Blunts Government-Provided Incentives to Invest in Renewable Energy," by Tom Selling, The Accounting Onion, March 18, 2013 ---
http://accountingonion.com/2013/03/how-deferred-tax-accounting-blunts-government-provided-incentives-to-invest.html

Jensen Comment
Tom's arguments are pretty good on this one except that he does not tell us how failing to allocate tax deferrals possibly inflates early-on annual reported ROI to levels (say 40%) much higher than the asset is capable of generating (15%) the entire economic life of an asset.

The Case Where the Asset is Sold in Year 6
The essence of Tom's argument is a familiar one in deferred tax theory. Companies taking advantage of accelerated depreciation on tax returns without inter-period tax deferral allocation can have very high albeit rapidly declining after-tax book earnings because of reporting tax deferrals as income in the early years. Inter-period allocation of tax deferrals reduces early-on earnings but adds stability to booked earnings patterns that are low at first but steadily rising. In Tom's illustration the two earnings patterns cross at about 5.5 years for a 20-year asset. In Years 6-20 inter-period tax allocation book earnings are slightly higher than if there is no inter-period tax asset deferral.

Tom's argument is that the after-tax book earnings pattern in Years 1-5 make the solar panel investment look worse than if there is inter-period tax allocation. If the asset is sold after Year 5 after it no longer gets tax breaks then perhaps being required to make inter-period allocations discourages, as Tom argues, investments in the asset at Time Zero. We cannot evaluate returns over the entire five years without knowing the sales price of the asset in Year 5.

Overstating Annual ROI in the Early Years:  The Case Where The Asset is Held for 20 Years
If the asset has a steady annual cash flow of 15% IRR before taxes this cash flow correlates highly with the steady annual book earnings after taxes with inter-period tax allocation. Tom instead advocates no inter-period allocation such that the reported after-tax book earnings are much less correlated with the steady annual cash flows before taxes due primarily due to reporting nearly all nearly all the accelerated tax depreciation breaks in the very early years instead of spreading them over 20 years.

The bottom line is that annual Return on Investment (ROI) based on after-tax earnings without inter-period deferred tax allocation looks much higher than ROI with inter-period allocation in the early years. This makes the company look much better in Years 1-5 which in theory will lower its cost of capital. For example if the Company reports a ROI of 40% in Year 1 when at best it can only generate 15% over the next 20 years, haven't we misled investors just a bit?

In other words a company that is only capable of generating returns of 15% gets to report much higher ROI returns in the early years without inter-period tax allocation.

Of course my criticism must be modified by adding returns to deferred tax cash flows in the early years. Nether Tom nor I have added returns generated on the tax deferrals to the 15% IRR before taxes.

I might also add that IRR is nearly always a controversial criterion for investment decisions. For example, Tom's illustration generates an before-tax IRR of 15% over the 20-year life of the solar array. If the cash flows coming in each year cannot be re-invested for 15% in other investments then the IRR is not really 15%. The ex-post IRR depends upon re-investment alternatives faced by this company over the entire 20 years.

For example, a company having only one cash flow at the end of 20 years that has a 15% IRR differs greatly from one that has an annuitized 15% per year for 20 years since the 15% IRR can be obtained only if annual cash flows are reinvested for 15% each and every year.

Billy Joe "Red" McCombs --- http://en.wikipedia.org/wiki/Red_McCombs

McCombs School of Business at the University of Texas --- http://en.wikipedia.org/wiki/McCombs_School_of_Business

David Woods ---

The Woods tax shelter was promoted by Big Four accounting firm Ernst & Young, according to court documents.

"Supreme Court to weigh IRS penalties on alleged tax dodges," by Patrick Temple-West, Reuters, March 26, 2013 ---
http://newsandinsight.thomsonreuters.com/Legal/News/2013/03_-_March/Supreme_Court_to_weigh_IRS_penalties_on_alleged_tax_dodges/

The  Internal Revenue Service's practice of slapping steep, 40 percent penalties on participants in certain alleged tax shelters will soon come to trial before the Supreme Court.

Though it rarely hears tax matters, the court has decided to weigh in on a case involving Texas billionaire Billy Joe "Red" McCombs, a former owner of professional sports teams.

The court's decision, not expected until June 2014, will likely have implications beyond McCombs' case, tax lawyers said.

Oral arguments will be scheduled when the high court's next term begins in October.

The Obama administration's solicitor general is arguing that "hundreds of millions of dollars" in tax penalties are hanging in the balance, according to court filings. However, the decision will only apply to cases brought prior to 2010.

The case being taken up by the court involves a 1999 transaction undertaken by McCombs and his business partner, Gary Woods. The government contends it had no purpose other than tax avoidance. The transaction was known as "current options bring reward alternatives," or COBRA.

According to the government, Woods and McCombs bought and sold options on foreign currencies to generate paper losses used to offset gains chiefly related to McCombs's sports ventures.

The IRS initially applied a 40-percent penalty on the unpaid taxes that the agency said were owed, but the 5th U.S. Circuit Court of Appeals in New Orleans ruled in 2012 that the 40-percent penalty did not apply in the Woods case.

Woods is already subject to a 20 percent tax penalty on COBRA and the Supreme Court need not step in, Woods's lawyer has argued in court filings.

The lawyer representing Woods did not respond to requests for comment. Calls to San Antonio-based McCombs Partners, an investment management business which lists both Red McCombs and Gary Woods on its website, were not returned.

The IRS did not comment.

The government is arguing Woods and McCombs claimed more than $45 million in losses in 1999, from transactions that cost them only $1.37 million.

The COBRA strategy has drawn attention beyond the Woods case. COBRA was among a number of alleged tax shelter strategies subject to an IRS crackdown a decade ago.

Congress in 2010 passed the Health Care and Education Reconciliation Act, which slapped a 40-percent penalty on transactions such as COBRA. The penalty was to apply to taxpayers found by the IRS to have made "gross valuation misstatements" on their tax filings.

With Congress ensuring that transactions like COBRA cannot escape the 40-percent penalty, a government win in the Woods case "won't have much impact on the future," said Andrew Roberson, a partner with law firm McDermott Will & Emery LLP.

For pre-2010 cases still in limbo, "it's obviously important for the IRS to get a win at the highest level," he said.

The Woods tax shelter was promoted by Big Four accounting firm Ernst & Young, according to court documents. This month, Ernst agreed to a $123 million settlement to resolve a federal investigation into tax shelters it promoted.

The case is United States v Woods No. 12-562
http://www.supremecourt.gov/Search.aspx?FileName=/docketfiles/12-562.htm

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

Updates from the Smartest Person on the Planet:  An Algorithm for Everything (well almost everything)

Jensen Comment
The Wolfram Alpha computational search engine in my viewpoint is one of the top ten computing advances of all time ---
http://www.trinity.edu/rjensen/Searchh.htm#WolframAlpha

"Stephen Wolfram Says He Has An Algorithm For Everything — Literally," by Mark Hachman, ReadWriteWeb, March 11, 2013 ---
http://readwrite.com/2013/03/11/stephen-wolfram-has-an-algorithm-for-everything-literally

Stephen Wolfram believes that we may have already discovered the fundamental Unified Theory of Physics, and that he may able to write it down via a language that his company, Wolfram Alpha, has developed.

That's just the beginning for the man some believe to be the smartest person on the planet. Wolfram also plans to extend the power of computations to messier subjects, revolutionizing everything from law to medicine.

Best In Show At SWSW?

At his talk Monday at the SXSW conference in Austin, Texas (Stephen Wolfram: The Computational Future, #wolffuture), Wolfram revealed that he

• Is working on an augmented reality version of his Wolfram Alpha "computational engine."
• Has plans to place the pioneering mathematics program Mathematica in the cloud (and make it accessible via iPhones).

Wolfram plans to more closely tie Mathematica to other data sources to simulate the interaction of complex machinery. The idea is to be able to answer questions like: "Would an SU-48 Flanker fighter jet be able to fly within the atmosphere of Mars?"

He will do all this, he told attendees, by opening up the fundamental language that his company created — one he calls, with characteristic modesty, the Wolfram Language — to the world at large. Eventually, he added, we'll probably use the Wolfram Language to unify all of physics, too.

Smartest Person On The Planet?

Wolfram won the award for Speaker of the Event at the 2012 SXSW conference, and he seems ready to contend for the crown again. There's no disputing his smarts — this is, after all, a guy who dropped out of Oxford at age 17 only to earn a doctorate in particle physics from Caltech three years later. But at this stage in his career, Wolfram seems obsessed with accumulating, picking apart and then weaving together disparate sources of data, such as basic rules that can be used to achieve complex results.

Continued in article

"Richard Feynman on the Universal Responsibility of Scientists," by Maria Popover, Brain Pickings, March 6, 2013 ---
http://www.brainpickings.org/index.php/2013/03/06/richard-feynman-responsibility-of-scientists/

. . .

It is our responsibility as scientists, knowing the great progress and great value of a satisfactory philosophy of ignorance, the great progress that is the fruit of freedom of thought, to proclaim the value of this freedom, to teach how doubt is not to be feared but welcomed and discussed, and to demand this freedom as our duty to all coming generations.

Jensen Comment
Are accountics scientists living up to their responsibilities?
 

In many ways they are living up to their responsibilities, but in some ways they are failing badly relative to the real scientists, especially the "welcomed and discussed part."
http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm

Education: Federal Reserve Bank of Kansas City ---  http://www.kansascityfed.org/education/
Note the Financial Fables section --- http://www.kansascityfed.org/education/fables/index.cfm

Bob Jensen's threads on financial literacy ---
http://www.trinity.edu/rjensen/Bookbob1.htm#InvestmentHelpers

Thunderbird School of Global Management --- http://en.wikipedia.org/wiki/Thunderbird_School_of_Global_Management

. . .

Originally unique, Thunderbird began to encounter direct competition from other international business programs in the 1980s. In response the school's marketing literature emphasized the "Thunderbird mystique" (referring to the school's tripartite curriculum and formidable alumni network) and "a difference of degree" (the MIM over the traditional MBA). By the 2000s, however, most business schools had acquired a global focus. Thunderbird, surrendering to the trend, converted its flagship degree into an MBA in International (later Global) Management.

The 1990s and 2000s brought financial upheaval as MBA programs in general fell out of favor during the internet bubble, and foreign student enrollment plummeted after 9-11. Faculty cuts occurred in 2001 and 2004; student enrollment dropped to a low of 700 in 2003, down from an average of 1,500 during the 1990s. Speculation to the effect that the school would close, or be taken over by another institution, was rife.[12] In 2004, an unprecedented pledge of $60 million (by alumnus Sam Garvin and his wife Rita) seemed to forestall these possibilities, and the name of the school was accordingly changed to "the Garvin School of International Management"--a change reverted when Garvin, who objected to plans to apply the funds to the school's operating deficits, reneged on his donation.

In 1994, the AACSB reversed a longstanding policy which made "mixed" programs such as Thunderbird's ineligible for accreditation. Thunderbird's was the first such program to be thus accredited.

During the 1990s, the school began publishing the Thunderbird International Business Review, a bimonthly academic journal.^[13]

Since 2004, Thunderbird sponsored "Project Artemis," aimed at developing entrepreneurial skills among Afghan women. In addition, partnerships with investment bank Goldman Sachs, the InterAmerican Development Bank, the U.S. Dept. of State, mining company Freeport McMoRan and the Australian Government helped Thunderbird train hundreds of women entrepreneurs in Pakistan, Jordan, and Latin America.

In August 2004, Angel Cabrera, former dean of IE Business School in Madrid, Spain, became the youngest (and first foreign-born) president of the School, succeeding Roy A. Herberger, Jr. Under his leadership the School underwent a major operational and financial restructuring and launched various new programs. However, efforts to diversify revenue sources increased costs faster than revenues. Cabrera stepped down in 2012, to be succeeded briefly by former U.S. Ambassador Barbara Barrett (as interim president, for about six months), then by Larry Edward Penley (served 2012-present), previously president of Colorado State University.

In 2013, Thunderbird announced a partnership with Laureate Education, Inc., a commercial education company that operates programs in 29 countries (including the University of Liverpool's online MBA program)

 

Jensen Questions
When do you stop calling  Thunderbird University a not-for-profit school?

To my knowledge the AACSB has never accredited a for-profit undergraduate or MBA program. To what extent will the AACSB allow partnering with for-profit programs in the future?

"Thunderbird Joins With For-Profit to Offer New Programs," by Louis Lavelle, Bloomberg Businessweek, March 18, 2013 ---
http://www.businessweek.com/articles/2013-03-18/thunderbird-joins-with-for-profit-to-offer-new-programs

In an unusual partnership, Thunderbird School of Global Management today announced it is forming a partnership with a for-profit educational provider, Laureate Education, to offer educational programs around the world.

Thunderbird, in Glendale, Ariz., offers graduate business degrees, including its flagship global MBA, as well as online programs and nondegree executive education programs. Laureate Education, in Baltimore, serves more than 750,000 students through campus-based and online programs in 29 countries.

While the terms of the deal are still being hammered out, Thunderbird says the two institutions will create a jointly owned entity that will open instructional sites in a number of international locations. Among those being considered are Madrid, Paris, Santiago, Chile, and São Paulo, Brazil.

The partnership, which is expected to be finalized in June, will allow Thunderbird to expand its online and executive education offering and to offer an undergraduate business program for the first time in more than 50 years. Thunderbird said it will continue to operate as a private, not-for-profit educational institution and retain control of its curriculum, faculty, and admission standards.

Larry Edward Penley, Thunderbird’s president, says Laureate has 200,000 students studying business around the world, and 30,000 would qualify for admission to Thunderbird. The partnership gives Thunderbird the ability to recruit those students and expand enrollment in Arizona. He expects total enrollment will triple in five years, to more than 3,000 students. He also expects the 50/50 partnership to generate enough cash flow to allow Thunderbird to expand faculty and facilities to make that possible.

“We believe there will be profits that we can reinvest in Thunderbird,” Penley says. “It will allow us to hire faculty, improve facilities, and start new programs.”

Continued in article

Additional Jensen Questions
If the Thunderbird campus carries on some for-profit activities on campus such as admitting students for Laureate Education and providing online instructors will local jurisdictions continue to grant full property tax exemption?

To what extent can Thunderbird participate in for-profit courses and global profit sharing with Laureate and still  retain its tax-exempt status for state and Federal income taxes?

In particular, if Laureate itself pays no USA income taxes, to what extent can Thunderbird declare shared profits are tax exempt in the USA?

"Tax Professionals Will Continue To Be in Great Demand for Years," by Frank Byrt, AccountingWeb, March 3, 2013 ---
http://www.accountingweb.com/article/tax-professionals-will-continue-be-great-demand-years/221256?source=education

Added Jensen Comment
An early precursor of the concept of "counterfactual reasoning" is "functional fixation"

Accounting History Trivia
What accounting professors coined the phrase "functional fixation in accounting" in 1966 and in what particular accounting context?

Hint 1
Two of the three authors were my Ph.D. program advisors at Stanford University years ago.

Hint 2
Bob Ashton did some cognitive experimentation of functional fixation that was published in the Journal of Accounting Research a decade later in 1976.

Answer
Y. Ijiri, R.K. Jaedicke and K.E. Knight, "The Effects of Accounting Alternatives on Management Decisions," in R.K. Jaedicke, Y. Ijiri and 0. Nelson (Eds.), Research in Accounting Measurement , American Accounting Association, 1966, pp. 18

"Cognitive characteristics and the perceived importance of information," by by JD Dermer, October 1972, Library of MIT ---
http://dspace.mit.edu/bitstream/handle/1721.1/47056/cognitivecharact00derm.pdf?sequence=1

Recently, several accounting studies have made use of concepts and relationships from the field of cognitive psychology. For example, Ijiri, Jaedicke and Knight employed the notion of functional fixation to describe an individual's adaptiveness to a change in accounting process. Similarly, Livingstone referred to learning sets in explaining why some 2 utilities were slow in adjusting to accounting changes. In addition, Revsine employed the conceptual abstractness construct to speculate on its possible moderating effects in an experimental situation, and on its significance with respect to information overload. Yet, despite this interest in relationships between cognitive factors and information usage, little empirical study has been done of the role that cognitive factors may play in accounting.

Below is a recent article describing "functional fixedness."
"Rename It, Reuse It," by Amy Mayer, Everyday Einstein, March 14, 2013 ---
http://everydayeinstein.quickanddirtytips.com/rename-it-reuse-it.aspx

To become more inventive, new research suggests, we should start thinking about common items in terms of their component parts, decoupling their names from their uses.

When we think of an object (a candle, say) we tend to think of its name, appearance, and purpose all at once. We have expectations about how the candle works and what we can do with it. Psychologists call this rigid thinking "functional fixedness."

Tony McCaffrey, a postdoctoral researcher at the University of Massachusetts Amherst, developed a two-step "generic parts technique," which trains people to overcome functional fixedness. First, break down the items at hand into their basic parts, then name each part in a way that does not imply meaning. Using his technique, a candle becomes wax and string. Seeing the wick as a string is key: calling it a "wick" implies that its use is to be lit, but calling it a "string" opens up new possibilities.

Subjects he trained in this technique readily mastered it and solved 67% more problems requiring creative insight than subjects who did not learn the technique, according to his study published in March in Psychological Science.

For instance, when given metal rings and a candle and asked to connect the rings together, those who named the candle's generic parts realized the wick could be used to tie up the rings. Another problem asked subjects to build a simple circuit board with a terminal, wires and a screwdriver, but the wires were too short. Those who renamed the shaft of the screwdriver a "four-inch length of metal" realized it could be used to bridge the gap and conduct electricity.

Continued in article

From AccountingWeb on March 1, 2013

How to Disable Worksheet Animation in Excel 2013
Excel 2013 has arrived, and for the most part, it's much like Excel 2007 and 2010, but with some spiffy new features, such as Recommended Charts and Pivot Tables, Flash Fill, Quick Analysis, Power View, and more.
http://www.accountingweb.com/article/how-disable-worksheet-animation-excel-2013/221223?source=technology

I thought investors were not supposed to lose money in gold or Apple Corporation
"Apple Stock Just Crashed To A New Low," by Henry Blodget , Business Insider, March 1, 2013 ---
http://www.businessinsider.com/apple-stock-new-low-2013-3?op=1

"When Pigs Fly," by Joe Hoyle, Teaching Blog, March 19, 2013 ---
http://joehoyle-teaching.blogspot.com/2013/03/when-pigs-fly.html

Robotics Displacing Labor Even in Higher Education
"The New Industrial Revolution," by Jeffrey R. Young, Chronicle of Higher Education's Chronicle Review, March  25, 2013 ---
http://chronicle.com/article/The-New-Industrial-Revolution/138015/?cid=cr&utm_source=cr&utm_medium=en

Baxter is a new type of worker, who is having no trouble getting a job these days, even in a tight economy. He's a little slow, but he's easy to train. And companies don't hire him, they buy him—he even comes with a warranty.

Baxter is a robot, not a human, though human workers in all kinds of industries may soon call him a colleague. His plastic-and-metal body consists of two arms loaded with sensors to keep his lifeless limbs from accidentally knocking over anyone nearby. And he has a simulated face, displayed on a flat-panel computer monitor, so he can give a frown if he's vexed or show a bored look if he's waiting to be given more to do.

Baxter is part of a new generation of machines that are changing the labor market worldwide—and raising a new round of debate about the meaning of work itself. This robot comes at a price so low—starting at just $22,000—that even businesses that never thought of replacing people with machines may find that prospect irresistible. It's the brainchild of Rodney Brooks, who also designed the Roomba robot vacuum cleaner, which succeeded in bringing at least a little bit of robotics into millions of homes. One computer scientist predicts that robots like Baxter will soon toil in fast-food restaurants topping pizzas, at bakeries sliding dough into hot ovens, and at a variety of other service-sector jobs, in addition to factories.

I wanted to meet this worker of the future and his robot siblings, so I spent a day at this year's Automate trade show here, where Baxter was one of hundreds of new commercial robots on display. Simply by guiding his hands and pressing a few buttons, I programmed him to put objects in boxes; I played blackjack against another robot that had been temporarily programmed to deal cards to show off its dexterity; and I watched demonstration robots play flawless games of billiards on toy-sized tables. (It turns out that robots are not only better at many professional jobs than humans are, but they can best us in our hobbies, too.)

During a keynote speech to kick off the trade show, Henrik Christensen, director of robotics at Georgia Tech, outlined a vision of a near future when we'll see robots and autonomous devices everywhere, working side by side with humans and taking on a surprisingly diverse set of roles. Robots will load and unload packages from delivery trucks without human assistance—as one company's system demonstrated during the event. Robots will even drive the trucks and fly the cargo planes with our packages, Christensen predicted, noting that Google has already demonstrated its driverless car, and that the same technology that powers military drones can just as well fly a FedEx jet. "We'll see coast-to-coast package delivery with drones without having a pilot in the vehicle," he asserted.

Away from the futuristic trade floor, though, a public discussion is growing about whether robots like Baxter and other new automation technologies are taking too many jobs. Similar concerns have cropped up repeatedly for centuries: when combines first arrived on farms, when the first machines hit factory assembly lines, when computers first entered businesses. A folk tune from the 1950s called "The Automation Song" could well be sung today: "Now you've got new machines for to take my place, and you tell me it's not mine to share." Yet new jobs have always seemed to emerge to fill the gaps left by positions lost to mechanization. There may be few secretaries today, but there are legions of social-media managers and other new professional categories created by digital technology.

Still, what if this time is different? What if we're nearing an inflection point where automation is so cheap and efficient that human workers are simply outmatched? What if machines are now leading to a net loss of jobs rather than a net gain? Two professors at the Massachusetts Institute of Technology, Andrew McAfee and Erik Brynjolfsson, raised that concern in Race Against the Machine: How the Digital Revolution Is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy (Digital Frontier Press, 2011). A recent report on 60 Minutes featured the book's thesis and quoted critics concerned about the potential economic crisis caused by robots, despite the cute faces on their monitors.

But robots raise an even bigger question than how many jobs are left over for humans. A number of scholars are now arguing that all this automation could make many goods and services so cheap that a full-time jobs could become optional for most people. Baxter, then, would become a liberator of the human spirit rather than an enemy of the working man.

That utopian dream would require resetting the role work plays in our lives. If our destiny is to be freed from toil by robot helpers, what are we supposed to do with our days?

To begin to tackle that existential question, I decided to invite along a scholar of work to the Automate trade show. And that's how my guest, Burton J. Bledstein, an expert on the history of professionalism and the growth of the modern middle class, got into an argument with the head of a robotics company.

It happened at the booth for Adept Technology Inc., which makes a robot designed to roam the halls of hospitals and other facilities making deliveries. The latest model­—a foot-tall rolling platform that can be customized for a variety of tasks­—wandered around the booth, resembling something out of a Star Wars film except that it occasionally blasted techno music from its speakers. Bledstein was immediately wary of the contraption. The professor, who holds an emeritus position at the University of Illinois at Chicago, explained that he has an artificial hip and didn't want the robot to accidentally knock him down. He needn't have worried, though; the robot is designed to sense nearby objects and keep a safe distance.

The company's then-CEO, John Dulchinos, assured us that on the whole, robots aren't taking jobs—they're simply making life better for human employees by eliminating the most-tedious tasks. "I can show you some very clear examples where this product is offloading tasks from a nurse that was walking five miles a day to allow her to be able to spend time with patients," he said, as the robot tirelessly circled our feet. "I think you see that in a lot of the applications we're doing, where the mundane task is done by a robot which has very simple capability, and it frees up people to do more-elaborate and more-sophisticated tasks."

The CEO defended the broader trend of companies' embracing automation, especially in factory settings where human workers have long held what he called unfulfilling jobs, like wrapping chicken all day. "They look like zombies when they walk out of that factory," he said of such workers. "It is a mind-numbing, mundane task. There is absolutely no satisfaction from what they do."

"That's your perception," countered Bledstein. "A lot of these are unskilled people. A lot of immigrants are in these jobs. They see it as work. They appreciate the paycheck. The numbness of the work is not something that surprises them or disturbs them."

"I guess we could just turn the clock back to 1900, and we can all be farmers," retorted Dulchinos.

But what about those displaced workers who can't find alternatives, asked Bledstein, arguing that automation is happening not just in factories but also in clerical and other middle-class professions changed by computer technology. "That's kind of creating a crisis today. Especially if those people are over 50, those people are having a lot of trouble finding new work." The professor added that he worried about his undergraduate students, too, and the tough job market they face. "It might be a lost generation, it's so bad."

Dulchinos acknowledged that some workers are struggling during what he sees as a transitional period, but he argued that the solution is more technology and innovation, not less, to get to a new equilibrium even faster.

This went on for a while, and it boiled down to competing conceptions of what it means to have a job. In Bledstein's seminal book, The Culture of Professionalism, first published in 1976, he argues that Americans, in particular, have come to define their work as more than just a series of tasks that could be commodified. Bledstein tracks a history of how, in sector after sector, middle-class workers sought to elevate the meaning of their jobs, whether they worked as athletes, surgeons, or funeral directors: "The professional importance of an occupation was exaggerated when the ordinary coffin became a 'casket,' the sealed repository of a precious object; when a decaying corpse became a 'patient' prepared in an 'operating room' by an 'embalming surgeon' and visited in a 'funeral home' before being laid to rest in a 'memorial park.'"

The American dream involves more than just accumulating wealth, the historian argues. It's about developing a sense of personal value by connecting work to a broader social mission, rather than as "a mechanical job, befitting of lowly manual laborer."

Today, though, "there's disillusionment with professions," Bledstein told me, noting that the logic of efficiency is often valued more than the quality of service. "Commercialism has just taken over everywhere." He complained that in their rush to reduce production costs, some business leaders are forgetting that even manual laborers have skills and knowledge that can be tough to simulate by machine. "They want to talk about them as if these people are just drones," he said as we took a break in the back of the exhibit hall, the whir of robot motors almost drowning out our voices. "Don't minimize the extent of what quote-unquote manual workers do—even ditch diggers."

In Genesis, God sentences Adam and Eve to hard labor as part of the punishment for the apple incident. "Cursed is the ground because of you; through painful toil you will eat food from it all the days of your life" was the sentence handed down in the Garden of Eden. Yet Martin Luther argued, as have other prominent Christian leaders since, that work is also a way to connect with the divine.

Continued in article

"Rethink Robotics invented a $22,000 humanoid (i.e. trainable) robot that competes with low-wage workers," by Antonio Regalado, MIT's Technology Review, January 16, 2013 --- Click Here
http://www.technologyreview.com/news/509296/small-factories-give-baxter-the-robot-a-cautious-once-over/?utm_campaign=newsletters&utm_source=newsletter-daily-all&utm_medium=email&utm_content=20130116

"Rise of the Robots," by Paul Krugman, The New York Times, December 8, 2012 ---
http://krugman.blogs.nytimes.com/2012/12/08/rise-of-the-robots/

¶Catherine Rampell and Nick Wingfield write about the growing evidence for “reshoring” of manufacturing to the United States. They cite several reasons: rising wages in Asia; lower energy costs here; higher transportation costs. In a followup piece, however, Rampell cites another factor: robots.

¶The most valuable part of each computer, a motherboard loaded with microprocessors and memory, is already largely made with robots, according to my colleague Quentin Hardy. People do things like fitting in batteries and snapping on screens.

¶As more robots are built, largely by other robots, “assembly can be done here as well as anywhere else,” said Rob Enderle, an analyst based in San Jose, Calif., who has been following the computer electronics industry for a quarter-century. “That will replace most of the workers, though you will need a few people to manage the robots.”

¶Robots mean that labor costs don’t matter much, so you might as well locate in advanced countries with large markets and good infrastructure (which may soon not include us, but that’s another issue). On the other hand, it’s not good news for workers!

¶This is an old concern in economics; it’s “capital-biased technological change”, which tends to shift the distribution of income away from workers to the owners of capital.

¶Twenty years ago, when I was writing about globalization and inequality, capital bias didn’t look like a big issue; the major changes in income distribution had been among workers (when you include hedge fund managers and CEOs among the workers), rather than between labor and capital. So the academic literature focused almost exclusively on “skill bias”, supposedly explaining the rising college premium.

¶But the college premium hasn’t risen for a while. What has happened, on the other hand, is a notable shift in income away from labor:.

"Harley Goes Lean to Build Hogs," by James R. Hagerty, The Wall Street Journal, September 22, 2012 ---
http://professional.wsj.com/article/SB10000872396390443720204578004164199848452.html?mod=djem_jiewr_AC_domainid&mg=reno64-wsj

If the global economy slips into a deep slump, American manufacturers including motorcycle maker Harley-Davidson Inc. that have embraced flexible production face less risk of veering into a ditch.

Until recently, the company's sprawling factory here had a lack of automation that made it an industrial museum. Now, production that once was scattered among 41 buildings is consolidated into one brightly lighted facility where robots do more heavy lifting. The number of hourly workers, about 1,000, is half the level of three years ago and more than 100 of those workers are "casual" employees who come and go as needed.

All the jobs are not going to Asia, They're going to Hal --- http://en.wikipedia.org/wiki/2001_Space_Oddessey
"When Machines Do Your Job: Researcher Andrew McAfee says advances in computing and artificial intelligence could create a more unequal society," by Antonio Regalado, MIT's Technology Review, July 11, 2012 ---
http://www.technologyreview.com/news/428429/when-machines-do-your-job/

Are American workers losing their jobs to machines?

That was the question posed by Race Against the Machine, an influential e-book published last October by MIT business school researchers Erik Brynjolfsson and Andrew McAfee. The pair looked at troubling U.S. employment numbers—which have declined since the recession of 2008-2009 even as economic output has risen—and concluded that computer technology was partly to blame.

Advances in hardware and software mean it's possible to automate more white-collar jobs, and to do so more quickly than in the past. Think of the airline staffers whose job checking in passengers has been taken by self-service kiosks. While more productivity is a positive, wealth is becoming more concentrated, and more middle-class workers are getting left behind.

What does it mean to have "technological unemployment" even amidst apparent digital plenty? Technology Review spoke to McAfee at the Center for Digital Business, part of the MIT Sloan School of Management, where as principal research scientist he studies new employment trends and definitions of the workplace.

"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.

"Raytheon's Missiles Are Now Made by Robots," by Ashlee Vance, Bloomberg Business Week, December 11, 2012 ---
http://www.businessweek.com/articles/2012-12-11/raytheons-missiles-now-made-by-robots

A World Without Work," by Dana Rousmaniere, Harvard Business Review Blog, January 27, 2013 --- Click Here
http://blogs.hbr.org/morning-advantage/2013/01/morning-advantage-a-world-with.html?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date

Jensen Comment
Historically, graduates who could not find jobs enlisted in the military. Wars of the future, however, will be fought largely by drones, robots, orbiting orbiting satellites. This begs the question of where graduates who cannot find work are going to turn to when the military enlistment offices shut down and Amazon's warehouse robotics replace Wal-Mart in-store workers.

If given a choice, I'm not certain I would want to be born again in the 21st Century.

The Sad State of Economic Theory and Research ---
http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm

"Is it Ethical to Save Four People at the Expense of One?" by Accounting Professor Steven Mintz, Ethics Sage, March 15, 2013 ---
http://www.ethicssage.typepad.com/ 

Is it Ethical to Save Four People at the Expense of One?

Lessons from the Talmud

On Tuesday I posted a blog that presented two ethical dilemmas based on the “Trolley Problem.” The Trolley Problem is a thought experiment in ethics, first introduced by Philippa Foot in 1967. Others have  also extensively analyzed the problem including Judith Jarvis Thomason, Peter Unger, and Frances Kamm  as recently as 1996. I have used these problems in my ethics class to challenge students’ moral intuition. Here are the two dilemmas once again:

Dilemma #1

Imagine that you are standing on a footbridge spanning some trolley tracks. You see that a runaway trolley is threatening to kill five people. Standing next to you, in between the oncoming trolley and the five people, is a railway worker wearing a large backpack. You quickly realize that the only way to save the people is to push the man off the bridge and onto the tracks below. The man will die, but his body will stop the trolley from reaching the others. Legal concerns aside, would it be ethical for you to save the five people by pushing this stranger to his death?

Dilemma #2

Now assume that the runaway trolley is heading for five railway workmen who will be killed if it proceeds on its present course. The only way to save these people is to hit a switch that will turn the trolley onto a side track where it will run over and kill one workman instead of five. Ignoring legal concerns, would it be ethically acceptable for you to turn the trolley by hitting the switch in order to save five people at the expense of one person?

The choice is between saving five lives at the cost of taking one life. Before I get to the “answers,” I want to explain how one researcher is using MRI technology to map brain response while analyzing the dilemma. Joshua Greene at Harvard University was more concerned to understand why we have the intuitions, so he used functional Magnetic Resonance Imaging, or fMRI, to examine what happens in people’s brains when they make these moral judgments.

Greene found that people asked to make a moral judgment about “personal” violations, like pushing the stranger off the footbridge, showed increased activity in areas of the brain associated with the emotions. This was not the case with people asked to make judgments about relatively “impersonal” violations like throwing a switch. Moreover, the minority of subjects who did consider that it would be right to push the stranger off the footbridge took longer to reach this judgment than those who said that doing so would be wrong. Interestingly results to say the least.

I received quite a few responses to my blog and selected the best one with respect to identifying the ethical issues. The response comes from Michael Belk, a frequent reader of my blog. Here it is:

#1: I do not believe it to be ethical to intentionally end someone else's life whether it is to save others or not.  I do not believe it is my moral responsibility to sacrifice one life in order that others may go on. 

You hope and pray that it is not their time and leave the results of their outcome to faith.  I would feel terrible, but if you push someone in the way to save others, you may as well say you killed a man.  I would never be able to forgive myself.

The man has a family and people who love him, so how could you explain your actions to his family.

#2. Again I do not believe you should intentionally take a life, but if your intentions were to save the other five men and you were unaware of the damage it would do to the sole man, then you acted out of goodwill and that is more admirable.

Michael’s insights are right on the money. We have no right to sacrifice the life of one person to save others. There is a saying from the Talmud, an authoritative record of rabbinic discussions on Jewish law, Jewish ethics, customs, legends and stories: “Whoever destroys a soul, it is considered as if he destroyed an entire world. And whoever saves a life, it is considered as if he saved an entire world.”

We have no right to decide who lives and who dies. Yes, if we can save one person without harming others we have a moral obligation to do so. However, to save one life while sacrificing others is an arbitrary act in many ways. What if the one sacrificed is a humanitarian, well-respected and well-known person who works tirelessly for the poor and others who can’t help themselves? What if those saved are criminals who committed murder and escaped from prison. You see the dilemma? Who are we to judge who is a good person, and be saved, and who is a bad person? We should focus on leading the best possible life we can; to serve others whether through medicine, the clergy, the law, a teacher, nurse, or first-responder.

Jensen Comment
I have a little difficulty with Dilemma 1 in the sense of why kill the workman instead of yourself. But that's not the real issue in question.

In the USA things get confounded by our lawyers. For example sometimes doing something for the good gets you sued to high heaven whereas doing nothing gets you off scott free. "See nothing, do nothing" is a motto caused by the tort lawyers.

From Ernst & Young:  FASB's new classification and measurement model - a closer look --- Click Here
http://www.ey.com/Publication/vwLUAssetsAL/TechnicalLine_BB2504_ClassificationMeasurement_6March2013/%24FILE/TechnicalLine_BB2504_ClassificationMeasurement_6March2013.pdf

What you need to know

 • The FASB has proposed a single classification and measurement model for all financial instruments that would better converge some areas of US GAAP with IFRS 9

. • Financial assets would be classified and measured based on their contractual cash flow character istics and an entity’s business model for managing them

. • The accounting for financial liabilities generally would not change, except for the measurement of nonrecourse liabilities.

 • The proposal would significantly limit the use of the fair value option.

 • T h e proposal would change the presentation and disclosure of financial instruments in the financial statements.

 • Comments are due by 15 May 2013.

Overview
The Financial Accounting Standards Board (FASB or Board) has proposed a sweeping new classification and measurement model for financial instruments. 1 The proposal would apply to all entities across industries, not just those in financial services. The proposal would require more financial instruments to be classified and measured at fair value through net in come . However, it wouldn ’ t go as far as the FASB ’ s May 2010 exposure draft 2 on accounting for financial instruments, which would have established fair value as the primary basis for measuring financial instruments.

"Unlocking growth through mobility," Grant Thornton, March 2013 ---
http://www.grantthornton.com/staticfiles/GTCom/Advisory/IT/Mobility_article_FINAL.pdf
Thank you Jerry Trites for the heads up.

COSO to release much-awaited internal control framework in May 2013 ---
http://journalofaccountancy.com/News/20137619.htm

Equity Method
"Accounting Lessons From Corning," Michael Fu, Seeking Alpha, March 6, 2013 ---
http://seekingalpha.com/article/1252901-accounting-lessons-from-corning?source=google_news

"Helping Gen Y succeed in the workplace," by Dan Black, Ernst & Young, March 2013 ---
http://www.ey.com/US/en/Careers/EY-Faculty-Connection-Issue-39---1---Helping-Gen-Y

"Ten career tips for young CPAs," by Mark Ursick, cpa2biz, February 25, 2013 ---
http://www.cpa2biz.com/Content/media/PRODUCER_CONTENT/Newsletters/Articles_2013/CPA/Feb/BuildCareers.jsp

Jensen Comment
I especially agree with:  "Don’t limit your challenges; challenge your limits."

The most gung ho student I ever had studying the accounting for derivative financial instruments and hedging strategies never limited his challenges even though he was less gifted than some of my students. He just worked and worked and worked as a student.

His first job was with a Big Four firm in Houston and within three years he was the technical guy who virtually was in charge on an audit of a company that had over $1 billion in derivatives. He's since moved on to become a leading executive at Microsoft.

In contrast I had more brilliant students who got buy in my accounting theory course but would run like somebody yelled "Fire" if they had an opportunity to audit derivative financial instruments contracts. They never became executives in any companies.

Bob Jensen's threads on accounting careers ---
http://www.trinity.edu/rjensen/Bookbob1.htm#careers

"Accountants Will Save the World," by Peter Bakker, Harvard Business Review Blog, March 5, 2013 --- Click Here 
http://blogs.hbr.org/cs/2013/03/accountants_will_save_the_worl.html?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date

Jensen Comment
You might also want to read the comments that follow this article.

Bob Jensen's threads on triple bottom accounting ---
http://www.trinity.edu/rjensen/Theory02.htm#TripleBottom

From the CFO.com Morning Ledger on March 19, 2013

JOBS Act spurs some companies to deregister shares. The number of public companies deciding to deregister their shares edged up 1.5% in last year’s second half. The group was led by small community banks, following the passage of the JOBS Act, which made it easier for them to shed their reporting obligations to U.S. regulators, Emily Chasan reports. Some 405 companies deregistered their stock last year in the eight months following the signing of the JOBS Act in April, up from 399 in the eight months before the law took effect. Many of the deregistered companies haven’t left public markets entirely. Instead, their shares trade over the counter.

From CFO.com Morning Ledger on March 14, 2013

Regulators ramp up payroll audits.
Regulators are cracking down on small businesses and other employers who misclassify workers as independent contractors to avoid paying payroll taxes and other expenses, the Journal’s Angus Loten and Emily Maltby write. Some employers are turning to contractors to avoid hitting the federal health-care law’s 50-employee threshold for health insurance. And the crackdown is partly aimed at boosting tax revenue. The U.S. Treasury estimates that forcing employers to properly classify their workers—while tightening so-called “safe harbor” rules that provide them with leeway in determining who is and isn’t an employee—would yield $8.71 billion in added tax revenue over the next decade.

Jensen Comment

Another incentive for outsourcing certain types of work is to outsource risk of fines and bad publicity resulting from employing undocumented workers. A company, including a highly respected university, can get very bad publicity when the news media discloses a practice of hiring undocumented workers. For that reason those organizations will hire such things as building cleaning services from local businesses that are very small and less concerned about bad publicity. A friend of mine in a very respected large company in San Antonio said in all his years working as a security guard for that company he never met a janitor (male or female) who spoke one word of English.

Lenders Are Warned on Risk:  Regulators Act to Pop a Potential Bubble Caused by Surge in Leveraged Credits

From CFO.com on March 22, 2013

Regulators are sounding the alarm on debt underwriting practices. The Fed and other banking regulators said yesterday that the controls and quality checks applied by lenders when extending leveraged loans have deteriorated and they questioned whether some banks are doing enough to gauge the risks of these practices. The regulators issued guidance that lays out expectations for how banks should act. It said regulators will closely monitor banks’ underwriting of the loans – generally used to finance buyouts or acquisitions – and the ability of firms to manage their lending and withstand loan-related losses, the WSJ’s Michael R. Crittenden and Matt Wirz report.

Some Fed officials have singled out leveraged loans as a potential sign of overheating. And the guidance is another example of Fed Chairman Ben Bernanke’s belief that strong regulation – rather than higher interest rates — has to be the main weapon against financial excesses.

The guidance also highlighted the weakening of covenant protections for lenders, particularly ones that force companies to maintain their debt loads within prescribed limits, as cause for concern. Moody’s noted this week that its index of high-yield bond covenants, which measures the strength of lender protections, weakened to its lowest point since the ratings service first began tracking them in January 2011. Moody’s head of covenant research, Alex Dill, told CFOJ’s Vipal Monga in an interview that the pendulum has swung in favor of corporate borrowers and management, as lenders seem willing to give up structural protection in favor of getting yield from their investments.

Thanks Ben
"Cyprus Lifts the Curtain," by Peter Schiff, Townhall, March 21, 2013 --- Click Here
http://finance.townhall.com/columnists/peterschiff/2013/03/22/cyprus-lifts-the-curtain-n1545913?utm_source=thdaily&utm_medium=email&utm_campaign=nl

. . .

Currently, the ultra-low rates provided by the Federal Reserve, which provide a low cost of capital and sustain profits on highly leveraged bond and mortgage portfolios, are a key element keeping banks in the black. All of that would be threatened in a rising rate environment. And while the tests did assume that rates would rise from the current 1.9% on the 10 year Treasury, there were no considerations for yields surpassing 4%. They assume that interest rates will stay near historic lows, no matter how bad (or good) the economy gets, how high inflation rises, or how much money the government borrows.

Continued in article

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

From the CFO.com Morning Ledger on March 19, 2013

Ex-CEO of Calpers charged. The former head of Calpers was charged with concocting fraudulent documents to help a friend collect millions of dollars in fees from Apollo Global Management. The grand jury indictment of Federico R. Buenrostro Jr., who was chief executive of the Calpers until 2008, and his friend, Alfred J. Villalobos, are the first criminal charges in a “pay-to-play” case involving the $257 billion retirement system, the WSJ reports. The indictment alleges that Messrs. Buenrostro and Villalobos fabricated letters in 2008 that duped Apollo into paying $14 million in fees to Mr. Villalobos’s firm.

"Former California Public Employee System CEO and Former Placement Agent Indicted for Conspiracy and Fraud," FBI, March 18, 2013 --- Click Here
http://www.fbi.gov/sanfrancisco/press-releases/2013/former-california-public-employee-system-ceo-and-former-placement-agent-indicted-for-conspiracy-and-fraud

SAN FRANCISCO—A federal grand jury in San Francisco indicted Alfred J. Villalobos, of Reno, Nevada, and Federico R. Buenrostro, Jr., aka Fred Buenrostro, of Sacramento, California, on charges of conspiracy to defraud the United States, engaging in a false scheme against the United States, and conspiracy to commit mail fraud and wire fraud, U.S. Attorney Melinda Haag announced. Mr. Buenrostro was also charged in the same indictment with making a false statement to the United States and obstruction of justice.

According to the indictment, Mr. Villalobos, 69 and Mr. Buenrostro, 64, conspired to create and transmit fraudulent documents in connection with a $3 billion investment by the California Public Employee Retirement System (CalPERS) into funds managed by Apollo Global Management, a private equity firm based in New York City.

ARVCO Capital Research LLC, a financial services firm founded and managed by Mr. Villalobos, allegedly acted as a placement agent in helping Apollo to secure these investments by CalPERS. In each instance, Apollo required ARVCO to obtain an investor disclosure letter from CalPERS prior to paying ARVCO any fees for its efforts in securing CalPERS’ investments into Apollo-managed funds, citing, among other reasons, Apollo’s obligations under the securities laws.

After CalPERS’ legal and investment offices declined to sign a certain investor disclosure letter documenting ARVCO’s legal relationship with Apollo, Mr. Villalobos and Mr. Buenrostro allegedly conspired to create a series of fraudulent investor disclosure letters that were transmitted to Apollo. Apollo paid ARVCO a total of approximately $14 million dollars in fees after receiving the fraudulent letters.

ARVCO transmitted the last fraudulent investor disclosure letter in June 2008, a few weeks before Mr. Buenrostro retired from CalPERS. On July 1, 2008, Mr. Villalobos hired Mr. Buenrostro to work for ARVCO. When civil and later criminal investigations were opened into the operations of ARVCO and its role as a placement agent in connection with CalPERS’ investments in Apollo-managed funds, both defendants made false statements to and concealed information from the SEC, the USPIS, and the FBI about the authenticity of the investor disclosure letters in order to defeat and obstruct the lawful functions of those agencies.

Mr. Villalobos and Mr. Buenrostro made their initial appearance in federal court in San Francisco on March 18, 2013, and are currently out on bond. Mr. Buenrostro’s next scheduled appearance is Monday, March 25, 2013, at 9:30 a.m. for identification of counsel and review of the terms of his bond. Mr. Villalobos’ next scheduled appearance is April 9, 2013, at 9:30 a.m. for review of the terms of his bond. Both defendants are scheduled to appear before in district court on May 8, 2013, at 2:00 p.m. before Judge Breyer.

The maximum statutory penalty for conspiracy to commit mail fraud and wire fraud is 20 years in prison; $250,000 fine or twice the amount of gain or loss, whichever is greater; three years of supervised release; and a $100 special assessment. The maximum penalty for each count of conspiracy to defraud the United States, false scheme against the United States, false statement to the United States, and obstruction of justice is five years in prison; $250,000 fine or twice the amount of gain or loss, whichever is greater; three years of supervised release; and a $100 special assessment. Restitution may also be ordered as to each of the five counts. However, any sentence following conviction would be imposed by the court after consideration of the U.S. Sentencing Guidelines a the federal statute governing the imposition of a sentence.

Timothy J. Lucey is the Assistant U.S. Attorney who is prosecuting the case with the assistance of Laurie Worthen and Maryam Beros. The prosecution is the result of a two-and-a half-year investigation by the U.S. Postal Inspection Service and FBI, with substantial assistance from the Los Angeles Regional Office of the Securities and Exchange Commission as well as the U.S. Secret Service.

 

"Check Fraud Persists; Card Fraud Growing: Finance departments say check fraud was the most prevalent kind of payment fraud in 2012. But attacks on corporate cards and electronic forms are rising, too," by Vincent Ryan, CFO.com, March 19, 2013 ---
http://www3.cfo.com/article/2013/3/cash-management_payments-fraud-check-corporate-card-purchasing-ach-positive-pay-afp

"New Report Shows Changing Fraud Environment," by Curtis C. Verschoor, AccountingWeb, March 18, 2013 ---
http://www.accountingweb.com/article/new-report-shows-changing-fraud-environment/221374

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

"Former Manager of Virginia Beach Mortgage Brokerage Firm Pleads Guilty to Fraud," FBI, March 18, 2013 ---
http://www.fbi.gov/norfolk/press-releases/2013/former-manager-of-virginia-beach-mortgage-brokerage-firm-pleads-guilty-to-fraud

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

"Registered Nurse Pleads Guilty in Connection with Detroit ($24 Million) Medicare Fraud Scheme," FBI, March 22, 2013 ---
http://www.fbi.gov/detroit/press-releases/2013/registered-nurse-pleads-guilty-in-connection-with-detroit-medicare-fraud-scheme

A registered nurse who fabricated nursing visit forms in connection with a $24 million home health care fraud conspiracy in Detroit pleaded guilty today for her role in the scheme, announced Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division; U.S. Attorney for the Eastern District of Michigan Barbara L. McQuade; Special Agent in Charge Robert D. Foley, III of the FBI’s Detroit Field Office; and Special Agent in Charge Lamont Pugh, III of the U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG), Chicago Regional Office.

Beverly Cooper, 59, of Detroit, pleaded guilty before U.S. District Judge Victoria A. Roberts in the Eastern District of Michigan to one count of conspiracy to commit health care fraud.

Cooper admitted that she and others conspired to defraud Medicare through home health care companies operating in the Detroit area, including Reliance Home Care LLC, First Choice Home Health Care Services Inc., and Accessible Home Care Inc. According to court documents, Cooper fabricated nursing visit notes and other documents to give Medicare the impression that she had provided home health care services, when, in fact, home health care was not needed and/or was not being provided. Cooper also admitted that while at these companies, she signed nursing visit notes for home visits made by other unlicensed individuals to give Medicare the false impression that she had provided home health care. Court documents reveal that Cooper understood that the documents she created would be used by these companies to submit claims to Medicare for home health services that were not medically necessary and/or not provided.

Court documents show that when home health companies were inspected by state regulatory agencies, Cooper and her co-conspirators participated in staged home health visits, posing as employees of these companies and treating fake patients, all to give inspectors the false impression that these companies’ operations were legitimate and that home health services were in fact being provided.

Court documents allege that between 2006 and May 2012, Cooper’s conduct caused Reliance, First Choice, and Accessible to submit claims to Medicare for services that were not medically necessary and/or not provided, causing Medicare to pay these companies approximately $5,403,703.

At sentencing, scheduled for July 23, 2013, Cooper faces a maximum penalty of 10 years in prison and a $250,000 fine.

This case is being prosecuted by Trial Attorney William G. Kanellis and Assistant Chief Gejaa Gobena of the Criminal Division’s Fraud Section. It was investigated by the FBI and HHS-OIG, and it was brought as part of the Medicare Fraud Strike Force, supervised by the Criminal Division’s Fraud Section and the U.S. Attorney’s Office for the Eastern District of Michigan.

Since its inception in March 2007, the Medicare Fraud Strike Force, now operating in nine cities across the country, has charged more than 1,480 defendants who have collectively billed the Medicare program for more than $4.8 billion. In addition, HHS’s Centers for Medicare and Medicaid Services, working in conjunction with HHS-OIG, is taking steps to increase accountability and decrease the presence of fraudulent providers.

To learn more about the Health Care Fraud Prevention and Enforcement Action Team (HEAT), go to www.stopmedicarefraud.gov.

"How Monsanto outfoxed the Obama administration The inside story of how the government let one company squash biotech innovation, and dominate an entire industry," by Lina Khan, Salon, March 15, 2013 ---
http://www.salon.com/2013/03/15/how_did_monsanto_outfox_the_obama_administration/

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

Question
Goodwill Impairment: What Happens When U.S. GAAP and IFRSs Clash?

From CFO.com on March 25, 2013

Differences in the goodwill impairment standards under U.S. GAAP and IFRSs may create significant disparities as to whether goodwill is viewed as impaired and, if so, how much is written off in the United States and the other country, or even country to country. Learn more about the challenges companies, especially acquisitive ones, may face in performing goodwill impairment testing both in the U.S. and around the world.
More --- http://deloitte.wsj.com/cfo/2013/03/25/goodwill-impairment-what-happens-when-u-s-gaap-and-ifrss-clash/

For acquisitive companies, determining whether goodwill booked in transactions has become impaired and if it has, by how much, is now a fairly regular occurrence. However, the accounting involved can be anything but straightforward when the acquirer is a U.S.-based company and subsidiary businesses are located elsewhere or vice versa.

Differences in the goodwill impairment standards under U.S. GAAP and International Financial Reporting Standards (IFRSs) may create significant disparities as to whether goodwill is viewed as impaired and, if so, how much is written off in the United States and the other country, or even country-to-country. Other factors creating such disparities include the varying application of valuation methodologies and historical cultural differences in the application of impairment accounting.

Such situations may be especially troublesome for U.S. businesses because of country-to-country differences around the world. For example, a U.S. company with operations in Germany, France, Spain and Greece may write off goodwill entirely on a consolidated basis under U.S. GAAP. However, when a corporate life event, such as a spin-off or carve out, is undertaken related to the subsidiary outside of the U.S. depending on how the IFRSs principles are applied, some or none of its goodwill might be written off. (See: U.S. GAAP-IFRSs Dilemma: A Case Study further below).

Sorting out these differences may be a challenging process for management of companies operating in numerous countries across the world, when U.S. GAAP, IFRSs and potentially other financial reporting frameworks need to be addressed. Relief from the dilemma of distinguishing between the treatment under U.S. GAAP and IFRSs does not appear to be on the way any time soon. On one hand, the International Accounting Standards Board (IASB) and the U.S. Financial Accounting Standards Board (FASB) are continuing their now decade-long work to converge IFRSs and U.S. GAAP. However, converging goodwill impairment accounting does not appear to be a near-term project.

In addition, on July 13, 2012, the SEC issued its final staff report on the “Work Plan for Consideration of incorporating IFRSs into the Financial Reporting System for U.S. Issuers” without offering a timetable for potential U.S. adoption of IFRSs for domestic filers¹. This leaves companies for the foreseeable future still facing difficult situations when dealing with disparities such as goodwill impairment.

The Conceptual Foundation of Impairment Issues

The differences in U.S. GAAP and IFRSs goodwill impairment treatment flow largely from a fundamental difference in accounting approaches. As a principles-based accounting approach, IFRSs provide a conceptual basis for accountants to follow in a one-step test that has both a fair value and an asset-recoverability aspect. U.S. GAAP, on the other hand, dictates that goodwill is tested for impairment through a two-step, fair value test with the level of impairment, if present, determined in Step 2 after an extensive analysis of related asset values. However, the FASB’s recent issuance of a “step zero” qualitative assessment for goodwill impairment testing did introduce an element of a principles-based approach under U.S. GAAP³. Principles-based standards allow accountants to apply significant professional judgment in assessing a transaction. This is substantially different from the underlying “box-ticking” approach historically common in rules-based accounting standards.

The lack of precise guidelines in a principles-based approach may create inconsistencies in the application of standards across organizations and countries, particularly in a very subjective area such as fair value. On the other hand, rules-based standards can be viewed as insufficiently flexible to accommodate a topic such as fair value, which often requires significant professional judgments gained through experience, with extremely limited market data.

However, the U.S. has gradually been embracing the principles-based approach. The recently converged standards on fair value measurement (IFRS 13 and ASC 820), an IASB-FASB joint effort, supports this.

Even though the SEC has not set a timetable for if, when, or how the U.S. might move to IFRSs in the future, convergence efforts themselves in recent years have started to influence how new accounting standards are applied in practice.

U.S. GAAP-IFRSs Dilemma: A Case Study

The experience of a U.S.-based consolidated company comprising six Reporting Units (RUs) demonstrates how differences in U.S. GAAP and IFRSs may affect goodwill impairment. The company was considering a spinoff of an RU located in a country following IFRSs, as a standalone company through an IPO. Therefore, a standalone audit of the RU was necessary under IFRSs. At the end of its fiscal year, the U.S. consolidated company wrote off the goodwill in its foreign-based RU and some other domestic RUs under U.S GAAP.

Outside the U.S., meanwhile, the subsidiary—a standalone RU in the U.S. and a single Cash Generating Unit (CGU) under IFRSs—performed an independent goodwill impairment analysis. The standalone CGU management did not believe there should be a goodwill write-off under IFRSs guidelines and following typical valuation procedures in that country related to goodwill impairment testing. As a result, the standalone CGU reported goodwill under IFRSs but the standalone RU under U.S. GAAP wrote the entire amount off, at the same point in time.

Addressing the Dilemma

In a world where investors often react to new or inconsistent financial information within seconds, it is important for company management to understand environments where different conclusions may be reached relative to topics such as goodwill impairment.

Sometimes differences need to be addressed and initial conclusions potentially modified. In other situations differences are just the result of the various financial reporting frameworks and environments across the world. However, it is important to be aware that situations may occur where various parties involved may not agree or understand each other’s perspectives, and then be able to navigate them effectively to get to supportable and reasonable conclusions.

Understanding real differences due to statutory guidance—such as non-convergent accounting versus interpretations of principles-based standards, or the varying application of valuation methods—is extremely important.

The Effects of Culture and Translation

As accounting standards, IFRSs are still relatively recent, with European nations as early adopters in 2005; although, in some countries, IFRSs have been around longer. Numerous countries around the world have been transitioning to IFRSs in recent years. In many of those countries, fair value was not present in the original accounting framework. Indeed, a number of the countries now following IFRSs do not have fully functioning market- based economies, making the complexity of arriving at supportable fair value estimates even greater.

Countries around the world have operated for decades within their own accounting systems, and cultural differences cause accountants in different countries to interpret and apply accounting standards differently. Such differences can affect the measurement and disclosure of financial information in financial reports and potentially affect cross-border financial statement comparability.

National culture is most likely to influence the application of financial reporting standards where judgment is required. This is of concern due to IFRSs being principles- based and requiring substantial judgment on the part of the accountant and the valuation specialist performing the valuation.

The official working language of the IASB, and the language in which IFRSs are published, is English. Translation of IFRSs into various languages introduces an added complexity in comparability of application of IFRSs across the world, as well as comparability with U.S. GAAP. In some cases, words and phrases used in English- language accounting standards cannot be translated into other languages without some distortion of meaning. For instance, words such as “probable,” “not likely,” “reasonable assurance” and “remote” can be problematic during interpretation.

In addition, many countries that have moved to IFRSs may have introduced their own country’s version of IFRSs; such localization of the standards has led to the creation of many slightly different versions of IFRSs.

Therefore, when analyzing and contrasting financial reporting practices, such as those involving goodwill impairment testing, it is not as simple as a comparison of U.S GAAP and IFRSs.

To highlight the need for greater consistency, the European Securities and Markets Authority (ESMA) issued a Public Statement on November 12, 2012, regarding European common enforcement priorities for 2012 financial statements. ESMA’s reason for issuing the statement was “to promote consistent application of the European securities and markets legislation, and more specifically that of [IFRSs].” One of the four “…financial reporting topics which they believe are particularly significant for European listed companies…”⁴ was impairment of non-financial assets, including goodwill.

The Effects of Different Accounting Treatments

Taking a goodwill impairment can be a necessary, if disappointing, step for a company. For publicly traded companies in particular, depending on how the company has managed market expectations, the move may or may not affect the company’s market pricing. Dealing with inconsistencies from market to market can be even more perplexing. Whatever the situation, companies operating across the global economy continue to face the challenge of differing application of valuation methodologies and accounting principles under U.S. GAAP and IFRSs, local country GAAP and even country-to-country under IFRSs regarding goodwill impairment testing.

 

"Goodwill Impairment: I Love a Charade," by Tom Selling, The Accounting Onion, January 15. 2010 --- Click Here
 http://accountingonion.typepad.com/theaccountingonion/2010/01/goodwill-impairment-i-love-a-charade-reposted.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+typepad%2Ftheaccountingonion+%28The+Accounting+Onion%29 

Jensen Comment
Note that Tom wants all consolidation goodwill expensed in the year of acquisition --- something akin to taking an earnings bath up front when companies are merged or purchased. I disagree because of the way this distorts future earnings and financial performance ratios like P/E ratios and Return on Investment (ROI) and Return on Equity (ROE). Goodwill generally depicts the value in use of an acquisition above and beyond the sum of the exit values of the net assets acquired. This is comprised of the synergy and covariance components of acquisition value. This "goodwill" is paid for in an acquisition because it has future value. Expensing the so-called goodwill  completely up front, in my opinion, allows acquiring firms to overstate ROI and ROE for many future years. The term "goodwill" is really a misnomer and should be changed.

Bob Jensen's threads on goodwill and other asset impairment issues ---
http://www.trinity.edu/rjensen/Theory02.htm#Impairment
 

"Most-Admired Companies Aren't Always Great Investments," by Mark Hulbert, The Wall Street Journal, March 8, 2013 ---
http://online.wsj.com/article/SB10001424127887324034804578346620047446456.html?mod=googlenews_wsj

Amazon.com AMZN -1.09% recently emerged as the company with the best reputation among the general public in the U.S., according to a survey of more than 14,000 randomly selected individuals conducted by Harris Interactive HPOL -5.23% .

Amazon investors can only hope its fate will turn out better than Apple's, AAPL +1.40% which topped Harris Interactive's survey last year—and has since seen its stock fall more than 20%.

Was Apple's experience a fluke? I wouldn't bet on it.

There are many reasons for Apple's falling stock unrelated to consumer surveys. Yet companies that have great reputations tend to be overvalued. Consider a study that appeared in 2010 in the Journal of Portfolio Management titled "Stocks of Admired and Spurned Companies." The authors analyzed the stocks of firms appearing in Fortune magazine's annual list of "America's Most Admired Companies" between 1983 and 2007.

Though that list is compiled differently from Harris Interactive's, the two reflect many of the same underlying factors. For example, the top three most-admired companies in the current Fortune ranking are in first, second and fourth place in the Harris survey.

The researchers found the spurned companies at the bottom of Fortune's survey were a better bet, on average, than the most-admired ones at the top. A hypothetical portfolio constructed each year out of the least-admired companies performed nearly two percentage points per year better than a portfolio of the most-admired companies.

These results support a contrarian interpretation of a company's reputation, says Meir Statman, a finance professor at Santa Clara University and one of the study's authors. His research found that companies tended to rank higher in the Fortune survey if their stocks had performed particularly well over the previous 12 months. This increases the chances the company's stock will be overvalued, he says.

In fact, Mr. Statman adds, it might be that one of the reasons a company tends to be highly admired in the first place is that its stock price has gone up. This would be one big reason why its stock is so vulnerable to even a slight change in investor sentiment.

It certainly is plausible that a soaring stock price contributed to Amazon's good reputation: Its stock hit a new all-time high in January and has gained 49% over the past 12 months, versus just 13% for the Standard & Poor's 500-stock index.

Investors are more likely to find undervalued situations among the stocks of spurned companies, Mr. Statman says. He notes that such a company needn't perform spectacularly in order for its stock to be a good bet: All it must do is beat investors' diminished expectations.

Because of these factors, he says, we "should tilt our portfolios toward those at the bottom of the rankings."

Continued in article

Jensen Comment
The biggest problem for many investors is that the Fed's seemingly long-term intention is too keep interest rates so low that customary safe investments like bank Certificates of Deposits pay virtually nothing. This forces investors to either burn savings on consumption (which is what retirees are now doing) or take on more financial risks in the stock market (that provides as much illusion as reality unless investors are smart enough to realize that much of what they gain in the stock market in inflationary gain that is not for real).

I sold an Iowa farm about five years ago an am not certain that I made the right decision. Iowa farm land has since risen to an all-time high and can ride out droughts due to the government's generous subsidies for crop insurance against drought and other disasters. And for farmers who had 2012 crop successes in Iowa the corn and soy bean prices are fantastically high at the moment because of the 2012 drought. Farm land is seemingly both an inflation hedge and provides annual liquidity from crop successes or crop failures (due to crop insurance).

But farm land is not necessarily a good investment at the moment because its investment prospects have already be factored into the record high prices for farm land in 2013. Also for distant landlords, like me before I sold the land, it can be frustrating to deal with rent negotiations and tenants who are always begging for things like new tile under wet ground.  I don't want to be a landlord ever again.

Farm rents are subject to high taxes, especially from the State of Iowa. I put the farm sale proceeds into a long-term insured municipal bond fund from Vanguard and have been happy ever since with relatively high tax-free cash returns each year. Of course this is not an especially good inflation hedge, but I do not expect to be alive 20 years from now --- or less. And if tax reform ends the advantages of my tax-free investment I will simply write a check on part of my Vanguard fund and pay off my home mortgage --- my only debt that I keep for tax advantages.

What I really hate to see are all sucker adds in the media to buy gold coins. First of all, if you're going to invest in gold invest in highly-reputed gold funds rather than gold itself which is expensive to store safely and is expensive to get rid of due to need for having it assayed and need to find buyers who do not demand gouging cash discounts when you're forced to sell. Investing in precious metal mutual funds in general is risky for the short term and not good for annual cash flows. Precious metals and some other commodities may be good inflation hedges over a very long haul if you don't need shorter term cash flows. But most of us want some annual cash returns on our investments.

Put simply, investors today are between a rock and hard place until the Fed allows interest rates on safe investments return to reasonable levels that of course still vary with time-to-maturity. But a 1.25% return on a five-year Certificate of Deposit is not reasonable.

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

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

I never give out investment or tax advice to any individuals or businesses --- which is extremely lucky for them.

New Billionaires in 2012
Time Magazine
March 18, 2013
Page 8

29 China (one of the long-term Brics)
27 United States
12 Brazil (one of the long-term Brics)
11 Russia (one of the long-term Brics)
09 France

The only missing Bric is India

A BRIC nation at the moment is a nation that has vast resources and virtually no entitlement obligations that drag down economic growth --- http://en.wikipedia.org/wiki/BRIC

In economics, BRIC (typically rendered as "the BRICs" or "the BRIC countries") is an acronym that refers to the fast-growing developing economies of Brazil, Russia, India, and China. The acronym was first coined and prominently used by Goldman Sachs in 2001. According to a paper published in 2005, Mexico and South Korea are the only other countries comparable to the BRICs, but their economies were excluded initially because they were considered already more developed. Goldman Sachs argued that, since they are developing rapidly, by 2050 the combined economies of the BRICs could eclipse the combined economies of the current richest countries of the world. The four countries, combined, currently account for more than a quarter of the world's land area and more than 40% of the world's population.

An Instructional Teaching Case for Accounting Teachers

The Brooks Brothers Tangle With the SEC
The company had four independent auditors over the course of this saga
David Brooks apparently made threatening remarks to certain of his company's independent auditors
"Of Hurricanes and Harness Racing:  The Accounting Fraud at DHB Industries, by Michael C. Knapp and Carol A. Knapp, Issues in Accounting Education, Vol. 28, No. 1, February 2013, pp. 131-152 ---
http://aaajournals.org/doi/full/10.2308/iace-50297

You can't make up a story like this.
Andrew Cohen, Senior Legal Analyst, CBS News

ABSTRACT:

This instructional case focuses on an accounting and financial reporting fraud involving DHB Industries, Inc., the nation's largest manufacturer of bullet-resistant vests. Three executives of this Securities and Exchange Commission (SEC) registrant, including its founder and CEO, masterminded a large-scale fraud that grossly misrepresented DHB's financial statements. The three executives colluded to conceal their misdeeds from the four accounting firms that served as the company's independent auditors over the course of the fraud. In late 2010, a federal jury convicted DHB's former CEO and COO of multiple counts of fraud and related charges. This case addresses a wide range of auditing issues raised by the DHB fraud, including the identification of fraud risk factors, auditing of related-party transactions, the impact of frequent auditor changes on audit quality, and the internal control reporting responsibilities of auditors.

. . .

Circus Trial

The criminal trial of David Brooks and his co-defendant Sandra Hatfield commenced in late January 2010. Brooks faced a 17-count federal indictment that included allegations of corporate fraud, insider trading, conspiracy, and obstruction of justice. Hatfield faced similar charges in the 16-count federal indictment filed against her.

Throughout the trial, jurors were pelted with an unrelenting stream of evidence that documented how Brooks had used “DHB as his personal piggy bank” (SEC 2007). Personal expenditures paid with corporate funds included purchases of luxury automobiles, expensive art, jewelry, designer clothing, and real estate. Court testimony revealed that the largest benefactor of Brooks' embezzlement scheme was his beloved harness racing operation. Brooks reportedly diverted nearly $15 million of DHB funds through TAP to help finance his expensive hobby.

Other testimony during the long criminal trial documented how Brooks had repeatedly lied to DHB's independent auditors to conceal his fraudulent scams. Schlegel's testimony laid out in minute detail the extreme lengths to which she, Brooks, and Hatfield had gone to mislead the auditors. The most elaborate hoaxes were required to conceal the large overstatements of inventory from the curious and persistent teams of auditors.

Throughout the eight-month trial, the presiding federal magistrate, Judge Joanna Seybert, faced the daunting task of maintaining a sense of civility and decorum in her Long Island courtroom. The first drama involved the revocation of David Brooks' bail. In January 2008, three months after his initial arrest, Brooks' attorneys secured his release on bail. Because Judge Seybert believed that Brooks posed a significant flight risk, she required him to post a $400 million bail bond that included cash and other collateral of nearly $50 million. The bail terms also required Brooks to retain a security firm at an estimated cost of $3,500 per day to monitor him around the clock. ABC News (2008) reported that Brooks' bail terms were more stringent than those imposed years earlier by a federal judge on the infamous mobster John Gotti.

Just as Brooks' trial was beginning, Judge Seybert revoked his bail and remanded him to jail because of two reports given to her by the FBI. An undercover video forwarded to the FBI by Scotland Yard detectives allegedly showed Jeffrey Brooks and one of his subordinates transferring millions of euros to a large safety deposit box in a London bank. The FBI was convinced that the funds belonged to David Brooks. The FBI also informed Judge Seybert that they had discovered evidence suggesting that Brooks had secretly transferred tens of millions of dollars to bank accounts in the tiny European nation of San Marino. Judge Seybert revoked Brooks' bail because the two incidents violated the conditions of his bail agreement that mandated that all of his financial assets be “frozen.”

Midway through the trial, Judge Seybert threatened to have David Brooks removed from the courtroom after he was discovered attempting to smuggle anxiety-suppression medication into his jail cell. The anti-anxiety pills were hidden in a ballpoint pen that had been placed at Brooks' desk during a break in the courtroom proceedings. Following this incident, Judge Seybert barred Jeffrey Brooks and one of David Brooks' close friends from the courtroom. Brooks' personal psychiatrist subsequently testified that the psychiatrist at the correctional facility where Brooks was being held had prescribed him an insufficient dosage of the anti-anxiety medication. Brooks reportedly needed larger than normal dosages of that medication to ward off the panic attacks that he frequently experienced.

Later in the trial, federal prosecutors revealed that several months earlier, David Brooks had allegedly asked a veterinarian who worked in his harness racing operation to obtain a medication administered to horses. If taken by a human, this medication would supposedly wipe out his or her memory. According to the veterinarian, Brooks hoped to somehow administer the medication to Dawn Schlegel, the prosecution's principal witness, prior to the beginning of his criminal trial. This revelation and Brooks' other antics during the trial caused Comedy Central's Stephen Colbert to name Brooks his “Alpha Dog of the Week” during the August 2, 2010, airing of the popular television program The Colbert Report.

Andrew Cohen, a senior legal analyst for CBS News who monitored Brooks' trial, observed that many of its details were so salacious that major publications, such as The New York Times, would not report them (Cohen 2010). One veteran reporter summarized some of the more outrageous events and testimony that took place during the trial:

It's not an everyday federal trial in which an FBI agent walks into the courtroom in the middle of a trial and seizes the contents of a defendant's wastebasket as part of a still ongoing investigation into whether Brooks tampered with the jury. Or in which the defense asserts that the payment of company money to prostitutes might be an acceptable technique to motivate employees. Or in which a defendant says he is entitled to have his company pay for the grave of his mother, camp tuition for his children, a $60,000 sculpture of a Wall Street bull, family trips to St. Barts and St. Tropez, or allegedly drains millions of dollars off through a shell company to pay for the upkeep of harness stables. (Cohen 2010)

After spending two months studying the massive amount of evidence that prosecutors had presented to prove their allegations, a federal jury convicted Brooks on all 17 counts that had been filed against him. Sandra Hatfield, Brooks' former colleague and co-defendant, was found guilty on 14 of the 16 counts included in her federal indictment.

Epilogue

In April 2010, near the midpoint of David Brooks' criminal trial, Point Blank Solutions, the successor to DHB Industries, Inc., filed for protection from its creditors in U.S. Bankruptcy Court. To date, a reorganization plan for the company has not been approved by the federal judge presiding over the company's bankruptcy filing. Point Blank remains an operating entity and continues to claim that it is the world's leading manufacturer of body armor.

Following the completion of Brooks' trial, his attorneys immediately appealed his conviction. Among other arguments, the attorneys maintained that Brooks was incompetent and unable to contribute to his defense during much of the trial because of the anti-anxiety medication that he was taking. With his appeal still pending, Brooks has yet to be sentenced. Shortly after his criminal trial ended, Brooks pled guilty to tax evasion charges that had been pending against him for several years. Brooks is yet to stand trial on contempt charges filed against him as a result of his behavior during his criminal trial.

In February 2011, the SEC filed a civil complaint against three former members of DHB's audit committee. The federal agency charged the three individuals with being “willfully blind to numerous red flags signaling accounting fraud, reporting violations, and misappropriation at DHB” (SEC 2011). The civil complaint went on to allege that the three former audit committee members “merely rubber-stamped the decisions of DHB's senior management while making substantial sums from sales of DHB's securities” (SEC 2011).

 

QUESTIONS

1. Exhibits 1 and 4 present DHB's original 2003–2004 balance sheets and income statements and the restated balance sheets and income statements for those two years, respectively. Review the original and restated financial statements for 2004 and identify the “material” differences between them. (Note: You are not required to identify the sources of these differences.) Defend your choices.
2. Identify the fraud risk factors posed by DHB for its independent auditors. Which of these factors, in your opinion, should have been of primary concern to those auditors?
3. During the 2004 DHB audit, the company's independent auditors had considerable difficulty obtaining reliable audit evidence regarding the $7 million of obsolete vest components that allegedly had been destroyed by a hurricane. What responsibility do auditors have when the client cannot provide the evidence they need to complete one or more audit tests or procedures?
4. What responsibility, if any, do auditors have to search for related-party transactions? If auditors discover that a client has engaged in related-party transactions, what audit procedures should be applied to them?
5. Compare and contrast the internal control reporting responsibilities of the management and independent auditors of public companies.
6. What potential consequences do frequent changes in auditors have for the quality of a given entity's independent audits? Identify professional standards or other rules and regulations that are intended to discourage auditor changes or provide disclosure of the circumstances surrounding them.
7. David Brooks apparently made threatening remarks to certain of his company's independent auditors. What actions should auditors take when they are the target of hostile statements or actions by client executives or employees?
8. Does the SEC have a responsibility to protect the investing public from self-interested corporate executives? Do professional auditing standards or other rules or regulations impose such a responsibility on independent auditors?
9. The audit committee of DHB Industries was criticized for failing to carry out its oversight responsibilities. What are the primary responsibilities of a public company's audit committee?

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

An Instructional Teaching Case for Accounting Instructors

From The Wall Street Journal Accounting Weekly Review on March 8, 2013

Public-University Costs Soar
by: Ruth Simon
Mar 06, 2013
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com 
 

TOPICS: Financial Ratios, Governmental Accounting

SUMMARY: The article describes the current state of affairs at public institutions of higher education with respect to funding from the state, tuition increases, and some university options to solve the issues that they face. These concerns will be of interest to students generally. The accounting focus in best presented in the related video: return on investment in education.

CLASSROOM APPLICATION: The article may be used in any accounting class introducing return on investment. It also may be used in a class covering topics in governmental or not-for-profit entities to discuss the current economic status of public universities. By definition, the state universities that are the focus of the article will use governmental accounting requirements.

QUESTIONS: 
1. (Introductory) Summarize the points in the article about factors currently affecting the revenues to state universities.

2. (Introductory) How are the current issues facing state universities affecting their students and prospective students?

3. (Advanced) Define the term ROI (return on investment) and state how it is calculated.

4. (Advanced) Based on the discussion in the related video, how is the concept of ROI applied to assess a student's investment in college tuition and other costs?

5. (Advanced) What return measure is proposed in the video for assessing a student' return on investment in his/her higher education? What are some weaknesses of that measure? Can you propose any other measure that would address those weaknesses?
 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Public-University Costs Soar," by Ruth Simon, The Wall Street Journal, March 6, 2013 ---
http://online.wsj.com/article/SB10001424127887324539404578342750480773548.html?mod=djem_jiewr_AC_domainid

Tuition at public colleges jumped last year by a record amount as state governments slashed school funding, the latest sign of strain in the U.S. higher-education sector.

The average amount that students at public colleges paid in tuition, after state and institutional grants and scholarships, climbed 8.3% last year, the biggest jump on record, according to a report based on data from all public institutions in all 50 states to be released Wednesday by the State Higher Education Executive Officers Association. Median tuition rose 4.5%.

The average state funding per student, meanwhile, fell by more than 9%, the steepest drop since the group began collecting the data in 1980. Median funding fell 10%. During the recession, states began cutting support for higher education, and the trend accelerated last year.

Rising tuition costs are "another example of the bind that public institutions are in," said Sandy Baum, a senior fellow at the George Washington University Graduate School of Education and Human Development. "Unless we make public funding a higher priority, the funds are going to have to come from parents and students."

To be sure, last year's decline in state funding nationwide was driven heavily by cutbacks in California, which has the largest state system and lashed funding per student by 14.3% last year. Not including California, per-student funding fell 8% and tuition rose 6.3%.

Paul Lingenfelter, president of the higher-education association, noted that 31 states increased higher education funding in 2012-13, and a number have proposed an increase for the coming year as well.

Kaylen Hendrick, a senior at Florida State University in Tallahassee majoring in environmental studies, is graduating in three years rather than four in order to keep costs and borrowing down.

"Growing up, I thought if I made good enough grades, that college would not be a problem," said Ms. Hendrick, 20 years old, who has taken out about $15,000 in student loans and works 20 hours a week to pay for college.

State funding for the State University System of Florida has declined by more than $1 billion over the last six years, even as enrollment has grown by more than 35,000 students, a spokeswoman for the system said.

Nationally, average tuition, after institutional grants and scholarships, increased to $5,189 in 2011-12 from $4,793 a year earlier, according to the report, which is based on the 2011-12 academic year and adjusted its figures for inflation. Tuition revenue accounted for a record 47% of educational funding at public colleges last year.

The price increases at state schools come at a time when many private colleges are reining in price increases and awarding generous scholarships to attract families worried about rising debt loads and a still shaky job market. In some cases, state tuition has risen so much that costs approach what students might pay at a private college.

At Pennsylvania State University's main campus, in-state undergraduate students receiving financial aid paid an average of $21,342 after grants and scholarships in 2010-11, according to the U.S. Department of Education, up 12% since 2008-09. State funding now accounts for less than 14% of the school's educational budget, down from as much as 62% in 1970-71. "When the appropriation is cut, tuition rises," a Penn State spokeswoman said.

In addition to raising tuition, many states have pared spending. The California State University System declined to take the vast majority of transfer students this spring and has turned away about 20,000 students who qualified for admission during each of the past three years, a spokesman said.

In Kentucky, higher tuition prices make up for just half of the loss in state funding, said Robert King, president of the Kentucky Council on Postsecondary Education, which oversees the state's system.

Continued in article

"One-Third of Colleges Are on Financially 'Unsustainable' Path, Bain Study Finds," by Goldie Blumenstyk, The Chronicle of Higher Education, July 23, 2012 ---
http://chronicle.com/article/One-Third-of-Colleges-Are-on/133095/

Bob Jensen's threads on higher education controversies are at
http://www.trinity.edu/rjensen/HigherEdControversies.htm

LIBOR (including a fraud bigger than Enron)  --- http://en.wikipedia.org/wiki/Libor

"Freddie Mac Sues Multiple Banks Over Libor Manipulation," by Tom Schoenberg & Andrew Zajac, Bloomberg, March 20, 2013 ---
http://www.bloomberg.com/news/2013-03-19/freddie-mac-sues-multiple-banks-over-libor-manipulation.html

Jensen Comment
Makes you wonder what PwC knew --- Probably nothing since the PCAOB accuses PwC of poor quality controls in auditing. Now Barclays at the heart of the LIBOR scandal is considering dropping PwC as its auditor.

Jensen Comment
Makes you wonder what PwC knew --- Probably nothing since the PCAOB accuses PwC of poor quality controls in auditi

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

Bad News and Bad News for PwC

First the Bad News
"Barclays (of massive LIBOR fraud fame) Considers Auditor Change After a Century With PwC," Bloomberg, March 8, 2013 ---
http://www.bloomberg.com/news/2013-03-08/barclays-considers-auditor-change-after-a-century-with-pwc.html

Now more Bad News News
"At Least PwC Doesn't Have to Worry About Improving the Supervision of Its Auditors Anymore," by Caleb Newquist, Going Concern, March 11, 2013 ---
http://goingconcern.com/post/least-pwc-doesnt-have-worry-about-improving-supervision-its-auditors-anymore

"Is FASB Killing the Auditing Profession?," by Anthony H. Catanach Jr., Grumpy Old Accountants Blog, March 15, 2013 ---
http://grumpyoldaccountants.com/blog/2013/3/15/is-fasb-killing-the-auditing-profession

Well, the auditing profession appears to have finally hit the “bottom of the barrel.”  The demise of the respected Arthur Andersen firm in the wake of the Enron scandal was a huge disappointment.  And now PricewaterhouseCoopers (PwC) has failed us by not living up to the high standards set by its legacy firm.  For those of you too young to remember, Price Waterhouse & Co. was the Brooks Brothers of the accounting and auditing profession at one time.  As Mark Stevens in The Big Eight noted in 1981 (yes, over 30 years ago), Price worked hard “to retain its image as the gilt-edge CPA firm.”  My how times have changed!

​So what happened?  On March 7, 2013, the Public Company Accounting Oversight Board (PCAOB ) reported that the PwC had failed to address certain audit related quality control criticisms levied at the firm in previous PCAOB inspection reports, not once but twice, first in March 25, 2009 and then again in August 12, 2010.  What makes this so interesting is that the issues raised in those previously issued reports would have remained “private” had PwC simply corrected the problems within 12 months of the reports’ issuance.  While this is not the first time that one of the Big Four has thumbed their noses at the PCAOB (Deloitte felt the PCAOB’s wrath in October 2011), it is surprising that “a leader in the profession” (and yes, those are PwC’s own words) has done so. You may recall that the Grumpies were not wild about this behavior the first time it happened.

Well, Lynn Turner, a former Chief Accountant of the U.S. Securities and Exchange Commission (SEC), in a recent email (March 7th) to his distribution list, has asked the million dollar question:

What kind of leaders are running the firms, what type of governance do they have, that provides that type of response to the regulator?

 

Just look at PwC’s response to the PCAOB in its March 7, 2013, Release No. 104-2013-054:

The Part II comments relate to some of the most complex, judgmental and evolving areas of auditing. Our actions relating to those areas, during the 12 months following issuance of the  comments and thereafter, have included providing our audit professionals with enhanced audit tools, training and additional technical guidance to promote more consistent audit execution. We believe that these efforts have been important positive contributors to audit quality at our firm. We are proud of our focus on continuous improvement and of the dedication and high quality audit work performed by our partners and other professionals.

Wow!  This hints at an admission by PwC that its highly paid auditors were not properly trained to audit publicly traded firms.  If this is indeed the case, we surely can’t overlook the ethical implications of a firm contracting to do work for which it was not qualified. This never would have happened at Price Waterhouse & Co. What really bothers this grumpy old accountant is that PwC just doesn’t get it. The old “we’ll try harder” language is just not acceptable.

 

Continued in article

"PCAOB Criticizes Quality At PwC; Nothing Happens," by Francine McKenna, Forbes, March 11, 2013 ---
http://www.forbes.com/sites/francinemckenna/2013/03/11/pcaob-criticizes-quality-at-pwc-nothing-happens/

Big news last week in the breathless world of audits and auditors. The audit regulator, the Public Company Accounting and Oversight Board – even the word “oversight” should get you excited – published its private criticisms of PricewaterhouseCoopers poor quality audit work for not one but two audit years, 2007 and 2008. If those years sound familiar, they should be.

That’s when the financial crisis started unraveling!

PricewaterhouseCoopers is, and still is, the financial, statutory auditor - with the duty to give an opinion on financial statement verity - of some of the biggest players in the financial crisis. When you watch the Andrew Ross Sorkin HBO movie, Too Big To Fail, try to imagine current PwC Audit Practice Global Leader Tim Ryan standing behind AIG or current Citi Vice Chairman and former PwC Global Chairman Sam Di Piazza standing two steps behind JPMorgan’s Jamie Dimon, or former PwC Chairman Jim Schiro now Goldman Sachs Audit Committee and Board Chairman whispering in Lloyd Blankfein‘s ear.

PwC also still audits Barclays, Bank of America, and Freddie Mac. After the TARP plan was initiated PwC got the job, along with Ernst & Young, of preparing the internal controls infrastructure at the Treasury to make sure money went out quickly and to the right banks. That open-ended procurement blank check is still in effect.

So, what will happen to PwC as a result of these very dramatic criticisms of the quality of their audits, perhaps audits of some crucial financial services companies? The experience of Deloitte, the first Big Four firm to suffer the ignominy of having the PCAOB air its dirty audit laundry in public may be instructive.

Pretty much nothing.

PwC was the consulting firm with the most clients for the recent failed OCC/Fed foreclosure reviews. The firm billed more than $1 billion and will now be able to continue servicing those banks they don’t audit with more “governance, risk, and compliance” advisory services without worrying about any scrutiny.

PwC is not worried about the PCAOB. They are laughing all the way to the banks. All of them.

Continued in article

"GT and BDO told to buck up professional scepticism," by Richard Crump, AccountancyAge, March 22, 2013 --- Click Here
http://www.accountancyage.com/aa/news/2256866/gt-and-bdo-told-to-buck-up-professional-scepticism?WT.rss_f=&WT.rss_a=GT+and+BDO+told+to+buck+up+professional+scepticism 

Bob Jensen's threads on Grant Thornton (GT) and BDO accounting firms are at
http://www.trinity.edu/rjensen/Fraud001.htm

Question
Ever since the early formation of FAS 133 and IAS 39, what has been the main objection to allowing hedge accounting on macro (portfolio) hedges?

Answer
Actually there's been no objection as long as the items in a portfolio are homogeneous. The controversy arises with heterogeneity such that more than one type of risk is being hedged in a mixed-risk portfolio. For example, consider a portfolio of real estate mortgages having different interest rates and different maturity dates. It's impossible to hedge all of these different risks with a single derivative financial instrument having one hedged interest rate or one hedging instrument maturity date.

This of course does not mean that companies do not continued hedge portfolios with mixed risks. The issue is whether they get hedge accounting relief and if so what type of relief should be given given the different risks in the portfolio that are not fully hedge (and probably not effectively hedged). A revision of IAS 39 gave very limited hedge accounting treatments in some instances, but the revision really does not address the main controversies.

The European Financial Reporting Advisory Group (EFRAG) has submitted to the IASB a letter outlining the results of its analysis of the impact on macro hedge relationships of the consequential amendments proposed by the Review Draft (RD) 'IFRS 9 General hedge accounting' on existing macro hedge relationships under IAS 39, which was published by the IASB in September 2012. EFRAG suggests an option of either following IAS 39 or IFRS 9,
IAS Plus, March 23, 2013 ---
http://www.iasplus.com/en/news/2013/03/efrag-hedge-accounting

March 2013 Financial Reporting Briefs from Ernst & Young ---
http://www.ey.com/UL/en/AccountingLink/Accounting-Link-Home

Question
What five companies primarily drive ups and downs of the Dow price index?

Hint
It's like judging your teaching performance in a class of 30 students on the basis of only five selective students chosen not at random.

Answer
"Five Stocks Do the Heavy Lifting," by Steven Rossolillo, The Wall Street Journal, March 5, 2013 ---
http://online.wsj.com/article/SB10001424127887324539404578342771985751896.html

Jensen Comment
There's fantastic interactive graphic that accompanies this online article. You have to see it to believe it!

Bob Jensen's threads on multivariate data visualizations:
Visualization of Multivariate Data (including faces) --- http://www.trinity.edu/rjensen/352wpvisual/000datavisualization.htm 

"Seven tips to beautiful PowerPoint," by Eugene Cheng  ---
http://www.slideshare.net/itseugene/7-tips-to-beautiful-powerpoint-by-itseugenec
Thank you Andy's Teaching and Learning Blog for the heads up ---
http://awteachlearn.blogspot.com/

Bob Jensen's PowerPoint helpers ---
http://www.trinity.edu/rjensen/000aaa/thetools.htm#PowerPointHelpers

March 26, 2013 message from Paul Caron

IRS Releases 'Dirty Dozen' Tax Scams

The IRS today released (IR-2013-33) its 2013 “dirty dozen” list of tax scams:

1. Identity Theft
2. Phishing
3. Return Preparer Fraud
4. Hiding Income Offshore
5. “Free Money” from the IRS & Tax Scams Involving Social Security
6. Impersonation of Charitable Organizations
7. False/Inflated Income and Expenses
8. False Form 1099 Refund Claims
9. Frivolous Arguments
10. Falsely Claiming Zero Wages
11. Disguised Corporate Ownership
12. Misuse of Trusts

"Can the Treasury Exempt Its Own Companies from Tax? The $45 Billion GM NOL Carryforward," by J. Mark Ramseyer and Eric Bennett Rasmusen, SSRN, March 18, 2013 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2235068

Abstract:     
To discourage firms from buying and selling tax deductions, Section 382 of the tax code limits the ability of one firm to use the ‘‘net operating losses’’ (NOLs) of another firm that it acquires. Under the Troubled Asset Relief Program, the U.S. Treasury lent a large amount of money to General Motors. In bankruptcy, it then transformed the debt into stock. GM did not make many cars anyone wanted to buy, but it did have $45 billion in NOLs. Unfortunately for the Treasury, if it now sold the stock it acquired in bankruptcy, it would trigger Sec. 382. Foreseeing this, the market would pay much less for its stock in GM. Treasury solved this problem by issuing a series of notices in which it announced that the law did not apply to itself. Sec. 382 says that the NOL limits apply when a firm’s ownership changes. That rule would not apply to any firm bought with TARP funds, declared Treasury. Notwithstanding the straightforward and all-inclusive statutory language, GM could use its NOLs in full after Treasury sold out. The Treasury issued similar notices about Citigroup and AIG.

Treasury had no legal or economic justification for any of these notices, but the press did not notice. Precisely because they involved such arcane provisions of the corporate tax code, they largely escaped public attention. The losses to the public fisc were not minor — they cost the country billions of dollars in tax revenue. That the effect could be so large and yet so hidden illustrates the risk involved in this kind of tax manipulation. The more difficult the tax rule, the more easily the government can use it to hide the cost of its policies and subsidize favored groups. We suggest that Congress give its members standing to challenge unlegislated tax law changes in court.

This type of celebrity bankruptcy that frequently happens to professional athletes should not be happening to the likes of Diane Warwick with assets of $25,500 and debts of more than $10,700,000.

"Singer Dionne Warwick files for bankruptcy," Reuters, March 26, 2013 ---
http://www.reuters.com/article/2013/03/26/entertainment-us-dionnewarwick-idUSBRE92P04J20130326

As Joe Lewis supposedly said:
I been poor
And I been rich
Rich is better

2012 IRS Data Book

Message from Paul Caron on March 26, 2013 ---
http://taxprof.typepad.com/

2012 IRS Data Book

The IRS yesterday released the 2012 IRS Data Book, which contains a wealth of statistical information for the IRS's Oct. 1, 2011 - Sept. 30, 2012 fiscal year.  Here are the statistical tables:

Returns Filed, Taxes Collected, and Refunds Issued

• Table 1: Collections and Refunds, by Type of Tax
• Table 2: Number of Returns Filed, by Type of Return
• Table 3: Number of Returns Filed, by Type of Return and State
• Table 4: Number of Returns Filed Electronically, by Type of Return and State
• Table 5: Gross Collections, by Type of Tax and State
• Table 6: Gross Collections, by Type of Tax
• Table 7: Number of Refunds Issued, by State and Fiscal Year
• Table 8: Amount of Refunds Issued, Including Interest, by Type of Refund and State

Enforcement: Examinations

• Table 9a: Examination Coverage: Recommended and Average Recommended Additional Tax After Examination, by Type and Size of Return
• Table 9b: Examination Coverage: Individual Income Tax Returns Examined, by Size of Adjusted Gross Income
• Table 10: Examination Coverage: Returns Examined with Unagreed Recommended Additional Tax After Examination, by Type and Size of Return
• Table 11: Examination Coverage: Returns Examined Involving Protection of Revenue Base, by Type and Size of Return
• Table 12: Examination Coverage: Returns Examined Resulting in Refunds, by Type and Size of Returns
• Table 13: Returns of Tax-Exempt Organizations, Employee Retirement Plans, Government Entities, and Tax-Exempt Bonds Examined, by Type of Return

Enforcement: Information Reporting and Verification

• Table 14: Information Reporting Program
• Table 15: Math Errors on Individual Income Tax Returns, by Type of Error

Enforcement: Collections, Penalties, and Criminal Investigation

• Table 16: Delinquent Collection Activities
• Table 17: Civil Penalties Assessed and Abated, by Type of Tax and Type of Penalty
• Table 18: Criminal Investigation Program, by Status or Disposition

Taxpayer Assistance

• Table 19: Selected Taxpayer Assistance and Education Programs, by Type of Assistance or Program
• Table 20: Taxpayer Advocate Service: Postfiling Taxpayer Assistance Program, by Type of Issue and Relief
• Table 21: Appeals Workload, by Type of Case

Tax Exempt Activities

• Table 22: Tax-Exempt Guidance and Other Regulatory Activities
• Table 23: Determination Letters Issued on Employee Retirement Plans, by Type and Disposition of Plan
• Table 24: Closures of Applications for Tax-Exempt Status, by Organization Type and Internal Revenue Code Section
• Table 25: Tax-Exempt Organizations and Nonexempt Charitable Trusts

Chief Counsel

• Table 26: Chief Counsel Workload: All Cases, by Office and Type of Case or Activity
• Table 27: Chief Counsel Workload: Tax Litigation Cases, by Type of Case

IRS Budget & Workforce

• Table 28: Costs Incurred by Budget Activity
• Table 29: Collections, Costs, Personnel, and U.S. Population
• Table 30: Personnel Summary, by Employment Status, Budget Activity, and Selected Type of Personnel
• Table 31: Internal Revenue Service Labor Force, Compared to National Totals for Civilian and Federal Labor Forces, by Gender, Race/Ethnicity, and Disability

First-Time Homebuyer Credit

• Table A: First-Time Homebuyer Credit, by State

Press and blogosphere coverage:

• Bloomberg, IRS Audits of Individual Taxpayers Declined 5.3% in 2012

 

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

Untouchable Gangster Bankers and Their Auditors

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

Jensen Question
Did KPMG shift its entire Fannie Mae auditing team to HSBC?

Question
What was the largest audit client lost by KPMG in the USA?

Answer
I did not research this, but the leading contender has to be when KPMG was fired from the Fannie Mae scandal in what was one of the largest earnings management frauds in history coupled with incompetent auditing of financial derivative financial instruments ---
http://www.trinity.edu/rjensen/Theory02.htm#Manipulation

From the CFO.com Morning Ledger on March 7, 2013

KPMG audit contract with HSBC at risk. KPMG could lose the biggest audit contract in Britain after HSBC decided to consider bringing in a fresh pair of eyes to vet its accounts, the FT reports. The bank said it would put its audit contract out to tender for the first time in more than two decades in the most striking sign yet that regulatory pressure is starting to break down the ties that bind many big companies to their auditor. The tender could give KPMG rival Ernst & Young an opportunity to pick up a big British bank as an audit client. HSBC said it wanted the winner of the tender to be in place by 2015.

"Gangster Bankers: Too Big to Jail:  How HSBC hooked up with drug traffickers and terrorists. And got away with it," by Matt Taibbi, Rolling Stone, February 14, 2013 ---
http://www.rollingstone.com/politics/news/gangster-bankers-too-big-to-jail-20130214

March 4, 2013 message from Roger Collins

From

http://www.bbc.co.uk/news/business-21653131 

Some quotes

"HSBC paid out $4.2bn (£2.8bn) last year to cover the cost of past wrongdoing. As well as $1.9bn in fines for money laundering, the bank also set aside another $2.3bn for mis-selling financial products in the UK. The figures came as HSBC reported rising underlying profitability and revenue in 2012, and an overall profit before tax of $20.6bn

Chief executive Stuart Gulliver's total remuneration for 2012 was some $7m, compared with $6.7m the year before. And after taking account of the deferral of pay this year and in more highly-remunerated years previously, Mr Gulliver actually received $14.1m in 2012, up from $10.6m in 2011.

The company's 16 top executives received an average of $4.9m each."

"During a conference call to present the results, Mr Gulliver told investors that the bank was not reconsidering whether to relocate its headquarters from London back to Hong Kong, in order to avoid a recently agreed worldwide cap on bonuses of all employees of banks based in the EU."

"HSBC's underlying profits - which ignore one-time accounting effects as well as the impact of changes in the bank's creditworthiness - rose 18%."

"The bank's results were heavily affected by a negative "fair value adjustment" to its own debt of $5.2bn in 2012, compared with a positive adjustment of $3.9bn the year before. The adjustment is an accounting requirement that takes account of the price at which HSBC could buy back its own debts from the markets. It has the perverse effect of flattering a bank's profits at a time when markets are more worried about its ability to repay its debts, and vice versa."

More in article.

Regards,
Roger Roger Collins
Associate Professor
OM1275 TRU School of Business & Economics

Jensen Question
Did KPMG shift its entire Fannie Mae auditing team to HSBC?

John Cleese --- http://en.wikipedia.org/wiki/John_Cleese

This is No Monty Python Joke in the Faulty Tower
"Actor John Cleese Flees (to Monaco) Tax-Free Monoco for High-Tax Britain," Daily Mail, March 14, 2013 ---
http://www.dailymail.co.uk/news/article-2294537/Lonely-John-Cleese-flees-Monaco--flogs-Wife-No-4s-furniture-Mystery-stars-online-sale-luxury-flats-contents.html

From the CFO.com Morning Ledger on March 12, 2013

Restatements on the rise at big companies.
Large U.S. companies have been restating financial results in increasing numbers over the past three years, with the tally growing 21% last year and rising 60% since 2009, Emily Chasan reports. The uptick reflects some of the complexity large multinational companies are facing in tax accounting and a move by the PCAOB to “turn up the heat” on big-company auditors, says Lynn Turner, former chief accountant at the SEC. Restatements at smaller companies, meanwhile, are starting to decline, even though those companies have traditionally been at higher risk for financial errors.

SEC says Illinois hid pension problems
Illinois settled SEC civil-fraud charges that the state misled municipal-bond investors by failing to adequately disclose the risks of its underfunded pension system, the WSJ reports. The action was part of a broader push by the SEC to bring transparency and accountability to the muni market. The problems date back to 1994, when Illinois lawmakers passed a funding plan that would allow the state to spread the pension costs over 50 years. Illinois also left it to lawmakers to decide how much to contribute to the funds each year. In some years, the state took “pension holidays,” lowering its planned pension contributions by about half.

Greenberg gets green light for class action.
A company run by the former CEO of AIG won the right to pursue as a class action its case against the U.S. government, alleging that elements of AIG’s financial-crisis bailout package were unconstitutional, WSJ reports. A judge ruled that the case “may be maintained as a class action,” a victory for Starr International, headed by Maurice “Hank” Greenberg, who long headed AIG. The decision marked the latest defeat for the government, which failed in its efforts last year to dismiss the claims.

Teaching Case
From The Wall Street Journal Weekly Accounting Review in March

SEC Says Illinois Hid Pension Troubles
by: Michael Corkery and Jeannette Neumann
Mar 11, 2013
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com 
 

TOPICS: Bonds, Business Ethics, GAAP, Governmental Accounting, Pension Accounting

SUMMARY: "The Securities and Exchange Commission on Monday charged Illinois with securities fraud.... [alleging] the state failed to adequately disclose to investors the risks of its underfunded pensions systems." The SEC concurrently announced a settlement in the case and the related video clearly shows one WSJ editor thinks very little of that development. He also refers to governmental financial reports in general as "fraudulent." A related graphic shows that Illinois has some of the lowest levels of funding in the nation for its retirement plans.

CLASSROOM APPLICATION: The article may be used in a governmental accounting course when covering pension accounting or simply to emphasize the importance of the comprehensive annual financial report and disclosures by governmental entities. It may also be used in an ethics course covering responsibility for clarity in financial reporting.

QUESTIONS: 
1. (Introductory) What wrongful act does the Securities and Exchange Commission (SEC) accuse the state of Illinois?

2. (Introductory) What is the focus of the SEC's responsibilities over the problem in Illinois?

3. (Advanced) Summarize the requirements in accounting for pension liabilities that states and other governmental entities must follow. In your answer, state the authoritative source for those requirements.

4. (Advanced) Access the State of Illinois Comprehensive Annual Financial Report (CAFR) located on its web site at http://www.ioc.state.il.us/index.cfm/linkservid/9BE62AD6-1CC1-DE6E-2F48A7172B174FA2/showMeta/0/ Refer to the report for the fiscal year ended June 30, 2010. Scroll down to the Comptroller's transmittal letter beginning on page v, and further to her discussion of Factors Affecting Financial Condition, beginning on page vii, to Pensions discussed on page viii. How did the State of Illinois make its legally required contribution to the pension fund in 2010? Does that funding source concern you? Answer the question as if you were a citizen of the State of Illinois and if you were an employee, such as a teacher or a university professor, active in the state retirement system.

5. (Advanced) Scroll further down to the Management Discussion and Analysis, to page 15 and the section entitled Retirement Systems. Besides bond indebtedness, what is the largest liability facing the State of Illinois? How do the amounts stated in this discussion compare to the amounts reported in the WSJ article?

6. (Advanced) According to the WSJ article, a goal of defined benefit retirement systems such as those in the State of Illinois is to be 90% funded. When does the State of Illinois expect to reach that goal?

7. (Advanced) According to the article, Elaine Greenberg of the SEC said that the State of Illinois did not follow required governmental accounting standards. Scroll back up to access the auditor's report for the State of Illinois, just following the transmittal letter. Who conducts the audit? Is there any indication that the state did not follow required accounting standards? Support your answer.

8. (Introductory) Refer to the related video featuring one of the WSJ Editors and to the related Opinion page article. What do the WSJ Editors conclude about the SEC's actions in this case?

9. (Advanced) Based on the discussion in the articles, the related video, and your knowledge of pension accounting requirements, what are the areas of judgment that might mean the problem of underfunding in Illinois, and elsewhere, could be even worse than currently estimated?
 

Reviewed By: Judy Beckman, University of Rhode Island
 

RELATED ARTICLES: 
SEC v Illinois
by Review & Outlook Opinion Page Editors
Mar 13, 2013
Page: A14

 

"SEC Says Illinois Hid Pension Troubles," by Michael Corkery and Jeannette Neumann, The Wall Street Journal, March 11, 2013 ---
http://online.wsj.com/article/SB10001424127887323826704578354370478104256.html?mod=djem_jiewr_AC_domainid

For years, Illinois officials misled investors and shortchanged the state pension system, leaving future generations of taxpayers to foot the bill, U.S. securities regulators allege.

The Securities and Exchange Commission on Monday charged Illinois with securities fraud, marking only the second time the agency has filed civil-fraud charges against a state.

But the agency and the state also announced that a settlement had already been reached in which Illinois won't pay a penalty or admit wrongdoing.

The action was part of a broader push by the SEC to bring greater transparency and accountability to the municipal-bond market, as the agency alleged the state failed to adequately disclose to investors the risks of its underfunded pensions systems.

The action also shows in detail how political decisions left the state with only 40 cents of assets for every dollar of pension liabilities—a financial hole Illinois officials are now scrambling to fill.

Yet no matter how harmful the pension practices were to the state's finances, SEC officials say they could only pursue charges against Illinois for what it failed to tell bond investors, who bought bonds worth $2.2 billion.

Most states comply with governmental accounting standards, which "Illinois did not follow," Elaine Greenberg, head of the SEC's municipal securities and public pensions unit, said in an interview. "But the SEC cannot order a state to follow any particularly methodology."

Governor Pat Quinn's Office of Management and Budget said the state has been working to enhance its disclosure practices since 2009.

States and cities across the U.S. face high pension costs. Rallying investment returns have helped make up the shortfalls at some plans, but others have cut benefits to workers to fill the deficit.

Illinois has one of the most underfunded pension systems in the U.S.

The SEC's 11-page, cease-and-desist order reveals new details about the financial and legislative practices that led to the state's current predicament.

The state's five public-employee pension plans manage the retirement benefits for clerical workers, teachers, judges, college professors and lawmakers. Collectively, their funding level stands at 40%. Nationally, the average funding level is about 75%.

The SEC settlement comes as Mr. Quinn, a Democrat, has pushed repeatedly to overhaul the state's pension system. Spiraling pension costs threaten to crowd out spending on other state services and are a major factor in Illinois's low credit rating. Standard & Poor's Ratings Services cut Illinois's rating one notch to A- in January, making it the lowest-rated U.S. state by S&P.

"This is one more weight on the scale," Illinois State Senator Daniel Biss, a Democrat, said of the SEC order.

But an overhaul, which could result in deep cuts for current workers and retirees, has remained elusive. Workers have argued that they shouldn't bear the burden for past mistakes.

The problems date back to 1994, when Illinois lawmakers passed a funding plan that would allow the state to amortize, or spread the pension costs, over 50 years. Most pensions use a 30-year amortization period. More

Heard: Muni Market Still in Need of a Minder

State officials also ignored the common practice of calculating contributions to the plans based on what is known as the "Actuarially Required Contribution."

Instead, Illinois left it to lawmakers to decide how much to contribute to the funds each year.

In some years, the state took "pension holidays," lowering its planned pension contributions by about half.

By 2009, actuaries and a consultant hired by the state began warning that the underfunding could lead to the system's insolvency, according to the SEC order.

The consultant said in a document that the state's pension system was so underfunded that it would likely "never be able to afford the level of contributions" required to reach 90% funded.

Yet, these concerns weren't disclosed to investors in bond-offering documents, the SEC said.

As it prepared its bond documents, the state made little effort to collect "potentially pertinent" information from the pension system's actuaries, the SEC said.

The state said it had worked to improve its practices after the SEC cited New Jersey for pension-disclosure issues in August 2010.

The SEC accused New Jersey of allegedly misleading investors that the state was adequately funding two of its pension systems—the agency's first securities-fraud case against a state. The SEC said the state didn't disclose that it had abandoned a five-year plan to fund the pension plans. New Jersey neither admitted nor denied wrongdoing but said it would improve its disclosures.

When New Jersey settled with the SEC, it didn't pay a fine, either. The SEC often doesn't fine governments because the costs are ultimately borne by taxpayers, according to people familiar with the agency's practices. In its Illinois order, the SEC noted that the state had taken steps to improve its disclosures, including the creation of a special "disclosure committee" that will sign off on bond-offering disclosures.

Illinois expects to sell approximately $500 million in bonds in early April, a state official said Monday. The sale was put off in January when S&P downgraded the state's credit rating.  

Continued in article

The sad state of governmental accounting ---
http://www.trinity.edu/rjensen/Theory02.htm#GovernmentalAccounting

Recalling an Ancient Jensen and Thomsen TAR Paper

"Tracking Sensors Invade the Workplace Devices on Workers, Furniture Offer Clues for Boosting Productivity," by Rachel Emma Silverman, The Wall Street Journal, March 6, 2013 ---
http://online.wsj.com/article/SB10001424127887324034804578344303429080678.html?mod=djemCFO_t

Jensen Comment
This article caught my eye, because years and years ago one of my then-current Danish doctoral students, Torbin Thomsen, and I published an article in The Accounting Review on how to improve costing of direct and  indirect labor by work sampling of workers doing varied activities throughout each day. The particular application was inspired by my wife's duties in the medical laboratory of the huge VA hospital in Palo Alto (when I was still in graduate school at Stanford). Medical labs were much less computerized in those days, and lab techs performed a variety of daily tests of blood, urine, feces, and spinal taps.

Interestingly, a famous book was latter written about this hospital ---
http://en.wikipedia.org/wiki/One_Flew_Over_the_Cuckoo%27s_Nest_%28novel%29
In also became a Academy Award winning film starring Jack Nicholson ---
http://en.wikipedia.org/wiki/One_Flew_Over_the_Cuckoo%27s_Nest_%28film%29

It was very difficult estimate the labor cost of individual types of tests (say blood cross-matching) since technicians darted from activity to activity throughout the work day and night. Torbin and I proposed a work sampling model for estimation of the the labor costs of laboratory tests.

The problem with our approach was that it was too intrusive. When randomly signaled a technician would have to top what she/he was doing and record the activity and time. In 2013 we now have new tracking sensors that are both less intrusive and/or take the need for work sampling out of the picture. It's now possible to track each entire work day. Big Brother has arrived!

"Statistical Analysis in Cost Measurement and Control," by Robert E. Jensen and Carl T. Thomsen, The Accounting Review, Vol. XLIII, No. 1, January 1968

A Master List of 700 Free Courses From Great Universities ---
http://www.openculture.com/2013/03/a_master_list_of_700_free_courses_from_great_universities.html
The Free Courses Search Site ---
http://www.openculture.com/freeonlinecourses 
There appear to be no free online accounting or business courses.
Some of the advertising disturbs me --- such as online Ph.D. programs with no GMAT required --- to me a red flag.
However many of the free courses appear to be legitimate (although not free for credit)

"New research finds support for valuing bank securities at current market value," by Elizabeth Blankespoor (Assistant Professor of Accounting at Stanford University), Stanford Graduate School of Business Newsletter, March 2013 --- Click Here
http://www.gsb.stanford.edu/news/research/new-look-truth-numbers?utm_source=Stanford+Business+Re%3AThink&utm_campaign=5edc9693da-REIS8&utm_medium=email&ct=t%28Stanford_Business_Re_Think_Issue_Eight2_22_2013%29

Early Pre-print of the Manuscript --- http://aaajournals.org/doi/pdf/10.2308/accr-50419

From the CFO.com Morning Ledger on March 12, 2013

Mary Jo White, President Obama’s nominee for SEC chairman, will make her case to the Senate Banking Committee today. In her prepared testimony, she said the SEC’s enforcement “must be bold and unrelenting.” Wrongdoers, she said, “will be aggressively and successfully pursued.” The WSJ says lawmakers will have to weigh two sides of her career. In one version, “Ms. White is a no-holds-barred crime fighter known for stretching the law to jail mob bosses and international terrorists.” In another, she’s a friend of Wall Street who represented big banks when she worked for law firm Debevoise & Plimpton

Jensen Questions
Where was she when we needed her 2000-2012?

Will the USA's biggest banks circle the wagons to protect their banksters?
http://www.trinity.edu/rjensen/FraudRotten.htm#InvestmentBanking 

Can she overcome some of the major problems of the SEC that include budget woes and a record of sloppy bookkeeping within its own house?
http://www.huffingtonpost.com/2011/02/03/sec-faces-budget-woes_n_817804.html  

"Ontario court approves $117M settlement between Ernst & Young, Sino-Forest:  It’s believed to be one of the largest settlements involving an auditor in Canadian history," The Star, March 20, 2013 ---
http://www.thestar.com/business/2013/03/20/ontario_court_approves_117m_settlement_between_ernst_young_sinoforest.html

The Ontario Superior Court has approved a $117-million class-action settlement involving Sino-Forest Corp. and its former auditor, Ernst & Young.

The agreed deal will see the accounting firm pay toward a fund to compensate shareholders of the troubled Chinese-Canadian company, which has been accused of fraudulently overstating its assets.

It’s believed to be one of the largest settlements involving an auditor in Canadian history.

The class-action had alleged that directors, officers, auditors and underwriters at timber trader misled investors with its accounting.

Several shareholders had originally objected to the settlement.

The company was first accused in 2011 of being a Ponzi scheme by Muddy Waters Research, prompting investigations by the Ontario regulator and the RCMP.

Continued in article

"Manhattan U.S. Attorney Announces Agreement With Ernst & Young LLP To Pay $123 Million To Resolve Federal Tax Shelter Fraud Investigation," New York State's Attorney's Office, March 1, 2013 ---
http://www.justice.gov/usao/nys/pressreleases/March13/EYNPAPR.php

Bob Jensen's threads on the legal  troubles of Ernst & Young ---
http://www.trinity.edu/rjensen/Fraud001.htm

Stanford Graduate School of Business Dean Garth Saloner discusses why and how business schools must change if they are to serve their students and society well, FEMD Global Focus, Issue 1 in 2013 ---
http://www.efmd.org/images/stories/efmd/globalfocus13/issue_1_2013_gsaloner_stanford.pdf

Jensen Comment
Note that the scope of this article is limited to a prestigious MBA program comprised mostly of matured students with stellar admissions credentials, including professional work experience and high admission scores. It focuses on having students from backgrounds ranging from chemistry, electrical engineering, psychology, history, mathematics, etc.

Stanford has no undergraduate business program, unlike Cornell.

Stanford has no accounting undergraduate or masters program like Cornell.

Stanford does have business Ph.D. programs, including an accounting Ph.D. program, but Dean Saloner is not addressing Stanford's Ph.D. programs.

My point is that "critical analytical thinking roofs" praised by Dean Saloner and broad scope a curriculum dealing with varied needs of society may not be appropriate for business and accounting programs that are not similar to Stanford's MBA program. For example, like it or not, we are not doing accounting majors much of a favor if they don't have the prerequisites to take the CPA examination in their state of choice. We aren't doing most business school graduates  much of a favor if they are more like sociology graduates and become uninteresting to business recruiters.

Critical Thinking:  Why is it so hard to teach?
http://www.trinity.edu/rjensen/HigherEdControversies.htm#CriticalThinking

Bob Jensen's threads on higher education controversies ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm

But then the story gets interesting when Chimera “fires” Deloitte as its auditor on March 11, 2012, replacing them with Ernst & Young.
"Chimera: So Many Questions, Too Few Answers," by Anthony H. Cataach Jr., Grumpy Old Accountants Blog, March 3, 2013 ---
http://grumpyoldaccountants.com/blog/2013/3/3/chimera-so-many-questions-too-few-answers

The last I heard, the purpose of financial reporting was to provide information that investors, creditors, and others can use to make decisions.  Well, when a publicly traded company fails to file its required financial statements, and market regulators let it get away with it, that’s a real problem.  How are investors and creditors supposed to evaluate their investments?  And that’s the $3 billion question being asked of Chimera (CIM) by Aaron Elstein in “A mythical name and profits, too?”

Here is a company that has neither filed a quarterly report since November 18, 2011 (for the quarter ended September 30, 2011), nor an annual report since February 28, 2011 (for the year ended December 31, 2010).  Yet, securities regulators permit Chimera to operate, and allow its stock to be listed and traded.  John Maxwell at the Motley Fool has described this situation as “inexcusable,” and that’s an understatement, for all the questions this situation raises.

 

Okay, why no financial statements? According to its Form 8-K filing with the Securities and Exchange Commission (SEC) on March 1, 2012, the Company needed additional time to “review the application of GAAP guidance to certain of its non-Agency assets.”  But then the story gets interesting when Chimera “fires” Deloitte as its auditor on March 11, 2012, replacing them with Ernst & Young.  What’s particularly curious is that the Company kept Deloitte to audit its 2011 10-K which has yet to filed. Then, in an August 1, 2012 Form 8-K filing, we learned of Chimera’s erroneous accounting for its non-agency residential mortgage-backed securities portfolio.  Basically, the Company accounted for this portfolio as if it were high credit quality, rather than reflecting its actual poor quality, necessitating a correction to reduce net income by almost $700 million during the affected reporting period (fiscal years ended 2008 through 2010).  And just recently, on March 1, 2013, Chimera notified the SEC in a Form NT 10-K filing that its annual financial statements for the fiscal year ended December 31, 2012 are not yet ready either.  However, there is a bit of good news…according to the filing, Chimera has finally completed its review of the accounting policies for its non-agency residential mortgage-backed securities portfolio, and that its 2011 annual report is forthcoming.  Better late than never, right?  Well, that’s just the first of my many questions.

Let’s start with the accounting error, or as today’s politically correct accountants call it, the restatement.  Given all of the expertise that Deloitte’s New York office presumably gained accounting for, auditing, and valuing financial instruments during the financial crisis of 2007 and 2008, it is unbelievable that it didn’t discover the “erroneous” accounting earlier.  My review of Chimera’s 2010 10-K uncovered plenty of clues that the Company’s non-agency residential mortgage-backed securities (RMBS) portfolio was “poor quality.”  Here are just a few:

 

• Page F-14 reveals that non-agency RMBS with an estimated fair value of $2.5 billion had over $412 million in unrealized losses.  That’s unrealized losses of over 14 percent of their cost.
• Page F-15 reports that 48.1 percent of all RMBS’s are rated below B or are not rated at all.
• Page F-17 indicates that non-agency RMBS are collateralized by Alt-A mortgages of subprime fame, 56.1 percent of which were originated during the 2007 pre-bust mortgage boom, and 57.8 percent financed properties in the overheated California market.

So you tell me…does that sound like a high quality mortgage securities portfolio?  How could such an “error” have occurred?  Surely it wasn’t due to accounting ineptitude, after all, according to Aaron Elstein, Chimera's CEO received $35 million in compensation in 2011. That kind of money should buy some expertise, right?  And according to the Company’s proxy statement (Schedule 14A) Deloitte received a whopping $827,625 in audit and audit related fees for 2010 for its work on what should be a fairly straight-forward engagement.  The balance sheet is nothing more than securities funded by repurchase agreements and collateralized debt.  How could Deloitte not see the accounting problem for three years?  

Continued in article

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

"Rethinking Mentorship," by Michael Ruderman (MBA student at Stanford), March 14, 2013 ---
http://www.huffingtonpost.com/michael-ruderman/mentors_b_2873228.html

Before starting at the Stanford Graduate School of Business, I received corporate training and mentorship that was largely directive. My managers told me what to do and I did it. When it came time for longer-term career advice, my managers encouraged me to follow in their footsteps.

Our dynamic, global economy demands creative leaders who are able to forge new paths. Mentorship must be more about empowering the mentee than about shaping the mentee to be like the mentor. It wasn't until I arrived at business school that my mentors stopped telling me what to do and started asking me questions. My mentors went from "advising" me to "coaching" me. What were my priorities? Where did I want to be in five, ten, twenty years? How did I define a successful, impactful life?

Daniel Goleman's research in the Harvard Business Review points out that the best managers must have several styles to be most effective. He points out that the "coaching" style -- acting more like a counselor than a traditional boss -- is used least often because it is the hardest, not because it is the least effective. Coaching requires managers to focus primarily on the personal development of their employees and not just work-related tasks. It requires managers to tolerate "short-term failure if it furthers long-term learning." Goleman points out that the coaching style ultimately delivers bottom-line results.

I was selected to be an Arbuckle Leadership Fellow at Stanford, a cohort of MBAs employing the coaching style to mentor other MBAs. I started the program from the perspective that my professor Carole Robin repeated over and over: our "coachees" were "creative, resourceful, and whole." I can listen deeply, ask provocative questions, use my intuition, reframe the problem, etc. But I don't need to tell them the answer in order to be an effective leader.

I was randomly assigned nine first-year MBA students to coach, all from different backgrounds. I would meet one-on-one with each of them over coffee for an hour at a time. We would talk about everything from their transition to business school life to their romantic lives to career issues. "What should I do?" they each asked. But I wouldn't tell them the answer. I would ask questions and try to help them find an answer on their own.

"Why don't you just tell me what to do?" was a common refrain from my coachees. Eventually the coachees internalized that I worked to understand their perspective and to help them find the answer on their own. Intellectual independence then bred empowerment. I watched a quiet student transform into a powerful presence in front of an executive audience.

I still had a nagging question: would the coaching style only work at business school? Could I still be a successful coaching manager and resist giving the answers in a real-world situation with deadlines, budget pressures, and valuable relationships on the line? In the run-up to the Out for Undergrad Tech Conference this February, I coached the direct reports on my team. When I fielded a question, my first instinct was to ask, "What do you think?" One of the volunteers on my team, a successful young professional at one of the hottest Silicon Valley companies, was frustrated at first, just as my MBA coachees were. But just like the Stanford MBAs, he too began to internalize that he could come up with the answers on his own. As soon as he would ask a question, he would pause, acknowledge he was thinking through an answer, and offer a solution.

Employees are motivated by more than money, and autonomy and purpose are two large motivating factors. As the global war for talent grows ever more competitive, the need to cultivate and hold onto talent is paramount. Coaching results in more autonomous employees who are able to find meaning in their work and see the purpose of their actions.

Continued in article

Jensen Comment
Mentoring may be even more of a problem in doctoral programs. One of my better former Trinity graduates was in the latter stages of an accounting doctoral program when his mentor advised him not to try to be too creative when proposing a dissertation and doing research on up to the point of receiving tenure. The mentor's advice was to crank out General Linear Model regression studies that are safe even if they were not very creative or exciting. Supposedly real attempts at creativity might be wasted time until tenure was attained.

When bailing out some companies is a bad idea for an industry
"Why We Need More Solar Companies to Fail: Solar manufacturers like Suntech are struggling. Hundreds need to die for the industry to recover," by Kevin Bullis,   MIT's Technology Review, March 18, 2013 --- Click Here
http://www.technologyreview.com/news/512516/why-we-need-more-solar-companies-to-fail/?utm_campaign=newsletters&utm_source=newsletter-daily-all&utm_medium=email&utm_content=20130318

From the AICPA Newsletter on March 11, 2013

New audit reports available from the Ethics Team
The AICPA Professional Ethics Team serves the AICPA membership by performing investigations of engagements and prescribing corrective action when violations of AICPA Professional Standards are discovered. The AICPA has compiled reports of deficiencies frequently found in its investigations of employee benefit plan and governmental and not-for-profit engagement audits during the last two years. Most often, the reporting, disclosure, and auditing errors have occurred as a result of a lack of experience and lack of specific continuing professional education in these areas. Typically, the deficiencies could have been detected by a quality control review of the financial statements and risk areas.

Jensen Comment
Since the AICPA sells continuing education courses and materials, I a bit dubious of the causality attributions. I', more inclined to blame poor supervision due to cost saving efforts of the auditing firms.

Whales Who Hate Mark-to-Market Accounting

From the CFO.com Morning Ledger on March 18, 2013

J.P. Morgan executives prodded over accounting. Former J.P. Morgan CFO Douglas Braunstein and some other ex-JPM executives got raked over the coals by a Senate panel about changes the bank made to its mark-to-market accounting processes as losses mounted on its “London Whale” trades, Emily Chasan reports. “Is it common inside J.P. Morgan to change your pricing practices when the losses start piling up?” asked Sen. Carl Levin (D., Mich), who chaired the hearing for the Senate’s Permanent Subcommittee on Investigations. Mr. Braunstein, who is currently vice chairman of the bank after stepping down from the CFO job last year, replied, “No, that is not acceptable practice.” While Mr. Braunstein said the bank believed at the time that the marks were consistent with U.S. accounting rules, he admitted that the practice of pricing its book at more advantageous levels was “not proper.”

Question
What is a "wash trade" and how can it be used to manipulate securities prices?

A wash trade (not to be confused with a wash sale) is an illegal form of stock manipulation in which an investor simultaneously sells and buys shares in order to artificially increase trading volume and thus the stock price.
http://en.wikipedia.org/wiki/Stock_manipulation

The United States Security and Exchange Commission defines a wash trade as "a securities transaction which involves no change in the beneficial ownership of the security."

From the CFO.com Morning Ledger on March 18, 2013

"Regulators zero in on ‘wash trades.’ U.S. regulators are investigating whether high-frequency traders are distorting stock and futures markets by illegally acting as buyer and seller in the same transactions, the WSJ reports. So-called wash trades are banned because they can feed false information into the market and be used to manipulate prices. The CFTC is focused on suspected wash trades by high-speed firms in futures contracts tied to the value of crude oil, precious metals, agricultural commodities and the S&P 500, among other underlying instruments. Investigators also are looking at the two primary exchange operators that handle such trades, CME and IntercontinentalExchange. Regulators are concerned the exchanges’ systems aren’t sophisticated enough to flag or stop wash trades.

"Law Professors See the Damage Done by ‘No Child Left Behind’," by Michele Goodwin, Chronicle of Higher Education, March 12, 2013 ---
http://chronicle.com/blogs/conversation/2013/03/12/law-professors-see-the-damage-done-by-no-child-left-behind/?cid=cr&utm_source=cr&utm_medium=en

. . .

Bernstein explained, “I want to warn you of what to expect from the students who will be arriving in your classroom, even if you teach in a highly selective institution.”

He was right to warn us, except for one error: Those students have already arrived. Very bright students now come to college and even law school ill-prepared for critical thinking, rigorous reading, high-level writing, and working independently.

Bernstein described what many college professors and even graduate-school professors have come to know firsthand. For more than a decade, a culture of test taking and teaching to the test has dominated elementary and secondary education in the United States, even at elite public and private schools. And now its effects are being felt by professors.

Continued in article

Jensen Comment
Seems like law schools are seeing more of the damage done by four years of undergraduate education in college.

"Extreme Game of Monopoly over at Simunomics," by Mark P. Holtzman, Accountinator Blog, March 12 ---
http://accountinator.com/2013/03/12/extreme-game-of-monopoly-over-at-simunomics/

I’m having a blast with Simunomics, a massive mulitplayer business simulation where you can start a business and compete with other players. The goal is, of course, to maximize shareholder value. Build up your retail, manufacturing and natural resource empire to gain market share and build up profits.

I started with manufacturing, and built factories making paper, dyes, beer, and ceramics. None of these fared very well. To keep my costs down, I built them in a depressed town (Drakar), and the markets for wholesale goods there are not very liquid. So I built a convenience store. Unfortunately, the competition for convenience stores is intense, and that store didn’t do too well, either.

So I sold everything – factories and all – and switched over to retailing. Did some market research – there’s serious demand in Drakar for phones, washing machines and fixtures. Then, I converted my convenience store to an appliance store, stocked up on phones, washing machines and fixtures, and started making money. At this point, I’m manufacturing my own phones and washing machines, which I’m reselling out of my own retail outlet.

I’ve got 272/400 points at the Startup(1) level. I’m looking forward to expanding so that I can move on to the next level. Right now, I’m aiming for more market presence in the appliance field, to expand my retail operations, and to continue to vertically integrate by manufacturing all of my own goods.

I would like to encourage my students to try out Simunomics, too. It will better help them to understand the mechanics of business operations. It’s also kind of addictive.

If you’d like to meet up over there, my business name is SHU Accountinator.

Continued in article

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

From the CFO.com Morning Ledger on March 11, 2013

Former Lehman CFO learns how to manage a life.
Erin Callan, the former CFO of Lehman Brothers, laments the lack of work-life balance during her career. “Work always came first, before my family, friends and marriage — which ended just a few years later,” she writes in this NYT piece. Ms. Callan says she often wonders whether she would have been asked to be CFO if she hadn’t worked 24-7. She says she use to think that her “singular focus” on her career was the key to her success. “But I am beginning to realize that I sold myself short. I was talented, intelligent and energetic. It didn’t have to be so extreme. Besides, there were diminishing returns to that kind of labor.” She says if Lehman hadn’t collapsed she may never have been strong enough to step away. “Perhaps I needed what felt at the time like some of the worst experiences in my life to come to a place where I could be grateful for the life I had. I had to learn to begin to appreciate what was left.”

Jensen Comment
Perhaps Erin would be less frustrated if she had not been so greedy to buy up poisoned real estate mortgages and the infamous entry into the Repo business with audit firm Ernst & Young blessings ---
http://www.trinity.edu/rjensen/ecommerce/eitf01.htm#Repo

"How Pervasive is Corporate Fraud?," by I. J. Alexander Dyck, Adair Morse, and Luigi Zingales, SSRN, February 22, 2013 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2222608

 Abstract:
We estimate what percentage of firms engage in fraud and the economic cost of fraud. Our estimates are based on detected frauds, and frauds that we infer are started but are not caught. To identify the ‘iceberg’ of undetected fraud we take advantage of an exogenous shock to the incentives for fraud detection: Arthur Andersen’s demise, which forces companies to change auditors. By assuming that the new auditor will clean house, and examining the change in fraud detection by new auditors, we infer that the probability of a company engaging in a fraud in any given year is 14.5%. We validate the magnitude of this estimate using alternative methods. We estimate that on average corporate fraud costs investors 22 percent of enterprise value in fraud-committing firms and 3 percent of enterprise value across all firms.

Number of Pages in PDF File: 56

Keywords: corporate fraud, governance, detection

Jensen Comment
The definition of "fraud" is subject to a lot of dispute.
For example, the controversial accounting of Repo 105 sales by Lehman Bros. that were 100% certain to be returned in a few weeks from former Lehman employees could be defined as fraudulent accounting and most certainly was defined as fraud by the Bank Examiner overseeing the subsequent bankruptcy. But auditors Ernst & Young vehemently denied that this was fraud and eventually prevailed in court due to a loophole in FAS 140. I question using the letter of the law as an excuse to deceive, but who am I to judge.

Detected frauds may only be the tip of the iceberg in the same way that the number of student and faculty cheating incidents detected and prosecuted by a university may only be the tip of icebergs.

Hence when the above article concludes that "detected" fraud costs investors 22% we really do not know how much undetected fraud adds to this cost.

Also the partitioning of losses may be somewhat arbitrary.
In the above example, we might conclude that, if the Repo accounting at Lehman was fraudulent, it was a nail in the coffin that carried Lehman to its demise. However, many non-fraudulent activities are millions of nails in that same coffin --- such as the financial decisions to buy real estate mortgages when not knowing that many of those investments would would be defaulted.

From Ernst & Young on March 8, 2013

FASB issues two ASUs

The FASB issued two Accounting Standards Updates (ASUs) on EITF consensuses it ratified at its 31 January 2013 meeting:

ASU 2013-04, Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date, requires a reporting entity that is jointly and severally liable to measure the obligation as the sum of the amount the entity has agreed with co-obligors to pay and any additional amount it expects to pay on behalf of a co-obligor.

ASU 2013-05, Foreign Currency Matters (Topic 830): Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity, specifies that a cumulative translation adjustment (CTA) should be released into earnings when an entity ceases to have a controlling financial interest in a subsidiary or group of assets within a consolidated foreign entity and the sale or transfer results in the complete or substantially complete liquidation of the foreign entity. For sales of an equity method investment that is a foreign entity, a pro rata portion of CTA attributable to the investment would be recognized in earnings upon sale of the investment. When an entity sells either a part or all of its investment in a consolidated foreign entity, CTA would be recognized in earnings only if the sale results in the parent no longer having a controlling financial interest in the foreign entity. CTA would be recognized in earnings in a business combination achieved in stages (i.e., a step acquisition).

From CFO.com Morning Ledger on March 8, 2013

Companies are tapping into their massive cash hoards to reward shareholders handsomely. S&P 500 firms are expected to pay at least $300 billion in dividends this year – topping last year’s $282 billion, the WSJ reports in this A1 must-read. And analysts say that could go even higher. Apple stands to pay out about $10 billion in a dividend policy it initiated last year, while Exxon Mobil and AT&T are each set to pay dividends around $10 billion. Then there are the buybacks. In February alone, American companies – including Home Depot, General Electric and PepsiCo — announced plans to buy back $117.8 billion of their own shares — the highest monthly total in records dating back to 1985.

“We are starting to get out of hunker-down mode, so what you have now is a bunch of cash-hoarders who have decided to take that cash out of their balance sheets,” said David Ikenberry, dean of the University of Colorado’s business school. “Is that a good thing? It probably is. They’re liberating capital and putting it back out into the capital markets, and letting that multiplier effect kick in.”

Cash piles are still growing. The Fed’s latest quarterly “Flow of Funds” report, released yesterday, said that cash and cash-equivalents held by U.S. corporations, excluding financial companies, stood at $1.79 trillion in Q4 of 2012, up from $1.77 trillion the previous quarter. “Corporations are flush with cash and that cash sitting in the corporate coffers is earning next to nothing,” said Rob Leiphart, an analyst at Birinyi Associates. “Companies have to do something with it.”

"For Aspiring Forensic Accountants and Fraud Investigators," by Tracey Coenen, The Fraud Files Blog, March 24, 2013 ---
http://www.sequenceinc.com/fraudfiles/2013/03/for-aspiring-forensic-accountants-and-fraud-investigators/

Bob Jensen's threads on forensic accounting are at
http://www.trinity.edu/rjensen/Fraud001c.htm#Forensic

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

"10 Worst Corporate Accounting Scandals," by Barry Ritholtz, Ritholtz Blog, March 7, 2013 ---
http://www.ritholtz.com/blog/2013/03/worst-corp-scandals/#more-90147

Jensen Comment
Barry is a financial analyst with a political science background. As an accounting professor I claim that he missed some of the biggest accounting scandals even if we leave out the really big scandals before 1950 (e.g, leave out the South Sea Scandal of monumental proportion).

There are really two tacks that one can take in the definition of "Corporate Accounting Scandals." One is the size of the "theft" resulting from accountant and/or auditor negligence. Barry probably had this in mind, but he missed a few such as the Franklin Raines earnings management scandal at Fannie Mae.

The other tack is gross accountant and/or audit negligence even when the size of the theft is somewhat smaller for a worse crime. For example, there was enormous accountant and/or auditor negligence when pilfered $53 million from Dixon, Illinois ---
"Rita Crundwell, Ill. financial officer (Dixon, Illinois horse enthusiast) who allegedly stole $53 million, sentenced to 19.5 years in prison," by Casey Glynn, CBS News, February 14, 2013 ---
http://www.cbsnews.com/8301-504083_162-57569411-504083/rita-crundwell-ill-financial-officer-who-allegedly-stole-$53-million-sentenced-to-19.5-years-in-prison/
There are many such thefts by accountants that are bad as it gets even if the amounts they stole is are not in the record books.

Here are some examples of accounting examples Barry should've also considered::

Wikipedia has a listing of major accounting scandals that I don't think Barry looked at when listing his "10 Worst Corporate Accounting Scandals" ---
http://en.wikipedia.org/wiki/Accounting_fraud#List_of_major_accounting_scandals

And if we move beyond accounting per se, the recent LIBOR scandals are bigger than all of his "10 Worst" combined ---
http://www.trinity.edu/rjensen/FraudRotten.htm

Don't do as I do, do as I say
Author Unknown

"Why analysts should not be investors," by Felix Salmon, Reuters, March 7, 2013 ---
http://blogs.reuters.com/felix-salmon/2013/03/07/why-analysts-should-not-be-investors-andy-zaky-edition/

Summary of redeliberations in the (converged) revenue recognition project, Deloitte, March 13, 2013 ---
http://www.iasplus.com/en/news/2013/03/revenue

IFRS 2013 Red Book now available --- Click Here
http://shop.ifrs.org/ProductCatalog/Product.aspx?ID=1734&utm_source=Email&utm_medium=Email&utm_term=Red%2B2013&utm_content=Email%2BRed%2B2013&utm_campaign=Email%2BRed%2B2013

Question
What is the difference between news and sponsored content?

Hint
On television we call it an infomercial --- something that causes me to change channels in the blink of an eye.

"Deloitte And Wall Street Journal Exclusive For Sponsored Content," by Francine McKenna, re:TheAuditors, March 14, 2013 ---
http://retheauditors.com/2013/03/14/deloitte-and-wall-street-journal-exclusive-for-sponsored-content/

Your favorite newspapers, magazines and blogs are so hungry for content to fill their pages that sometimes, rather than paying their own writers to produce text, video, and other journalism those publications take money from strangers to print their content instead.

You may not have noticed. It’s getting harder and harder to discern journalism from newsy advertising.

You may know it as advertising or maybe “advertorial” but publications are slipping it in under new fancy media names like “sponsored content” and “sponsored posts”. There’s an entire publication called paid Content that promotes the approach as a way for media organizations to pay the bills.

The Wall Street Journal has been accepting sponsored content, in an exclusive contract with Deloitte, for its CFO Journal, CIO Journal for a while and now will feature Deloitte’s content in a new publication, Risk & Compliance Journal.

I have not seen that reported elsewhere.

A recent controversy over “sponsored content” by Scientology in the Atlantic magazine raised the temperature of the discussion amongst media watchers to “hot”.

A critic of the practice, Andrew Sullivan, wrote about what he thinks went wrong with the Atlantic’s foray.

Continued in article

Jensen Comment
I also see a lot of this in Time Magazine in terms of pharmaceutical advertising that now runs centerfold pages on health and medication that looks like medical news but has "Advertisement" printed at the top of each page in fine print. I guess it's a step up from the centerfold section of Playboy, but then again maybe not.

I wonder how long it will take MOOCs to discover this type of revenue source?

March 4, 2013 message from Roger Collins

From

http://www.bbc.co.uk/news/business-21653131 

Some quotes

"HSBC paid out $4.2bn (£2.8bn) last year to cover the cost of past wrongdoing. As well as $1.9bn in fines for money laundering, the bank also set aside another $2.3bn for mis-selling financial products in the UK. The figures came as HSBC reported rising underlying profitability and revenue in 2012, and an overall profit before tax of $20.6bn

Chief executive Stuart Gulliver's total remuneration for 2012 was some $7m, compared with $6.7m the year before. And after taking account of the deferral of pay this year and in more highly-remunerated years previously, Mr Gulliver actually received $14.1m in 2012, up from $10.6m in 2011.

The company's 16 top executives received an average of $4.9m each."

"During a conference call to present the results, Mr Gulliver told investors that the bank was not reconsidering whether to relocate its headquarters from London back to Hong Kong, in order to avoid a recently agreed worldwide cap on bonuses of all employees of banks based in the EU."

"HSBC's underlying profits - which ignore one-time accounting effects as well as the impact of changes in the bank's creditworthiness - rose 18%."

"The bank's results were heavily affected by a negative "fair value adjustment" to its own debt of $5.2bn in 2012, compared with a positive adjustment of $3.9bn the year before. The adjustment is an accounting requirement that takes account of the price at which HSBC could buy back its own debts from the markets. It has the perverse effect of flattering a bank's profits at a time when markets are more worried about its ability to repay its debts, and vice versa."

More in article.

Regards,

Roger

Roger Collins
Associate Professor
OM1275 TRU School of Business & Economics

 

Bob Jensen's threads on the controversies of fair value accounting ---
http://www.trinity.edu/rjensen/Theory02.htm#FairValue

"Ex-Jenkens & Gilchrist Lawyer Gets 8 Years in Tax Case," by Patricia Hurtado, Bloomberg Businessweek, March 1, 2013 ---
http://www.businessweek.com/news/2013-03-01/ex-lawyer-donna-guerin-gets-8-year-sentence-in-tax-shelter-case#p1

Former Jenkens & Gilchrist lawyer Donna Guerin was sentenced to eight years in prison and ordered to pay $190 million for her role in what the U.S. called the largest criminal tax fraud in history.

Guerin, 52, pleaded guilty in September 2012 just as she was set to be retried with three other defendants for running a 10-year scheme that created $7 billion in fraudulent tax deductions, more than $1.5 billion in phony losses and $92 million in actual losses to the U.S. Treasury.

U.S. District Judge William Pauley in New York, who presided over the case, said that as both a lawyer and a certified public accountant, Guerin had violated her oaths to uphold the law by helping her clients avoid paying their taxes through shelters.

“It’s the modern-day equivalent of Hawthorne’s story of Midas,” Pauley said yesterday. “Everything she touched turned to gold with tragic consequences. Her fall has been Faustian.” Guerin was “the embodiment of the American dream, but then her lust for money turned her dream into a nightmare,” he said.

Pauley ordered Guerin to report to prison on May 14. The judge also directed her to pay $200,000 before she surrenders to U.S. prison authorities and said she must turn over 20 percent of her gross income after she’s released from prison. Guerin and her lawyer declined to comment after the hearing.

‘Breathtaking’ Conspiracy

“When an attorney violates her oath to uphold the law, she undermines our entire system of justice,” Pauley said. “This tax shelter fraud conspiracy was breathtaking in its scope and in the damage it caused our nation.”

Mark Rotert, Guerin’s lawyer, argued that his client’s culpability in the conspiracy was “relatively minor” and said she had merely followed others at her firm who were willing to “push the envelope” on an aggressive tax shelter strategy.

Her lawyers had sought something shorter than the 10-year term calculated by U.S. probation officials and said their client was merely a “junior” law partner when it came to implementing the tax shelters.

Pauley rejected his argument, saying Guerin hadn’t been satisfied earning hundreds of thousands of dollars as a partner and instead had earned millions that were generated through the tax-shelter scheme. Pauley said Guerin had been a “leader” and had even instructed young associates at her now-defunct law firm how to conduct a “hide the ball tax strategy.”

‘Willing Tools’

“Lawyers and accountants became willing tools for their ultra-wealthy clients to avoid their fair share of taxes. These professionals violated their oaths to line their pockets. Ms. Guerin played a central role, she was not a mindless automaton,” the judge said. “She became a criminal for two reasons: the lure of the money and because she believed that she was never going to be brought to justice.”

Guerin told the judge said her crimes had caused her to abandon efforts to adopt a child. She said she regretted relying on her superiors and not asking more questions or challenging the tax-fraud scheme.

“I am here as a defeated person,” she said. “I never wanted to be a famous attorney, nor an infamous one.”

Guerin was initially convicted by a federal jury in Manhattan in May 2011 with her three co-defendants. Those convictions were overturned after Pauley found that a juror had lied about her past, including that she was an alcoholic and a suspended attorney.

‘Significant’ Term

Assistant U.S. Attorneys Stanley Okula and Nanette Davis said in court papers that Guerin deserved a “significant” prison term of at least 10 years.

“This was a species or a subset of activity that was so flagrant and knowingly wrong, any first-year law student would know was wrong,” Okula told Pauley yesterday. He argued that Guerin had given tutorials to young associates at the firm, teaching them how to evade taxes.

Okula disputed Rotert’s claim that Guerin’s co-defendants had merely followed others at the firm.

Continued in article

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

"10 Worst Corporate Accounting Scandals," by Barry Ritholtz, Ritholtz Blog, March 7, 2013 ---
http://www.ritholtz.com/blog/2013/03/worst-corp-scandals/#more-90147

Jensen Comment
Barry is a financial analyst with a political science background. As an accounting professor I claim that he missed some of the biggest accounting scandals even if we leave out the really big scandals before 1950 (e.g, leave out the South Sea Scandal of monumental proportion).

There are really two tacks that one can take in the definition of "Corporate Accounting Scandals." One is the size of the "theft" resulting from accountant and/or auditor negligence. Barry probably had this in mind, but he missed a few such as the Franklin Raines earnings management scandal at Fannie Mae.

The other tack is gross accountant and/or audit negligence even when the size of the theft is somewhat smaller for a worse crime. For example, there was enormous accountant and/or auditor negligence when pilfered $53 million from Dixon, Illinois ---
"Rita Crundwell, Ill. financial officer (Dixon, Illinois horse enthusiast) who allegedly stole $53 million, sentenced to 19.5 years in prison," by Casey Glynn, CBS News, February 14, 2013 ---
http://www.cbsnews.com/8301-504083_162-57569411-504083/rita-crundwell-ill-financial-officer-who-allegedly-stole-$53-million-sentenced-to-19.5-years-in-prison/
There are many such thefts by accountants that are bad as it gets even if the amounts they stole is are not in the record books.

Here are some examples of accounting examples Barry should've also considered::

Wikipedia has a listing of major accounting scandals that I don't think Barry looked at when listing his "10 Worst Corporate Accounting Scandals" ---
http://en.wikipedia.org/wiki/Accounting_fraud#List_of_major_accounting_scandals

One of the largest settlements/fines paid by an accounting firm arose when KPMG confessed to selling over $2 billion in fraudulent tax shelters. The firms cash settlement with the IRS was over $400 million, which was a small amount compared to the actual damages.

The February 19, 2004 Frontline worldwide broadcast is going to greatly sadden the already sad face of KPMG.  As a former KPMG Professor of Accounting at Florida State University, it also saddens me that the primary focus of the Frontline broadcast was on the bogus tax shelters marketed by KPMG over the past few years.  All the other large firms were selling such shelters to some extent, but when their tactics were exposed the others quickly apologized and promised to abandon sales of such shelters.  KPMG stonewalled and lied to a much greater extent in part because their illegality went much deeper.  The video can now be viewed online for free from http://www.pbs.org/wgbh/pages/frontline/shows/tax/view/

My summary of the highlights is as follows:

1. These illegal acts added an enormous amount of revenue to KPMG, over $1 billion dollars of fraud.
   
   American investigators have discovered that KPMG marketed a tax shelter to investors that generated more than $1bn (£591m) in unlawful benefits in less than a year.
   David Harding, Financial Director --- http://www.financialdirector.co.uk/News/1135558 
   
    

2. While KPMG and all the other large firms were desperately promising the public and the SEC that they were changing their ethics and professionalism in the wake of the Andersen melt down and their own publicized scandals, there were signs that none of the firms, and especially KPMG, just were not getting it.  See former executive partner Art Wyatt's August 3, 2004 speech entitled "ACCOUNTING PROFESSIONALISM:  THEY JUST DON'T GET IT" --- http://aaahq.org/AM2003/WyattSpeech.pdf 
   
    

3. KPMG's  illegal acts in not registering the bogus tax shelters was deliberate with the strategy that if the firm got caught by the IRS the penalties were only about 10% of the profits in those shelters such that the illegality was approved all the way to the top executives of KPMG.  

   Former Partner's Memo Says Fees Reaped From Sales of Tax Shelter Far Outweigh Potential Penalties

   KPMG LLP in 1998 decided not to register a new tax-sheltering strategy for wealthy individuals after a tax partner in a memo determined the potential penalties were vastly lower than the potential fees.

   The shelter, which was designed to minimize taxes owed on large capital gains such as from the sale of stock or a business, was widely marketed and has come under the scrutiny of the Internal Revenue Service. It was during the late 1990s that sales of tax shelters boomed as large accounting firms like KPMG and other advisers stepped up their marketing efforts.

   Gregg W. Ritchie, then a KPMG LLP tax partner who now works for a Los Angeles-based investment firm, presented the cost-benefit analysis about marketing one of the firm's tax-shelter strategies, dubbed OPIS, in a three-page memorandum to a senior tax partner at the accounting firm in May 1998. By his calculations, the firm would reap fees of $360,000 per shelter sold and potentially pay only penalties of $31,000 if discovered, according to the internal note.

   Mr. Ritchie recommended that KPMG avoid registering the strategy with the IRS, and avoid potential scrutiny, even though he assumed the firm would conclude it met the agency's definition of a tax shelter and therefore should be registered. The memo, which was reviewed by The Wall Street Journal, stated that, "The rewards of a successful marketing of the OPIS product [and the competitive disadvantages which may result from registration] far exceed the financial exposure to penalties that may arise."

   The directive, addressed to Jeffrey N. Stein, a former head of tax service and now the firm's deputy chairman, is becoming a headache itself for KPMG, which currently is under IRS scrutiny for the sale of OPIS and other questionable tax strategies. The memo is expected to play a role at a hearing Tuesday by the Senate's Permanent Subcommittee on Investigations, which has been reviewing the role of KPMG and other professionals in the mass marketing of abusive tax shelters. A second day of hearings, planned for Thursday, will explore the role of lawyers, bankers and other advisers.

   Richard Smith, KPMG's current head of tax services, said Mr. Ritchie's note "reflects an internal debate back and forth" about complex issues regarding IRS regulations. And the firm's ultimate decision not to register the shelter "was made based on an analysis of the law. It wasn't made on the basis of the size of the penalties" compared with fees. Mr. Ritchie, who left KPMG in 1998, declined to comment. Mr. Stein couldn't be reached for comment Sunday.

   KPMG, in a statement Friday, said it has made "substantial improvements and changes in KPMG's tax practices, policies and procedures over the past three years to respond to the evolving nature of both the tax laws and regulations, and the needs of our clients. The tax strategies that will be discussed at the subcommittee hearing represent an earlier time at KPMG and a far different regulatory and marketplace environment. None of the strategies -- nor anything like these tax strategies -- is currently being offered by KPMG."

   Continued in the article.

   
    

4. KPMG would probably still be selling the bogus tax shelters if a KPMG whistle blower named Mike Hamersley had not called attention to the highly secretive bogus tax shelter sales team at KPMG.  His  recent and highly damaging testimony to KPMG is available at http://finance.senate.gov/hearings/testimony/2003test/102103mhtest.pdf 
   This is really, really bad for the image of professionalism that KPMG tries to portray on their happy face side of the firm.  KPMG is now under criminal investigation by the U.S. Department of Justice.
   
    

5. The reason that KPMG and the other large accounting firms did and can continue to sell illegal tax shelters at the margin is that they have poured millions into an expensive lobby team in Washington DC that has been highly successful in blocking Senator Grassley's proposed legislation that would make all tax shelters illegal if the sheltering strategy served no economic purpose other than to cheat on taxes.  Your large accounting firms in conjunction with the world's largest banks continue to block this legislation.  If the accounting firms wanted to really improve their professionalism image they would announce that they have shifted their lobbying efforts to supporting Senator Grassley's proposed cleanup legislation.  But to do so would put these firms at odds with their largest clients who are the primary benefactors of abusive tax shelters.

And KPMG's negligent audits of Countrywide Financial may have resulted in the largest economic damage ever for an auditing firm.
"Settling For Silence: KPMG Closes The Books On New Century And Countrywide," by Francine McKenna, re:TheAuditors, August 18, 2010 ---
http://retheauditors.com/2010/08/18/settling-for-silence-kpmg-closes-the-books-on-new-century-and-countrywide/

And if we move beyond accounting per se, the recent LIBOR scandals are bigger than all of his "10 Worst" combined ---
http://www.trinity.edu/rjensen/FraudRotten.htm

The Latest from Reform Activists Lynn Turner and Francine McKenna (to say nothing of the PCAOB)
"The PCAOB & Auditor Failures to Remediate," The Corporate Council.net, March 11, 2013 ---
http://www.thecorporatecounsel.net/blog/index.html
Thank you Caleb Newquist for the heads up.

Last week, the PCAOB issued a rare rebuke to a Big Four auditor as PricewaterhouseCoopers was faulted for failing to promptly address quality control problems in audits occurring in 2007 and 2008. The rebuke came after the PCAOB had reviewed the remediation efforts of PwC in response to the nonpublic portions of the Board's March 2009 and August 2010 inspection reports. Learn more in this GoingConcern blog, WSJ article and Reuters article.

And as AccountingWeb.com recently blogged, this comes on the heels of another PCAOB report on US auditors' performance, in which the the Board found a reduced rate of "significant audit performance deficiencies" compared to its last review in 2007. However, the PCAOB did note that problems persist with almost half of the audit firms inspected having at least one "significant audit performance deficiency." The PCAOB called out small firms and big firms alike in its report. Here's a list of auditors that failed to address quality control criticisms satisfactorily.

Here are some thoughts from Lynn Turner on the PwC inspection report:

 

The PCAOB Inspection reports are critical of PwC audit partners for not supervising those staff doing the vast majority of the work. In one instance cited below, it notes the partner only spent 2% of the hours put in on the audit. That is a significant issue that would affect audit quality and the credibility of the audit report.

A few years ago, the PCAOB proposed that investors be told the name of the audit partner, as is done in Europe and other parts of the world. This could be done either through the partner signing the report, as is the typical custom, or having the auditors name be disclosed as some have proposed.

Investors are asked to vote on and ratify the auditor as part of the proxy voting process for many companies. Yet today, the PCAOB continues to withhold from investors, the name of the companies whose audits the PCAOB inspection reports call into question, those audits of questionable quality and credibility, and which have not been done in accordance with professional standards. The PCAOB has also failed to act on the proposal to provide investors with transparency as to who the audit partner is. As a result, despite all the criticism leveled by the PCAOB against PwC in today's report, investors are left totally unable to discern which of these audits they should be concerned about, when voting on the auditor ratification. The PCAOB is simply forcing investors to "fly blind" on that vote.

While SOX does prohibit the PCAOB from disclosing certain information on an auditor that arises as a result of an inspection, it does not prohibit in any fashion the PCAOB from disclosing the name of the Company. And it would not prohibit the disclosure of the names of these partners who perform poorly if the PCAOB were the Board ever to act on its own proposal. Rather, a majority of the PCAOB board members have decided to act in a manner that reduces transparency with respect to audit quality for investors.

 

Francine McKenna on Audit Industry Developments

In this podcast, Francine McKenna of re:theauditors delves into some of the latest audit industry developments, including:

- Why should audit committees care about PCAOB inspection reports?
- How can the audit committee learn more about a PCAOB inspection report? Should they ask the auditor? The PCAOB?
- In what instances can a PCAOB inspection report be used in litigation against the auditor by the client or shareholder plaintiffs?
- Is it the audit committee's responsibility or the auditor's to make sure the firm is independent? What if the auditor uses its member firms all over the world to complete the audit? What can happen if the audit firm is not independent?
- What role does an external auditor play when there's a corporate investigation? Can the auditor be hired to perform an investigation of fraud or illegal acts? Should the auditor be hired to perform a corporate investigation? Advantages and disadvantages?

As an aside, here's a Bloomberg article critical of the nonprosecution agreement over illegal tax shelters that the DOJ just reached with Ernst & Young.

And Janice Brunner & Ning Chiu note in this Davis Polk blog: "The New York City Bar Association Financial Reporting Committee has asked the NYSE to consider revising its rules regarding the extent to which audit committees shoulder the burden for risk management oversight. NYSE requires audit committees to discuss policies with respect to risk assessment and risk management. Commentary to these rules indicates that the audit committee is not required to be the sole body responsible for risk assessment and management, but it must discuss guidelines and policies to govern the process by which this activity is undertaken.

The Financial Reporting Committee letter expressed concern that the NYSE rules not only call upon audit committees to assume oversight responsibility for risks beyond those associated with financial reporting, but also that the level of responsibility the committees must undertake is unfortunately ambiguous. The letter argues that audit committees are already burdened with their existing duties and also do not possess particular expertise in broader subjects of risk management that may expand to operational and environmental risk, for example. The letter suggests perhaps a more useful approach would be to vest in the entire board the responsibilities for the allocation of risk management oversight instead. "

 

Webcast: "What the Top Compensation Consultants Are NOW Telling Compensation Committees"

Continued in article

Bob Jensen's threads on audit professionalism and independence are at
http://www.trinity.edu/rjensen/Fraud001c.htm#RotationIdeas

"Hidden Numbers Make Banks Even Bigger," by Floyd Norris, The New York Times, March 14, 2013 ---  Click Here
http://www.nytimes.com/2013/03/15/business/new-rules-will-give-a-truer-picture-of-banks-size.html?nl=todaysheadlines&emc=edit_th_20130315&_r=2&pagewanted=all&#h[]

It sounds like a simple question. How big is that bank?

But it is not.

Under American accounting rules, banks that trade a lot of derivatives can keep literally trillions of dollars in assets and liabilities off their balance sheets. Since 2009, they have at least been required to make disclosures about how large those amounts are, but the disclosures leave out some things and — amazingly enough — in some cases do not seem to add up.

The international accounting rules are different. They also allow some assets to vanish, but not nearly as many. As a result, it is virtually impossible to confidently declare how a particular European bank compares in size with an American bank.

Much of that will change when first-quarter financial statements start coming off the printing presses in a few weeks. For the first time, European and American banks are supposed to have comparable disclosures regarding assets. Their balance sheets will still be radically different, but for those who care, the comparison will be possible.

This comes to mind because these days it seems that big banks do not much want to be thought of that way. A rather angry argument has broken out regarding whether “too big to fail” institutions get what amounts to a subsidy from investor confidence that no matter what else happens, they would not be allowed to fail. The banks deny it all. Subsidy? Penalty is more like it, they say.

We’ll get back to that argument in a moment. But first, there is some evidence that the big American banks may have scaled back their derivatives positions last year. At five of six major financial institutions, the amount of assets kept off the balance sheet appears to be lower at the end of 2012 than it was a year earlier.

Still, the numbers are big. JPMorgan Chase, the biggest American institution, had $2.4 trillion in assets on its balance sheet at the end of 2012. But it has derivatives with a market value of an additional $1.5 trillion that it does not show on its balance sheet, down from $1.7 trillion a year earlier.

So is JPMorgan getting bigger? Measured by assets on the balance sheet, the answer is yes. That total was up $93 billion from 2011. But after adjusting for the hidden assets, the bank appears to have shrunk by $109 billion last year. If the bank used international accounting rules, it appears it would be getting smaller.

Not having those assets on the balance sheet makes the bank look less leveraged than it might otherwise appear to be. If you simply compare the book value of the bank with its assets, it appears it has $11.56 in assets for every dollar in equity. Add in those derivatives, and the figure leaps to $18.95.

It is not as if those assets are not real, or that they are perfectly offset by liabilities also kept off the balance sheet. There is a similar amount of liabilities that are not shown, but there is no way to know just how they match up with the assets in terms of riskiness. The nature of derivatives makes it hard to assess aggregate totals.

If a bank has a $1 million loan to someone, that is an asset that would go on the balance sheet at $1 million. Presumably the worst that could happen is that the bank would lose the entire amount. But a large derivative position might currently have a market value of $1 million, and thus would be shown as being worth the same amount, whether on or off the balance sheet. But if the market moves sharply, the profit or loss could be many multiples of that figure.

Under American accounting rules, banks that deal in derivatives can net out most of their exposure by offsetting the assets against the liabilities. They do this based not on the nature of the asset or liability, but on the identity of the institution on the other side of the trade — the counterparty, in market lingo.

The logic of this has to do with what would happen in a bankruptcy. What are called “netting agreements” allow only the net value to be claimed in case of a failure. So the bank shows the sum of those net positions with each party.

But those positions are not offsetting in terms of risk, or at least there is no way to know if they are. The figures shown in the financial statements and footnotes simply describe market values on the day of the balance sheet. If prices move the wrong way, as asset can turn into a liability, or a liability can become much larger. And both can happen at the same time. The asset might be an interest rate swap, while the liability is a wheat future. Obviously, they are not particularly likely to move in tandem.

To return to JPMorgan, on its balance sheet are derivative assets of $75 billion, and derivative liabilities of $71 billion. Neither number is very large relative to the size of the bank, and you might think that swings in values would be unlikely to be very large.

But those numbers are $1.5 trillion smaller than the actual totals. Obviously, the swings on a portfolio of that size could be much larger.

A few years ago, the accounting rule makers set out to get rid of the netting, and make balance sheets more accurate. But there were complaints from banks and others, and the American rule makers at the Financial Accounting Standards Board concluded that was not a good idea. So there is still netting in the United States. Some of it, involving repos and reverse repos, is not disclosed at all now, but will be when the new rules kick in.

The sort-of invisible derivative assets and liabilities are only part of the reason that it is so hard to really get a handle on just how risky any given bank is.

Continued in article

I never could understand the reasons for this amendment to FAS 133 that originally did not allow such offsetting. At the time I blamed it on the zeal for convergence with the IASB and political pressures that seemed to be even greater in Europe than the U.S. Perhaps I was wrong in this.

I'm beginning to think that when something smells fishy there probably are some rancid fish hiding somewhere

I've never been in favor of what I think is one of the worst decisions ever made by the FASB that runs counter to the original FAS 133 requirements.
"Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities," ASU No. 2011-08, FASB --- Click Here
http://www.fasb.org/cs/BlobServer?blobkey=id&blobwhere=1175825893217&blobheader=application%2Fpdf&blobcol=urldata&blobtable=MungoBlobs

Why Is the FASB Issuing
This Accounting Standards Update (Update) ? The main objective in developing this Update is to address implementation issues about the scope of Accounting Standards Update No. 2011 - 11, Balance Sheet (Topic 210) : Disclosures about Offsetting Assets and Liabilities . Stakeholders have told the Board that because the scope in Update 2011 - 11 is unclear, diversity in practice may result . Recent feedback from stakeholders is that standard commercial provisions of many contracts would equate to a master netting arrangement . Stakeholders questioned whether it was the Board’s intent to require disclosures for such a broad scope, which would significantly increase the cost of compliance . The objective of this Update is to clarify the scope of the offsetting disclosures and address any unintended consequences.

What Are the Main Provisions?
The amendments clarify that the scope of Update 2011 - 11 applies to derivatives accounted for in accordance with Topic 815, Derivatives and Hedging, including bifurcated embedded derivatives , repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with Section 210 - 20 - 45 or Section 815 - 10 - 45 or subject to an enforceable master netting arrangement or similar agreement .

Who Is Affected by the Amendments in This Update?
The amendments in this Update affect entities that have derivatives accounted for in accordance with Topic 815, including bifurcated embedded derivatives , repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with Section 210 - 20 - 45 or Section 815 - 10 - 45 or subject to an enforceable master netting arrangement or similar agreement . Entities with other types of financial a ssets and financial liabilities subject to a master netting arrangement or similar agreement also are affected because these amendments make them no longer subject to the disclosure requirements in Update 2011 - 11.

How Do the Main Provisions?
Differ from Cur rent U.S. Generally Accepted Accounting Principles ( GAAP ) and Why Would They Be an Improvement? The amendments clarify the intended scope of the disclosures required by Section 210 - 20 - 50 . The Board concluded that the clarified scope will reduce significant ly the operability concerns expressed by preparers while still providing decision - useful information about certain transactions involving master netting arrangements . The amendments provide a user of financial statements with comparable information as it r elates to certain reconciling differences between financial statements prepared in accordance with U.S. GAAP and those financial statements prepared in accordance with International Financial Reporting Standards (IFRS).

When W ill the Amendments Be Effective?
An entity is required to apply the amendments for fiscal years beginning on or after January 1, 2013, and interim periods within those annual periods . An entity should provide the required disclosures retrospectively for all comparative periods presented . The effective date is the same as the effective date of Update 2011 - 11.

How Do the Provisions Compare with International Financial Reporting Standards (IFRS)?
The disclosures required by the amendments in Update 2011 - 11 are the result of a joint project between the FASB and the International Accounting Standards Board (IASB), which was intended to provide comparable information about balance sheet offsetting between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of IFRS . The amendments in this Update clarify that the scope of the disclosures under U.S. GAAP is limited to include derivatives accounted for in accordance with Topic 815 , including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with Section 210 - 20 - 45 or Section 815 - 10 - 45 or subject to a n enforceable master netting arrangement or similar agreement.

Continued in article

I personally was more concerned about how banks changed income smoothing practices.
"The Impact of SFAS 133 on Income Smoothing by Banks through Loan Loss Provisions," by Emre Kilic Gerald J. Lobo, Tharindra Ranasinghe, and K. Sivaramakrishnan Rice University, The Accounting Review, Vol. 88, No. 1, 2013, pp. 233-260 ---
http://aaajournals.org/doi/pdf/10.2308/accr-50264

We examine the impact of SFAS 133, Accounting for Derivative Instruments and Hedging Activities , on the reporting behavior of commercial banks and the informativeness of their financial statements. We argue that, because mandatory recognition of hedge ineffectiveness under SFAS 133 reduced banks’ ability to smooth income through derivatives, banks that are more affected by SFAS 133 rely more on loan loss provisions to smooth income. We find evidence consistent with this argument. We also find that the increased reliance on loan loss provisions for smoothing income has impaired the informativeness of loan loss provisions for future loan defaults and bank stock returns.

Nations gradually adopting IFRS are not supposed to "stop half way"

"IASB chairman encourages Indonesia to fully adopt IFRSs ," Deloitte, March 18, 2013 ---
http://www.iasplus.com/en/news/2013/03/hoogervorst

Hans Hoogervorst, Chairman of the International Accounting Standards Board (IASB), recently spoke at an international seminar on “IFRS Dynamics 2013 and Beyond: Impact to Indonesia” organised by the Indonesian Institute of Accountants (Ikatan Akuntan Indonesia, IAI). He encouraged Indonesia that currently follows a gradual convergence process to fully embrace IFRSs.

Indonesia's approach to IFRS adoption is to maintain its national GAAP (Indonesian Financial Accounting Standards, IFAS) and converge it gradually with IFRSs as much as possible. Since 2012, the standards applied in Indonesia are based on those IFRSs that were effective at 1 January 2009. However, there is currently no plan (and consequently no timetable) for a full adoption of IFRSs.

In his speech, Mr. Hoogervorst outlined the benefits he sees for Indonesia if IFRSs are fully adopted. He described how Europe profited from adopting IFRSs and invited Indonesia to imagine the benefits that emerging economies could draw from the use of IFRS, especially economies that are so forcefully on the rise as Indonesia. He added: "For many emerging economies, adoption of IFRS has become an important statement of ambition – an international commitment to adhere to the highest possible standards of financial reporting."

However, Mr. Hoogervorst also warned that jurisdictions should embrace IFRSs fully and not stop half-way:

It is important to understand that the full benefits of using the IFRS-brand can only be enjoyed if you adopt it fully. For foreign investors it is very difficult to discern small differences from big ones. If a jurisdiction cannot state that it has fully adopted IFRS, investors are likely to think that the differences are much bigger than they really are. If you have gone through all the trouble to adopt 95% of IFRSs, please make sure you also do the last 5%. Otherwise, you have all the pain of transition without the full gain of international recognition of that achievement.

Regarding fears of difficulties or problems with transition, Mr. Hoogervorst offered the IASB's assistance and pointed at the IASB's Asia-Oceania office in Tokyo and the Emerging Economies Group. He also mentioned the IASB's close cooperation with the Asian-Oceanian Standard-Setters Group, which he described to be likely represented in the Accounting Standards Advisory Forum the IFRS Foundation has set up to deepen the IASB's cooperation with standard-setters across the world. Mr. Hoogervorst indicated that all of these initiatives offered excellent opportunities for a strong Indonesian participation in financial reporting and he concluded: "You have a wonderful opportunity to help shape the future of global financial reporting".

Jensen Comment
I think national standard setters can adopt the essence of most any IFRS standard, but they should not claim to be in the process of converging to a full set of IFRS standards if that is not the intent. The U.S. has made it clear, thus far, that the express train to IFRS has been side tracked indefinitely even though the FASB and IASB are still working jointly on selected convergence standards.

From the AICPA newsletter on March 18, 2013

Financial community grapples with diverging FASB, IASB standards
The Financial Accounting Standards Board and the International Accounting Standards Board have not reached resolution over how to revise accounting standards for loan losses. The larger financial community is trying to help analysts and bankers make sense of the divergent approaches. The American Bankers Association has published an FAQ about FASB's approach. Fitch Ratings issued a statement saying that it believes FASB's proposed model "is likely to lead to quarterly adjustments in expected loss projections, possibly leading to more volatility in provision expense and reported earnings."
http://r.smartbrief.com/resp/enrkBYbWhBCihqgTCidmwjCicNCViA?format=standard

"FASB gives more detail on expected credit loss proposal" by Ken Tysiac, Journal of Accountancy, March 26, 2013 ---
http://journalofaccountancy.com/News/20137633.htm

Jensen Comment
Note that both the FASB and IASB are moving away from the fair value market model for loan loss estimation. The "divergence" between the FASB and IASB is is only about how expected loss computations.

Question
What is "force-placed" insurance?

"GSE Investigation Into Force-Placed Insurance (finally)," by Barry Ritholtz, March 26, 2013 ---
http://www.ritholtz.com/blog/2013/03/force-placed-insurance-investigated/

Fannie & Freddie have finally begun to investigate the self-dealing and often fraudulent practice of Force-Placed Insurance. Both the New York State Insurance Regulator and the Consumer Financial Protection Bureau have been way ahead of the GSEs on this.

For those of you who may be unfamiliar with Force-Placed Insurance, it is an optional bank insurance product that sometimes gets forcibly jammed down the throats of home owners and mortgage investors at grossly inflated prices. As Jeff Horowitz detailed in 2010 (Losses from Force-Placed Insurance Are Beginning to Rankle Investors), most of the fees, commissions and revenues from this “product” went straight back to the banks holding the related mortgage, typically to wholly owned subsidiaries.

It was an abusive practice, and in quite a few instances, the additional costs actually tipped homeowners into foreclosure.

Here’s the WSJ:

“The Federal Housing Finance Agency, which regulates mortgage giants Fannie Mae (FNMA) and Freddie Mac (FMCC) plans to file a notice Tuesday to ban lucrative fees and commissions paid by insurers to banks on so-called force-placed insurance . . .

Forced policies have boomed in the wake of the housing bust, as many homeowners struggled to keep up with mortgage payments. Some borrowers may try to save money by dropping the original standard coverage, only to be hit by policies with premiums that are typically at least twice as expensive as voluntary insurance, and sometimes cost as much as 10 times more. Nearly six million such policies have been written since 2009, insurance industry data indicate. Consumers are free at any point to replace a force-placed policy with one of their own choosing.”

The Consumer Financial Protection Bureau has issued new rules on this, but the real action seems to be the variety of civil suits from investors; additionally, New York State just reached a settlement with forced-placed insurer Assurant, including a $14 million penalty, and a long list of practice changes (after the jump). If it were up to me, I would have insisted on profit disgorgement and jail time for the CEO (But I am “unreasonable”).

Hopefully, this is the first of many . . .

Buffet's Berkshire Hathaway Performs Worse Than the S&P 500

"Buffett Questions Performance as S&P 500 Beats Berkshire," by Antoine Gara, The Street, March 1, 2013 ---
http://www.thestreet.com/story/11857405/1/buffett-questions-performance-as-sp-500-beats-berkshire.html

For the first time, Warren Buffett appears concerned he will underperform the S&P 500 when it comes to his favorite way to peg the performance of his investing conglomerate, Berkshire Hathaway (BRK.A_).

In Berkshire Hathaway's annual letter to shareholders, Buffett outlined why he is worried a rising stock market will put the firm's performance below that of the S&P 500 over a five-year stretch.

Such a scenario would be the first in Berkshire's history, indicating that even the 'Oracle of Omaha' is having trouble keeping up with rising markets.

Continued in article

Jensen Comment
Another consideration for the stock market under the Fed's Quantitative Easing will be how much are the returns after inflation. The USA is just not accustomed to inflation adjustments for reduced purchasing power of the USA dollar

"New Center Hopes to Clean Up Sloppy Science and Bogus Research," by Tom Bartlett, Chronicle of Higher Education, March 6, 2013 ---
http://chronicle.com/article/New-Center-Hopes-to-Clean-Up/137683/

Something is wrong with science, or at least with how science is often done. Flashy research in prestigious journals later proves to be bogus. Researchers have built careers on findings that are dubious or even turn out to be fraudulent. Much of the conversation about that trend has focused on flaws in social psychology, but the problem is not confined to a single field. If you keep up with the latest retractions and scandals, it's hard not to wonder how much research is trustworthy.

But Tuesday might just be a turning point. A new organization, called the Center for Open Science, is opening its doors in an attempt to harness and focus a growing movement to clean up science. The center's organizers don't put it quite like that; they say the center aims to "build tools to improve the scientific process and promote accurate, transparent findings in scientific research." Now, anybody with an idea and some chutzpah can start a center. But what makes this effort promising is that it has some real money behind it: The center has been given $5.25-million by the Laura and John Arnold Foundation to help get started.

It's also promising because a co-director of the center is Brian Nosek, an associate professor of psychology at the University of Virginia (the other director is a Virginia graduate student, Jeffrey Spies). Mr. Nosek is the force behind the Reproducibility Project, an effort to replicate every study from three psychology journals published in 2008, in an attempt to gauge how much published research might actually be baseless.

Mr. Nosek is one of a number of strong voices in psychology arguing for more transparency and accountability. But up until now there hasn't been an organization solely devoted to solving those problems. "This gives real backing to show that this is serious and that we can really put the resources behind it to do it right," Mr. Nosek said. "This whole movement, if it is a movement, has gathered sufficient steam to actually come to this."

'Rejigger Those Incentives'

So what exactly will the center do? Some of that grant money will go to finance the Reproducibility Project and to further develop the Open Science Framework, which already allows scientists to share and store findings and hypotheses. More openness is intended to combat, among other things, the so-called file-drawer effect, in which scientists publish their successful experiments while neglecting to mention their multiple flubbed attempts, giving a false impression of a finding's robustness.

The center hopes to encourage scientists to "register" their hypotheses before they carry out experiments, a procedure that should help keep them honest. And the center is working with journals, like Perspectives on Psychological Science, to publish the results of experiments even if they don't pan out the way the researchers hoped. Scientists are "reinforced for publishing, not for getting it right in the current incentives," Mr. Nosek said. "We're working to rejigger those incentives."

Mr. Nosek and his compatriots didn't solicit funds for the center. Foundations have been knocking on their door. The Arnold Foundation sought out Mr. Nosek because of a concern about whether the research that's used to make policy decisions is really reliable.

"It doesn't benefit anyone if the publications that get out there are in any way skewed toward the sexy results that might be a fluke, as opposed to the rigorous replication and testing of ideas," said Stuart Buck, the foundation's director of research.

Other foundations have been calling too. With more grants likely to be on the way, Mr. Nosek thinks the center will have $8-million to $10-million in commitments before writing a grant proposal. The goal is an annual budget of $3-million. "There are other possibilities that we might be able to grow more dramatically than that," Mr. Nosek said. "It feels like it's raining money. It's just ridiculous how much interest there is in these issues."

Continued in article

Appeal for a "Daisy Chain of Replication"
"Nobel laureate challenges psychologists to clean up their act: Social-priming research needs “daisy chain” of replication," by Ed Yong, Nature, October 3, 2012 ---
http://www.nature.com/news/nobel-laureate-challenges-psychologists-to-clean-up-their-act-1.11535

Jensen Comment
Accountics scientists set a high bar because they replicate virtually all their published research.

Yeah Right!
Accountics science journals like The Accounting Review have referees that discourage replications by refusing to publish them. They won't even publish commentaries that question the outcomes ---
http://www.trinity.edu/rjensen/TheoryTAR.htm

Accountics science researchers won't even discuss their work on the AAA Commons ---
http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm

Questions
How many fraudulent SPEs did CFO Andy Fastow create to steal over $50 million from his employer (Enron)?

What is most unusual and actually unethical about the way Enron's SPEs were managed?  How were these related party dealings disclosed and yet obscured in the infamous Footnote 16 of Enron's Year 2000 Annual Report?

Answer
Over 3,000
See the answers to Questions 14 and 15 at http://www.trinity.edu/rjensen/FraudEnronQuiz.htm#14

Special Purpose Entity (SPE) and Special Purpose Vehicle (SPV)--- http://en.wikipedia.org/wiki/Special_purpose_entity

Variable Interest Entity (VIE or QSPE) --- http://en.wikipedia.org/wiki/Variable_interest_entity

"New challenge to VIEs," China Accounting Blog, March 5, 2013 ---
http://www.chinaaccountingblog.com/weblog/new-challenge-to-vies.html

I have learned from some investors that there has been a major challenge against the VIE structure of a U.S. listed Chinese company. The challenge relates to whether the VIE can be consolidated into the financial statements. The SEC has been aggressively examining VIE arrangements, but I have been unable to learn whether this challenge is a result of an SEC investigation, or who the company or auditor are.

Bear with me; this discussion has to get technical.

Under the VIE accounting rules, consolidation of the VIE is allowed if the public company is considered to be the primary beneficiary of the VIE (ASC 810-25-20). In a typical VIE arrangement, there are two potential beneficiaries of the VIE: 1) the Chinese individual who owns the shares in the VIE, and 2) the public company that has contracts with both that individual and the VIE that transfer control and economic interests to the public company. VIE arrangements are structured to make it clear that all of the control and economic interest flows to the public company.

Clear until now, anyway.

In many VIEs the founder of the company is the owner of the VIE. The founder also usually has voting control over the public company, which is often retained after the IPO by use of two classes of shares. Founders typically retain voting control even if their share holdings are reduced to a minority position. The two class of shares approach to retaining control by founders is common in technology offerings, most famously in Facebook. Two classes of stock are not allowed on the Hong Kong exchange, and that presents a challenge for U.S. listed companies that may want to move onto the Hong Kong exchange if they get kicked out of the U.S., but that is another story.

Under typical VIE agreements, the founder agrees to transfer his VIE shares to another VIE shareholder at the public company's request, and to otherwise vote those shares and select VIE management at the public company’s direction. Since the public company can remove the VIE owner at will, it has been thought that the VIE owner has no rights, and accordingly no interest in the VIE. Therefore the public company is the only beneficiary of the VIE and can consolidate it into their financial statements.

The founder, however, could stop any attempt to remove him as the owner of the VIE since he has voting control over the public company. With voting control, the founder has the power to elect the board that selects, terminates and sets the compensation of management, and establishes operating and capital decisions of the company. Do these powers mean that the founder is actually the primary beneficiary of the VIE? If the founder is the primary beneficiary, the public company cannot consolidate the VIE and instead will report its share of earnings as it receives them.

What happens if the SEC or auditors decide that this is the correct approach? Companies with this fact pattern will be forced to deconsolidate their VIEs, and restate prior financial statements. The VIE will drop out of the financial statements, possibly turning income into losses in some companies, while having a minor effect on some others.

Companies affected by this are likely to restructure their VIEs to be allowed to consolidate in the future. The easy solution seems to be to pick someone other than the founder to own the VIE. While that may fix the accounting problem, it introduces a huge amount of risk. One reason that the VIE is usually held by the founder is to align the interests of the VIE shareholder with the interests of the public shareholders. The idea is that the founder will not steal the VIE since doing so would destroy the value of his shares in the public company.

If the SEC is making this position clear to the accounting firms, we could see some real surprises when companies file their Form 20F over the next few weeks.

What's Right and What's Wrong With (SPEs), SPVs, and VIEs ---
http://www.trinity.edu/rjensen//theory/00overview/speOverview.htm

From CFO Morning Ledger on March 4, 2013

Deal or No Deal: Can Busted M&A Deals Be Avoided?

Research by Hollis Skaife, professor of accounting in the Department of Accounting and Information Systems at the University of Wisconsin-Madison and a Deloitte Fellow and Scholar, and Daniel Wangerin, an assistant professor in the Department of Accounting and Information Systems at Michigan State University, looks at what impact low quality financial reporting may have on the outcome of M&A deals and offers a metric that may capture its existence before a deal closes.

Read the full article at
http://deloitte.wsj.com/cfo/2013/03/04/deal-or-no-deal-can-busted-ma-deals-be-avoided/

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

Billionaire Ex-Convicts Should Lie Low
"Martha Stewart Takes the Stand to Save Her Company," by Jeff Macke, Yahoo, March 5, 2013 --- Click Here
http://finance.yahoo.com/blogs/breakout/martha-stewart-takes-stand-save-her-company-155500326.html;_ylt=Agbbzidr5xzzYViIg1xYfDOiuYdG;_ylu=X3oDMTNyNHEyaDR0BG1pdANGUCBUb3AgU3RvcnkgTGVmdARwa2cDMDNhNjdlMjItN2M3NS0zNDg3LTk4NmUtMzI2NGI5ZGY2ODJiBHBvcwMxBHNlYwN0b3Bfc3RvcnkEdmVyAzM1MmZlYjAzLTg1YWYtMTFlMi1iZmZmLWEyNjkwMjhhMjg0YQ--;_ylg=X3oDMTFpNzk0NjhtBGludGwDdXMEbGFuZwNlbi11cwRwc3RhaWQDBHBzdGNhdANob21lBHB0A3NlY3Rpb25z;_ylv=3

Bob Jensen's fraud updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm

"Citigroup Discovers Performance Data? Really?" by Jonathan Weil, Bloomberg, March 3, 2013 ---
http://www.bloomberg.com/news/2013-03-05/citigroup-discovers-performance-data-really-.html

The Wall Street Journal has a curious article about Citigroup Inc. and its new chief executive officer, Michael Corbat. It says he is "putting his stamp on the company with a simple formula: You can't manage what you can't measure."

Readers learn he spoke to a gathering of 300 executives at a New Jersey hotel last month where he "proposed a slate of new, more-rigorous ways to track both the performance of individual executives and the third-largest U.S. bank as a whole." Score cards will rate top managers in five categories: capital, clients, costs, culture and controls. (The Five C's!)

"Mr. Corbat wants to more-closely track how executives perform against their financial plan," the article said. "The quantitative focus is the sharpest sign yet of how Mr. Corbat is likely to differ from his predecessor, Vikram Pandit, who was forced out by the board in October after a series of mishaps."

It went on: "Most large financial companies use some type of metrics to gauge their progress. Under Mr. Pandit, Citigroup used score cards for some departments, but not others."

Here's what's baffling: Did Citigroup not use a quantitative focus to measure performance before? Is the use of data and metrics really something new to many of its executives? Anything is possible, I suppose. This is Citigroup, the mother of all bank bailouts. But this would be incredible if true.

Jensen Comment
There's one very negative comment to this article.

Dilbert Cartoons on Market Manipulations
"Scott Adams Discovers Market Manipulation," by Barry Ritholtz, Ritholtz Blog, March 2013 ---
http://www.ritholtz.com/blog/2013/03/scott-adams-manipulators/

Regular readers know I am a fan of Scott Adams, creator of the comic Dilbert and occasional commentator on a variety of matters.

He has a somewhat odd blog post up, titled, Here Come the Market Manipulators. In it, he makes two interesting suggestions: The first is to decry “market manipulators,” who do what they do for fun and profit to the detriment of the rest of us. The second is to say that these manipulators are likely to cause “a 20% correction in 2013.”

Let’s quickly address both of these issues: First off, have a look at the frequency of 20% corrections in markets. According to Fidelity (citing research from Capital Research and Management Company), over the period encompassing 1900-2010, has seen the following corrections occur:

Corrections During 1900 – 2010

5%:  3 times per year

10%:  Once per year

20%:  Once every 3.5 years

Note that Fido does not specify which market, but given the dates we can assume it is the Dow Industrials. (I’ll check on that later).

Note that US market’s have not had a 20% correction since the lows in March 2009. I’ll pull up the relevant data in the office, but a prior corrective action of 19% is the closest we’ve come, followed by a ~16% and ~11%.

As to the manipulators of the market, I can only say: Dude, where have you been the past 100 years or so?

Yes, the market gets manipulated. Whether its tax cuts or interest rate cuts or federal spending or wars or QE or legislative rule changes to FASB or even the creation of IRAs and 401ks, manipulation abounds.

In terms of the larger investors who attract followers — I do not see the same evidence that Adams sees. Sure, the market is often driven by large investors. Yes, many of these people have others who follow them. We need only look at what Buffet, Soros, Dalio, Icahn, Ackman, Einhorn and others have done to see widely imitated stock trades. But that has shown itself to be a bad idea, and I doubt anyone is making much money attempting to do so. And, it hardly leads to the conclusion that any more than the usual manipulation is going on.

Will be have a 20% correction? I guarantee that eventually, we will. Indeed, we are even overdue for it, postponed as it is by the Fed’s manipulation.

But I have strong doubts it is going to be caused by a cabal manipulating markets for fun & profit. It will occur because that’s what markets do . . .

 

 

Previously:
Dilbert’s Unified Theory of Everything Financial’  (October 15th, 2006)

7 Suggestions for Scott Adams (November 27th, 2007)

Don’t Follow Wealthy Investors, Part 14 (February 17th, 2008)

"What’s Wrong with the Financial Services Industry?" by Barry Ritholtz, Ritholtz Blog, February 21, 2013 ---
http://www.ritholtz.com/blog/2013/02/whats-wrong-with-the-financial-services-industry/

Jensen Comment
You can also see a Dilbert cartoon about making up data ---
http://www.trinity.edu/rjensen/Theory01.htm

Bob Jensen's threads on accounting humor ---
http://www.trinity.edu/rjensen/FraudEnron.htm#Humor

Bob Jensen's Rotten to the Core threads ---
http://www.trinity.edu/rjensen/FraudRotten.htm

From CFO.com Morning Ledger on March 26, 2013

Pension deficits hit year-end record
Combined pension deficits among the 100 largest U.S. corporate pension plans soared last year to a record $388.8 billion, according to actuarial and benefits consulting firm Milliman Inc. The combined deficit rose by more than $61 billion from the end of 2011, driven by a record year-end average discount rate of just over 4%, Maxwell Murphy notes. Milliman said the increase comes even as companies are working to tame the risk associated with their pension obligations. In 2012, the 100 plan sponsors booked a total of $55.8 billion in charges that lowered corporate earnings, up from $38.5 billion a year earlier. Milliman expects pension charges to rise to $63.4 billion this year.

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

"Jury convicts former Detroit mayor Kilpatrick on corruption charges," Fox News, March 11, 2013 ---
http://www.foxnews.com/us/2013/03/11/jury-convicts-former-detroit-mayor-kilpatrick-on-corruption-charges/?test=latestnews

Former Detroit Mayor Kwame Kilpatrick was convicted Monday of corruption charges, ensuring a return to prison for a man once among the nation's youngest big-city leaders.

Jurors convicted Kilpatrick of a raft of crimes, including a racketeering conspiracy charge. He was portrayed during a five-month trial as an unscrupulous politician who took bribes, rigged contracts and lived far beyond his means while in office until fall 2008.

Prosecutors said Kilpatrick ran a "private profit machine" out of Detroit's City Hall. The government presented evidence to show he got a share of the spoils after ensuring that Bobby Ferguson's excavating company was awarded millions in work from the water department.

Business owners said they were forced to hire Ferguson as a subcontractor or risk losing city contracts. Separately, fundraiser Emma Bell said she gave Kilpatrick more than $200,000 as his personal cut of political donations, pulling cash from her bra during private meetings. A high-ranking aide, Derrick Miller, told jurors that he often was the middle man, passing bribes from others.

Internal Revenue Service agents said Kilpatrick spent $840,000 beyond his mayoral salary.

Ferguson, Kilpatrick's pal, was also convicted of a racketeering conspiracy charge. The jury could not reach a verdict on the same charge for Kilpatrick's father, Bernard Kilpatrick, but convicted him of submitting a false tax return.

Kwame Kilpatrick, who now lives near Dallas, declined to testify. He has long denied any wrongdoing, and defense attorney James Thomas told jurors that his client often was showered with cash gifts from city workers and political supporters during holidays and birthdays.

The government said Kilpatrick abused the Civic Fund, a nonprofit fund he created to help distressed Detroit residents. There was evidence that it was used for yoga lessons, camps for his kids, golf clubs and travel.

Kilpatrick, 42, was elected in 2001 at age 31. He resigned in 2008 and pleaded guilty to obstruction of justice in a different scandal involving sexually explicit text messages and an extramarital affair with his chief of staff.

The Democrat spent 14 months in prison for violating probation in that case after a judge said he failed to report assets that could be put toward his $1 million restitution to Detroit.

Voters booted his mother, Carolyn Cheeks Kilpatrick, from Congress in 2010, partly because of a negative perception of her due to her son's troubles.

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

In 1837, the Massachusetts Board of Education devoted part of its first annual report to praising a recent classroom innovation called the blackboard. This “invaluable and indispensible” innovation...
On March 4, 2013 the Financial Education Daily Linked this Quotation to the Harvard Gazette, but I could not find the source of the quote.

"From Law School to Business School — evolution of the case method," Harvard Gazette, April 3, 2008
http://news.harvard.edu/gazette/story/2008/04/from-law-school-to-business-school-%E2%80%94-evolution-of-the-case-method/

On a recent Wednesday morning, 90 high achievers from around the world prepared to get down to cases.

Their professor buzzed through the classroom like a worker bee. Armed with large, multicolored pieces of chalk, he organized his notes, copied pastel-coded facts and figures on the blackboard, and set up a film screen. Soon his students would be equally hard at work, but in a strictly cerebral way.

This day the instructor was inclined to be kind, giving the young man who would open the class discussion an early heads-up, allowing some time to prepare. Often in this setting, classes start with the heart-pounding “cold call,” where a student is put to the test without warning. The deceptively simple “start us off” translates into “as quickly and coherently and convincingly as possible, tell us everything known about this situation and give us your best insight.”

As well as being busy and congenial, Jan Rivkin, a professor in the strategy unit at Harvard Business School (HBS), was clearly engaging, his enthusiasm infectious, his sense of humor unmistakable.

He started with a brief refresher video, one he’d secured from a colleague on holiday in the Bahamas. The class watched their vacationing instructor drop to his knees on the beach as the tape rolled. With a straight face, he reviewed the finer points of his recent technology-operations-management discussion with the class, drawing a series of overlapping diagrams in the sand. When done, he promptly jumped into the ocean.

The crowd loved it, but it was the last light moment. For the next hour-and-a-half the class examined whether the Spanish clothing company Zara should update its retailers’ IT infrastructure.

During the ensuing discussion and debate, Jan Rivkin, deftly prodded, questioned, and encouraged his deeply engaged class.

It was just another day at HBS — and one of its standard case-classes. The case method is the primary mode of teaching and learning at the institution, which celebrates its 100th anniversary this year. In honor of its centennial, the School will host a series of events on Tuesday (April 8) that will include a number of panels, a birthday celebration, and a case discussion on the future of HBS.

While it didn’t begin with the School’s inception, the revolutionary instructional approach followed shortly thereafter. But it wasn’t an entirely novel concept. The model was actually borrowed from the Harvard Law School and Christopher Columbus Langdell HLS Class of 1853 and dean of the Law School in 1870, who pioneered the technique for the examination of Harvard Law School cases.

Later, at HBS, it was Dean Wallace P. Donham, a Law School grad familiar with the technique, who pushed for the full inclusion of the case method at the Business School, where it was altered and adapted to a business perspective. Since 1921, it has been a core part of the curriculum.

The method of teaching differs greatly from the traditional lecture format, in which students take notes as the professor speaks. Instead, students are engaged in a dynamic back-and-forth with one another and their professor, discussing a topic typically pulled from a relevant, real-life business scenario and featuring a dilemma or challenge. Sometimes, once the class has examined and discussed the case, the actual CEO or president of the company in question will appear in person to explain how the situation ultimately unfolded.

The case topics are wide-ranging and include everything from the world of finance to semiconductors to sweeteners to satellite television.

Some cases offer historic reflections, employing the lessons tragedy imparts. Cases have been written, for example, about the space shuttle Columbia’s final mission in 2003 and the management decisions made prior to its fatal re-entry into the Earth’s atmosphere, Abraham Lincoln’s leadership during the Civil War, and the management of national intelligence prior to the terrorist attacks of Sept. 11, 2001.

Students are given an overview of the case’s material to read ahead of time. The packets, roughly 20 to 25 pages long, include a list of facts, an outline of the challenge at hand, and a history of the company or situation in text, charts, and graphs, all compiled into a neat brief.

More than 80 percent of HBS classes are built on the case method. Each week students prepare approximately 14 cases both alone and with the help of study groups. But in the end they are on their own. In class, it is up to the individual to articulate his or her argument and persuade others of its merits. A hefty 50 percent of a student’s grade is determined by class participation, so taking part in the conversation is crucial. Students raise their hands energetically, trying to get quality “air time,” as they call it. Two important unwritten rules, self-enforced by the students themselves: Never speak unless you have something valuable to contribute, and keep it brief.

The teaching technique most effectively prepares the CEOs of tomorrow for what they will inevitably face in the real world, say the professors who employ it.

“Getting a piece of material, having to sift through it, figure out what’s important, … come to a point of view, [then] come to class both prepared to argue that point of view … [and] prepared to listen and be open to others’ viewpoints — those are the skills that the business world demands, and via the case method they get to practice those in the classroom,” said Michael J. Roberts, senior lecturer of business administration and executive director of the Arthur Rock Center for Entrepreneurship.

Continued in article

March 4, 2013 reply from Steve Zeff

Bob,

Thanks for this. I presume you save seen my article, "The Contribution of the Harvard Business School to Management Control, 1908 - 1980," in the special issue 2008 of JMAR. Bob Kaplan invited me to do the research and write the article for the April 2008 history symposium at HBS, which kicked off its 100th anniversary celebration. I attach the article.

Steve.

"How Virtual Teams Can Outperform Traditional Teams," by Jason Sylva, Harvard Business Review Blog, October 9, 2012 --- Click Here
http://blogs.hbr.org/events/2012/10/how-virtual-teams-can-outperfo.html?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date

People can easily list problems they believe are associated with virtual teams: They haven't met and don't really know other team members; it is hard to monitor the work of others; and dispersions can lead to big inefficiencies and degraded performance.

In this HBR webinar, Keith Ferrazzi, a foremost expert on professional relationship development and author of Never Eat Alone and Who's Got Your Back?, shares a strategy for managing virtual teams that can change how your company operates - and how you manage for years to come.

Continued in article

Jensen Comment
This theory should be tested in a variety of ways with respect to case analysis by teams. I've always argued that case learning is best in live classrooms, but I'm beginning to doubt myself on this one. Even Harvard and Darden should experiment with onsite versus online team assignments. One advantage of online team assignments is grading if instructors carefully track team member contributions, possibly by monitoring online performance as silent or active (avatar) trackers.

Bob Jensen's threads on case method teaching and research ---
http://www.trinity.edu/rjensen/000aaa/thetools.htm#Cases

At the start of an exam, a student openly wondered, "But Professor Einstein, this is the same exam question as last year!" To which the great man supposedly replied, "Correct, young man, but we need to find new answers."
Werner Reinartz --- http://blogs.hbr.org/cs/2013/03/measuring_creativity_we_have_t.html

A Retirement Crisis is Brewing

Question
How would you like to retire with a small nest egg that cannot earn as much as one percent per year in a safe investment?

If you lock up a minimum of $100,000 for five years in a Certificate of Deposit the best you can do is 1.75 % which most likely won't cover food and fuel price increases over the next five years. A one-year CD gets you a whopping 0.94% annual rate. ---
http://cdrates.bankaholic.com/ ---
Thanks ever so much Ben Bernanke.

The CREF bond yield to date in 2013 is at a (negative)  -0.13%.
The TIAA-CREF Inflation linked bond fund is at a (negative) -0.80% thus far in 2013
The CREF Equity Index at a (positive) +0.73% thus far in 2013 but has much more high-risk volatility for what you've struggled to save and might lose
According to MSNBC, President Obama's approval rating fell 15% since January 2013 and is now less than 50%
Congressional approval ratings barely registers
It's time for term limits

From CFO.com Morning Ledger on March 19, 2013

A retirement crisis is brewing as workers save too little and companies face bigger pension liabilities. A report out today from the Employee Benefit Research Institute (PDF) shows that 57% of U.S. workers have less than $25,000 in total household savings and investments excluding their homes. Only 49% reported having so little money saved in 2008. And 28% of Americans have no confidence they will have enough money to retire comfortably—the highest level in the study’s 23-year history, the WSJ’s Kelly Greene and CFOJ’s Vipal Monga report.

Corporate balance sheets (including TIAA-CREF) are also under pressure. Based on another recent report, the Society of Actuaries said rising life expectancies could add as much as $97 billion to corporate pension liabilities in coming years, an increase of up to 5%. Goodyear said life expectancy growth for its plan’s beneficiaries is one reason its global pension-funding gap widened to $3.5 billion last year from $3.1 billion in 2011.

The effect of longer life spans on pension obligations has been dwarfed by the impact of declining interest rates over recent years. Because of the way pension liabilities are calculated, lower rates mean that future obligations are higher today. But interest rates are likely to rise at some point, which will lessen pension obligations. “Rates can go up,” said Rama Variankaval, an executive director in the corporate finance advisory group of J.P. Morgan’s investment bank. “Mortality is more of a one-way street.”

Question
Who made the most serious mistake:  TurboTax in Minnesota or H&R Block in the entire USA?

Answer
The two mistakes probably cannot be compared because they are so different. In the case of H&R Block, the IRS shares the blame and will probably correct the returns. TurboTax victims may have to refile. H&R Block victims will have to wait and wait for refunds while the IRS corrects their returns. However, since money no longer has time value, perhaps they are slightly less damaged than they would have been before Ben Bernanke.

"H&R Block Gaffe Gums Up the Works," by Ken Berry, AccountingWeb, March 14, 2013 ---
http://www.accountingweb.com/article/hr-block-gaffe-gums-works/221358?source=tax

"Fundamentals of Gift Tax," by Mark Powell and Andrea Kushner Ross, SSRN, November 1, 2012 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2212313
A detailed overview of the US gift and generation-skipping transfer taxes.

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

Teaching Case in Cost and Managerial Accounting
From The Wall Street Journal Accounting Weekly Review on March 29, 2013

Boom Times on the Tracks: Rail Capacity, Spending Soar
by: Betsy Morris
Mar 27, 2013
Click here to view the full article on WSJ.com
 

TOPICS: Cost Accounting, Managerial Accounting, Manufacturing, Supply Chains

SUMMARY: This is quite a long article covering the recent revival of U.S. rail transportation as well as some of its up and down history. "North America's major freight railroads are in the midst of a building boom unlike anything since the industry's Gilded Age heyday in the 19th century-this year pouring $14billion into rail yards, refueling stations, additional track. With enhanced speed and efficiency, rail is fast becoming a dominant player in the nation's commercial transport system and a vital cog in its economic recovery." The investment boom is focused on making "existing rail lines more efficient and able to haul more and different types of freight."

CLASSROOM APPLICATION: The article contains an excellent general discussion of management accounting issues about capital spending, use of technology, use of metrics, and measuring carbon footprint.

QUESTIONS: 
1. (Introductory) The first graphic related to the article shows "capital spending by the biggest freight railroads in the U.S." Define capital spending in general, then describe the types of capital spending that U.S. railroads have been doing over the last 8 to 10 years.

2. (Introductory) What types of goods are railroads shipping? Against what other modes of transportation are railroads now effectively competing?

3. (Advanced) Why is rail shipping "helping to make manufacturing in North America cost effective again"? In your answer, specifically state how transportation costs must be considered in the cost of, and therefore pricing of, any product an American producer will sell.

4. (Advanced) What happened when the rail industry faced "a near-death experience in the 1970s"? Include in your answer a comment on how information technology and metrics can help change "how you run a railroad."

5. (Advanced) How did UPS use its influence over its supply chain to further contribute to its railroad transportation suppliers' use of "technology and strategy"? In your answer, provide a brief definition of a supply chain.

6. (Advanced) Union Pacific Corp.'s chief executive is concerned about "juggling capital investments with return to shareholders." Explain that statement

7. (Advanced) The director of logistics and transportation at the Container Store Inc. says that one benefit of using railroads has been to cut his company's carbon footprint by 40%. What is a carbon footprint? In what external report might that information be published by the company?
 

Reviewed By: Judy Beckman, University of Rhode Island

"Boom Times on the Tracks: Rail Capacity, Spending Soar," by: Betsy Morris, The Wall Street Journal, March 27, 2013 ---
http://online.wsj.com/article/SB10001424127887324034804578348214242291132.html

EPPING, N.D.—On a recent subzero day at a rail station here on the plains, a giant tank train stretches like a black belt across the horizon—as far as the eye can see. Soon it will be filled to the brim with light, sweet crude oil and headed to a refinery on Puget Sound. Another mile-long train will pull in right behind it, and another after that.

Containers are loaded onto a train at the BNSF facility in Fort Worth.

Increasingly, scenes like this are being played throughout the country. "Hot Trains" dedicated to high-priority customers like United Parcel Service Inc. UPS +0.55% roar across the country to deliver everything from microwaves to tennis shoes and Amazon.com AMZN +0.45% packages. FedEx Corp., FDX +0.56% known for its huge fleet of aircraft, is using more trains, too.

Welcome to the revival of the Railroad Age. North America's major freight railroads are in the midst of a building boom unlike anything since the industry's Gilded Age heyday in the 19th century—this year pouring $14 billion into rail yards, refueling stations, additional track. With enhanced speed and efficiency, rail is fast becoming a dominant player in the nation's commercial transport system and a vital cog in its economic recovery.

This time around, though, the expansion isn't so much geographic—it is about a race to make existing rail lines more efficient and able to haul more and different types of freight. Some of the railroads are building massive new terminals that resemble inland ports. They are turning their networks into double-lane steel freeways to capture as much as they can get of U.S. freight demand that is projected to grow by half, to $27.5 billion by 2040, according to the U.S. Department of Transportation. In some cases, rail lines are increasing the heights of mountain tunnels and raising bridges to accommodate stacked containers. All told, 2013 stands to be the industry's third year in a row of record capital spending—more than double the yearly outlays of $5.9 billion a decade ago.

And in a turnabout few could have imagined decades ago, rail is stealing share from other types of commercial transport—most notably the trucking business, which is waylaid by high fuel prices, overloaded highways, driver shortages and regulations that are pushing up costs.

Transport by rail is also relatively cheap. Though rising, U.S. freight rail rates are nearly half what they were three decades ago, according to the Association of American Railroads. And those bargains are helping to make manufacturing in North America cost effective again. Since 2007, more than $100 billion of foreign direct investments have been made in Mexico, Robert Knight, Union Pacific UNP +1.12% Chief Financial Officer, told analysts at a recent conference. He expects annual production of 2.7 million vehicles in that country to increase by another million by 2015.

"We wouldn't have as many companies considering moving back to the U.S. or near-shoring," if not for rail, says Yossi Sheffi, Professor of Engineering Systems at MIT and director of its Center for Transportation and Logistics. "Some of it is the cheaper energy. But we could not be moving the oil around without rail. We could not have the huge amount of imports without the rail."

A confluence of other factors is advancing the trend. The energy boom, for instance, is reviving industries like steel and chemicals. Higher labor and transportation costs in parts of Asia are triggering a surge in sourcing from nearby.

"All those things have put the railroads into a great sweet spot for what's next in this economy," says Matthew K. Rose, chief executive officer of BNSF Railway. "Nobody wants to miss out."

BNSF, purchased by Warren Buffett's Berkshire Hathaway Inc. BRKB +1.01% in 2010, is investing $4.1 billion on a list that includes locomotives, freight cars, a giant terminal southwest of Kansas City and new track and equipment for its oil-related business in the Bakken shale region of North Dakota and Montana.

Union Pacific Corp. is spending $3.6 billion on a giant terminal near Santa Teresa, N.M. It is designing a new $400 million-$500 million bridge over the Mississippi at Clinton, Iowa, to replace an old drawbridge that routinely delays trains for hours at a time. It will double some track in Louisiana and Texas and expand rail yards there and in Arkansas to provide more capacity to chemical customers such as Dow Chemical Co. DOW +0.19% and Exxon Mobil Corp. XOM -0.52%

CSX Corp. CSX +1.15% will spend $2.3 billion partly to finish the first phase of a multiyear project, raising highway bridges, enlarging mountain tunnels and clearing some 40-odd obstacles to make enough space to accommodate double-decker containers all the way from the Midwest to the mid-Atlantic ports.

Kansas City Southern Railway Co. will spend $515 million. "We're a growth railroad," David Starling, its chief executive, told a securities analyst who questioned the expenditure in January. "The worst thing this team wants to be accused of is having some service deterioration because we didn't have the foresight to spend the money."

Passenger rail is undergoing something of a renaissance, too. It was the passenger business that nearly killed the freight business in the 1960s and 1970s. Part of the legislation designed to save the railroads in the 1970s allowed them to shed the passenger business. Lately, the Obama administration has invested nearly $12 billion in passenger rail, according to the Department of Transportation, that has been used to fund 152 projects in 32 states.

Trains may seem like relics of a bygone era. Not so. Steeled by a near-death experience in the 1970s—when many railroads filed for bankruptcy and braced for the threat of a government takeover—the railroads instead were largely deregulated. The survivors fought hard. They squeezed capacity, resolved labor issues, swallowed up weaker players and rebuilt. By the time rail's prospects began to brighten a decade ago, the executives were "a much younger, more IT, more metric-minded group," says William Galligan, vice president of investor relations at Kansas City Southern KSU +2.93% . "They had a whole new view toward how you run a railroad."

Continued in article

Bob Jensen's threads on managerial accounting ---
http://www.trinity.edu/rjensen/Theory02.htm#ManagementAccounting

Expectations GAP in Managerial Accounting

Jensen Comment
In some ways the expectations GAAP between the accounting Academy and the profession of management accounting is more serious than that of financial accounting. The financial accounting profession pays little attention to accountics research but continues to be happy with the Academy as long as accounting graduates meet expectations for passing the CPA examination and sufficient knowledge to hit the ground running on audits. There is concern about the shortage of new faculty in auditing and taxation, which is why the large CPA firms and the AICPA now fund doctoral fellowships for accounting Ph.D. students in those  specialties. There is also concern about insufficient numbers of minority students who pass the CPA examination. These problems are discussed at
http://www.trinity.edu/rjensen/Theory01.htm#DoctoralPrograms
 

The practicing profession pretty well gave up on clinical accounting research since the 1960s ---
http://www.trinity.edu/rjensen/theory01.htm#AcademicsVersusProfession

In managerial accounting there's more of a "crisis" in the Academy. Sue Haka posted the following to the AAA Commons when she was President of the American Accounting Association.

Saving Management Accounting in the Academy

discussion posted January 7, 2009 by Sue Haka, last edited February 10, 2012 by Tracey Sutherland , tagged managerial

315 Views, 13 Comments

discussion:

Saving Management Accounting in the Academy

details:

The long run place of management accounting in the academy seems in peril for several reasons. First, there is an ongoing migration of accounting topics to other disciplines. Second, evidence suggests that the diversity in management accounting research seems to be dwindling. Third, the value of our content for MBA programs is not apparent. Finally, our engagement with the management accounting practitioner community is weak.

First-topic migration: I don't know about your experiences, but at my institution I must be ever vigilant about traditional management accounting topics migrating into management, marketing, or supply chain classes. While I am delighted that cost-volume-profit topics are important to my marketing colleagues, unfortunately the students that come to my management accounting class after having been "taught" CVP by my marketing colleagues cannot distinguish between fixed and variable costs! Other topics taught by my colleagues include ABC in supply chain and balanced scorecard in management. Making sure that students are required to take a management accounting class prior to classes where discussions about how ABC is important for supply chain decision making requires constant vigilance. Years ago management accounting virtually gave capital budgeting up to the finance department...is fair value measurement next!

Second-research diversity: I have often been among those who have suggested that general accounting research is not sufficiently diverse (i.e. an overabundance of financial archival focus). I forgot my mother's phrase--when you point at others, three fingers point back at you! Recent reviews of JMAR topical areas suggest a lack of diversity within our discipline. These reviews show an overwhelming focus on performance measurement--in 2008 (2007) 48% (50%) of submitted articles were focused on performance measurement. Only one other category is over 12%. It seems that management accounting research is fairly narrow.

Third-value in the MBA: Management accounting should be a bedrock of MBA programs. However, we have let financial accounting eclipse management accounting. MBA programs have, over the last decade, decreased accounting content and the majority of that reduction has come out of management accounting. Yet most MBAs become managers and management accounting should be highly value added for them.

Finally-practitioner engagement: While our colleagues in auditing and financial accounting have opportunities to serve as fellows at the SEC or FASB or take a semester or year to work at one of the big four firms, management accounting faculty have few established programs allowing us to experience first hand many of the issues that we teach and write about. I believe creating these types of opportunities would help us diversify our research and convince others of the value of management accounting for MBAs and in the practicing communities.

I'm sure you have other issues that imperil the discipline of management accounting. Please add your comments and discussion.

"Crisis in Management Accounting Curricula: The Unclear Role of Information Systems and Information Technology," by Gary Spraakman, SSRN, January 13, 2011 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1740142

Abstract:     
The purpose of this literature review paper is to critically evaluate the research on the presence of information systems and information technology (IS/IT) in and for management accounting curricula. Over the last 35 years, there were 13 management accounting curricula pronouncements in the literature; only 10 of them specified IS/IT knowledge and skills necessary for university graduates pursuing management accounting positions. The 10 educators pronouncements did not thoughtfully include IS/IT in the curricula and the pronouncements were not informed by the practice of management accounting. In contrast to research on the use of IS/IT in the practice of management accounting and the IFAC, the professional management accounting associations placed little importance on the inclusion of IS/IT in management accounting curricula. The paper recommends practitioners be questioned and studied in depth as the actual use IS/IT has in management accounting in order to make a practice-informed recommendation for the role of IS/IT in management accounting curricula.

There are many other articles on the expectations gap in managerial accounting. Go to Google Advanced Search at
http://www.google.com/advanced_search

All These Words --- Managerial
This Exact Word or Phrase --- "Expectations Gap" AND "Management Accounting"
None of these words --- Auditing Audit

Also do the same type of search in Advanced Google Scholar --- Click Here
https://www.google.com/search?as_q=&as_epq=Advanced+Google+Scholar&as_oq=&as_eq=&as_nlo=&as_nhi=&lr=&cr=&as_qdr=all&as_sitesearch=&as_occt=any&safe=images&tbs=&as_filetype=&as_rights=

The practicing profession pretty well gave up on clinical accounting research since the 1960s ---
http://www.trinity.edu/rjensen/theory01.htm#AcademicsVersusProfession

March 1, 2013 message from Dennis Huber

The American Anti-Corruption Institute (AACI) ® ©

 

http://theaaci.com/about-us.html

 

The American Anti-Corruption Institute is a for-profit, Limited Liability Corporation (LLC) incorporated in Delaware 05/14/2012. Its headquarters is in Arizona, but no foreign corporation authorization was found on the AZ Secretary of State website. It issues the Certified Anti-Corruption Manager ® ©(CACM) ® © which is now in the grandfathering process. There is a Four-Point Code of Ethics.

 

See my papers comparing corporations that issue certifications at http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=371197.

 

OCI Reporting Update From Ernst & Young on February 28, 2013

Technical Line: What the new AOCI disclosures will look like

The FASB has issued new guidance requiring companies to report, in one place, information about reclassifications out of accumulated other comprehensive income (AOCI). Companies are also required to present reclassifications by component when reporting changes in AOCI balances. Public companies must make the disclosures in fiscal years and interim periods within those years beginning after 15 December 2012. For calendar-year public companies, that means the first quarter of 2013. For nonpublic companies, the Accounting Standards Update (ASU) is effective for fiscal years beginning after 15 December 2013 and interim and annual periods thereafter. The guidance should be applied prospectively. Our Technical Line publication describes the requirements and provides examples of what the disclosures might look like.

Download --- Click Here
http://www.ey.com/publication/vwluassetsdld/technicalline_bb2503_aoci_27february2013/$file/technicalline_bb2503_aoci_27february2013.pdf?OpenElement

"Academic Research and Standard-Setting: The Case of Other Comprehensive Income," by Lynn L. Rees and Philip B. Shane, Accounting Horizons, December 2012, Vol. 26, No. 4, pp. 789-815. ---
http://aaajournals.org/doi/full/10.2308/acch-50237 

This paper links academic accounting research on comprehensive income reporting with the accounting standard-setting efforts of the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB). We begin by discussing the development of reporting other comprehensive income, and we identify a significant weakness in the FASB's Conceptual Framework, in the lack of a cohesive definition of any subcategory of comprehensive income, including earnings. We identify several attributes that could help allocate comprehensive income between net income, other comprehensive income, and other subcategories. We then review academic research related to remaining standard-setting issues, and identify gaps in academic research where hypotheses could be developed and tested. Our objectives are to (1) stimulate standard-setters to better conceptualize what is meant by other comprehensive income and to distinguish it from earnings, and (2) stimulate researchers to develop and test hypotheses that might help in that process.

. . .

Potential Alternative Definitions of Earnings

Table 1 summarizes and categorizes various standard-setting issues related to reporting comprehensive income, and provides the organizing structure for our literature review later in the paper. The most important of these issues is the definition of earnings, or what makes up earnings and how it is distinguished from OCI. This is a “cross-cutting” issue because it arises when the Boards deliberate on various topics. The Boards cooperatively initiated the financial statement presentation project intending, in part, to solve the comprehensive income composition problem, but the project was subsequently delayed.

Table 2 presents a list of the specific comprehensive income components under current U.S. GAAP that require recognition as OCI. The second column presents the statement that provided financial reporting guidance for the OCI component, along with its effective date. The effective dates provide an indication as to how the OCI components have expanded over time. Since the issuance of Statement No. 130, which established formal reporting of OCI, new OCI-expanding requirements were promulgated in Statement No. 133. Financial instruments, insurance, and leases are three examples of topics currently on the FASB's agenda where OCI has been discussed as an option to report various gains and losses. In all these discussions, a framework is lacking that can guide standard-setter decisions. The increased use of accumulated OCI to capture various changes in net assets and the likely expansion of OCI items reinforce the notion that standard-setters must eventually come to grips with the distinction between OCI and earnings, or even whether the practice of reporting OCI with recycling should be retained.7

Presumably, elements with similar informational attributes should be classified together in financial statements. It is unclear what attributes the items listed in Table 2 possess that result in their being characterized differently from other components of income. Notably, the basis for conclusions of the FASB standards gives little to no economic reasoning for the decision to place these items in OCI. While not exhaustive, Table 2 presents four attributes that standard-setters could potentially use to distinguish between earnings and OCI: (1) the degree of persistence of the item, (2) whether the item results from a firm's core operations, (3) whether the item represents a change in net assets that is reasonably within management's control, and (4) whether the item results from remeasurement of an asset/liability. We discuss in turn the merits and potential problems of using these attributes to form a reporting framework for comprehensive income.

Degree of Persistence.

The degree of persistence of various comprehensive income components has significant implications for firm value (e.g., Friedman 1957; Kormendi and Lipe 1987; Collins and Kothari 1989). Ohlson's (1995, 1999) valuation model places a heavy emphasis on earnings persistence, which suggests that a reporting format that facilitates identifying the level of persistence across income components could be useful to investors. Examples abound as to how the concept of income persistence has been used in standard-setting, including separate presentation in the income statement for one-time items, extraordinary items, and discontinued operations. Standard-setters have justified several footnote disclosures (segmental disclosures) and disaggregation requirements (e.g., components of pension expense) on the basis of providing information to financial statement users about the persistence of various income statement components.

Thus, the persistence of revenue and expense items potentially could serve as a distinguishing characteristic of earnings and OCI. Table 2 shows that we regard all the items currently recognized in OCI as having relatively low persistence. However, several other low-persistence items are not recognized in OCI; for example, gains/losses on sale of assets, impairments of assets, restructuring charges, and gains/losses from litigation. To be consistent with this definition of OCI, the current paradigm must change significantly, and the resulting total for OCI would look substantially different from what it is now.

Using persistence of an item to distinguish earnings from OCI would create significant problems for standard-setters. Persistence can range from completely transitory (zero persistence) to permanent (100 percent persistence). At what point along this range is an item persistent enough to be recorded in earnings? While restructuring charges are typically considered as having low persistence, if they occur every two to three years, is this frequent enough to be classified with other earnings components or infrequent enough to be classified with OCI? Furthermore, the relative persistence of an item likely varies across industries, and even across firms.

In spite of these inherent difficulties, standard-setters could establish criteria related to persistence that they might use to ultimately determine the classification of particular items. In addition, standard-setters would not be restricted to classifying income components in one of two categories. As an example, highly persistent components could be classified as part of “recurring earnings,” medium-persistence items could go to “other earnings,” and low-persistence items to OCI (or some other nomenclature). Standard-setters could create additional partitions as needed.

Core Operations.

Classifying income components as earnings or OCI based on whether they are part of a firm's core operations is intuitively appealing. This criterion is related to income persistence, as we would expect core earnings to be more persistent than noncore income items. Furthermore, classifying income based on whether it is part of core operations has a long history in accounting.

In current practice, companies and investors place primary importance on some variant of earnings. However, it is not clear which variant of earnings is superior. Many companies report pro forma net income, which presumably provides investors with a more representative measure of the company's core income, but definitions of pro forma earnings vary across firms. Similarly, analysts tend to forecast a company's core earnings (Gu and Chen 2004). Evidence in prior research indicates that pro forma earnings and actual earnings forecasted by analysts are more closely associated with share prices than income from continuing operations based on current U.S. GAAP (e.g., Bradshaw and Sloan 2002; Bhattacharya et al. 2003).

The problems inherent with this attribute are similar to those of the earnings-persistence criterion. No generally accepted definition of core operations exists. At what point along a continuum does an activity become part of the core operations of a business? As Table 2 indicates, classifying gains/losses from holding available-for-sale securities as part of core earnings depends on whether the firm operates in the financial sector. Different operating environments across firms and industries could make it difficult for standard-setters to determine whether an item belongs in core earnings or OCI.8 In addition, differences in application across firms may give rise to concerns about comparability and potential for abuse on the part of managers in exercising their discretion (e.g., Barth et al. 2011).

The FASB's (2010) Staff Draft on Financial Statement Presentation tries to address the definitional issue by using interrelationships and synergies between assets and liabilities as a criterion to distinguish operating (or core) activities from investing (or noncore) activities. Specifically, the Staff Draft states:

An entity shall classify in the operating category:

Assets that are used as part of the entity's day-to-day business and all changes in those assets Liabilities that arise from the entity's day-to-day business and all changes in those liabilities.

Operating activities generate revenue through a process that requires the interrelated use of the entity's resources. An asset or a liability that an entity uses to generate a return and any change in that asset or liability shall be classified in the investing category. No significant synergies are created for the entity by combining an asset or a liability classified in the investing category with other resources of the entity. An asset or a liability classified in the investing category may yield a return for the entity in the form of, for example, interest, dividends, royalties, equity income, gains, or losses. (FASB 2010, paras. 72, 73, 81)

The above distinction between operating activities and investing activities could similarly be used to distinguish between core activities and noncore activities. Alternatively, standard-setters might develop other definitions. Similar to the degree of persistence attribute, standard-setters would not be restricted to a simple core versus noncore dichotomy when using this definition.

Another possible solution is to allow management to determine which items belong in core earnings. Companies exercise this discretion today when they choose to disclose pro forma earnings. Furthermore, the FASB established the precedent of the “management approach” when it allowed management to determine how to report segment disclosures. In several other areas of U.S. GAAP, management is responsible for establishing boundaries that define its operating environment. FASB Accounting Standards Codification Topic 320 (formerly Statement 115) permits different measurements for identical investments based on management's intent to sell or hold the instrument. Other examples where U.S. GAAP allows for management discretion include determining the rate to discount pension liabilities, defining reporting units, and determining whether an impairment is other than temporary. However, the management approach accentuates the concern about comparability and potential for abuse.

Management Control.

Given a premise that evaluating management's stewardship is a primary role of financial statements, a possible rationale for excluding certain items from earnings is that they do not provide a good measure to evaluate management.9 Management can largely control the firm's operating costs and can influence the level of revenues generated. However, some decisions that affect comprehensive income can be established by company policy or the company mission statement and, thus, be outside the control of management. For example, a company policy might be to invest excess cash in marketable securities with the objective of maximizing returns. Once the board of directors establishes this policy, management has little influence over how market-wide fluctuations in security prices affect earnings, and hedging the gains/losses would be inconsistent with the objective of maximizing returns. Similarly, a company's mission statement might include expansion overseas, or prior management might have already decided to establish a foreign subsidiary. The resulting gains/losses from foreign currency fluctuations would seemingly be out of management's control, and hedging these gains/losses would not make economic sense if the subsidiary's functional currency is its local currency and the parent has no intention of repatriating the subsidiary's cash flows.

Of course, determining what is and is not ostensibly under management's control becomes highly subjective and would probably differ across industries, and perhaps even across firms within industries. For example, gains/losses from investment holdings might not be relevant in evaluating management of some companies, but might be very relevant for managers of holding companies. In addition, the time horizon affects what is under management's control. That is, as the time horizon lengthens, more things are under management's control.

In Table 2, we classify items as not under management's control if they are based on fluctuations in stock prices or exchange rates, which academic research shows to be largely random within efficient markets. Using this classification model, most, but not all, of the OCI items listed in Table 2 are classified as not under the management's control. Some of the pension items currently recognized in OCI are within the control of management, because management controls the decision to revise a pension plan. While management has control over when to harvest gains/losses on available-for-sale (AFS) securities by deciding when to sell the securities, it cannot control market prices. Thus, under this criterion, unrealized gains/losses on AFS securities are appropriately recognized in OCI. However, gains/losses on trading securities and the effects of tax rate changes are beyond management's control, and yet, these items are currently included as part of earnings. Thus, “management control” does not distinguish what is and is not included in earnings under current U.S. GAAP.

Remeasurements.

Barker (2004) explains how the measurement and presentation of comprehensive income might rely on remeasurements. The FASB's (2010) Staff Draft on Financial Statement Presentation defines remeasurements as follows:

A remeasurement is an amount recognized in comprehensive income that increases or decreases the net carrying amount of an asset or a liability and that is the result of:

A change in (or realization of) a current price or value A change in an estimate of a current price or value or A change in any estimate or method used to measure the carrying amount of an asset or a liability. (FASB 2010, para. 234)

Using this definition, examples of remeasurements are impairments of land, unrealized gains/losses due to fair value changes in securities, income tax expenses due to changes in statutory tax rates, and unexpected gains/losses from holding pension assets. All of these items represent a change in carrying value of an already existing asset or liability due to changes in prices or estimates (land, investments, deferred tax asset/liability, and pension asset/liability, respectively).

Table 3 reproduces a table from Barker (2004) that illustrates how a firm's income statement might look using a “matrix format” if standard-setters adopt the remeasurement approach to reporting comprehensive income. Note that the presentation in Table 3 does not employ earnings as a subtotal of comprehensive income; however, the approach could be modified to define earnings as the sum of all items before remeasurements, if considered useful. Tarca et al. (2008) conduct an experiment with analysts, accountants, and M.B.A. students to assess whether the matrix income statement format in Table 3 facilitates or hinders users' ability to extract information. They find evidence suggesting that the matrix format facilitates more accurate information extraction for users across all sophistication levels relative to a typical format based on IAS 1.

 

Table 3:  Illustration of Matrix Reporting Format
http://www.cs.trinity.edu/~rjensen/temp/ReesShane2012Table3.jpg

 

Employing remeasurements to distinguish between earnings and other comprehensive income largely incorporates the criterion of earnings persistence. Most remeasurements result from price changes, where the current change has little or no association with future changes and, therefore, these components of income are transitory. In contrast, earnings components before remeasurements generally represent items that are likely more persistent.

Perhaps the most significant advantage of the remeasurement criterion is that it is less subjective than the other criteria previously discussed. Most of the other criteria in Table 2 are continuous in nature. Drawing a bright line to differentiate what belongs in earnings from what belongs in OCI is challenging and will likely be susceptible to income manipulation. In contrast, determining whether a component of income arises from a remeasurement is more straightforward.

Yet another advantage of this approach is it allows for a full fair value balance sheet that clearly discloses the effects of fair value measurement on periodic comprehensive income, while also showing earnings effects under a modified historical cost system (i.e., before remeasurements). This approach could potentially provide better information about probable future cash flows.

Other.

The attributes standard-setters could use to classify income components into earnings or OCI are not limited to the list in Table 2. Ketz (1999) suggests using the level of measurement uncertainty. As an example, gains/losses from Level 1 fair value measurements might be viewed as sufficiently certain to include in earnings, while Level 3 fair value measurements might generate gains/losses that belong in OCI. Song et al. (2010) provide some support for this partition in that they document the value relevance of Level 1 and Level 2 fair values exceeds the value relevance of Level 3 fair values.

Another potential attribute might be the horizon over which unrealized gains/losses are ultimately realized. That is, unrealized gains/losses from foreign currency fluctuations, term life insurance contracts, or holding pension assets that will not be realized for many years in the future might be disclosed as part of OCI, whereas unrealized gains/losses from trading and available-for-sale securities could be part of earnings.

As previously discussed, the attributes of measurement uncertainty and timeliness create similar problems in determining where to draw the line. Which items are sufficiently reliable (or timely) to include in earnings, and will differences in implementation across firms and industries impair comparability?

The overriding purpose of the discussion in this subsection is to point out that several alternative attributes could potentially guide standard-setters in establishing criteria to differentiate earnings from OCI. Ultimately, the choice regarding whether/how to distinguish net income from OCI is a matter of policy. However, academic research can inform policy decisions, as described in the fourth and fifth sections.

Summary

Reporting OCI is a relatively recent phenomenon that presumes financial statement users are provided with better information when specific comprehensive income components are excluded from earnings-per-share (EPS), and recycled back into net income only after the occurrence of a specified transaction or event. The number of income components included in OCI has increased over time, and this expansion is likely to continue as standard-setters address new agenda items (e.g., financial instruments and insurance contracts). The lack of a clear definitional distinction between earnings and OCI in the FASB/IASB Conceptual Frameworks has led to: (1) ad hoc decisions on the income components classified in OCI, and (2) no conceptual basis for deciding whether OCI should be excluded from earnings-per-share (EPS) in the current period or recycled through EPS in subsequent periods. In this section, we discussed alternative criteria that standard-setters could use to distinguish earnings from OCI, along with the advantages and challenges of each criterion. Further, due to the inherent difficulties in drawing bright lines between earnings that are persistent versus transitory, core versus noncore, under management control or not, and amenable to remeasurement or not, standard-setters might consider eliminating OCI; that is, they might decide to adopt an all-inclusive income statement approach, where comprehensive income is reporte

. . .

Continued in article

History of Women in Accounting and Other Walks of Life

Judith Drake (scholar on barriers to women in physical and mental work, including accounting) --- http://en.wikipedia.org/wiki/Judith_Drake

Eight Special Women of Accounting --- http://www.journalofaccountancy.com/Issues/2007/Aug/EightSpecialWomenInAccounting.htm

Among the AICPA-donated volumes at Ole Miss are two binders containing photographs of individuals appearing in the JofA or at accounting conventions from 1887 to 1979. Of the 446 individuals featured, eight are women—Christine Ross, Ellen Libby Eastman, Miriam Donnelly, Mary E. Murphy, Helen Lord, Helen H. Fortune, Mary E. Lewis and Beth M. Thompson. In a time when the profession was the all-but-exclusive domain of men, they stood out not only because of their gender but in many cases because of their accomplishments and contributions to accounting. Consider that in 1933, slightly more than 100 CPA certificates had been issued to women. By 1946, World War II had changed traditional notions of gender in the workplace, and female CPAs had more than tripled to 360—still a small contingent but, as information gleaned from the AICPA Library indicates, one capable of exerting a strong and beneficial influence on the profession.

Christine Ross
Born about 1873 in Nova Scotia, Ross took New York by storm in the late 1890s. New York state enacted licensure legislation in 1896 and gave its inaugural CPA exam in December 1896. Ross sat for the exam in June 1898, scoring second or third in her group. Six to 18 months elapsed while her certificate was delayed by state regents because of her gender. But she had completed the requirements and became the first woman CPA in the United States, receiving certificate no. 143 on Dec. 21, 1899.

Ross began practicing accounting around 1889. For several years, she worked for Manning’s Yacht Agency in New York. Her clients included women’s organizations, wealthy women and those in fashion and business.

Helen Lord
Lord received her CPA certificate from New York in 1934 and in 1935 joined the American Society of Certified Public Accountants, which merged with the American Institute of Accountants (later AICPA) the following year. In 1937, she was a partner with her father in the New York firm of Lord & Lord and a member of the AIA. She served in the late 1940s as business manager of The Woman CPA, published by the American Woman’s Society of Certified Public Accountants–American Society of Women Accountants. Lord reported the journal then had a circulation of more than 2,200.

Helen Hifner Fortune
Fortune, one of the first women CPAs in Kentucky, received certificate no. 174 in 1935 and was admitted to the AIA the following year. She became a member of an AIA committee in 1942 and by 1947 was a partner in the Lexington, Ky., firm of Hifner and Fortune.

Ellen Libby Eastman
Eastman began her career as a clerk in a Maine lumber company, eventually becoming chief accountant. She studied for the CPA exam at night and became the first woman CPA in Maine, receiving certificate no. 37 dated 1918. She was also the first woman to establish a public accounting practice in New England. Arriving in New York in 1920, Eastman focused on tax work and audited the accounts of the American Women’s Hospital in Greece. In 1925, she was a member of the ASCPA. In 1940, Eastman began working with the law firm of Hawkins, Delafield & Longfellow in New York.

She was outspoken and eloquent regarding a woman’s ability to succeed in accounting. In a 1929 article in The Certified Public Accountant, Eastman recounted her adventures:

One must be willing and able to endure long and irregular hours, unusual working arrangements and difficult travel conditions. I have worked eighteen out of the twenty-four hours of a day with time for but one meal; I have worked in the office of a bank president with its mahogany furnishings and oriental rugs and I have worked in the corner of a grain mill with a grain bin for a desk and a salt box for a chair; I have been accorded the courtesy of the private car and chauffeur of my client and have also walked two miles over the top of a mountain to a lumber camp inaccessible even with a Ford car. I have ridden from ten to fifteen miles into the country after leaving the railroad, the only conveyance being a horse and traverse runners—and this in the severity of a New England winter. I have done it with a thermometer registering fourteen degrees below zero and a twenty-five mile per hour gale blowing. I have chilled my feet and frozen my nose for the sake of success in a job which I love. I have been snowbound in railroad stations and have been stranded five miles from a garage with both rear tires of my car flat. I have ridden into and out of open culvert ditches with the workmen shouting warnings to me. And always one must keep the appointment; “how” is not the client’s concern.
 

Mary E. Murphy
A long-lived pioneer, Murphy (1905–1985) lectured, researched and taught in the United States and abroad, retiring in 1973. The Iowa native earned her bachelor of commerce degree with a major in accounting from the University of Iowa in 1927, then obtained a master’s in accountancy in 1928 from Columbia University Business School. In 1938, she received a doctorate in accountancy—only the second woman in the United States to do so—from the London School of Economics.

In 1928, Murphy began working in the New York office of Lybrand, Ross Bros. & Montgomery. Two years later, she took the CPA exam in Iowa and received certificate no. 67, to become the first woman CPA in Iowa. She joined the AIA in 1937.

Following her public accounting stint, she served for three years as the chair of the Department of Commerce at St. Mary’s College in Notre Dame, Ind. Murphy also was an assistant professor of economics at Hunter College of the City University of New York until 1951. In 1952, she received the first Fulbright professorship of accounting, with assignments in Australia and New Zealand. In 1957, she was appointed as the first director of research of the Institute of Chartered Accountants in Australia. Murphy retired in 1973 from the accounting faculty at California State University.

She published or collaborated on more than 20 books and 100 journal articles and many book reviews and scholarly papers. From 1946 to 1965 she was the most frequently published author in The Accounting Review. Murphy investigated the role of accounting in the economy, made the case for accounting education improvements and paved the way for other aspiring women accountants to prosper. More than half her publications explored international accounting, often advocating standardization. She also emphasized accounting history and biographies.

Mary E. Lewis
Lewis received California CPA certificate no. 1404 in 1939. She was admitted to the AIA that year and by 1947 had her own firm in Los Angeles.
 

Beth M. Thompson
Thompson worked as the office manager in the Kentucky Automobile Agency she and her husband, Charles R. Thompson, owned. After closing the car business, they moved to Florida, where she worked for an accounting firm. She passed the CPA exam in 1951 with the encouragement of her husband and opened her own accounting business in Miami. In 1955, Thompson was one of only 900 women CPAs and the only female president of a state association chapter—the Dade County chapter of the Florida Institute of CPAs.

Miriam Donnelly
From 1949 to 1955, Donnelly was head librarian of the AIA library. (In 1957, the AIA was renamed the AICPA.) She began her career with the library as assistant librarian and cataloger in 1927, after working for two governmental libraries and the New York Public Library.

 

History of women accountants in the 1880. US Federal Census ---
http://repository.usfca.edu/cgi/viewcontent.cgi?article=1001&context=acct

Christine Ross (The First Woman CPA) --- Click Here
http://books.google.com/books?id=W8Z2a53DJ2cC&pg=PA151&lpg=PA151&dq=%22First+Woman+CPA%22&source=bl&ots=irXssMWzFN&sig=0AneWv1qO-MB6_ixatHq-mMerRQ&hl=en&sa=X&ei=N8o8UY3XBYrK0AHngoCYBw&ved=0CDgQ6AEwAQ#v=onepage&q=%22First%20Woman%20CPA%22&f=false

Mary Jo McCann (First Woman CPA in Kansas) ---
http://www.kscpa.org/about/news/119-mary_jo_mccann_first_woman_cpa_in_kansas_passes

Bertha Aldrich (First Woman CPA in California) --- http://boards.ancestry.com/surnames.aldrich/600/mb.ashx

Accounting Reform (search for women) --- http://en.wikipedia.org/wiki/Accounting_reform

American Society of Women Accountants --- http://en.wikipedia.org/wiki/University_of_Cambridge#Women.27s_education

Accounting and Financial Women's Alliance --- http://www.afwa.org/

Accounting History Libraries at the University of Mississippi (Ole Miss) --- http://www.olemiss.edu/depts/accountancy/libraries.html
There are many items pertaining to accounting women in history, especially in the Accounting Historians Journal

Ruth Andersen, First Woman on the Board of a Big Four Accounting Firm --- http://en.wikipedia.org/wiki/Ruth_Anderson_%28accountant%29

Erma Bombeck (a termite control accountant at an advertising agency) --- http://en.wikipedia.org/wiki/Erma_Bombeck

Cynthia Cooper (Internal auditor who blew the whistle at WorldCom) --- http://en.wikipedia.org/wiki/Cynthia_Cooper_%28accountant%29

Lynn Brewer was never enough of a player to even mention in my threads on the Enron scandal
The foul mouthed Sherron Watkins was the significant whistleblower at Enron
http://www.trinity.edu/rjensen/FraudEnronQuiz.htm#10

Grace Andrews (early mathematician and accountant in Barnard College) --- http://en.wikipedia.org/wiki/Grace_Andrews_%28mathematician%29

Patricia Courtney (IRS agent and professional baseball star) --- http://en.wikipedia.org/wiki/Patricia_Courtney

Patrecia Barringer (Tax accountant, auditor, and professional baseball star) ---http://en.wikipedia.org/wiki/Patricia_Barringer

Helen Nordquist (Telephone operator, accountant, and professional baseball star) --- http://en.wikipedia.org/wiki/Helen_Nordquist

Rita Lee (Accounting Student Tennis Star) --- http://en.wikipedia.org/wiki/Janet_Lee

Diane Cummins (Canadian Accountant Track Star) --- http://en.wikipedia.org/wiki/Diane_Cummins

Sue Hearnshaw (British Chartered Accountant and Long Jump Star) --- http://en.wikipedia.org/wiki/Sue_Hearnshaw

Betty Wagner Spandikow (Accountant Who Became an Advocate of Breast Feeding) --- http://en.wikipedia.org/wiki/Betty_Wagner_Spandikow

Jennifer Archer (Oil and Gas Accountant Turned Fiction Writer) --- http://en.wikipedia.org/wiki/Jennifer_Archer

Women in Business --- http://en.wikipedia.org/wiki/Women_in_business

American Business Women Association --- http://en.wikipedia.org/wiki/American_Business_Women%27s_Association

9 to 5 Film --- http://en.wikipedia.org/wiki/9_to_5_%28musical%29

Career Women --- http://en.wikipedia.org/wiki/Career_woman

A History of Entrereneurship
"Who Are The Entrepreneurs: The Elite or the Everyday Man? A History of Entrepreneurship," by Heather A. Haveman, Jacob Habinek, and Leo A Googman, UC Berkeley,  2011 ---
http://www.escholarship.org/uc/item/392635v2;jsessionid=00ECE18AD2472F4956AAF2D00CC2132E#page-2
 Who Are The Entrepreneurs: The Elite or the Everyday Man? A History of Entrepreneurship

China's Tiger Women Billionaires ---
http://www.thedailybeast.com/newsweek/2012/03/04/amy-chua-profiles-four-female-tycoons-in-china.html

"Liz Claiborne Must Say Adieu to Liz," by: Dana Mattioli, The Wall Street Journal, October 13, 2011 ---
http://online.wsj.com/article/SB10001424052970203914304576626711202553884.html?mod=djem_jiewr_AC_domainid

"New Questions on Women, Academe and Careers," by Scott Jaschik, Inside Higher Ed, September 22, 2008 --- http://www.insidehighered.com/news/2008/09/22/women

Barbara Franklin (one of the first graduates of the Harvard Business School) --- http://en.wikipedia.org/wiki/Barbara_Franklin

History of Feminism --- http://en.wikipedia.org/wiki/History_of_feminism
Also see http://en.wikipedia.org/wiki/Mich%C3%A8le_Pujol

National Organization for Women (NOW) --- http://www.now.org/
For example, search for "Accounting" in the search box

Women's Work --- http://en.wikipedia.org/wiki/Women%27s_work 

Teachers, Accountants, and Physician Women as Slaves in Ancient Rome ---
http://en.wikipedia.org/wiki/Slavery_in_ancient_Rome

Conduct Literature for Women, 1500-1640, eds. William St Clair & Irmgard Maassen (6 Volumes) (London: Pickering and Chatto, 2000).

Conduct Literature for Women, 1640-1710, eds. William St Clair & Irmgard Maassen (6 Volumes) (London: Pickering and Chatto, 2002).

History of Women in the United States --- http://en.wikipedia.org/wiki/History_of_women_in_the_United_States

The Arthur and Elizabeth Schlesinger Library on the History of Women in America ---  http://www.radcliffe.harvard.edu/schlesinger-library

Women's suffrage in the United Kingdom --- http://en.wikipedia.org/wiki/Women%27s_suffrage_in_the_United_Kingdom 

By Popular Demand: "Votes for Women" Suffrage Pictures, 1850-1920 --- http://memory.loc.gov/ammem/vfwhtml/vfwhome.html

Women's Rights --- http://en.wikipedia.org/wiki/Women%27s_rights
Title 15 of the United States Code ---  http://en.wikipedia.org/wiki/Title_15_of_the_United_States_Code
Title 9 of the United States Code --- http://en.wikipedia.org/wiki/Title_9_of_the_United_States_Code
Women's Sports --- http://en.wikipedia.org/wiki/Women%27s_sports

Famous Women in History --- http://www.historynet.com/famous-women-in-history

National Women's Hall of Fame --- http://www.greatwomen.org/
Note that some states also have hall of fame sites for women inductees

Women in Islam ---
http://en.wikipedia.org/w/index.php?title=Special:Search&limit=20&offset=120&redirs=1&profile=default&search=Women+in+Accounting

Sharia (search for the sections pertaining to women) --- http://en.wikipedia.org/wiki/Sharia

Women's Rights Movement in Iran --- http://en.wikipedia.org/wiki/Women%27s_rights_movement_in_Iran

Women in Saudi Arabia --- http://en.wikipedia.org/wiki/Saudi_Arabia

Women in Libya --- http://en.wikipedia.org/wiki/Women_in_Libya

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

Women of Singapore --- http://en.wikipedia.org/wiki/Women_in_Singapore

Women's Roles in World Wars --- http://en.wikipedia.org/wiki/Women%27s_roles_in_the_World_Wars
Women in the Military --- http://en.wikipedia.org/wiki/Women_in_the_military
Yugoslav Partisans --- http://en.wikipedia.org/wiki/Yugoslav_Partisans
The story of women bomber pilots from the Women's Auxiliary Ferrying Squadron --- http://en.wikipedia.org/wiki/Ladies_Courageous

Rosie the Riveter --- http://en.wikipedia.org/wiki/Rosie_the_Riveter

Victorian Dress Reform --- http://en.wikipedia.org/wiki/Victorian_dress_reform

Women's Educational and Industrial Union --- http://en.wikipedia.org/wiki/Women%27s_Educational_and_Industrial_Union H

Women in Science --- http://womeninscience.history.msu.edu/

Discovering American Women's History Online --- http://digital.mtsu.edu/cdm/landingpage/collection/women

International Museum of Women http://www.imow.org/home/

Women in Scotland --- http://en.wikipedia.org/wiki/History_of_Dundee
Also see http://en.wikipedia.org/wiki/Women_in_early_modern_Scotland

 Helena Marfell, First President of the Country Women's Association of Australia ---
http://en.wikipedia.org/wiki/Helena_Marfell

Women and Mormanism --- http://en.wikipedia.org/wiki/Women_and_Mormonism

WomenWatch: UN Information and Resources on Gender Equality and Empowerment --- http://www.un.org/womenwatch/

Sophia Smith Collection: Women's History Archives at Smith College --- http://www.smith.edu/libraries/libs/ssc/digitalcoll.html

Wisconsin Women's History --- http://womenst.library.wisc.edu/bibliogs/wis-women-history.html

Women in Prison --- http://en.wikipedia.org/wiki/Nicole_Hahn_Rafter

Women in Prison Film --- http://en.wikipedia.org/wiki/WIP

Women in the Ku Klux Klan --- http://en.wikipedia.org/wiki/Ku_Klux_Klan

Women on Death Row --- http://en.wikipedia.org/wiki/Capital_punishment_debate_in_the_United_States

Gifts of Speech: Women's Speeches from Around the World --- http://gos.sbc.edu/

Women's Legal History --- http://wlh.law.stanford.edu/

The Frances Perkins Center --- http://francesperkinscenter.org/

Chicago Women's Liberation Union Herstory Project --- http://www.cwluherstory.org/

David Foster Wallace’s 1994 Syllabus: How to Teach Serious Literature with Lightweight Books --- Click Here
http://www.openculture.com/2013/02/david_foster_wallaces_1994_syllabus.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OpenCulture+%28Open+Culture%29

National Women's History Project http://www.nwhp.org/

African-American Women: Online Archival Collections --- http://library.duke.edu/rubenstein/collections/digitized/african-american-women/

Women Artists of the American West --- http://www.cla.purdue.edu/WAAW/MainIndex.html

Women's Colleges --- http://en.wikipedia.org/wiki/Women%27s_colleges

Women at Harvard --- http://en.wikipedia.org/wiki/Harvard_University#Women
Radcliff  College--- http://en.wikipedia.org/wiki/Radcliffe_College

Cambridge University --- http://en.wikipedia.org/wiki/University_of_Cambridge#Women.27s_education

Society of Women's Health Research --- http://en.wikipedia.org/wiki/Society_for_Women%27s_Health_Research

Films Made by Women --- http://en.wikipedia.org/wiki/Women%27s_cinema

Lesbian Pulp Fiction --- http://en.wikipedia.org/wiki/Lesbian_pulp_fiction

Smithsonian Education: Women's History Teaching Resources
http://www.smithsonianeducation.org/educators/resource_library/women_resources.html

Teaching with Historic Places: Women's History Lesson Plans --- http://www.nps.gov/nr/twhp/mar99.htm

Algerian Women in France --- http://en.wikipedia.org/wiki/Algerian_women_in_France

Barack Obama Supreme Court Candidates --- http://en.wikipedia.org/wiki/Barack_Obama_Supreme_Court_candidates

Women in India --- http://en.wikipedia.org/wiki/Women_in_India

Women in Saudi Arabia --- http://en.wikipedia.org/wiki/Saudi_Arabia

Women in Libya --- http://en.wikipedia.org/wiki/Women_in_Libya

Feminism in Thailand --- http://en.wikipedia.org/wiki/Feminism_in_Thailand

Women in Taiwan --- http://en.wikipedia.org/wiki/Women_in_Taiwan

Gender Inequality in China --- http://en.wikipedia.org/wiki/Gender_inequality_in_China

China's Tiger Woman Billionaires ---
http://www.thedailybeast.com/newsweek/2012/03/04/amy-chua-profiles-four-female-tycoons-in-china.html

Gender Pay Gap in Russia --- http://en.wikipedia.org/wiki/Gender_pay_gap_in_Russia

Economic Inequality --- http://en.wikipedia.org/wiki/Economic_inequality

Gender Pay Gap --- http://en.wikipedia.org/wiki/Gender_pay_gap

From the Scout Report on March 1, 2013

The movement for equal pay for women continues to gain steam across the
United States

Equal pay for women battle gains traction in New York
http://www.metro.us/newyork/news/local/2013/02/21/equal-pay-for-women-battle-gains-traction-in-new-york/

Getting equal pay could become easier for women
http://www.abqjournal.com/main/2013/02/26/politics/legislature/getting-equal-pay-could-become-easier-for-women.html

State Senator Wendy Davis Wants to Bring Federal Fair Pay Laws for Women to
Texas
http://blogs.dallasobserver.com/unfairpark/2013/02/state_sen_wendy_davis_wants_to.php

Wage gaps destroy employee morale, productivity
http://www.leaderpost.com/business/productiveconversations/Wage+gaps+destroy+employee+morale+productivity/8018636/story.html?__lsa=d85d-e6d9

Here We Go Again: The Long (and Frustrating) Journey of Equal Pay for Women
http://www.huffingtonpost.com/marlo-thomas/equal-pay-for-women_b_2678611.html

Lilly Ledbetter Fair Pay Act of 2009
http://www.gpo.gov/fdsys/pkg/PLAW-111publ2/html/PLAW-111publ2.htm

National Association of Black Accountants --- http://www.nabainc.org/

Some Accounting History Sites

Bob Jensen's Summary of Accounting History and Accounting Theory --- http://www.trinity.edu/rjensen/theory01.htm
 

Accounting History Libraries at the University of Mississippi (Ole Miss) --- http://www.olemiss.edu/depts/accountancy/libraries.html
The above libraries include international accounting history.
The above libraries include film and video historical collections.

MAAW Knowledge Portal for Management and Accounting --- http://maaw.info/

Academy of Accounting Historians and the Accounting Historians Journal ---
http://www.accounting.rutgers.edu/raw/aah/

Sage Accounting History --- http://ach.sagepub.com/cgi/pdf_extract/11/3/269

A nice timeline on the development of U.S. standards and the evolution of thinking about the income statement versus the balance sheet is provided at:
"The Evolution of U.S. GAAP: The Political Forces Behind Professional Standards (1930-1973)," by Stephen A. Zeff, CPA Journal, January 2005 --- http://www.nysscpa.org/cpajournal/2005/105/infocus/p18.htm
Part II covering years 1974-2003 published in February 2005 --- http://www.nysscpa.org/cpajournal/2005/205/index.htm 

A nice timeline of accounting history --- http://www.docstoc.com/docs/2187711/A-HISTORY-OF-ACCOUNTING

From Texas A&M University
Accounting History Outline --- http://acct.tamu.edu/giroux/history.html

Bob Jensen's timeline of derivative financial instruments and hedge accounting ---
http://www.trinity.edu/rjensen/FraudRotten.htm#DerivativesFrauds

History of Fraud in America --- http://www.trinity.edu/rjensen/415wp/AmericanHistoryOfFraud.htm
Also see http://www.trinity.edu/rjensen/Fraud.htm

Humor March 1-31, 2013

John Cleese, Ringo Starr and Peter Sellers Trash Priceless Art (1969) ---
http://www.openculture.com/2013/03/john_cleese_ringo_starr_and_peter_sellers_trash_priceless_art.html

Something You Will Never See on a New Hampshire Golf Course ---
http://www.boreme.com/posting.php?id=31996

Shatner for Guns Commercial ---
http://stufffromjudy.posterous.com/best-commercial-shatner-ever-did-i-unconditio

Makes My Dog Look Stupid --- http://www.youtube.com/embed/PztO-OvzRyg?rel=0

Watch Jeff Gordon Scare The Crap Out Of A Random Used Car Salesman ---
http://jalopnik.com/watch-jeff-gordon-scare-the-crap-out-of-a-random-used-c-453384237

Princess Debit turned up pregnant after attending a dinner party at Count von Credit's castle.
Rumor has it that she's been counted.
Sorry to waste your time.

Forwarded by Auntie Bev

Question:
What is the truest definition of  Globalization?

Answer:
Princess Diana's death.

Question:
How come?

Answer :

An English princess with an Egyptian boyfriend crashes
in a French tunnel, riding in a  German car with a
Dutch engine,  driven by a Belgian  who was drunk
onScottish whisky,

(check the bottle before you
change the spelling),

followed closely by  Italian Paparazzi, on
Japanese motorcycles,
treatedby an American doctor, using
Brazilian medicines.

Makes My Dog Look Stupid --- http://www.youtube.com/embed/PztO-OvzRyg?rel=0

BBC Animal Voice Overs --- http://www.youtube.com/watch?v=3aAtFrWft2k&sns=em

Forwarded by Gene and Joan

DON'T WASH YOUR HAIR IN THE SHOWER! 

It's so good to finally get a health warning that is useful!  

IT INVOLVES THE SHAMPOO WHEN IT RUNS DOWN YOUR BODY WHEN YOU SHOWER WITH IT - A WARNING TO US ALL! 

I don't know why I didn't figure this out sooner. I use shampoo in the shower! When I wash my hair, the shampoo runs down my whole body, and printed very clearly on the shampoo label is this warning: "FOR EXTRA BODY AND VOLUME." 

No wonder I have been gaining weight! Well, I have gotten rid of that shampoo, and I am going to start showering with Dawn dish soap instead. Its label reads: "DISSOLVES FAT THAT IS OTHERWISE DIFFICULT TO REMOVE." 

Problem solved!  

If I don't answer the phone, I'll be in the shower

Forwarded by Auntie Bev

� 1. Take your shoe size.(only whole sizes)

� 2. Multiply it by 5.

� 3. Add 50.

� 4. Multiply by 20 ..

� 5. Add 1012.

� 6. Subtract the year u were born�

� The first digit is your shoe size while the last 2 digits are your age..

Forwarded by Auntie Bev

Florida

A Florida senior citizen drove his brand new Corvette convertible out of the dealership. Taking off down the road, he pushed it to 80 mph, enjoying the wind blowing through what little hair he had left. "Amazing," he thought as he flew down I-95, pushing the pedal even more.

Looking in his rear view mirror, he saw a Florida State Trooper, blue lights flashing and siren blaring. He floored it to 100 mph, then 110, then 120. Suddenly he thought, "What am I doing? I'm too old for this!" and pulled over to await the trooper's arrival.

Pulling in behind him, the trooper got out of his vehicle and walked up to the Corvette. He looked at his watch, then said, "Sir, my shift ends in 30 minutes. Today is Friday. If you can give me a new reason for speeding--a reason I've never before heard -- I'll let you go."

The old gentleman paused then said: "Three years ago, my wife ran off with a Florida State Trooper. I thought you were bringing her back.

"Have a good day, Sir," replied the trooper.

Georgia

The owner of a golf course in Georgia was confused about paying an invoice, so he decided to ask his secretary for some mathematical help. He called her into his office and said, "Y'all graduated from the University of Georgia and I need some help. If I wuz to give yew $20,000, minus 14%, how much would you take off?" The secretary thought a moment, and then replied, "Everthang but my earrings."

Louisiana

A senior citizen in Louisiana was overheard saying ... "When the end of the world comes, I hope to be in Louisiana ." When asked why, he replied, "I'd rather be in Louisiana 'cause everythang happens in Louisiana 20 years later than in the rest of the world."

Mississippi

The young man from Mississippi came running into the store and said to his buddy, "Bubba, somebody just stole your pickup truck from the parking lot!" Bubba replied, "Did y'all see who it was?" The young man answered, "I couldn't tell, but I got the license number."

South Carolina

A man in South Carolina had a flat tire, pulled off on the side of the road, and proceeded to put a bouquet of flowers in front of the car and one behind it. Then he got back in the car to wait. A passerby studied the scene as he drove by, and was so curious he turned around and went back. He asked the fellow what the problem was. The man replied, "I got a flat tahr." The passerby asked, "But what's with the flowers?" The man responded, "When you break down they tell you to put flares in the front and flares in the back. I never did understand it neither."

Tennessee

A Tennessee State trooper pulled over a pickup on I-65. The trooper asked, "Got any ID?" The driver replied, "Bout whut?"

Texas

The Sheriff pulled up next to the guy unloading garbage out of his pick-up into the ditch. The Sheriff asked, "Why are you dumping garbage in the ditch? Don't you see that sign right over your head."

"Yep," he replied. "That's why I'm dumpin' it here, 'cause it says: 'Fine For Dumping Garbage.' "

Forwarded by Bob Booth

Copper Wire Discovered

After having dug to a depth of 10 feet last year outside of New York City, New York scientists found traces of copper cable dating back 100 years. They came to the conclusion that their ancestors already had a telephone network more than 100 years ago.

Not to be outdone by the New Yorkers, in the weeks that followed, a Los Angeles, California archaeologist dug to a depth of 20 feet somewhere just outside Oceanside. Shortly after, a story in the LA Times read: "California archaeologists report a finding of 200 year old copper cable, have concluded that their ancestors already had an advanced high-tech communications network a hundred years earlier than the New Yorkers."

One week later, a newspaper in New Orleans, La reported the following: "After digging down about 30 feet deep near a Bayou in the community of

 Mamou, Louisiana, near the Hubba Hubba Club, Boudreaux, a self-taught archaeologist, reported that he found.....absolutely nothing.  Boudreaux has therefore concluded that 300 years ago, Louisiana had already gone wireless".

Just makes a person proud to be from Louisiana !!!

Forwarded by Auntie Bev

The Indian With One Testicle There once was an Indian who had only one testicle and whose given name was 'Onestone'. He hated that name and asked everyone not to call him Onestone. After years and years of torment, Onestone finally cracked and said,' If anyone calls me Onestone again I will kill them!'

The word got around and nobody called him that any more. Then one day a young woman named Blue Bird forgot and said, 'Good morning, Onestone.' He jumped up, grabbed her and took her deep into the forest where he made love to her all day and all night. He made love to her all the next day, until Blue Bird died from exhaustion. The word got around that Onestone meant what he promised he would do.

Years went by and no one dared call him by his given name until A woman named Yellow Bird returned to the village after being away. Yellow Bird, who was BlueBird's cousin, was overjoyed when she saw Onestone. She hugged him and said, 'Good to see you, Onestone.' Onestone grabbed her, took her deep into the forest, then he made love to her all day, made love to her all night, made love to her all the next day, made love to her all the next night, but

YellowBird wouldn't die!

Why ???

OH, come on... take a guess !!!

Think about it !

You're going to love this !!!

Everyone knows...

You can't kill Two Birds

withOneStone!!!

 

Forwarded by Gene and Joan

Awful Puns Forwarded by Auntie Bev

Punography

When chemists die, they barium.

Jokes about German sausage are the wurst.

A soldier who survived mustard gas and pepper spray is now a seasoned veteran.

I know a guy who's addicted to brake fluid. He says he can stop any time.

How does Moses make his tea? Hebrews it.

I stayed up all night to see where the sun went. 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 can't put it down.

I did a theatrical performance about puns. It was a play on words.

They told me I had type A blood, but it was a Type-O.

A dyslexic man walks into a bra.

PMS jokes aren't funny, period.

Why were the Indians here first ? They had reservations.

Class trip to the Coca-Cola factory. I hope there's no pop quiz.

Energizer bunny arrested. Charged with battery.

I didn't like my beard at first. Then it grew on me.

How do you make holy water? Boil the hell out of it!

Did you hear about the cross eyed teacher who lost her job because she couldn't control her pupils?

When you get a bladder infection, urine trouble.

What does a clock do when it's hungry ? It goes back four seconds.

I wondered why the baseball was getting bigger. Then it hit me!

Broken pencils are pointless.

I tried to catch some fog. I mist.

What do you call a dinosaur with a extensive vocabulary? A thesaurus.

England has no kidney bank, but it does have a Liverpool.

I used to be a banker, but then I lost interest.

I dropped out of communism class because of lousy Marx.

All the toilets in New York's police stations have been stolen. Police have nothing to go on.

I got a job at a bakery because I kneaded dough.

Haunted French pancakes give me the crepes.

Velcro - what a rip off!

Cartoonist found dead in home. Details are sketchy.

Venison for dinner? Oh deer!

I used to think I was indecisive, but now I'm not so sure

 

Forwarded by Paula

Jack Daniels Fishing Story

I went fishing this morning, but after a short time I ran out of worms. Then I saw a cottonmouth with a frog in its mouth. Frogs are good bass bait. Knowing the snake couldn't bite me with the frog in its mouth, I grabbed it right behind the head, took the frog, and put it in my bait bucket.

Now the dilemma was how to release the snake without getting bit. So, I grabbed my bottle of Jack Daniels and poured a little whiskey in its mouth. Its eyes rolled back, and it went limp. I released the snake into the lake without incident and carried on fishing, using the frog.

Not long after, I felt a nudge on my foot. It was that damn snake ... with two more frogs.

Life is good.

Humor Between March 1-31, 2013 --- http://www.trinity.edu/rjensen/book13q1.htm#Humor033113

Humor Between February 1-28, 2013 --- http://www.trinity.edu/rjensen/book13q1.htm#Humor022813

Humor Between January 1-31, 2013 --- http://www.trinity.edu/rjensen/book13q1.htm#Humor013113

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

And that's the way it was on March 31, 2013 with a little help from my friends.

Bob Jensen's gateway to millions of other blogs and social/professional networks ---
http://www.trinity.edu/rjensen/ListservRoles.htm

Bob Jensen's Threads --- http://www.trinity.edu/rjensen/threads.htm

Bob Jensen's Blogs --- http://www.trinity.edu/rjensen/JensenBlogs.htm
Current and past editions of my newsletter called New Bookmarks --- http://www.trinity.edu/rjensen/bookurl.htm
Current and past editions of my newsletter called Tidbits --- http://www.trinity.edu/rjensen/TidbitsDirectory.htm
Current and past editions of my newsletter called Fraud Updates --- http://www.trinity.edu/rjensen/FraudUpdates.htm
Bob Jensen's past presentations and lectures --- http://www.trinity.edu/rjensen/resume.htm#Presentations   

Free Online Textbooks, Videos, and Tutorials --- http://www.trinity.edu/rjensen/ElectronicLiterature.htm#Textbooks
Free Tutorials in Various Disciplines --- http://www.trinity.edu/rjensen/Bookbob2.htm#Tutorials
Edutainment and Learning Games --- http://www.trinity.edu/rjensen/000aaa/thetools.htm#Edutainment
Open Sharing Courses --- http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI

Bob Jensen's Resume --- http://www.trinity.edu/rjensen/Resume.htm
 

Bob Jensen's Homepage --- http://www.trinity.edu/rjensen/

Concerns That Academic Accounting Research is Out of Touch With Reality

Accountancy, Tax, IFRS, XBRL, and Accounting History News Sites  --- http://www.trinity.edu/rjensen/AccountingNews.htm

Accounting Professors Who Blog --- http://www.trinity.edu/rjensen/ListservRoles.htm

Cool Search Engines That Are Not Google --- http://www.wired.com/epicenter/2009/06/coolsearchengines

Free (updated) Basic Accounting Textbook --- search for Hoyle at
http://www.trinity.edu/rjensen/ElectronicLiterature.htm#Textbooks

CPA Examination --- http://en.wikipedia.org/wiki/Cpa_examination
Free CPA Examination Review Course Courtesy of Joe Hoyle --- http://cpareviewforfree.com/
 

Bob Jensen's Pictures and Stories
http://www.trinity.edu/rjensen/Pictures.htm

Bob Jensen's Homepage --- http://www.trinity.edu/rjensen/

February 28, 2013

Bob Jensen's New Bookmarks February 1-28, 2013
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/

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 February 1-28, 2013 --- http://www.trinity.edu/rjensen/book13q1.htm#Humor022813

Humor Between January 1-31, 2013 --- http://www.trinity.edu/rjensen/book13q1.htm#Humor013113

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

The Economist: World in 2013 (Annual summary of world economics trends from The Economist magazine) ---
http://www.economist.com/theworldin/2013

Video
"How Managers Should Read Financial Statements," Harvard Business Review Blog, February 19, 2013 --- Click Here
http://blogs.hbr.org/video/2013/02/how-managers-should-read-finan.html?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date

CNBC Explains Accounting --- http://www.cnbc.com/id/100000341

Bob Jensen's threads on accounting theory

• Part 1 --- http://www.trinity.edu/rjensen/Theory01.htm
   
• Part 2 --- http://www.trinity.edu/rjensen/Theory02.htm

Common Core State Standards (CCSS) --- http://www.corestandards.org/
At Trinity University we would probably call these skill standards as opposed to other courses in the General Education Core such as Western Civilization and Science Gen. Ed. core courses. Colleges are more likely to agree on the skill standards than the other Gen. Ed. "standards." In the 21st Century colleges vary a great deal with respect to courses in the the Gen. Ed. smorgasbord.

"Ernst & Young Supports the CCSS for Education," by Deanna C. White, AccountingWeb, February 21, 2013 ---
http://www.accountingweb.com/article/ernst-young-supports-ccss-education/221179?source=education

 

Ernst & Young recently joined the ranks of seventy top business leaders in proclaiming their support for the Common Core State Standards (CCSS) for education. 

 

In an open letter that appeared in the February 12, 2013, edition of the New York Times, Stephen R. Howe Jr., Americas Managing Partner at Ernst & Young, was listed as a business leader from one of seventy top companies and corporations, including GE and GM, who offered their "collective support" for the CCSS.

 

The CCSS initiative, led by the National Governors Association Center for Best Practices and the Council of Chief State School Officers, has produced K-12 standards in the foundational subjects of math and English that meet the business community's expectations for US students. 

 

The CCSS set consistent, focused, and rigorous expectations for American students. Forty-six states and the District of Columbia have already adopted the standards.

 

"As business leaders we believe that ALL American children have the right to an education that prepares them to be successful in a competitive global economy," the business leaders jointly stated in the open letter. "We also understand that in order to compete in a knowledge-based global economy, we must improve the academic performance of our students."

 

The standards, according to the CCSS website, are "rigorous, internationally benchmarked" criteria designed to ensure that students "leave school with the knowledge and skills needed to succeed in college and careers." The CCSS are not a national curriculum nor are they federally mandated.

 

"The need to raise student achievement in the public education system is clear, as American students are leaving school without the skills and education needed to succeed. Once leading the world in academic scores and education attainment, the United States has fallen behind other top performing countries," the website states, adding this "weakens the United States' ability to produce a workforce that is fully prepared to compete in the local, national, and global economies." 

Continued in article

"Don’t Rely on the “Journal of Accountancy” for the Straight Skinny on IFRS," by Tom Selling, The Accounting Onion, February 19, 2013  ---
Click Here
http://accountingonion.com/2013/02/dont-count-on-the-straight-skinny-about-ifrs-from-the-journal-of-accountancy.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+typepad%2Ftheaccountingonion+%28The+Accounting+Onion%29

Jensen Comment
I've not yet been able to get this page to work fully at Tom's Accounting Onion site. But the title alone is pretty indicative of what Tom probably says about AICPA bias toward IFRS. The Journal of Accountancy is the main publication of the AICPA.

I've been saying all along that the Big Four is biased toward IFRS because of reduced auditing costs (only one set of accounting standards to worry about), hundreds millions of dollars to be made in training clients, selling training materials, and helping to write software that converts from FASB standards to IASB standards.

And whenever the Big Four orders jump, the AICPA has always replies "how high."

My long time criticisms of the biases of the Big Four and the AICPA with respect to IFRS can be found at
http://www.trinity.edu/rjensen/Theory01.htm#MethodsForSetting

The Big Four and the AICPA have always glossed over my main criticisms of replacing FASB standards with FASB standards:

1. I think principles-based IFRS standards will make it too easy to have different accounting treatments of identical accounting transactions ---
   http://www.trinity.edu/rjensen/Theory01.htm#BrightLines
   
    
2. I think that EU politics has always dominated the IASB and will probably continue to do so since the future of the FASB rides so heavily upon pleasing the many EU nations.
    
3. In the long run there is a possibility that the mice will roar like they are now roaring in the United Nations. Enemies of the USA may combine forces to leverage the FASB into setting accounting standards and interpretations for purposes of hurting the USA and the rest of the free world rather than improved accounting and transparency.

Note that a nation is not supposed to adopt IFRS if it intends to cherry pick what standards will be enforced versus not enforced. It is not supposed to rewrite any of the standards for its own domestic enforcements. In other words, if a nation adopts IFRS it adopts the whole IFRS enchilada.

"Pinocchio Investors: How Investors Lie to Themselves," The Washington Post, by Barry Ritholtz, The Washington Post, February 24, 2013 ---
http://www.ritholtz.com/blog/2013/02/pinocchio-investors/

. . .

How exactly do investors lie to themselves? Here are just 8 ways I discuss in the column:

1. You know what your investment returns are
2. You can predict the future.
3. You know how costs, fees and taxes impact your returns.
4. You can pick fund managers.
5. You understand mean reversion.
6. You have a plan.
7. You can pick stocks.
8. You are saving enough for retirement.

What are you lying to yourself about?

Jensen Question

We might also start a similar thread on the AECM about Pinocchio teachers.

From PwC Direct on February 21, 2013

The FASB and IASB (the "boards") reached decisions at their February 20 meeting on disclosure requirements, transition, and effective date for the revenue recognition standard. These decisions substantively conclude the boards' redeliberations on this project. The boards' decisions are tentative and subject to change. Any remaining "sweep" issues will be discussed at . ..

Click the Download Button  
http://www.pwc.com/us/en/cfodirect/publications/in-brief/2013-11-in-brief-boards-conclude-key-revenue-redeliberations-with-decisions-on-disclosures-and-transition.jhtml?display=/us/en/cfodirect/publications/in-brief&j=55862&e=rjensen@trinity.edu&l=10702_HTML&u=3314177&mid=7002454&jb=0

Also see Ernst & Young's take on the revenue recognition standard ---
http://www.ey.com/UL/en/AccountingLink/Current-topics-Revenue-recognition

"The High Burden of State and Federal Capital Gains Taxes," by Kyle Pomerleau, The Tax Foundation, February 20, 2013 ---
http://taxfoundation.org/article/high-burden-state-and-federal-capital-gains-taxes

Jensen Comment
It saddens me with all the focus on capital gains rates relative to what should be a more important issue --- price level adjusting long-term capital gains. I would prefer capital gains taxes at ordinary income rates after adjusting for inflation.

Arthur P. Hall, Issues in the Indexation of Capital Gains, Tax Foundation Special Report No. 47 (Apr. 1995), http://taxfoundation.org/sites/taxfoundation.org/files/docs/dafa29992e4cfa82276853f47607c84d.pdf.

Warning:  Although tax reform is unlikely over the next four years, miracles do happen. Some of the strategies suggested in the links below may be less advisable under serious revisions of our nation's tax law. Always stay up to date on tax reform. Even if there are no broad reforms, selected reforms are possible. For example, the advantage of not realizing long-term capital gains until after you die might be revised even if there are no other remarkable changes in the tax code.

The really-needed revision of the tax code for capital gains is to adjust these gains for inflation. Doing so, however, doesn't have a snowball's chance in Hell.

When I forward tax advice links like the ones below it does not mean that I agree with every piece of the advice or that I hold myself out as being a tax expert. Although I taught accounting for 40 years, I never taught tax accounting. I rely on tax software like Turbo Tax as much or more than you rely on such software.

If you really need help with your taxes, first visit the truly great IRS Website at www.irs.gov
If that does not do the job seek out a genuine tax expert for advice. Remember that all people who charge you for doing tax returns are not necessarily experts on tax planning and strategy. All tax experts are not equal any more than all physicians, lawyers, or college professors are all equal.

The Tax Policy Center has a good online tool for making before-and-after estimations ---
http://calculator2.taxpolicycenter.org/index.cfm

From The Wall Street Journal Accounting Weekly Review on February 23, 2013

The New Capital-Gains Maze
by: Laura Saunders
Feb 16, 2013
Click here to view the full article on WSJ.com
 

TOPICS: Accounting, Capital Gains Tax, Investment Sales, Tax Law, Tax Planning, Taxation

SUMMARY: Amid the political drama surrounding the "fiscal cliff" negotiations, some investors overlooked significant tax changes kicking in this year. Most notable: those on long-term capital gains, or taxable income from the sale of investments held longer than a year. These are significant increases, and they raise the value of tax deferral and careful planning. Investors who have begun to consider these issues-and many haven't-admit to being confused. Fortunately for investors, there still are ways to minimize the hit-and even dodge it. Strategies include carefully timing investment sales, making charitable donations and family gifts with assets instead of cash, and minimizing certain income. With markets approaching record highs, investors need to know them. Topics include: lowering AGI, using "air pockets", giving appreciated assets to charity, strategizing family gifts, among others.

CLASSROOM APPLICATION: This article offers a nice update regarding the changes in the tax law and how taxpayers can plan to legally minimize taxes. You can use this article to discuss each of the individual topics discussed in the article, as well as to show students how valuable tax planning services are for many taxpayers.

QUESTIONS: 
1. (Introductory) What were the "fiscal cliff" negotiations? How was the law regarding the sale of investments impacted? What were the biggest changes noted in this article?

2. (Advanced) What is adjusted gross income? What are the suggestions offered in the article regarding AGI? Why is AGI an important number for taxpayers?

3. (Advanced) What is an "air pocket" for tax purposes? How can a taxpayer use a so-called air pocket to reduce tax liability?

4. (Advanced) Please choose and explain three of the other tax planning ideas featured in the article. How could these ideas reduce tax liability without changing the overall effect of the underlying transaction?

5. (Advanced) If you choose to be a tax professional, how would you market your services based on what you learned from reading this article?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

 

"The New Capital-Gains Maze," by Laura Saunders, The Wall Street Journal, February 16, 2013 ---
http://professional.wsj.com/article/SB10001424127887324432004578302123138871136.html?mod=djem_jiewr_AC_domainid&mg=reno64-wsj

Chances are your capital-gains taxes are going up this year—and if you aren't careful, you could end up paying more than necessary.

Amid the political drama surrounding the "fiscal cliff" negotiations, some investors overlooked significant tax changes kicking in this year. Most notable: those on long-term capital gains, or taxable income from the sale of investments held longer than a year.

Under the old system, there were often only two rates: zero and 15%, depending on your income. Now, there are three tax tiers: zero, 15% and 20%. More Weekend Investor

Value Stocks Are Hot—But Most Investors Will Burn Out Cash Shouldn't Be the Only Apple of Your Eye Is It Time to Hock the Art? Beyond Long-Term Care Thinking of 'Shorting' Treasurys? Tread Lightly

And that isn't all. There also are three backdoor tax increases that can push your effective rate even higher—to nearly 25%.

Experts say many taxpayers whose rate still is 15% could well owe one-third more than they would have last year. And many top-bracket taxpayers will owe nearly two-thirds more, even if their income is that high only because of a once-in-a-lifetime sale.

"These are significant increases, and they raise the value of tax deferral and careful planning," says Vanguard Group tax expert Joel Dickson.

Investors who have begun to consider these issues—and many haven't—admit to being confused.

"I'm trying to figure out whether it's even worth it to have a taxable account," says Matt Reiland, a 32-year-old oil-industry financial analyst in Farmington, N.M., who now is putting away $1,000 a month.

Fortunately for investors, there still are ways to minimize the hit—and even dodge it. Strategies include carefully timing investment sales, making charitable donations and family gifts with assets instead of cash, and minimizing certain income. With markets approaching record highs, investors need to know them.

To be sure, long-term capital gains still retain many of the advantages investors have cherished for decades.

Unlike wages, capital gains often can be timed. Losses on one investment can be "harvested" and used to offset gains on other investments, even in different years. Up to $3,000 of capital losses still are deductible against "ordinary" income such as wages. And whatever an investor's top rate on gains, it often is far below the rate on ordinary income, which now can be more than 41%.

It isn't just capital gains that are affected by the tax changes. The new provisions also apply to many dividends, and some apply to other investment income, including interest. But these types of income often are more difficult to time than long-term gains.

Where You Stand

This year's changes divide taxpayers into three groups. For joint filers with more than $450,000 of taxable income or single filers with more than $400,000, the tax rate on long-term gains is fairly clear, if painful.

It starts with a flat tax of 20% above those thresholds. Add to that the new "Pease limit," a complex backdoor increase tied to itemized deductions that is named after Donald Pease, a former Ohio congressman. In effect, the Pease limit raises a taxpayer's rate by about 1%, according to experts at the Tax Policy Center, a nonpartisan research group in Washington.

Finally, there is a new 3.8% flat tax on net investment income—unless the investor has sold an actively managed business—for a total of about 25%.

Thus, for a taxpayer already in the top bracket, the tax on a $500,000 gain could rise to about $125,000 this year from $75,000 in 2012.

For taxpayers in the next income tier—couples with $72,500 to $450,000 of taxable income and single filers with $36,250 to $400,000—the effective rate on a gain is harder to predict.

It begins with a 15% flat rate, but taxpayers who cross certain income thresholds owe more because of the 3.8% net investment income tax, the Pease limit and the Personal Exemption Phaseout, or PEP, a backdoor increase that limits personal exemptions.

Here's how it could play out: Say a couple with two children in college and a third soon to go has an adjusted gross income of $220,000. They sell long-held investments to help pay tuition, realizing a $175,000 gain. Although they are in the 15% bracket for long-term gains, just as they were in 2012, they'll owe about $5,500 more than they would have last year due to the new 3.8% tax.

This is where planning can help. If the couple can lower their income by, say, raising retirement-plan contributions or spreading the gain over several years, or both, they might reduce or avoid the extra taxes.

"If they cut this year's gain to $50,000, the $5,500 would drop about $750," says Roberton Williams, a tax specialist at the Tax Policy Center.

The last group are investors who owe zero tax on their long-term gains. They often avoid the 3.8% tax, the Pease limit and the Personal Exemption Phaseout as well.

For couples filing jointly, the zero rate extends up to $72,500 ($36,250 for singles). That might sound like a low cutoff, says Silicon Valley tax strategist Stewart Karlinsky, an emeritus professor at San Jose State University, "but it includes more people than we used to think."

That's because these investors often have large amounts of tax-free income, thanks to municipal bonds or Roth individual retirement accounts. If so, they might be able to realize gains selectively to stay within the zero rate.

Sound complicated? It is—and the alternative minimum tax can make it worse. But careful planning is often worth the effort. Here is what to do to minimize your gains pain this year.

Lower your adjusted gross income. An especially confusing feature of the new capital-gains regime is that while rates are tied to taxable income, for most taxpayers the backdoor increases are tied to adjusted gross income.

That's the number at the bottom of the front page of the 1040. It doesn't include itemized deductions on Schedule A, such as mortgage interest and charitable gifts. Taxable income does.

To avoid the backdoor taxes, it is important to minimize your adjusted gross income. Itemized deductions won't help, but other tax benefits can. Among them: deductible contributions to retirement plans such as IRAs or 401(k)s; moving expenses; business deductions or losses; capital losses; rental-property expenses; alimony payments; and health insurance premiums or health-savings-account contributions, according to Mr. Karlinsky.

Tax-free income from municipal bonds or Roth IRAs won't swell adjusted gross income, either. Converting to a Roth IRA will, however, raise it in the year of the conversion.

Take advantage of "air pockets." The tax code stacks income, deductions and net long-term gains in a way that shrewd taxpayers can exploit.

Here's an example: A retired couple has $70,000 of adjusted gross income before capital gains and $30,000 of itemized deductions. (They might also have tax-free income from munis and Roth IRAs.) According to tax rules, the deductions reduce their income to about $40,000.

This leaves them with an "air pocket" of about $33,000 before they cross from the zero rate to the 15% rate on long-term gains.

If they take a $50,000 gain, nearly $33,000 of it won't be taxable, while the rest would be taxed at 15%. If their income remains constant for two years and they can split the gain between the two years (selling at the end of December and beginning of January, for example), the entire gain could be tax-free.

This is a great tax-code freebie. "People in the zero bracket can even harvest gains and raise their cost basis without owing federal taxes," says Mitch Marsden, a planner at Longview Financial Advisors in Huntsville, Ala. Unlike with assets sold at a loss, there's no waiting period to repurchase assets sold at a gain.

Of course, the value of multiyear strategies depends in part on Congress not changing the law again.

Give appreciated assets to charity. Higher taxes raise the value of making charitable donations with appreciated assets such as shares of stock instead of cash. Under current law and within certain limits, the donor gets to skip the tax and yet take a near-full deduction for the gift.

Strategize family gifts. Are you thinking of giving cash to relatives or friends in the same year that you plan to sell a long-held asset? If your recipient is in a lower capital-gains bracket, consider giving him all or part of the asset instead. Taxpayers can give presents of up to $14,000 per individual per year free of gift tax, and the move can save on capital-gains tax as well.

For example, say a woman wants to give $14,000 to her granddaughter, who is between jobs. If she gives $14,000 of stock shares she bought for $3,000, the granddaughter could sell the shares and pay no tax if her taxable income is below $36,250 this year. But if the grandmother sells the shares herself, the tax bite could range from $1,650 to more than $2,500.

Hold on for dear life. The tax code still forgives capital gains on assets held until death; at that point the asset's full market value becomes part of the taxpayer's estate. Now that the estate-tax exemption is a generous $5.25 million per individual (and indexed for inflation), some investors will find it makes sense to hold appreciated assets until death in order to avoid higher capital-gains taxes.

Consider installment sales. Assets such as land or a business can be hard to sell piecemeal. But an owner could sell the entire asset in an installment sale and spread out a gain over several years, assuming the deal makes overall sense.

Remember the home exemption. Couples who sell a principal residence after living in it at least two years get to skip paying tax on up to $500,000 of gains ($250,000 for singles); only above that does the gain become part of income.

Beware of lower limits for trusts. The new 3.8% tax on capital-gains and other investment income takes effect at $11,950 of adjusted gross income for trusts—far lower than the $250,000 threshold for individuals.

But there is an out: The lower limit applies to income that's retained by the trust, while income that's paid out to beneficiaries is taxed at their own rates.

"This puts pressure on trustees to make distributions," says Diana Zeydel, an estate lawyer at Greenberg Traurig in Miami. Yet the point of some trusts is to retain gains and accumulate assets, or at least to keep the beneficiary on a short tether. These issues require expert help.

Don't be driven by taxes. Don't sell—or hold—an asset just to beat Uncle Sam. Don't do an installment sale if you can't trust the buyer to pay up. And don't make charitable or personal gifts solely for tax reasons.

Continued in article

The Tax Policy Center has a good online tool for making before-and-after estimations ---
http://calculator2.taxpolicycenter.org/index.cfm

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

Bob Jensen's personal finance helpers ---
http://www.trinity.edu/rjensen/Bookbob1.htm#SmallBusiness

"Which Governments Spend the Most Per Capita on Government Healthcare: France, Italy, the United States, Sweden, Canada, Greece, or the United Kingdom?" by Daniel J. Mitchell, Townhall, February 22, 2013
http://www.townhallmail.com/fnbzdpfbzzgwdbzbwbdhfwcnnywnnbyfrrhpldgnrnybys_msycbpyncdb.html

See bar chart at
http://www.cs.trinity.edu/~rjensen/temp/HealthCostPerCapita.jpg

. . .

There are three big reasons why there’s more government-financed healthcare spending in the United States.

1. Richer nations tend to spend more, regardless of how they structure their healthcare systems.

2. As you can see at the 1:18 mark of this video, the United States is halfway down the road to a single-payer system thanks to programs such as Medicare and Medicaid.

3. America’s pervasive government-created third-party payer system leads to high prices and costly inefficiency.

So what’s the moral of the story? Simple, notwithstanding the shallow rhetoric that dominates much of the debate, the United States does not have anything close to a free-market healthcare system.

That was true before Obamacare and it’s even more true now that Obamacare has been enacted.

Indeed, it’s quite likely that many nations with “guaranteed” health care actually have more market-oriented systems than the United States.

Avik Roy argues, for instance, that Switzerland’s system is the best in the world. And the chart above certainly shows less direct government spending.

And there’s also the example of Singapore, which also is a very rich nation that has far less government spending on healthcare than the United States.

Continued in article

Jensen Comment
Articles like this are controversial and misleading. Firstly, we may be comparing apples and kangaroos when it comes to the terms "health care" and "cost." Much of the USA health care "cost" gets buried in other accounts like "research" and "education." The many research universities in the USA are contributing tuition and state taxpayer money to fund biomedical science faculty and other science and engineering faculty who are doing medical research and development in one way or another. But these costs are treated as "education"  and "research" costs rather than medical costs.

An enormous proportion of what the USA includes in costs of medical care is really the cost of fraud that other nations, especially those with either free market or nationalized coverage, avoid much more efficiently and effectively. The frauds are especially high in Medicare billings for our aged and disabled such as billings for nonexistent medical equipment and $6,384 cost of an aspirin administered inside a hospital.

Much of what gets billed as "medical care" in the USA is the massive cost of malpractice insurance, costs which nations like Canada with national health care cover much more efficiently and effectively by leaving out the lawyers salivating over punitive damages.

In the USA and Mexico much of the cost of geriatric and disability care is borne by patient savings and family earnings that does not pass through governmental or third-party insurance "medical care" accounts.. In nations with nationalized medicine like Norway such costs are more apt to be called "medical costs."

In the USA most patients like me bear their own eye care and dental billings out-of-pocket and are not captured in governmental "medical care" accounts. In many other nations the costs of these services pass through governmental accounts.

The USA spends (usually under Medicare) hundreds of billions on patients that are terminally ill, often extending their lives uselessly for weeks or a few months in intensive care and cardiac care units. Most other nations save this money by letting nature run its course for dying patients and/or facilitating euthanasia. CBS Sixty Minutes ran a module on this under the title "The High Cost of Dying" in the USA.

Similar discrepancies arise for extremely premature and/or underweight new babies that are not saved in most nations outside the USA.

The above comparison of nations by Daniel Mitchell is mostly an example of the many attempts (such as poverty and unemployment) to make international comparisons on variables that are inconsistently defined and subject to enormous measurement error and variation between nations

"Sandwich Generation: What are our Ethical Obligations to Care for our Aged-Parents and Children?" by accounting professor Steven Mintz, Ethics Sage, January 25, 2013 ---
http://www.ethicssage.com/2013/01/sandwich-generation.html

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

An accounting professor's commentary in the Chronicle of Higher Education
Is it random coincidence that he wrote about the Governor of California and Nuts in separate articles on the same day?

"A Governor's Attack on Academic Freedom," by Steven Mintz (the Ethics Sage), Chronicle of Higher Education, February 18, 2013 ---
http://chronicle.com/article/A-Governors-Attack-on/137367/?cid=cr&utm_source=cr&utm_medium=en

Bob Jensen's threads on higher education controversies ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm

"Accounting for Nuts (Literally): Diamond Foods Fraud Illustrates the Danger of overly-optimistic Earnings Projections," by Steven Mintz, Ethics Sage, February 18, 2013 ---
http://www.ethicssage.com/2013/02/accounting-for-nuts.html

Bob Jensen's threads on Diamond Foods (including a teaching case) ---
http://www.trinity.edu/rjensen/Fraud001.htm
Search on the phrase "Diamond Foods"

To get an F on your term paper, cite Fox News, but CNN and MSNBC are good for an A

"A Professor vs. Fox News," by Scott Jaschik, Inside Higher Ed, February 15, 2015 ---
http://www.insidehighered.com/news/2013/02/15/professors-syllabus-bars-students-using-fox-news-assignment

Jensen Comment
I certainly hope this instructor will not get a full-time appointment.
Some accounting are proud of the fact that they don't read the Wall Street Journal
I don't think they will give an F to a student who cites an article in the WSJ
 

Bob Jensen's threads on the liberal bias of the Academy ---
www.trinity.edu/rjensen/HigherEdControversies.htm

Reflections on the Last Decade of IFRS Parts 1 and 2 in the free Australian Accounting Review

2012 Volume 22 Issue 3 Special Edition Part 1 on the last decade of IFRS

Capsule Summaries of Part 2
http://www.iasplus.com/en/news/2012/november/10-years-of-ifrs-reflections-and-expectations

2012 Volume 22 Issue 4 Special Edition Part 2 on the last decade of IFRS

Capsule Summaries of Part 2
http://www.iasplus.com/en/news/2013/02/10-years-of-ifrss-ii

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

The Australian Accounting Review

1. 2012 - Volume 22 Australian Accounting Review
2. 2011 - Volume 21 Australian Accounting Review
3. 2010 - Volume 20 Australian Accounting Review
4. 2009 - Volume 19 Australian Accounting Review
5. 2008 - Volume 18 Australian Accounting Review
6. 2007 - Volume 17 Australian Accounting Review
7. 2006 - Volume 16 Australian Accounting Review
8. 2005 - Volume 15 Australian Accounting Review
9. 2004 - Volume 14 Australian Accounting Review
10. 2003 - Volume 13 Australian Accounting Review
11. 2002 - Volume 12 Australian Accounting Review
12. 2001 - Volume 11 Australian Accounting Review
13. 2000 - Volume 10 Australian Accounting Review
14. 1999 - Volume 9 Australian Accounting Review
15. 1998 - Volume 8 Australian Accounting Review
16. 1997 - Volume 7 Australian Accounting Review
17. 1996 - Volume 6 Australian Accounting Review
18. 1995 - Volume 5 Australian Accounting Review
19. 1994 - Volume 4 Australian Accounting Review
20. 1993 - Volume 3 Australian Accounting Review
21. 1992 - Volume 1 Australian Accounting Review
22. 1991 - Volume 1 Australian Accounting Review

References for Comparisons of IFRS versus U.S. GAAP

From Ernst & Young in November 2012
US GAAP versus IFRS: The basics 
While convergence was a high priority for the FASB and the IASB in 2012, differences continue to exist between US GAAP and IFRS. In this guide, we provide an overview by accounting area of where the standards are similar, where differences are commonly found in practice, and how and when certain differences are expected to disappear
http://www.ey.com/Publication/vwLUAssetsAL/IFRSBasics_BB2435_November2012/$FILE/IFRSBasics_BB2435_November2012.pdf

Jensen Comment
This is only a 54-page document. I still prefer the somewhat older but much longer PwC document.

Older links to such comparisons:

US GAAP versus IFRS: The basics
2011 Edition, 56 Pages
Free from Ernst & Young
http://www.ey.com/Publication/vwLUAssetsAL/IFRSBasics_BB2280_December2011/$FILE/IFRSBasics_BB2280_December2011.pdf

IFRS and US GAAP: Similarities and Differences
2011 Edition, 238 Pages
From PwC
http://www.pwc.com/us/en/issues/ifrs-reporting/publications/ifrs-and-us-gaap-similarities-and-differences.jhtml
Note the Download button!

From Deloitte
Comparisons of IFRS With Local GAAPS
http://www.iasplus.com/dttpubs/pubs.htm#compare1109
IFRS and US GAAP
July 2008 Edition, 76 Pages
http://www.iasplus.com/dttpubs/0809ifrsusgaap.pdf

Jensen Comment
At the moment I prefer the PwC reference
My favorite comparison topics (Derivatives and Hedging) begin on Page 158 in the PwC reference
The booklet does a good job listing differences but, in my opinion, overly downplays the importance of these differences. It may well be that IFRS is more restrictive in some areas and less restrictive in other areas to a fault. This is one topical area where IFRS becomes much too subjective such that comparisons of derivatives and hedging activities under IFRS can defeat the main purpose of "standards." The main purpose of an "accounting standard" is to lead to greater comparability of inter-company financial statements. Boo on IFRS in this topical area, especially when it comes to testing hedge effectiveness!

One key quotation is on Page 165

IFRS does not specifically discuss the methodology of applying a critical-terms match in the level of detail included within U.S. GAAP.
Then it goes yatta, yatta, yatta.

Jensen Comment
This is so typical of when IFRS fails to present the "same level of detail" and more importantly fails to provide "implementation guidance" comparable with the FASB's DIG implementation topics and illustrations.

I have a huge beef with the lack of illustrations in IFRS versus the many illustrations in U.S. GAAP.

I have a huge beef with the lack of illustrations in IFRS versus the many illustrations in U.S. GAAP.

I have a huge beef with the lack of illustrations in IFRS versus the many illustrations in U.S. GAAP

"PwC's 2013 Top 10 Technology Trends for Business:  Report Reveals the Emerging and Disruptive Technologies that Are Reshaping Strategies, Business Models, and Enterprise Investments," SmartPros, February 11, 2013 ---
http://accounting.smartpros.com/x74571.xml

. . .

According to PwC, 10 significant trends will impact businesses this year:

• Pervasive Computing: The ability to digitally engage and interact (via your mobile devices) with enabled objects around you
• Cyber Security: Continues to be a pressing issue, as technology enabled processes increasingly underpin and fuel the global economy
• Big Data Mining & Analysis: More than managing dizzying amounts of data faster and cheaper; it is about making better business decisions
• Private Cloud: Due to security and regulatory concerns, larger enterprises have been primarily operating in a trial mode of private/hybrid clouds and this will change in 2013. Consumers of IT are demanding greater value from IT services
• Enterprise Social Networking: Becoming a core tool for the new social workforce; the key insight for organizations succeeding in building value from this technology is social business processes redesign
• Digital Delivery of Products & Services: Customers are driving companies of all shapes and sizes to develop new, technology-based ways of delivering value.  Digital delivery of products and services can open tremendous new pathways for growth, but companies must shift their underlying business operations to support this new business model
• Public Cloud Infrastructure: Cloud adoption will continue to mature with hybrid cloud architecture becoming the mainstay as companies of all sizes leverage public cloud services
• Data Visualization: Leading edge companies will explore dynamic virtualization techniques and advanced display devices to navigate through multiple dimensions of data
• Simulation & Scenario Modeling: Organizations are increasingly focusing on simulation models that enable executives to envision the potential impact of their choices before making investments
• Gamification: With its combination of game mechanics, social networking, interactive media and behavioral analytics, gamification can transform a business

Bob Jensen's threads on Gamification are at
http://www.trinity.edu/rjensen/000aaa/thetools.htm#Edutainment

 

"Tax Advice for the Second Obama Administration," by Paul L. Caron, SSRN, February 18, 2013 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2220496

Abstract:
Twenty-five of the nation’s leading tax academics, practitioners, journalists, and public intellectuals gathered in Malibu, California on the Friday before President Obama’s second inauguration to plead for tax reform. The papers published in this issue of the Pepperdine Law Review provide very different prescriptions for America’s tax ills. But there is a unanimous diagnosis that the country’s tax system is sick indeed. A re-elected president’s inauguration offers a particularly propitious moment to put politics aside and embark on a treatment plan. If our lawmakers are interested in healing our tax wounds, the ideas presented in these pages offer a good place to begin. They run the gamut from relatively minor procedures to total transplantation. But all would improve the health of our current tax system.

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

"Tax Pays: HP Pays Ernst & Young Two Million To Testify," by Francine McKenna, re:TheAuditors, February 18, 2013 ---
http://retheauditors.com/2013/02/18/tax-pays-hp-pays-ernst-young-two-million-to-testify/

The issue of tax avoidance by corporations is a hot one. In the US and in the UK, legislators and pundits seeking “tax justice” have changed the discussion from one of tax breaks that stimulate “jobs and growth” to one of tax fairness to provide much needed funds for public works and public commitments in time of economic hardship.

In December 2012, I wrote in the UK publication Accountancy on the subject of offshore profit shifting by corporations such as Starbucks, Google, Amazon, and other US multinationals. The UK is mad as hell and not going to take it anymore. It seems US multinationals move profits out of the UK via circuitous supply chain routes leaving no profits, no tax liability and, therefore, no tax revenue there, for all their hoopla here about success abroad.

Shifting

Multinationals are under increasing scrutiny for income shifting and offshoring profits. Francine McKenna reports

US corporations with activities in relatively high tax UK avoid tax on profits by moving income to tax havens. Loopholes in the US tax code allow corporations to do this with impunity. Governments continue to prioritise a ‘competitive tax environment for business’ in the hope corporations will convert profits into economic growth and jobs. Tax justice and a fair spread of the deficit reduction burden have been ignored.

Multinationals headquartered in the US often reduce income taxes by shifting profits offshore. Profit shifting erodes the corporate tax base and reduces overall tax revenues. Lower revenues are squeezing governments all over the world trying to provide services during a prolonged period of economic uncertainty and high sovereign debt. There are now significant differences in the tax burden among corporate taxpayers and an overall unequal burden on all taxpayers in the US and in the UK.

Here’s the PDF of that article from the December 2012 issue of Accountancy.

So it was quite a shock for me to learn that, when the debate landed in the US, HP paid Ernst & Young, probably the preeminent tax advisor of the Big Four accounting firms at least for US multinationals, for testimony before the Senate Subcommittee on Investigations in September.

Maybe it doesn’t seem strange to you to see $2 million in “Other” fees to the auditor show up on the HP proxy. Maybe you weren’t aware Ernst & Young is already being investigated by the SEC for independence violations related to tax lobbying. According to Reuters, Ernst & Young provided tax lobbying services to audit clients.

The last time we had a big Big Four independence rules crackdown, it was 2004. It was Ernst & Young again, sanctioned for its systems integrator relationship with PeopleSoft, an audit client. Ernst & Young was suspended from accepting new public company audit clients for six months.

I bet you can’t tell me about an SEC or PCAOB enforcement order for a similar firm-level independence offense since. But they do occur with some regularity, in my observation. There was one in Australia against KPMG that resulted in an enforcement order. It was suspiciously similar to what I reported regarding tax services provided by  KPMG to audit client GE. The KPMG GE issue went away quietly.

And I reported over the holidays about PwC’s systems integration relationship with audit client Thomson Reuters, an inappropriate business alliance that’s very similar to the PeopleSoft case. An SEC inquiry of the potential independence was inadvertently confirmed by PwC, to my editors at Forbes, when a PwC spokesman complained to them about my recent reporting. PwC told Forbes editors the SEC had called them about it even though I had “not given them much time that morning to respond to the story.”  PwC did not request a retraction or a correction to the story, only a chance to talk me and Forbes out of it.

That’s not going to happen.

Here’s what Ernst & Young did for HP – and Microsoft – in September of 2012. Microsoft was also called by Senator Carl Levin to testify. Microsoft is a tax lobbying client of Ernst & Young.

Let’s hope EY didn’t charge Microsoft for the same appearance.

Continued in artilce.

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

"Will You Have to Pay Capital Gains Taxes on the Sale of Your Home?" by Carrie Schwab Pomerantz, Townhall, February 21, 2013 --- Click Here
http://finance.townhall.com/columnists/carrieschwabpomerantz/2013/02/21/will-you-have-to-pay-capital-gains-taxes-on-the-sale-of-your-home-n1515764?utm_source=thdaily&utm_medium=email&utm_campaign=nl

Bob Jensen's tax helpers are at
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2220496

Individual Retirement Account (IRA) --- http://en.wikipedia.org/wiki/Individual_retirement_account

There are several types of IRA:

• Traditional IRA – contributions are often tax-deductible (often simplified as “money is deposited before tax” or “contributions are made with pre-tax assets”), all transactions and earnings within the IRA have no tax impact, and withdrawals at retirement are taxed as income (except for those portions of the withdrawal corresponding to contributions that were not deducted). Depending upon the nature of the contribution, a traditional IRA may be referred to as a “deductible IRA” or a “non-deductible IRA.” It was introduced with the Tax Reform Act (TRA) of 1986.
• Roth IRA – contributions are made with after-tax assets, all transactions within the IRA have no tax impact, and withdrawals are usually tax-free. Named for Senator William V. Roth, Jr.. The Roth IRA was introduced as part of the Taxpayer Relief Act of 1997.
• SEP IRA – a provision that allows an employer (typically a small business or self-employed individual) to make retirement plan contributions into a Traditional IRA established in the employee’s name, instead of to a pension fund in the company's name.
• SIMPLE IRA – a Savings Incentive Match Plan for Employees that requires employer matching contributions to the plan whenever an employee makes a contribution. The plan is similar to a 401(k) plan, but with lower contribution limits and simpler (and thus less costly) administration. Although it is termed an IRA, it is treated separately.
• Self-Directed IRA – a self-directed IRA that permits the account holder to make investments on behalf of the retirement plan.

There are two other subtypes of IRA, named Rollover IRA and Conduit IRA, that are viewed by some as obsolete under current tax law (their functions have been subsumed by the Traditional IRA); but this tax law is set to expire unless extended. However, some individuals still maintain these arrangements in order to keep track of the source of these assets. One key reason is that some qualified plans will accept rollovers from IRAs only if they are conduit/rollover IRAs.

What was formerly known as an Educational IRA is now called a Coverdell Education Savings Account.

Starting with the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), many of the restrictions of what type of funds could be rolled into an IRA and what type of plans IRA funds could be rolled into were significantly relaxed. Additional acts have further relaxed similar restrictions. Essentially, most retirement plans can be rolled into an IRA after meeting certain criteria, and most retirement plans can accept funds from an IRA. An example of an exception is a non-governmental 457 plan which cannot be rolled into anything but another non-governmental 457 plan.

The tax treatment of the above types of IRAs except for Roth IRAs are substantially similar, particularly for rules regarding distributions. SEP IRAs and SIMPLE IRAs also have additional rules similar to those for qualified plans governing how contributions can and must be made and what employees are qualified to participate.

 

"Should You Contribute to a Non-Deductible IRA?" by Laura Adams, Money Girl, February 12, 2013 ---
http://moneygirl.quickanddirtytips.com/what-is-a-non-deductible-ira.aspx

Roth IRA --- http://en.wikipedia.org/wiki/Roth_IRA

Jensen Warning
Deborah Jacobs may have overstated the case for a Roth IRA. Ordinary folks should not choose a Roth IRA without expert tax advice

Mega-Roths
Remarkably, despite warnings of future large revenue losses, Congress has put no cap on the amount that can accumulate in a Roth IRA. Still, the Yelp shares in Levchin’s Roth do raise a legal issue. Tax rules bar you from investing your IRA or Roth IRA in a business you control—such a “prohibited transaction” can render the IRA immediately taxable and ­possibly subject to penalties.
Deborah L. Jacobs (see below)

"How Facebook Billionaires Dodge Mega-Millions In Taxes," by Deborah L. Jacobs, Forbes, March 20, 2012 ---
http://www.forbes.com/sites/deborahljacobs/2012/03/20/how-facebook-billionaires-dodge-mega-millions-in-taxes/

In 2010 Max R. Levchin, chairman of social review site Yelp, sold 3.1 million shares of Yelp held in his Roth individual retirement account. Most of the $10.1 million he received was profit. But Levchin, a 36-year-old serial entrepreneur who started PayPal with ­billionaire Peter Thiel in 1998, won’t ever have to pay a penny of income tax on those gains. That’s because all earnings in a Roth IRA are tax free so long as its owner waits until age 59 1/2 to take money out.

Moreover, Securities & Exchange Commission filings show Levchin still has 3.9 million shares of Yelp, now trading near $22, in his Roth. So it appears his tax-free “retirement” kitty is worth at least $95 million—and maybe a lot more. We don’t know, for example, if Levchin’s Roth owned stock in social app company Slide, which he started in 2004 and sold to Google for $182 million in 2010. If Levchin doesn’t spend his mega-Roth in retirement, he can leave it to his kids or grandkids, who can, under current law, stretch out income-tax-free growth and withdrawals for decades.

Levchin isn’t the only tech titan who’s got a shrewd tax advisor. Buried in recent SEC filings for Facebook, Zynga and LinkedIn are other examples of legal moves the ultrarich use to shield big dollars from the ­taxman. These techniques are available to the merely well-off, too, but they produce the most dramatic savings when executed early in a hot company’s—or hot entrepreneur’s—life.

How early? Facebook billionaire cofounders Mark Zuckerberg and Dustin Moskovitz are both 27, unmarried and have no children we know of. Yet back in 2008 they both set up grantor retained annuity trusts (GRATs) that we estimate will allow them to transfer a total of at least $185 million of wealth to future offspring or others, gift tax free. That compares to a supposed gift-tax exemption of just $1 million in 2008 and $5.12 million today.

Both the Obama Administration and congressional Democrats have proposed new limits on GRATs. Meanwhile, you may want to copy the social tech wizards, if you have high-growth investments to shelter.

Mega-Roths

Remarkably, despite warnings of future large revenue losses, Congress has put no cap on the amount that can accumulate in a Roth IRA. Still, the Yelp shares in Levchin’s Roth do raise a legal issue. Tax rules bar you from investing your IRA or Roth IRA in a business you control—such a “prohibited transaction” can render the IRA immediately taxable and ­possibly subject to penalties.

It’s clear that if you own a small business, your IRA or Roth IRA can’t invest in it. But what if you are chairman or CEO of a private firm with many investors and buy its shares for your Roth? SEC filings show that in 2001, while CEO of ­PayPal, tech investor Thiel bought 1.7 million shares of that company for 30 cents a share through his Roth. In 2002 eBay bought out PayPal for $19 a share—an apparent $31.5 million tax-free profit for Thiel. It also appears from a letter we discovered in a federal court case that some of Thiel’s early investment in Facebook was also through his Roth IRA. He now sits on Facebook’s board.

Is this kosher? FORBES has been told reward-seeking informants are filing claims with the IRS Whistleblower Office, flagging such transactions as improper. But IRA expert Noel Ice says it’s a gray area, with little IRS or court guidance. Buying closely held stock for an IRA is probably okay, he says, so long as the IRA’s owner doesn’t have—when all his investments are combined—voting control of that company. Levchin, Thiel and the IRS wouldn’t comment.

The lesson for ordinary folks? Put investments with the highest growth potential in your Roth. Note: If you do want to put nonpublicly traded stock in an IRA or a Roth IRA, you’ll generally need to use a special custodian who handles “self-directed” IRAs. (The big brokers, banks and mutual fund companies that hold most IRAs generally limit investments to publicly traded stock, bonds, mutual funds and bank CDs.) Levchin and Thiel have used San Francisco-based Pensco Trust Co. to hold their Roth IRAs.

The Facebook GRATs

Thanks to a 2000 Tax Court decision ­involving a member of the billionaire Walton clan, which founded Wal-Mart, it’s now possible to transfer large amounts of wealth to heirs gift tax free using a grantor retained annuity trust. The person who wants to transfer wealth (the grantor) puts shares into the ­irrevocable trust and retains the right to ­receive an annual payment back from the trust for a period of time—say, 2 to 15 years. If the grantor survives that period, any property left in the trust when the annual payments end passes to family members.

The key is this: In calculating how much value will be left at the end—and thus how big a gift the grantor is making—the IRS doesn’t look at the performance of the actual stock in the trust. Instead, it assumes the trust assets are earning a paltry government-determined interest rate. With a zeroed-out, or “Walton” GRAT, the grantor receives an annuity that leaves nothing for heirs—if assets grow only at the IRS’ lowly interest rate. If they grow faster, the excess goes to heirs gift tax free. (If assets don’t grow, the grantor is no worse off, because the annuity can be paid by returning some shares each year to the grantor.)

Continued in article

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

Case Studies in Gaming the Income Tax Laws ---
http://www.cs.trinity.edu/~rjensen/temp/TaxNoTax.htm

"KRUGMAN: Sweden Has The Answers To Our Taxation Problems," by Kamelia Angelova, Business Insider, February 12, 2013 ---
http://www.businessinsider.com/paul-krugman-on-taxes-2013-2 

The above link is a video of Paul Krugman being interviewed. He seems to be holding an earlier Sweden as having some type of taxation and welfare spending program that's an ideal without mentioning that the current Sweden and other Nordic nations are  trying to change all that by:

• Lowering taxes
• Reducing government in favor of a larger and more viable private sector
• Surpluses in government spending budgets
• Introducing charter schools to compete with public schools
• Introducing private health care services to compete with public health care services

Either Professor Krugman is ignorant of the changes taking place in Sweden (which I doubt) or he's selectively trying to mislead his audience. He should be more careful in selectively choosing examples he promotes as ideals. This is not, in my viewpoint, the type of selectivity we want in our Academy.

R Programming Language --- http://en.wikipedia.org/wiki/R_%28programming_language%29
"Learn R with Two Tutorials," by Lincoln Mullen, Chronicle of Higher Education, February 8, 2013 ---
http://chronicle.com/blogs/profhacker/learn-r-with-twotorials/45843?cid=wc&utm_source=wc&utm_medium=en

"THE LEARNING TRIANGLE," by Joe Hoyle, Teaching Blog, February 12, 2013 ---
http://joehoyle-teaching.blogspot.com/2013/02/the-learning-triangle_12.html

"THERE WILL BE NO QUIZ," by Joe Hoyle, Teaching Blog, February 21, 2013 ---
http://joehoyle-teaching.blogspot.com/2013/02/there-will-be-no-quiz.html

"Team Ambition," by Joe Hoyle, Teaching Blog, January 30, 2013 ---
http://joehoyle-teaching.blogspot.com/2013/01/team-ambition.html
Jensen Comment
This is more of a summary post about Joe's past postings to his blog. Joe tells me his readership spikes when a post a notice to the AECM.

Demand for Accounting Graduates Among the Highest of All Disciplines

"CPAs are sexy: Accountants in demand as regulatory climate tightens," Boston Business Journal, January 14, 2013 ---
http://www.masslive.com/business-news/index.ssf/2013/01/cpas_are_sexy_accountants_in_demand_as_r.html

The numbers are in, and accountants should be smiling.

The unemployment rate for accountants stands at just 4.1 percent. And Forbes.com recently listed accountants and auditors at No. 2 on its list of Top Jobs for 2013, just behind software developers.

Meanwhile, the Class of 2012 Student Survey Report, released last year by the National Association of Colleges & Employers, found that 68 percent of the most recent accounting majors received job offers, the highest percentage of any major.

“The job demand is there, and it’s steady,” said Barbara Iannoni, academic/career development specialist at the Massachusetts Society of Certified Public Accountants Inc.

In fact, demand for accounting professionals has picked up and continues to strengthen, said Bill Driscoll, the New England District president for staffing firm Robert Half International. And Driscoll says the demand for new talent is coming from all areas.

“It’s private industry, it’s public, it’s really across the board. You don’t have to be in a CPA to be in demand,” he said. “It’s accounting that’s in demand right now. You can be a comptroller, financial analyst, or auditor without being a CPA.”

Driscoll said that for applicants with a mix of public and private company experience — something most CPAs have — the job opportunities are even more plentiful.

“In the economic environment we still find ourselves in, anyone in the accounting department who can analyze where the dollars go, who can help companies stretch every dollar, are in high demand,” he said.

Nonetheless, companies today still have high expectations for those they hire; they want accountants who know more than numbers, Driscoll said.

“Everybody needs number crunchers, but particularly with the events of the last four or five years, if you can blend communication skills and leadership skills with accounting skills or a CPA, that will open up all sorts of opportunities and career progressions for you,” he said.

Industry leaders said most college students on the accounting track still aim to get a CPA designation, which requires meeting state-set academic and experience requirements as well as passing a one-time state-administered CPA test. Once certified, a CPA also must meet regular licensing requirements.

It’s no easy process. According to Scott Moore, senior manager of the College and University Initiatives at the American Institute of CPAs, only 40 percent of test takers nationwide actually pass.

“It shows a lot of dedication and self-discipline to pass the exam. That really tells you something about the person,” Moore said.

That’s one of the reasons the CPA remains such a hot commodity in the job market, he said.

Another reason: the ever-expanding list of regulations that companies face. It’s a state of affairs that took a big leap forward in 2002 with the passage of the Sarbanes-Oxley Act. The Dodd-Frank financial reform act of 2010, which is still being phased in through dozens of yet-to-be-written regulations, has only made CPAs all the more valuable, Moore said.

“The work that a CPA does has evolved. There’s not so much a need to do hard core number crunching because (computers) can do that, so it’s more interpretation versus creation of information, and that interpretation is more important to the business. CPAs have really taken on that role,” said Moore, noting that CPAs are increasingly filling a number of C-level positions at major companies.

Continued in article

Jensen Comment
There are some caveats. Undergraduate accounting majors must now take a fifth year or more (most enter masters degree programs) in order to sit for the Uniform National CPA Examination. And starting salaries are lower than salaries of engineers.

And most graduates going to work for CPA firms have a low probability of surviving in those firms after 5-10 years. But this is not usually too bothersome since the main reason many accounting graduates first enter public accounting is for the great training and client exposures. Most of them did not want to stay in public accounting because of the requisite travel, long hours, and performance pressures. Those that leave public accounting after a few years go with clients who offer 9-5 hours, less travel, and much less pressure. And many leave to become full-time parents between the early parts and late parts of their accounting careers.

The bummer is that corporations fail offer nearly as many entry-level jobs as public accounting firms. Corporations and agencies like the FBI prefer to hire job applicants with some years of accounting experience. Aside from public accounting, the IRS is one of the best sources of entry-level job applications. And both the training and experience in the IRS are excellent for changing jobs later on.

"NASBA Releases CPA Examination Statistics:  New publications feature detailed reports and statistical data from the 2012 Uniform CPA Examination," PRWeb, February 12, 2013 ---
http://www.prweb.com/releases/2013/2/prweb10421484.htm?PID=6147589

Bob Jensen's threads on accounting careers ---
http://www.trinity.edu/rjensen/Bookbob1.htm#careers

This year, NASBA will fund and award a maximum of three grants totaling up to $25,000 for one-year research projects. Faculty and postdoctoral researchers at U.S. academic institutions are encouraged to submit proposals for consideration.
"NASBA Offers Accounting Research Grants," Accounting Today, February 12, 2013 ---
http://www.accountingtoday.com/news/NASBA-Offers-Accounting-Research-Grants-65672-1.html

Jensen Comment
In light of the lengthy thread we had on the role of ethics education on ethics behavior, perhaps the time is ripe to propose a study of the impact on ethics behavior and education of the increased frequency of ethics modules on CPA examinations. One question might be how to best examine ethics issues on these examinations.

"Gangster Bankers: Too Big to Jail:  How HSBC hooked up with drug traffickers and terrorists. And got away with it," by Matt Taibbi, Rolling Stone, February 14, 2013 ---
http://www.rollingstone.com/politics/news/gangster-bankers-too-big-to-jail-20130214

The deal was announced quietly, just before the holidays, almost like the government was hoping people were too busy hanging stockings by the fireplace to notice. Flooring politicians, lawyers and investigators all over the world, the U.S. Justice Department granted a total walk to executives of the British-based bank HSBC for the largest drug-and-terrorism money-laundering case ever. Yes, they issued a fine – $1.9 billion, or about five weeks' profit – but they didn't extract so much as one dollar or one day in jail from any individual, despite a decade of stupefying abuses.

People may have outrage fatigue about Wall Street, and more stories about billionaire greedheads getting away with more stealing often cease to amaze. But the HSBC case went miles beyond the usual paper-pushing, keypad-punching­ sort-of crime, committed by geeks in ties, normally associated­ with Wall Street. In this case, the bank literally got away with murder – well, aiding and abetting it, anyway.

Daily Beast: HSBC Report Should Result in Prosecutions, Not Just Fines, Say Critics

For at least half a decade, the storied British colonial banking power helped to wash hundreds of millions of dollars for drug mobs, including Mexico's Sinaloa drug cartel, suspected in tens of thousands of murders just in the past 10 years – people so totally evil, jokes former New York Attorney General Eliot Spitzer, that "they make the guys on Wall Street look good." The bank also moved money for organizations linked to Al Qaeda and Hezbollah, and for Russian gangsters; helped countries like Iran, the Sudan and North Korea evade sanctions; and, in between helping murderers and terrorists and rogue states, aided countless common tax cheats in hiding their cash.

"They violated every goddamn law in the book," says Jack Blum, an attorney and former Senate investigator who headed a major bribery investigation against Lockheed in the 1970s that led to the passage of the Foreign Corrupt Practices Act. "They took every imaginable form of illegal and illicit business."

That nobody from the bank went to jail or paid a dollar in individual fines is nothing new in this era of financial crisis. What is different about this settlement is that the Justice Department, for the first time, admitted why it decided to go soft on this particular kind of criminal. It was worried that anything more than a wrist slap for HSBC might undermine the world economy. "Had the U.S. authorities decided to press criminal charges," said Assistant Attorney General Lanny Breuer at a press conference to announce the settlement, "HSBC would almost certainly have lost its banking license in the U.S., the future of the institution would have been under threat and the entire banking system would have been destabilized."

It was the dawn of a new era. In the years just after 9/11, even being breathed on by a suspected terrorist could land you in extralegal detention for the rest of your life. But now, when you're Too Big to Jail, you can cop to laundering terrorist cash and violating the Trading With the Enemy Act, and not only will you not be prosecuted for it, but the government will go out of its way to make sure you won't lose your license. Some on the Hill put it to me this way: OK, fine, no jail time, but they can't even pull their charter? Are you kidding?

But the Justice Department wasn't finished handing out Christmas goodies. A little over a week later, Breuer was back in front of the press, giving a cushy deal to another huge international firm, the Swiss bank UBS, which had just admitted to a key role in perhaps the biggest antitrust/price-fixing case in history, the so-called LIBOR scandal, a massive interest-rate­rigging conspiracy involving hundreds of trillions ("trillions," with a "t") of dollars in financial products. While two minor players did face charges, Breuer and the Justice Department worried aloud about global stability as they explained why no criminal charges were being filed against the parent company.

"Our goal here," Breuer said, "is not to destroy a major financial institution."

A reporter at the UBS presser pointed out to Breuer that UBS had already been busted in 2009 in a major tax-evasion case, and asked a sensible question. "This is a bank that has broken the law before," the reporter said. "So why not be tougher?"

"I don't know what tougher means," answered the assistant attorney general.

Also known as the Hong Kong and Shanghai Banking Corporation, HSBC has always been associated with drugs. Founded in 1865, HSBC became the major commercial bank in colonial China after the conclusion of the Second Opium War. If you're rusty in your history of Britain's various wars of Imperial Rape, the Second Opium War was the one where Britain and other European powers basically slaughtered lots of Chinese people until they agreed to legalize the dope trade (much like they had done in the First Opium War, which ended in 1842).

A century and a half later, it appears not much has changed. With its strong on-the-ground presence in many of the various ex-colonial territories in Asia and Africa, and its rich history of cross-cultural moral flexibility, HSBC has a very different international footprint than other Too Big to Fail banks like Wells Fargo or Bank of America. While the American banking behemoths mainly gorged themselves on the toxic residential-mortgage trade that caused the 2008 financial bubble, HSBC took a slightly different path, turning itself into the destination bank for domestic and international scoundrels of every possible persuasion.

Three-time losers doing life in California prisons for street felonies might be surprised to learn that the no-jail settlement Lanny Breuer worked out for HSBC was already the bank's third strike. In fact, as a mortifying 334-page report issued by the Senate Permanent Subcommittee on Investigations last summer made plain, HSBC ignored a truly awesome quantity of official warnings.

In April 2003, with 9/11 still fresh in the minds of American regulators, the Federal Reserve sent HSBC's American subsidiary a cease-and-desist­ letter, ordering it to clean up its act and make a better effort to keep criminals and terrorists from opening accounts at its bank. One of the bank's bigger customers, for instance, was Saudi Arabia's Al Rajhi bank, which had been linked by the CIA and other government agencies to terrorism. According to a document cited in a Senate report, one of the bank's founders, Sulaiman bin Abdul Aziz Al Rajhi, was among 20 early financiers of Al Qaeda, a member of what Osama bin Laden himself apparently called the "Golden Chain." In 2003, the CIA wrote a confidential report about the bank, describing Al Rajhi as a "conduit for extremist finance." In the report, details of which leaked to the public by 2007, the agency noted that Sulaiman Al Rajhi consciously worked to help Islamic "charities" hide their true nature, ordering the bank's board to "explore financial instruments that would allow the bank's charitable contributions to avoid official Saudi scrutiny." (The bank has denied any role in financing extremists.)

Continued in a long article

Bob Jensen's Rotten to the Core threads---
http://www.trinity.edu/rjensen/FraudRotten.htm#InvestmentBanking

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

Deloitte's New Site for International Accounting Teaching, Scholarship, and  Research ---
http://www.iasplus.com/en/news/2013/02/research-and-education

We have created a new page on IAS Plus that is tailored to help users easily locate academic accounting material and resources relevant for educational research that is available on IAS Plus and other useful sites.

Bookmark this site ---
http://www.iasplus.com/en/resources/research-and-education

Bob Jensen's helpers for accounting educators ---
http://www.trinity.edu/rjensen/default3.htm

Bob Jensen's helpers for accounting researchers ---
http://www.trinity.edu/rjensen/default4.htm

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

Suggestion for a Website of Actual Financial Contracts

While examining the following accounting student, education, practitioner, client, and research helper site it dawned on me that a wonderful site to be added would be a site of real contracts taken from practice (names of people and companies could be hidden). Examples would include account factoring contracts, lending contracts, derivative financial instrument contracts, employee option contracts, employee stock compensation contracts and on and on and on. The important criterion would be that these are actual contracts and not just excerpts or hypothetical contracts.

What a great addition this would make in the following Website where following each contract could be suggested accounting journal entries and disclosures under IFRS versus U.S. GAAP.

Deloitte's New Site for International Accounting Teaching, Scholarship, and  Research ---
http://www.iasplus.com/en/news/2013/02/research-and-education

If I were younger I would start such a site at my own Website. However, I think large public accounting firms have comparative advantages since they could draw on actual contracts of clients.

What a service this would be for education and research as well as for practitioners.

Deloitte (DTTL) and the International Association for Accounting Education and Research (IAAER) today announced the Deloitte IAAER Scholarship Programme, naming five associate professors from Brazil, Indonesia, Poland, Romania and South Africa as the programme’s inaugural scholars.
IAS Plus
February 13, 2013
http://www.iasplus.com/en/news/2013/02/deloitte-scholars

Mentors will be assigned to each scholar to support them as they increase their exposure to internationally recognised accounting scholars, best practices in accounting and business education and research, and a global peer network.

Ongoing mentorship is a critical element of the Deloitte IAAER Scholarship Programme and some well-known and highly accomplished accounting experts have volunteered their support. These include former member of the Financial Accounting Standards Board, Katherine Schipper (Duke University); former member of the International Accounting Standards Board, Mary Barth (Stanford University); Chika Saka (Kwansei Gakuin University); Sidney Gray (University of Sydney); and Ann Tarca (University of Western Australia).

The scholars, who must be a sitting lecturer, assistant, or associate professor holding a PhD (or comparable degree) in a faculty that teaches accounting, auditing, or financial reporting, are chosen for three years and attend IAAER co-sponsored conferences, workshops, and consortia as well as the IAAER World Congress.

In the long term, the programme aims at supporting better accounting education and improving the quality of financial reporting and auditing. The next round of scholarships will open in 2016, with applications considered in 2015.

Bob Jensen's threads on careers in accountancy ---
http://www.trinity.edu/rjensen/Bookbob1.htm#careers