New Bookmarks
Year 2014 Quarter 1:  January 1 - March 31 Additions to Bob Jensen's Bookmarks
Bob Jensen at Trinity University

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

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

Bob Jensen's Threads --- http://www.trinity.edu/rjensen/threads.htm

574 Shields Against Validity Challenges in Plato's Cave ---
http://www.trinity.edu/rjensen/TheoryTAR.htm

 

 

Choose a Date Below for Additions to the Bookmarks File

2014
March 31

February 28

January 31

 

 

March 31, 2014

Bob Jensen's New Bookmarks March 1-31, 2014
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/

David Johnstone asked me to write a paper on the following:
"A Scrapbook on What's Wrong with the Past, Present and Future of Accountics Science"
Bob Jensen
February 19, 2014
SSRN Download:  http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2398296 

 

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

"CONVERSATION WITH BOB JENSEN," by Joe Hoyle, Teaching Blog, October 8, 2013 ---
http://joehoyle-teaching.blogspot.com/2013/10/conversation-with-bob-jensen.html

List of FASB Pronouncements ---
http://en.wikipedia.org/wiki/List_of_FASB_pronouncements

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
 

Find comparison facts on most any Website ---
http://reviewandjudge.org/HOME.html
For example, enter "www.trinity.edu/rjensen/" without the http:\\

Find Accounting Software (commercial site) --- http://findaccountingsoftware.com/

Galt Travel Reviews and Guides --- http://www.galttech.com/

Quandl:  over 8 million demographic, economic, and financial datasets from 100s of global sources ---
http://www.quandl.com/

David Giles Econometrics Beat Blog ---
http://davegiles.blogspot.com/

Common Accountics Science and Econometric Science Statistical Mistakes ---
http://www.cs.trinity.edu/~rjensen/temp/AccounticsScienceStatisticalMistakes.htm

Alliance for Financial Inclusion (financial literacy initiative funded by Bill and Melinda Gates) ---  http://www.afi-global.org/
Also see Bob Jensen's related helpers at http://www.trinity.edu/rjensen/Bookbob1.htm#InvestmentHelpers

Find Real Estate for Sale ---
http://www.trulia.com/

Identity Theft Information and Tools from the AICPA and IRS ---
http://www.aicpa.org/interestareas/tax/resources/irspracticeprocedure/pages/idtheftinformationandtools.aspx

Tax practitioners and their clients are concerned about the growing epidemic of tax-related identity theft in America - both refund theft and employment theft. At the end of fiscal 2013, the IRS had almost 600,000 identity theft cases in its inventory, according tothe IRS National Taxpayer Advocate. 

The AICPA shares members' concerns about the impact of identity theft and offers the resources below to help them learn more about this issue and advise clients. We have provided recommendations to Congress and the IRS Oversight Board on ways to further protect taxpayers and preparers.

IRS Identity Protection Specialized Unit at 800-908-4490

Identity Theft Resource Center --- http://www.idtheftcenter.org/
Note the tab for State and Local Resources

The IRS has an Identity Theft Web Page at
http://www.irs.gov/uac/Identity-Protection

FTC Identity Theft Center --- http://www.ftc.gov/bcp/edu/microsites/idtheft/

"IRS is overwhelmed by identity theft fraud:   Billions wrongly paid out as scammers find agency an easy target," by Michael Kranish, Boston Globe, February 16, 2014 ---
http://www.bostonglobe.com/news/nation/2014/02/16/identity-theft-taxpayer-information-major-problem-for-irs/7SC0BarZMDvy07bbhDXwvN/story.html

Trinity University's Accounting Program at Rank 8
From the Trinity University President Dennis Ahlberg's Newsletter for March 2014

. . .

Trinity’s outstanding five-year accounting program, which has a 100 percent placement rate with top employers, has been ranked 8th nationally in a field of 280 "medium sized" accounting programs. This ranking places Trinity ahead of schools such as Georgetown (#16), Butler (#20), Rhodes (#33), and Bucknell (#34).

"To Settle Suit, TIAA-CREF Agrees to Pay $19.5 Million," Inside Higher Ed, March 19, 2014 ---
http://www.insidehighered.com/quicktakes/2014/03/19/settle-suit-tiaa-cref-agrees-pay-195-million

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

And they all studied auditing at Lake Wobegon --- http://en.wikipedia.org/wiki/Lake_Wobegon
Illusory Superiority --- http://en.wikipedia.org/wiki/Lake_woebegone_effect

"All The Auditors Are Above Average: Jay Hanson Allergic To 'Audit Failure'," by Francine McKenna, re:TheAuditors, March 26, 2014 ---
http://retheauditors.com/2014/03/26/all-the-auditors-are-above-average-jay-hanson-allergic-to-audit-failure/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+ReTheAuditors+%28re%3A+The+Auditors%29

What does it take for an auditor to admit failure? Public Company Accounting Oversight Board (PCAOB) member Jay Hanson, a former audit partner from next-tier firm McGladrey LLP, is suddenly acting like the agency’s go-to accounting industry apologist. In a recent speech, Hanson said he was “troubled” by the PCAOB’s use of the term “audit failure” in its inspection reports. He thinks the term confuses users of the auditor’s opinion. As if there are any…

“…calling every such deficiency an “audit failure” appears to have caused confusion among investors, audit committees and others, some of whom have interpreted our findings as meaning that the financial statements are misstated or that there is a problem in the company’s accounting or internal controls. In fact, however, only very few of our inspection findings ultimately can be linked to a problem in the company’s financial statements, and restatements arising out of our inspection process are rare, although they do occur.”

Should audit and auditor failure be solely defined by identified material misstatements that result in restatements, and internal control failures? The PCAOB considers auditors’ failure to audit internal controls over financial reporting a big enough problem in October 2013 it issued Staff Audit Practice Alert No. 11, Considerations for Audits of Internal Control Over Financial Reporting. The PCAOB inspectors have been citing significant deficiencies in audits of internal controls over financial reporting during the last three years.

The deficiencies include the failure to:

  • Identify and sufficiently test controls that are intended to address the risks of material misstatement
  • Sufficiently test the design and operating effectiveness of management review controls that are used to monitor the results of operations
  • Obtain sufficient evidence to update the results of testing of controls from an interim date to the company’s year end (i.e., the roll-forward period)
  • Sufficiently test controls over the system-generated data and reports that support important controls
  • Sufficiently perform procedures regarding the use of the work of others
  • Sufficiently evaluate identified control deficiencies.

We know that formal restatements are way down, after hitting highs right after the passage of the Sarbanes-Oxley Act in 2002. Research firm Audit Analytics keeps telling us so. But are restatements down because there is less corporate accounting and disclosure fraud? Many thinkle peep so but I definitely don’t. The SEC agrees with me and reinstated its Accounting Fraud and Disclosure Task Force last year. That’s the team dismantled by former SEC Enforcement Director Robert Khuzami who used the deceptively low formal restatement numbers as his excuse. Not so fast, I wrote in Forbes in October 2012 right before Khuzami resigned.

A study by two University of Connecticut accounting professors found auditors have waved the weakness flag in advance of a small and declining share of earnings restatements–just 25% in 2008 and 14% in 2009, the last year studied. There was no auditor warning before Lehman Brothers’ 2008 collapse, even though a bankruptcy examiner later concluded it used improper accounting gimmicks to dress up its balance sheet. And no warning before Citigroup lowballed its subprime mortgage exposure in 2007. (It paid a $75 million SEC fine.)

Instead, companies and auditors flag material weaknesses as they’re restating earnings–that’s what JPMorgan did in August when it revised first-quarter earnings to show $459 million more in losses from “the London Whale’s” trading bets than it first reported.

Yet another Sarbox provision, absent vigorous SEC enforcement, may even be leading, perversely, to less disclosure of accounting problems. It provides that a year of performance-based pay can be “clawed back” from a CEO or CFO who signed off on earnings that have to be restated. Thus executives have a financial incentive to handle problems they discover quietly–either internally or with an “earnings revision” instead of a restatement. Last year revisions (as opposed to formal restatements) accounted for 57% of 727 earnings fixes, up from 33% of 1,384 fixes in 2005, Audit Analytics reports.

Never heard of a “revision”? Companies and auditors like it that way. With a formal restatement, a company must file a special form, 8-K, calling attention to its corrections. With a revision it can fix flawed accounting without filing an 8-K or formally restating old earnings, since the change supposedly isn’t “material.” With a revision executives’ prior pay isn’t at risk, auditors don’t have to retract their approval of earlier statements, and there’s usually little impact on the stock and so no investor lawsuits.

The SEC has also established another initiative, Operation Broken Gate, targeting auditors, lawyers and directors who enable corporate accounting and disclosure fraud. In addition, in fiscal 2013 accounting and disclosure fraud was the largest percentage of the SEC’s Dodd-Frank whistleblower tips, the second year in a row. So, maybe the SEC and PCAOB need to question the increase in characterization of misstatements as non-material and fixes made only on a go-forward basis.

Why are restatements declining?

  • Auditors make the final call on the necessity of a restatement under pressure from executives and their lawyers. It’s in all parties’ best interest to minimize restatements.
  • Making fewer restatements reduces the likelihood auditors will be named as a defendant in a shareholder lawsuit.
  • Compromising on the requirement for a restatement by downgrading the materiality of errors or misstatements reduces the likelihood auditors will irk executives by setting them up for SOx or Dodd-Frank clawbacks claims. A restatement is required to force reimbursement under both laws.
  • Fewer restatements means auditors can argue with PCAOB that a significant inspection deficiency didn’t result in “restatement” and therefore can be left out of its public inspection report. Likelihood of additional follow-up by the SEC resulting in sanctions or fines is also minimized.

Continued in article

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

Teaching Case
From The Wall Street Journal's Weekly Accounting Review on March 21, 2014

Rule Makers Still Split on Lease Accounting
by: Emily Chasan
Mar 18, 2014
Click here to view the full article on WSJ.com
 

TOPICS: Financial Accounting Standards Board, International Accounting Standards Board, Lease Accounting

SUMMARY: On Tuesday and Wednesday, March 18 and 19, 2014, the U.S. Financial Accounting Standards Board (FASB) and London-based International Accounting Standards Board (IASB) met to further their "aim to issue a final standard later this year that would move about $2 trillion dollars of lease obligations onto corporate balance sheets." According to the article, their differences have to do with the amortization of the lease cost into the income statement: straight-line presentation of the rental cost in the income statement or presentation as a long-term financing of an asset which involves depreciation expense and interest expense on the lease obligation. The former treatment is argued to be more appropriate for, say, storefront rental leases. The latter system can show higher expenses in the early years of a lease obligation.

CLASSROOM APPLICATION: The article is an excellent one to introduce impending changes in lease accounting in financial accounting classes.

QUESTIONS: 
1. (Advanced) Summarize accounting by lessees under current reporting requirements.

2. (Advanced) How do current requirements lead to lack of comparability among financial reports? How do they result in financial statements which often lack representational faithfulness? In your answer, define the qualitative characteristics of comparability and representational faithfulness.

3. (Introductory) Summarize the two proposed methods of accounting for all leases as described in this article. Identify a timeline over which these proposals have been made.

4. (Introductory) Summarize company reactions to these proposed accounting changes.

5. (Advanced) Are company arguments and reactions based on accounting theory? Support your answer.
 

Reviewed By: Judy Beckman, University of Rhode Island

"Rule Makers Still Split on Lease Accounting," byEmily Chasan, The Wall Street Journal, March 18, 2014 ---
http://blogs.wsj.com/cfo/2014/03/18/rule-makers-still-split-on-lease-accounting/?mod=djem_jiewr_AC_domainid

U.S. and international rule makers remained divided Tuesday in the first of two days of meetings aimed at resolving differences on lease accounting.

The U.S. Financial Accounting Standards Board and London-based International Accounting Standards Board aim to issue a final standard later this year that would move about $2 trillion dollars of lease obligations onto corporate balance sheets. But they are still split on the fundamental model companies should use to measure those liabilities.

“We have been struggling with this standard for many years,” Hans Hoogervorst, chairman of the IASB said at the meeting in Norwalk, Conn. “There is no simple answer.”

The major difference is whether to restrict companies to one method to account for leases, or to let them choose between two. The debate will continue Wednesday.

Since 2005, the Securities and Exchange Commission has recommended an overhaul of lease accounting because large off-the-books lease obligations can obscure a company’s true finances.

Under current rules, lease accounting is based on rigid categories that let companies keep operating leases for items such as airplanes, retail stores, computers and photocopiers off the books, mentioning them only in footnotes. In other cases, where the present value of lease payments represents a very large portion of the asset’s value, they are called capital leases and treated more like debt.

In their efforts to revamp the rules, accounting standard setters have gone back to the drawing board several times. In 2010, they proposed a method aimed at bringing leases on-the-books by categorizing them as “right of use” assets, which would treat them like financings.

Companies pushed back, claiming it would be costly to implement and could unnecessarily front-load lease expenses.

So the rule makers agreed to compromise in 2012 on a two-method approach: The first would let companies treat some leases like financings, such as when a company can purchase the asset at the end of a lease. The second would treat other leases as straight-line expenses, such as rental payments for retail storefronts.

That move also drew criticism from analysts, who were concerned they wouldn’t get comparable financial information because the choice would be left up to companies.

On Tuesday, some board members said they preferred to return to the “right of use” approach because they think the compromise is weak. Others were in favor of the two-method approach because it would be easier to implement.

The dual method approach is the “more operational one, at least initially,” said FASB Vice Chairman Jim Kroeker.

To speed a resolution, the boards also generally agreed to eliminate potential changes to lessor accounting from the proposal.

The boards had received feedback from investors and analysts that the current lessor model works well and that changes could result in more work.

Continued in article

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

Also see  ---
http://www.cs.trinity.edu/~rjensen/temp/LeaseAccounting.htm

Jensen Comment
When I had almost no money, while  in college, I was a very, very small time call options investor and sometimes went to a brokerage firm to watch the NYSE trading prices flashing by on an electronic ribbon. In those days those were the up-to-the-moment trading prices. Now they're misleading phony prices that are skimmed by higher-speed robots that beat your orders in microseconds to 13 public exchanges armed with your bid or ask price just to steal some of your money. Thank you Michael Lewis and the clever detectives you write about who discovered how these high speed robots are ripping off investors --- no thanks to the obsolete SEC.

In simple terms here's how the high speed robots work using an analogy form one of the detectives described in 60 Minutes segment. If you want to buy four online tickets for an event a robot detects your order for four tickets costing at an unknown cost not to exceed $25 apiece.. Your order is immediately filled for only two tickets at $20 apiece. The robot buys the adjoining two tickets for $20 apiece and makes them available for $25 apiece. In the completed transaction you pay $90 for the four tickets. High speed skimming ripoffs on the stock exchanges don't work exactly like that, but the robots sneak ahead of your orders in microseconds to skim part or all of your ultimate purchase or sale of stocks and bonds.

There is some debate as to whether this is illegal "stealing," but let's say that the future of keeping investors in the stock market means that the government and the stock exchange managers will have to put an end to this practice or investors will abandon the market in droves or go to a new stock exchange that is electronically blocking these robot ripoffs.

By All Means Watch the CBS 60 Minutes Interview With Michael Lewis (links shown below)
"Book Review: 'Flash Boys' by Michael Lewis High-frequency traders use dedicated data cables and specialized algorithms to trade milliseconds ahead of the rest of the market.," by Philip Delves Broughton, The Wall Street Journal, March 31, 2014 ---
http://online.wsj.com/news/articles/SB10001424052702304432604579473281278352644?mod=djemMER_h&mg=reno64-wsj

Back in the day, if an investor wanted to buy or sell a stock, he would call a broker, who would find a way to execute the trade as efficiently as possible by talking to other human beings. The arrival of computerized exchanges slowly eliminated people from the process. Instead, bids and offers were matched by servers. The shouting men in colorful jackets on the exchange floors became irrelevant. In theory, this meant that the cost of trading fell and that the markets became more efficient. But the effects of technology are rarely so simple.

In 2002, 85% of all U.S. stock-market trading happened on the New York Stock Exchange and the rest mostly on the Nasdaq. NDAQ +0.60% By early 2008, there were 13 different public exchanges, most just stacks of computer servers in heavily guarded buildings in northern New Jersey. Now, if you place an order for 1,000 shares of Microsoft, MSFT +0.32% it pings from exchange to exchange claiming a few shares at each stop, seeking the best price until the order is completed. But the moment that it hits the first exchange, the HFTs see it, and they race ahead to the other exchanges, buy the stock you want, and sell it back to you for fractionally more than you hoped to pay. All in a matter of milliseconds, millions of times a day to millions of investors—your grandmother and hedge-fund titans alike. These tiny but profitable trades, Mr. Lewis writes, add up to big profits for firms like Getco and Citadel. He cannot put a hard number on the size of the industry, suggesting only that many billions are involved.

If this sounds like the old Wall Street scam of front-running the market, that's because it is. Except, in this case, it is entirely legal. Indeed, Mr. Lewis suggests, the strategies of high-frequency traders were the unintended consequence of well-intentioned regulation. Back in 2005 the SEC, in an effort to ensure greater fairness for investors, changed a key rule. Once, brokers had to perform the "best execution" for their clients. This meant taking into account factors such as timing and likelihood of completing the transaction, as well as price. Now they have to find the "best price," as determined by regulators' own creaky computers, scanning the bids and offers available on the various exchanges. But traders could do the same analysis more quickly using their own networks, and make trades in the milliseconds between an investor placing an order, the SEC establishing the best price and the broker executing the trade.

A decade later, the HFTs do such big business that they have begun to influence the operations of the exchanges that depend on them. The exchanges take fees from the HFTs for access to the flow of orders, as do investment banks that run their own private exchanges, called "dark pools." Exchanges bend their rules to the bidding of the high-frequency traders: The HFTs wanted an extra decimal place added to stock prices, for instance, so they could mop up every thousandth of a penny in price fluctuations; the exchanges obliged. "By the summer of 2013," writes Mr. Lewis, "the world's financial markets were designed to maximize the number of collisions between ordinary investors and high-frequency traders—at the expense of ordinary investors."

"Flash Boys" is not as larky as "Liar's Poker" (1989), Mr. Lewis's memoir of working at Salomon Brothers during the lead-up to the 1987 crash, or as accessible as "The Big Short" (2010), his jaw-dropping take on the subprime meltdown. It may end up more important to public debate about Wall Street than either, however, in exposing what one of his central characters calls the "Pandora's box of ridiculousness" that financial exchanges have become.

Mr. Lewis wants to argue, though, that the markets are not just ridiculous, but rigged. The heroes of this book are clear: Mr. Katsuyama eventually assembles a team of talented misfits to create an HFT-proofed exchange called IEX, where a price is a price is a price. It's backed by leading hedge funds and banks (and Jim Clark, the co-founder of Netscape and the subject of Mr. Lewis's 1999 book, "The New New Thing"). Mr. Lewis gives the reader extensive insight into how his heroes see the market, but the alleged villains of the piece—HFTs themselves—are all but silent in their own defense. "Flash Boys" is a decidedly one-sided book.

Yet there are reasonable arguments to be made that the frenetic trading by HFTs leads to greater liquidity and more efficient pricing. Or, God forbid, that they are not nearly so harmful to investors' returns as Mr. Lewis makes out. Their rise has coincided with a historic bull market. It is not hard to imagine a different book by Michael Lewis, one celebrating HFTs as revolutionary outsiders, a cadre of innovative engineers and computer scientists (many of them immigrants), rising from the rubble of 2008 and making fools of a plodding financial system. "Flash Boys" makes no claim to be a balanced account of financial innovation: It is a polemic, and a very well-written one. Behind its outrage, however, lies nostalgia for a prelapsarian Wall Street of trust and plain dealing, which is a total mirage.

Mr. Delves Broughton's latest book is "The Art of the Sale: Learning From the Masters About the Business of Life."

"Speed Traders Play Defense Against Michael Lewis’s Flash Boys," by Matthew Philips, Bloomberg Businessweek, March 31, 2014 ---
http://www.businessweek.com/articles/2014-03-31/speed-traders-play-defense-to-michael-lewiss-flash-boys?campaign_id=DN033114 

In Sunday night’s 60 Minutes interview about his new book on high-frequency trading—Flash Boys—author Michael Lewis got right to the point. After a brief lead-in reminding us that despite the strongest bull market in years, American stock ownership is at a record low, reporter Steve Kroft asked Lewis for the headline: “Stock market’s rigged,” Lewis said nonchalantly. By whom? “A combination of stock exchanges, big Wall Street banks, and high-frequency traders.”

Flash Boys was published today. Digital versions went live at midnight, so presumably thousands of speed traders and industry players spent the night plowing through it. Although the book was announced last year, it’s been shrouded in secrecy. Its publisher, W. W. Norton, posted some excerpts briefly online before taking them down.

Despite a lack of concrete details, word started getting around a few months ago that Lewis had spent a lot of time with some of the HFT industry’s most vehement critics, such as Joe Saluzzi at Themis Trading. The 60 Minutes interview only confirmed what many people had suspected for months: Flash Boys is an unequivocal attack on computerized speed trading.

In the interview, Lewis adhered to the usual assaults: High-frequency traders have an unfair advantage; they manipulate markets; they get in front of bigger, slower investors and drive up the prices they pay to buy a stock. They are, in Lewis’s view, the consummate middlemen extracting unnecessary rents from a class of everyday investors who have never been at a bigger disadvantage. This has essentially been the nut of the HFT debate over the past five years.

Continued article

The Flash Boys book ---
http://www.amazon.com/s/ref=nb_sb_ss_i_1_7?url=search-alias%3Dstripbooks&field-keywords=flash%20boys%20michael%20lewis&sprefix=Flash+B%2Cstripbooks%2C236
The Kindle Edition is only $9.18

The three segments on the March 30, 2014 hour of CBS Sixty Minutes were exceptional. The most important to me was an interview with Michael Lewis on how the big banks and other operators physically laid very high speed cable between stock exchanges to skim the cream off purchase an sales of individuals, mutual funds, and pension funds. The sad part is that the trading laws have a loop hole allowing this type of ripoff.

The fascinating features of this show and a new book by Michael Lewis include how the skimming operation was detected and how a new stock exchange was formed to block the skimmers.

Try the revised links below. These are examples of links that will soon vaporize. They can be used in class under the Fair Use safe harbor but only for a very short time until you or your library purchases these and other Sixty Minutes videos.
 
But the transcripts will are available from CBS and can be used for free on into the future. Click on the upper menu choice "Episodes" for links to the transcripts.
 
Note the revised video links. a menu should appear to the left that can lead to the other videos currently available for free (temporarily).

 

The three segments on the March 30, 2014 hour of CBS Sixty Minutes were exceptional. The most important to me was an interview with Michael Lewis on how the big banks and other operators physically laid very high speed cable between stock exchanges to skim the cream off purchase an sales of individuals, mutual funds, and pension funds. The sad part is that the trading laws have a loop hole allowing this type of ripoff.

The fascinating features of this show and a new book by Michael Lewis include how the skimming operation was detected and how a new stock exchange was formed to block the skimmers.

Free access to the video is very limited, so take advantage of the following link now:
Lewis explains how the stock market is rigged ---
http://www.cbsnews.com/videos/is-the-us-stock-market-rigged/

The big question remaining is why it is taking the SEC so long to put an end to this type of skimming?

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

 

Transitioning to the New COSO Framework (internal controls)
EY Briefs, March 2014
http://www.ey.com/Publication/vwLUAssetsAL/FinancialReportingBriefs_BB2720_27March2014/%24FILE/FinancialReportingBriefs_BB2720_27March2014.pdf

Teaching Case
From The Wall Street Journal's Weekly Accounting Review on March 21, 2014

Ex-Banker's Plea Deal Outlines Trail of a Tax-Evasion Scheme
by: Andrew Grossman, John Letzing and Laura Saunders
Mar 14, 2013
Click here to view the full article on WSJ.com
 

TOPICS: Personal Taxation, Tax Avoidance, Tax Evasion

SUMMARY: "As a banker at Credit Suisse Group AG catering to dozens of Americans with Swiss bank accounts, Andreas Bachmann sometimes found himself lugging bags of cash on flights across the U.S. Mr. Bachmann effectively operated as a personal ATM for some of those clients, using one client's deposits to fulfill another's withdrawal. It was all part of a routine that enabled Mr. Bachmann to help clients avoid U.S. taxes, according to a statement presented in a Virginia court and agreed to by Mr. Bachmann." Mr. Bachmann agreed to make this plea in exchange for a recommended reduced sentence.

CLASSROOM APPLICATION: The article may be used in a tax class to discuss the current U.S. effort regarding tax evaders with offshore accounts. It also may be used in an ethics class covering the actions of Mr. Bachmann who continued to serve clients he knew were evading U.S. taxes after he encouraged them to tax advantage of the IRS amnesty program.

QUESTIONS: 
1. (Advanced) What is tax evasion? How does it differ from tax avoidance?

2. (Introductory) What actions described in the article make it clear Mr. Bachmann knew he was helping U.S. citizens to evade taxes?

3. (Introductory) How will Mr. Bachmann's actions help U.S. authorities to find U.S. citizens who have evaded taxes, justifying a negotiation for a reduced sentence for his crime?

4. (Advanced) Do you agree with offering Mr. Bachmann a reduced sentence? Support your answer.
 

Reviewed By: Judy Beckman, University of Rhode Island
 

RELATED ARTICLES: 
Credit Suisse CEO Says Tax Evasion Misconduct Was Limited
by John Letzing and Alan Zibel
Feb 27, 2014
Page: C1

"Ex-Banker's Plea Deal Outlines Trail of a Tax-Evasion Scheme," by Andrew Grossman, John Letzing and Laura Saunders, The Wall Street Journal, March 14, 2014 ---
http://online.wsj.com/news/articles/SB10001424052702304914904579435090290201078?mod=djem_jiewr_AC_domainid

ALEXANDRIA, Va.—As a banker at Credit Suisse Group AG CSGN.VX -1.49% catering to dozens of Americans with Swiss bank accounts, Andreas Bachmann sometimes found himself lugging bags of cash on flights across the U.S.

Mr. Bachmann effectively operated as a personal ATM for some of those clients, using one client's deposits to fulfill another's withdrawal.

It was all part of a routine that enabled Mr. Bachmann to help clients avoid U.S. taxes., according to a statement presented in a Virginia court and agreed to by Mr. Bachmann.

Mr. Bachmann on Wednesday pleaded guilty to helping Americans hide money in Switzerland. He agreed to cooperate with the U.S. government as it investigates banks and their employees for aiding tax evasion.

Mr. Bachmann, a 56-year-old Swiss national, admitted to one count of conspiring to defraud the U.S., which carries a potential penalty of five years in prison. Prosecutors agreed to recommend a reduced sentence in return for his cooperation. He was arrested Tuesday at Reagan National Airport, his lawyer William A. Burck said outside the courthouse. His bond was set at $200,000 and his travel is restricted to Northern Virginia and Switzerland, according to a court document. Mr. Burck, of Quinn Emanuel Urquhart & Sullivan LLP in Washington, declined to comment further.

Mr. Bachmann's cooperation could help advance the U.S. legal crackdown on Swiss banks that have aided tax evasion, a continuing effort that recently has come under scrutiny from U.S. legislators. During a Senate subcommittee hearing last month, lawmakers criticized the U.S. Justice Department for moving too slowly to pursue Swiss banks that may have helped Americans hide assets in the past.

The plea arrangement with Mr. Bachmann also draws attention to the continuing probe of Credit Suisse, which first disclosed it was the target of a Justice Department investigation in 2011. Credit Suisse is expected reach a settlement that exceeds the $780 million paid by rival UBS AG about five years ago.

The bank's chief executive, Brady Dougan, appeared before a Senate subcommittee in February a day after the committee released a 181-page report on its investigations into tax evasion that largely focused on Credit Suisse. Mr. Dougan said he "regrets very deeply" having aided American tax evasion but said the conduct was limited to a small group of employees.

In 2011, federal prosecutors accused Mr. Bachmann and seven other bankers with ties to Credit Suisse of conspiring to set up offshore accounts for wealthy Americans that hid up to $3 billion in assets, according to the indictment filed at the time. The bankers each faced up to five years in prison and a fine of up to $250,000. But they remained overseas and out of the reach of U.S. law enforcement until recently.

According to the documents released by the Senate last month, one former customer told Senate investigators that a Credit Suisse banker handed over bank statements concealed in a copy of Sports Illustrated and ushered the client to a meeting in Switzerland in a remote-controlled elevator.

Mr. Bachmann oversaw between 25 and 30 clients of the Credit Suisse subsidiary, many of whom held accounts that he knew were undeclared to the Internal Revenue Service, according to his statement.

He admitted to helping those customers avoid U.S. taxes and told them how to structure transactions so they wouldn't get reported to U.S. regulators, the statement said. On twice-yearly visits to his American customers, Mr. Bachmann showed them copies of their account statements but warned them about the risk of keeping them, since they could be seized by U.S. authorities.

The statement also describes Mr. Bachmann's travels around the U.S. with large amounts of cash for customers who wanted to withdraw money. He wouldn't leave or enter the country with hard currency, but he would sometimes take cash from a customer who wanted to make a deposit and deliver it to another who wanted to make a withdrawal.

Around 2001, Credit Suisse signed an agreement with the IRS in which it agreed to withhold taxes from accounts held by Americans and prohibit them from holding U.S. investments. Afterward, the bank's compliance department told bankers, including Mr. Bachmann and his bosses, not to talk about U.S. securities with U.S. customers, according to the statement.

But the bankers ignored it, according to the statement. After the session, Mr. Bachmann complained about the restrictions. An executive told him something to the effect of: "You know what we expect of you-don't get caught," the statement said.

A Credit Suisse spokesman declined to comment on the material disclosed in the statement.

U.S. authorities so far have only been able to identify a relatively small number of the American clients believed to have used the bank to hide undeclared money, due to Switzerland's strict bank-secrecy laws, according to Senate investigators.

Continued in article

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

Teaching Case
From The Wall Street Journal's Weekly Accounting Review on March 21, 2014

Ahead of the Tape: Justifying Nike's Share Price Is No Layup
by: Spencer Jakab
Mar 20, 2014
Click here to view the full article on WSJ.com
 

TOPICS: Financial Ratios, Financial Statement Analysis

SUMMARY: The author looks at Nike's fiscal second quarter results and expects decent quarterly results for the third quarter period ended December 2013, but whether the stock merits its lofty valuation "is another matter."

CLASSROOM APPLICATION: The article covers basic topics of gross profit, P/E ratio, sales mix, and foreign currency transactions.

QUESTIONS: 
1. (Advanced) What is gross profit?

2. (Introductory) Given that Nike sales increased by only 8% in the quarter ended September 2013 (the fiscal second quarter) compared to the previous year, how did the company achieve a "big jump in gross profit"?

3. (Advanced) Define the term price-earnings (P/E) ratio.

4. (Introductory) How is the P/E ratio measured in assessing Nike's performance? How does this ratio compare to previous periods?

5. (Advanced) "Nike outfits 43 out of the 68 teams in the NCAA Men's Basketball Tournament" and the World Cup host and favorite team, Brazil, will also wear Nike's logo. Then why does the author argue that "the smart money should shy away from Nike"?

6. (Advanced) Review the graphic related to the article entitled "Air Europe." According to the author, the overall orders growth expected "would have been even stronger without currency weakness in Japan and emerging markets." Explain your understanding of this statement.
 

Reviewed By: Judy Beckman, University of Rhode Island

"Ahead of the Tape: Justifying Nike's Share Price Is No Layup," Spencer Jakab, The Wall Street Journal, March 20, 2014 ---
http://online.wsj.com/news/articles/SB10001424052702304026304579449620895705180?mod=djem_jiewr_AC_domainid&mg=reno64-wsj

The sports world will be on tenterhooks Thursday afternoon, and so will the world of sporting goods.

But at least investors who tear themselves away from the start of March Madness to review Nike Inc. NKE -0.25% 's fiscal third-quarter performance can rest easy about one thing: Their brackets may lie in tatters by the end of the day, but Nike should still look good.

Nike outfits 43 out of the 68 teams in the NCAA Men's Basketball Tournament, according to AdWeek. The Super Bowl, which occurred during the quarter to be reported, was a lock with both teams sporting the swoosh symbol. This summer's FIFA World Cup, the globe's most watched sporting event, will be dicier with only 10 of 32 teams carrying Nike's logo—though Nike did snag host and favorite Brazil.

As so many stars gracing the cover of Sports Illustrated have learned, though, high expectations are dangerous. Nike should hit the consensus earnings forecast of 72 cents a share, down from 73 cents a year earlier.

Justifying the 48% gain in its share price over the past year is another matter. The stock now trades at nearly 24 times forward earnings, its highest multiple in 15 years.

And that is despite the fact second-quarter results, released in December, didn't make investors want to party like it's 1999. Sales increased 8% year over year. Coupled with more premium products, that led to a big jump in gross profit. But "demand creation expense"—essentially marketing costs, such as sponsorships—jumped by 13%. Net income was only 3% higher than a year earlier.

Investors tend to care more about what are called "futures orders," an indication of expected sales growth in coming months. For the period from December through April 2014, the scheduled pace of 12% would have been even stronger without currency weakness in emerging markets and Japan.

Continued in article

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

Court Tosses Out $1.2 Billion Judgment Against Johnson & Johnson:   Arkansas Had Sued Over Janssen Pharmaceuticals Unit's Antipsychotic Drug Risperdal ---
WSJ March 20, 2014
http://online.wsj.com/news/articles/SB10001424052702304256404579451162380919936?mod=djemCFO_h&mg=reno64-wsj

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

The IRS will not be telephoning to demand immediate payment of overdue taxes
"IRS watchdog warns of ‘largest scam of its kind’ with agency impersonators," by Josh Hicks, The Washington Post, March 20, 2014 ---
http://www.washingtonpost.com/blogs/federal-eye/wp/2014/03/20/irs-watchdog-warns-of-largest-scam-of-its-kind/?hpid=z4

The Internal Revenue Service watchdog on Thursday warned taxpayers of a sophisticated nationwide phone scheme that has become “the largest scam of its kind that we have ever seen.”

The plot involves callers claiming to represent the IRS and demanding immediate payments with a pre-paid debit card or wire transfer.

Treasury Inspector General for Tax Administration Russell George announced that “thousands of victims” have already paid more than $1 million to fraudsters and that his agency has received more than 20,000 reports of contact.

The callers have used roughly the same scripts to bilk money from taxpayers, suggesting they may be connected, TIGTA officials said in an interview with reporters.

Officials also said the perpetrators often know the last four digits of the victims’ Social Security numbers and threaten arrest, deportation and removal of driver’s licenses — something the IRS is not authorized to do.

“If someone unexpectedly calls claiming to be from the IRS and uses threatening language if you don’t pay immediately, that is a sign that it really isn’t the IRS calling,” George said in a statement.

The callers tend to use common names and fake IRS badge numbers, in addition to manipulating their caller ID to appear more legitimate, according to officials. Some also follow up with false IRS e-mails and phone calls in which they pretend to represent the police or department of motor vehicles officials, TIGTA said.

Continued in article

Jensen Comment
The IRS still uses snail mail to question you about your tax returns. Don't turst email notices or phone calls from the IRS. You may end up working with the IRS by telephone, but you must initiate calls to telephone numbers of IRS offices.

As always just say no to people you don't know seeking payments, credit card numbers, debit card numbers, or any other personal information on the telephone or via email. The more legitimate they seem the more fraudulent they are likely to be when contacting you out of the blue. Also beware of similar sounding names. The Cancer Society of America is not the same as the American Cancer Society, and even a phone call from somebody claiming to be from the American Cancer Society may not be legitimate unless you know that person personally.

A woman recently scammed a bunch of well-meaning people by sending out email pictures of her son's shaved head and claiming that he had cancer. He did not have cancer, and she was just trying to raise money for a trip to Disney World.

Bob Jensen's threads on consumer frauds and fraud reporting ---
http://www.trinity.edu/rjensen/FraudReporting.htm

 

Question
What is  FiveThirtyEight?

Hint:  It has everything to do with Nate Silver.

Nate Silver (The Fox) --- http://en.wikipedia.org/wiki/Nate_Silver

Nate is famous for his Bayesian forecasts of baseball outcomes and his stint at election forecasting for The New York Times. and FiveThirtyEight. He parted ways with the NYT, but I think he still does sports predictions for ESPN and general forecasting as founder and editor in chief of FiveThirtyEight ---
http://fivethirtyeight.com/features/what-the-fox-knows/

Nate's March Madness Predictions ---
http://fivethirtyeight.com/interactives/march-madness-predictions/

The EY Exhibition: Paul Klee (Art History Meets Accountancy) ---
http://www.tate.org.uk/whats-on/tate-modern/exhibition/ey-exhibition-paul-klee-making-visible

The EY Tate Arts Partnership ---
http://www.ey.com/GL/en/About-us/Our-sponsorships-and-programs/Our-partnership-with-Tate

Our commitment to building a better working world isn’t limited to the office and the boardroom. EY understands that a thriving artistic and cultural environment is an integral part of a healthy community and a buoyant economy.

EY has been supporting the arts for over 20 years. But our agreement with Tate is something special. We’re proud of our commitment to a three-year partnership. It’s our largest collaboration with a single arts organization in the UK and makes EY one of Tate’s biggest corporate supporters.

Over the next three years, our commitment is helping to facilitate three major EY exhibitions at Tate Modern and Tate Britain. The first, The EY Exhibition: Paul Klee – Making Visible, ran from 16 October 2013 to 9 March 2014. The second, The EY Exhibition: Late Turner – Painting Set Free, runs from 10 September 2014 to 25 January 2015 at Tate Britain.

But the benefits of our partnership will be felt beyond London. We’re also extending our support through corporate memberships at Tate Liverpool, Tate St Ives and many of the Plus Tate partners around the country.

This collaboration between two internationally recognized institutions has the potential to help build a better working world for their visitors and clients respectively, their people, and the communities in which they work.

Steve Varley, Martin Cook, Chris Price, and Sir Nicholas Serota talk about how this partnership will benefit both EY and Tate:

 

The Tate in the United Kingdom --- http://en.wikipedia.org/wiki/The_Tate

EY --- http://en.wikipedia.org/wiki/Ernst_%26_Young

 

Learn To Code in 12 Weeks With Harvard’s Free Introduction to Computer Science Course ---
http://www.openculture.com/2014/03/harvards-free-introduction-to-computer-science-course.html

Learn Right From Wrong with Oxford’s Free Course A Romp Through Ethics for Complete Beginners ---
http://www.openculture.com/2014/03/oxfords-free-course-a-romp-through-ethics-for-complete-beginners.html

Download 100 Free Philosophy Courses and Start Living the Examined Life ---
http://www.openculture.com/2013/12/download-100-free-philosophy-courses.html

A Big List of 875 Free Courses From Top Universities: 27,000 Hours of Audio/Video Lectures ---
http://www.openculture.com/2014/03/a-big-list-of-875-free-courses-from-top-universities-27000-hours-of-audiovideo-lectures.html

MOOC FAQ --- http://www.openculture.com/mooc_faq

"Harvard and MIT Release Visualization Tools for Trove of MOOC Data," Chronicle of Higher Education, February 20, 2014 --- Click Here
http://chronicle.com/blogs/wiredcampus/harvard-and-mit-release-visualization-tools-for-trove-of-mooc-data/50631?cid=at&utm_source=at&utm_medium=en

Bob Jensen's threads on how to sign up for free MOOCs ---
http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI

 

Jensen Comment
I don't advise MOOC courses for "students" who do not have some prerequisites in the subject matter. For example, the first MOOC course ever invented was filmed live in an artificial intelligence course for computer science majors at Stanford University. These students were not first year students who had never taken computer science courses.

Interestingly students in that course were given the option of attending live classes or MOOC classes. After several weeks the majority of students opted for the MOOC classes. Of course at Stanford the students were graded on assignments and examinations since they were getting course credit.

Off-campus MOOC students were not given an option to receive course credit. They just learned on their own. There are now options in some MOOC courses to take competency-based examinations for credit, although these usually do not involve the course instructors and are not free like the courses themselves. MOOC courses themselves by definition are free, unlike most other distance education courses.

200 Free Documentaries: A Super Rich List of Finely-Crafted Documentaries on the Web ---
https://mail.google.com/mail/u/1/#inbox/144a6f44e0b82d12

Wolfram Alpha --- http://www.wolframalpha.com/
Also see http://en.wikipedia.org/wiki/Wolfram_Alpha

This is an amazing innovation from one of the all-time geniuses of mathematics and computing
"Computer Genius Builds Language That Lets Anyone Calculate Anything," by Andy Kiersz, Business Insider, March 10, 2014 ---
http://www.businessinsider.com/wolfram-language-demo-2014-3 

Controversial mathematician Stephen Wolfram is about to release a programming language with the goal of being able to quickly do just about any calculation or visualization on just about any kind of data a person could want.

Wolfram, creator of the widely used mathematical software Mathematica and the "computational knowledge engine" Wolfram|Alpha, has announced the forthcoming release of the Wolfram Language, the underlying programming language powering those two pieces of software.

Wolfram describes and demos the language in a video posted late last month:---
http://blog.wolfram.com/2014/02/24/starting-to-demo-the-wolfram-language/

Continued in article

"Wolfram Language," by Barry Ritholtz Blog, March 23rd, 2014 ---
http://www.ritholtz.com/blog/2014/03/wolfram-language-2/

Bob Jensen's illustrations about how to use the traditional Wolfram Alpha for both computing and printing of equations ---
http://www.trinity.edu/rjensen/theorylearningcurves.htm

Jensen Comment
Increasingly professors complain that Wolfram Alpha and its extensions inhibit learning in mathematics unless assignments, quizzes, and examinations are administered in tightly controlled conditions where students cannot gain access to Wolfram Alpha.

Virtual Reality --- http://en.wikipedia.org/wiki/Virtual_reality

"Virtual Reality Startups Look Back to the Future:  Thirty years after the first wave of virtual reality, new startups are determined to take it mainstream," by Simon Parkin, MIT's Technology Review, March 7, 2014 ---
http://www.technologyreview.com/news/525301/virtual-reality-startups-look-back-to-the-future/?utm_campaign=newsletters&utm_source=newsletter-daily-all&utm_medium=email&utm_content=20140310

Jensen Comment
When I was invited to do a presentation July 12, 1996 at the University of Illinois, David Ziebart kindly took me across campus to enter million dollar "Cave" of virtual reality. I was somewhat disappointed that the 3-D virtual reality experience was more cartoon-like than photograph-like. Apparently rendering in what seems like true reality takes an enormous amount of computing power. It's not the kind of reality gaming that will be available for children  gifts in the near future.

The top flagship state universities in the USA are under increasing pressures from their legislators to offer more an more business degrees online, including undergraduate business degrees, masters of accounting degrees, and MBA degrees. The question is whether the most prestigious private universities like Stanford and Harvard will join in the competition.

The Top MBA Programs in the World according to the Financial Times ---
http://rankings.ft.com/businessschoolrankings/global-mba-ranking-2014

The Top MBA Programs in the USA according to US News
http://grad-schools.usnews.rankingsandreviews.com/best-graduate-schools/top-business-schools

"Half of U.S. Business Schools Might Be Gone by 2020," by Patrick Clark, Bloomberg Businessweek, March 14, 2014 ---
http://www.businessweek.com/articles/2014-03-14/online-programs-could-erase-half-of-u-dot-s-dot-business-schools-by-2020

Richard Lyons, the dean of University of California, Berkeley’s Haas School of Business, has a dire forecast for business education: “Half of the business schools in this country could be out of business in 10 years—or five,” he says.

The threat, says Lyons, is that more top MBA programs will start to offer degrees online. That will imperil the industry’s business model. For most business schools, students pursuing part-time and executive MBAs generate crucial revenue. Those programs, geared toward working professionals, will soon have to compete with elite online alternatives for the same population.

. . .

Online MBA programs aren’t siphoning choice students from campuses yet, says Ash Soni, executive associate dean at Indiana University’s Kelley School of Business. Kelley ranks 15th on Bloomberg Businessweek’s list of full-time programs and was an early player in online MBAs. The school draws students from across the country, but it is more likely to compete with online MBA programs offered by the University of North Carolina’s Kenan-Flagler Business School and Arizona State’s Carey School of Business. Says Soni: “If you’re a dean from a regional school and you’re asking, ‘Are these online guys tapping into my space?’ The answer is: maybe in the future, but not yet.”

Michael Desiderio, the executive director of the Executive MBA Council, says change is coming, but his group isn’t panicking. “We’re not saying it’s a threat or this is the end of the EMBA space,” he says. “It’s stimulating a discussion: How do we adapt to continue to serve a population that has changing needs?”

Online education is sure to shift the ways schools compete for students. For-profit MBA programs such as DeVry’s Keller School of Management have been the early losers as more traditional universities go online, says Robert Lytle, a partner in the education practice at consultancy Parthenon Group. That trend could extend to lower-ranked schools as the big-name brands follow.

When Lytle talks to directors at schools who are debating the merits of online learning, he tells them to stop dallying and start building programs. “Once you get out of the top tier of schools, you’re either already online, on your way there, or dead in the water,” he says. It isn’t clear which online models will be most successful, but many schools are feeling pressure to get on board. When Villanova School of Business announced a new online MBA program earlier this year, Dean Patrick Maggitti said there has never been a more uncertain time in higher education. “I think it’s smart strategy to be looking at options in this market.”

 

Jensen Comment --- Where I Disagree
Firstly, this is not so much a threat to undergraduate business schools, because most of the prestigious and highly ranked universities with MBA programs do not even offer undergraduate business degrees. It's not likely that Harvard and Stanford and the London Business School will commence to offer undergraduate business degrees online.

Secondly, this is not so much a threat to masters of accounting programs, because most of the prestigious and highly ranked universities with MBA programs do not even offer masters of accounting degrees and do not have enough accounting courses to meet the minimal requirements to take the CPA examination in most states. . It's not likely that Harvard and Stanford and the London Business School will commence to offer masters of accounting degrees online.

Thirdly, this is not so much of a threat even at the MBA level to universities who admit graduate students with lower admissions credentials. The US News Top MBA programs currently pick off the cream of the crop in terms of GMAT and gpa credentials. The top flagship state universities like the the Haas School at UC Berkeley, the University of Michigan, and the University of Illinois pick off the top students who cannot afford prestigious private universities. By the time all these universities skim the cream of the crop the second-tier public and private universities struggle with more marginal students applying for MBA programs.

It would be both dangerous and sad if the very top MBA programs introduced lower admissions standards for online programs vis-a-vis on-campus programs. In order to maintain the highest standards the most prestigious universities will have to cater to the highest quality foreign students and herein lies a huge problem. Some nations like China are notorious for fraud and cheating on admissions credentials like the GMAT. In Russia such credentials are for sale to the highest bidders.

The name of the game in business education is placement of graduates. Prestigious university MBA programs are at the top of the heap in terms of placement largely because of their successful alumni and strong alumni networks that actively seek MBA graduates from their alma maters. This will not work as well for online programs, especially since many of the online graduates of prestigious university online programs will live outside the USA.

However, top flagship state universities are under increasing pressures from their legislators to offer more an more business degrees online, including undergraduate business degrees, masters of accounting degrees, and MBA degrees. This is already happening as is reflected in the following rankings of online programs by US News:

From US News in 2014
Best Online Degree Programs (ranked) ---
http://www.usnews.com/education/online-education

Best Online Undergraduate Bachelors Degrees --- http://www.usnews.com/education/online-education/bachelors/rankings
Central Michigan is the big winner

Best Online Graduate Business MBA Programs --- http://www.usnews.com/education/online-education/mba/rankings
Indiana University is the big winner

Best Online Graduate Education Programs --- http://www.usnews.com/education/online-education/education/rankings
Northern Illinois is the big winner

Best Online Graduate Engineering Programs --- http://www.usnews.com/education/online-education/engineering/rankings
Columbia University is the big winner

Best Online Graduate Information Technology Programs ---
http://www.usnews.com/education/online-education/computer-information-technology/rankings
The University of Southern California is the big winner

Best Online Graduate Nursing Programs --- http://www.usnews.com/education/online-education/nursing/rankings
St. Xavier University is the big winner

US News Degree Finder --- http://www.usnews.com/education/online-education/features/multistep-oe?s_cid=54089
This beats those self-serving for-profit university biased Degree Finders

US News has tried for years to rank for-profit universities, but they don't seem to want to provide the data.

 

I don't anticipate that the highest-prestige MBA programs will have online degree programs anytime soon. They may have more and more free MOOCs, but that is an entirely different ballgame if no credit is given for the MOOCs. The highly prestigious Wharton is now offering its first-year MBA courses as free MOOCs ---
http://www.topmba.com/blog/wharton-steps-experimentation-moocs-mba-news
Also see http://www.businessweek.com/articles/2013-09-13/wharton-puts-first-year-mba-courses-online-for-free

Who are these students taking free first-year MOOC courses from Wharton?
Some are college professors who adding what they learn in MOOCs to the courses they themselves teach. Most MOOCs, by the way, are advanced courses on highly specialized topics like the literature of both famous and obscure writers. Others are basic courses that contribute to career advancement.

Bob Jensen's threads on online training and education programs ---
http://www.trinity.edu/rjensen/CrossBorder.htm

The 15 Highest-Paying Companies in America (in terms of median salaries of professional employees) ---
http://247wallst.com/special-report/2014/03/18/the-15-highest-paying-companies-in-america/

Special note to Jagdish and Zafar,

Jensen Comment
Note that the Number One company listed above employs physicians. You can judge how well physicians do financially  in various ways, but one of the anecdotal ways in any town is to survey who lives in the most expensive neighborhoods in that town/city and who belongs to the most expensive country clubs and dining clubs. Stock brokers and real estate brokers salivate over getting a physician for a client.

The life of a physician is filled with good news and bad news items. Physicians are highly paid, usually among the most highly paid professionals in both small towns and big cities. Physicians are independent in the sense that they perform their jobs independently relative to many other types of professionals who are told what to do by their project managers and employers. Physicians as a rule have a lot less travel time --- time that is pretty much wasted getting to and from places of work and time wasted in hotels.

The life of a physician can be high tension when dealing with diagnostics and procedures that entail life and death. Physicians must often pay very high malpractice insurance and face risks of enormous lawsuits. For this reason, many of them work for organizations like the Veterans Administration and large medical clinics that pay the insurance premiums and put up shields of defense lawyers, protections not available to sole practitioners.

Physicians these days generally start out by owing a lot of money in terms of paying off years of student loans and debt incrured when going into business or buying out a practice.

Being a physician varies a lot by specialty, but many specialties must be very boring, e,g., taking out gall bladders, repairing heart valves, or clipping herniated disks each and every day of each and every year. The more specialized the physician becomes the more routine becomes the job. I recently had surgery from a terrific surgeon who does nothing by clip eyelids in his daily practice. He's the only surgeon in New Hampshire performing this surgery. He makes a truck load of money but must get very tired of clipping eyelids. And if he should make a mistake all sorts of bad things can happen to the patient including damaged tear ducts, damaged eyelid nerves and muscles, damaged corneas, etc. This is tough and tedious work that he performs several times each day except on days he examines patients before and after such surgeries.

By the way he lives in one of the most expensive homes in Concord, NH. I wonder if he would rather be a relatively low paid professor living in a cottage near campus?

"The Economics Of Prostitution: Sex, Lies, And Statistics," The Economist via Business Insider, March 21, 2014 ---
 http://www.businessinsider.com/the-economics-of-prostitution-sex-lies-and-prostitution-2014-3#ixzz2woaTQVCr

"The Outlier Who Wasn’t," by Natalya Balnova, by Susan D’Agostino, Chronicle of Higher Education's The Chronicle Review, March 17, 2014 ---
http://chronicle.com/article/The-Outlier-Who-Wasn-t/145297/?cid=cr&utm_source=cr&utm_medium=en

Kyle was an uncommon student in my advanced statistics class. An Army veteran who had served in Iraq, he was not only older than the other students but was also studying business, while most of the others were math majors. And his grades were well above average. Most uncommon of all, Kyle died before the semester ended.

My ambitious students have the opportunity to make strides that position them for bright futures, and Kyle was definitely ambitious. As might be expected from a soldier, he did not flinch when he failed the first exam. Rather, he told me, "I was too confident pressing buttons on the statistical software. Now I understand you want me to explain what I’m doing." After he sought my help, his performance on the second exam drastically improved. So I offered him a deal: Continue on the upward trajectory, and his first exam grade would disappear. He responded by becoming the most active participant in class.

"Aren’t you concerned about multicollinearity?" Kyle asked a classmate one day, undeterred by the prospect of looking foolish if he mispronounced "multicollinearity." When he did mispronounce it, he simply tried again, this time taking care with each syllable so that he got it right. Kyle was also the first student to utter "heteroscedasticity" aloud in class. He laughed at his first botched attempt but, as with "multicollinearity," succeeded the second time. No one would have accused him of showing off. Rather, the other students admired him, an ordinary guy who understood advanced statistics and was having fun to boot.

In short, Kyle was what is known in statistics as an outlier. Many statisticians disregard outliers, but I prefer to consider their impact. Occasionally they highlight a flaw in a statistical model. In class, I might explain the ambiguity of so-called outliers using a scatterplot concerning student success on an exam.

With "number of hours studied" on the horizontal axis and "grade earned on the exam" on the vertical axis, each dot on my scatterplot would represent individual student metrics. Because students who study zero, one, or two hours are likely to earn poor grades on the exam, while students who study eight, nine, or 10 hours are likely to perform significantly better, one might hypothesize a straight-line model for student performance based on hours studied.

In this model, a student who studied 16 hours but does not see a proportional increase in his grade compared with the student who studied 10 hours would be considered an outlier. Of course, this student might not be an outlier; the law of diminishing returns is probably at work here. The flaw is in the straight-line model. That is, a curved-line model might be more appropriate. In superimposing a curved line over the dots on our scatterplot, we observe that the so-called outlier student may not, in fact, be an outlier after all.

So maybe Kyle wasn’t an outlier. In many ways, he was exactly like my other students. Though 30 years old, he was still quite young. He was president of the campus chapter of the Student Veterans of America, loved the Boston Red Sox, was nurturing a relationship with a young woman, and eagerly anticipated his graduation. Maybe, as the government and universities work to ensure that veterans have access to emotional, practical, and financial support, individuals like Kyle eventually will fall in the center of our undergraduate student demographic. No doubt our classrooms, as well as our nation, would be better for it.

I was shocked when I learned that Kyle had died after a short illness. When we had exchanged emails the week before, he hadn’t told me that his condition was life-threatening. Rather, he apologized for having missed class and told me he would present his end-of-semester project in our last class, just days away. In a subsequent email, he revealed that he had been hospitalized, but added, "They’re saying I’m going to be out of here by Tuesday at the latest." Our last class was scheduled for Thursday, two days after he died. Had Kyle been worried for his life as he wrote me those emails?

If he was willing himself back to health and normalcy, I understood the inclination. Oddly enough, six months earlier, I had faced my own serious illness. At the time, I continued email correspondence while hospitalized, without revealing my situation. There was some question about my chances of survival before an experimental treatment saved me.

Had Kyle’s illness actually been as "short" as the university’s email to the community had indicated? And why had I survived while Kyle had not?

Though Kyle and I had never discussed mortality directly, we came close twice. The first time was on Veterans Day, one month before he died. He invited me to hear him read out the names of soldiers who had died in Iraq and Afghanistan. He once confided to me that he felt that his responsibilities as campus president of the student-veterans group outweighed his responsibilities as a student. He had achieved near-perfect grades; I was moved to realize that his bar for honoring fallen soldiers was set even higher.

The second occasion took place shortly after Veterans Day. The illness I endured had brought on an autoimmune condition that put me at an unpredictable risk for anaphylactic shock. One night I woke at 4 a.m. to discover that my eyes, face, and throat were swelling. With some intervention, the crisis passed by 9 a.m. I headed to class, opting to wear sunglasses until the eye swelling and pain subsided.

Continued in article

Jensen Question
Can you really test for multicollinearity?

Jensen Answer
Common Accountics Science and Econometric Science Statistical Mistakes ---
http://www.cs.trinity.edu/~rjensen/temp/AccounticsScienceStatisticalMistakes.htm

Leave it to the Lawyers to Invent This Scam

"Some Law Schools Are Paying Graduates' Salaries To Boost Rankings," The Economist via Business Insider, March 14, 2014 ---
http://www.businessinsider.com/some-law-schools-are-paying-graduates-salaries-to-boost-rankings-2014-3 

. . .

Among the rankings most important components is the share of graduates who find jobs. The 2014 table, announced on March 11th, shows that the University of Virginia (UVA) and George Washington University (GW) do especially well on this.

Although UVA's law students are only in ninth place for their scores in standard admission tests, 97.5% of the class of 2012 had a job on graduating--the best mark in the country. At GW the discrepancy was even more striking: its 85% graduate-employment rate ranked ninth, whereas its admission-test scores were 21st.

However, the two schools' performance is not as stellar as it seems. A close look at the online employment database of the American Bar Association reveals that GW and UVA are among the leaders in a striking trend: law schools paying the salaries of their alumni when they go to work in legal firms, non-profits or the government. GW paid the starting salaries of a whopping 22% of its 2012 graduates; at 15%, UVA was not far behind.

Some law schools have long given aid to a few alumni who forsake high-paying corporate firms to pursue public-interest law. But since the 2008-09 recession, entry-level jobs at big firms have been scarce. This has led to a big expansion of "bridge to practice" schemes, in which the schools pay graduates a stipend to do a work placement.

In a recent survey by the National Association for Law Placement (NALP), 45 of the 94 schools that responded now run such programmes. Half of them began in 2009 or 2010, but UVA's has run since 2007. It now pays $31,500 for graduates to work in public service for a year. Arizona State University plans to set up a non-profit law firm, modelled on teaching hospitals, that will hire 30 recent graduates to provide legal services to lower-income clients.

Continued in article

Read more:
http://www.businessinsider.com/some-law-schools-are-paying-graduates-salaries-to-boost-rankings-2014-3#ixzz2w2Tq0HGz

Bob Jensen's threads on law school controversies ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm#OverstuffedLawSchools

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

The Part 2 Videos from the IMA are Now Available
7 Trends in Management Accounting - Introduction  ---
https://www.youtube.com/watch?v=gRyW2_Ay2Cw&hq_e=el&hq_m=1655061&hq_l=12&hq_v=bd6554f22c

The seven trends that the video series will explore include:

1) Expansion from product to channel and customer profitability analysis

2) Management accounting’s expanding role with enterprise performance management (EPM)

3) The shift to predictive accounting
 

7 Trends in Management Accounting - Part 2  ---
http://www.imanet.org/PDFs/Public/SF/2014_01/01_2014_cokins.pdf

4) Business analytics embedded in EPM methods

5) Coexisting and improved management accounting methods

6) Managing information technology and shared services as a business

7) The need for better skills and competency with behavioral cost management

"Saving Management Accounting in the Academy," by Sue Haka (former AAA President), AAA Commons, Last Edited February 10, 2012
http://commons.aaahq.org/posts/98949b972d

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.

Note the relatively large number of comments to this article

Also see
Accounting at a Tipping Point (Slide Show)
Former AAA President Sue Haka
April 18, 2009
http://commons.aaahq.org/files/20bbec721b/Midwest_region_meeting_slides-04-17-09.pptm

"Frustrations of a Mover and Shaker for Managerial Accounting," by Gary Cokins, SmartPros, October 2012 ---
http://accounting.smartpros.com/x74303.xml

Many who just read "managerial accounting" in this blog's title are not bothering to read this. Why? They do not care. They only care about external financial reporting for regulatory agencies, bankers, and investors. This frustrates me because I interpret this as their not caring about managers and employees who need better internal managerial accounting information for insights and foresight to make better decisions compared to what they are currently provided by their CFO's function.


 

Should I laugh or cry?

Allow me to share with you some examples of what frustrates me related to this topic.

In a recent discussion thread in the website of the Institute of Management Accountants (IMA) there was a post that described how to calculate product and standard service-line costs. The writer meticulously listed the steps. In the final instruction they wrote to “allocate” the indirect and shared support expenses one should use broadly-averaged basis like the number of direct labor input hours, headcount, or square feet. I did not know whether I should laugh or cry! Where have they been the last few decades?

This primitive cost allocation method totally violates the costing principle of a cause-and-effect relationship between changes in the amount of workload and the products and services that consume those expenses. Activity-based costing (ABC) resolves this. ABC has been researched and promoted since the 1980s. (I was trained in 1988 by ABC’s lead promoter, Harvard Business School’s Professor Robert S. Kaplan. I subsequently wrote several books on ABC.) After implementing my first ABC system, the company was shocked by how different the product costs and profit margins were compared to their existing “cost peanut butter spreading” method. They were exact in total, but not with the parts. I then thought the practice of ABC would take off like a rocket. It hasn’t, but its acceptance continues with a slow but increasing pace. Too slow for me.

But wait. There is more!

This blog may now appear to be like a television Ginza knives commercial. There is more!

I am involved with five university faculty to author a report for the American Accounting Association on reforms for university accounting course curriculums to shift the emphasis of teaching topics from financial to managerial accounting methods. It is a noble effort. What concerns me is how sensitive my co-writers are to the resistance from accounting faculty that this shift would be different from what accounting professors already teach. We will never move finance and accounting professionals from “bean counters to bean growers” if we continue with traditional practices.

Another example of my frustration involves adversarial competition for managerial accounting practices. Often driven by self-serving consultants, they advocate managerial accounting methods that only serve their interest. The late Theory of Constraints (TOC) guru Eli Goldratt proclaimed, “Cost accounting is enemy number one of productivity.” He proposed the throughput accounting method, which with investigation only applies under very special conditions of a 24 / 7 / 365 existence of a physical bottleneck like a heat treat oven in a foundry. Some lean accounting advocates slam ABC as being misguided. Both of these methods, if exclusively used, deny strategic analysts understanding of the profit margins of products, services, channels, and customers.

Cutting through the Clutter

I participated on a task force that recently published a report for the IMA titled “The Conceptual Framework for Managerial Accounting.” It is an exposure draft that anyone interested in it can review and comment on. Our task force’s mission was to determine key accounting principles to reflect economic reality that any managerial accounting system should comply with.

Many organization’s existing practices would fail compliance with the report’s framework. With financial accounting, if the CFO gets the numbers wrong, they can go to jail! But when they get the managerial accounting information, they don’t go to jail. Nor should they. But at least CFOs should feel embarrassed and irresponsible that they are performing a disservice to their organization’s workforce who increasingly needs much better management accounting information from which to further apply business analytics.

Continued in article

Jensen Comment
Like it or not, the curriculum of accountancy in higher education is driven by entry-level employment opportunities. The heaviest part of the curriculum devoted to passage of the CPA examination is driven largely by the entry-level employment and training opportunities to new graduates by CPA firms, particularly the larger firms. The tax curriculum is driven by those same firms and by the IRS since the IRS has so many entry level opportunities for accounting graduates.

Management accounting and related disciplines such as internal auditing offer  tremendous opportunities five or more years down the road for experienced accountants but not many opportunities for getting such experience are offered at the time of graduation. Corporations and other organizations like the FBI put accounting graduates between a rock and a hard place. These organizations want experienced accountants but do not offer experience opportunities at the entry level. Instead they lure employees of CPA firms and the IRS away five or more years after the students have graduated.

Perhaps "lure" is the wrong word here, because many graduates go to work for CPA firms and the IRS with the full intent of moving on to managerial accounting in about five years or more. In other words managerial accounting is part of a long-term career plan after experience is gained as a CPA and/or IRS agent.

An exception arises sometimes for AIS specialists that are in demand by almost everybody, especially if they have have quite a lot of computer science courses and IT courses in their transcripts. But corporations are not giving entry-level job offers to AIS graduates for managerial accounting. They are seeking very technical employees for their computing, database management, and networking divisions.

Exceptions arise in the corporate hiring of minority graduates of accounting programs, especially managerial accounting graduates from historically black colleges in the USA.

Accounting majors who only took one or two AIS courses are not usually "AIS" graduates unless they took a lot more computer programming and IT. These accounting students with only one or two AIS courses are usually headed down an auditing track in CPA firms.

Bob Jensen's threads on accounting careers are at
http://www.trinity.edu/rjensen/Bookbob1.htm#careers
Demand is very high at the moment for accounting graduates from masters programs, but most of the opportunities are in auditing, tax, and AIS.  Students now need a fifth year to sit for the CPA examination, and most of those opt for a masters program.

If the corporations really want more managerial accounting in the higher education curriculum then they should compete with the CPA firms for the top entry-level graduates of masters programs. This would also entail offering more formalized training programs like those training programs in the largest CPA firms.

"Open Syllabus Project:  Linda’s Adventures in OSPLand: Pt. 2," by Linda Bawcom, Chronicle of Higher Education, February 4, 2014 ---
http://opensyllabusproject.org/

. . .

I got a little tired of doing HCCS, so I thought I’d browse the next largest college, which is Texas A & M (HCCS has around 70,000-90,000 students depending on where you look, and Texas A & M about 60,000). After a little snooping around, I realized that they don’t have a web site like HCCS that is not password protected for the syllabi by department or discipline. The good news is, I found the web site where all the syllabi are listed on pages where Outwit recognized “Next” (so maybe it’s not dyslexic but classist and will only do this if it feels the university is up to its standards). The bad news is that they are listed not by department or course, but by CRN (class number). The good news is that we now have 14,500 syllabi spanning three years. The bad news is that we won’t know what course each syllabus is for until we open it…or could we?

Continued in article

Read Part 1 here --- http://opensyllabusproject.org/lindas-adventures-in-ospland-part-1/

Jensen Comment
There are huge issues regarding copyrights. Some universities contend syllabi are properties of each university. Many instructors are likely to object and not spend a lot of time on authorship of their syllabi under such circumstances. However, this is counterbalanced by the possibility that the quality of their open-shared syllabi might be a key factor in their professional reputations.

There may be fine lines between what are syllabi and what are course notes shared with students.

Some professors like me share syllabi and course materials on their Websites. Others post to password-controlled servers like Moodle and Blackboard. I always thought that once you've shared something on any server with your students that you might as well consider it public information. Even lectures these days are secretly put on video and shared in one way or another. It's not a good era to be paranoid about protecting what you teach.

Some accounting professors share their syllabi on the AAA Commons, although the Commons is not designed to serve up high volumes of course materials as well. A common way of sharing course material these days is to use YouTube where the free server space is virtually unlimited.

From the CFO Journal's Morning Ledger on March 28, 2014

SEC Reviewing Municipalities’ Disclosures
The Securities and Exchange Commission has launched investigations into municipalities that may have misled investors about their financial condition. LeeAnn Gaunt, chief of the municipal securities and public pensions unit at the SEC said Thursday that a review of past disclosures by financially stressed states and local governments has resulted in an unspecified number of investigations. The unit is looking for instances where there is “tension between the disclosures and the subsequent announcements” of financial stress by municipal bond issuers, she told a National Association of Bond Lawyers conference in Boston Thursday. As the WSJ’s Mike Cherney reports, the unit launched the review of past disclosures a year ago, signaling regulators have stepped up scrutiny of municipal-bond sales amid mounting investor anxiety. The review underscores officials’ interest in ensuring proper sales and trading practices in the $3.7 trillion municipal-bond market.

From the CFO Journal's Morning Ledger on March 28, 2014

Senator Wyden Will Push to Renew $54 Billion in Tax Breaks
The newly-appointed Senate Finance Committee Chairman wants to get an agreement on renewing some 55 tax credits and deductions that expired last year – but for the last time. As the CFO Journal’s Emily Chasan writes, Oregon democrat Ron Wyden who took charge of the influential committee in February said Thursday that renewing the so-called tax extenders – worth some $54 billion – was a top priority. He said the renewals would bring peace of mind to businesses and families on tax breaks. “This means jobs and much needed certainty for families and businesses alike,” Mr. Wyden said. “But let me be clear – I’m determined that this is the last time we do extenders and would like to leverage this last extension to reform the broken tax code.”

Jensen Comment
When does Senator Wyden think there will never be a need for an employment tax stimulus?
Not in my lifetime!

From the CFO Journal's Morning Ledger on March 26, 2014

IASB Tackles Corporate Disclosures
The International Accounting Standards Board has proposed changes to corporate reporting rules that will help investors quickly home in on the important, decision-critical information carried in financial statements. The board said Tuesday it wants accountants and managers to treat the reporting of financial results less like a box ticking exercise, and focus more on providing clarity for investors, the CFO Journal’s Emily Chasan reports. “Financial reports are instruments of communication and not simply compliance documents,” said IASB chairman Hans Hoogervorst. “These proposals are designed to help change behavior, by emphasizing the importance of understandability, comparability and clarity in presenting financial reports.” The move is part of a global effort to make financial statements easier to read. The IASB is accepting public comments on its disclosure framework proposal through July 23.

From the CFO Journal's Morning Ledger on March 21, 2014

The myth of the science and engineering shortage
This article in the Atlantic looks at the commonplace idea that the U.S. education system is short on cultivating mathematical and scientific ability, and is falling behind other nations. Then it goes all-out to dismantle it, claiming there is no credible evidence of the claimed widespread shortages within the U.S. science and engineering workforce. The high-tech jobs that require such an education are a relatively small proportion of the U.S. employment pool anyway, and mostly require a postgraduate qualification to enter. The piece cites various respected research bodies that have failed to find any truth in the shortage assertion. If anything, they have shown the science and engineering workforce to be oversubscribed by qualified graduates – more applicants than there are jobs. “No one has been able to find any evidence indicating current widespread labor market shortages or hiring difficulties in science and engineering occupations that require bachelors degrees or higher, although some are forecasting high growth in occupations that require post-high school training but not a bachelors degree,” the author asserts.

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

LIBOR Rate --- http://en.wikipedia.org/wiki/Libor

The LIBOR Scandal Was Huge:  What took the FDIC so long?
Among other things LIBOR was the underlying for over a trillion dollars worth of interest rate swaps

"F.D.I.C. Sues 16 Big Banks Over Rigging of a Key Rate," The New York Times, March 14, 2014 ---
http://www.nytimes.com/2014/03/15/business/fdic-sues-16-big-banks-over-rate-rigging.html?smid=tw-share&_r=1

The Federal Deposit Insurance Corporation has sued 16 big banks that set a crucial global interest rate, accusing them of fraud and conspiring to keep the rate low to enrich themselves.

The banks, which include Bank of America, Citigroup and JPMorgan Chase in the United States, are among the world’s largest.

The F.D.I.C. said it sought to recover losses that the rate manipulation caused to 10 United States banks that failed during the financial crisis and were taken over by the agency. The lawsuit was filed on Friday in Federal District Court in Manhattan.

The banks are accused of rigging the London interbank offered rate, known as Libor, from August 2007 to at least mid-2011. The F.D.I.C. also sued a trade group, the British Bankers’ Association, that helps set Libor.

Danielle Romero-Apsilos, a Citigroup spokeswoman, declined to comment on the suit. Spokesmen for Bank of America and JPMorgan didn’t immediately return requests for comment.

Four of the banks, Britain’s Barclays and Royal Bank of Scotland; Switzerland’s biggest bank, UBS; and Rabobank of the Netherlands, have paid about $2.6 billion to settle regulators’ charges of rigging Libor. The banks signed agreements with the Justice Department that allow them to avoid criminal prosecution if they meet certain conditions.

The process of setting Libor came under scrutiny after Barclays admitted in June 2012 that it had submitted false information to keep the rate low. A number of cities and municipal agencies in the United States have also filed suits.

"Barclays Manipulates LIBOR While Auditor PwC Snoozes," by Francine McKenna, Forbes, July 2, 2012 --- http://www.forbes.com/sites/francinemckenna/2012/07/02/barclays-manipulates-libor-while-auditor-pwc-snoozes/

"Dutch Rabobank fined $1 billion over Libor scandal, by Sara Web, Reuters, October 29, 2013 ---
http://www.reuters.com/article/2013/10/29/us-rabobank-libor-idUSBRE99S0L520131029

Bankers bet with their bank's capital, not their own. If the bet goes right, they get a huge bonus; if it misfires, that's the shareholders' problem.
Sebastian Mallaby. Council on Foreign Relations, as quoted by Avital Louria Hahn, "Missing:  How Poor Risk-Management Techniques Contributed to the Subprime Mess," CFO Magazine, March 2008, Page 53 --- http://www.cfo.com/article.cfm/10755469/c_10788146?f=magazine_featured

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

Bob Jensen's threads on use of LIBOR in accounting for derivative financial instruments and hedging activities ---
http://www.trinity.edu/rjensen/caseans/000index.htm

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

It's About Time!
Fraudster Author and Infomercial King Kevin Trudeau Gets 10 Years In Prison For Massive Deception ---
http://www.businessinsider.com/best-selling-author-kevin-trudeau-gets-10-years-in-prison-for-massive-deception-2014-3

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

PwC's take on the new revenue recognition standard of the FASB and IASB --- Click Here
http://www.pwc.com/us/en/cfodirect/publications/10minutes/revenue-recognition.jhtml?display=/us/en/cfodirect/publications/10minutes&j=415714&e=rjensen@trinity.edu&l=702816_HTML&u=17054010&mid=7002454&jb=0

After much deliberation, the FASB and IASB are set to release a final global revenue recognition standard in the coming months that will do away with current industry-specific accounting and instead apply a single set of principles to all revenue transactions. Changes to practices, processes and systems could ripple through your business. 10Minutes on revenue recognition provides information about the standard as well as insight into ways in which some companies are preparing for the broader impact.

Your revenue is the most significant financial metric, driving nearly all other results, like net income, EBITDA, and earnings per share. Under the new standard, companies in all industries, under both US GAAP and IFRS, will use a new five-step model to recognize revenue from customer contracts. The intent is greater consistency and comparability throughout the global capital markets and across industries.

While the 2017 effective date may seem far off, proper preparation is essential. Revenue recognition is a critical, and often complex, accounting area. Companies can't afford to get it wrong. Boards and investors want to know what to expect, so get started now.

Related thought leadership

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

From the CPA Newsletter on March 14, 2014

Revenue-recognition standard to have far-reaching impact on companies
A number of corporate functions could be affected by the new revenue-recognition standard to be issued by the Financial Accounting Standards Board and the International Accounting Standards Board in the next quarter. Besides the matter of compliance, companies should be aware this standard could affect sales, bank covenants, executive bonuses and the timing of the quarterly tax payments. For more information on the revenue-recognition convergence project, visit the AICPA Financial Reporting Center. CFO.com (3/13)

Revenue Accounting Controversies --- http://www.trinity.edu/rjensen/ecommerce/eitf01.htm 

AACSB Accredited International Business Schools ---
http://www.aacsb.edu/accreditation/docs/accredited-schools-032013.pdf

AACSB Accredited Business Schools ---
http://www.aacsb.edu/accreditation/accreditedmembers.asp

This is worthwhile advice to graduating students in accounting and finance and probably in some other disciplines.
I do suggest that men wear dark suits to an interview with business recruiters --- and long dark socks, shined shoes, and white shirts.
Dress like you already have the job and are going to be meeting with a client!
I don't have anything against a black suit, but my male and female students generally preferred dark blue suits.
Their bosses generally prefer pin stripes and are most often seen in vests rather than suit coats.

"To My Fellow Job-Hunting College Seniors Never wear a black suit to an interview. Get a Gmail address. LinkedIn? Yes. And write thank-you notes," by David Pierce, The Wall Street Journal, March 17, 2014 ---
http://online.wsj.com/news/articles/SB10001424052702303730804579435040049720068?mod=djemBestOfTheWeb_h&mg=reno64-wsj

"I have no idea what I'm doing." This is the thought that runs through the minds of college students most of the time. As we begin to look for jobs during our senior year, between bouts of temporary alcohol-induced amnesia, we start to suspect that our cluelessness is a real problem. When we find out that the guy who has worn the same Greek function T-shirt and sunglasses backward around his neck for four years has accepted a job offer, panic sets in.

At the University of Arkansas' Walton College of Business, I have diligently learned the CAPM model and inner workings of financial statements. I can DCF all D-A-Y. But when it came to my job search I discovered a disconnect between my education and the real world.

So to my fellow generation of entitled adult-adolescents who expect a $75,000 salary if they're going to get up before 10 a.m., here's my advice from the other side of the job search. You won't hear any of this from your college career center.

• Never wear a black suit to an interview. Black suits are for weddings and funerals. Go to a classy men's boutique and have them fix you up with a nice $500 suit, gray or navy blue. It'll last you five years. The key is to make sure it fits so you'll feel snappy in the job interview despite your stutters and flop sweat. If you can swing it, buy the gray and the blue suit. Wear the blue for the first-round interview, and the gray to the more formal second- or third-round interviews. (Women: Sorry, I'm not qualified to advise on pencil-skirts and heels.)

• If you get nervous in social situations, make an effort to go out to a bar—not with your buddies—a few months before interview season, have a couple of drinks, and strike up a conversation with an unfamiliar girl (or guy). Bars are low-pressure, and even if you do get shut down, you'll realize that the rejection isn't that bad. More important, you'll gain new confidence that will help in higher-pressure environments such as interviews and networking sessions.

• In networking sessions, don't talk about the fascinating people you've met or the exotic places you've been if that information hasn't been strongly solicited by the other person. Better to talk about your friend who deep-fried an entire bag of Doritos than the semester you spent at Oxford. You'll get laughs and seem down-to-earth.

• Don't use your university email on your resume. Schools often discontinue email addresses, and if an employer wants to get in touch after graduation you'll be out of luck. Get a Gmail account with some easy-to-understand form of your name. Note: It's safe to assume that job interviewers think people with Yahoo YHOO -0.03% or AOL email accounts are suspect.

• When you get a business card, write on the back where and when you met the person and any useful notes about him or her. Keep track of these cards. Personally, I use a spreadsheet for all the info. Email your contacts—even a few lines—every three or four months and make sure you have something to say.

• Trying to network with someone in a company but don't know their email? If you have someone else's email from the company, follow the format. If an analyst's email is John.Doe@bank.com, and you want to get in touch with Jane Smith, send the email to Jane.Smith@bank.com. I have used this trick a few times and it works.

• LinkedIn. Get one.

• Social Media. As you've noticed, parents now use Facebook FB -0.03% more than we do, and the people who are thinking about hiring you will probably be parents. Before you start your job or internship search, reset your privacy settings so that strangers can see only your profile picture. Choose a presentable photo—no random arm around you or red Solo cups. Make your Twitter TWTR +0.25% and Instagram private. Oh, and delete your Myspace if it still exists. Any potential employer will Google GOOG +1.65% you, so if there's anything floating around on the Web that you don't want them to see, take it down.

• Set up your voice mail like someone who has a real job or deserves one. Don't make people sit through even five seconds of your favorite song or your jokey explanation of why they need to leave a message. If they're calling to set up a job interview, they just want to be sure it's you.

• Write thank-you notes for job interviews. Emails don't cut it, so play it safe and do both. Write and mail the note the minute you get home.

• Once you accept a job offer, don't talk about your salary—you'll either sound like you're bragging or you'll discover that you should have held out for more. An exception: Friends may ask in earnest, especially juniors, so they can better grasp the job market. But tell them at your own risk.

• If you've accepted an offer, do everything in your power to help classmates find a job. Getting an offer means you're doing something right and probably have at least one valuable piece of advice to pass along. Share if others ask. You would want someone to do the same for you.

Don't worry, if you get one or more of these things wrong, it isn't going to totally kill your chances of landing an internship or job. And it was probably time to clean up your Facebook anyway.

Mr. Pierce is a senior finance student at the University of Arkansas' Sam M. Walton College of Business. After graduation, he'll be working as an investment-banking analyst.

Jensen Comment
Recruiters are hard to predict for interviews, because they often pride themselves in not being conventional. Most importantly be yourself and be totally honest especially if questions border on the fringes of politics. But also be prepared for trick questions. Often it's not the answers that are important. It's the way you handle yourself when you don't know the answers. This is a job interview, not a Ph.D. oral examination or an interview for a faculty job.

I suggest that men and women be prepared to make conversation. In the interviews keep your questions focused on career opportunities like training and clients you might be serving. My favorite male and female employees can also informally talk sports statistics with Nate Silver. It's not like you will be asked sports questions in a formal interview. But interviewers have been known to take recruits to lunch.

Like it or not, business firms are usually looking for team players even when trying to hire geeks. They are almost always looking for recruits who can make conversations. Learn how to keep conversations going by asking questions in various settings from cocktail parties to business luncheons. Sometimes learn from watching others who are really good at starting conversations and keeping them going. Avoid personal questions that might embarrass a recruiter who really does not want to admit that he or she has five kids by three former marriages and an extramarital affair.

Be prepared for a  recruiter that prefers stress testing. Hold your temper, be calm, and don't show the cracks in your confidence. Always remain polite and as self-assured as possible. This is not a cop giving you a traffic ticket. You don't have to keep your mouth shut or be timid. Timid people often have to look for another job.

If you don't feel like it do not be embarrassed by turning down alcohol when others around you are drinking the hard stuff.  If if you do imbibe always stay sober enough to drive safely home even if you are not the designated driver. Always know how your body handles alcohol. Whereas I get happy and talkative after two martinis, I know some folks who turn surly on booze. That's not good!

And lastly, never post anything in a social media site that you might be embarrassed to discuss in a job interview. The interviewer may see this site before or after the interview or hear about it from somebody you know. Taking political sides should not hurt you when seeking a business job --- unless you are applying for a faculty position in a college where conservative leanings can kill your chances.

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

New Exposure Draft from the FASB

Proposed Statement of Financial Accounting Concepts—Conceptual Framework for Financial Reporting: Chapter 8: Notes to Financial Statements
[Download]
Refer to the Electronic Feedback Form to provide comments on the Exposure Draft.

Questions for Respondents
Question 1: Should financial statement s of employee benefit plan s be excluded from the scope of this chapter of the conceptual framework?

Question 2: Do the concepts in this chapter related to not - for - profit entities address the informational needs of resource providers to those entities?

Question 3 : Do the concepts in this chapter encompass the information appropriate for disclosure in notes to financial statements that would a ssi st resource providers in their decision making ? Are there concepts that should be added or removed?

Question 4 : Are there additional concepts needed to identify information that is unsuitable for requirement by the Board in notes to financial statement s even though that information would be consistent with the purpose of the notes?

Question 5 : Do the decision questions in Appendix A identify the information appropriate for the Board to consider requiring for disclosure when setting standards related to line items and other past events and current circumstances and conditions that can assist re source provider s in their decision making ?

Question 6: Does the discussion in paragraphs D4 3 – D5 0 identify the information appropriate for the Board to consider when setting standards related to information about the reporting entity?

Question 7 : Will the concepts related to future - oriented information (paragraphs D2 2 – D 3 1 ) result in disclosures that are appropriate for the notes? If not, what types of information sho uld be included in or excluded from consideration for disclosure in the notes

Question 8 : Do the concepts in this chapter appropriately distinguish the types of information that are appropriate for the notes from the analysis management provides in other communications?

Question 9 : Are the concepts related to disclosure requirements for interim periods (paragraphs D 6 0 – D 7 1 ) appropriate ? If not, are there concepts that should be added or removed?

Question 10 : If no disclosure guidance for a transaction, even t , or line item is specified in U.S. GAAP , how will an entity consider the nonauthoritative guidance in this chapter

 

Added Question from Bob Jensen
Since Net Earnings is the most important index tracked by both investors and analysts, will the FASB ever be able to define this concept?

Hi Marc,
 
This does not operationally define how Net Earnings differs from "Other Comprehensive Income." For example, some revenue and expense items go to OCI and not net earnings whereas others go to net earnings and not OCI.
 
Net earnings are derived from "revenues, expenses, gains and loses."

 

OCI is derived in large part is derived from "revenues, expenses, gains and loses."
 
The concept of "net earnings" in the CF will have to be more precise on on how the partitions of  are defined for
"revenues, expenses, gains and loses." It's impossible to put those partitioning rules into concise definitions.


More problematic is that those partitions are often subjective and/or arbitrary such as the subjective partition between a gain on an interest rate swap is "effective" and goes into OCI versus what part is "ineffective" and goes into "Net Earnings."
 
 
One of the best statements of the lack of a concept for net earnings is was given by Bloomfield. -

"The Asset-Liability Approach: Primacy does not mean Priority," by Robert Bloomfield:
FASRI Financial Accounting Standards Research Initiative, October 6, 2009 ---
http://www.fasri.net/index.php/2009/10/the-asset-liability-approach-primacy-does-not-mean-priority/
Hi Marc,
 
This does not operationally define how Net Earnings differs from "Other Comprehensive Income." For example, some revenue and expense items go to OCI and not net earnings whereas others go to net earnings and not OCI.
 
Net earnings are derived from "revenues, expenses, gains and loses."

 

OCI is derived in large part is derived from "revenues, expenses, gains and loses."
 
The concept of "net earnings" in the CF will have to be more precise on on how the partitions of  are defined for
"revenues, expenses, gains and loses." It's impossible to put those partitioning rules into concise definitions.


More problematic is that those partitions are often subjective and/or arbitrary such as the subjective partition between a gain on an interest rate swap is "effective" and goes into OCI versus what part is "ineffective" and goes into "Net Earnings."
 
 
One of the best statements of the lack of a concept for net earnings is was given by Bloomfield. -

"The Asset-Liability Approach: Primacy does not mean Priority," by Robert Bloomfield:
FASRI Financial Accounting Standards Research Initiative, October 6, 2009 ---
http://www.fasri.net/index.php/2009/10/the-asset-liability-approach-primacy-does-not-mean-priority/

Econometrics knowledge, much more than accounting knowledge, has become a necessary condition to receiving tenure in our major North American research universities. Without being an accountics scientist you're relegated to a life of teaching in lower-paying colleges.

"Econometrics: An historical guide for the uninitiated," byD.S.G. Pollock, Working Paper No. 14/05, Department of Economics, University of Leicester, 2014 ---
http://www.le.ac.uk/economics/research/RePEc/lec/leecon/dp14-05.pdf?utm_campaign=www_redirect_match&utm_source=x&utm_medium=x

This essay was written to accompany a lecture to beginning students of the course of Economic Analytics, which is taught in the Institute of Econometrics of the University of Lodz in Poland. It provides, within a few pages, a broad historical account the development of econometrics. It begins by describing the origin of regression analysis and it concludes with an account of cointegration analysis. The purpose of the essay is to provide a context in which the students can locate various aspects of econometric analysis. A distinction must be made between the means by which new ideas were propagated and the manner and the circumstances in which they have originated. This account is concerned primarily with the propagation of the ideas.

Introduction:
The Business of Statistical Inference The business of statistical inference is predicated upon the metaphysical notion that, underlying the apparent randomness and disorder of events that we observe in our universe, there is a set of regular and invariant structures. In attempting to identify its underlying structure, we may imagine that a statistical phenomenon is composed of a systematic or determinate component an d a component that is essentially random or stochastic. The fundamental intellectual breakthrough that has accompanied the development of the modern science of statistical inference is the recognition that the random component has its own tenuous regularities that may be regarded as part of the underlying structure of the phenomenon.

In the sphere of social realities, statistical science has uncovered many regularities in the behaviour of large aggregates of apparently self - willed individuals. Examples s pring readily to mind. Consider the expenditure on food and clothing of a group of individual households that might be observed over a given period. These expenditures vary widely, yet, when family income and other measurable factors are taken into account , evident regularities emerge.

Continued in article

Jensen Comment
Accountics scientists need to be more aware of the limitations of their craft.
"A Scrapbook on What's Wrong with the Past, Present and Future of Accountics Science"
Bob Jensen
February 19, 2014
SSRN Download:  http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2398296 

 

Gasp! How could an accountics scientist question such things? This is sacrilege!
Let me end my remarks with a question: Have Ball and Brown (1968)—and Beaver (1968) for that matter, if I can bring Bill Beaver into it—have we had too much influence on the research agenda to the point where other questions and methods are being overlooked?
Phil Brown of Ball and Brown Fame

"How Can We Do Better?" by Phillip R. Brown (of Ball and Brown Fame), Accounting Horizons (Forum on the State of Accounting Scholarship), December 2013 ---
http://aaajournals.org/doi/full/10.2308/acch-10365
Not Free

Philip R. Brown AM is an Honorary Professor at The University of New South Wales and Senior Honorary Research Fellow at The University of Western Australia.

I acknowledge the thoughtful comments of Sudipta Basu, who arranged and chaired this session at the 2012 American Accounting Association (AAA) Annual Meeting, Washington, DC.

The video presentation can be accessed by clicking the link in Appendix A.

Corresponding author: Philip R. Brown AM. Email:

When Sudipta Basu asked me whether I would join this panel, he was kind enough to share with me the proposal he put to the conference organizers. As background to his proposal, Sudipta had written:

Analytical and empirical researchers generate numerous results about accounting, as do logicians reasoning from conceptual frameworks. However, there are few definitive tests that permit us to negate propositions about good accounting.

This panel aims to identify a few “most wrong” beliefs held by accounting experts—academics, regulators, practitioners—where a “most wrong” belief is one that is widespread and fundamentally misguided about practices and users in any accounting domain.

While Sudipta's proposal resonated with me, I did wonder why he asked me to join the panel, and whether I am seen these days as just another “grumpy old man.” Yes, I am no doubt among the oldest here today, but grumpy? You can make your own mind on that, after you have read what I have to say.

This essay begins with several gripes about editors, reviewers, and authors, along with suggestions for improving the publication process for all concerned. The next section contains observations on financial accounting standard setting. The essay concludes with a discussion of research myopia, namely, the unfortunate tendency of researchers to confine their work to familiar territory, much like the drunk who searches for his keys under the street light because “that is where the light is.”



 
ON EDITORS AND REVIEWERS, AND AUTHORS

I have never been a regular editor, although I have chaired a journal's board of management and been a guest editor, and I appointed Ray Ball to his first editorship (Ray was the inaugural editor of the Australian Journal of Management). I have, however, reviewed many submissions for a whole raft of journals, and written literally hundreds of papers, some of which have been published. As I reflect on my involvement in the publications process over more than 50 years, I do have a few suggestions on how we can do things better. In the spirit of this panel session, I have put my suggestions in the form of gripes about editors, reviewers, and authors.

One-eyed editors—and reviewers—who define the subject matter as outside their journal's interests are my first gripe; and of course I except journals with a mission that is stated clearly and in unequivocal terms for all to see. The best editors and the best reviewers are those who are open-minded who avoid prejudging submissions by reference to some particular set of questions or modes of thinking that have become popular over the last five years or so. Graeme Dean, former editor of Abacus, and Nick Dopuch, former editor of the Journal of Accounting Research, are fine examples, from years gone by, of what it means to be an excellent editor.

Editors who are reluctant to entertain new ways of looking at old questions are a second gripe. Many years ago I was asked to review a paper titled “The Last Word on …” (I will not fill in the dots because the author may still be alive.) But at the time I thought, what a strange title! Can any academic reasonably believe they are about to have the last say on any important accounting issue? We academics thrive on questioning previous works, and editors and their reviewers do well when they nurture this mindset.

My third gripe concerns editors who, perhaps unwittingly, send papers to reviewers with vested interests and the reviewers do not just politely return the paper to the editor and explain their conflict of interest. A fourth concerns editors and reviewers who discourage replications: their actions signal a disciplinary immaturity. I am referring to rejecting a paper that repeats an experiment, perhaps in another country, purely because it has been done before. There can be good reasons for replicating a study, for example if the external validity of the earlier study legitimately can be questioned (perhaps different outcomes are reasonably expected in another institutional setting), or if methodological advances indicate a likely design flaw. Last, there are editors and reviewers who do not entertain papers that fail to reject the null hypothesis. If the alternative is well-reasoned and the study is sound, and they can be big “ifs,” then failure to reject the null can be informative, for it may indicate where our knowledge is deficient and more work can be done.1

It is not only editors and reviewers who test my emotional state. I do get a bit short when I review papers that fail to appreciate that the ideas they are dealing with have long yet uncited histories, sometimes in journals that are not based in North America. I am particularly unimpressed when there is an all-too-transparent and excessive citation of works by editors and potential reviewers, as if the judgments of these folks could possibly be influenced by that behavior. Other papers frustrate me when they are technically correct but demonstrate the trivial or the obvious, and fail to draw out the wider implications of their findings. Then there are authors who rely on unnecessarily coarse “control” variables which, if measured more finely, may well threaten their findings.2 Examples are dummy variables for common law/code law countries, for “high” this and “low” that, for the presence or absence of an audit/nomination/compensation committee, or the use of an industry or sector variable without saying which features of that industry or sector are likely to matter and why a binary representation is best. In a nutshell, I fear there may be altogether too many dummies in financial accounting research!

Finally, there are the International Financial Reporting Standards (IFRS) papers that fit into the category of what I describe as “before and after studies.” They focus on changes following the adoption of IFRS promulgated by the London-based International Accounting Standards Board (IASB). A major concern, and I have been guilty too, is that these papers, by and large, do not deal adequately with the dynamics of what has been for many countries a period of profound change. In particular, there is a trade-off between (1) experimental noise from including too long a “before” and “after” history, and (2) not accommodating the process of change, because the “before” and “after” periods are way too short. Neither do they appear to control convincingly for other time-related changes, such as the introduction of new accounting and auditing standards, amendments to corporations laws and stock exchange listing rules, the adoption of corporate governance codes of conduct, more stringent compliance monitoring and enforcement mechanisms, or changes in, say stock, market liquidity as a result of the introduction of new trading platforms and protocols, amalgamations among market providers, the explosion in algorithmic trading, and the increasing popularity among financial institutions of trading in “dark pools.”



 
ON FINANCIAL ACCOUNTING STANDARD SETTING

I count a number of highly experienced financial accounting standard setters among my friends and professional acquaintances, and I have great regard for the difficulties they face in what they do. Nonetheless, I do wonder


. . .

 
ON RESEARCH MYOPIA

A not uncommon belief among academics is that we have been or can be a help to accounting standard setters. We may believe we can help by saying something important about whether a new financial accounting standard, or set of standards, is an improvement. Perhaps we feel this way because we have chosen some predictive criterion and been able to demonstrate a statistically reliable association between accounting information contained in some database and outcomes that are consistent with that criterion. Ball and Brown (1968, 160) explained the choice of criterion this way: “An empirical evaluation of accounting income numbers requires agreement as to what real-world outcome constitutes an appropriate test of usefulness.” Note their reference to a requirement to agree on the test. They were referring to the choice of criterion being important to the persuasiveness of their tests, which were fundamental and related to the “usefulness” of U.S. GAAP income numbers to stock market investors 50 years ago. As time went by and the financial accounting literature grew accordingly, financial accounting researchers have looked in many directions for capital market outcomes in their quest for publishable results.

Research on IFRS can be used to illustrate my point. Those who have looked at the consequences of IFRS adoption have mostly studied outcomes they believed would interest participants in equity markets and to a less extent parties to debt contracts. Many beneficial outcomes have now been claimed,4 consistent with benefits asserted by advocates of IFRS. Examples are more comparable accounting numbers; earnings that are higher “quality” and less subject to managers' discretion; lower barriers to international capital flows; improved analysts' forecasts; deeper and more liquid equity markets; and a lower cost of capital. But the evidence is typically coarse in nature; and so often the results are inconsistent because of the different outcomes selected as tests of “usefulness,” or differences in the samples studied (time periods, countries, industries, firms, etc.) and in research methods (how models are specified and variables measured, which estimators are used, etc.). The upshot is that it can be difficult if not impossible to reconcile the many inconsistencies, and for standard setters to relate reported findings to the judgments they must make.

Despite the many largely capital market outcomes that have been studied, some observers of our efforts must be disappointed that other potentially beneficial outcomes of adopting IFRS have largely been overlooked. Among them are the wider benefits to an economy that flow from EU membership (IFRS are required),5 or access to funds provided by international agencies such as the World Bank, or less time spent by CFOs of international companies when comparing the financial performance of divisions operating in different countries and on consolidating the financial statements of foreign subsidiaries, or labor market benefits from more flexibility in the supply of professionally qualified accountants, or “better” accounting standards from pooling the skills of standard setters in different jurisdictions, or less costly and more consistent professional advice when accounting firms do not have to deal with as much cross-country variation in standards and can concentrate their high-level technical skills, or more effective compliance monitoring and enforcement as regulators share their knowledge and experience, or the usage of IFRS by “millions (of small and medium enterprises) in more than 80 countries” (Pacter 2012), or in some cases better education of tomorrow's accounting professionals.6 I am sure you could easily add to this list if you wished.

In sum, we can help standard setters, yes, but only in quite limited ways.7 Standard setting is inherently political in nature and will remain that way as long as there are winners and losers when standards change. That is one issue. Another is that the results of capital markets studies are typically too coarse to be definitive when it comes to the detailed issues that standard setters must consider. A third is that accounting standards have ramifications extending far beyond public financial markets and a much more expansive view needs to be taken before we can even hope to understand the full range of benefits (and costs) of adopting IFRS.

Let me end my remarks with a question: Have Ball and Brown (1968)—and Beaver (1968) for that matter, if I can bring Bill Beaver into it—have we had too much influence on the research agenda to the point where other questions and methods are being overlooked?

February 27, 2014 Reply from Paul Williams

Bob,
If you read that last Horizon's section provided by "thought leaders" you realize the old guys are not saying anything they could not have realized 30 years ago. That they didn't realize it then (or did but was not in their interest to say so), which led them to run journals whose singular purpose seemed to be to enable they and their cohorts to create politically correct academic reputations, is not something to ask forgiveness for at the end of your career.

Like the sinner on his deathbed asking for God's forgiveness , now is a hell of a time to suddenly get religion. If you heard these fellows speak when they were young they certainly didn't speak with voices that adumbrated any doubt that what they were doing was rigorous research and anyone doing anything else was the intellectual hoi polloi.

Oops, sorry we created an academy that all of us now regret, but, hey, we got ours. It's our mess, but now we are telling you its a mess you have to clean up. It isn't like no one was saying these things 30 years ago (you were as well as others including yours truly) and we have intimate knowledge of how we were treated by these geniuses

"Kahneman's Mind-Clarifying Strangers: System 1 & System 2," by Jag Bhalla, Big Think, March 7, 2014 ---
http://bigthink.com/errors-we-live-by/kahnemans-mind-clarifying-biases

Feeling is a form of thinking. Both are ways we process information, but feeling is faster. That’s the crux of Daniel Kahneman’s mind-clarifying work. It won a psychologist an economics Nobel. And strange labels helped.

In Thinking, Fast and Slow, Kahneman wrestles with flawed ideas about decision making. “Social scientists in the 1970s broadly accepted two ideas about human nature. First, people are generally rational…Second, emotions…explain most of the occasions on which people depart from rationality.” But research has “traced [systematic] errors to the… machinery of cognition…rather than corruption…by emotion.”

Kahneman sidesteps centuries of confusion (and Freudian fictions) by using new—hence undisputed—terms: the brilliantly bland “System 1” and “System 2.” These strangers help by forcing you to ask about their attributes. System 1 “is the brain’s fast, automatic, intuitive approach, System 2 “the mind’s slower, analytical mode, where reason dominates.” Kahneman says “System 1 is...more influential…guiding…[and]...steering System 2 to a very large extent.”

The measurable features of System 1 and System 2 cut across prior categories. Intuitive information-processing has typically been considered irrational, but System 1’s fast thinking is often logical and useful (“intuition is nothing more and nothing less than recognition”). Conversely, despite being conscious and deliberate System 2 can produce poor (sometimes irrational) results.

Kahneman launched behavioral economics by studying these systematic “cognitive biases.” He was astonished that economists modeled people as “rational, selfish, with tastes that don’t change,” when to psychologists “it is self-evident that people are neither fully rational nor completely selfish, and that their tastes are anything but stable.”  

Kahneman’s potentially paradigm-tipping work has limitations. It is light on evolution, e.g focusing on numerically framed decisions discounts that we didn't evolve to think numerically. Math is a second nature skill, requiring much System 2 training (before becoming a System 1 skill). Also, we evolved to often act without System 2 consciously deciding (habits are triggered by System 1). Indeed cognitive biases might be bad System 1 habits rather than built in brain bugs. And cognitive biases have two sources of error, the observed behavior and what economists suppose is “rational.”

Continued in article

Nine Retailers Closing the Most Stores (and thereby creating a lot of unemployment and empty mall stores) ---
http://247wallst.com/special-report/2014/03/12/retailers-closing-the-most-stores/?utm_source=247WallStDailyNewsletter&utm_medium=email&utm_content=MAR132014A&utm_campaign=DailyNewsletter

  1. Abercrombie & Fitch

  2. Barnes & Noble

  3. Aeropostale

  4. J.C. Penney

  5. Office Depot

  6. Radio Shack

  7. Sears Holdings

  8. Staples

  9. Toys "R" Us

Grant Thornton Partner Obtains Full Membership in Club Fed
A former partner at Grant Thornton was sentenced to 4-1/2 years in prison on Wednesday for stealing nearly $4 million from the accounting firm. Craig Haber, 60, had pleaded guilty in August to a charge of mail fraud stemming from what prosecutors say was an eight-year scheme to divert client payments to a personal bank account ---
http://in.reuters.com/article/2014/03/12/grantthornton-theft-idINL2N0M92EV20140312

Bob Jensen's threads on Grant Thornton ---
http://www.trinity.edu/rjensen/FraudUpdates.htm

David Johnstone asked me to write a paper on the following:
"A Scrapbook on What's Wrong with the Past, Present and Future of Accountics Science"
Bob Jensen
February 19, 2014
SSRN Download:  http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2398296 

Abstract

For operational convenience I define accountics science as research that features equations and/or statistical inference. Historically, there was a heated debate in the 1920s as to whether the main research journal of academic accounting, The Accounting Review (TAR) that commenced in 1926, should be an accountics journal with articles that mostly featured equations. Practitioners and teachers of college accounting won that debate.

TAR articles and accountancy doctoral dissertations prior to the 1970s seldom had equations.  For reasons summarized below, doctoral programs and TAR evolved to where in the 1990s there where having equations became virtually a necessary condition for a doctoral dissertation and acceptance of a TAR article. Qualitative normative and case method methodologies disappeared from doctoral programs.

What’s really meant by “featured equations” in doctoral programs is merely symbolic of the fact that North American accounting doctoral programs pushed out most of the accounting to make way for econometrics and statistics that are now keys to the kingdom for promotion and tenure in accounting schools ---
http://www.trinity.edu/rjensen/Theory01.htm#DoctoralPrograms

The purpose of this paper is to make a case that the accountics science monopoly of our doctoral programs and published research is seriously flawed, especially its lack of concern about replication and focus on simplified artificial worlds that differ too much from reality to creatively discover findings of greater relevance to teachers of accounting and practitioners of accounting. Accountics scientists themselves became a Cargo Cult.

Shielding Against Validity Challenges in Plato's Cave ---
http://www.trinity.edu/rjensen/TheoryTAR.htm

Common Accountics Science and Econometric Science Statistical Mistakes ---
http://www.cs.trinity.edu/~rjensen/temp/AccounticsScienceStatisticalMistakes.htm

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

How Accountics Scientists Should Change: 
"Frankly, Scarlett, after I get a hit for my resume in The Accounting Review I just don't give a damn"
http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm
One more mission in what's left of my life will be to try to change this
http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm 

What went wrong in accounting/accountics research?  ---
http://www.trinity.edu/rjensen/theory01.htm#WhatWentWrong

The Sad State of Accountancy Doctoral Programs That Do Not Appeal to Most Accountants ---
http://www.trinity.edu/rjensen/theory01.htm#DoctoralPrograms

What is Earnings Before BS (EBBS)?
Tesla is great for innovations in engineering and accounting

"Questions About Tesla (TSLA) Accounting," by Tony Owusu, The Street, March 10, 2014 ---
http://www.thestreet.com/story/12523254/1/kass-questions-about-tesla-tsla-accounting.html

Tesla's share price has soared 616% since March 2013. Such a meteoric rise has caused some investors consternation and encouraged a closer look at Tesla's SEC filings such as last month's 10-k.

Doug Kass of RealMoneyPro.com and Seabreeze Partners was highly critical of Tesla's book keeping this weekend. "Tesla's accounting has long been controversial. In a prior post, I characterized Tesla's reported profits as EBBS (earnings before B.S.)."

Kass specifically called into question Tesla's claim that it went from $8 million under accrual on 2012 warranties during the first three fiscal quarters and then suddenly reported a $2 million over accrual for the year in its fourth quarter filings.

"In essence the question comes down to whether Tesla's warranty reserve release was used as a cookie jar to boost profits in the latest quarter, or did the company simply miscalculate its warranty calculations," said Kass.

Continued in article

Bob Jensen's threads on earnings ratios ---
http://www.trinity.edu/rjensen/roi.htm

Net earnings are becoming more volatile due to higher volatility in interim valuations of derivative financial instruments
"Tide Shifting on Derivative Valuation Methods, Reporting," by Tammy Whitehouse, Compliance Week, March 6, 2014 ---
http://www.complianceweek.com/tide-shifting-on-derivative-valuation-methods-reporting/article/337087/

 

A new trend in derivatives valuation is starting to pull financial reporting in a more volatile direction, as greater consideration for risk in derivatives is starting to dribble into U.S. corporate balance sheets.

In its fourth-quarter earnings announcement, JPMorgan unveiled a $1.5 billion hit to net revenue due to a “funding valuation adjustment” on its derivatives portfolio—that is, an adjustment to reflect the bank's cost of funding uncollateralized derivatives. JPMorgan said the new approach to valuation “reflects an industry migration” toward incorporating any costs or benefits associated with funding into valuations.

The FVA is an evolving concept spurred by movements in Europe to comply with Basel III, the new international banking regulatory framework that includes a requirement for banks to consider a counter-party's credit risk in valuing derivatives. At the same time, European banks are complying with a new accounting standard on measuring fair value, intended when it took effect in 2013 to harmonize international accounting standards with U.S. rules.

In applying Basel III and the international standards together, some large European banks started looking more closely at their own and their counter-parties' risk of default in setting values for derivatives. JPMorgan appears to be the first major bank to adopt that thinking in its U.S. financial statements as well.

Continued in article

Jensen Comment
Jensen the problem is not so much with derivatives that are specific hedges of hedged items like jet fuel prices or interest rates since price movements of hedged items offset price movements of hedging derivatives or otherwise go to OCI instead of net earnings.

The problem is with derivatives held as speculations, and it's a real problem if those derivatives are held to maturity. Then all the interim value fluctuations posted to net earnings wash out such the the posted interim variations in net earnings were never realized.

"Law Students Sue Their Law Schools for Deceptive Employment Reporting Practices," Gy Paul Caron, TaxProf Blog, March 11, 2014 ---
http://taxprof.typepad.com/taxprof_blog/2014/03/law-students-.html

Bob Jensen's threads on the tough times for law schools ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm#OverstuffedLawSchools

Jensen Question
If you could only afford one device to buy for each student and/or faculty member, would it be a laptop or a tablet?

Jensen Answer
Aside from a cell phone (maybe a cheap prepaid version), I don't think it's a contest between a laptop or a tablet. Tablets are only frosting on the cake.except in very unique circumstances such as iPads for autistic children. The decision between a Mac and a Windows laptop is a tougher decision since Mac's can now run so most MS Office apps. I still think it is very important for business graduates, especially in accountancy, to be skilled at using MS Office. In MS Office, Excel is very  important along with MS Access unless accounting majors became proficient in some other relational database software.

"Dell Rolls Out Education Series Laptops, Interactive Projector," by David Nagel, T.H.E. Journal,  March 6, 2014 ---
http://thejournal.com/articles/2014/03/06/dell-rolls-out-education-series-laptops-interactive-projector.aspx

Dell has launched a new line of laptops purpose-built for education called the Latitude 13 Education Series. The company also took the wraps off a multitouch-enabled interactive projector and a new mobile cart.

Interactive Projector
The new Dell Interactive Projector-S520 offers wireless display and multitouch interaction, allowing multiple users — up to 10 — to collaborate simultaneously. Using the included whiteboard, users can draw or annotate with their fingers, included styluses or old-time dry-erase pens. It supports Intel WiDi with Miracast for wireless display via Windows, Android and iOS devices. It also supports standard WiFi (802.11a/b/g/n).

Other features include:

Read more at http://thejournal.com/articles/2014/03/06/dell-rolls-out-education-series-laptops-interactive-projector.aspx#reqhT6ZGx4MfXS0Q.99

"Columbia University Ends Credit for Internships," Inside Higher Ed, March 3, 2014 ---
http://www.insidehighered.com/quicktakes/2014/03/03/columbia-u-ends-credit-internships

  1. Columbia University is ending academic credit for internships, Newsweek reported. The move is designed to prod internship providers to pay students, as is generally required by federal labor law, even though many internships providers have not done so.
     

    "In Another Blow to Free Labor, Columbia University Halts Academic Credit for Internship,"  By Zach Schonfeld," by Zach Schonfeld, Newsweek, February 28, 2014 ---
    http://www.newsweek.com/another-blow-free-labor-columbia-university-halts-academic-credit-internship-230554

Jensen Comment
Note that having shed itself of Editor Tina Brown, Newsweek emerged from its ashes as a subscription news magazine, but will not appear on newsstands. If anything it is even more liberal than its former liberal self and seems to march hand-in-hand with MSNBC.

  1. Newsweek has been a staple of American media for over 80 years, bringing high-quality journalism to millions of readers around the globe. Newsweek publishes print editions in Japanese, Korean, Polish, Spanish, Arabic, and Turkish, as well as an English language international edition, but is a primarily digital property available across platforms and devices. Newsweek provides in-depth analysis, news and opinion about international issues, technology, business, culture and politics.

Internships have always been controversial because they vary so much in terms of education, training, and value of labor to the "employers." Virtually all undergraduate accounting programs now offer internships ranging from six weeks to a year for credit and pay. The "employers" are mostly CPA firms who hold their tongues when it comes to discussing the work value of internships. Most secretly would probably prefer not having the interns to deal with for free or for pay, especially interns that are only around for 6-8 weeks.

Interns inside accounting firms, however, generally consider the internships among their most highly valued experiences in college. In fact, the internship opportunities are terrific for recruiting students to major in accounting in five-year programs as opposed to finance, management, finance, and other business majors requiring only five years.

In terms of the financial gain to interns, such gains are often negligible or even financial losers. For example, at $25 per hour a student intern going from Ames, Iowa interning with a CPA firm in Chicago or Minneapolis for six weeks is probably lucky to break even in terms of room and board costs. Often interns double up in hotels, motels, and apartments to make ends meet (oops I probably should not have said it that way).

The biggest abusers of intern labor are often non-profit government agencies and charities in need of free mundane labor such as addressing thousands of envelopes and stuffing brochures into those envelopes. The learning components of such internships is generally minimal relative to learning and pay ranging from zero dollars to minimum wages.

The best internships are more like apprenticeships in the trades in Europe where interns work alongside skilled workers who teach and explain how to become masters of a trade. Generally, however, apprenticeships in Europe take years rather than a few months. Such apprenticeships vary in terms of pay, although the pay is usually sufficient to cover comfortable costs of room and board.

No Simple Answers
Who is Making All This Malware — and Why? ---
http://www.howtogeek.com/183642/who-is-making-all-this-malware-and-why/

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

South Dakota not only offers one of the lowest tax burdens in the country—no individual or corporate income taxes and low sales and property taxes—but it also has among the nation's lowest utility rates, wages and commercial rent costs.
"Set it in stone! South Dakota is 2013 Top State for Business," by Scott Cohn, CNBC, July 9, 2013 ---
http://www.cnbc.com/id/100817171/page/1
South Dakota is followed closely by Delaware and Texas. Texas has the edge in terms of labor supply. The worst state for doing business is Hawaii for some reasons its politicians can control and some reasons like transportation costs to the mainland that cannot be voted down.

 

"Payday loan" businesses to proliferate in South Dakota ---
http://northernplainsanglicans.blogspot.com/2008/09/sin-in-south-dakota-usury.html  

"How Citibank Made South Dakota the Top State in the U.S. for Business:  Little South Dakota (pop. 833,000) holds $2.5 trillion in bank assets—more than any other state. Here's why," by Amy Sullivan, National Journal. July 10, 2013 ---
http://www.nationaljournal.com/next-economy/america-360/how-citibank-made-south-dakota-the-top-state-in-the-u-s-for-business-20130710

"Slight shift in law changed trajectory of state's history," ArgusLeader.com, August 7, 2007 ---
http://www.argusleader.com/article/20070813/NEWS/708130308/Slight-shift-law-changed-trajectory-state-s-history?nclick_check=1

PIERRE - State lawmakers with a collective free-market philosophy drove legislation that eliminated South Dakota's usury law, helping to lure credit card powerhouse Citibank to Sioux Falls and making the state a major player in the banking industry.

A former president of Citibank South Dakota says the changes in law that encouraged the financial giant to relocate its credit-card division from New York to South Dakota in the early 1980s had an effect on the state as significant as the Homestead Act that opened the West to settlement.

"It was that kind of shift,'' said Ron Williamson, also a former chief of staff to Gov. Bill Janklow.

Janklow responded to Citibank contacts by persuading legislators to pass a legal invitation to do business in South Dakota. Repealing the usury ceiling - giving firms wide latitude with the interest and fees they can charge - made the state an attractive place to do banking business. The invitation gave the company the legal permission it needed to set up a shop here. Parallel booms

Citibank went on to spur a financial services sector boom that hit Rapid City, Aberdeen and other communities, University of South Dakota economist Ralph Brown said.

Premier Bankcard, an expanded Wells Fargo and others followed suit in Sioux Falls.

The shift benefited the state's largest city in particular, Brown said. Without it, Sioux Falls "would be Sioux City," Brown said.

He did a 2005 comparison, called "A Tale of Two Cities," that tracked changes in the two communities over almost 40 years, from a time when both were meat-packing communities, Brown said.

Sioux City began the tracking period in 1969 with about 10,000 more people than Sioux Falls. By the end, Sioux Falls had 50,000 more people than its neighbor down the interstate in Iowa.

Brown said the creation of the four-year medical school in 1974 and the Citibank presence that came six years later were the two driving forces.

The medical school was sold as a way for South Dakota to grow its own rural doctors. In reality, it quickly became a source of doctors for larger cities, Brown said, and the concentration of medical facilities in the Sioux Falls area was key to growth.

The financial services sector booms on a parallel track.

Don Frankenfeld of Rapid City, a state senator who sponsored the interest-erasing legislation in 1980, wasn't thinking Citibank when he first pondered the usury rate in 1979. An artificial limit on economic activity offended his free-market sensibilities, and farmers needed loans, he said.

Banks were being charged up to 15 percent for the money they received and were limited to 10 percent or 12 percent in the interest they could charge.

"It didn't work,'' Frankenfeld said.

In 1979, he worked on a bill to raise the usury limit but didn't follow through. The next year, he was a sponsor of the bill repealing the ceiling.

Usury, by some definitions, is an illegally high rate of interest. For years in South Dakota, the usury rate was 8 percent. Loans above that rate of interest were illegal. The 1970 Legislature, spurred by concerns that credit was impossible to find, bumped the rate to 10 percent. Some farm groups worried that "nobody can pay back 10 percent money."

In the double-digit inflation period of the late 1970s, 10 percent started looking like a steal, and the Legislature erased the rate.

That attracted Citibank, but the Janklow-sponsored legislation "inviting'' the company to do business in the state sealed the deal. The Marquette Bank decision

Citibank officials say the state's actions saved the bank every bit as much as the bank helped save South Dakota's economy.

A federal Supreme Court ruling in 1978 made salvation possible for both.

The Marquette Bank opinion essentially said national banks could locate in a state and apply its credit limits to card users nationwide, regardless of the laws in the other states. Before that ruling, it generally was thought that a bank in one state lending money to a customer in another state had to follow the usury laws of the customer's state.

In a radio interview earlier this year, Harvard University law professor Elizabeth Warren described what happened after the decision this way:

"And so you can almost hear this pause at this moment, and South Dakota says to itself, 'Hmm, let's see. Jobs, clean industry and most of the people who have credit cards don't live in South Dakota.' So South Dakota repealed its usury laws, and Citibank said, 'South Dakota, here we come,' and moved to South Dakota and started issuing credit cards all over the country."

Delaware soon followed, Warren said, "and then the game was afoot, so that we effectively engaged in the single biggest policy change in the credit area, the whole consumer credit area, through an obscure Supreme Court decision interpreting some ambiguous language."

What would South Dakota look like today without the changes Citibank helped to usher in? Without much of the growth it has experienced, for sure, Brown said. Some other state would have given in to the pressure for no-ceiling interest laws, he said.

Citibank started with about 250 job here, had 1,700 by 1990 and has nearly doubled that since.

"People shuffle numbers around, but that's just a lot of jobs," Williamson said.

South Dakota is listed by the Federal Reserve as having an 18% interest rate cap where quite a few other states have no such cap. I suspect, however, that some of those other states may have complicated regulations regarding fees, finance company constraints, and other obstacles that make free-spirited South Dakota preferred by credit card and finance companies.
State Usury Laws --- Maximum Legal Interest Rates ---
http://www.lendingkarma.com/content/state-usury-laws-legal-interest-rates/

"Is This Really Part of an Accounting Education -- Well, I Certainly Think So," by Joe Hoyle, Teaching Blog, March 12, 2014 ---
http://joehoyle-teaching.blogspot.com/2014/03/is-this-really-part-of-accounting.html

Jensen Comment
I read where one of the authors of the Affordable Health Care Act complained that there was too much medical education in medical school. A major reason that we don't have enough doctors for the the ACA is that it takes too long to get through medical school, internships, and residencies in such specialties as psychiatry.

Johns Hopkins is now experimenting with the French Model. Don't take the medicine out of medical school. Just take the education out of medical school. The French model admits high school graduates to medical school, thereby eliminating 3-4 years out of the training of our surgeons, psychiatrists, pathologists, internists, etc.

Maybe we could follow the same training model for schools of accountancy by having them recruit top high school graduates.

 

Question
What is one of the outrageous differences between Apple and Microsoft?

Hint
It has to do what I think is greed in forcing the purchase of new hardware and software in a relatively short period of time in planned obsolescence. I remember sharing a cab with Waterloo's Efrim Boritz back in the early days of the Mac. He was complaining that there was no legacy carryover in the new Macs such that much of his work over several years was going to be completely lost. In the meantime, Windows was still running my decades-old DOS programs.

Apple Retires Snow Leopard Support, Leaves 1 out of every five Macs In The Dust after only four years
Snow Leopard is the latest victim of Apple's planned obsolescence strategy
http://readwrite.com/2014/02/27/apple-snow-leopard-support-osx-mac#awesm=~oxc4LfpQ3BuJdW

It's important to know that the article below was published by The New York Times and not The Wall Street Journal

The Many Taxes of the Affordable Health Care Act are Badly Hurting Employment Opportunities

"The Affordable Care Act’s Multiple Taxes." by Casey B. Mulligan, The New York Times, February 26, 2014 --- Click Here
http://economix.blogs.nytimes.com/2014/02/26/the-affordable-care-acts-multiple-taxes/?_php=true&_type=blogs&_php=true&_type=blogs&_php=true&_type=blogs&_r=2

The Affordable Care Act contains at least two economically distinct taxes on labor market activity. Even the experts on the law have failed to recognize all of them.

The Affordable Care Act tries to make health insurance affordable by offering means-tested subsidies and tax credits to households so they can make their payments for monthly health insurance premiums and out-of-pocket health expenses like deductibles and copayments for medical services.

This assistance is means-tested because higher-income households get less assistance than lower-income households. As a household’s income rises, it has to pay more for the same coverage. As a matter of economics, it wouldn’t have been much different if the law had given assistance to all households and then paid for it with a new income tax that was capped once household income hits 400 percent of the federal poverty line.

Naturally, income taxes discourage people from doing the things that create income. This is not to say that everyone responds to every tax, just that the average result of an additional income tax is less income.

Economists have long understood and publicized the implicit income taxes that come with attempts to make health care affordable. As my fellow Economix blogger Uwe Reinhardt put it 20 years ago (in an article with Alan B. Krueger) about one specific subsidy plan, health insurance premium assistance “would present millions of low-income American families with total marginal tax rates in excess of 75 percent.” Professor Reinhardt also noted recently that the marginal tax rate implicit in any particular health insurance proposal depends very much on the features of that plan.

The Congressional Budget Office also highlighted this issue as the Affordable Care Act was going through Congress. Daniel P. Kessler, a Stanford professor, also discussed it in a commentary in 2011.

Under the Affordable Care Act, only a small minority of workers is expected to get subsidized coverage. So economists concluded that aggregate labor market effects of the new law would be minimal.

I would agree if the implicit income tax were the only new tax on labor market activity in the new law. But there’s more: The Affordable Care Act also contains a new implicit tax on employment that affects far more people than its implicit income tax does.

Income taxes and employment taxes are not the same, because the income tax is based on income and the employment tax is based on employment. Two households with the same family structure (in number and age of family members) and annual income who live in the same county will not necessarily get the same assistance from the Affordable Care Act. The household that is employed more months of the year is likely to get less assistance (and maybe no assistance) from the new law, because the law requires that, during the months that they are employed, full-time workers get health coverage from their employer before they turn to the new health insurance marketplaces for federal government subsidies.

To put it another way, even if the health insurance subsidies in the Affordable Care Act had been a specific dollar amount that was not phased out with household income, the law would still act as a tax on employment because most workers could not get the assistance during the months they were at work.

This new implicit employment tax will apply to tens of millions of workers who are offered health insurance on their job and to millions of non-employed persons who are considering a position that offers coverage.

(The new employment tax also changes the types of jobs that are created and accepted by workers, but this effect does not prevent the law from reducing employment, as Trevor Gallen and I explain).

As far as I know, before this month the only place that one could read about the Affordable Care Act’s new employment tax was in this paper by David Gamage, in posts I have written for this blog, in my 2012 book or in a 2013 paper. Even though the consequences of the law have been debated at least as far back as 2009, the law’s advocates have yet to acknowledge the new implicit employment tax, let alone estimate the number of people who will face it.

But in a recent paper, the Congressional Budget Office has joined me in explaining that it’s not just the implicit income tax that will contract the labor market. As the paper puts it, “The loss of subsidies upon returning to a job with health insurance is an implicit tax on working,” adding that the effect of the new tax is “similar to the effect of unemployment benefits” (see Page 120).

Once we consider that the new law has an employer penalty, too, the labor market will be receiving three blows from the new law: the implicit employment tax, the employer penalty and the implicit income tax. Regardless of how few economists acknowledge the new employment tax, it should be no surprise when the labor market cannot grow under such conditions.

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

 


JPMorgan Chase Moves to Brooklyn
JP Morgan Chase sold its 60-story tower in Manhattan to a Chinese firm and has elected to move to Brooklyn (still in NYC). Purportedly this is a  cost saving decision (perhaps the rent from the Chinese became to high) ---
http://www.businessweek.com/articles/2014-02-26/jpmorganchase-moves-to-brooklyn?campaign_id=DN022714

This affects over 2,000 employees. I don't know what the commute is like to Brooklyn, but it seems to me that for many employees coming in from outside NYC and inside Manhattan this must be more inconvenient for them on a daily. However, for some it will also be a cost savings when they find cheaper digs in Brooklyn.

"Where Did the Bitcoins Go? The Mt. Gox Shutdown, Explained," by Joshua Brustein, Bloomberg Businessweek, February 26, 2014 ---
http://www.businessweek.com/articles/2014-02-26/where-did-the-bitcoins-go-the-mt-dot-gox-shutdown-explained?campaign_id=DN022614 

Hint:
Thieves are not melting them down into fashion jewelry.

John Stewart's explanation ---
http://www.businessinsider.com/jon-stewart-on-bitcoin-and-mt-gox-2014-2

Tips from my hero David Pogue --- https://www.yahoo.com/tech/tagged/the-pogue-review

TiVo Roamio, I Think I Love You," by David A. Pogue, Yahoo Tech, January 30, 2013 ---
https://www.yahoo.com/tech/tivo-roamio-where-have-you-been-all-my-life-74998261924.html

"How to Get Hacked in 5 Exciting Steps," by David A. Pogue, Yahoo Tech, February 18. 2014 ---
https://www.yahoo.com/tech/how-to-get-hacked-5-exciting-steps-77015513634.html

"You’re Using Your Camera’s Flash Wrong," Yahoo Tech, February 27. 2014 ---
https://www.yahoo.com/tech/youre-using-your-cameras-flash-wrong-77981393201.html

Continued at
 https://www.yahoo.com/tech/tagged/the-pogue-review

“Is Business Ethics an Oxymoron?” by Steven Mintz, Ethics Sage, February 26, 2014 ---
http://www.ethicssage.com/2014/02/-is-business-ethics-an-oxymoron.html

"Organizational Ethics: Building an Ethical Culture:  Instilling a Sense of Right and Wrong in the Workplace," by Steven Mintz, Ethics Sage, March 18, 2014 ---
http://www.ethicssage.com/2014/03/organizational-ethics-building-an-ethical-culture.html

Stanford Social Innovation Review --- http://www.ssireview.org/
This is a magazine and blog aimed mainly at progressives and philantropists who will fund much social innovation and business social responsibility of the world beyond expenses and investments footed by shareholders and taxpayers. The appeal is for more innovative solutions.
Also see Ashoka --- https://www.ashoka.org/
Also see The Aspen Institute --- http://www.aspeninstitute.org/about/blog
Bob Jensen's related threads --- http://www.trinity.edu/rjensen/bookbob2.htm#Social

Question
What is one of the outrageous differences between Apple and Microsoft?

Hint
It has to do what I think is greed in forcing the purchase of new hardware and software in a relatively short period of time in planned obsolescence. I remember sharing a cab with Waterloo's Efrim Boritz back in the early days of the Mac. He was complaining that there was no legacy carryover in the new Macs such that much of his work over several years was going to be completely lost. In the meantime, Windows was still running my decades-old DOS programs.

Apple Retires Snow Leopard Support, Leaves 1 out of every five Macs In The Dust after only four years
Snow Leopard is the latest victim of Apple's planned obsolescence strategy
http://readwrite.com/2014/02/27/apple-snow-leopard-support-osx-mac#awesm=~oxc4LfpQ3BuJdW

Apple has all but announced it will no longer support Mac computers running Snow Leopard, or OS X 10.6. 

On Tuesday, the company released an important update for Mavericks, or OS X 10.9, plus security updates for its two predecessors, Mountain Lion (10.8) and Lion (10.7), but nothing for any other previously-released versions of OS X. All of the updates included a critical patch that resolved a major security exploit—we can't confirm the same exploit exists in Snow Leopard.

But with Snow Leopard no longer supported, Apple is distancing itself from Microsoft’s tradition of supporting older operating systems for decades and beyond, a practice some call excessive. Microsoft’s Windows XP came out on October 25, 2001, more than 12 years ago. But Microsoft says it will continue supporting the system until April 8, 2014. 

Meanwhile, Snow Leopard has been around for just 4 years, since August 28, 2009, on the occasion of its obsolescence. Which explains why 1 in 5 Macs are still operating on it. 

Continued in article

Are PCs Dying? Of Course Not, Here’s Why ---
http://www.howtogeek.com/183381/are-pcs-dying-of-course-not-heres-why/

Interesting LSAT Scoring Facts --- http://en.wikipedia.org/wiki/LSAT#Scoring

Begin Quote
******************************************************************************************************

The LSAT is a standardized test in that LSAC adjusts raw scores to fit an expected norm to overcome the likelihood that some administrations may be more difficult than others. Normalized scores are distributed on a scale with a low of 120 to a high of 180.[23]

The LSAT system of scoring is predetermined and does not reflect test takers' percentile, unlike the SAT. The relationship between raw questions answered correctly (the "raw score") and scaled score is determined before the test is administered, through a process called equating.[24] This means that the conversion standard is set beforehand, and the distribution of percentiles can vary during the scoring of any particular LSAT.

Adjusted scores resemble a bell curve, tapering off at the extremes and concentrating near the median. For example, there might be a 3–5 question difference between a score of 175 and a score of 180, but the difference between a 155 from a 160 could be 9 or more questions. Although the exact percentile of a given score will vary slightly between examinations, there tends to be little variance. The 50th percentile is typically a score of about 151; the 90th percentile is around 165 and the 99th is about 173. A 178 or better usually places the examinee in the 99.9th percentile.

Examinees have the option of canceling their scores within six calendar days after the exam, before they get their scores. LSAC still reports to law schools that the student registered for and took the exam, but releases no score. Test takers typically receive their scores by e-mail between three and four weeks after the exam.[25] There is a formal appeals process for examinee complaints,[26] which has been used for proctor misconduct, peer misconduct, and occasionally for challenging a question. In very rare instances, specific questions have been omitted from final scoring.

University of North Texas economist Michael Nieswiadomy has conducted several studies (in 1998, 2006, and 2008) derived from LSAC data. In the most recent study Nieswiadomy took the LSAC's categorization of test-takers into 162 majors and grouped these into 29 categories, finding the averages of each major:[27]

  1. Mathematics/Physics 160.0
  2. Economics and Philosophy/Theology (tie) 157.4
  3. International relations 156.5
  4. Engineering 156.2
  5. Government/service 156.1
  6. Chemistry 156.1
  7. History 155.9
  8. Interdisciplinary studies 155.5
  9. Foreign languages 155.3
  10. English 155.2
  11. Biology/natural sciences 154.8
  12. Arts 154.2
  13. Computer science 154.0
  14. Finance 153.4
  15. Political science 153.1
  16. Psychology 152.5
  17. Liberal arts 152.4
  18. Anthropology/geography 152.2
  19. Accounting 151.7
  20. Journalism 151.5
  21. Sociology/social work 151.2
  22. Marketing 150.8
  23. Business management 149.7
  24. Education 149.4
  25. Business administration 149.1
  26. Health professions 148.4
  27. Pre-law 148.3
  28. Criminal justice 146.0

End Quote
******************************************************************************************************

Thomas Jefferson Law School --- http://en.wikipedia.org/wiki/Thomas_Jefferson_School_of_Law

. . .

The ranking of the School of Law by U.S. News & World Report is not published, as U.S. News does not publish the ranking of schools that fall below 145. The School of Law is not ranked in National Jurist's rankings of the top 80 law schools in the United States.[According to the law professor blog The Faculty Lounge, 28.8% of the Class of 2012 was employed in full-time, long-term positions requiring bar admission, ranking 192nd out of 197 law schools. .

"Thomas Jefferson Offers Guaranteed 3-Year 'Merit' Scholarships: 2.0 GPA/140 LSAT = $3k; 2.5 GPA/158 LSAT = $132k," by Paul Caron, TaxProf Blog, March 1, 2014 ---
http://taxprof.typepad.com/taxprof_blog/2014/03/thomas-jefferson.html
Especially note the merit scholarship fellowship payoff.

Jensen Comment
Beware of "scholarships" in private universities in general when the tuition net of a scholarship is significantly higher in a private university relative to the tuition and other fees of a comparable or better public or private university.

Also note that the reputation of a program is very, very important. It is often better to go somewhat higher into debt in order to graduate from a highly prestigious program than to pay very little (net) to go to a low-prestige public or private university program. 

In professional programs having licensing requirements to practice, the passage rates on the professional examinations are a factor to consider. For example, there are accounting programs where graduates rarely pass the CPA examination. It's possible to significantly improve chances of passing the CPA examination by changing universities in the fifth year required to take the CPA examination and by investing in a quality CPA coaching course following graduation.  However, a lousy four-year education program is very difficult to overcome!

Universities that have very low passage rates on professional licensing examinations typically are admitting low quality students where there is no chance of passing a licensing examination from get go. Often four-year graduates from low quality undergraduate programs have such low GMAT, GRE, LSAT, MCAT, etc. scores there is little hope of even getting into a quality graduate school.

How to Mislead With Statistics

"Guess Who Doesn’t Care That You Went to Harvard?" by Gretchen Gavett, Harvard Business Review Blog, February 28, 2014 ---
http://blogs.hbr.org/2014/02/guess-who-doesnt-care-that-you-went-to-harvard/

Jensen Comment
I think this is a misleading article. Business firms may not care whether or not that you graduated as an undergraduate from Harvard but they a often are deeply impressed by the fact that you got into Harvard, Yale, MIT, Princeton, Dartmouth, etc. Also those business firms and graduate schools know that the highest GRE and GMAT scores are highly correlated with the highest SAT scores that got students into the Ivy League schools in the first place. Also grade inflation is virtually highest in the Ivy League among colleges and universities in higher education (except maybe at Princeton which is making a limited effort to bring down grades). Naive recruiters might be impressed by high grades from Harvard without knowing that 80% of the graduates from Harvard graduate cum laude.

Business firms with more actively recruit undergraduates from Cornell and the flagship state university business schools because most of the Ivy League universities like Harvard do not have undergraduate business schools. But this does not apply to MBA graduates from Ivy League schools that have prestigious MBA programs.

Gretchen Gavett fails to mention a leading recruiting edge of graduate business and law programs at Harvard, Yale, MIT, and Dartmouth --- those fantastically important Ivy League alumni networks. For example, business executives that greatly adore their alma mater's green blazers actively seek to hire recent Tuck School graduates from Dartmouth's Tuck Graduate School of Business. Green-blazed graduates have an edge with successful Tuck alumni recruiters!

MBA programs at Ivy League schools do not do well when firms are hiring for certain types of specialties. For example, most Ivy League MBA programs do not have curricula for passing the CPA examination. Firms do not generally recruit new auditors and tax accountants and AIS specialists at the Ivy League universities. Gretchen Gavett is correct in this regard!

Department of Education in March 2014:  17,374 online higher education distance education and training programs altogether

Jensen Comment
Note that the hundreds of free MOOC courses from prestigious universities are not the same as fee-based distance education degree and certificate programs that are more like on-campus programs in terms in student-instructor interactions, graded assignments, and examinations. Some campuses like the University of Wisconsin at Milwaukee even treat online programs as cash cows where the tuition is higher for online programs than identical on-campus programs.

The (Department of Education Report in March 2014) report says that American colleges now offer 17,374 online programs altogether, 29 percent of which are master’s-degree programs, with bachelor’s and certificate programs making up 23 percent each. Business and management programs are the most popular, at 29 percent of the total, followed by health and medicine programs (16 percent), education programs (14 percent), and information technology and computers (10 percent) ---
http://chronicle.com/blogs/wiredcampus/quickwire-there-may-be-fewer-online-programs-than-you-think/51163?cid=at&utm_source=at&utm_medium=en

From US News in 2014
Best Online Degree Programs (ranked) ---
http://www.usnews.com/education/online-education

Best Online Undergraduate Bachelors Degrees --- http://www.usnews.com/education/online-education/bachelors/rankings
Central Michigan is the big winner

Best Online Graduate Business MBA Programs --- http://www.usnews.com/education/online-education/mba/rankings
Indiana University is the big winner

Best Online Graduate Education Programs --- http://www.usnews.com/education/online-education/education/rankings
Northern Illinois is the big winner

Best Online Graduate Engineering Programs --- http://www.usnews.com/education/online-education/engineering/rankings
Columbia University is the big winner

Best Online Graduate Information Technology Programs ---
http://www.usnews.com/education/online-education/computer-information-technology/rankings
The University of Southern California is the big winner

Best Online Graduate Nursing Programs --- http://www.usnews.com/education/online-education/nursing/rankings
St. Xavier University is the big winner

US News Degree Finder --- http://www.usnews.com/education/online-education/features/multistep-oe?s_cid=54089
This beats those self-serving for-profit university biased Degree Finders

US News has tried for years to rank for-profit universities, but they don't seem to want to provide the data.

 

Bob Jensen's threads on online programs ---
http://www.trinity.edu/rjensen/CrossBorder.htm

From the CFO Journal's Morning Ledger on March 21, 2014

Bernie Madoff speaks: politics, remorse and Wall Street
Politico pays Mr. Bernard Lawrence Madoff a visit: a million metaphorical miles away from his old seven-room duplex in Manhattan, at his eight by 10 shared cell at Butner Correctional Facility, North Carolina. In the ultimate form of sensory deprivation for a man used to handling millions of dollars in the past, there are notices stuck to vending machines around the premises warning: “inmates are not allowed to handle money.” Highlights of the three-hour interview with Politico’s MJ Lee include details Madoff gives of the constant fundraising solicitations received from politicians and criticism of President Obama – whom Madoff says he did vote for the year before he was convicted. He also warned that there are “bad players like myself” currently getting away with their own Ponzi schemes, as he spoke.

Jensen Comment
Bob Jensen's thread on the land of Ponzi frauds where Bernie Madoff was once a king ---
http://www.trinity.edu/rjensen/FraudRotten.htm#Ponzi


From the CFO Journal's Morning Ledger on March 18, 2014

Food Prices Surge as Drought Exacts a High Toll on Crops
Recovery from a growing but still sluggish U.S economy is being hampered by rapidly rising food prices, the WSJ reports. Federal forecasters predict retail food prices to rise as much as 3.5% this year, the biggest annual increase in three years. Drought in parts of the U.S. and other producing regions has driven up prices for many agricultural goods including coffee, meat and vegetables. In the U.S., much of the rise in the food cost comes from higher meat and dairy prices, due in part to tight cattle supplies after years of drought in states such as Texas and California and rising milk demand from fast-growing Asian countries. But prices also are higher for fruits, vegetables, sugar and beverages, according to government data. The Bureau of Labor Statistics will release its latest monthly report on consumer prices for food and other products Tuesday.

See the WSJ article at
http://online.wsj.com/news/articles/SB10001424052702303287804579445311778530606?mod=djemCFO_h&mg=reno64-wsj

From the CFO Journal's Morning Ledger on March 17, 2014

The adjustable-rate mortgage (ARM), that scourge of the 2008 housing crisis, is back on The Street
But the banks are adamant: it’s different this time. As the WSJ’s Annamaria Andriotis and Shayndi Raice write, the terms many of the sellers are offering are certainly attractive: compared with fixed-rate mortgages, some ARMs are cheaper than they have been in more than a decade.

But the tactics are very much reminiscent of the period before the 2008 crisis, when ARMs exploded in popularity as banks and mortgage brokers touted their low initial rates to consumers. The difference being that financial executives insist they are now steering well and truly clear of ‘subprime’ borrowers, who used the loans to stretch their buying power to its absolute limits, and focusing squarely on borrowers with strong credit.

According to data from Black Knight Financial Services, ARMs comprised one third of mortgages in the $417,001-to-$1 million range originating during the fourth quarter of 2013. That is a surge from 22% a year earlier and the largest proportion since the third quarter of 2008. On mortgages of more than $1 million, 61% were ARMs, up from 56% a year earlier. “We’re seeing a shift back to ARMs,” says Mike McPartland, head of investment finance for North America at Citi Private Bank, a unit of Citigroup Inc. “My opinion is, it’s going to continue.”

Jensen Comment
During the real estate bubble that burst in 2007, ARMs were being extended to speculators who had no hope repaying the mortgages at zero interest rates let alone ARM rates. As long as real estate prices were going up, up, and away inside the bubble the strategy was to buy as much as you could with the intent to flip the property in a year or two at a huge capital gain. Real estate agents were eager to get their sales commissions. Mortgage brokers (usually Main Street banks)  were eager to get their lending commissions and sell the mortgages upstream to Wall Street chefs like Bear Sterns, Merrill Lynch, and Lehman Bros. who were cooking up collateralized soups called CDOs.

Real estate appraisers played way too loose with value appraisals to get their commissions. And buyers just wanted to flip at even higher prices.

When the real estate bubble burst in 2007 and real estate prices crashed, property owners defaulted, the ARM poisons kicked in, Wall Street investments bankers like Bear Stearns and Lehman declared bankruptcy because they could not make good on the CDO bond sales that they had guaranteed against default. To add pain to misery USA taxpayers footed the bailout bills for the biggest interconnecting banking swindles in the history of the world ---
http://www.trinity.edu/rjensen/2008Bailout.htm#Bailout

There's only one major protection preventingl these swindles happening once again in 2014. If the originators of the mortgages (e.g. Main Street banks) are forced to bear a serious portion of the default risk they will not be as free and easy giving loans to buyers who cannot pay when the higher ARM rates kick in down the road.

Main Street banks will still sell the new mortgages that they float upstream, but any subsequent defaults will flow, at least in part, back downstream to the loan origination Main Street banks. Without default losses flowing back downstream there will otherwise be free and easy speculative lending to buyers who have no hope of repaying the mortgages unless they can flip the properties at prices higher than the collateral values.

Underlying all of this is a forecasted recovery of the real estate market.
Main Street bankers and property buyers are gambling that real estate values have bottomed out and are on the mend.

But aside the usual GDP optimism and pessimism is an enormous two-ton gorilla --- the California drought that could send real estate values crashing in reverberations heard around the world. Pray for lots of rain in California and the rest of the USA's southwest. And while you are at it pray that there will be no record-setting earthquakes in California in the foreseeable future. A lot of us depend on a viable California economy more than we realize.

Let's hope La La Land with its Moonbeam Governor does not turn to dust in the winds.

From the CFO Journal's Morning Ledger on March 17, 2014

Fannie, Freddie bill leaves status of private shareholders to courts
A Senate draft bill to wind down government-run mortgage financiers Fannie Mae and Freddie Mac, released on Sunday, would leave a decision on how to treat their private shareholders to the courts, Reuters reports. The 442-page draft bill, written by Senate Banking Committee’s chairman Tim Johnson (D., S.D.) and Mike Crapo (R., Id.), would replace the companies with a new industry-financed agency. The bill would keep in place current terms of the government’s $187.5 billion bailout of the two companies in 2008 that require them to divert all profits into the U.S. Treasury. But is mute on whether or not private shareholders should partake in any proceeds when the companies are liquidated. They have since returned to profitability and by the end of March will have sent the Treasury $202.9 billion in dividends. Private investors, including Perry Capital and Fairholme Capital Management, have sued over the bailout terms. They argue they should stand to benefit from the profits given that the companies soon will have paid more in dividends to taxpayers than they received in aid.

Jensen Comment
Is this a good example of what the founding fathers of the USA intended by division of power in government?

In my opinion its more like a shirking of responsibility of the legislative branch of the USA, but that branch has become notorious for shirking responsibility on just about everything except its own graft and corruption.

This bill should be called the Tort Lawyers Relief Act. It will become much bigger than asbestos.

There's hope yet for our sinking law schools.

From the CFO Journal's Morning Ledger on March 3, 2014

How Risks Changed in a Year for Staples
A year ago, Staples Inc. had the global economy at the top of its risk list. Now, the office-supply chain says “the changing needs of our customers” come first, ranking the world’s financial health fifth on its list of worries. As CFOJ’s Maxwell Murphy reports, this priority shift highlights the increasing challenges Staples and its peers face from intense competition and fleeting customer loyalty. After filing its annual report with the Securities and Exchange Commission on Thursday, Staples said sales plunged in its fourth fiscal quarter ended in early February, compared with a year earlier.

Jensen Comment
I think Staples is a victim of Amazon and Wal-Mart. When I needed to replace a printer I went to a nearby Staples and was informed that the store no longer sold printers. So I replaced my printer from Amazon. When I compared ink prices I found ink to be cheaper from Amazon as well.

Now between Amazon and a nearby Wal-Mart I can find all the office supplies I need.

I buy computers from Dell in part because I like the at-home warranty service up here in the boondocks. I only had to use this service one time, but it must have been very costly to Dell to send a highly trained technician all the way to our cottage from Boston. Read that as meaning that Dell had to pay this guy for an entire day plus overtime plus the costly parts. All that was wrong was an on-off switch, but on my new Dell this entailed the replacement of a new cover. The technician was in our basement for hours replacing that cover. Much of the time was taken up by tests that had to be run after the cover was replaced.

I suspect our nearby Staples store will be one of the hundreds being closed by Staples. There are some big ticket items I prefer to buy locally if the store provides repair services such as my Sears store where I can take my lawn mowers, chain saws, gas blowers, and gas trimmers in for repair. But printers are a little like toasters. Unless they are still under warranty its probably best to buy new ones than it is to repair old ones. Sears offers at-home extended warranty service for heavy items like snow throwers and appliances and even television sets. However, small-engine items like lawn mowers and blowers must be returned to the stores or maintenance centers for repairs.

Radio Shack is also a victim of Amazon. However, instead of closing hundreds of stores, like Staples, Radio Shack is closing thousands of stores. Now when I need an adapter plug of some type, like an HDMI size-change adapter, I buy it from Amazon in about two minutes. Our nearby Radio Shack store closed years ago.

"Should the Government Further Restrict Non-audit Services Provided to Audit Clients? Audit Independence: A Myth or Reality?," by Steven Mintz, Ethics Sage, March 6, 2014 ---
http://www.ethicssage.com/2014/03/should-the-government-further-restrict-non-audit-services-provided-to-audit-clients.html

"FASB sets path on changes to accounting for financial instruments," Ernst & Young's To the Point, March 13, 2014 ---
http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2711_FinancialInstruments_13March2014/%24FILE/TothePoint_BB2711_FinancialInstruments_13March2014.pdf

The FASB tentatively decided to retain the separate models in current US GAAP for classifying and measuring debt securities and loans, rather than overhaul its guidance in this area, as it had proposed. The FASB also confirmed that companies would apply its proposed "current expected credit loss" model to financial assets that are debt instruments measured at amortized cost. Our To the Point publication tells you what you need to know about these and other decisions that the FASB has made in its financial instruments project.

The FASB also confirmed that companies would apply the current expected credit loss (CECL) model it has developed to financial assets measured at amortized cost. Financial assets measured at fair value with changes in fair value recognized in other comprehensive income ( FV - OCI ) would follow a slightly different approach. The FASB had proposed applying the CECL model to all debt instruments .

The decisions capped several months of redeliberations in which the FASB has moved away from its earlier effort to converge certain parts of financial instrument accounting between US GAAP and IFRS. Meanwhile, t he International Accounting Standards Board is moving ahead with its proposals and expects to issue final guidance in the coming mont hs.

This publication summarizes this week’s FASB decision s and other key decisions t he FASB has made in redeliberations

Jensen Comment
The CECL model is one of the areas of divergence of FASB standards from IASB standards, although the IASB did make its fair value credit loss rules more politically correct in the face of heavy pressure from European banks.

Teaching Case
From The Wall Street Journal Accounting Weekly Review on March 14, 2014

Tax Reform Targets Executive Pay, But May Raise Salaries
by: Gregory J. Millman
Mar 12, 2014
Click here to view the full article on WSJ.com
 

TOPICS: Corporate Income Tax, Executive Compensation

SUMMARY: The proposed Tax Reform Act of 2014 contains items related to executive compensation that could have unintended consequences. "The reform proposal would eliminate the tax incentive to link pay above the $1 million level to performance, and would tax executives when compensation vests instead of when it is paid. It would also expand the number of executives subject to these strictures." Risk and Compliance Journal compensation experts believe these proposals might lead to less linking of executive pay with incentives and to raised salaries.

CLASSROOM APPLICATION: The article may be used in a financial reporting class discussing executive compensation or in a corporate or personal tax class to discuss Representative Dave Camp's proposed tax reform act.

QUESTIONS: 
1. (Introductory) According to the article, what are current tax requirements related to executive compensation? Have these laws been changed in 2014?

2. (Advanced) According to compensation experts, what are the likely effects of the proposed Tax Reform Act of 2014 from House Ways and Means Committee Chair Dave Camp?

3. (Advanced) What is say-on-pay? How does this legal requirement offset some of the concerns about the changes described in answer to the question above?
 

Reviewed By: Judy Beckman, University of Rhode Island

"Tax Reform Targets Executive Pay, But May Raise Salaries," by Gregory J. Millman, The Wall Street Journal, March 12, 2014 ---
http://blogs.wsj.com/riskandcompliance/2014/03/12/tax-reform-targets-executive-pay-but-may-raise-salaries/?mod=djem_jiewr_AC_domainid

The Tax Reform Act of 2014, proposed by House Ways and Means Committee Chairman Dave Camp in February, could have some unintended consequences, including less incentive for companies to link pay with performance.

Current law caps a company’s tax deduction for executive pay at $1 million, unless pay is linked to performance, and taxes executive pay only when actually received. The reform proposal would eliminate the tax incentive to link pay above the $1 million level to performance, and would tax executives when compensation vests instead of when it is paid. It would also expand the number of executives subject to these strictures.

“There’s a lot of nuance in structuring compensation, especially at public companies, to align it with performance, said George Paulin, chairman and chief executive of executive compensation consultancy Frederic W. Cook & Co. Under the Camp proposals “we will have fewer levers to pull to make that happen,” he said.

Andrew Liazos, head of the executive compensation practice at international law firm McDermott Will & Emery, said, “When you stop and think about what is going on, they are turning decades of tax practice on its head. Executives can be taxed prior to being paid and amounts above $1 million can’t be deducted even if they cover services over several years.’”

The tax deduction for performance-linked pay has put wind in the sails of the pay-for-performance movement, but no one who spoke with Risk & Compliance Journal expects companies to abandon the linkage altogether should the proposals become law.

“If we were not in a post-say-on-pay world, removing the incentive for performance based compensation would have a profound impact on how executive compensation plans are designed, but because shareholders and proxy advisory firms have been demanding compensation committees construct pay programs that pay for performance, this is something we don’t see going away any time soon,” said Steve Seelig, executive compensation counsel in the national office of Towers Watson.

On the other hand, companies do take tax into consideration when developing executive pay packages, noted Mr. Paulin. “This provision has had the effect over the years of moderating salaries,” he explained, “I think that, without these provisions, the salary portion of higher pay would be higher than it is.”

The executive summary of the legislation says, “Today, Wall Street tycoons and executives of leading non-profit entities and institutions receive compensation packages riddled with special tax-exempt treatment – courtesy of hardworking taxpayers.” Acknowledging that the tax reform proposal may be unlikely to pass Congress in its current form this year, Mr. Liazos cautioned that “When you see that kind of rhetoric coming from the Republican chairman of the House Ways and Means Committee, the proposed changes aren’t something to take lightly–once such a revenue increase idea like this is on the table, the risk is that it can take on a life of its own.”

Jensen Comment
This would be a bigger deal if FAS 123R had not pretty well eliminated stock options due to a vesting resolution years years ago.

Dave Camp's tax reform proposals are pretty much dead ducks such that this is mostly an academic debate going nowhere.

Teaching Case on Auditor Independence and Professionalism
From The Wall Street Journal Accounting Weekly Review on March 7, 2014

Auditors Draw Clients Closer
by: Emily Chasan
Mar 04, 2014
Click here to view the full article on WSJ.com
 

TOPICS: Audit Firms, Auditing, Auditing Services, Auditor Independence, Consulting, PCAOB, Public Accounting, Public Accounting Firms

SUMMARY: The PCAOB "...says it has started quizzing accounting firms on whether their fast-growing consulting practices could hurt the quality of their audits...[T]he European Parliament is expected to vote in April on legislation that would cap nonaudit services provided by a company's auditor at 70% of the audit fee. At least 300 companies in the U.S. and Europe paid their auditors as much for add-on services as they did for audit work...Auditing firms say they work to avoid conflicts of interest and that providing extra services can improve audits by enhancing their knowledge of an audit client's business."

CLASSROOM APPLICATION: The article may be used in an auditing class.

QUESTIONS: 
1. (Introductory) How much are public accounting firms earning for consulting revenues as compared to performing financial statement audits? What are the concerns with this relative level of accounting services?

2. (Advanced) From where does data analysis firm Audit Analytics and stock-research firm Exane BNP Paribas SA find this information about fees paid to audit firms for various services?

3. (Introductory) What do the accounting firms say is the benefit of providing these nonaudit services to their clients?

4. (Advanced) Consider the case of KPMG LLC, its settlement with the SEC, and its client HSBC Holdings. What is the apparent choice KPMG has made about the type of services it wants to provide to this firm?
 

Reviewed By: Judy Beckman, University of Rhode Island

"Auditors Draw Clients Closer," by Emily Chasan. The Wall Street Journal, March 4, 2014 ---
http://online.wsj.com/news/articles/SB10001424052702303630904579415831029918244?mod=djem_jiewr_AC_domainid&mg=reno64-wsj

Some companies and their auditors might be getting a little too close for comfort.

Since the collapse of Enron and its auditor, Arthur Andersen, more than a decade ago, regulators on both sides of the Atlantic have been cautious about auditors receiving big fees for consulting and other services that could potentially cloud their judgment when reviewing a company's books. Now, they are taking a fresh look at the issue.

The U.S. government's audit watchdog says it has started quizzing accounting firms on whether their fast-growing consulting practices could hurt the quality of their audits. Overseas, the European Parliament is expected to vote in April on legislation that would cap nonaudit services provided by a company's auditor at 70% of the audit fee.

At least 300 companies in the U.S. and Europe paid their auditors as much for add-on services as they did for audit work, according to public filings from the past two years reviewed separately by data provider Audit Analytics and stock-research firm Exane BNP Paribas SA BNP.FR -0.03% .

"You are talking about a huge amount of fees" at some companies, says Yohann Terry, an analyst who has studied the matter for Exane BNP. Auditors "are all pushing to develop consulting fees because the margins are higher," he says.

Auditing firms say they work to avoid conflicts of interest and that providing extra services can improve audits by enhancing their knowledge of an audit client's business.

HSBC Holdings HSBA.LN -0.37% PLC paid its auditor, KPMG LLP, $208 million for "other services" between 2010 and 2012. That's more than five times as much as the U.K. bank paid the firm for checking its books. The added work included "ad hoc accounting advice," consulting on information-technology security, and subsidiary audits, according to a regulatory filing.

The filing added that HSBC only uses KPMG for extra services when it can benefit from the firm's historical knowledge of the bank and when its independence won't be compromised.

HSBC declined to comment on the nonaudit fees, but the bank is set to change its auditor next year to PricewaterhouseCoopers LLP after 23 years with KPMG. "We thought it was the right thing to do," said HSBC spokeswoman Heidi Ashley.

"KPMG is fully committed to ensuring our independence with respect to all of our audit clients," said KPMG spokeswoman Deborah Primiano.

After Enron imploded, the U.S. barred auditors from performing many consulting services for audit clients, such as providing appraisals. The pending legislation and fee cap in Europe would mean even stricter regulations for businesses there. It isn't clear how new European rules would define, audit, nonaudit, and audit-related fees; companies vary widely in their own definitions.

The main concerns for regulators are "scope creep" and conflicts of interest that could distract auditors from their core responsibilities, says Paul Beswick, the SEC's chief accountant. "There are permissible services that are allowed, but over time if the nature of those services change, they can actually evolve into independence violations," he says.

In January, KPMG paid $8.2 million to settle allegations by the Securities and Exchange Commission that it violated independence rules with some clients where it provided additional services. The firm didn't admit or deny wrongdoing, and the SEC didn't identify the clients.

Companies going through mergers, initial public offerings or spinoffs frequently pay their auditors far more for additional services, such as meetings with deal underwriters and due diligence, company filings show.

From 2011 through 2012, German auto maker Porsche PAH3.XE -0.20% SE paid auditor Ernst & Young more than 20 times as much as its audit fee for work related to taxes and its integration with Volkswagen AG VOW.XE +0.14% . Over the past two years, Manchester United MANU -0.46% PLC paid auditor PwC nearly eight times as much as its audit fees, largely for work on the British soccer club's IPO. U.S. grocer Harris Teeter Supermarkets Inc., which Kroger Co. KR -0.71% acquired in January, paid KPMG more than 1.5 times its audit fee for extra services in the two years ahead of the deal.

Manchester United and Kroger declined to comment. Porsche didn't reply to requests for comment.

"There are some cost efficiencies associated with it, but it's also easy to use your auditor—they're just one phone call away," says Ed Nusbaum, chief executive of auditor Grant Thornton International Ltd.

Last year, retailer Target Corp. TGT +0.23% paid Ernst & Young $3.7 million for an audit and the same sum for other work, including a "tax inventory accounting" project. Target declined to comment.

Some nonaudit services, such as providing quarterly reviews of internal controls or "comfort letters" to lenders, aren't considered controversial, but some companies may have to monitor such work more closely to ensure they don't exceed the potential fee caps in Europe, he said.

Continued in article

Auditor Independence and Professionalism

From the CFO Journal's Morning Ledger on March 3, 2014

Regulators (read that the PCAOB) are taking a closer look at the consulting services that some auditors provide for clients—and the big fees they generate

The U.S. government’s audit watchdog says it has started quizzing accounting firms on whether their fast-growing consulting practices could hurt the quality of their audits, writes CFOJ’s Emily Chasan in today’s Marketplace section. Overseas, the European Parliament is expected to vote in April on legislation that would cap nonaudit services provided by a company’s auditor at 70% of the audit fee.

At least 300 companies in the U.S. and Europe paid their auditors as much for add-on services as they did for audit work, according to public filings from the past two years. HSBC paid its auditor, KPMG, $208 million for “other services” between 2010 and 2012. That’s more than five times as much as the U.K. bank paid the firm for checking its books. The added work included “ad hoc accounting advice,” consulting on information-technology security, and subsidiary audits, according to a regulatory filing. “You are talking about a huge amount of fees” at some companies, says Yohann Terry, an analyst who has studied the matter for Exane BNP. Auditors “are all pushing to develop consulting fees because the margins are higher,” he says.

The main concerns for regulators are “scope creep” and conflicts of interest that could distract auditors from their core responsibilities, says Paul Beswick, the SEC’s chief accountant. “There are permissible services that are allowed, but over time if the nature of those services change, they can actually evolve into independence violations,” he says.

Jensen Comment
Recall that the Houston Office of the Andersen Audit firm was receiving $50 million per year from Enron, half of with was for auditing services and half of which was for consulting services. Enron was repeatedly threatening to change consulting firms if Andersen's auditors did not march to Enron's orders ---
http://www.trinity.edu/rjensen/FraudEnron.htm

A Tear Jerker from the Center for Audit Quality
"Year in Review for 2013"---
http://www.thecaq.org/docs/reports-and-publications/caq_year_in_review_2013.pdf?sfvrsn=4

Bob Jensen's threads on audit firm independence and professionalism ---
http://www.trinity.edu/rjensen/Fraud001c.htm

Asynchronous Learning and the Flipped Classroom
"The inverted calculus course and self-regulated learning," by Robert Talbert, Chronicle of Higher Education, March 3, 2014 ---
http://chronicle.com/blognetwork/castingoutnines/2014/03/03/the-inverted-calculus-course-and-self-regulated-learning/?cid=at&utm_source=at&utm_medium=en

A few weeks ago I began a series to review the Calculus course that Marcia Frobish and I taught using the inverted/flipped class design, back in the Fall. I want to pick up the thread here about the unifying principle behind the course, which is the concept of self-regulated learning.

Self-regulated learning is what it sounds like: Learning that is initiated, managed, and assessed by the learners themselves. An instructor can play a role in this process, so it’s not the same thing as teaching yourself a subject (although all successful autodidacts are self-regulating learners), but it refers to how the individual learner approaches learning tasks.

For example, take someone learning about optimization problems in calculus. Four things describe how a self-regulating learner approaches this topic.

  1. The learner works actively on optimization problems as the primary form of learning. Note that I said “primary”; some passive listening might take place, but the primary mode of learning optimization problems for this learner is doing optimization problems.
  2. As the learner works actively, she is monitoring many different things. What’s the process for solving an optimization problem in general? Have I set up my objective function correctly? How is this problem like the other ones I have seen or done? Does a computer-generated graph agree with the answer I got by hand? Am I too tired to work on this right now? How can I prevent myself from checking Facebook every two minutes instead of working on the problem? She’s not just thinking about these but monitoring them, like an airplane pilot would be monitoring the many dials and gauges on his dashboard during a flight, tweaking this and adjusting that as needed.
  3. As the learner monitors all this, she operates with two very important questions in mind: What is the criteria in this case for knowing whether I’ve truly learned the topic?, and Am I there yet? She has a clearly-defined goal state and the means of checking her progress toward that goal state. For example, the self-regulating learner will take the initiative to check her answer on the optimization problem using a graph, or using Wolfram|Alpha to make sure the derivative computation is correct.
  4. Finally, the self-regulating learner doesn’t let external circumstances prevent learning. She selects learning activities that serve as a buffer zone between her progress toward the goal and the items in her life around her. If she’s got to be at work in an hour, she’ll select some activities or a subset of the tasks in a problem at hand that she can do in 45 minutes. If she doesn’t have access to a computer at home, she will select learning activities that she can do at home and save the others for when she can study at a friend’s house or at school with more technology around; or work over the phone with a friend who does have the technology; or something, anything other than I couldn’t work because I didn’t have a computer.

Even before I started working with the inverted/flipped classroom, what I just described is a picture of what I envisioned for my students. It’s a picture of a confident, inquisitive, independent problem-solver who takes a can-do attitude towards her work, and who is set up well to learn new things for the rest of her life. Because in real life, all learning basically looks like this.

The theoretical framework for self-regulated learning was developed by Paul Pintrich throughout the 1990’s and culminated in a paper in Educational Psychology Review in 2004. In that paper, Pintrich describes four features of self-regulated learning that correspond to the four items I described above. But of course the idea of self-regulated learning is as old as humanity itself. And it’s worth pointing out that there’s a close relationship between self-regulated learning and the popular admissions-office concept of lifelong learning. When we talk about students becoming “lifelong learners”, what we really mean is “self-regulating learners”.

Back to the story about calculus. I’ve taught calculus dozens of times since 1994, and what I’ve been seeing more and more, and tolerating less and less, is an environment where students tend toward the opposite of self-regulated learning. This is a state where students do not learn, and come to believe that they cannot learn, without the strong intervention of a third party. There’s no activity, no monitoring, no self-assessment, no persistence – only the repeated cries to tell them how to start, how to proceed, and what the right answer is. A professor can make a career out of catering to these cries and simply giving students what they ask for. But I don’t think that’s in the students’ best interests, or anybody else’s, and by the time July 2013 rolled around I decided I was done with enabling a generation of smart young men and women to enter into a perpetual state of learned helplessness when it came to their learning.

Continued in article

"Study: Little Difference in Learning in Online and In-Class Science Courses," Inside Higher Ed, October 22, 2012 ---
http://www.insidehighered.com/quicktakes/2012/10/22/study-little-difference-learning-online-and-class-science-courses

A study in Colorado has found little difference in the learning of students in online or in-person introductory science courses. The study tracked community college students who took science courses online and in traditional classes, and who then went on to four-year universities in the state. Upon transferring, the students in the two groups performed equally well. Some science faculty members have expressed skepticism about the ability of online students in science, due to the lack of group laboratory opportunities, but the programs in Colorado work with companies to provide home kits so that online students can have a lab experience.
 

 

Jensen Comment
Firstly, note that online courses are not necessarily mass education (MOOC) styled courses. The student-student and student-faculty interactions can be greater online than onsite. For example, my daughter's introductory chemistry class at the University of Texas had over 600 students. On the date of the final examination he'd never met her and had zero control over her final grade. On the other hand, her microbiology instructor in a graduate course at the University of Maine became her husband over 20 years ago.

Another factor is networking. For example, Harvard Business School students meeting face-to-face in courses bond in life-long networks that may be stronger than for students who've never established networks via classes, dining halls, volley ball games, softball games, rowing on the Charles River, etc. There's more to lerning than is typically tested in competency examinations.

My point is that there are many externalities to both onsite and online learning. And concluding that there's "little difference in learning" depends upon what you mean by learning. The SCALE experiments at the University of Illinois found that students having the same instructor tended to do slightly better than onsite students. This is partly because there are fewer logistical time wasters in online learning. The effect becomes larger for off-campus students where commuting time (as in Mexico City) can take hours going to and from campus.
http://www.trinity.edu/rjensen/255wp.htm

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

Bob Jensen's long-time threads on asynchronous learning are at
http://www.trinity.edu/rjensen/255wp.htm
This pedagogy depends a great deal on the quality of learning materials provided or not provided to students.

What's more important to long-term memory and metacognition is probably how much the students have to struggle to find answers on their own ---
http://www.trinity.edu/rjensen/265wp.htm
This pedagogy, however, is risky in terms of teacher evaluations and burnout

"A School, and a Future, for Blind Children," Education@Wharton, February 6, 2014 ---
http://knowledge.wharton.upenn.edu/article/sabriye-tenberken/

Bob Jensen's threads on technologies for educating disabled people ---
http://www.trinity.edu/rjensen/000aaa/thetools.htm#Handicapped

"Worst Product Flops of All Time," by Thomas C. Frohlich, 24/7 Wall Street, March 3, 2014 --- Click Here
http://247wallst.com/special-report/2014/03/03/worst-product-flops-of-all-time/?utm_source=247WallStDailyNewsletter&utm_medium=email&utm_content=MAR042014A&utm_campaign=DailyNewsletter 

Jensen Comment
Edsel is still Number One, although all preserved Edsel cars are very valuable these days, unlike those perishable flops that were not preserved.

After getting out of prison, billionaire Mike Milken began funding for-profit education training ventures. He made a brash claim to traditional non-profit colleges by stating:  "We're going to eat your lunch." In retrospect his ventures should have been ranked just below the Edsel in the above rankings.

The above rankings also ignore the big software flops.
"20th Anniversary of the PC Survey Results," PC Magazine, September 4, 2001 ---
http://www.pcmag.com/article2/0,2817,1174002,00.asp
Oh! Oh! Microsoft Bob is the biggest loser. Sigh!

The 10 Worst Corporate Accounting Schandals ---
http://www.accounting-degree.org/scandals/
Fun to see which ones had the Andersen auditing firm conducting the audits.

Worst Investments of All Time ---
http://www.virginmedia.com/money/features/worst-investments.php?ssid=6
These are highly debatable given all the many frauds that could be included like a badly-timed investment in a Ponzi scheme or a bet that the Cubs will win the pennant.

Worst Presidents of All Time ---
http://www.usnews.com/news/history/features/the-10-worst-presidents

Worst Films of All Time ---
http://en.wikipedia.org/wiki/List_of_films_considered_the_worst

Time Magazine's Best and Worst Lists ---
http://content.time.com/time/specials

12 Worst Computer Viruses of All Time ---
http://computer.howstuffworks.com/worst-computer-viruses.htm

10 Worst Comedians of All Time ---
http://www.maxim.com/comedians/the-worst-comedians-of-all-time

Worst Professors/Teachers of All Time

 

Wave Goodbye to Fannie and Freddie: The Sink Holes for Mortgage Default Risk
From the CFO Journal's Morning Ledger on March 12, 2014

Moves to revamp the U.S. $10 trillion mortgage market are finally getting underway, after senators and the White House agreed on a framework to dismantle the giant lenders Fannie Mae and Freddie Mac, nearly six years after the government took control and rescued them from financial oblivion.

The plan, by Senate Banking Committee leaders Tim Johnson (D., S.D.) and Mike Crapo (R., Idaho), would see Fannie and Freddie replaced by a system of federally insured mortgage securities in which private insurers would be required to take initial losses before any government guarantee would be triggered.

As the Wall Street Journal’s Nick Timiraos reports, the proposal comes just as the companies start to generate huge profits for the Treasury. But the deal will leave a number of investors, who were counting on Fannie and Freddie being restructured, somewhat confused about their next move. Fannie shares consequently fell 31% to $4.03 and Freddie stock slid 27% to $4.04. But some of the firms’ preferred stock held by big investors saw only slight dips, remaining close to their highest levels since the firms were taken over in 2008. The agreement, which faces a few hurdles before approval, represents the most concrete step so far to resolve the last major piece of unfinished business from the 2008 financial collapse.

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

From the CFO Journal's Morning Ledger on March 3, 2014

Tesla convertible debt electrifies long-term investors
Tesla Motors is showing that it’s more than just a plaything for day traders and ardent believers in electric cars, write the WSJ’s Matt Jarzemsky and Telis Demos. While the spotlight has focused on the frantic trading driving up Tesla’s share price in the past year, less visible have been the company’s efforts to tap big, sophisticated and long-term investors for cash that it needs to expand. The company raised $2 billion in a sale of convertible debt late last week, garnering an audience of big investors such as mutual funds and hedge funds. “The classic growth companies are the kind of thing the convert market loves,” said Eli Pars, who helps manage convertible holdings at Calamos Investments. “If they slip up, the stock may get taken down, but the convertible debt should hold up relatively well.”

Jensen Comment
This looks like a great example when teaching how to account for convertible debt under FASB and IASB standards.

USA GAAP and International Financial Reporting Standards (IFRS) differ with respect to accounting for convertible debt? Under IFRS, convertible debt is divided into its liability and equity elements. Under US GAAP, the entire issue price is recorded as debt. Has this changed since I retired?

From the CFO Journal's Morning Ledger on March 25, 2014

Pension Plans Brace for a One-Two Punch
A twin dose of rising fees and liabilities is about to hit pension plans of U.S corporations, writes the CFO Journal’s Vipal Monga. Employers not only face a 52% increase in the regulatory cost of administering their pension plans by 2016, but they will also face a $150 billion surge in liabilities from longer-living retirees. This double-whammy comes just as companies thought their pension plans were starting to recover financial ground. Now the rising costs are forcing many companies to consider ways to cut pension expenses, including a move away from defined-benefit pensions plans to plans that shift the burden of retirement savings to workers. The situation is beginning to place something of a strain on labor relations, as employers back away from lifetime commitments to their retirees. More than 60 million American workers and retirees are covered by defined-benefit plans, according to the American Institute for Economic Research, though their numbers have been shrinking rapidly in recent years. “It’s a big deal,” said Caitlin Long, head of the corporate strategies group at Morgan Stanley. “It’s definitely causing companies to rethink the benefits of holding a pension.” Ms. Long estimated that the higher fees could add $20 billion in costs to companies’ $2 trillion in pension obligations over the life of the pension plans.

"'Zombie' pensions: when accounting practices hide the truth from taxpayers," by Bill Bergman, State Data Lab, March 6, 2014 ---
http://www.statedatalab.org/news/detail/zombie-pensions-when-accounting-practices-hide-the-truth-from-taxpayers

"With so many governments' public pension funds woefully underfunded, there's little doubt that some asset managers are taking higher risks with the funds' assets as they seek higher returns. The similarities to the evolution of the 1980s savings and loan crisis are troubling. Are we heading for an era of "zombie" pension funds?"

As financial troubles intensified at S&Ls, their managers had an incentive to make bigger bets on risky investments. This was possible because private funding continued to flow into troubled banks. After all, government safety nets, such as deposit insurance, had the S&L managers' backs and it was other people's money that was on the line. Edward Kane, a professor of finance at Boston College, called these troubled financial institutions "zombie banks." They were in essence financially dead but were allowed to continue operating. Managers were, in Kane's terms, "gambling for resurrection." … Kane's careful history indicates that this risky behavior and the financial conditions of these zombie banks were hidden by less-than-truthful accounting practices. There are alarming parallels to the financial crises faced by many state and local governments today. …”

 

'The Hidden Danger in Public Pension Funds:  Their investments expose government budgets and taxpayers to 10 times more risk than in 1975," Andrew G. Biggs, The Wall Street Journal, December 15, 2013 ---
http://online.wsj.com/news/articles/SB10001424052702303789604579196100329273892?mod=djemEditorialPage_h

The threat that public-employee pensions pose to state and local government finances is well known—witness the federal ruling earlier this month that Detroit's pension obligations are not sacrosanct in a municipal bankruptcy. Less well known is that pensions are larger and their investments riskier than at any point since public employees began unionizing in earnest nearly half a century ago.

Public pensions have long been advertised as offering generous, guaranteed benefits for public employees while collecting low and stable contributions from taxpayers. But with Detroit's bankruptcy filing, citing $3.5 billion in unfunded pension liabilities, and with four of the five largest municipal bankruptcies in U.S. history occurring in the past two years, reality tells us otherwise.

How much riskier are public pensions now? According to my research, public pensions pose roughly 10 times more risk to taxpayers and government budgets than in 1975. And while elected officials—a few Democratic mayors included—are now pushing for reforms, even they may not realize the danger.

In 1975, state and local pension assets were equal to 49% of annual government expenditures, according to my analysis of Federal Reserve data. Pension assets have nearly tripled to 143% of government outlays today. That's not because plans are better funded—today's plans are no better funded than in 1980—but mostly because pension plans have grown as public workforces have aged.

The ratio of active public employees to retirees has fallen drastically, according to the State Budget Crisis Task Force. Today it is 1.75 to 1; in 1950, it was 7 to 1. This means that a loss in pension investments has three times the impact on state and local budgets than 40 years ago. Enlarge Image

In a photo from Monday, Dec. 2, 2013, an empty field in Brush Park, north of Detroit's downtown is shown with an abandoned home. Associated Press

And pensions can expect to take losses more often because of increased investment risk. Public plans have historically assumed roughly an 8% rate of return. But thanks to falling yields on safe assets, pensions must invest in riskier assets to have any hope of getting 8% returns. A one-year Treasury bond in 1975 yielded a 5.9% return. In 1980, it offered 14.8%, and in 1985 an investor could expect 6.5%. Today, the Treasury yield hovers at 0.1%.

Meager yields leave America's enterprising public-pension plan managers with a choice: Accept a lower return—forcing higher taxpayer contributions—or take on more risk to keep 8% returns flowing. My estimate, based on Treasury yields and analysis from economists at the Office of the Comptroller of the Currency, is that a pension today must build a portfolio with a standard deviation—how much returns vary from year-to-year—of 14%. Such high volatility means that a fund would suffer losses roughly one out of every four years.

By contrast, in 1975 a plan could achieve 8% expected returns with a standard deviation of just 3.7%. Those portfolios would lose money once every 65 years. This level of risk varied little through the 1980s and 1990s: An 8% return portfolio in 1985 would require a standard deviation of 2.7%, and 4.3% in 1995. Risk began inching upward after 2000 and has increased rapidly since the recession as low-risk assets continue to fall.

These figures aren't theoretical. They represent public pensions' decades-long shift from safe bonds to risky stocks, along with the recent growth of "alternative investments" such as hedge funds and private equity. These alternatives are, according to Wilshire Consulting, 60% riskier than U.S. stocks and more than five times riskier than bonds.

Larger pensions and riskier investments combine to increase risk to state and local budgets. The standard deviation of public pension investments equaled 1.8% of state and local budgets in 1975. That figure crept upward to 2.2% in 1985, and reached 5.8% in 1995. Today it stands at 19.8%. Pension investment risk to budgets has risen roughly tenfold over the past four decades.

As pension plan managers in Detroit, California and elsewhere can attest, there aren't easy solutions. Mature pensions should move their investments away from risky assets, but many plan managers are doing the opposite in a double-or-nothing attempt to dig out of multitrillion-dollar funding shortfalls. In most instances, significant benefit cuts for current retirees who made the contributions asked of them is difficult to justify and legally problematic.

The only real option, then, is to make structural changes, including more modest benefits and increased risk-sharing between plan sponsors and public employees. But that will only happen if elected officials accept that they can't continue with business as usual without accumulating tremendous risk.

"The Problem of Dominated Funds," by Ian Ayres, Freakonomics, March 13, 2014 ---
http://freakonomics.com/2014/03/13/the-problem-of-dominated-funds/

This is the second in a series of posts about the problem of excess fees charged to defined contribution retirement plans.

Retirement regulations have largely been successful in giving worker/participant defined contribution plans the opportunity to diversify.  Most plans nowadays give participants a sufficient variety of investment options that it is possible to allocate investments so as to diversify away most idiosyncratic risks.

However, the 1974 Employment Retirement Income Security Act’s (ERISA) emphasis on diversification has diverted attention from the problem of excess costs.  Courts evaluating whether plan fiduciaries have acted prudently have tended to just ask whether the plan offered a sufficient number of reasonably-priced investment opportunities.  For example, in Hecker vs. Deer & Co. (7th Cir. 2009), the 7th Circuit found it was “untenable to suggest that all of the more than 2500 publicly available investment options had excessive expense ratios.”

The Hecker approach is wrongly decided because it effectively immunizes fiduciaries that offer what Quinn Curits and I call “dominated funds” in their fund menus.

A dominated fund is a fund that no reasonable investor would invest in given that plan’s other investment offerings.  In our recent working paper, we find that:

[A]pproximately 52% of plans have menus offering at least one dominated fund. In the plans that offer dominated funds, dominated funds hold 11.5% of plan assets and these dominated investments tend to be outperformed annually by their low-cost menu alternatives by more than 60 basis points.

Informed investors should be investing 0.0 percent of their plan assets in dominated funds, so it’s disturbing to see that when given the opportunity, 11.5 percent of plan assets flow into these funds.

To my mind, dominated funds are a kind of product design defect:

A car or computer manufacturer which included a button on their product which had no beneficial purpose and would only cause the device to perform less safely would run a substantial risk of being held accountable under product liability for failing “to design a product to prevent a foreseeable misuse.” The fact that informed consumers would not push the button would not absolve the manufacturer from including an option that no reasonable user should ever push if it was foreseeable that even some users would misuse the product by pressing the button. The likelihood of investor misallocation is just as foreseeable.

Even my own retirement plan at Yale may have a dominated funds problem.  The good news is that Yale has successfully negotiated with TIAA-CREF so that the Yale menu of funds now includes super-low cost “Institutional Class” index funds with a net expense ratio of just 7 basis points.  But the bad news is that Yale’s menu still includes a similar stock fund with much higher costs.  In my last retirement post, I wrote about how my Stanford “CREF Stock Account” charges 49 basis points (.49 percent) as its annual “Estimated Expense Charge.”  Yale has kept me in the higher cost fund even after it introduced the similar, lower cost option.  I’m not saying that this particular instance is a dominated fund problem, as the CREF Stock Account has a small amount of active management that may justify its higher fees.  I haven’t crunched those numbers to be sure.  But there’s a good chance that the Institutional Class index fund dominates.

Continued in article

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

From the CFO Journal's Morning Ledger on March 3, 2014

Falling audit fees may boost restatements According To Accounting Professors' Study
Audit fees have sagged since the recession, and that trend may increase the possibility of misstatements’ going undetected, according to a new study by Texas A&M University and University of Nebraska-Lincoln. Financial restatements are more likely among high-risk clients where risk appears not to be incorporated into audit fees, the study found, Saranya Kapur notes. “Lower fees are hindering auditors’ ability to be compensated for the risk they incur,” said Nathan Sharp, a professor at Texas A&M University and one of the authors of the paper.

"The Association Between Financial Reporting Risk and Audit Fees Before and After the Historic Events Surrounding SOX," by Shannon L. Charles  (Brigham Young University),  Steven M. Glover (Brigham Young University), and Nathan Y. Sharp (Texas A&M University), SSRN, September 1, 2008 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1275464

Jensen Comment
Congratulations to these accounting professors for getting their work cited in the financial press. Although it's not uncommon for finance and economics professors to be cited in the financial media, it is not common for accounting professors to be highlighted. It should be noted that the original study by Charles, Glover, and Sharp was first reported in 2008. Six years later the financial press seems to have picked up on this because of recent 2014 reports of declines in audit fees that currently disturb the SEC.

From the CFO Journal's Morning Ledger on February 25, 2014

SEC wary of declining auditor fees
U.S. securities regulators are wary that pressure to reduce auditor fees could lead to worse audits, Emily Chasan writes. Regulators grow “worried” when auditor fees appear to fluctuate with economic cycles, Paul Beswick, chief accountant at the SEC, said at a Practising Law Institute conference in Washington, D.C. “I wouldn’t actually think audit fees should fluctuate with the state of the economy,” Mr. Beswick said. “In fact, as the economy gets worse, I would think the auditors need to spend more time.” In financial crises, it is common for companies to say they are cutting payments to vendors by a certain percentage across the board, but Mr. Beswick says he’s heard “horror stories” about companies applying the same pay cuts to their auditors. When companies switch their audit firms they often receive initial-year fee discounts from auditors, but Mr. Beswick cautioned that companies should be careful that a lower fee isn’t the primary motivation for making the switch.

 

Related accounting research
"Pork Bellies and Public Company Audits: Have Audits Once Again Become Just Another Commodity?" SSRN, October 8, 2013 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2184413

"The Association Between Financial Reporting Risk and Audit Fees Before and After the Historic Events Surrounding SOX," SSRN, September 1, 2008 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1275464

"Empirical Evidence on Repeat Restatements," SSRN, May 1, 2013 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1748822

"Who’s Heard on the Street? Determinants and Consequences of Financial Analyst Coverage in the Business Press," SSRN, May 2013 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1800822

Auto dealerships are flexing their muscles first by controlling Cars.com. Secondly, (not mentioned in the article below) by lobbying state legislators to ban  Tesla direct sales that bypass dealers. The first state to ban direct selling of automobiles was New Jersey, which comes as no surprise. Other states will follow.

The article below reveals how Cars.com caters to dealers.

"Is Cars.com Really a Great Place to Find a Vehicle?" by Kyle Stock, Bloomberg Businessweek, March 10, 2014 ---
http://www.businessweek.com/articles/2014-03-10/is-cars-dot-com-really-a-great-place-to-find-a-vehicle 

Jensen Comment
When buying a new or used car from a dealer always pretend initially to be paying the full price in cash. Negotiate the best possible cash price on the model you want to buy. Then if you want to check on the interest rate (called the APR annual percentage rate) that the dealer will offer on financing terms. Many dealers compute the APR on the list price rather than a negotiated cash price. The list price makes the financing APR appear to be artificially low.

It's easy to use the Rate Function in Excel or a financial calculator to find the APR the dealer is really charging based upon the negotiated cash price. In fact, the dealer is obligated to compute that rate for you if you request the APR on the cash price. But always remember that "figures don't lie but liars figure." It's best to check the numbers yourself or have an accounting student verify the numbers.

I illustrate the use of Excel when buying a car from Earl Bob's dealership ---
www.cs.trinity.edu/~rjensen/Excel/FraudEarlBob.xls

The Good News and Bad News
"How five years of rock-bottom interest rates changed Britain," by Hilary Osborne, Patrick Collinson, Phillip Inman, Sean Farrell, and Larry Elliott, SmartPros, March 2, 2014 ---
http://accounting.smartpros.com/x75815.xml

Jensen Comment
Some things not mentioned in the article.

Firstly, mangers lose a lot of interest in managing cash. In the old days they carefully tried to partition cash in checking accounts versus cash equivalents that paid something on liquid investments. For example, a cash manager might put 80% of liquid savings into 30-day CDs that paid 2% in the good old days. Now they can't get 2% on five-year CDs? Investing in 30-day CDs is no longer worth the effort.

Secondly, when teaching time value of money there's a whole lot less drama around teaching compound interest. For example, comparing the present value versus future value of a five year CD paying 0.85% is not very dramatic for students who would rather eat, drink, and make merry!

Teaching Case on How More U.S. Firms Use Nonstandard Accounting Measures to Figure Executive Payouts
From The Wall Street Journal Accounting Weekly Review on March 7, 2014

Some Firms Alter the Bonus Playbook
by: Michael Rapoport
Feb 27, 2014
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com WSJ Video
 

TOPICS: Corporate Governance, Executive Compensation, Financial Accounting, GAAP, Goodwill

SUMMARY: From 2009 to 2013, the number of companies using non-GAAP financial measures to determine compensation grew from 249 to 542, 28% of the 1,957 firms with at least $700 million of stock held outside the company's control. In the related video, author Michael Rapoport focuses on McKesson Corp. The company reports non-GAAP metrics in announcements to shareholders and then further adjusts earnings measures for determining executive bonuses. "Such moves are on the rise at a time when the Securities and Exchange Commission has said it is scrutinizing nonstandard earnings measures."

CLASSROOM APPLICATION: The article and related video provide an excellent discussion for use in financial accounting classes covering non-GAAP earnings, executive compensation, and or goodwill accounting.

QUESTIONS: 
1. (Introductory) What is corporate governance?

2. (Advanced) Last year, McKesson's shareholders voted against the company's executive compensation pay package. Why then is the company still using this package? How does that situation reflect on the company's corporate governance?

3. (Introductory) What is incentive compensation?

4. (Advanced) Focus on the paragraphs about Trex Co. How did the company adjust its determination of income used as the basis for CEO Ronald W. Kaplan's incentive compensation? What was the reasoning for this treatment? Do you agree with this approach?

5. (Introductory) What is a goodwill write down?

6. (Advanced) Consider the Boston Scientific Corp. exclusion of goodwill writedowns from determining its CEO's incentive compensation. How might this adjustment set an improper incentive for the CEO?
 

Reviewed By: Judy Beckman, University of Rhode Island

"Some Firms Alter the Bonus Playbook," by Michael Rapoport, The Wall Street Journal, March 27, 2014 ---
http://online.wsj.com/news/articles/SB10001424052702304834704579405411156046356?mod=djem_jiewr_AC_domainid

More U.S. Firms Use Nonstandard Accounting Measures to Figure Executive Payouts
Graphs not quoted here

U.S. companies increasingly are using unconventional earnings measures in determining bonuses, making it easier for them to appear more profitable when they reward executives with big paydays.

Last year, 542 companies said they determine compensation using financial measurements that differ from U.S. accounting standards, according to an analysis performed by consultant Audit Analytics for The Wall Street Journal. That is more than double the 249 companies that did so in 2009. The practice can be controversial because it strips out various costs—from employee stock payments to asset write-downs—that can depress profits.

Such moves are on the rise at a time when the Securities and Exchange Commission has said it is scrutinizing nonstandard earnings measures. The commission declined to comment on their use in executive-pay decisions.

"Everything you can think of to manipulate this has been done," said Gary Hewitt, head of research at GMI Ratings, a corporate-governance research firm.

U.S. companies report quarterly results based on generally accepted accounting principles, or GAAP, but regulators also allow them to provide non-GAAP adjusted measures as long as they provide proper disclosure. Some companies use the non-GAAP measures as the basis for the profit targets they must hit to award incentive bonuses to executives.

Companies are allowed to use nonstandard measures in setting executive pay, and some observers said they better represent a company's health and its executives' performances by excluding items the companies don't see as relevant to their core operations. Others disagree.

"We're very frustrated with that," said Michael Pryce-Jones, a senior governance analyst at CtW Investment Group, which works with union pension funds on shareholder initiatives. When companies use such customized measures, he said, investors "are being given the upside, but they're not being given the downside."

For its analysis, Audit Analytics examined public firms with $700 million or more in stock not under the company's control. The results showed the use of nonstandard measures for executive pay has risen steadily each year since 2009. The 542 companies represent 28% of the 1,957 firms examined by Audit Analytics for 2013.

One example cited by some corporate-governance advocates: medical-products distributor McKesson Corp. MCK +0.34% , which awarded Chief Executive John Hammergren $51.7 million in compensation for fiscal 2013.

To help determine the $3.7 million he received in short-term incentive pay, McKesson used a measure of its earnings it adjusted not once but twice. It took the nonstandard earnings measures it disclosed to investors in its earnings reports, which already had stripped out a variety of expenses, to boost the year's earnings by 74 cents a share, to $6.33, and then stripped out more costs to increase earnings an additional 88 cents, to $7.21.

Activist shareholders have complained about McKesson's pay structure, including its use of handpicked metrics. Shareholders voted "no" by more than a 3-to-1 margin last year on a nonbinding resolution to approve the company's executive-compensation package.

"This is something we're absolutely focusing on, looking at adjustments being made in bonus plans," said Mr. Pryce-Jones of CtW Investment Group, which was active in the campaign against McKesson.

McKesson said its board "exercises great discipline" in deciding on pay, and its modifications are representative of its recurring performance and match how Wall Street views its profits.

Some others think the non-GAAP use is justified. "I really don't see the sort of blatant attempt to jigger the numbers so that someone gets more compensation than they're entitled to," said Charles Vaughn, a lawyer at Nelson Mullins Riley & Scarborough LLP in Atlanta who advises boards on compensation.

But other observers think some companies exclude some expenses from nonstandard measures that really shouldn't be excluded, like stock compensation, which they contend is a legitimate cost.

Continued in article

Bob Jensen's threads on pro forma earnings before all the bad stuff ---
http://www.trinity.edu/rjensen/Theory02.htm#ProForma

Teaching Case
From The Wall Street Journal Accounting Weekly Review on March 7, 2014

Citi Caught Sleeping in Mexico
by: John Carney
Feb 28, 2014
Click here to view the full article on WSJ.com
 

TOPICS: Factoring, Foreign Subsidiaries, Fraud, Fraud Detection

SUMMARY: On Friday, 2/28/14, Citigroup disclosed stolen funds of $400million through factoring activities. Citi's Mexican subsidiary provided financing of accounts receivables to Mexican oil-services company Oceanografia. Oceanografia, Citgroup says, falsified invoices to Petroleos Mexicanos, or Pemex, the giant, state-owned oil company.

CLASSROOM APPLICATION: The article is useful in a financial reporting class covering factoring, in a systems or auditing class covering internal controls, or in an international business class.

QUESTIONS: 
1. (Advanced) What is receivables-financing, also called factoring?

2. (Introductory) How did Mexican oil-services company Oceanografia obtain false receivables- financing from Citigroup?

3. (Advanced) Why does the fact that Citigroup missed this fraud for what may have been a long period of time pose concern for the bank's internal control system, particularly in Latin America? In your answer, identify an internal control or audit test that should uncover the fraud committed by Oceanografia.
 

Reviewed By: Judy Beckman, University of Rhode Island
 

RELATED ARTICLES: 
Citigroup Takes $400 Million Hit, Alleging Fraud in Mexico
by Saabira Chaudhuri, Amy Guthrie And Shayndi Raice
Mar 01, 2014
Page: B1

"Citi Caught Sleeping in Mexico," by John Carney, The Wall Street Journal, February 28, 2014 ---
http://online.wsj.com/news/articles/SB10001424052702304071004579411394085850728?mod=djem_jiewr_AC_domainid

As far as bank heists go, the one Citigroup C +0.59% disclosed Friday was big, about $400 million. Even though that might not move the needle much in terms of the bank's earnings, it raises questions for investors about its controls and ability to manage emerging-markets risks.

That's because the funds weren't carried away by a modern day Willie Sutton. They left the vault the way bank funds are supposed to, through loans.

These were made through a receivables-financing arrangement Citi's Mexican subsidiary had extended to Mexican oil-services company Oceanografia. Citigroup said invoices from state-owned Mexican oil giant Petróleos Mexicanos, or Pemex, which backed the loans, were falsified.

The after-tax hit to Citi's 2013 earnings of just $235 million was manageable, reducing net income to $13.7 billion from $13.9 billion. Still unclear is how many people were involved or how long it had been going on, although the large amount suggests it may have occurred over some time.

While this would be troublesome at any bank, it's a particular concern for Citi given much of its value lies in its international businesses. Growth in Latin America helped in the fourth quarter to offset a slowdown in Citi's mortgage business in North America.

About 8.6% of Citi's overall net income is generated in Mexico, Evercore estimates. And roughly 10% of Citi's consumer-loan book, or about $30 billion, is in that country.

All told, Citi had average assets of $180 billion in Latin America last year, equal to about 10% of assets in its core Citicorp business. And Latin America in 2013 generated the highest return on assets for the bank, at 1.85%, of any region.

The fraud is also unsettling because investors are already uneasy about emerging markets. Add to that Citi's long history of finding itself at the center of financial mishaps.

So while fraud can strike any bank, Citi has to prove to investors that this incident is an aberration and not a sign of some deeper malaise.

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

"Former accountant gets probation, jail for UW SWAP thefts," by Ed Trelevin, Wisconsin State Journal, March 7, 2014 ---
http://host.madison.com/wsj/news/local/crime_and_courts/former-accountant-gets-probation-jail-for-uw-swap-thefts/article_43046c14-df7d-5487-82e0-da87cc3404b6.html 

A former accountant for the UW-Madison SWAP program pleaded guilty Friday to embezzlement and was sentenced to probation and about 2½ months in jail.

Sonja M. Dedrick, 43, of Verona, has paid back all of the approximately $144,000 she took from the Surplus with a Purpose program in Verona between October 2012 and September 2013, Assistant District Attorney Paul Humphrey said.

Humphrey and Dedrick’s lawyer Brian Hough asked Dane County Circuit Judge William Hanrahan to put Dedrick on probation for three years, with 80 days in jail as a condition of probation.

Hanrahan agreed to the recommendation and also ordered that she not work handling other people’s money.

“This is not a single instance of you being overcome by your urges and instantaneously having regrets for it,” Hanrahan said, calling what Dedrick did a “breathtaking violation of the public trust.”

While Dedrick said she took the money because she had accumulated debts, Hanrahan told her that what she did “appears to be greed, no different than what I see from a number of people that come through here.”

According to a criminal complaint, Dedrick told police she took the money to pay bills and avoid foreclosure on her home, taking it in the form of SWAP’s daily receipts that were to be deposited into its bank accounts.

Hough said Dedrick had started paying back the money and had $23,485 more to pay back when she was arrested. He said she immediately confessed and took steps to pay back the rest of the money.

Dedrick apologized and said she takes full responsibility for the thefts.

Continued in article

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

USA States With the Most Fraud Complaints ---
http://247wallst.com/special-report/2014/03/07/ten-states-with-the-most-fraud-complaints/?utm_source=247WallStDailyNewsletter&utm_medium=email&utm_content=MAR072014A&utm_campaign=DailyNewsletter

Jensen Comment
I can't remember where, but I read that about 80% if the Medicare frauds are conducted in Florida, especially among the Cuban immigrants who have become notoriously skilled at scamming Medicare.

"Law School Applicants From Top Colleges Plunge 36%," by Paul Caron, TaxProf Blog, March 6, 2014 ---
http://taxprof.typepad.com/taxprof_blog/2014/03/law-school-applicants.html

. . .

The reasons for the drastic decline in applications among elite students are twofold:

1) Not all of these applicants get into top 14 schools. The median GPA/LSAT of this cohort is probably about 3.6/165. And that’s a high estimate. So, if there are 2,100 of these applicants, probably 1,200 of them get into top 14 schools. Another 500 or so probably get into top 20(ish) schools, as measured by Biglaw employment outcomes. That totals 1,700.

Unless one has a full, or nearly full scholarship, there is absolutely no point in an Ivy League grad attending anything less than a top 20(ish) school given the current rate of tuition. And they would have to think long and hard about attending anything outside of the top 14, or even the top 10. Why would a graduate with a good degree, and likely some decent employment options, sully their resume with a grad degree from a lesser institution, reduce their likelihood of employment and accumulate massive debt all at one time?

2) Even Harvard, Stanford and Yale are crappy options now if you don’t have financial support. These institutions rarely give merit scholarships, yet carry huge pricetags, so most middle class kids will be on the hook for $200k+ in debt. These days, many will be in the $250k+ range. This will require working at least 6 years in Biglaw to pay down the debt. That is quite the sacrifice, and quite the risk, for many in this group who always figured they could do exactly what they dreamed of with their lives.

Note that the potential changes to the Public Interest Loan Forgiveness laws will be a huge deterrent for potential applicants for this group as well—especially among women. I suppose a handful of these schools have their own generous loan forgiveness programs, but not all of them, and certainly none outside of the top 10 or so law schools.

Jensen Comment
Surprisingly Professor Caron does not go on to also state that some of the job opportunities in law aren't so hot even from the top law schools. By default, however, this seems to be the implication if the return on investment with high debt does not have a great expectation. Presumably the students getting those need-based scholarships have higher expected returns, although the top-paying law firms are not yet noted for affirmative action hiring.

This of course begs the question of where those 36% of those graduates from prestigious universities are turning for careers other than law. There is such an overwhelming supply of unemployed PhDs in most disciplines that opportunities do not abound in the PhD market. Most graduates from top schools did not have a chance to choose accounting as undergraduates and thus cannot be admitted to masters programs in accounting until taking 30+ credits of prerequisite undergraduate accounting courses. Many are probably leaning toward MBA programs. Prestigious MBA programs are very expensive, but since they are only two-year programs they are cheaper than law schools.

Some of those undergraduates strong in mathematics and economics might consider a PhD program in accounting where the job market is still hot. They might have to learn a bit of accounting, but the accounting prerequisites for accountancy PhD programs are minimal compared to prerequisites need to become a CPA ---
http://www.trinity.edu/rjensen/Theory01.htm#DoctoralPrograms

The advantage of accountancy PhD programs is that most of them are free in terms of tuition, room, and board since those programs put together packages of fellowships and assistantships that are good for about five full-time years. A drawback is that such programs take 5-6 years in comparison with an economics PhD that may only take 3-4 years.

Another drawback of accountancy PhD programs is lack of capacity. The really big programs that graduated 10+ accounting PhDs per year are down to graduating two or less per year on average ---
http://www.jrhasselback.com/AtgDoct/XDocChrt.pdf
Whereas thousands of PhDs in economics or engineering graduate each year, accounting programs graduating 200+ per year in the 1980s are down to less than 140 per year in recent times.

Thus the numbers of undergraduates from even our most prestigious universities have very limited opportunities for getting into accounting doctoral programs.

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

Teaching Case
From The Wall Street Journal Accounting Weekly Review on February 21, 2014

Health Law Already Has Impact on Bottom Lines
by: Noelle Knox
Feb 25, 2014
Click here to view the full article on WSJ.com
 

TOPICS: Earning Announcements, Earnings Forecasts, Financial Statements

SUMMARY: "More than 80 public companies told investors the new health-care rules were, or could be, a financial boost or drag on their quarterly earnings, though they were often uncertain of the magnitude, according to a Wall Street Journal search of earnings-call transcripts for the most recent quarter provided by FactSet... The Congressional Budget Office's most recent estimate of the ACA's budgetary impact is $1.36 trillion between 2014 and 2023...In general, media and advertising companies and staffing and outsourcing firms are clocking gains. Insurance providers are investing heavily now in technology and staffing-and taking a hit to earnings-in anticipation of future gains. And many large employers across industries are spending more on insurance benefits for full-time employees or on training for new, part-time employees...."

CLASSROOM APPLICATION: The article may be used in a financial reporting class to understand the use of financial statement data to investigate impact on specific companies and industries of the new Affordable Care Act (ACA or ObamaCare). The article provides a good comparison of this micro-economic analysis to macro-economic estimates from the Congressional Budget Office (CBO).

QUESTIONS: 
1. (Introductory) How did the Wall Street Journal prepare its analysis for this article?

2. (Advanced) In what two ways are large employers expecting cost increases from the impact of the Affordable Care Act (ACA or ObamaCare)? Which financial statement expense category or categories do you think will show these increases?

3. (Introductory) What types of industries expect increases in revenues from the impact of the Affordable Care Act (ACA or ObamaCare)?

4. (Advanced) To what financial reporting periods do these cost and revenue impacts relate? Why are these impacts being discussed in 2013 earnings call transcripts?
 

Reviewed By: Judy Beckman, University of Rhode Island

"Health Law Already Has Impact on Bottom Lines," by Noelle Knox, The Wall Street Journal, February 25, 2014 ---
http://online.wsj.com/news/articles/SB10001424052702304834704579403072411467200?mod=djem_jiewr_AC_domainid&mg=reno64-wsj

The Affordable Care Act's impact on the bottom line is starting to ripple across corporate America.

More than 80 public companies told investors the new health-care rules were, or could be, a financial boost or drag on their quarterly earnings, though they were often uncertain of the magnitude, according to a Wall Street Journal search of earnings-call transcripts for the most recent quarter provided by FactSet.

The Congressional Budget Office's most recent estimate of the ACA's budgetary impact is $1.36 trillion between 2014 and 2023. The financial effects on businesses are evolving as changes are made to the legislation, including a decision this month to again delay when many smaller companies will face a fine if they fail to offer health insurance.

But some trends are emerging.

In general, media and advertising companies and staffing and outsourcing firms are clocking gains. Insurance providers are investing heavily now in technology and staffing—and taking a hit to earnings—in anticipation of future gains.

And many large employers across industries are spending more on insurance benefits for full-time employees or on training for new, part-time employees who won't necessarily be entitled to company-sponsored coverage.

Several advertising and communications companies, including Emmis Communications Corp. EMMS +2.83% and LIN Media LIN +2.57% LLC, said they will register increases in spending on advertising and outreach campaigns to encourage enrollment through the new state and federal insurance exchanges.

Emmis is forecasting a 12% to 15% increase in health-care advertising this year, and up to 20% of that is expected to come from ACA-related advertising from insurers, hospitals and state-government agencies, Patrick Walsh, chief financial officer at Emmis, said in an interview.

The Indianapolis-based company's two biggest markets are New York and California, both states that have rolled out health exchanges. Mr. Walsh said Emmis's biggest radio stations are the hip-hop-music Power 106 and Hot 97, which target young, urban minorities. "Our audience is an attractive target for the exchanges," he noted.

Oscar Insurance Corp., for example, ran radio ads on Emmis's New York City Hot 97 radio station in conjunction with a Twitter and Facebook campaign to attract customers.

"Right now, the ACA-related spending is showing up in two places, as political advertising or as health-care advertising. But I foresee it becoming a completely new category as the space develops," said Edward Atorino, a media analyst at Benchmark Co. "The bigger markets have national TV covering them, but for the smaller ones, there is a real need to get the information about exchanges out there by telling people about the locations and phone numbers."

At the same time, employment-benefit and IT companies, such as Virtusa Corp. VRTU +4.74% and Automatic Data Processing Inc. ADP +1.85% say they are seeing more business as they help clients comply with the ACA's demands.

Virtusa, an IT consulting and outsourcing company based in Westborough, Mass., said that increased spending from health-care clients helped boost its fiscal-third-quarter operating profit 14% from the previous quarter.

Insurers and health-care providers are streamlining their IT infrastructures and revamping websites to provide more data to customers, said Ranjan Kalia, the company's CFO, adding, "We believe that this is a market driver."

However, he said Virtusa has also had to spend more to bring its own benefit plans for employees into compliance with ACA demands. He estimated Virtusa could spend "a few hundred thousand dollars" more on health care for its 900 U.S. employees when it renews its plans this summer.

Dozens of other large employers also warned investors that the cost of complying with the ACA will be sizable. United Parcel Service Inc., UPS +1.28% Pantry Inc. PTRY +4.13% and J&J Snack Foods Corp. JJSF +1.65% are among the companies that detailed the likely financial hit for broadening benefits coverage.

Pantry, which operates Kangaroo Express convenience stores, said the company hired 800 part-time employees late last year and spent an additional $700,000 on training. The new employees won't be eligible for company-sponsored health-care benefits.

Nevertheless, Pantry will spend up to $8 million more a year on health-insurance costs related to the ACA for its 6,600 full-time employees, said CFO B. Clyde Preslar.

J&J Snack Foods, maker of Super Pretzels and Icee frozen drinks, cautioned shareholders it will spend an additional $600,000, or $0.02 a share, this year on health-insurance coverage for its 3,300 employees.

But repeated changes in the law have made CFO Dennis Moore cautious about the financial impact. "The law keeps changing. That's another unknown. Who knows how many times it's going to change?"

Last week, Wal-Mart Stores Inc. WMT +1.62% said health-care expenses were a "headwind" last year and will continue to be this year. The company said "higher than anticipated" enrollment in its health-insurance program put "pressure on our benefits expense."

Widespread technical problems late last year with the health law's new online marketplaces helped push down enrollment for health-insurance companies offering plans on the government-backed websites, including Cigna Corp. CI +1.34% and WellPoint Inc. WLP +1.83%

In addition, the risk profile of the new enrollees has been skewing toward somewhat older, potentially higher-cost people, which could be a concern for the health plans' future earnings. Indeed, Cigna, Humana Inc. and Aetna Inc. AET +1.65% have all said that they expect to lose money this year on their public-exchange business.

WellPoint said the ACA would have a $100 million "unfavorable impact" on its earnings this year.

Continued in article

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

Teaching Case on How Much Harder Technology Firms Make it to Account for Purchased Goodwill and Unbooked Goodwill
From The Wall Street Journal Accounting Weekly Review on February 21, 2014

Facebook's Zuckerberg: WhatsApp Worth More than Its Price Tag
by: Sam Schechner
Feb 25, 2014
Click here to view the full article on WSJ.com
 

TOPICS: business combinations, Financial Ratios, Financial Statement Analysis

SUMMARY: Facebook's announcement that it has purchased WhatsApp for $19 billion-a company that had $20 million in sales last year-had most who heard about it wondering whether the Zuckerberg team had gone crazy. In the main article and its related video, Mr. Zuckerberg justifies the purchase price on the basis of its widespread use. In the related article, comparisons are made to Verizon Wireless's subscriber base and its recent purchase of the 45% of Verizon Wireless that was owned by Vodafone.

CLASSROOM APPLICATION: The article may be used in a class on business combinations or financial statement analysis.

QUESTIONS: 
1. (Introductory) What is so notable about Facebook's purchase of WhatsApp?

2. (Advanced) How does an acquirer generally decide on a purchase price for a target? Consider the related article in your answer.

3. (Introductory) Given Mark Zuckerberg's statements in the related video as well as the comments in the related article, do you think that Facebook approached their decision on buying WhatsApp similarly to any other acquisition the company has made? Support your answer.

4. (Advanced) What do you think will be the primary asset recorded in the entry made by Facebook upon finalizing this purchase of WhatsApp?
 

Reviewed By: Judy Beckman, University of Rhode Island
 

RELATED ARTICLES: 
Is Facebook' WhatsApp Deal Crazy? Let's Do Some Math
by Dennis Berman
Feb 25, 2014
Page: B1

"Facebook's Zuckerberg: WhatsApp Worth More than Its Price Tag," by Sam Schechner, The Wall Street Journal, February 26, 2014 ---
http://online.wsj.com/news/articles/SB10001424052702303426304579403160484584946?mod=djem_jiewr_AC_domainid

BARCELONA— Mark Zuckerberg has a message for doubters of Facebook Inc. FB +2.18% 's acquisition of mobile-messaging service WhatsApp: $19 billion was cheap.

The Facebook chief executive said Monday that the five-year-old mobile application was worth more than Facebook agreed to pay for it last week, because the app is a rare platform that has the potential to reach over a billion users.

In a question-and-answer session here at the yearly Mobile World Congress, Mr. Zuckerberg said that other messaging apps are already monetizing their users at $2 to $3 a head. Meanwhile WhatsApp, with little revenue so far, is on a trajectory to grow quickly from 450 million users to over a billion, Mr. Zuckerberg said.

"The reality is that there are very few services that reach a billion people in the world. They're all incredibly valuable, much more valuable than that," Mr. Zuckerberg said, referring to the price tag, which included $16 billion in cash and stock and $3 billion in restricted stock units.

Mr. Zuckerberg's comments underscore his company's complicated relationship with the room he was addressing. Telecommunications executives on one hand appreciate how Facebook drives people to subscribe to Internet service on home and on mobile phones—giving Mr. Zuckerberg top billing at their biggest conference.

But telecom chiefs—who also pride themselves on reaching billions—chafe at how Silicon Valley companies like Facebook capture much of the value of the Internet. Facebook's $175 billion market capitalization dwarfs that of almost every telecommunication firm.

During the 45-minute-long discussion, Mr. Zuckerberg spoke mostly about a Facebook-led coalition that aims to push operators to connect poor people in emerging countries to the Internet, by offering "on-ramp" Internet service, with free access to some services like Facebook. He also reiterated his view that the U.S. government had "blown it," when it came to being transparent about its surveillance activities, following leaks from former U.S. National Security Agency contractor Edward Snowden.

The subject, however, did keep coming back to Facebook's deep pockets. Asked if he was prepared to make another run at messaging-service Snapchat, which Facebook had explored buying last year, Mr. Zuckerberg chuckled.

"After buying a company for $16 billion," he said, "you're probably done for a little while."

Bob Jensen's threads on goodwill accounting are at
http://www.trinity.edu/rjensen/theory02.htm#Impairment

 

Teaching Case
From The Wall Street Journal Accounting Weekly Review on February 21, 2014

Expired 'Bonus Depreciation' Tax Break Could be Cash Flow Drag
by: Emily Chasan
Feb 18, 2014
Click here to view the full article on WSJ.com
 

TOPICS: Corporate Tax, Depreciation

SUMMARY: "'Bonus depreciation' has been especially popular among energy, utility and industrial companies over the last several years and helped reduce corporate tax bills. It has had a big impact on capital spending patterns and corporate cash flows..." but expired at the end of 2012 along with 55 other items tax items that have not been extended for 2013. " [I]t isn't clear if the bonus depreciation will be extended in whole or in part...Last year, the Congressional Research Service published a report saying the perk 'had no more than a minor effect' on business investment [but c]ompanies are still optimistic."

CLASSROOM APPLICATION: The article may be used in a corporate tax class or when covering book tax differences and deferred tax liabilities in a financial reporting class.

QUESTIONS: 
1. (Advanced) What recent changes have occurred in the tax code under Section 179? Why did this change occur?

2. (Introductory) How did the bonus depreciation deduction impact corporate cash flows during 2011? How is the possible change in tax code expected to affect corporate cash flows?

3. (Advanced) What uncertainty is evident in the discussion in this article? How do you think that uncertainty impacts corporate behavior? The overall U.S. economy?
 

Reviewed By: Judy Beckman, University of Rhode Island

"Expired 'Bonus Depreciation' Tax Break Could be Cash Flow Drag," by Emily Chasan, The Wall Street Journal, February 18, 2014 ---
http://blogs.wsj.com/cfo/2014/02/18/expired-bonus-depreciation-tax-brea-could-be-cash-flow-drag/?mod=wsj_cfohome_cforeport?mod=djem_jiewr_AC_domainid

The absence of a popular corporate tax break for equipment purchases this year could drag down cash flow numbers for capital intensive companies.

The tax break, known as “bonus depreciation” has been especially popular among energy, utility and industrial companies over the last several years and helped reduce corporate tax bills. It has had a big impact on capital spending patterns and corporate cash flows because it reduces the amount of taxes companies have to pay, David Zion, a tax and accounting analyst at ISI Group, said in a recent note to clients.

Normally companies can recover the cost of pricey capital investments or equipment purchases through depreciation deductions claimed steadily over several years. But bonus depreciation effectively turbocharges those deductions, allowing companies to frontload deductions years earlier and retain more capital when they are trying to grow.

Over the past two years, business owners could deduct as much as $500,000 from their taxable income in the first year on up to $2 million of equipment purchased, and add on an enhanced 50% bonus depreciation. Now that the tax break and deduction limits under Section 179 have expired, companies can only claim $25,000 of extra depreciation in year-one on $200,000 of equipment purchases.

The tax break “distorts cash flows,” Mr. Zion wrote. “It drives them up temporarily when it’s in place and pulls them back down again when it goes away.”

Mr. Zion estimates that accelerated depreciation provided an aggregate cash flow boost to S&P 500 companies of about $79 billion in 2011. If the tax break, which expired at the end of last year, is not renewed it would drag down cash flows by about $67 billion a year. Equipment sellers may also see reduced sales this year because some businesses likely made their acquisitions in the fourth quarter of last year, ahead of the expiration, Mr. Zion noted.

Senate Majority Leader Harry Reid, (D., Nev.), is sponsoring a bill to renew many of the 55 so-called tax extenders that expired at the end of last year. His bill, S. 1859, would extend bonus depreciation until Jan. 1, 2016, but has yet to be called for a vote. Sen. Ron Wyden, (D., Ore.), said in an interview with Bloomberg last week that one of his top priorities as the new chairman of the Senate Finance Committee would be to reinstate the expired credits and deductions.

Still, it isn’t clear if the bonus depreciation will be extended in whole or in part. Bonus depreciation is “expensive, has a spotty track record as a stimulus and it’s lapsed in the past,” Mr. Zion noted. Last year, the Congressional Research Service published a report saying the perk “had no more than a minor effect” on business investment.

Companies are still optimistic. Farm machinery seller DeereDE +1.13% & Co., said last week it expects the tax break, which has propelled farm equipment sales in the past few years, to be renewed. But the company expects the deduction level to be capped at $250,000 rather than the previous $500,000 level.

Teaching Case
From The Wall Street Journal Accounting Weekly Review on February 21, 2014

Inside Target, CEO Struggles to Regain Shoppers' Trust
by: Monica Langley
Feb 19, 2014
Click here to view the full article on WSJ.com
 

TOPICS: Internal Auditing, Managerial Accounting, Quality Costs

SUMMARY: This article describes Target CEO Gregg Steinhafel's activities from the moment he learned, according to initial information, that "credit and debit card numbers of about 40 million Target customers had been stolen." It is clear from the description in the article that the CEO himself focuses on quality management in his everyday activities. "The executives acknowledge the crisis has damaged the retailer's bull's eye brand, while analysts estimate it may cost Target billions of dollars."

CLASSROOM APPLICATION: The article may be used to introduce total quality management and costs of quality in a case likely familiar to most students and using the quality of the company's store experience rather than specific product costs.

QUESTIONS: 
1. (Advanced) How does the breach of Target's computer systems with malware that obtained customers' credit and debit card information represent a breach of total quality management?

2. (Introductory) From the overall description of Target CEO Gregg Steinhafel's activities, how much does he focus on the costs of quality? What quality does he focus on?

3. (Advanced) How does Target's CEO himself perform tasks considered to be operational auditing steps? Give one example of his activities falling into this category and explain how auditing steps help to support quality management at Target.
 

Reviewed By: Judy Beckman, University of Rhode Island

"Inside Target, CEO Struggles to Regain Shoppers' Trust," by Monica Langley, The Wall Street Journal, February 19, 2014 ---
http://online.wsj.com/news/articles/SB10001424052702304703804579382941509180758?mod=djem_jiewr_AC_domainid&mg=reno64-wsj

MINNEAPOLIS—Executives settled around a square table inside a Target Corp. TGT +3.10% conference room here earlier this month and munched on store-brand snacks as they chewed over something far less appetizing.

Opinion surveys commissioned by the company found that the massive cybertheft that waylaid Target late last year had knocked confidence and trust in the 51-year-old retailer to an all-time low.

Some of the executives were frustrated. Target was having trouble shaking the fallout from a key decision by Chief Executive Gregg Steinhafel that made the crisis appear even worse than it already was.

The initial evidence had indicated that credit and debit card numbers of about 40 million Target customers had been stolen. But the retailer had learned later that hackers gained access to partial names and physical or email addresses for as many as 70 million people—a breach that some top executives counseled against disclosing because it was unclear what kind of fraud danger it posed.

Nevertheless, Mr. Steinhafel insisted on making the bigger number public, sparking news reports that as many as 110 million Target customers had been affected.

At the meeting, Chief Marketing Officer Jeffrey Jones groused about the huge number. The public "keeps hearing that equals one third of all Americans," he said. "That's hammering us."

Mr. Steinhafel says he has no regrets about the aggressive disclosure and other costly decisions in the wake of the crisis. "Target won't be defined by the breach, but how we handle the breach," he says.

This account of how Target executives responded to one of the biggest challenges in the company's history is based on interviews with Mr. Steinhafel, Mr. Jones, Chief Financial Officer John Mulligan and other top executives and includes their recollections of internal discussions.

The executives acknowledge the crisis has damaged the retailer's bull's-eye brand, while analysts estimate it may cost Target billions of dollars. During the holiday-shopping season, Target's sales and store traffic plummeted. Call-center volume overwhelmed employees. Executives testified before congressional panels, and the company is facing federal and state investigations into how the cybercrime occurred from its store registers and computer network.

Millions of Target customers were inconvenienced and frightened by the breach, but it isn't clear how many have been victims of fraud. Not every card swiped at Target registers during that time period in question had its number stolen. But all types of cards were affected, from Target's store brand to Visa, V -0.15% MasterCard MA -0.05% and American Express. AXP +1.10% The thieves then sold the card numbers on the black market, after which some shoppers began seeing fraudulent charges.

Continued in article

Teaching Case on Contingent Liabilities
From The Wall Street Journal Accounting Weekly Review on February 21, 2014

Cisco is Hit by Sagging Global Demand
by: Don Clark
Feb 13, 2014
Click here to view the full article on WSJ.com
 

TOPICS: Contingent Liabilities, Interim Financial Statements

SUMMARY: This article describes fiscal second quarter results for Cisco Systems. The company reported a charge of $655 million to repair faulty chips. The press release is available at http://www.sec.gov/Archives/edgar/data/858877/000119312514048150/d675402dex991.htm In it, the company reports non-GAAP results which exclude this charge.

CLASSROOM APPLICATION: The article may be used to discuss contingent liabilities, quarterly reporting requirements resulting in the charge for defective chip repairs in one quarter, and non-GAAP reporting issues in financial accounting classes. The managerial accounting topic of quality cost also is covered. This product-related issue might be compared to coverage of Target's woes covered under another article in this review

QUESTIONS: 
1. (Introductory) Define the term contingent liability.

2. (Advanced) Based on the description in the article, is the "$655 million charge to cover the costs of addressing the memory-chip problem" a contingent liability? Support your answer.

3. (Advanced) Access the Cisco press release of its fiscal second quarter results for the period ended January 25, 2014, filed with the SEC on February 12, 2014, and available at http://www.sec.gov/Archives/edgar/data/858877/000119312514048150/d675402dex991.htm Refer to the statement that "GAAP net income for the second quarter of fiscal 2014 included a pre-tax charge of $655 million related to the expected cost of remediation of issues with memory components in certain products sold in prior fiscal years." Why must the $655 million cost be recorded in one quarter's financial statements when it relates to chips sold in prior fiscal years? Identify all relevant areas of financial reporting requirements that you consider in answering this question.

4. (Advanced) In its press release, Cisco says "this [$655 million] charge was excluded from non-GAAP net income and earnings per share." Do you agree this is a relevant treatment to identify the company's performance? In your answer, include a brief definition of reporting non-GAAP results by U.S. companies.
 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Cisco is Hit by Sagging Global Demand," by Don Clark, The Wall Street Journal, February 13, 2014 ---
http://online.wsj.com/news/articles/SB10001424052702304434104579379060551981486?mod=djem_jiewr_AC_domainid&mg=reno64-wsj

Cisco Systems Inc. CSCO -0.55% continues to face sagging demand for some important products, a problem exacerbated in its fiscal second quarter by some faulty memory chips.

The network-equipment giant on Wednesday reported a 55% drop in income for the quarter, blaming a $655 million charge to cover the costs of addressing the memory-chip problem. Cisco's revenue declined 7.8%,

That's a bit better than its forecast in November for an 8% to 10% revenue decline. Cisco predicted Thursday revenue would decline an additional 6% to 8% in the current quarter.

Cisco's shares slid 4% in after-hours trading to $21.94.

John Chambers, Cisco's chief executive, said the company faces a slowdown in orders from emerging economies and "product transition" issues, as customers hold up purchases to evaluate its latest switching and routing equipment.

The company said switching revenue declined 12% in the second quarter, while revenue from routers declined 11%.

Cisco faces stiff competition in those markets, including new rivals that are attempting to shift some switching chores to general-purpose server systems. Mr. Chambers said the company is actually gaining market share in some segments of the switching market, and said orders are picking up for its new products.

On another positive note, Mr. Chambers predicted that a broad trend of connecting everyday products to the Internet—which Cisco calls the Internet of Everything—would begin to impact its business positively soon.

"The Internet of Everything has moved from an interesting concept to a business imperative," Mr. Chambers said during a conference call with analysts, predicting that 2014 will be an "inflection point" for sales of such technologies.

But Bill Kreher, an analyst at Edward Jones, said he sees stiffening competition and other issues making it tougher for Cisco to return to growth in its current fiscal year. "There was some hope, but now it appear that that's evaporating," he said.

The Silicon Valley company, which is seen as a bellwether for corporate technology spending, in November reported a sharp drop in orders in China, Brazil, Mexico, India and Russia. Cisco said the picture improved somewhat in the second period, with aggregate orders from such emerging economies declined 3%, compared with 12% in the first quarter.

Cisco, whose routers and switching gear funnel traffic on corporate campuses and over the Internet, has also built up a fast-growing line of servers. But the company signaled last year that it expected business to slow and said it was moving to trim some 4,000 jobs, or 5% of its workforce.

For the period ended Jan. 25, Cisco reported a profit of $1.43 billion, or 27 cents a share, down from $3.14 billion, or 59 cents a share, a year earlier. Excluding stock-based compensation, acquisition-related costs and other items, adjusted profit slipped to 47 cents from 51 cents. Revenue dropped to $11.2 billion.

Analysts on that basis had expected per share earnings of 46 cents on revenues of about $11 billion, according to Thomson Reuters.

In the current quarter, Cisco predicted adjusted earnings per share of 47 cents to 49 cents. Analysts had been expected 48 cents.

Cisco said the memory chips were used in a number of products it sold to customers between 2005 and 2010, and were purchased from a single supplier it didn't identify. The company said the majority of the affected hardware is beyond Cisco's warranty terms, and failure rates are low, but said Cisco is nevertheless working with customers to mitigate the problem. A company spokesman declined to comment on whether Cisco would get any compensation from the chip company.

The company on Wednesday boosted its quarterly dividend to 19 cents a share, up two cents.

Bob Jensen's threads on intangibles and contingencies ---
http://www.trinity.edu/rjensen/Theory01.htm#TheoryDisputes

"360-Degree Post Decision Reviews," AAA Commons, February 25, 2014 ---
http://commons.aaahq.org/posts/7d642a520a

An important part of the role of the senior editors is to measure performance of the Journal of Information Systems. There are many different ways that we can understand how well JIS is fulfilling its mission. One of the very important dimensions is to quantity the quality of the author feedback process. Our ambition is to provide a welcoming, productive, and responsive review process. This process involves senior editors, editors and reviewers as well as authors. We now have 360-degree feedback on the manuscript review process.

The concept of 360-degree feedback is widely used in human resource management. Supervisors review subordinates. Subordinates and stakeholders (internal customers) review supervisors. Recently, the US Department of Defense has rolled out 360-degree feedback across the military. The Chief of Staff of the Army Gen. Ray Odierno says “I believe that multi-dimensional feedback is an important component to holistic leader development. By encouraging input from peers, subordinates and superiors alike, leaders can better see themselves and increase self-awareness. ... The ability to receive honest and candid feedback, in an anonymous manner, is a great opportunity to facilitate positive leadership growth.”

At JIS, 360-degree feedback commences shortly after the review process ends, whether the paper is accepted or rejected. Each of the authors and reviewers and the designated editor receive targeted emails that point to a survey on Qualtrics.com. Authors answer questions on the submission process, the nature and quality of the reviews received, and support from the editor and senior editors, where appropriate. For example, authors answer questions, using a Likert scale response, such as “the feedback provided by the review team was constructive” and “the feedback provided by the review team helped me improve the manuscript.” Reviewers also answer questions that are specific to their role in the process. At the conclusion of the survey we ask a set of questions for both authors and reviewers including “How likely is it that you will accept future reviewing requests at JIS?” and “How likely is it that you will recommend to colleagues to submit their research to JIS?”

We will maintain strict confidentially on review responses. As the introduction to the survey notes, “All your responses will be read only by ourselves as Senior Editors and confidentiality will be maintained. Your responses will be aggregated with other responses, to generate high-level performance metrics for the JIS community.”

Data from the 360-degree feedback will assist us in a variety of ways. First, it will help us to understand how well we are managing the review process. How well do authors feel that we are supporting them in the review process? Is the process timely and efficient? Are the views of authors and reviewers aligned? Are we providing appropriate guidance to editors and reviewers? Second, the surveys will provide the foundation for identifying “Outstanding Reviewers” and “Outstanding Editor,” presented at the Annual Meeting of the AAA.

Continued in article

Jensen Comment
 
Thank you Roger for posting on the Commons.

 

Jensen Comment
I'm a big fan of the AMT and hope that it will become even more taxing in future tax reforms. The AMT should also apply to giant corporations like GE AND Starbucks that pay almost no corporate income taxes.

"Beware the Stealth Tax: How to Minimize the Damage of the Alternative Minimum Tax," by Laura Saunders, The Wall Street Journal, February 28, 2014 ---
http://online.wsj.com/news/articles/SB10001424052702304071004579409051347967392?mod=WSJ_hps_MIDDLE_Video_Third&mg=reno64-wsj

Lee Linton never dreamed he would owe the alternative minimum tax, a levy first imposed nearly 50 years ago to keep the wealthy from overusing tax breaks.

"I thought the AMT was for people with stock options or fancy tax moves," says the 55-year-old utility engineer, who lives in Crystal River, Fla. "But I'm single and take the standard deduction."

Yet when Mr. Linton recently figured his 2013 taxes, he owed $3,000 of AMT on top of his regular tax bill—probably because he took $90,000 of capital gains last year in rearranging his portfolio for retirement. He says his marginal tax rate on the sale topped 27%, nearly double the 15% rate he expected to pay on his long-term capital gains.

"If I had seen it coming, I would have spread the sale over two years," Mr. Linton says. Now he is warning friends that "the AMT isn't just a tax for the 1%."

Indeed it isn't. According to estimates by the Tax Policy Center, a nonpartisan research group in Washington, the alternative minimum tax will raise about $26 billion from four million taxpayers in 2013, nearly two-thirds of them with incomes between $200,000 and $500,000 (see chart on this page).

(Bar chart not shown here)

The average AMT paid by those subject to it was $7,212 in 2011, according to the most recent data from the Internal Revenue Service.

The levy these taxpayers face is one that National Taxpayer Advocate Nina Olson calls "a Rube Goldberg contraption of unnecessary complexity." In essence, it is a flat tax that rescinds valuable benefits, such as deductions and exemptions, and eliminates the benefit of lower brackets in the regular tax.

Taxpayers have to figure their tax under both the AMT and regular systems and, if the AMT exceeds the regular tax, pay the excess amount.

Years ago, say experts, the AMT was typically owed by wealthy investors or executives who had benefited from breaks for incentive stock options, accelerated depreciation on assets, intangible drilling costs and the like.

But not now. Lawmakers enacted adjustments that prevented 28 million new taxpayers from owing AMT for 2013 in last year's fiscal-cliff legislation. But they didn't undo the effects of many earlier years of inflation that still pulls in many others, says Roberton Williams, a Tax Policy Center expert.

As a result, the AMT now applies to eight times as many taxpayers as it did 20 years ago, and common AMT "triggers" often are less esoteric than in the past. "They can be as simple as having three or more children, taking a large capital gain, or—especially—deducting state and local taxes," says Dave Kautter, managing director at American University's Kogod Tax Center, who studies the AMT.

Some taxpayers, like Mr. Linton, are blindsided by the AMT because of this expansion. Others don't see it coming because the levy's impact is unpredictable, the result of odd interactions between two utterly different systems.

Larry Gottlieb, an 83-year-old retired pathologist in Madison, Wis., says he will owe AMT for the first time this year. It will add $900 to his regular tax bill, even though virtually all his income is from an individual retirement account and his modest deductions have changed little since last year.

"My frustration is, I can't figure out what triggered it," he says.

For taxpayers struggling with the AMT, there is some good news: Congress's top tax-policy makers—House Ways & Means Committee Chairman Dave Camp (R., Mich.) and Senate Finance Committee Chairman Ron Wyden (D., Ore.)—both advocate ending the levy, and AMT repeal is included in Rep. Camp's tax-overhaul proposal, which he released Wednesday.

But that could be long in coming, especially as lawmakers will need to make up lost revenue from elsewhere. Until then, here is what taxpayers need to know about the AMT to help minimize or even avoid it.

What's the rate?

The AMT's rate isn't always what it is advertised to be, and neither is the exemption. Its top nominal rate is 28%, and the 2013 exemption is $80,800 of AMT income for married couples filing jointly ($51,900 for single filers).

But taxpayers should take those numbers with a grain of salt. Because the AMT's exemption phases out starting at $156,500 for couples and $117,300 for singles, a taxpayer's marginal rate can be 35% during the phaseout.

"This can be a trap for people who assume their AMT rate will be 28%," Kogod's Mr. Kautter says. Once the phaseout is complete, the taxpayer may return to a 28% AMT rate or re-enter the regular tax system.

Taxpayers also should be aware that "AMT income," and therefore the AMT exemption, often bears little relation to figures appearing elsewhere on the tax return, such as adjusted gross income or taxable income, because the AMT is a separate system with a different definition of income.

Some write-offs are more equal than others.

The AMT allows some deductions, clips others and disallows others entirely.

Deductions allowed by the AMT include charitable contributions and mortgage interest—but not home-equity-loan interest, with some exceptions.

Curtailed deductions in 2013 include some medical and dental expenses normally allowed for people over 65, plus a variety of business items, such as depreciation and net operating losses, that are postponed until later years.

Disallowed deductions include those for state and local taxes, plus miscellaneous items such as unreimbursed travel expenses and investment fees.

Experts say that high state and local taxes are one of the most important AMT triggers for many people, either alone or in combination with others. High-tax states tend to have the highest percentages of AMT taxpayers (see chart on this page). A small consolation for this large deduction loss is that often all or part of a state tax refund isn't taxable under the AMT, either.

For a full list of AMT "preferences," as the disallowed benefits are called, see IRS Form 6251 and its instructions.

There's nothing standard about the standard deduction.

Taxpayers who don't itemize their deductions separately on Schedule A typically claim the standard deduction instead. For 2013, it is $12,200 for married couples and $6,100 for single filers.

But the standard deduction is disallowed under the AMT. Thus Mr. Kautter advises AMT payers who usually take it to see whether they could save tax by itemizing deductions such as mortgage interest and charitable contributions on Schedule A—even if the total comes to less than the standard deduction would.

"It could be the difference between getting a partial deduction and none at all," he says.

The AMT is family-unfriendly.

For 2013, each personal and dependent exemption is worth $3,900 under the regular tax. (A dependent is typically your child or someone you support by paying more than half their expenses.) Under the AMT, these deductions aren't allowed.

While family size obviously shouldn't be determined by the AMT, experts say that taxpayers with large families should remember they are more likely to owe the tax than others, especially if they have other triggers.

Beware of investment income.

Long-term capital gains aren't a formal trigger for the AMT, and long-term gains and qualified dividends remain taxed at lower rates even for AMT taxpayers. And no, the AMT doesn't limit the use of capital losses.

But taxpayers shouldn't ignore the potential for investment income to act as an informal AMT trigger.

Continued in article

Jensen Comment
I'm a big fan of the AMT and hope that it will become even more taxing in future tax reforms. The AMT should also apply to giant corporations like GE that pay almost no corporate income taxes.

"G.E.’s Strategies Let It Avoid Taxes Altogether," by David Kocieniewski, The New York Times, March 31, 2011 ---
http://www.nytimes.com/2011/03/25/business/economy/25tax.html?pagewanted=all&_r=0

General Electric, the nation’s largest corporation, had a very good year in 2010.

The company reported worldwide profits of $14.2 billion, and said $5.1 billion of the total came from its operations in the United States.

Its American tax bill? None. In fact, G.E. claimed a tax benefit of $3.2 billion.

That may be hard to fathom for the millions of American business owners and households now preparing their own returns, but low taxes are nothing new for G.E. The company has been cutting the percentage of its American profits paid to the Internal Revenue Service for years, resulting in a far lower rate than at most multinational companies.

Its extraordinary success is based on an aggressive strategy that mixes fierce lobbying for tax breaks and innovative accounting that enables it to concentrate its profits offshore. G.E.’s giant tax department, led by a bow-tied former Treasury official named John Samuels, is often referred to as the world’s best tax law firm. Indeed, the company’s slogan “Imagination at Work” fits this department well. The team includes former officials not just from the Treasury, but also from the I.R.S. and virtually all the tax-writing committees in Congress.

While General Electric is one of the most skilled at reducing its tax burden, many other companies have become better at this as well. Although the top corporate tax rate in the United States is 35 percent, one of the highest in the world, companies have been increasingly using a maze of shelters, tax credits and subsidies to pay far less.

In a regulatory filing just a week before the Japanese disaster put a spotlight on the company’s nuclear reactor business, G.E.

Continued in article

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

I can think of all sorts of ways to use the video below in a course on financial risks and hedging.

It can also be features in terms of the impact of zero-interest rates and Quantitative Easing on investing for retirement .

Leave the Driving to the Bus Driver But Bring Your Own Depends ---
http://www.20min.ch/ro/videotv/?vid=339276
I keep wondering what will happen when all the folks on the right side grow weary of looking at a wall and step over to the left side to see what all the excitement is about. That might sink a boat, but what about a bus?

I think Tom is making the same mistake that Kenneth MacNeal made in 1939:
Truth in Accounting
by Kenneth MacNeal
1939
http://books.google.ca/books/about/Truth_in_accounting.html?id=GkwPAQAAMAAJ

"Accounting Complexity: What if “Truth in Labeling” were an Accounting Principle?" by Tom Selling, The Accounting Onion, March 3, 2014 ---
http://accountingonion.com/2014/03/accounting-complexity-what-if-truth-in-labeling-were-an-accounting-principle.html

“I do not deny that what happened to us is a thing worth laughing at. But it is not worth telling, for not everyone is sufficiently intelligent to be able to see things from the right point of view.”  — Don Quixote

Battered and bruised from tilting at the windmill of accounting convergence, the FASB sets forth on another quixotic adventure against an immovable object: accounting complexity.

I’m sure that we can all recite the standard explanations for why accounting standards have become so complex, and why that complexity will prove impossible to undo: the growing complexity itself of commercial arrangements, special interests desirous of emasculating the plaintiffs’ bar or having sufficient tools to manage earnings, etcetera, etcetera, etcetera.

But, another explanation has recently occurred to me, which if not an original thought, is one that I wasn’t heretofore aware of: the absence of a “Truth in Labeling” principle.

To explain what I mean, let’s start with one of the most ubiquitous mis-labelings on the balance sheet: property, plant and equipment.  To an innocent reader of financial statements, “PP&E” should indicate that a number is a measure of some attribute of an asset, when in fact, it’s not.  It’s not any of the financial attributes we usually think of, like historic cost, current cost to replace, value received if sold, or the the expected present value of future benefits to be derived from the asset by the entity.

So, what is that number labeled “PP&E”?  In the best of circumstances, it is the “undepreciated cost of PP&E in (very) old units of purchasing power.”

If this hash of a number is the best information that we accountants are capable of producing for investors, who can blame us for not coming clean with a truthful label?  Right.

Next, let’s consider the issue of asset impairment.  Whoops, another mislabeling.

If a company owns a fleet of vehicles for which the carrying amount is supposed to be written down in accordance with the complex GAAP that is the “asset impairment” rules, is it because there is something wrong with the vehicles that impairs their usefulness?  Nope; it’s only that there is something wrong with the way the vehicles were accounted for in prior periods.

Truth in Labeling Will Set us Free

There are two points I want to make from this example.  The first, and smaller point is that without truth in labeling, accounting is not being as forthright as it could easily, and should, be.  We can argue about why mislabeling occurs, but that doesn’t change the fact that those who would address accounting complexity could do worse than by at least acknowledging the ubiquity of our truth in labeling problem.  PP&E is one of tens of examples we could come up with.

The larger point is that calling things what they actually are is the only way to understand whether complexity is necessary or unwelcome.  Of impairment, for example, if PP&E were labeled correctly we would have to ask of what use are such complex impairment recognition and measurement rules when applied to a number can never considered to be “correct” in any sense to begin with — i.e.,  merely an undepreciated cost stated in ancient units of purchasing power.

Continued in article

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

Truth is most often used to mean in accord with fact or reality, or fidelity to an original or to a standard or ideal.

The commonly understood opposite of truth is falsehood, which, correspondingly, can also take on a logical, factual, or ethical meaning. The concept of truth is discussed and debated in several contexts, including philosophy and religion. Many human activities depend upon the concept, where it is assumed rather than being a subject of discussion; these include science, law, and everyday life.

Various theories and views of truth continue to be debated among scholars, philosophers, and theologians. Language and words are a means by which humans convey information to one another and the method used to determine what is a "truth" is termed a criterion of truth. There are differing claims on such questions as what constitutes truth: what things are truthbearers capable of being true or false; how to define and identify truth; the roles that faith-based and empirically based knowledge play; and whether truth is subjective or objective, relative or absolute.

Continued in article

Jensen Comment
I generally have trouble with the label "truth" itself or "truth in labeling." There are some assertions that are true because they are historical facts than cannot be disputed such as the price paid by Southwest Airlines for a particular Boeing 737 aircraft was $86,256.083.37 in a cash deal. The name on my New Hampshire driver's license is Robert Eugene Jensen. These assertions are facts that can be verified to be "truthful" because they are accepted as historical reality subject to verification by any reasonable person for whatever purpose.

But as we depart from undisputed historical reality, the word "truth" has to be put in some type of context. The book value to be placed on the above aircraft two years later on a balance sheet can be truth only if we arbitrarily define "truth."

Historical Cost Book Value "Truth"
For example, we can define "truth" in terms of a depreciation formula and then report a "truthful" historical cost book value $77,246,318.47 as derived from that formula. It is "truth" only based upon conditional acceptance of the depreciation formula. AC Littleton argued his whole professional life that this was not intended to be truth in terms of any type of "value." Historical cost book value on the balance sheet is "truth" on the balance sheet only as far as the depreciation formula is accepted for purposes of matching historical cost with period revenues. But this is not "truth" in the meaning of the word "truth."

Entry Value (Replacement Cost) "Truth"
For example, we can define "truth" in terms of a depreciation formula and then report a "truthful" replacement cost book value $92,837,636.92 as derived from from a depreciation formula derived from that formula that replaces original cost with current replacement cost. Ignore the fact that a current 737 differs in minor and possible major ways from a 737 model three years earlier, possibly because of increased fuel efficiency. Ignore the fact the depreciation formula may be slightly different due to changed expected life and salvage value. Replacement cost book value on the balance sheet is "truth" on the balance sheet only as far as the entry value depreciation formula is accepted for purposes of matching adjusted historical cost with period revenues. But this is not "truth" in the meaning of the word "truth."

Exit Value (Disposal Value) "Truth"
For example, we can define "truth" in terms disposal value of this particular aircraft on the balance sheet date. But if Southwest has zero intention of selling the aircraft and intends to keep using it in the fleet for many more years, current exit value is not "truth" in terms of in-use value. It is "truth" only if the airplane is pulled from the fleet and sold to the highest bidder.  But this is not "truth" in the meaning of the word "truth."

My point is that we can make "truth" in balance sheet numbers almost anything that we want to define as "truth." The job of the standard setters is to define that truth as best they can.

Now what is "truth in labeling?" I suspect that truth in labeling is not so much "truth" as it is consistency in terms choosing formulas consistent with intent for set of financial statements. He is correct in the sense of aggregated mish mash when it comes to labeling "Total Asset," Total Liabilities,: and "Net Earning." I say mish mash because the numbers being aggregated are not summed on the basis of any consistency in the formulas used to derive those numbers. Historical cost book values of property, plant, and equipment are added to exit value financial instruments, etc. Neither the FASB nor the IASB can define "net earnings."

I think Tom's problem is that he wants consistency for the sake of consistency. For example, we certainly can measure all assets and liabilities booked on the balance sheet at their individual exit values. But exit values of operating assets in most instances are value assets at their worst possible uses such as valuing a Boeing 737 at disposal value rather than its in-use value. And the sum of exit values of individual booked assets and liabilities is certainly not the going concern value of the company since the values of the unbooked assets like human resources and contingent liabilities may be far more important than all that is booked into the ledger. For example, this is why the balance sheet of a CPA firm, medical clinic, or law firm can be almost ignored when it comes to valuing the business as a whole.

In this context, historical cost, entry value, and exit value of all the items in the ledger are most certainly not "truth" or "truth in labeling;."

We can strive for greater consistency, but we certainly should not tell the investing publish that we are measuring or labeling "truth."'

I think Tom is making the same mistake that Kenneth MacNeal made in 1939:
Truth in Accounting
by Kenneth MacNeal
1939
http://books.google.ca/books/about/Truth_in_accounting.html?id=GkwPAQAAMAAJ

Also see
"Truth in Accounting: The Ordeal of Kenneth MacNeal," by  Stephen A. Zeff, The Accounting Review, Vol. 57, No. 3 (Jul., 1982), pp. 528-553

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

GAO: Fiscal Outlook & The Debt --- http://www.gao.gov/fiscal_outlook/overview

"Sliding Away:   Barack Obama’s failure to control entitlement spending puts his good ideas at risk," The Economist, March 8-14, 2014, Page 30 ---
http://www.economist.com/news/united-states/21598685-barack-obamas-failure-control-entitlement-spending-puts-his-good-ideas-risk-sliding

. . .

To tackle poverty and joblessness, Mr Obama would expand the Earned Income Tax Credit (EITC), a subsidy for low-paid workers. Because it boosts pay (by up to $1,000 a year) without raising firms’ hiring costs, it should encourage work and hiring. It is costly: the tax credit bill is already $78 billion a year. But more and better jobs will cut other bills, like the $80 billion America spent on food stamps in 2013.

Tilting taxes to boost growth is one of the president’s main ideas. His blueprint would make breaks for innovative firms permanent and more generous: the “Research and Experimentation” tax credit would rise from 14% to 17%. He would also fund more basic research—the cutting-edge stuff that lab-based boffins do. Both these steps please economists: more new ideas should boost productivity and wages.

Bound by the December spending deal, each of Mr Obama’s payouts is twinned with a revenue-raiser. Tax credits for the poor would be funded by closing loopholes used by the rich. American firms, if the president had his way, would be prevented from shifting profits overseas to avoid the taxman. Another priority, pre-school for all four-year-olds, would cost $75 billion over ten years. That cash would come from a long-promised rise in cigarette taxes. Still, despite a progressive tax code and all Mr Obama’s talk of promoting equality, America still redistributes less than most other rich countries. Both Britain and Luxembourg—hardly hellish places for bankers—shift more income from rich to poor (see chart 1).

Mr Obama wants to boost spending on things that enhance growth in the long term, such as science and roads and schools. This “discretionary” category accounted for just 15% of spending in 2013. It could be squeezed painfully if any of the “mandatory” parts of the budget—such as transfers to the old and debt payments—unexpectedly grow. That is not something to bet against (see chart 2). The health entitlements that old and poor Americans receive—Medicare and Medicaid—have shot up in recent years, rising from 11% of outlays in 1990 to 21% by 2007. Since then their growth has slowed; Mr Obama’s plans, which would raise more revenue from drug firms and through higher fees for patients, aim to keep public outlays under control. But that has always been hard.

Social Security, which pays pensions and disability benefits, is just as worrying. It paid out $808 billion in 2013—more than Medicare and Medicaid combined—and will grow as America ages. Interest payments, already equal to four-fifths of Medicaid outlays, are expected to soar from $221 billion in 2013 to $827 billion in 2023. According to Mr Obama’s forecasts these rises will not be a problem, since robust growth will create a primary surplus by 2018. But, given America’s performance to date, that seems optimistic (see chart 3).

Mr Obama’s presidency may turn out to be a lost opportunity, says Maya MacGuineas of the Committee for a Responsible Federal Budget, a think-tank. As the leader of the party seen as more protective of entitlement programmes, he could have led a bipartisan reform of them. Instead, his budget promises the opposite, scrapping a new inflation-index that would have slowed the growth of outlays. If both parties could work together on phased cuts, reform would be much less painful, says Ms MacGuineas; if they do not, future cuts to social budgets may have to be much sharper. Mr Obama may face a double failure: watching his pro-growth policies slide out of reach, and leaving his successor with an entitlements black hole.

"The GDP in 2017 Is Not Looking Good," by Brendan Greeley and Matthew Philips, Bloomberg Businessweek, March 6, 2014 ---
http://www.businessweek.com/articles/2014-03-06/u-dot-s-dot-potential-gdp-revised-downward-as-recession-damage-lingers

One of the many statistics that economists pore over for clues to future economic performance is potential output, also known as potential gross domestic product. This is a measure not of what the economy is doing, but what it could be doing: an estimate of the maximum amount of GDP the economy can achieve over a sustained period if it’s operating at close to full employment, using all its resources. Any lower, and the economy isn’t working up to its potential. Any higher, and it runs a greater risk of inflation. To help guide policy, economists forecast the output gap—the difference between potential and actual GDP—for years into the future.

On Feb. 28, the Congressional Budget Office revised an estimate for potential GDP for 2017 that it had made in 2007. The new estimate is 7.3 percent lower than the original forecast. This downward revision wipes out $1.5 trillion of potential output, according to Andrew Fieldhouse, fellow at the Century Foundation, a think tank. So instead of forecasting a potential GDP of almost $20.7 trillion, the CBO predicts potential output closer to $19.2 trillion. For years economists have been expecting too much from the economy.

That matters because the size of the output gap can influence policy. A large gap leaves too many people unemployed and tempts policymakers to try fiscal or monetary stimulus. Closing a smaller gap is harder, because it increases the risk of overshooting on stimulus and sparking inflation. It’s even more difficult to raise potential GDP. Education can increase productivity, but that takes years. Technological revolutions can boost potential; those, however, are rare.

Continued in article

Jensen Comment
President Hillary Clinton may inherit a mess with a busted economy, a busted deficit that's predicted by the Congressional Budget Office to soar in 2016.  and a busted ACA health insurance program. To make matters worse, MSNBC's Chris Matthews is now predicting the GOP will take back the Senate. I'm not sure he really means it. This is probably just one of his many scare tactics.

Ironically, Senate and House Democratic wins in the Senate and House depend upon a tight presidential race that will bring more voters to the polls. If Hillary is predicted to win by a landslide, many young and poor Democrats may not bother to vote --- which probably gives the emotional Chris Matterws nightmares.

What's are the probability of a tight Presidential race in 2016? Maybe 1%-2% --- but only if Hillary decides not to run.

 

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

Is it Time to Follow Sweden’s Lead on Fiscal Policy? ---
http://danieljmitchell.wordpress.com/2012/04/15/time-to-follow-swedens-lead-on-fiscal-policy/

 Sweden has a very large and expensive welfare state, but it’s actually becoming a bit of a role model for economic reform. I’ve already commented on the country’s impressive school choice system and noted that the Swedes have partially privatized their Social Security system.

[Daniel Mitchell] wrote a Cato study looking at the good and bad features of economic policy in the Nordic nations, and cited a Swedish parliamentarian who explained that his nation became rich because of small government and free markets and how he is hopeful his country is returning to its libertarian roots.

Notwithstanding the many admirable features of Sweden, I [Daniel Mitchell] never thought they would be moving in the right direction on fiscal policy while the United States was heading in the opposite direction.

Yet that’s the case. We all know that America has had made many mistakes during the Bush-Obama years, particularly with failed stimulus schemes in 2008 and 2009.

Sweden, by contrast, has put in place pro-growth reforms. Here’s what Fraser Nelson wrote for the UK-based Spectator.

When Europe’s finance ministers meet for a group photo, it’s easy to spot the rebel — Anders Borg has a ponytail and earring. What actually marks him out, though, is how he responded to the crash. While most countries in Europe borrowed massively, Borg did not. Since becoming Sweden’s finance minister, his mission has been to pare back government. His ‘stimulus’ was a permanent tax cut. …Three years on, it’s pretty clear who was right. ‘Look at Spain, Portugal or the UK, whose governments were arguing for large temporary stimulus,’ he says. ‘Well, we can see that very little of the stimulus went to the economy. But they are stuck with the debt.’ Tax-cutting Sweden, by contrast, had the fastest growth in Europe last year, when it also celebrated the abolition of its deficit. …‘Everybody was told “stimulus, stimulus, stimulus”,’ he says — referring to the EU, IMF and the alphabet soup of agencies urging a global, debt-fuelled spending splurge. Borg, an economist, couldn’t work out how this would help. ‘It was surprising that Europe, given what we experienced in the 1970s and 80s with structural unemployment, believed that short-term Keynesianism could solve the problem.’ …He continued to cut taxes and cut welfare-spending to pay for it; he even cut property taxes for the rich to lure entrepreneurs back to Sweden. The last bit was the most unpopular, but for Borg, economic recovery starts with entrepreneurs. If cutting taxes for the rich encouraged risk-taking, then it had to be done.

The article notes that government is still far too large in Sweden, but it’s also clear that moving in the right direction generates immediate benefits.

Continued in article

Update on March 13, 2014 ---
http://finance.townhall.com/columnists/danieljmitchell/2014/03/13/sweden-spending-restraint-and-the-benefits-of-obeying-fiscal-policys-golden-rule-n1808245

Jensen Comment
There are always complications when comparing fiscal spending and benefits of any two nations. For example, there are enormous differences between having a  10 million relatively homogeneous population and a 300 million highly diverse population. Sweden has much more restrictive immigration and does not face the advantages and disadvantages of illegal immigration. Sweden spends relatively little on its military whereas the USA funds the world's most powerful global military force that consumes nearly 20% of the Federal budget. Sweden has proportionately much less crime and incarceration expense. All of this adds to a greater proportion of taxes that can be spent on such things as health care and education.

Sweden now recognizes the importance of reducing the marginal tax rate at the highest levels as an incentive for innovation and economic growth.

 

Still there are ideas that appeal to me in the fiscal policies of Sweden that I think the USA should consider.

From David Giles Blog, Econometrics Beat, on March 16, 2014 ---
http://davegiles.blogspot.com/2014/03/research-on-interpretation-of.html
David often asks questions about underlying assumptions where accountics scientists seldom dare to venture.
In his and most other blogs it is worthwhile to also read the comments.

Research on the Interpretation of Confidence Intervals

Like a lot of others, I follow Andrew Gelman's blog with great interest, and today I was especially pleased to see this piece relating to a recent study on the extent to which researchers do or do not interpret confidence intervals correctly.

 
If you've ever taught an introductory curse on statistical inference (from a frequentist, rather than Bayesian perspective), then I don't need  to tell you how difficult it can be for students to really understand what a confidence interval is, and (perhaps more importantly) what it isn't!

 
It's not only students who have this problem. Statisticians acting as "expert witnesses" in court cases have no end of trouble getting judges to understand the correct interpretation of a confidence interval. And I'm sure we've all seen or heard empirical researchers misinterpret confidence results! For a specific example of the latter, involving a subsequent Nobel laureate, see my old post here!

 
The study that's mentioned by Andrew today was conducted by four psychologists (Hoekstra et al., 2014) and involved a survey of academic psychologists at three European Universities. The participants included 442 Bachelor students, 34 Master students, and 120 researchers (Ph.D. or faculty members).

 
Yes, the participants in this survey are psychologists, but we won't hold that against them, and my hunch is that if we changed "psychologist" to "economist" the results wouldn't alter that much!

 
Before summarizing the findings of this study, let's see what the authors have to say about the correct interpretation of a confidence interval (CI) constructed from a particular sample of data:

 
"Before proceeding, it is important to recall the correct definition of a CI. A CI is a numerical interval constructed around the estimate of a parameter. Such an interval does not, however, directly indicate a property of the parameter; instead, it indicates a property of the procedure, as is typical for a frequentist technique. Specifically, we may find that a particular procedure, when used repeatedly across a series of hypothetical data sets (i.e., the sample space), yields intervals that contain the true parameter value in 95 % of the cases. When such a procedure is applied to a particular data set, the resulting interval is said to be a 95 % CI. The key point is that the CIs do not provide for a statement about the parameter as it relates to the particular sample at hand; instead, they provide for a statement about the performance of the procedure of drawing such intervals in repeated use. Hence, it is incorrect to interpret a CI as the probability that the true value is within the interval (e.g., Berger & Wolpert, 1988). As is the case with p-values, CIs do not allow one to make probability statements about parameters or hypotheses."  (Hoekstra et al., 2014, 2nd. page of online pre-print.)
For what it's worth, I agree that this description and interpretation of a CI is correct. 

 
I'm not saying that we should be using CI's. Specifically, when I'm wearing my Bayesian hat, CI's make no sense at all, and the very term is banished from my vocabulary. But I digress.........

 
So, what are the findings of the study in question? Very briefly (because you should read the paper yourself):

 
  • Participants were given 5 6 incorrect statements about a confidence interval, and were asked which ones , if any were correct.
  • 8 undergraduate students (1.8%), 0 Masters students, and 3 (2.5%) Ph.D./faculty correctly said that all five six statements were incorrect.
  • The claimed level of experience of the respondents had a slight positive correlation with the extent to which misinterpretations of CIs were made.
  • Researchers (Ph.D. and faculty) scored about as well as first-year students without any training in statistics.

    Very much a case of "read it and weep"!

    However,....... check the survey questions in the Appendix of the Hoekstra et al. paper, and see how you score.


    • References

    Berger, J. O. and R. L. Wolpert, 1988. The Likelihood Principle (2nd. ed.), Institute of Mathematical Statistics, Hayward, CA.

    Hoekstra, R., R. D. Morey, J. N. Rouder, and E-J. Wagenmakers, 2014. Robust misinterpretation of confidence intervals. Psychonomic Bulletin Review, in press    .

     

    Common Accountics Science and Econometric Science Statistical Mistakes ---
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsScienceStatisticalMistakes.htm

    "A Scrapbook on What's Wrong with the Past, Present and Future of Accountics Science"
    Bob Jensen Jensen
    February 19, 2014
    SSRN Download:  http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2398296

     

     

    February 2014 Accounting Research Papers on SSRN That Had More Than 20 Downloads

     

    Corporate and Integrated Reporting: A Functional Perspective Robert G. Eccles and George Serafeim Harvard Business School and Harvard University - Harvard Business School Date posted: 02 Feb 2014

    working papers series 184 Downloads

     

    Customer Concentration Risk and the Cost of Equity Capital Dan S. Dhaliwal , J. Scott Judd , Matthew A. Serfling and Sarah Shaikh University of Arizona - Department of Accounting , University of Arizona - Department of Accounting , University of Arizona - Department of Finance and University of Arizona - Department of Accounting Date posted: 07 Feb 2014

    Last revised: 15 Feb 2014

    working papers series 115 Downloads

     

    How to Discuss a Paper Kirsten A. Cook , Matt Hart , Michael Kinney and Derek Oler Texas Tech University - Area of Accounting , Texas Tech University , Texas A&M University (TAMU) - Department of Accounting and Texas Tech University - Rawls College of Business Date posted: 02 Feb 2014

    working papers series 114 Downloads

     

    Unintentional Optimism in Financial Reporting and Voluntary Disclosure: The Intersection of Economics, Psychology, and Neuroscience Gregory Paul Capps , Lisa Koonce and Kathy R. Petroni Independent , University of Texas and Michigan State University - Eli Broad College of Business and Eli Broad Graduate School of Management Date posted: 05 Feb 2014

    working papers series 113 Downloads

     

    Family Firm Research – A Review Qiang Cheng Singapore Management University Date posted: 06 Feb 2014

    working papers series 102 Downloads

     

    Who Uses Financial Reports and for What Purpose? Evidence from Capital Providers Stefano Cascino , Mark Clatworthy , Beatriz Garcia Osma , Joachim Gassen , Shahed Imam and Thomas Jeanjean London School of Economics , University of Bristol , Universidad Autonoma de Madrid , Humboldt University of Berlin - School of Business and Economics , University of Warwick - Warwick Business School and ESSEC Business School Date posted: 03 Feb 2014

    working papers series 100 Downloads

     

    Restoring the Tower of Babel: How Foreign Firms Communicate with US Investors Accounting Review, Forthcoming Russell J. Lundholm , Rafael Rogo and Jenny Li Zhang University of British Columbia - Sauder School of Business , University of British Columbia - Sauder School of Business and Date posted: 02 Feb 2014

    Accepted Paper Series 69 Downloads

     

    The Influence of Standard Setters on the Properties of International Financial Reporting Standards Jens Günther and Marcus Witzky Humboldt University of Berlin and Humboldt University of Berlin - School of Business and Economics Date posted: 11 Feb 2014

    working papers series 58 Downloads

     

    Transparency in Financial Reporting: Is Country-by-Country Reporting Suitable to Combat International Profit Shifting? ZEW - Centre for European Economic Research Discussion Paper No. 14-015 Maria Theresia Evers , Ina Meier and Christoph Spengel Centre for European Economic Research (ZEW) , University of Mannheim and Centre for European Economic Research (ZEW) Date posted: 12 Feb 2014

    working papers series 58 Downloads

    The Presence, Value, and Incentive Properties of Relative Performance Evaluation in Executive Compensation Contracts J. Carr Bettis , John M. Bizjak , Jeffrey L. Coles and Brian Young Arizona State University (ASU) - Finance Department , Texas Christian University , Arizona State University (ASU) - Finance Department and Mississippi State University Date posted: 09 Feb 2014

    Last revised: 09 Feb 2014

    working papers series 57 Downloads

     

    Accounting Quality in Georgia - Theoretical Overview Erekle Pirveli University of Bremen Date posted: 27 Feb 2014

    working papers series 56 Downloads

     

    A Scrapbook on What's Wrong with the Past, Present and Future of Accountics Science Robert Eugene Jensen Trinity University Date posted: 20 Feb 2014

    working papers series 56 Downloads

     

    Political Connections and Accounting Quality Under High Expropriation Risk European Accounting Review Forthcoming George E. Batta , Ricardo Sucre Heredia and Marc Weidenmier Claremont McKenna College - Robert Day School of Economics and Finance , Universidad Central de Venezuela and Claremont Colleges - Robert Day School of Economics and Finance Date posted: 19 Feb 2014

    Accepted Paper Series 55 Downloads

     

    Earnings Management and Auditor Quality Accounting and Finance Research, Vol. 1, No. 1, May 2012 Savita A. Sahay , Harry Zvi Davis and Meyer Peikes Rutgers, The State University of New Jersey - Rutgers University, New Brunswick/Piscataway , CUNY Baruch College - Zicklin School of Business and Touro College Date posted: 06 Feb 2014

    Accepted Paper Series 53 Downloads

     

    Propensity Score Matching and Matched Sample Composition in Audit Research Quinn Thomas Swanquist , Jonathan Shipman and Robert Lowell Whited University of Tennessee, Knoxville - College of Business Administration , University of Tennessee, Knoxville - College of Business Administration and University of Tennessee, Knoxville - College of Business Administration Date posted: 09 Feb 2014

    working papers series 53 Downloads

    A Bit of Humor

    Watch David Brenner (RIP) Make the First of His 158 Appearances on The Tonight Show in 1971 ---
    http://www.openculture.com/2014/03/watch-david-brenner-rip-make-the-first-of-his-158-appearances-on-the-tonight-show-in-1971.html

    Watch Seth Meyers’ Late Night Players Act Out the New Yorker’s Famous Cartoons ---
    http://www.openculture.com/2014/03/watch-seth-meyers-late-night-players-act-out-the-new-yorkers-famous-cartoons.html

    Happy St. Patrick's Day Pub Lunch ---
    http://www.jacquielawson.com/preview.asp?cont=1&hdn=0&pv=3153666&path=98301

    Les Beaux Frères - Serviette (brief nudity) ---
    https://www.youtube.com/watch?v=lUr3XbROoA8
    I had to wait a long time for a commercial for a new movie to end

    Age Activated Attention Deficit Disorder --- https://www.youtube.com/embed/6oHBG3ABUJU

    David Niven Presents an Oscar and Gets Interrupted by a Streaker (1974) ---
    http://www.openculture.com/2014/03/david-niven-presents-an-oscar-and-gets-interrupted-by-a-streaker-1974.html

    George Burns --- http://www.youtube.com/watch?v=F3c-WBn5cCg

    Leave the Driving to the Bus Driver But Bring Your Own Depends ---
    http://www.20min.ch/ro/videotv/?vid=339276

    Cartoons from the April 2014 edition of the Harvard Business Review --- Click Here
     http://blogs.hbr.org/2014/02/strategic-humor-cartoons-from-the-april-2014-issue/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+harvardbusiness+%28HBR.org%29&cm_ite=DailyAlert-030314+%281%29&cm_lm=sp%3Arjensen%40trinity.edu&cm_ven=Spop-Email

    The Darwin Awards --- http://www.darwinawards.com/

    Forwarded by Auntie Bev

    Why Did The Chicken Cross The Road?

    SARAH PALIN: The chicken crossed the road because, gosh-darn it, he's a maverick!

    BARACK OBAMA: Let me be perfectly clear, if the chickens like their eggs they can keep their eggs. No chicken will be required to cross the road to surrender her eggs. Period.

    JOHN McCAIN: My friends, the chicken crossed the road because he recognized the need to engage in cooperation and dialogue with all the chickens on the other side of the road.

    HILLARY CLINTON: What difference at this point does it make why the chicken crossed the road.

    GEORGE W. BUSH: We don't really care why the chicken crossed the road. We just want to know if the chicken is on our side of the road or not. The chicken is either with us or against us. There is no middle ground here.

    DICK CHENEY: Where's my gun?

    COLIN POWELL: Now to the left of the screen, you can clearly see the satellite image of the chicken crossing the road.

    BILL CLINTON: I did not cross the road with that chicken.

    AL GORE: I invented the chicken.

    JOHN KERRY: Although I voted to let the chicken cross the road, I am now against it! It was the wrong road to cross, and I was misled about the chicken's intentions. I am not for it now, and will remain against it.

    AL SHARPTON: Why are all the chickens white?

    DR. PHIL: The problem we have here is that this chicken won't realize that he must first deal with the problem on this side of the road before it goes after the problem on the other side of the road. What we need to do is help him realize how stupid he is acting by not taking on his current problems before adding any new problems.

    OPRAH: Well, I understand that the chicken is having problems, which is why he wants to cross the road so badly. So instead of having the chicken learn from his mistakes and take falls, which is a part of life, I'm going to give this chicken a NEW CAR so that he can just drive across the road and not live his life like the rest of the chickens.

    ANDERSON COOPER: We have reason to believe there is a chicken, but we have not yet been allowed to have access to the other side of the road.

    NANCY GRACE: That chicken crossed the road because he's guilty! You can see it in his eyes and the way he walks.

    PAT BUCHANAN: To steal the job of a decent, hardworking American.

    MARTHA STEWART: No one called me to warn me which way the chicken was going. I had a standing order at the Farmer's Market to sell my eggs when the price dropped to a certain level. No little bird gave me any insider information.

    DR SEUSS: Did the chicken cross the road? Did he cross it with a toad? Yes, the chicken crossed the road, but why it crossed I've not been told.

    ERNEST HEMINGWAY: To die in the rain, alone.

    JERRY FALWELL: Because the chicken was gay! Can't you people see the plain truth? That's why they call it the 'other side.' Yes, my friends, that chicken was gay. If you eat that chicken, you will become gay too. I say we boycott all chickens until we sort out this abomination that the Liberal media whitewashes with seemingly harmless phrases like 'the other side.' That chicken should not be crossing the road. It's as plain and as simple as that.

    GRANDPA: In my day we didn't ask why the chicken crossed the road. Somebody told us the chicken crossed the road, and that was good enough for us.

    BARBARA WALTERS: Isn't that interesting? In a few moments, we will be listening to the chicken tell, for the first time, the heart warming story of how it experienced a serious case of molting, and went on to accomplish it's lifelong dream of crossing the road.

    ARISTOTLE: It is the nature of chickens to cross the road.

    JOHN LENNON: Imagine all the chickens in the world crossing roads together, in peace.

    BILL GATES: I have just released eChicken2014, which will not only cross roads, but will lay eggs, file your important documents and balance your checkbook. Internet Explorer is an integral part of eChicken2014. This new platform is much more stable and will never reboot.

    ALBERT EINSTEIN: Did the chicken really cross the road, or did the road move beneath the chicken?

    The Blonde Pilot

    This is the story of the blonde flying in a two-seater airplane with just the pilot.

    He has a heart attack and dies. She, frantic, calls out a May Day.

    "May Day! May Day! Help me! Help me! My pilot had a heart attack and is dead. And I don't know how to fly. Help me! Please help me!"

    She hears a voice over the radio saying: "This is Air Traffic Control and I have you loud and clear. I will talk you through this and get you back on the ground. I've had a lot of experience with this kind of problem.' Now, just take a deep breath. Everything will be fine! Now give me your height and position. "

    She says, "I'm 5'4" and I support Obama."

    "O.K." says the voice on the radio.... "Repeat after me:Our Father. Who art in Heaven. ... . .."

    Forwarded by James Don Edwards

    A father was approached by his small son who told him proudly, "I know what the Bible means!"
    His father smiled and replied, "What do you mean, you 'know' what the Bible means?
    The son replied, "I do know!"
    "Okay," said his father. "What does the Bible mean?"
    "That's easy, Daddy..." the young boy replied excitedly," It stands for 'Basic Information Before Leaving Earth..' (This one is my favourite)
    =======
    There was a very gracious lady who was mailing an old family Bible to her brother in another part of the country.
    "Is there anything breakable in here?" asked the postal clerk.
    "Only the Ten Commandments." answered the lady.
    ========
    "Somebody has said there are only two kinds of people in the world. There are those who wake up in the morning and say, "Good morning, Lord," and there are those who wake up in the morning and say, "Good Lord, it's morning."
    ========
    A minister parked his car in a no-parking zone in a large city because he was short of time and couldn't find a space with a meter.
    Then he put a note under the windshield wiper that read: "I have circled the block 10 times. If I don't park here, I'll miss my appointment. Forgive us our trespasses."
    When he returned, he found a citation from a police officer along with this note "I've circled this block for 10 years. If I don't give you a ticket I'll lose my job. Lead us not into temptation."
    ========
    There is the story of a pastor who got up one Sunday and announced to his congregation: "I have good news and bad news. The good news is, we have enough money to pay for our new building program. The bad news is, it's still out there in your pockets."
    ========
    While driving in Pennsylvania , a family caught up to an Amish carriage. The owner of the carriage obviously had a sense of humour, because attached to the back of the carriage was a hand printed sign... "Energy efficient vehicle: Runs on oats and grass. Caution: Do not step in exhaust."
    ========
    A Sunday School teacher began her lesson with a question, "Boys and girls, what do we know about God?"
    A hand shot up in the air. "He is an artist!" said the kindergarten boy.
    "Really? How do you know?" the teacher asked.
    "You know - Our Father, who does art in Heaven... "
    ========
    A minister waited in line to have his car filled with gas just before a long holiday weekend. The attendant worked quickly, but there were many cars ahead of him. Finally, the attendant motioned him toward a vacant pump.
    "Reverend," said the young man, "I'm so sorry about the delay. It seems as if everyone waits until the last minute to get ready for a long trip."
    The minister chuckled, "I know what you mean. It's the same in my business."
    ========
    People want the front of the bus, the back of the church, and the center of attention.
    ========
    Sunday after church, a Mom asked her very young daughter what the lesson was about.
    The daughter answered, "Don't be scared, you'll get your quilt."
    Needless to say, the Mom was perplexed. Later in the day, the pastor stopped by for tea and the Mom asked him what that morning's Sunday school lesson was about.
    He said "Be not afraid, thy comforter is coming."
    ========
    The minister was preoccupied with thoughts of how he was going to ask the congregation to come up with more money than they were expecting for repairs to the church building. Therefore, he was annoyed to find that the regular organist was sick and a substitute had been brought in at the last minute.. The substitute wanted to know what to play.
    "Here's a copy of the service," he said impatiently. "But, you'll have to think of something to play after I make the announcement about the finances."
    During the service, the minister paused and said, "Brothers and Sisters, we are in great difficulty; the roof repairs cost twice as much as we expected and we need $4,000 more. Any of you who can pledge $100 or more, please stand up."
    At that moment, the substitute organist played "The NATIONAL ANTHEM."
    And that is how the substitute became the regular organist!


    When you carry the Bible, Satan gets a headache..... When you open it, he collapses..... When he sees you reading it, he faints..... When he sees that you are living what you read, he flees...... And when you are about to forward this message.... He will try and discourage you.. I just defeated him!!! Any other takers?

     

     

    Forwarded by Paula

    A recent article in the Dominion Post reported that a woman, Anne Maynard, has sued Wellington Hospital, saying that after her husband had surgery there, he lost all interest in sex.

     A hospital spokesman replied:

    "Mr. Maynard was admitted for cataract surgery.
    All we did was correct his eyesight."

     

    20 Jokes Only Intellectuals Understand ---
    http://thelookingspoon.com/conservative-lol/117-general-humor/5360-will-you-get-these-20-jokes-meant-for-really-brainy-people.html

    Forwarded by Paula

    Paraprosdokians are figures of speech in which the latter part of a sentence or phrase is surprising or unexpected and is frequently humorous.

    1. Where there's a will, I want to be in it.

    2. The last thing I want to do is hurt you ... But it's still on my list.

    3. Since light travels faster than sound, Some people appear bright until you hear them speak.

    4. If I agreed with you, We'd both be wrong.

    5. We never really grow up -- We only learn how to act in public.

    6. War does not determine who is right, Only who is left.

    7. Knowledge is knowing a tomato is a fruit. Wisdom is not putting it in a fruit salad.

    8. To steal ideas from one person is plagiarism. To steal from many is research.

    9. I didn't say it was your fault, I said I was blaming you.

    10. In filling out an application, where it says, "In case of emergency, notify... " I answered "a doctor."

    11. Women will never be equal to men until they can walk down the Street with a bald head and a beer gut, and still think they are sexy.

    12. You do not need a parachute to skydive. You only need a parachute to skydive twice.

    13. I used to be indecisive, But now I'm not so sure.

    14. To be sure of hitting the target, Shoot first and call whatever you hit "the target."

    1 5 . You're never too old to learn something stupid.

    1 6 . I'm supposed to respect my elders, But it's getting harder and harder for me to find one now.

    Forwarded by Dr. Wolff

    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

    on Scottish whisky,

    (check the bottle before you change the spelling),

    followed closely by

    Italian Paparazzi,

    on Japanese motorcycles,

    treated by an American doctor, using

    Brazilian medicines.

    This is sent to you by

    a New Zealander

    who received it from

    a Canadian,

    using

    American Bill Gates' technology,

    and you're probably reading this on your computer,

    that uses Taiwanese chips, and

    a

    Korean monitor,

    assembled by

    Bangladeshi workers

    in a Singapore plant,

    transported by Indian

    truck drivers,

    hijacked by Indonesians,

    unloaded by Sicilian longshoremen,

    and trucked to you by Mexican illegals....

     

     

     

    Humor Between March 1-31, 2014 --- http://www.trinity.edu/rjensen/book14q1.htm#Humor033114

    Humor Between February 1-28, 2014 --- http://www.trinity.edu/rjensen/book14q1.htm#Humor022814

    Humor Between January 1-31, 2014 --- http://www.trinity.edu/rjensen/book14q1.htm#Humor013114

    Humor Between December 1-31, 2013 --- http://www.trinity.edu/rjensen/book13q4.htm#Humor123113

    Humor Between November 1-30, 2013 --- http://www.trinity.edu/rjensen/book13q4.htm#Humor113013

    Humor Between October 1-31, 2013 --- http://www.trinity.edu/rjensen/book13q4.htm#Humor103113

    Humor Between September 1 and September 30, 2013 --- http://www.trinity.edu/rjensen/book13q3.htm#Humor093013

    Humor Between July 1 and August 31, 2013 --- http://www.trinity.edu/rjensen/book13q3.htm#Humor083113

    Humor Between June 1-30, 2013 --- http://www.trinity.edu/rjensen/book13q2.htm#Humor063013

    Humor Between May 1-31, 2013 --- http://www.trinity.edu/rjensen/book13q2.htm#Humor053113

    Humor Between April 1-30, 2013 --- http://www.trinity.edu/rjensen/book13q2.htm#Humor043013

    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

    And that's the way it was on March 31, 2014 with a little help from my friends.

    Bob Jensen's gateway to millions of other blogs and social/professional networks ---
    http://www.trinity.edu/rjensen/ListservRoles.htm

    Bob Jensen's Threads --- http://www.trinity.edu/rjensen/threads.htm

    Bob Jensen's Blogs --- http://www.trinity.edu/rjensen/JensenBlogs.htm
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    Bob Jensen's Resume --- http://www.trinity.edu/rjensen/Resume.htm
     

    Bob Jensen's Homepage --- http://www.trinity.edu/rjensen/

     

    For an elaboration on the reasons you should join a ListServ (usually for free) go to   http://www.trinity.edu/rjensen/ListServRoles.htm

    AECM (Accounting Educators)  http://listserv.aaahq.org/cgi-bin/wa.exe?HOME
    The AECM is an email Listserv list which started out as an accounting education technology Listserv. It has mushroomed into the largest global Listserv of accounting education topics of all types, including accounting theory, learning, assessment, cheating, and education topics in general. At the same time it provides a forum for discussions of all hardware and software which can be useful in any way for accounting education at the college/university level. Hardware includes all platforms and peripherals. Software includes spreadsheets, practice sets, multimedia authoring and presentation packages, data base programs, tax packages, World Wide Web applications, etc

    Roles of a ListServ --- http://www.trinity.edu/rjensen/ListServRoles.htm
     

    CPAS-L (Practitioners) http://pacioli.loyola.edu/cpas-l/  (closed down)
    CPAS-L provides a forum for discussions of all aspects of the practice of accounting. It provides an unmoderated environment where issues, questions, comments, ideas, etc. related to accounting can be freely discussed. Members are welcome to take an active role by posting to CPAS-L or an inactive role by just monitoring the list. You qualify for a free subscription if you are either a CPA or a professional accountant in public accounting, private industry, government or education. Others will be denied access.

    Yahoo (Practitioners)  http://groups.yahoo.com/group/xyztalk
    This forum is for CPAs to discuss the activities of the AICPA. This can be anything  from the CPA2BIZ portal to the XYZ initiative or anything else that relates to the AICPA.

    AccountantsWorld  http://accountantsworld.com/forums/default.asp?scope=1 
    This site hosts various discussion groups on such topics as accounting software, consulting, financial planning, fixed assets, payroll, human resources, profit on the Internet, and taxation.

    Business Valuation Group BusValGroup-subscribe@topica.com 
    This discussion group is headed by Randy Schostag [RSchostag@BUSVALGROUP.COM] 

     

     

    Concerns That Academic Accounting Research is Out of Touch With Reality

    I think leading academic researchers avoid applied research for the profession because making seminal and creative discoveries that practitioners have not already discovered is enormously difficult. Accounting academe is threatened by the twin dangers of fossilization and scholasticism (of three types: tedium, high tech, and radical chic)
    From http://www.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm      

    “Knowledge and competence increasingly developed out of the internal dynamics of esoteric disciplines rather than within the context of shared perceptions of public needs,” writes Bender. “This is not to say that professionalized disciplines or the modern service professions that imitated them became socially irresponsible. But their contributions to society began to flow from their own self-definitions rather than from a reciprocal engagement with general public discourse.”

     

    Now, there is a definite note of sadness in Bender’s narrative – as there always tends to be in accounts of the shift from Gemeinschaft to Gesellschaft. Yet it is also clear that the transformation from civic to disciplinary professionalism was necessary.

     

    “The new disciplines offered relatively precise subject matter and procedures,” Bender concedes, “at a time when both were greatly confused. The new professionalism also promised guarantees of competence — certification — in an era when criteria of intellectual authority were vague and professional performance was unreliable.”

    But in the epilogue to Intellect and Public Life, Bender suggests that the process eventually went too far. “The risk now is precisely the opposite,” he writes. “Academe is threatened by the twin dangers of fossilization and scholasticism (of three types: tedium, high tech, and radical chic). The agenda for the next decade, at least as I see it, ought to be the opening up of the disciplines, the ventilating of professional communities that have come to share too much and that have become too self-referential.”

     

    What went wrong in accounting/accountics research? 
    How did academic accounting research become a pseudo science?
     http://www.trinity.edu/rjensen/theory01.htm#WhatWentWrong

     

    Accountancy, Tax, IFRS, XBRL, and Accounting History News Sites  --- http://www.trinity.edu/rjensen/AccountingNews.htm

    Accounting Professors Who Blog --- http://www.trinity.edu/rjensen/ListservRoles.htm

    Cool Search Engines That Are Not Google --- http://www.wired.com/epicenter/2009/06/coolsearchengines

    Free (updated) Basic Accounting Textbook --- search for Hoyle at
    http://www.trinity.edu/rjensen/ElectronicLiterature.htm#Textbooks

    CPA Examination --- http://en.wikipedia.org/wiki/Cpa_examination
    Free CPA Examination Review Course Courtesy of Joe Hoyle --- http://cpareviewforfree.com/
     

    Bob Jensen's Pictures and Stories
    http://www.trinity.edu/rjensen/Pictures.htm

     

    Bob Jensen's Homepage --- http://www.trinity.edu/rjensen/

     

    February 28, 2014

    Bob Jensen's New Bookmarks February 1-28, 2014
    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/

    David Johnstone asked me to write a paper on the following:
    "A Scrapbook on What's Wrong with the Past, Present and Future of Accountics Science"
    Bob Jensen
    February 19, 2014
    SSRN Download:  http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2398296 

     

    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

    "CONVERSATION WITH BOB JENSEN," by Joe Hoyle, Teaching Blog, October 8, 2013 ---
    http://joehoyle-teaching.blogspot.com/2013/10/conversation-with-bob-jensen.html

    List of FASB Pronouncements ---
    http://en.wikipedia.org/wiki/List_of_FASB_pronouncements

    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
     

    Find comparison facts on most any Website ---
    http://reviewandjudge.org/HOME.html
    For example, enter "www.trinity.edu/rjensen/" without the http:\\

    Find Accounting Software (commercial site) --- http://findaccountingsoftware.com/

    Galt Travel Reviews and Guides --- http://www.galttech.com/

    Quandl:  over 8 million demographic, economic, and financial datasets from 100s of global sources ---
    http://www.quandl.com/

    David Giles Econometrics Beat Blog ---
    http://davegiles.blogspot.com/

    Common Accountics Science and Econometric Science Statistical Mistakes ---
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsScienceStatisticalMistakes.htm

    Alliance for Financial Inclusion (financial literacy initiative funded by Bill and Melinda Gates) ---  http://www.afi-global.org/
    Also see Bob Jensen's related helpers at http://www.trinity.edu/rjensen/Bookbob1.htm#InvestmentHelpers

    Find Real Estate for Sale ---
    http://www.trulia.com/

    Gasp! How could an accountics scientist question such things? This is sacrilege!
    Let me end my remarks with a question: Have Ball and Brown (1968)—and Beaver (1968) for that matter, if I can bring Bill Beaver into it—have we had too much influence on the research agenda to the point where other questions and methods are being overlooked?
    Phil Brown of Ball and Brown Fame

    "How Can We Do Better?" by Phillip R. Brown (of Ball and Brown Fame), Accounting Horizons (Forum on the State of Accounting Scholarship), December 2013 ---
    http://aaajournals.org/doi/full/10.2308/acch-10365
    Not Free

    Philip R. Brown AM is an Honorary Professor at The University of New South Wales and Senior Honorary Research Fellow at The University of Western Australia.

    I acknowledge the thoughtful comments of Sudipta Basu, who arranged and chaired this session at the 2012 American Accounting Association (AAA) Annual Meeting, Washington, DC.

    The video presentation can be accessed by clicking the link in Appendix A.

    Corresponding author: Philip R. Brown AM. Email:

    When Sudipta Basu asked me whether I would join this panel, he was kind enough to share with me the proposal he put to the conference organizers. As background to his proposal, Sudipta had written:

    Analytical and empirical researchers generate numerous results about accounting, as do logicians reasoning from conceptual frameworks. However, there are few definitive tests that permit us to negate propositions about good accounting.

    This panel aims to identify a few “most wrong” beliefs held by accounting experts—academics, regulators, practitioners—where a “most wrong” belief is one that is widespread and fundamentally misguided about practices and users in any accounting domain.

    While Sudipta's proposal resonated with me, I did wonder why he asked me to join the panel, and whether I am seen these days as just another “grumpy old man.” Yes, I am no doubt among the oldest here today, but grumpy? You can make your own mind on that, after you have read what I have to say.

    This essay begins with several gripes about editors, reviewers, and authors, along with suggestions for improving the publication process for all concerned. The next section contains observations on financial accounting standard setting. The essay concludes with a discussion of research myopia, namely, the unfortunate tendency of researchers to confine their work to familiar territory, much like the drunk who searches for his keys under the street light because “that is where the light is.”



     
    ON EDITORS AND REVIEWERS, AND AUTHORS

    I have never been a regular editor, although I have chaired a journal's board of management and been a guest editor, and I appointed Ray Ball to his first editorship (Ray was the inaugural editor of the Australian Journal of Management). I have, however, reviewed many submissions for a whole raft of journals, and written literally hundreds of papers, some of which have been published. As I reflect on my involvement in the publications process over more than 50 years, I do have a few suggestions on how we can do things better. In the spirit of this panel session, I have put my suggestions in the form of gripes about editors, reviewers, and authors.

    One-eyed editors—and reviewers—who define the subject matter as outside their journal's interests are my first gripe; and of course I except journals with a mission that is stated clearly and in unequivocal terms for all to see. The best editors and the best reviewers are those who are open-minded who avoid prejudging submissions by reference to some particular set of questions or modes of thinking that have become popular over the last five years or so. Graeme Dean, former editor of Abacus, and Nick Dopuch, former editor of the Journal of Accounting Research, are fine examples, from years gone by, of what it means to be an excellent editor.

    Editors who are reluctant to entertain new ways of looking at old questions are a second gripe. Many years ago I was asked to review a paper titled “The Last Word on …” (I will not fill in the dots because the author may still be alive.) But at the time I thought, what a strange title! Can any academic reasonably believe they are about to have the last say on any important accounting issue? We academics thrive on questioning previous works, and editors and their reviewers do well when they nurture this mindset.

    My third gripe concerns editors who, perhaps unwittingly, send papers to reviewers with vested interests and the reviewers do not just politely return the paper to the editor and explain their conflict of interest. A fourth concerns editors and reviewers who discourage replications: their actions signal a disciplinary immaturity. I am referring to rejecting a paper that repeats an experiment, perhaps in another country, purely because it has been done before. There can be good reasons for replicating a study, for example if the external validity of the earlier study legitimately can be questioned (perhaps different outcomes are reasonably expected in another institutional setting), or if methodological advances indicate a likely design flaw. Last, there are editors and reviewers who do not entertain papers that fail to reject the null hypothesis. If the alternative is well-reasoned and the study is sound, and they can be big “ifs,” then failure to reject the null can be informative, for it may indicate where our knowledge is deficient and more work can be done.1

    It is not only editors and reviewers who test my emotional state. I do get a bit short when I review papers that fail to appreciate that the ideas they are dealing with have long yet uncited histories, sometimes in journals that are not based in North America. I am particularly unimpressed when there is an all-too-transparent and excessive citation of works by editors and potential reviewers, as if the judgments of these folks could possibly be influenced by that behavior. Other papers frustrate me when they are technically correct but demonstrate the trivial or the obvious, and fail to draw out the wider implications of their findings. Then there are authors who rely on unnecessarily coarse “control” variables which, if measured more finely, may well threaten their findings.2 Examples are dummy variables for common law/code law countries, for “high” this and “low” that, for the presence or absence of an audit/nomination/compensation committee, or the use of an industry or sector variable without saying which features of that industry or sector are likely to matter and why a binary representation is best. In a nutshell, I fear there may be altogether too many dummies in financial accounting research!

    Finally, there are the International Financial Reporting Standards (IFRS) papers that fit into the category of what I describe as “before and after studies.” They focus on changes following the adoption of IFRS promulgated by the London-based International Accounting Standards Board (IASB). A major concern, and I have been guilty too, is that these papers, by and large, do not deal adequately with the dynamics of what has been for many countries a period of profound change. In particular, there is a trade-off between (1) experimental noise from including too long a “before” and “after” history, and (2) not accommodating the process of change, because the “before” and “after” periods are way too short. Neither do they appear to control convincingly for other time-related changes, such as the introduction of new accounting and auditing standards, amendments to corporations laws and stock exchange listing rules, the adoption of corporate governance codes of conduct, more stringent compliance monitoring and enforcement mechanisms, or changes in, say stock, market liquidity as a result of the introduction of new trading platforms and protocols, amalgamations among market providers, the explosion in algorithmic trading, and the increasing popularity among financial institutions of trading in “dark pools.”



     
    ON FINANCIAL ACCOUNTING STANDARD SETTING

    I count a number of highly experienced financial accounting standard setters among my friends and professional acquaintances, and I have great regard for the difficulties they face in what they do. Nonetheless, I do wonder


    . . .

     
    ON RESEARCH MYOPIA

    A not uncommon belief among academics is that we have been or can be a help to accounting standard setters. We may believe we can help by saying something important about whether a new financial accounting standard, or set of standards, is an improvement. Perhaps we feel this way because we have chosen some predictive criterion and been able to demonstrate a statistically reliable association between accounting information contained in some database and outcomes that are consistent with that criterion. Ball and Brown (1968, 160) explained the choice of criterion this way: “An empirical evaluation of accounting income numbers requires agreement as to what real-world outcome constitutes an appropriate test of usefulness.” Note their reference to a requirement to agree on the test. They were referring to the choice of criterion being important to the persuasiveness of their tests, which were fundamental and related to the “usefulness” of U.S. GAAP income numbers to stock market investors 50 years ago. As time went by and the financial accounting literature grew accordingly, financial accounting researchers have looked in many directions for capital market outcomes in their quest for publishable results.

    Research on IFRS can be used to illustrate my point. Those who have looked at the consequences of IFRS adoption have mostly studied outcomes they believed would interest participants in equity markets and to a less extent parties to debt contracts. Many beneficial outcomes have now been claimed,4 consistent with benefits asserted by advocates of IFRS. Examples are more comparable accounting numbers; earnings that are higher “quality” and less subject to managers' discretion; lower barriers to international capital flows; improved analysts' forecasts; deeper and more liquid equity markets; and a lower cost of capital. But the evidence is typically coarse in nature; and so often the results are inconsistent because of the different outcomes selected as tests of “usefulness,” or differences in the samples studied (time periods, countries, industries, firms, etc.) and in research methods (how models are specified and variables measured, which estimators are used, etc.). The upshot is that it can be difficult if not impossible to reconcile the many inconsistencies, and for standard setters to relate reported findings to the judgments they must make.

    Despite the many largely capital market outcomes that have been studied, some observers of our efforts must be disappointed that other potentially beneficial outcomes of adopting IFRS have largely been overlooked. Among them are the wider benefits to an economy that flow from EU membership (IFRS are required),5 or access to funds provided by international agencies such as the World Bank, or less time spent by CFOs of international companies when comparing the financial performance of divisions operating in different countries and on consolidating the financial statements of foreign subsidiaries, or labor market benefits from more flexibility in the supply of professionally qualified accountants, or “better” accounting standards from pooling the skills of standard setters in different jurisdictions, or less costly and more consistent professional advice when accounting firms do not have to deal with as much cross-country variation in standards and can concentrate their high-level technical skills, or more effective compliance monitoring and enforcement as regulators share their knowledge and experience, or the usage of IFRS by “millions (of small and medium enterprises) in more than 80 countries” (Pacter 2012), or in some cases better education of tomorrow's accounting professionals.6 I am sure you could easily add to this list if you wished.

    In sum, we can help standard setters, yes, but only in quite limited ways.7 Standard setting is inherently political in nature and will remain that way as long as there are winners and losers when standards change. That is one issue. Another is that the results of capital markets studies are typically too coarse to be definitive when it comes to the detailed issues that standard setters must consider. A third is that accounting standards have ramifications extending far beyond public financial markets and a much more expansive view needs to be taken before we can even hope to understand the full range of benefits (and costs) of adopting IFRS.

    Let me end my remarks with a question: Have Ball and Brown (1968)—and Beaver (1968) for that matter, if I can bring Bill Beaver into it—have we had too much influence on the research agenda to the point where other questions and methods are being overlooked?

    February 27, 2014 Reply from Paul Williams

    Bob,
    If you read that last Horizon's section provided by "thought leaders" you realize the old guys are not saying anything they could not have realized 30 years ago. That they didn't realize it then (or did but was not in their interest to say so), which led them to run journals whose singular purpose seemed to be to enable they and their cohorts to create politically correct academic reputations, is not something to ask forgiveness for at the end of your career.

    Like the sinner on his deathbed asking for God's forgiveness , now is a hell of a time to suddenly get religion. If you heard these fellows speak when they were young they certainly didn't speak with voices that adumbrated any doubt that what they were doing was rigorous research and anyone doing anything else was the intellectual hoi polloi.

    Oops, sorry we created an academy that all of us now regret, but, hey, we got ours. It's our mess, but now we are telling you its a mess you have to clean up. It isn't like no one was saying these things 30 years ago (you were as well as others including yours truly) and we have intimate knowledge of how we were treated by these geniuses

     

    David Johnstone asked me to write a paper on the following:
    "A Scrapbook on What's Wrong with the Past, Present and Future of Accountics Science"
    Bob Jensen
    February 19, 2014
    SSRN Download:  http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2398296 

    Abstract

    For operational convenience I define accountics science as research that features equations and/or statistical inference. Historically, there was a heated debate in the 1920s as to whether the main research journal of academic accounting, The Accounting Review (TAR) that commenced in 1926, should be an accountics journal with articles that mostly featured equations. Practitioners and teachers of college accounting won that debate.

    TAR articles and accountancy doctoral dissertations prior to the 1970s seldom had equations.  For reasons summarized below, doctoral programs and TAR evolved to where in the 1990s there where having equations became virtually a necessary condition for a doctoral dissertation and acceptance of a TAR article. Qualitative normative and case method methodologies disappeared from doctoral programs.

    What’s really meant by “featured equations” in doctoral programs is merely symbolic of the fact that North American accounting doctoral programs pushed out most of the accounting to make way for econometrics and statistics that are now keys to the kingdom for promotion and tenure in accounting schools ---
    http://www.trinity.edu/rjensen/Theory01.htm#DoctoralPrograms

    The purpose of this paper is to make a case that the accountics science monopoly of our doctoral programs and published research is seriously flawed, especially its lack of concern about replication and focus on simplified artificial worlds that differ too much from reality to creatively discover findings of greater relevance to teachers of accounting and practitioners of accounting. Accountics scientists themselves became a Cargo Cult.

    Shielding Against Validity Challenges in Plato's Cave ---
    http://www.trinity.edu/rjensen/TheoryTAR.htm

    Common Accountics Science and Econometric Science Statistical Mistakes ---
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsScienceStatisticalMistakes.htm

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

    How Accountics Scientists Should Change: 
    "Frankly, Scarlett, after I get a hit for my resume in The Accounting Review I just don't give a damn"
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm
    One more mission in what's left of my life will be to try to change this
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm 

    What went wrong in accounting/accountics research?  ---
    http://www.trinity.edu/rjensen/theory01.htm#WhatWentWrong

    The Sad State of Accountancy Doctoral Programs That Do Not Appeal to Most Accountants ---
    http://www.trinity.edu/rjensen/theory01.htm#DoctoralPrograms

    "Storing the Sun:  Aquion manufactures cheap, long-lasting batteries for storing renewable energy.," by Kevin Bullis, MIT's Technology Review, February 18, 2014 ---
    http://www.technologyreview.com/demo/524466/storing-the-sun/?utm_campaign=newsletters&utm_source=newsletter-daily-all&utm_medium=email&utm_content=20140227

    Jensen Comment
    Apparently there are economies of scale here. The Aquion batteries are a feasible alternative for home solar panels but not yet cost effective for power plants. I do not have solar panels, but I do have a backup propane generator that powers my entire house at high cost per hour. It only used when the power lines are down like the four-hour outage last week.

    Whereas Skip White has solar panels on his barn and sells all the power to his power company in Pennsylvania, this is not a feasible alternative for New Hampshire. Solar panels in NH can only be used to heat hot water. This is cost effective if you use a lot of hot water such as investing in solar panels for hotels and inns. It is not yet very cost effective for homes.

    I might note that the Aquion battery was invented by a Carnegie-Mellon materials science professor who also formed the Aquion venture.

    When was the last time you ever heard of an accounting professor who invented something cost effective for the accounting profession or clients?
    SSRN Download:  http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2398296 

    "Real-Time Automated Essay Writing?" by Geoffrey Pullum, Chronicle of Higher Education, February 25, 2014 ---
     http://chronicle.com/blogs/linguafranca/2014/02/25/real-time-automated-essay-writing/?cid=wc&utm_source=wc&utm_medium=en

    When I first tried EssayTyper, for just a moment it chilled my blood. Of course, it’s just a little joke; but I hope students everywhere will be sophisticated enough to see that, because a person who was unusually naive, lazy, and ignorant just might mistake it for a computer program that will enable you to type out custom-designed essays on selected academic topics, even topics you know nothing about, even if you can’t type. The EssayTyper home page presents a box saying:

    Oh, no! It’s finals week and I have to finish my American Civil War essay immediately.

    You can type in a replacement for “American Civil War”; whatever you please: “praseodymium” or “eagles” or “Cole Porter” or “phonetics” or “Chronicle of Higher Education” or “lingua franca”—anything you could imagine someone being expected to write an essay on.

    If then you click on the pencil icon on the right hand side, you get what appears to be a word-processor page with a centered header providing a fashionably absurd postmodernist title for your essay: “The Fluidity of Praseodymium: Gender Norms & Racial Bias in the Study of the Modern ‘Praseodymium,’” or maybe “Truly Eagles? The Modern Eagles: a Normative Critique.”

    All you have to do after that is type. Type anything. Rattle your fingers around on the keyboard like a child pretending to type. Have your kitten walk on the keys. Tap the space bar. It doesn’t matter. Text will appear, bit by bit: coherent, sensible text saying true things about your chosen subject. Not very imaginative, but undeniably accurate and probably worthy of a B grade.

    Now, we already know that the humor-detection module in our species is not innate, so there is a real chance of my being disappointed in our students: There may be some who think EssayTyper is more than a joke. I continue to hope otherwise, partly because humor sensitivity is generally stronger in the young, and partly because I simply don’t want to live in a world where this tool might be used to create essays that might be turned in for me to grade.

    EssayTyper is actually (to give the game away completely) a front end to Wikipedia. When you type your subject in on the underlined part of the initial box, it simply looks those words up using the Wikipedia search function. If there is no Wikipedia page with that title, it warns you that it can’t help. But if there is one, it goes to it and starts blurting out the text of the article, chunk by chunk. The more you rattle the keys, the more it puts on your screen.

    EssayTyper is less intriguing than Eliza, an ingenious piece of programming that was originally intended to demonstrate shallow-level simulation of human conversation but ended up unexpectedly demonstrating human gullibility. EssayTyper is a cute little piece of recreational programming fun, but underlying it is nothing more than an automated Wikipedia copier.

    So even for students who think they can get away with turning in unmodified Wikipedia articles as term papers, EssayTyper would be an unneeded middleman. Screen-scooping selected text directly from Wikipedia itself would be quicker.

    But as I said, when I first saw it working, for a minute or so I was scared. It isn’t real, and it doesn’t pretend to be, but what if it were? What if, five or 10 years from now, sophisticated programming permits generation of highly plausible text on arbitrary subjects that has been skillfully rearranged from its various online sources, with random words replaced sensibly by synonyms, so that plagiarism-detecting algorithms report nothing untoward? What if machines can one day write convincing original term papers that have not gone through even one human brain before being dumped to the printer?

    "Custom Writing Service Says Students 'No Longer Have to Face the Burden of Academic Coursework'," by Susan Jones, CNS News, January 20, 2014 ---
    http://www.cnsnews.com/news/article/susan-jones/custom-writing-service-says-students-no-longer-have-face-burden-academic#

    A Dallas-based company that writes research papers, essays and other classroom assignments -- so students don't have to -- says it is doing so well that it has expanded its staff from just a few writers to more than 100 in the past year.

    The company bills itself as the one "students trust to write professional, in-depth and plagiarism-free essays that receive the highest grades for all levels of coursework...so they no longer have to face the burden of academic coursework."

    It says the writing is done for an "affordable" fee; and it has foreign writers on staff for non-American students.

    In a news release announcing the "custom writing service" for students in the United States, the company includes the following testimonial:

    "I enjoyed using the service," one student is quoted as saying. "The paper was written excellent (sic)...My professor was satisfied, and so am I."

    Other testimonials on the company's website read:

    "I've sent the paper to evaluation first 'cause I wasn't sure if they can find a writer with a relevant academic background...But yes, they did! It seems like she read my thoughts and written the paper (sic) as if I did it myself, lol :-)"

    And this: "Cool essay. Couldn’t been done better (sic). Just noticed a few typos, but that’s okay."

    The company offers discounts of 5 percent after ten orders; and 15 percent after 20 orders.

    In August, President Obama announced his plan to tie federal financial aid to colleges and universities that do well in a yet-to-be-announced college rating system. As CNSNews.com reported at the time, the rating system means the government will define what a good college is. - See more at: http://www.cnsnews.com/news/article/susan-jones/custom-writing-service-says-students-no-longer-have-face-burden-academic#sthash.dAvEF9OY.dpuf

    A Dallas-based company that writes research papers, essays and other classroom assignments -- so students don't have to -- says it is doing so well that it has expanded its staff from just a few writers to more than 100 in the past year.

    The company bills itself as the one "students trust to write professional, in-depth and plagiarism-free essays that receive the highest grades for all levels of coursework...so they no longer have to face the burden of academic coursework."

    It says the writing is done for an "affordable" fee; and it has foreign writers on staff for non-American students.

    In a news release announcing the "custom writing service" for students in the United States, the company includes the following testimonial:

    "I enjoyed using the service," one student is quoted as saying. "The paper was written excellent (sic)...My professor was satisfied, and so am I."

    Other testimonials on the company's website read:

    "I've sent the paper to evaluation first 'cause I wasn't sure if they can find a writer with a relevant academic background...But yes, they did! It seems like she read my thoughts and written the paper (sic) as if I did it myself, lol :-)"

    And this: "Cool essay. Couldn’t been done better (sic). Just noticed a few typos, but that’s okay."

    The company offers discounts of 5 percent after ten orders; and 15 percent after 20 orders.

    Continued in article

    Jensen Comment
    One such company in Dallas is
    http://ownessays.com/
    I did not find writers listing knowledge of accounting, but some advertise expertise in finance and global finance.

    I don't trust the promise of "no plagiarism" although the plagiarism may be very clever.

    Apparently a large part of the business is writing customized college admissions essays.

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

    Bob Jensen's threads on plagiarism and other forms of cheating ---
    http://www.trinity.edu/rjensen/Plagiarism.htm

    Honor Code --- http://en.wikipedia.org/wiki/Honor_code

    Are colleges placing less confidence in their honor codes?

    "The Proctor Is In," by Allie Grasgreen, Inside Higher Ed, February 25, 2014 ---
     http://www.insidehighered.com/news/2014/02/25/economics-department-proctor-exams-adherence-honor-code-wanes

    Only 100 or so colleges maintain honor codes, which are thought to bolster integrity and trust among professors and students by involving the latter in the creation and enforcement of academic standards. When a campus culture values open and frequent discussion about when and why cheating is socially unacceptable, the thinking goes (and some research shows), students are less likely to flout the rules – and more likely to report their peers who do.

    Except when they aren’t. Most traditional honor codes allow for unproctored exams, where the professor leaves the room and students are expected to report any cheating they observe. (Some even let students take the exam wherever they choose.) But the system is not working out so well at Middlebury College, where faculty members in economics will proctor their exams this spring semester.

    The decision follows a not-exactly-glowing review of the state of Middlebury’s honor code, which found that peer reporting across the board “is largely nonexistent.”

    The Middlebury Campus lamented the shift in an editorial, calling it “a shameful reminder of a broken system” and questioning why no students or professors are protesting the decision or pressing the importance of the honor code.

    “The honor code is a part of the Middlebury brand. We love to point to the honor code as a demonstration of our integrity and the type of community we come from,” the editorial board wrote. “What, then, does it say about our future selves if we cannot expect integrity from our community members now?”

    Shirley M. Collado, dean of the college, declined to comment on whether cheating is particularly rampant in economics, but said via email that, on infrequent occasions, other departments have opted out of unproctored exams. “While some students report cases of academic dishonesty,” Collado said, “we don't believe that students are taking action on all cases of academic dishonesty of which they are aware.”

    The economics department will work with the student government’s Honor Code Committee to gather information and “see what approach will work best for the broader Middlebury community and to encourage an environment of academic integrity,” Collado said.

    “Middlebury’s Honor Code is not facing a moment of crisis, nor is it functioning with optimal effectiveness,” the review says. (A committee conducts the review every four years.) “Student ownership and responsibility for the Honor Code – a critical tenet of its founding – is severely waning.”

    The Middlebury Campus writers posit that because their peers had nothing to do with the honor code’s creation, and “almost never hear about it after first-year orientation,” it makes sense that students are not invested in the code.

    Teddi Fishman, director of Clemson University’s International Center for Academic Integrity, said the editorial is spot on.

    “This writer understands academic integrity better than some administrators do,” she said. It’s not surprising that students wouldn’t adhere to an honor code they had no say in, especially one that’s rarely discussed, she said. “Just having an honor code doesn’t do anything – it has to be part of the culture.” (Similarly, a culture of academic integrity does not necessarily require a code.)

    Fishman praised the economics department’s willingness to recognize that the code isn’t working, but said the campus should work to “revitalize” the honor code in the meantime, to launch conversations and get students caring about it again.


    Read more: http://www.insidehighered.com/news/2014/02/25/economics-department-proctor-exams-adherence-honor-code-wanes#ixzz2uLPV7WjV
    Inside Higher Ed
     

    Jensen Comment
    Honor codes that require students to report when other students cheat became policies in colleges before there was such an over abundance of lawyers and our extreme USA culture of litigation. Now when Student A reports that Student X cheated, Student A may get slapped with a multi-million dollar lawsuit. Even if colleges pledge to back Student A in litigation, the hassle of litigation itself may motivate Student A to keep his or her mouth shut.

    By the way, Harvard University is a leader in many areas of academe, but Harvard does not have an honor code. Maybe administrators are tuned into the Harvard Law School. Recall that Harvard somewhat recently expelled neary 70 students for cheating in a political science course where they were assured of receiving an A grade no matter what the quality of the work. Apparently when an A grade is assured, some students don't want to do any work.

    "Harvard considers instituting honor code," Boston Globe, April 7, 2013 ---
    http://www.bostonglobe.com/metro/2013/04/06/harvard-considers-adopting-honor-code-for-first-time/IE6AXsmybsdgToNcPDuywN/story.html

    Stanford University has an honor code, at least it did when I was a student on the "Farm"|
    "Stanford finds cheating — especially among computer science students — on the rise," by Lisa M. Krieger, San Jose Mercury News, February 7, 2010 --- http://www.mercurynews.com/bay-area-news/ci_14351156?nclick_check=1 

    Online Courses Create Added Honor Code Problems
    "Far From Honorable," by Steve Kolowich, Inside Higher Ed, October 25, 2011 ---
    http://www.insidehighered.com/news/2011/10/25/online-students-might-feel-less-accountable-honor-codes Bob Jensen's threads on higher education controversies ---
    http://www.trinity.edu/rjensen/HigherEdControversies.htm

    Bob Jensen's threads on plagiarism and other forms of cheating ---
    http://www.trinity.edu/rjensen/Plagiarism.htm

    Europe's Shiny New B-School Buildings ---
    http://images.businessweek.com/slideshows/2014-02-20/europes-shiny-new-b-school-buildings

    European Business Schools Open Up Online ---
    http://www.businessweek.com/articles/2014-02-21/european-business-schools-open-up-interactive-and-online-education

    GRE vs. GMAT: The Battleground Moves to Europe ---
    http://www.businessweek.com/articles/2014-02-21/gre-s-b-school-contest-with-gmat-crosses-to-europe

    At UC Berkeley teaching from a dull textbook just is not enough
    Haas School of Business Has an 'Unconventional' Plan to Attract Students     ---
    http://www.businessweek.com/articles/2014-02-20/haas-school-of-business-has-an-unconventional-plan-to-attract-students

    Faculties at Elite Business Schools Still Skew Heavily Male ---
    http://www.businessweek.com/articles/2014-02-20/faculties-at-elite-business-schools-still-skew-heavily-male

    Bob Jensen's threads on the history of women in the professions such as accountancy ---
    http://www.trinity.edu/rjensen/bookbob2.htm#Women
    A big file that is slow to download

    "People will come!"
    Field of Dreams --- http://www.wingclips.com/movie-clips/field-of-dreams/people-will-come

    Put this example in your managerial accounting/economics course.
    I think most ghost towns in the USA were close to being fully depreciated before they were abandoned. There are several ghost towns in the forests of New Hampshire that were turned over to ghosts when the virgin timber played out. But I don't know of any that were turned over to ghosts before they ever occupied. This ghost city built for over a million people in China is unbelievable.

    China's Biggest Ghost City ---
    http://www.businessinsider.com/chinas-ordos-ghost-city-pictures-2014-2

    On January 29, 2014 Julie wrote the following on the AAA Commons:

    We have completed our work on the plagiarism policy, and the final version can be found here:

    http://aaahq.org/about/manual/current/publications/PlagiarismPolicy.pdf

    Not Free
    NASBA Releases CPA Examination Statistics ---
    http://www.prweb.com/releases/2014/02/prweb11563462.htm

    Largest University of Florida gift ever is dedicated to the previously-named Warrington College of Business
    "Warrington gives record $75 million gift to UF," by Jeff Schweers, Gainsville.com, February 21, 2014 ---
    http://www.gainesville.com/article/20140221/ARTICLES/140229882/1002/news01?Title=Warrington-gives-record-75-million-gift-to-UF

    l and Judy Warrington have just become the University of Florida’s biggest Gator boosters.

    Their $75 million pledge to Al Warrington’s namesake — the Warrington College of Business Administration — is the largest gift in UF’s history, Tom Mitchell, vice president of Development and Alumni Affairs, announced Friday.

    It also makes Warrington — at age 78 — UF’s first $100 million donor, Mitchell said.

    “Their unprecedented and relentless commitment to quality and excellence … is a testimony and endorsement to not only the university but the Warrington College of Business,” Mitchell said, noting that people who make such significant gifts have long, deep ties to the university.

    The Warringtons have a 40-year-long track record of giving their time, their energy and their money to the university — not only in the business college but in other areas including athletics, stadium expansion, scholarships and research.

    Thirty-eight years after Al Warrington graduated from the College of Business Administration in 1958, he became its benefactor and namesake after he created a $12 million endowment for the college in 1996.

    In 2009, he pledged another $16 million to endow four professorships in the business college. The latest gift will be added to that endowment available to all business college faculty expenses, support for summer graduate students and research expenses, said Dean John Kraft of the business college.

    “This is something the state doesn’t provide, and we have to provide in other ways,” Kraft said.

    Continued in article

    Jensen Comment
    I can only wish more quant papers were written in this style of blending the English language with mathematics to make sense of investment risk for those who cannot follow one equation after the other.

    Financial Risk --- http://en.wikipedia.org/wiki/Financial_Risk

    Beta Risk --- http://en.wikipedia.org/wiki/Beta_%28finance%29

    Alpha Risk --- http://en.wikipedia.org/wiki/Alpha_%28finance%29

    "The forever elusive α (alpha)," by Salil Mehta, Statistical Ideas Blog, February 2014 ---
    http://statisticalideas.blogspot.com/2014/02/forever-elusive-alpha.html

    Humans have been repeating this inefficient ritual for over 700 years, with the first known origins then in Europe.  There sprung lenders and insurers who assessed the relative merits of individual commercial risk.  The methods were somewhat more crude versus the resources available to people today, but none-the-less this is the humble birthplace from where modern investment speculation gets its origin.  What should be the effective interest rate to lend an emerging company wanting to complete a construction project?  What should an insurer charge to protect a ship voyaging across a stormy sea, so that the premium pricing is both attractively profitable yet competitive?

     
    Over time, more information was rapidly made available concerning those who needed capital market resources.  And more ordinary people were able to invest in companies and products.  Through the distribution of personal wealth and technological progress, society experienced episodic bouts of speculations and manias.  The conversion of defined benefit plans in the U.S. to one where American workers invest their own contributions, combined with draining real median wage growth, created a force for even greater heterogeneity of outcomes in the desperate and greedy individual pursuit of α (alpha).  And then the digital age took these advances to another level, now allowing virtually everyone to more quickly and easily trade however they want.  But how can these seeming innovations be good for society, if there is a slimmer portion of risk-adjusted beneficiaries?  Let’s explore the outcomes and difficulties in the great, inefficient search for exceptional alpha.

     
    The true statistical test for outperformance relative to a highly liquid, and investable benchmark takes into account how likely such performance could have been attained by luck alone.  Afterall over any period of time, there will be separation in the market fates of individual stocks within a basket.  Concurrently, some purely lucky stock holders will own specific stocks that just uniformly outperforms the underlying index over this same period of time.

     
    Nonetheless it is worth noting that the difficult statistical standard necessary to warrant the concept of skill over a long career, or life, has a smaller side effect.  And that is that only minorities of those who speculate will actually have, through skill, statistically outperformed the broader stock index.

     
    Let’s show how this works, using the time since the recent financial crisis as a baseline frame for this analysis.  From there we’ll expand to a broader set of applications and timeframes.  The market has gone through a large hockey-stick pattern since the height of the financial crisis, 5.5 years ago.  Equity markets initially plummeted through early 2009, but have since smoothly rallied to new highs. 

     
    If you and your friends had all tried your hand at stock selection and market-timing along the way, then there is a good chance that you are feeling pretty good right now.  Making money is always a welcome relief, but emotional ego perilously inflates disproportionately with the rise of one’s portfolio.  Even more, in the case of the vast majority of people (those who basically doubled their investments alongside the market index, instead of outright quadrupled it), feeling too good is simply unwarranted.  Humility must substitute for hubris, since luck accounts for a great deal of post-crisis performance.

     

    How likely is it that an investor (or speculator) in U.S. equities over the past 5.5 years has demonstrated significant investment skills in this asset class?  For our test we reduce the investable universe to a mapping of the current 30 Dow Jones Industrial Average (DJIA) stocks.  We start with a performance threshold of selecting a basket of any of the top quarter of these 30 stocks for each of the past 5.5 years.  And these top 8 stocks had a minimal monthly outperformance of 1.2% (15% annualized), with a 0.5% standard deviation.  This implies a significantly low, 1% chance of straying that far from the rest of the DJIA by chance alone.

     
    Then being satisfied with our critical threshold, we next solve the probability of continuously selecting a basket of the annual top quarter of DJIA stocks by chance alone.  This is an elementary, compounded Bernoulli problem, and it comes to 0.1%.

     
    We then use Bayesian probability (see equality below) to determine the portion of the population that has skill near the required 1.2% monthly outperformance, in order to compensate for the low 0.1% probability of attaining these results by luck alone.  And this portion of the population comes to 21%.

     
    p(outperform) = p(outperform|luck)*p(luck) + p(outperform|skill)*p(skill)

    Which rearranges to the following.

    p(skill) = [p(outperform) - p(outperform|luck)*p(luck)] / p(outperform|skill)

     
    While there are empirical differences that would ensue from, not the β (beta) of the 30 DJIA stocks, but rather from the component of the typical correlation and dispersion components of beta.  For example, when the correlation is high and the dispersion is low, then more than typical portion of the investing population at that time would be able to outperform based on skill.  And when the opposite parameters define the investment regime, then less than the typical portion of the investment population would be able to outperform based on skill.

     
    Theoretically expanding this example to different time frames, we get the following results.  Note that these examples work for the most common approach to equities speculation: market-timing with a discretionary allocation towards individual stocks.  For 2 years, instead of 5.5 years, the portion of the population with skill increased to 36%.  This is because it is significantly less difficult to outperform monthly at the stated 1.2%, for less years.  And hence we don't need as many lucky investors in order to get the same overall portion of outperforms.  

    On the other end of the time spectrum, for 25 years and 50 years of speculation, the portion of speculators who can maintain the same level of statistical evidence of investment skills rapidly decreases to 0.76% and 0.02%, respectively.  This is shown in     blue, on the left axis of the chart below.

     
    We can also skills-adjust these data, so that we can solve for the level of outperformance that a 2, 25, and 50 years investment career would need to equate to the same level of investment difficulty, as the 1.2% monthly outperformance that is now associated with 5.5 years.  This comes to 2.0%, 0.58%, and 0.4%, respectively.  See the red data below.  Incidentally these monthly outperformances equate to an annual outperformance of about 27%, 7%, and 5%.

    . . .

    Now on the other end of the age spectrum, nearly a few thousand people with 20-30 years of investing experience have outperformed will skill.  And finally of those in Warren’s age group (45-55 years of investing experience), just less than a hundred have also outperformed with skill. 

     
    Does this seem like a lot?  Well to put this into some perspective, 99% of the top managing directors on Wall Street would have not outperformed with skill over this period.

     
    With such daunting odds, what advice is there for people who dimly choose to speculate anyway, tying up large amounts of their human capital?  There are five specific advice here to impart. 
    • The first advice is that this age-old ritual is extraordinarily more transparent and fair then ever before.  This makes things brutally more difficult, and the fact that more people attempt to acquire alpha doesn’t advance the ease for you in actually achieving it.  Just as additional people playing the lottery can never increase your personal odds of holding the winning ticket.  
    • The second advice is that simply learning the rules of finance or working in the industry hardly increases your chance of outperforming the market (see quote at bottom).  This chance we showed in the note is fairly established in probability theory, and it's super low.  The advice here is akin to knowing how to throw a javelin or play chess doesn’t imply we should think we can then compete in the Olympics nor play chess against a computer, respectively.  
    • The third advice is that much more often it is better to simply buy an index fund (and thereby be guaranteed to outperform most of the people who are generally unsuccessful in their attempt to outperform the market), and know that investment capacity is often dear and that human capital are often better spent only entertaining some other pursuits.  
    • The fourth advice is that the very small number of people are skilled investors share some rare talents.  They are gifted with an unusual ability to seamlessly connect specific dots within an investment problem, well beyond the abilities of normal smart people.  The skills could be in a subset of understanding behavioral finance, consumer sentiment, technical analysis, international public policy, global macro economics, risk, statistics, derivatives, valuation accounting, etc.  Of greater importance, they know the many areas of investment knowledge where they do not personally excel at a global level, and nimbly have the sense then to avoid those investment areas that trap others.  
    • And the fifth advice is that selecting world-class stocks or a world-class investment manager are both generally difficult, and anyway inefficient.  If one can’t successfully select the former, then one can’t usually successfully select the latter.  Simply selecting an investment manager for example, such as BRK (which at least can proudly prove their long-term record), can often provide a false reading for the subsequent five years or so.  Just see how the past 5.5 years of BRK were, as they were the most disastrous for the company, since 1965!  Another example could be one of my college professor's (Merton) who won a Nobel prize in economics, yet then went on to co-lead the destruction of a master hedge fund.

    We close with a 1998 quote from Warren Buffett.  May the wisdom prove promising to those who still want to toil away, in pursuit of that magically elusive thing.

     
    Success in investing doesn't correlate with I.Q. once you're above the level of 25. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.

    Bob Jensen's threads on financial performance and risk ---
    http://www.trinity.edu/rjensen/roi.htm

    "A Scrapbook on What's Wrong with the Past, Present and Future of Accountics Science"
    Bob Jensen
    February 19, 2014
    SSRN Download:  http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2398296 

    Deferred Tax Asset --- http://en.wikipedia.org/wiki/Deferred_tax_assets

    February 26, 2014 message from Richard Sansing

    This article raises some intriguing tax, accounting, and regulatory issues. Given the hidden action problems in play, I would not expect to see a sale like this occur. Once the DTA is sold, the seller has no reason to avoid a transaction that would cause the underlying NOL carryover to expire.

    http://www.ifre.com/banks-target-dtas-to-boost-capital/21132984.article 

    Richard Sansing

     

    Princeton's Nobel Laureate economist and political activist Paul Krugman is sometimes known to cherry pick data or even invent data in order to make a political point ---
    Paul Krugman --- http://en.wikipedia.org/wiki/Paul_Krugman

    . . .

    Krugman's columns have drawn criticism as well as praise. A 2003 article in The Economist[ questioned Krugman's "growing tendency to attribute all the world's ills to George Bush," citing critics who felt that "his relentless partisanship is getting in the way of his argument" and claiming errors of economic and political reasoning in his columns. Daniel Okrent, a former The New York Times ombudsman, in his farewell column, criticized Krugman for what he said was "the disturbing habit of shaping, slicing and selectively citing numbers in a fashion that pleases his acolytes but leaves him open to substantive assault.

    "The Missing Data in Krugman’s German Austerity Narrative" Daniel J. Mitchell, Townhall, February 25, 2014 ---
    http://finance.townhall.com/columnists/danieljmitchell/2014/02/25/the-missing-data-in-krugmans-german-austerity-narrative-n1800047?utm_source=thdaily&utm_medium=email&utm_campaign=nl 

    There’s an ongoing debate about Keynesian economics, stimulus spending, and various versions of fiscal austerity, and regular readers know I do everything possible to explain that you can promote added prosperity by reducing the burden of government spending.

    . . .

    But here’s the problem with his article. We know from the (misleading) examples above (not quoted here)  that he’s complained about supposed austerity in places such as the United Kingdom and France, so one would think that the German government must have been more profligate with the public purse.

    After all, Krugman wrote they haven’t “imposed a lot of [austerity] on themselves.”

    So I followed the advice in Krugman’s “public service announcement.” I didn’t just repeat what people have said. I dug into the data to see what happened to government spending in various nations.

    And I know you’ll be shocked to see that Krugman was wrong. The Germans have been more frugal (at least in the sense of increasing spending at the slowest rate) than nations that supposedly are guilty of “spending cuts.”

    Bob Jensen's threads on professors who cheat ---
    http://www.trinity.edu/rjensen/Plagiarism.htm#ProfessorsWhoPlagiarize

    Microsoft Excel Functions and Formulas
    Lesson 1: Why Do You Need Formulas and Functions?
    http://www.howtogeek.com/school/microsoft-excel-formulas-and-functions/lesson1/

    Microsoft Excel Functions and Formulas
    Lesson 2: Defining and Creating a Formula ---
    http://www.howtogeek.com/school/microsoft-excel-formulas-and-functions/lesson2/

    Video:  Blindly Accepting Terms and Conditions?
    http://www.howtogeek.com/181832/blindly-accepting-terms-and-conditions/

    Lesson 3: Relative and Absolute Cell Reference, and Formatting
    http://www.howtogeek.com/school/microsoft-excel-formulas-and-functions/lesson3/

    Lesson 4: Useful Functions You Should Get to Know
    http://www.howtogeek.com/school/microsoft-excel-formulas-and-functions/lesson4/
    Of course I recommend nearly all the finance functions
    http://www.cs.trinity.edu/~rjensen/Excel/

    Accounting Professor Mark Holtzman's Videos on Excel

    "Can you draw a perfect score in the accounting game?" by Ken Tysiac, Journal of Accountancy, February 18, 2014 ---
    http://journalofaccountancy.com/News/20149622.htm

    More than 1,000 questions inspired by content in accounting textbooks are featured in a new online game created for high school students.

    The AICPA helped develop the game, called “Bank On It,” which is available at startheregoplaces.com. The game is intended to be a fun, engaging way for educators to reinforce the accounting principles being taught in class while giving their students a taste of real working-world scenarios in the accounting profession.

    The concept for the game was designed by a team of high school students who won the AICPA’s Project Innovation Competition. The game is won by reaching a winning bank balance set prior to starting. Players earn money by answering questions correctly and landing on other strategic spaces as they move around the board.

    Players can play the game at the “Staff Accountant” or “CEO” level, focusing on business and industry, public accounting, or not-for-profit accounting. Sample questions below are pulled from “Staff Accountant” and “CEO” levels for business and industry.

    Continued in article

    Bob Jensen's threads on edutainment and gamification are at
    http://www.trinity.edu/rjensen/000aaa/thetools.htm#Edutainment

    From the Scout Report on February 14, 2014

    University of Central Florida Libraries: Research Guides
    http://guides.ucf.edu/homepage

    Many academic libraries pride themselves on their online research guides on
    a variety of interests, including comparative literature, chemistry, and
    dozens of other subjects. The University of Central Florida Libraries has
    just such a collection and it covers fourteen different topical areas,
    including Engineering, Florida, and Public Affairs & Law. Each of these
    areas contains additional subtopics, complete with detailed annotations and
    references. The Florida section is a true gem as it covers topics such as
    GLBTQ resources, cartography, and weather. Additionally, each heading also
    includes specific references to other digital collections created by the
    University of Central Florida Libraries.

    Jensen Comment
    Supposedly there are guides for research in business disciplines, including "Accounting," But the coverage seems to be currently nonexistent.. Accounting researchers are better off with sites like those linked at http://www.trinity.edu/rjensen/Threads.htm
    This illustrates how librarian guides to research are often highly variable in coverage.

    Decisive Moments in Teaching and Learning
    "THE DECISIVE MOMENT," by Joe Hoyle, Teaching Blog, February 23, 2014 ---
    http://joehoyle-teaching.blogspot.com/2014/02/the-decisive-moment.html

    Professional photographers sometimes talk about the “decisive moment.” It is that one essential point in time when the photo needs to be taken to capture the true essence of the events that are taking place and the people that are involved.

    I strongly believe that there are decisive moments in teaching and learning. If you make the most of those decisive moments, the students can learn much and learn deeply. If you miss those moments, learning becomes more of a superficial affair.

    Continued in article

     
    "Critical Points in the Learning Process," by Joe Hoyle, Teaching Financial Accounting Blog, January 21, 2010 ---
    http://joehoyle-teaching.blogspot.com/search?q=Critical+Points+in+the+Learning+Process

    "CONVERSATION WITH BOB JENSEN," by Joe Hoyle, Teaching Blog, October 8, 2013 ---
    http://joehoyle-teaching.blogspot.com/2013/10/conversation-with-bob-jensen.html

    How to Mislead With Statistics
    From the 24/7 Wall Street Newsletter on February 17, 2014

    Although a little late this year, due largely to the federal government’s 17-day shutdown in 2013, tax season is here. And, according to a new report, what you owe in taxes could be largely determined by where you live. The report, released by the Office of Revenue Analysis of the government of the District of Columbia, reviewed the estimated property, sales, auto and income taxes for a hypothetical family at various income levels in 2012 in the largest city within each state. City tax burdens vary widely. A family of three earning $75,000 in Cheyenne, Wyoming, paid just $3,475, or 4.6% of its income, in state and local taxes. In Bridgeport, Connecticut, a family of three earning $75,000 paid $16,333, or 21.8% of its income -- a total that does not even include federal taxes.

    These are the cities with the highest (and lowest) taxes ---
    http://247wallst.com/special-report/2014/02/14/cities-paying-the-most-and-least-in-taxes/?utm_source=247WallStDailyNewsletter&utm_medium=email&utm_content=FEB172014A&utm_campaign=DailyNewsletter

    We have tracked the composition of, and major changes to, the Berkshire Hathaway portfolio. Meet the 2014 Warren Buffett stocks.

    Jensen Comment
    Be careful of how tax burdens are computed in this analysis. For example the parameters are based heavily on $25,000 versus $150,000 family income parameters. Trying to live on $150,000 in Manhattan is like trying to live on a poverty wage. Those families well above the $150,000 parameter such as those in Manhattan earning well above the median get clobbered with much higher city taxes than those above the median in Bridgeport, Connecticut because high incomes in Manhattan are so much higher for multimillionaires living in Manhattan as opposed to Bridgeport.

    Medians and means can be very misleading when the data are extremely bimodal such as having a lot of lower income people combined with a lot of extremely high income people paying city income taxes and property taxes. In Manhattan the two modes are so extreme that the median family income number is virtual nonsense. High income people that choose to live in Manhattan in very expensive housing pay a very dear price in terms of taxes imposed by the city on top of the income taxes of the state and federal governments. This is one of the main reasons high income people working in Manhattan elect to live outside Manhattan --- often in villages towns that do not impose income taxes on top of state and federal income taxes.

    In other words, Manhattan looks like a good tax deal only because the parameter of $150,000 is so low for Manhattan.
    Living on $150,000 in Manhattan would be relatively lousy living in small, dingy, and possibly rat-infested brownstone apartment where children are warned not to venture out at night. If this study was revised by replacing the $150,000 parameter with a $500,000 parameter that is reasonable for Manhattan, San Francisco, and Honolulu the rankings towns and city tax burdens would be totally different. Goodbye Bridgetown and hello Manhattan, San Francisco, and Honolulu.

    This is just one of those many ways that "figures don't lie but liars figure."

    30 "Best" Accounting Schools for Undergraduates ---
    http://www.accounting-degree.org/best-accounting-schools/

    1. BYU
    2. Illinois
    3. Notre Dame
    4. Texas (McCombs)
    5. Indiana (Kelley)
    6. Pennsylvania (Wharton)
    7. Southern California (Marshall)
    8. Wake Forest
    9. Washington (Foster)
    10. Georgia (Terry)
    11. Texas A&M
    12. Virginia (McIntire)
    13. Michigan State
    14. NYU
    15. Bentley
    16. Arizona State
    17. Wisconsin-Madison
    18. Penn State
    19. Ohio State
    20. Florida (Warrington)
    21. Michigan (Ross)
    22. California (Haas)
    23. Cornell
    24. North Carolina (Kenan-Flager)
    25. SMU
    26. Missouri (Trulaske)
    27. Boston College
    28. Miami (Ohio)
    29. Northern Illinois
    30. Tennessee

    Jensen Comment
    To my knowledge, most of the accounting programs in the above universities have gpa constraints for students who elect to major in accounting. Performance on the CPA examination is obscured by graduates of these universities who attend graduate accounting programs in other universities. Most of the above universities have relatively large numbers of partners in the Big Four which serves to a considerable extent the external fundings of scholarships, internships, and faculty research.

    In my opinion, however, when we look at partner promotion lists there are many other alumni from lower ranked accounting programs. This reflects that, once employees are on the job in most any discipline, the alma mater effects are obscured by individual employee factors. The alma mater may help in landing that first job, but after that employees are judged on the basis of merit, and selected graduates of Cactus Tech University may be more motivated and more exceptional.

    Some of the above universities also have online business (including accounting) degree programs. Special honors go to Indiana University which is ranked Number One by US News for online business programs ---
    http://www.trinity.edu/rjensen/CrossBorder.htm

    "During an ‘Uncertain Time’ for Higher Ed, Villanova Takes Its MBAs Online," by Patrick Clark, Bloomberg Businessweek, January 30, 2014 ---
    http://www.businessweek.com/articles/2014-01-30/villanova-school-of-business-announces-online-mba-program

    Bob Jensen's threads on distance education and training alternatives ---
    http://www.trinity.edu/rjensen/CrossBorder.htm

    The Free Khan Academy Tutorials --- http://en.wikipedia.org/wiki/Khan_Academy

    One of the Really Good Guys
    "Life’s Work: Salman Khan," Harvard Business Review, Jan-Feb, 2014 ---
    http://hbr.org/2014/01/salman-khan/ar/1

    Competency-Based Learning --- http://en.wikipedia.org/wiki/Competency-based_learning

    "Competency-Based Degrees: Coming Soon to a Campus Near You," by Joel Shapiro, Chronicle of Higher Education, February 17, 2014 ---
    http://chronicle.com/article/Competency-Based-Degrees-/144769/?cid=cr&utm_source=cr&utm_medium=en

    Has distance education significantly affected the business and teaching models of higher education? Certainly. Is it today’s biggest disrupter of the higher-education industry? Not quite. In fact, the greatest risk to traditional higher education as we know it may be posed by competency-based education models.

    Competency-based programs allow students to gain academic credit by demonstrating academic competence through a combination of assessment and documentation of experience. The model is already used by institutions including Western Governors University, Southern New Hampshire University, Excelsior College, and others, and is a recent addition to the University of Wisconsin system.

    Traditional educators often find competency programs alarming—and understandably so. Earning college credit by virtue of life experience runs afoul of classroom experience, which many educators believe to be sacred. As a colleague recently said, "Life is not college. Life is what prepares you for college."

    In fact, traditional educators should be alarmed. If more institutions gravitate toward competency-based models, more and more students will earn degrees from institutions at which they take few courses and perhaps interact minimally with professors. Then what will a college degree mean?

    It may no longer mean that a student has taken predetermined required and elective courses taught by approved faculty members. Rather, it would mean that a student has demonstrated a defined set of proficiencies and mastery of knowledge and content.

    Competency models recognize the value of experiential learning, in which students can develop and hone skill sets in real-world contexts. For instance, a student with a background in web design may be able to provide an institution with a portfolio that demonstrates mastery of computer coding or digital design. If coding or digital design is a discipline in which the institution gives credit, and the mastery demonstrated is sufficiently similar to that achieved in the classroom, then the institution may grant credit based on that portfolio.

    The logic of competency-based credit is compelling. After all, colleges and universities hire most people to teach so that students learn. If students can achieve the desired learning in other ways, then why not provide them with the same credential as those who sat in the traditional classrooms with the traditional faculty members?

    Additionally, the competency-based model, so often cast aside by traditional institutions, already exists within their walls. Not only do many colleges give credit for 
real-world learning through (sometimes mandatory) internships, but a version of the competency model has long been part of traditional assessment practices.

    Most professors grade students on the basis of their performance on particular assignments, such as papers, tests, and projects. If a student’s final paper reflects a sufficient degree of sophistication and mastery, then the professor gives the student a passing grade, thus conferring credit. But how much can the professor really know about how the student learned the material? If the end is achieved, how much do the means matter?

    In primary and secondary education, much is made of measuring students’ growth. A successful teacher moves a student from Point A to Point B. The greater the difference between A and B, arguably, the more effective the teacher. But in higher education, rarely is any effort made to formally assess student growth. Rather, professors typically give grades based on final performance, regardless of students’ starting point. In the classroom, competency models rule, even at traditional institutions.

    The primary weakness of competency models, however, is that they can be only as good as the assessment mechanisms they employ, and, unfortunately, no assessment can be a perfect proxy for deep and meaningful learning. Certainly, great education isn’t just about content. It challenges students to consider others’ viewpoints, provides conflicting information, and forces students to reconcile, set priorities, and choose. In the best cases, it engenders a growth of intellect and curiosity that is not easily definable.

    Higher-end learning remains the defining value proposition of great teaching within a formal classroom setting. But because it is exceedingly hard to assess, it cannot easily be incorporated into competency models.

    Nonetheless, competency models will make significant headway at the growing number of institutions that offer skill-based programs with clearly delineated and easily assessed learning outcomes. They will also appeal to students who want to save time and money by getting credit applied to past experience. Institutions that serve these students will thus find competency models to be a competitive advantage.

    Meanwhile, institutions that are unwilling or unable to incorporate elements of a competency model will be forced to defend the value of learning that cannot be easily assessed and demonstrated. That will be a hard message to communicate and sell, especially given that students with mastery of applied and technical skill sets tend to be rewarded with jobs upon graduation. Additionally, noncompetency tuition will almost certainly rise relative to competency-based credit models, which require less instruction and thus can be delivered at lower cost.

    The marketplace rarely reacts well to perceived low marginal benefit at high marginal price.

    Continued in article

    "The Baloney Detection Kit: Carl Sagan’s Rules for Bullshit-Busting and Critical Thinking," by Maria Popova, Brain Pickings, January 3, 2014 ---
    http://www.brainpickings.org/index.php/2014/01/03/baloney-detection-kit-carl-sagan/

    Bob Jensen's threads on competency-based assessment and assessment of deep understanding:
    Concept Knowledge and Assessment of Deep Understanding ---
    http://www.trinity.edu/rjensen/Assess.htm#ConceptKnowledge

    From:   Joe Hyle

    Someone sent this to me.   You might have already seen it.   I thought it was one of the better takes on MOOCs but it was done by someone who had done one.   If you are interested, it is probably worth a read.

    http://johnhcochrane.blogspot.com/2014/02/mooconomics.html

     
    Reply from Bob Jensen on February 15, 2014
     
    Hi Joe,
     
    It's important to read the comments on this article. The most important thing to note is that MOOCs tend to be advanced courses for scholars who already know a lot about the subject matter. This is one of the things that makes MOOCs hard.
     
    The second thing to note is that the MOOC professors tend to be leading advanced scholars and teachers in their disciplines. These professors do not usually make things easy. We've never been able to take away the loss of sleep, tears, and sweat out of serious learning.
     
    Lastly, MOOCs are luxury offerings. Whereas distance education (often more expensive than on-campus tuition) is a threat to luddites, MOOCs are too expensive for limited taxpayer and re-directed student tuition dollars. This is why I think MOOCs should only be offered by  prestigious universities having tens of billions of endowment funds that enable those universities to experiment in bringing advanced knowledge free of charge to the public from the top scholars in academic disciplines.
     
    As a footnote, I don't think MOOCs should be offered for credit or certificates. Eventually all disciplines will have competency-based credits (maybe administered by prospective employers) to demonstrate mastery of subject matter. MOOCs can contribute to that mastery, but they should be a no-cost alternative for learning toward mastery.
     
    Respectfully,
     
    Bob Jensen

    "Prevention Measures to Help Counter E-Commerce Fraud," Deloitte WSJ, February 21, 2014 ---
    http://deloitte.wsj.com/cfo/2014/02/21/prevention-measures-to-help-counter-e-commerce-fraud/

    Last year, U.S. prosecutors made public a sophisticated, almost “Ocean’s 11-type” scheme involving hackers who were part of an organized cybercriminal network and stole $45 million by penetrating the security of two credit card processors. The swindle compromised only 17 accounts belonging to two banks, with one of the accounts having been robbed of $12 million. Among other illicit actions, the hackers cracked the codes for the processor’s authorization system, set the account balance to infinite and changed security rules so information being sent through the system did not trigger alarms associated with unusual activity or withdrawal limits. The organized crime group kept a small portion of the funds, wiring most of it back to the hacker groups.

    Such elaborate and organized hacker schemes are one reason why fraud detection and prevention have been elevated to the C-suite.

    “Along with the positive impact of digital commerce comes the risk of fraud to businesses and customers,” explained David Williams, CEO, Deloitte Financial Advisory Services LLP, speaking during a Deloitte webcast, E commerce and Payments Fraud on the Rise: Protection Techniques for Banks and Consumers.

    The rising concern about fraud was evident among webcast viewers. Nearly half (47.3%) of more than 2,400 executives and managers responding to an online poll question during the webcast reported that fraud protection ranks as a “high priority” for their organization, with an additional 8% citing fraud protection as their organization’s number one priority.

    Continued in article

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

    February 8, 2014 message from Jacob Ugwi

    Hi Bob,

    I     have always found the links you posted at     www.trinity.edu/rjensen/ super-helpful and it would be great if you could include Thinknum.

    Thinknum is using XBRL to disrupt the billion dollar investment research market. We are developing a web platform that enables individuals to take on research analysts at giant investment banks. We have built a data platform with over 2,000 data sources and tools for modelling stocks using the best web technology.

    We were recently featured by     Jason Voss of the CFA institute.

    Thinknum was founded by a former Goldman Sachs Strat and alumni of Princeton University.

     
    Please let me know what you think.

     
    All the best, 
    Greg

     

    Answer to a Question About Including XBRL in the Classroom

    February 8, 2014 reply from Bob Jensen

    Hi Nathan,

     
    I have no idea what proportion of accounting programs are illustrating and teaching XBRL use in a significant way. I do suspect that it varies greatly.

     

    I think Zane Swanson at Central Oklahoma probably carries it about as far as any other professor on the technical end.  You can find some of Zane's messages at
    http://www.trinity.edu/rjensen/XBRLandOLAP.htm
     
    Saeed Roohani at Bryant College may track  of major users.
     
    I will post your questions out the the AECM. We may get some better answers.

    Bob Jensen

    February 8, 2014 reply from Rick Lillie

    During Spring Quarter 2012, I introduced XBRL to graduate students in my ACCT 625 class (Seminar in AIS) at Cal State San Bernardino.  Students used Skip White's workbook to learn XBRL basics and coding financial statement data in XBRL format.  They also used a great XBRL financial analysis tool called I-Metrix by EDGAR Online.

    I talked with people at I-Metrix, explained how I wanted to use I-Metrix in my graduate class, and asked if I-Metrix would be willing to allow students to use the I-Metrix system for free for the quarter.  They said yes.

    I created a "seek-and-find" research activity as a final team project.  Teams used I-Metrix and other resources to answer both quantitative and qualitative questions about Apple and Microsoft.  By the time the project was completed, team members had thoroughly explored the features of I-Metrix and XBRL-related information.

    I wanted to continue using I-Metrix with my ACCT 625 class and also begin using it in my Intermediate Accounting classes.  Unfortunately, I-Metrix required that we purchase a subscription for further use.  It was pretty expensive and beyond our department's software and database budget. I tried to get other accounting and finance faculty to use I-Metrix.  Unfortunately, they could not see the benefit of doing this.  Use of I-Metrix died on the vine.

    I-Metrix is available through EDGAR Online.  If you're not already familiar with I-Metrix, take a few moment to explore the service and its features.

    Best wishes,

     

    Rick Lillie

     

    Rick Lillie, MAS, Ed.D., CPA, CGMA

    Associate Professor of Accounting, Emeritus

    CSUSB, CBPA, Department of Accounting & Finance

    5500 University Parkway, JB-547

    San Bernardino, CA.  92407-2397

     

    Email:  rlillie@csusb.edu

    Telephone:  (909) 537-5726

    Skype (Username):  ricklillie

     February 8, 2014 reply from Zane Swanson

    Hi Nathan and Bob,

     In the world of the flipped classroom, the question(s) would be:

    1.Why would professors discuss XBRL?

       Answer: XBRL is a required company file to the SEC.  Therefore, students need to know what will be part of the activities in the accounting workplace.

    2.Which classes would have XBRL discussed?

       Answer: Financial accounting classes, Financial Analysis and Auditing classes should have coverage.

    But, does it happen?  If XBRL is not in the textbook, I doubt that instructors will cover it ... because they don't have the time to package something on their own.  I checked the Advanced Accounting book that I use this semester.  The SEC reporting chapter does NOT have XBRL mentioned.  XBRL is NOT in the index.  So, to answer your question about what proportion of faculty discuss XBRL to students, I would say check indices for XBRL in the textbooks in your program.

    If anyone is going discuss XBRL, you might want

    1.First: to do a descriptive walk through of linking a line item to an XBRL tags.  See www.askaref.com Try goodwill.  Keep your search tight by selecting only the balance sheet which will result in a handful of taxonomy appearances of the word goodwill.

    2.Second: make an analysis question like compute a ratio utilizing XBRL tagged data.   www.Blog.askaref.com has an example exercise.

    Regards,

    Zane Swanson

    From the Global CPA Newsletter on February 14, 2014

    IASB to continue focus on "other comprehensive income
     International Accounting Standards Board Chairman Hans Hoogervorst says the standard-setting body plans to continue its focus on improving rules and financial-statement presentation guidance for "other comprehensive income." He pointed to companies passing employee benefit expenses via other comprehensive income, instead of earnings, and then "were brought to their knees by employee benefits that had been building up over the years," as one example. The Wall Street Journal (tiered subscription model)/CFO Journal blog (2/13)

    Jensen Comment
    The first thing that would be nice is to operationally define net earnings and net earnings per share.

    Net earnings and eps cannot be defined since the FASB and IASB elected to give the balance sheet priority over the income statement in financial reporting ---
    "The Asset-Liability Approach: Primacy does not mean Priority," by Robert Bloomfield, FASRI Financial Accounting Standards Research Initiative, October 6, 2009 ---
    http://www.fasri.net/index.php/2009/10/the-asset-liability-approach-primacy-does-not-mean-priority/

    Joint Costs --- Direct material and labor costs going into a production process before the process splits output into separate products such as the faculty costs of teaching common core courses like writing and mathematics before students declare majors. Another example would be where a professor teaching two chemistry courses is assigned a common core basic course and an advanced course for chemistry majors. Any attempt to split her salary between chemistry majors and undeclared majors is arbitrary.
    Also see http://maaw.info/JointProductsMain.htm

    Overhead Costs --- fixed and variable costs are indirect in the sense that they cannot be traced to particular items of output such as top administrator salaries of the college and costs buildings, heating, cooling, and grounds maintenance. Any attempt to allocate these costs to different academic disciplines is arbitrary.
    http://maaw.info/OverheadRelatedMain.htm

    Activities-Based Costing (ABC) --- http://en.wikipedia.org/wiki/Activity-based_costing
    Also see http://maaw.info/ABCMain.htm
    One of the main ideas here is concept of back flushing where costs of upstream decisions like financial aid decisions regarding prospects intending to major in philosophy are given different amounts of scholarship money versus students intending to major in business. Another example would be a decision as to whether a chemistry professor versus a history professor gets an endowed chair. This affects cost allocations for years to come. Another example is where decisions in one department impact on resources needed in another department. For example, some business schools teach economics whereas other require that economics be taught in the economics department. If a business school elects to require calculus from the mathematics department it can greatly impact on the resources needed in the mathematics department.

    As an accountant I can think of all sorts of reasons why computing the costs of accounting majors versus chemistry majors is an exercise in futility because of joint costs, overhead costs, and many other costs where cost allocations are arbitrary and can be performed selectively to make costs of one major in a university look higher or lower than another major. It is possible to do zero-based budgeting where estimates are made as to how much would be saved if a major or a complete department is abandoned entirely. But even here there are unknowns about lost revenues and "lost" costs.

    Another complication is that colleges have to have certain disciplines to be respectable even though there are only a trickle of students choosing to major or minor in those disciplines.  For example, the the number of economics majors at a university in Mississippi trickled down to one, and the university seriously considered dropping the economics department. In many universities the number of geology majors trickled down to almost zero when not having earth science majors is a questionable move for a "university." If a university maintains a department of faculty for one or only a handful of majors the average cost per graduate appears to be very high relative to the business department having almost half the student body in that university.

    "Accounting for Success"  Brenau U., a women's college in Georgia, is running million-dollar surpluses. Here's how." by Scott Carlson, Chronicle of Higher Education, February 3, 2014 ---
    http://chronicle.com/article/Accounting-for-Success/144351/

    Step into the president’s office at Brenau University, and you find yourself surrounded by vivid maps displaying the geology of the United States in bright yellows and reds, greens and purples. Ask Ed Schrader about the maps, and he’ll explain how heat, pressure, sediments, and erosion molded this diverse landscape through the epochs. He’ll speak with all the enthusiasm that a former geology professor can bring to the subject.

    But before he entered the academic world, in the late 1980s, Mr. Schrader was part of a more "cutthroat" environment: the mining industry, where he worked for corporations like Chevron and Süd-Chemie. There he learned a different kind of discipline, which he brings to the academic world now.

    "We counted nuts and bolts, we dug things up for pennies and sold them for dimes," he says.

    Administrators at Brenau, in a similar fashion, tally all the revenue and expenses of its colleges, determining the net revenue of each. They count, down to the penny, what it costs to graduate a business student, or a humanities student, or a nursing student. They know precisely which academic units are cash cows and which aren’t, and by how much, and they use that information to figure out how to grow strategically.

    Brenau’s gross income has doubled in the past decade, from $23-million to $48-million (with $51-million projected next year). It has run million-dollar surpluses in recent years, has expanded its campus to several locations across Georgia, and is considering moving into Florida.

    For Mr. Schrader, this is more than just business discipline, but a way to preserve the more fragile aspects of Brenau’s mission. At its core, Brenau is a women’s college with a liberal-arts emphasis, an endangered species these days. The university’s weekend, online, and professional programs in business, occupational therapy, and other fields help sustain the women’s college. "I have to know how many people I need to educate in nursing to pay for those graduates in English," Mr. Schrader says. "If I don’t know that, we’re subject to the whims of fate."

    That might seem like plain common sense. But observers of higher education say Brenau’s close attention to revenue and costs is fairly unusual, especially among smaller colleges. "It is very much the exception that an institution understands its costs at a granular level," says Rick Staisloff, a consultant who spent more than two decades in higher-education finance. Drawing on a metaphor he often uses, Mr. Staisloff says colleges tend to look at their offices, programs, and departments as a big basket of stuff, not knowing what the individual pieces in the basket cost.

    "No one asked you if you made or lost money on history, or made or lost money on business," he says. "If it all added up, that’s all people cared about."

    That’s changing, Mr. Staisloff notes, for reasons that everyone in the industry knows: more pressure and scrutiny on institutions, along with more attention to the complex financial model of higher education, where richer students and richer programs usually cover losses from poorer students and poorer programs. "If you’re going to live in a world of subsidies," he says, "you should know which things are making money."

    Edie Behr, an analyst in the public-finance group at Moody’s Investors Service, says colleges have had a longstanding culture of providing education without scrutinizing the costs—"an ingrained culture that is going to have to break down," she says, "because there is a need for cost containment."

    "As the programs that cost more than they bring in are identified," she says, "then the question becomes, What do you do with them?"

    When Mr. Schrader came to Brenau in 2005, from Shorter University, where he was president, he inherited the institution from a leader who had gotten it back on firm financial ground. Still, he says, there were lapses. The administration set budgets for departments but did not strictly enforce them. Administrators believed they were spending 5 percent of their endowment value, but were actually spending 5 percent of the year-to-year growth, he says. And the college’s financial office was a bit behind the times. The CFO did not use any sort of computerized system to track the college’s spending. If you asked him for a figure, Mr. Schrader says, "he would run to his office, dig about three feet down in a stack of papers, and come back saying, ‘Here it is.’"

    Mr. Schrader hired a consultant, James F. Galbally, to act as a kind of forensic accountant, working closely with a new chief financial officer, Wayne Dempsey, who also came from Shorter. Mr. Galbally had spent 20 years at the University of Pennsylvania, where he was an associate dean overseeing finances for the dental school, and had taught in the management school and the higher-education program alongside Robert Zemsky, an expert in college management. He also spent several years as a consultant specializing in training new college presidents.

    Contined in article

    Jensen Comment
    If managerial accounting for colleges was as simple as this article makes it sound, then I think many other colleges would be doing the same thing on a routine bases. Instead such accounting is usually very experimental. Probably the best known and expensive attempt to compute costs of majors was done at Texas A&M university.

    "Texas A&M Gathers Accountability Data on New Web Site," Chronicle of Higher Education, May 18, 2012 ---
    http://chronicle.com/blogs/ticker/texas-am-launches-new-web-site-in-response-to-demand-for-accountability/43387?sid=wc&utm_source=wc&utm_medium=en

    Amid calls for more accountability, Texas A&M University has unveiled a website that makes data such as graduation rates, faculty workloads, demographics and student debt easily accessible.

    The site — accountability.tamu.edu — is composed of data that already was publicly available, but administrators say the effort is an unprecedented step toward ensuring public trust.

    “It is unfortunate that higher education faces new questions about its impact,” said Texas A&M President R. Bowen Loftin in a news release. “We want to do everything in our power to ensure the public trust in all we do.”

    Accountability was the subject of a public fight last year between the state’s two public research universities, A&M and UT-Austin, and the Gov. Rick Perry-backed conservative think tank, the Texas Public Policy Foundation.

    The group’s “seven breakthrough solutions” were a series of ideas with which the group aimed to address perceived accountability issues. The universities’ regents, all of whom are appointed by Perry, embraced some of the ideas and flirted with others until the schools pushed back following media attention.

    One of the most criticized of the ideas was one that reduced a faculty member’s value to a “bottom line” financial figure, represented by a number in either red or black, by subtracting his or her salary and benefits from money brought in through teaching and research.

    The document was taken down amid numerous complaints of inaccuracies in the data.

    “I’m not opposed to accountability,” said Peter Hugill, a Texas A&M faculty member and state conference president of the American Association of University Professors. “I was opposed to that crazy red and black report.”

    The new accountability website has no such measure.

    The site provides large amounts of information in a compact format with real-time changes, said Joe Pettibon, associate vice president for academic services, in the news release.

    “This is a bold step in transparency that holds the university to the highest standards regarding how we use our resources,” Pettibon said. “However, the site will always be a work in progress as information is added, updated, and improved to address what is happening in higher education and the university.”

     

    The accountability site is at
    https://accountability.tamu.edu/

    Texas A&M University is committed to accountability in its pursuit of excellence. The university expects to be held to the highest standards in its use of resources and in the quality of the educational experience. In fact, this commitment is a part of the fabric of the institution from its founding and is a key component of its mission statement (as approved by the Board of Regents and the Texas Higher Education Coordinating Board), its aspirations found in Vision 2020 (approved by the Board of Regents in 1999), and its current strategic plan, Action 2015: Education First (approved by the Chancellor in December 2010).

    Texas A&M Case on Computing the Cost of Professors and Academic Programs

    "Treating Higher Ed's 'Cost Disease' With Supersize Online Courses," by Marc Parry, Chronicle of Higher Education, February 26, 2012 ---
    http://chronicle.com/article/Treating-Higher-Eds-Cost/130934/?sid=wc&utm_source=wc&utm_medium=en

    Jensen Comment
    In an advanced Cost/Managerial Accounting course this assignment could have two parts. First assign the case below. Then assign student teams to write a case on how to compute the cost of a given course, graduate in a given program, or a comparison of a the cost of a distance education section versus an onsite section of a given course taught by a tenured faculty member teaching three courses in general as well as conducting research, performing internal service, and performing external service in his/her discipline.

    Issues in Computing a College's Cost of Degrees Awarded and the "Worth" of Professors ---
    http://www.trinity.edu/rjensen/HigherEdControversies.htm#CostAccounting

    Cindy at Trinity University asked me to help her with her Health Savings Account in Turnbo Tax.
     
    The answer on the Turbo Tax forum may be of interest to others.

    Take a look at     https://ttlc.intuit.com/replies/3718142

    From the CPA Newsletter on February 25, 2014

    Public pension shortfalls keep building
    In recent years, more than 40 states have taken action to bring rising public pension costs under control, but experts say that in many cases, politicians have merely deferred costs. None of the states is eliminating its funding shortfall fast enough to keep up with an aging workforce.     The New York Times (tiered subscription model)

    The States Most Dishonestly Hiding Their Debt
    "Chart of the Day:  Who is Chopping Down the Kids' Cherry Tree?," State Data Lab, December 15, 2014 ---
    California and Illinois have the most devious accountants.

    There's a bit of possible deception here and the chart should probably be revised to hidden debt on a per capita basis. There's a huge difference in state populations with Vermont and Wyoming having less than a million people versus millions of people in the states hiding the most debt. Still I suspect the outcomes would still look bad for California, Illinois, New York, etc. Most of the problem lies with tens of billions in unfunded pensions for current and former state workers, including teachers.

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

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

    Question
    Why do so few people going into retirement decide against lifetime fixed annuities?

    Jensen Answer
    In 2006 I opted for TIAA lifetime annuities that pay out a fixed amount of monthly income for as long as my wife and/or I are alive. Other options included variable lifetime annuities (that go up and down with the stock market) and lump-sum withdrawals of cash that we could manage ourselves. Lump-sum withdrawal might have been more attractive if we were already sufficiently wealthy to have retirement needs covered. Then we could have given more away to family and charities. But we were not that wealthy.

    A lifetime annuity works best if you live many years beyond when all your retirement funds are depleted. A lifetime annuity is the gift that keeps on giving.
     

    A lifetime annuity works best if you live many years beyond when all your retirement funds are depleted. A lifetime annuity is the gift that keeps on giving.

    At our ages inflation is less of a risk concern than for younger people who are still investing toward retirement. However, if I were advising a younger person who becomes eligible for a TIAA payout because of a divorce I would stress the inflation risks of a very long-term fixed annuity. A variable annuity becomes a better option depending upon age.

    The huge unexpected benefit from our 2006 TIAA retirement deal was that our fixed monthly annuity income was not affected by the economic crash of 2008 like it would have been with a variable lifetime annuity. Since the stock market eventually recovered such losses in monthly income would have eventually recovered pretty well except for the losses before the stock market bounced back.

    It was just plain luck that I retired in 2006 rather than 2009. The decision of the Federal Reserve to drive interest rates down to nearly zero coupled with the Quantitative Easing program must have made it very difficult for TIAA to offer fixed annuity deals after 2008 like the deal I negotiated in 2006. However, I did not investigate the difference between the monthly annuity amount I negotiated in 2006 with the amount I could have negotiated with TIAA  in 2009.

    Note that interest rates on safe investments like bonds and CDs have not bounced back like the stock market. This is because of the damaging policies of the Federal Reserve on the what used to be safer investments --- safer investments that now return virtually zero. I don't look for safe investments to return much of anything for a long, long time. The Fed has forced investors to take on more financial risks with its low-interest policies that don't don't seriously show signs of change in our troubled unemployment economy.

    There are various other considerations when negotiating a retirement annuity, some of which are discussed by Harvard's Justin Fox in the article below. I listened carefully to the advantages and disadvantages of retirement annuities that the TIAA counselor laid out for me before I signed on the dotted line. One consideration for me was the 10-year grace period in which a declining balance in our retirement fund balance goes into our inheritance estate if Erika and I both die before 2016. After 2016 nothing of this balance goes into our estates and if we live long enough TIAA takes a big hit. However, we felt that we had sufficient outside savings to make our children sufficient bequests if we pass on after 2016. Retirees without much in the way of outside savings might not like this 10-year limit.

    There are also other uncertainties. For example, there can be tax advantages or disadvantages of lump-sum withdrawals at retirement. Investors who feel almost certain that income taxes are going to become much higher in the future might opt for a lump-sum payout. Those that think taxes will be lower are less inclined to opt for the lump-sum payout, although there are other considerations. For example, if I had taken a lump-sum payout I probably would have invested most of the payout in an insured long-term tax exempt mutual fund even though there are ups and downs in the values of such funds --- even though the tax-free cash flows are fairly steady month-to-month.

    I did not cover some of the points mentioned by Justin Fox in the article below.

    Always take advantage of the free investment counseling of your Personnel Department and the companies trying to sell you a retirement annuity. Personally I'm not a big fan of paying for investment advice since there are so many free services from TIAA, Vangard, Fidelity, etc. Professionals in these outfits will talk to you for free.

    "What Do People Have Against Retirement Income?" by Justin Fox, Harvard Business Review Blog, February 25, 2014 ---
    http://blogs.hbr.org/2014/02/what-do-people-have-against-retirement-income/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+harvardbusiness+%28HBR.org%29&cm_ite=DailyAlert-022614+%281%29&cm_lm=sp%3Arjensen%40trinity.edu&cm_ven=Spop-Email

    Bob Jensen's free investment helpers that may not be worth the price are at
    http://www.trinity.edu/rjensen/Bookbob1.htm#InvestmentHelper

    Seven Nations Buying Up the World's Gold ---
    http://247wallst.com/commodities-metals/2014/02/25/seven-nations-buying-the-worlds-gold/?utm_source=247WallStDailyNewsletter&utm_medium=email&utm_content=FEB262014A&utm_campaign=DailyNewsletter

    Jensen Comment
    Personally if I were running any of these seven nations, I would instead be buying up the best farmland in North America. I would also buy up farmland in other parts of the world where ownership rights are protected. Forget about buying up farms in nations like Argentina, Venezuela, Russia, Africa, and most parts of Asia. Eating gold is just too hard on teeth.

    Video
    "Seven Trends in Management Accounting," by Jim Martin, MAAW's Blog, February 18, 2014 ---
    http://maaw.blogspot.com/2014/02/seven-trends-in-management-accounting.html

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

    Horrors!
    Think of what might happen if a new accountics science Ph.D. is assigned to teach Intermediate or Advanced Accounting?

    "Rutgers Prof Suspended for Telling Students He Was Made to Teach a Course in Which He Had Zero Expertise," by Paul Caron, TaxProf Blog, February 17, 2014 ---
    http://taxprof.typepad.com/taxprof_blog/2014/02/rutgers-prof.html

    "Weekly Tax Roundup on February 21, 2014," by Paul Caron, Tax Prof Blog, February 21, 2014 ---
    http://taxprof.typepad.com/taxprof_blog/2014/02/weekly-tax-2.html

  • Bloomberg, Camp Plans Draft Tax Code Revamp Amid Political Hurdles, by Richard Rubin
  • Bloomberg, Geographic Gap Marks Mortgage Interest Deduction Benefit, by Marc Heller
  • Center on Budget and Policy Priorities, What Really Is the Evidence on Taxes and Growth? A Reply to the Tax Foundation
  • Citizens for Tax Justice, Bipartisan Rush to Win Gold Medal in Tax Gimmickry
  • Congressional Research Service, The Corporate Income Tax System: Overview and Options for Reform
  • Congressional Research Service, Itemized Tax Deductions for Individuals: Data Analysis
  • Conversable Economist, How the 2009 Tax Haven Agreement Failed
  • Dorf on Law, The Fury of the Health Care Haters, the Dishonesty of (Some) Economists, and the Return of the Baseline Problem, by Neil H. Buchanan (George Washington)
  • Fiscal Times, Is Poor Forecasting the Achilles Heel of Economics?, by Bruce Bartlett
  • Fiscal Times, Tax Reform is Dead Until a New President Is Elected, by Bruce Bartlett
  • Forbes, Feds Push Jail For Tax Crimes: Like Your Cell, Keep Your Cell, by Robert W. Wood
  • Forbes, GAO Report: Where Offshore Tax Evaders Live and Bank, by Ashlea Ebeling
  • Forbes, New Jersey Gets to Second Guess IRS on Estate Tax Marital Deduction, by Peter J. Reilly
  • Forbes, Try Lady Gaga's Clever Clothes Write-Off On Your Taxes?, by Robert W. Wood
  • Forbes, Was CPA Tax Evader on the Lam or Hiding in Plain Sight?, by Peter J. Reilly
  • Forbes, Where's My Refund? General Electric Sues For $658 Million Tax Refund, by Janet Novack
  • The Guardian, Rupert Murdoch's Empire Receives $882m Tax Rebate From Australia; Payment Revealed by News Corp in US L:ikely to Reignite Debate Over How Much Tax Is Paid by International Corporations
  • Heritage Foundation,  The Proper Tax Treatment of Interest, by Curtis S. Dubay
  • Huffington Post, Boeing Paid No Federal Income Tax Last Year
  • National Review, The IRS Made $110 Billion in Improper EITC Payments Over Ten Years
  • New York Times, An Economic Milestone, by Bruce Bartlett
  • Quartz, Investors Are Losing Interest in Complex Tax-Avoidance Structures
  • Tax Analysts Blog, Blaming Big Corporations Is Not the Answer, by David Brunori
  • Tax Analysts Blog, Progressivity Does Not Equal Equality, by Christopher Bergin
  • Tax Foundation, A Short History of Government Taxing and Spending in the United States
  • Verdict, The Short, Unhappy Life of a Republican Attack Line, and Its Angry Aftermath, by Neil H. Buchanan (George Washington)

    •  

    "Accounting Standards Board Chairman Hans Hoogervorst:  How the lease accounting proposal may change," by Ken Tysiac, Journal of Accountancy, February 8, 2014 ---
    http://journalofaccountancy.com/News/20149547.htm

    Acknowledging that the converged leases project poses difficulties for standard setters, International Accounting Standards Board (IASB) Chairman Hans Hoogervorst described some possible solutions Wednesday during a speech in Tokyo.

    The IASB and FASB are involved in new deliberations on their converged leases project after receiving feedback from financial statement preparers that said implementation costs would be high and benefits would be low if a proposal released in May is approved.

    “We take these concerns very seriously,” Hoogervorst said. “As we take our final decision in the next couple of months, you can rest assured that we will do our utmost to keep these costs at a minimum.”

    Hoogervorst said the boards may make the following changes to the proposal:

    • Excluding small-ticket items. One possibility is permitting requirements to be applied to a portfolio of leases, Hoogervorst said. For example, if a business leases 100 photocopiers, they could be accounted for as one item.
    • Limiting the changes to lessor accounting. Many stakeholders do not consider lessor accounting to be broken, Hoogervorst said.
    • Simplifying the distinction between Type A and Type B leases. The current proposal classifies leases as Type A when a more-than-insignificant amount of the value of the asset is consumed during the lease period. These include most equipment and vehicle leases. Type B leases under the proposal have an insignificant amount of the value of the asset consumed during the lease. Most property leases would be considered Type B leases.


    The AICPA Financial Reporting Executive Committee (FinREC)     recommended a dividing line that it said would be simpler. In its comment letter, FinREC said leases consistent with in-substance finance purchases should be accounted for as Type A leases, and other leases should be accounted for as Type B.

    Hoogervorst said the overwhelming majority of financial statement users have said they agree with the boards’ conclusion that leases contain a heavy amount of financing.

    “They do not like the present situation, in which they have to make their own estimates of the hidden leverage underlying lease contracts,” Hoogervorst said. “They simply want to see leases on the balance sheet and want the rigor and comparability that only an accounting standard can offer.”

    In addition, Hoogervorst said, the boards have found that many investors, when making their adjustments to balance sheets, actually exaggerate the implicit leverage in leases. So the leases standard could make many companies look better in the eyes of investors, he said.

    Hoogervorst also predicted that the leases standard will be similar to standards that brought pensions onto balance sheets, providing transparency that changed business practices.

    “I expect that more than a few executives are not fully aware of the implicit leverage caused by leases,” Hoogervorst said. “The leases standard will help them to make better-reasoned decisions between purchasing and leasing.”

    Jensen Comment
    I don't think there's any hope for operating lease capitalization until standard setters come to grips with renewal options. Perhaps this is one of those problems that just does not fit the double entry model and the undefined index we call earnings-per-share.

    I recall a comment years ago to the effect that "Boeing reports it sold an airliner to Eastern Airlines, but Eastern Airlines only reports that it leases that airliner."

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

    From the CFO Journal's Morning Ledger on January 22. 2014

    Lease-accounting overhaul likely to be scaled back
    The FASB and IASB moved forward with plans that could limit the scope of their project to overhaul lease-accounting rules and allow them to refocus their efforts on bringing over $1 trillion in off-balance-sheet leases onto corporate books,     Emily Chasan reports. In a joint meeting, the accounting rule makers discussed scaling back their efforts to simultaneously revamp so-called “lessor” accounting for companies that lease assets, such as airplanes or photocopiers, to other firms. Investors and other users of financial statements “are telling us this isn’t something we need,” Scott Muir, a FASB staff member, said at the meeting. Some users and analysts have told the board that the cost of making changes to lessor accounting outweighs the benefits, and significant changes may harm their analyses, Mr. Muir said.

    From the CFO Journal's Morning Ledger on December 10, 2013

    Boards Review Feedback on the Revised Leases Exposure Draft

    The revised exposure draft issued by FASB and IASB on accounting for leases has received more than 600 comment letters to date. The proposal would significantly change the current accounting for leases, especially for lessees, which would be required to account for all leases on the balance sheet. For a summary of the key themes of feedback received from constituents on the revised exposure draft, see the latest issue of Deloitte's “Heads Up.”

    From Deloitte on December 8, 2013

    Following is a summary of the key themes of the comments received on the ED³ from the latest issue of Deloitte’s Heads Up. For SEC comments on other matters, in addition to leases, see SEC Comment Letters—Including Industry Insights: Constructing Clear Disclosures.

    Overall Feedback

    Objectives

    In general, most constituents support the boards’ stated objectives for the lease project.⁴ Many agree that the current lease model is complex, may not provide enough decision-useful information and can result in different accounting for similar economic transactions. Many also believe that a lease contract gives rise to rights and obligations that should be recognized as an asset and obligation in the financial statements.

    However, most constituents indicated that the revised ED fails to meet the lease project’s objectives. Specifically, a large number of respondents noted that the proposal would not reduce complexity, with some even claiming that it would make the accounting for leases more complex. These respondents asserted that the proposed dual-classification model and reassessment requirements would not improve current GAAP.

    Some constituents indicated that the boards should consider an approach that retains the current lease accounting guidance but introduces additional disclosure requirements. Others questioned whether the project should focus on lessee accounting issues only and whether symmetry between lessee and lessor accounting is necessary.

    Nearly all preparer respondents asserted that the costs of adopting the new guidance would be significant, especially those associated with implementing (or modifying) accounting systems to comply with it. Other costs mentioned include those related to hiring and training of new employees, renegotiating debt covenants and educating investors.

    Definition of a Lease

    Most respondents agree with the proposed definition of a lease,⁵ which is broadly consistent with the definition under existing GAAP. Under the proposal, an entity would determine whether a contract contains a lease by assessing whether (1) fulfillment of the contract depends on the use of an identified asset and (2) the contract conveys the right to control the use of such asset. Many respondents expressed concerns related to performing this assessment and suggested that the boards draft implementation guidance, particularly on:

    Short-term Leases

    The short-term lease exemption in the ED allows both lessees and lessors to elect, as an accounting policy choice by asset class, whether to apply the ED to lease contracts that have a maximum possible lease term of 12 months. Entities applying such exemption will treat eligible contracts in a similar manner as operating leases under the existing guidance in ASC 840.⁶

    Many constituents support the short-term lease exemption as a way to reduce the burden on preparers. However, several suggested broadening the exemption, generally by expanding it to leases that are shorter than 24 or 36 months or are for noncore assets.

    In addition, some respondents questioned the requirement to consider the maximum possible lease term in the assessment of a lease’s eligibility for the exemption. Such respondents were concerned that a lease that is ineligible for the exemption because of the existence of a renewal option may be measured on the basis of a lease term that is less than 12 months since the lessee does not have a significant economic incentive to renew the lease.

    Lease Term

    Constituents had mixed views on the proposed definition of lease term and the related reassessment requirements. While many support the proposed definition—which would include the noncancelable period of the lease as well as renewal periods for which the lessee has a significant economic incentive to exercise the renewal option (or not exercise a termination option)—some urged the boards to retain the “reasonably certain” notion in current GAAP.

    A number of constituents argued that if the proposal was not intended to change the evaluation of lease term, as suggested in the ED’s basis for conclusions, then the boards should retain the current concepts. Some constituents also argued that renewal periods should be excluded from the lease term until the renewal option is exercised and the lessee has an obligation to make lease payments. Further, certain lessor constituents noted that it would be too difficult (if not impossible) to determine whether a lessee has sufficient economic incentive to exercise a renewal option (or not exercise a termination option) and expressed concerns that requiring such an assessment would reduce comparability of lessor entities’ financial statements.

    Most constituents also disagreed with the proposal’s requirement to reassess lease term on an ongoing basis, and some suggested that reassessment be performed only upon the occurrence of a significant triggering event. These constituents cited the costs as well as the complexity of performing individual reassessments of potentially thousands of leases.

    Variable Lease Payments

    Under the proposal, measurement of the right-of-use (ROU) asset and lease liability would include variable payments that are (1) based on an index or rate and (2) in-substance fixed lease payments (e.g., disguised fixed lease payments). For the most part, respondents agree with these provisions and believe that variable payments based on usage and performance of the underlying asset should be excluded from the measurement of the ROU asset and liability. Some respondents requested additional clarity about what would constitute an in-substance fixed payment and recommended that the boards add guidance on, and examples of, such payments.

    Most respondents, however, are opposed to the requirement to remeasure the ROU asset and lease liability in response to changes in the index or the rate used to measure the ROU asset and lease liability. These constituents cited the undue burden, costs and complexity associated with the requirement and suggested that changes in an index or rate be (1) recognized in earnings with no adjustment to the ROU asset and lease liability or (2) reassessed at reasonable intervals (e.g., annually) or when the change is significant.

    Lease Classification

    Under the proposal, the lease classification would affect the lessee’s subsequent accounting for its ROU assets (i.e., financing approach versus the straight-line approach) and whether a lessor accounts for the transaction as an operating lease or by using the receivable-and-residual approach. The lease classification depends on the nature of the leased asset (i.e., either property or something other than property) as well as the terms and conditions of the lease.

    Constituents’ views on the proposal’s classification guidance are mixed. Some oppose any dual-model approach for lessees. Accordingly, lessees would classify all leases similarly, though respondents disagree about whether a single model should be based on a straight-line expense model, financing model, or some other hybrid model.

    Those supporting a financing model expressed concerns about the conceptual merits of the proposed Type B leases model, which would result in an increasing amount of amortization over the term of the lease. They also indicated that this amortization approach could increase the potential risk of impairment of the ROU asset.

    Certain respondents preferred a dual-model approach for lessees but had different views about applying such approach. For example, some agreed with the ED’s proposal to distinguish between “property” and “not property” while others would expand the definition of property to include other assets with economic characteristics that are similar to property (e.g., railcars, storage containers). Many also suggested that the boards retain the classification guidance in ASC 840 and IAS 17.⁷

    Many respondents also noted that in the evaluation of the classification of a lease, the analysis of the lease’s terms and conditions for assets that are considered property would focus on whether the lease term is for a major part of the asset’s remaining life whereas the analysis for assets that are considered other than property would focus on whether the lease term is for an insignificant part of the asset’s total life. Such respondents indicated that the boards should avoid inconsistency by selecting one metric (i.e., either a major part or an insignificant part) and specifying whether the evaluation would be based on the remaining economic life or the total economic life of the asset. Other respondents suggested that regardless of the metric selected, the boards should add guidance on the definition of “major part” and an “insignificant part.” Some suggested that the classification be based solely on the nature of the asset and not take into account the lease’s terms and conditions.

    Lessor Considerations

    Respondents generally noted that they were unable to understand how the proposal and its related complexities would improve current lessor accounting. They recommended that the boards retain the existing guidance since there has been little criticism of the model or resulting information by financial statement users.

    Related Parties

    The majority of constituents agreed with the proposals to eliminate the current GAAP requirements specific to accounting for related-party leases and that no new disclosures would be required for such leases. These constituents agreed with the view that related-party leases should be accounted for in accordance with their contractual terms, although some believe that additional disclosures would be warranted. A number of constituents also expressed concerns that not retaining the current “substance over form” guidance on related-party leases would allow entities to structure such leases with terms that do not reflect the true economics of the leasing arrangement.

    Transition

    Although some constituents believe that full retrospective adoption is appropriate, many are concerned that this method would be too costly and onerous to apply. They recommended a modified retrospective approach (similar to the method outlined in the proposal) or a fully prospective transition approach. Other respondents indicated that the ED’s transition provisions should align more closely with those in the proposed revenue recognition guidance.

    Other constituent recommendations include grandfathering the existing leveraged leases requirements and the current requirements in ASC 840-10-15 (formerly EITF Issue No. 01-8⁸) for existing leases. Many preparer respondents also commented that they would need at least three years from the final standard’s issuance date to adopt the new guidance, and some noted that they would prefer an even longer transition period.

    A recurring theme in the feedback, however, was that implementing the proposed requirements would be time-consuming, arduous and expensive.

    Next Steps 

    At a joint meeting in late November 2013, the boards’ staffs presented (1) a summary of feedback received on the proposal and (2) a plan for redeliberating the significant issues associated with it. Redeliberations are expected continue into the first half of 2014 (if not longer). The boards have not yet established an expected effective date for the final standard.

    —Produced by by Trevor Farber, Tim Kolber, Justin Truscott and Sean Prince, Deloitte & Touche LLP

    Endnotes
    1. FASB Proposed Accounting Standards Update, Leases.
    2. For further information on the revised ED, see Deloitte’s May 17, 2013, Heads Up.
    3. For more information, see the boards’ summary of feedback of comments received on the ED.
    4. See paragraph BC3 of the ED for further discussion of the boards’ objectives for the lease project.
    5. See paragraphs 842-10-15-2 and 15-3 of the ED for the proposed definition of a lease.
    6. FASB Accounting Standards Codification Topic 840, Leases.
    7. IAS 17, Leases.
    8. EITF Issue No. 01-8, “Determining Whether an Arrangement Contains a Lease.”

    Related Resources

    Bob Jensen's threads on leases as schemes for hiding debt ---
    http://www.trinity.edu/rjensen/Theory02.htm#Leases

    From the CFO Journal's Morning Ledger on February 28, 2014

    Quiznos prepares for bankruptcy
    Sandwich chain Quiznos is preparing to file for bankruptcy-court protection within weeks as it contends with unhappy franchisees and a $570 million debt load,     the WSJ reports. Quiznos has been negotiating with creditors for weeks on a restructuring plan that would streamline its trip through bankruptcy court, these people said, but a deal hasn’t yet been reached. While a Chapter 11 filing would give the company much-needed flexibility on leases and unattractive contracts, the company must repair its damaged relationship with franchise owners who say they’re being squeezed out of business by the high cost of operating a Quiznos outlet.

    Jensen Comment
    Although there are no Quiznos outlets to my knowledge in the White Mountains, I hope this chain recovers from bankruptcy. I always like Quiznos sandwiches better than Subway sandwiches.

    From the CFO Journal's Morning Ledger on February 25, 2014

    SEC wary of declining auditor fees
    U.S. securities regulators are wary that pressure to reduce auditor fees could lead to worse audits,     Emily Chasan writes. Regulators grow “worried” when auditor fees appear to fluctuate with economic cycles, Paul Beswick, chief accountant at the SEC, said at a Practising Law Institute conference in Washington, D.C. “I wouldn’t actually think audit fees should fluctuate with the state of the economy,” Mr. Beswick said. “In fact, as the economy gets worse, I would think the auditors need to spend more time.” In financial crises, it is common for companies to say they are cutting payments to vendors by a certain percentage across the board, but Mr. Beswick says he’s heard “horror stories” about companies applying the same pay cuts to their auditors. When companies switch their audit firms they often receive initial-year fee discounts from auditors, but Mr. Beswick cautioned that companies should be careful that a lower fee isn’t the primary motivation for making the switch.

    Jensen Comment
    Reducing audit fees in that face of the miserable report cards audit firms are receiving from the PCAOB seems highly inconsistent. It's like getting a promise from a child to get better grades if he's not made to study as much.

    One of the purposes of SOX legislation was to enable auditors to increase fees with a proviso that more focus be placed upon auditing of internal controls. If fees are being decreased, internal control auditing may be getting short shrifted.

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

    "Loop Payment Fob Lets You Swipe Your Phone Instead of a Credit Card," by David Pogue, Yahoo Tech, February 20, 2014 ---
    https://www.yahoo.com/tech/loop-payment-fob-lets-you-swipe-your-phone-instead-of-a-77259827533.html

    Maybe you’ve heard: Big technology companies are frantically trying to get rid of credit cards.

    It’s a worthy goal, actually. Many people carry around purses or wallets that are bloated and bursting with plastic cards. And for what? Each sheet of hard plastic exists solely to bear a magnetic strip that you can run through card readers at checkout.

    The dream is to let you pay for things, quickly and easily, with the swipe of your phone. Or, someday, your watch. Fast, convenient, secure — and cardless.

    It’s not going so well, though. The world’s shops, gas stations and restaurants already have all the equipment they care to install: standard credit-card readers. They’re not interested in buying something new just to accommodate, for example, Android phones that are compatible with Google’s Wallet payment system.

    But now there’s something new called the Loop, which began life as a successful Kickstarter project. It’s instantly compatible with those hundreds of millions of existing credit-card readers. But it still lets you pay for stuff without ever extracting any plastic from your wallet or purse.

    It does that by sending out a magnetic signal that tricks the credit-card reader into thinking that you’ve actually swiped a card through it.

    I’ll wait here while you read that again.

    This is the part that’s hard to believe. You wave the Loop near the card-reader slot, up to a couple of inches away, and — beep! — you’ve just paid. (Inside the Loop, there’s an inductive magnetic loop of wire that generates an alternating current. Hence the name.)

    Continued in article

    Bob Jensen's threads on gadgets are at
    http://www.trinity.edu/rjensen/Bookbob4.htm#Technology

    Will the government just given up on antitrust efforts on our behalf?

    From the CFO Journal's Morning Ledger on February 13, 2014

    The takeover battle for Time Warner Cable is finally over. Comcast has agreed to buy TWC for $45 billion in stock, in a deal that would combine the nation’s two biggest cable operators, the WSJ reports. Time Warner Cable shareholders will receive $158.82 a share in stock for their shares, about $23 a share above where TWC has been trading. News of the deal comes just a couple of days after Charter Communications ratcheted up the pressure on TWC by nominating a group of 13 people as candidates for TWC’s board. But Time Warner Cable had long seen Comcast as a preferred partner. Last year, Time Warner Cable approached Comcast about a deal, hoping to ward off Charter. And the two companies had talks off and on. But until a week ago there were signs that Comcast was leaning toward striking a deal with Charter instead.

    That’s when Comcast approached TWC with an offer to buy the entire company at about $150 a share, the Journal reports—close to the $160 a share TWC was looking for. Comcast CEO Brian Roberts at times negotiated with top Time Warner Cable brass including CEO Rob Marcus and CFO Artie Minson on the phone from Sochi, where Mr. Roberts has been visiting for the Winter Olympics.

    The deal still needs approval from the FCC and the DOJ, which hasn’t been shy about bringing antitrust enforcement actions against would-be mergers that it thinks will harm competition. But the deal may benefit from the perception of some regulators that cable is a natural monopoly whose primary competition comes from satellite providers and telephone companies like Verizon and AT&T.

    From the CFO Journal's Morning Ledger on February 13, 2014

    For Venezuela, bonds create a bind.
    Venezuela pays its overseas bondholders right on time. But the cash-strapped government is in hock to the tune of $50 billion to the private companies that service its economy, causing widespread shortages of basic goods,     the WSJ reports. “They've forgone paying private companies because they feel the cost of not doing so is manageable, but they’ve continued paying the bonds,” said Asdrubal Oliveros, head of consultancy Ecoanalitica. He refers to it as a selective default. “The people suffer consequences of the shortages,” Mr. Oliveros added. The overdue tab to private companies includes $14 billion owed to partners and contractors in the oil industry, $9 billion to importers and more than $4 billion to services companies like airlines. There also are more than $10 billion in profits that foreign companies have wanted to convert from bolívares to dollars but have been unable to since 2008    .

    Jensen Comment
    Venezuela sits on the largest pool of oil reserves in the world. Think of how well off the poorest people in Venezuela would be if the political leaders had thought more like Chile and less like Cuba. One difference between Venezuela and Cuba is that violent crime is rampant in Venezuela where the prisoners run the prisons to a point where prisoners come and go and carry guns in prisons filled with wine, women, and song.

     

    "The Seven Best Tax Free Investments," 24/7 Wall Street, February 6, 2014 ---
    http://247wallst.com/special-report/2014/02/06/the-seven-best-tax-free-investments/?utm_source=247WallStDailyNewsletter&utm_medium=email&utm_content=FEB62014A&utm_campaign=DailyNewsletter

    1. Tax Free Retirement Funds (such as Roth IRAs and Workplace 401Ks)(
    2. Fixed Annuities (usually set up as tax free from insurance companies. Not all fixed annuities are tax free)
    3. Death Benefits
    4. Municipal Bonds
    5. Harvesting Tax Losses (to offset capital gains)
    6. Gifting
    7. College Investing

    "The Seven Best Tax Free Investments," 24/7 Wall Street, February 6, 2014 ---
    http://247wallst.com/special-report/2014/02/06/the-seven-best-tax-free-investments/?utm_source=247WallStDailyNewsletter&utm_medium=email&utm_content=FEB62014A&utm_campaign=DailyNewsletter

    1. Tax Free Retirement Funds (such as Roth IRAs and Workplace 401Ks)(
    2. Fixed Annuities (usually set up as tax free from insurance companies. Not all fixed annuities are tax free)
    3. Death Benefits
    4. Municipal Bonds
    5. Harvesting Tax Losses (to offset capital gains)
    6. Gifting
    7. College Investing

    Jensen Comment
    There are advantages and disadvantages in all of these categories such as having to die or enduring the pains of having tax losses to harvest. Municipal bonds have lower returns relative to risk, and it is advisable to have diversified municipal bonds such as a municipal bond mutual fund. Inflation risk is common in tax free investments which makes them more attractive to senior citizens than to younger investors. Professional advice should be sought out before investing in tax-free retirement funds, because there are many things to consider other than tax avoidance and tax deferrals. There are other alternatives used by wealthy people for tax avoidance and tax deferral, e.g., by forming trusts ---
    http://en.wikipedia.org/wiki/Irrevocable_trust

    Keep in mind that cash interest and cash dividends are exempt from Federal taxation but capital gains on the tax-free investments are not tax free on the Federal tax returns. The opposite is the case more me in New Hampshire. Unlike the seven states that have no personal income taxes whatsoever, New Hampshire and Tennessee impose taxes on "tax-free" interest and dividends that are not retirement fund payouts. But these states do not tax the capital gains.

    One of the best tax free alternatives available (to poor and wealthy people) is to have employer health insurance programs that shield some income from income taxes.

    For half of the USA taxpayers who pay no income taxes, tax free alternatives are not a priority, and perhaps some tax deferrals are bad choices.

    The above article considers only legal ways to avoid or defer taxes. There are also alternatives that are not legal but are as common as mud such as engaging in the $2 trillion underground cash economy. Sadly, the IRS is not very good at detecting underground economy cheaters ---
    http://www.cs.trinity.edu/~rjensen/temp/TaxNoTax.htm
    Some people are not even aware that they are cheating. For example, I have a retired friend who makes a substantial income from restoring antique cars. It never dawned on him that his "hobby" profits are taxable.

    Bob Jensen's personal finance and financial literacy helpers ---
    http://www.trinity.edu/rjensen/Bookbob1.htm#InvestmentHelpers
    Financial literacy should be in the common core of higher education. One benefit might be a lower divorce rate in the USA.

    "(More) Clarity on Adjunct Hours (including healthcare insurance guidance)," by Doug Lederman, Inside Higher Ed, February 11, 2014 ---
    http://www.insidehighered.com/news/2014/02/11/irs-guidance-health-care-law-clarifies-formula-counting-adjunct-hours 

    The Obama administration on Monday released its long-awaited final guidance on how colleges should calculate the hours of adjunct instructors and student workers for purposes of the new federal mandate that employers provide health insurance to those who work more than 30 hours a week.

    The upshot of the complicated regulation from the Treasury Department and the Internal Revenue Service:

    Adjunct Hours

    The issues of how to count the hours of part-time instructors and student workers have consumed college officials and faculty groups for much of the last 18 months, ever since it became clear that the Affordable Care Act definition of a full-time employee as working 30 hours or more a week was leading some colleges to limit the hours of adjunct faculty members, so they fell short of the 30-hour mark.

    All that the government said in its initial January 2013 guidance about the employer mandate under the health care law was that colleges needed to use "reasonable" methods to count adjuncts' hours.

    In federal testimony and at conferences, college administrators and faculty advocates have debated the appropriate definition of "reasonable," with a focus on calculating the time that instructors spend on their jobs beyond their actual hours in the classroom. The American Council on Education, higher education's umbrella association and main lobbying group, proposed a ratio of one hour of outside time for each classroom hour, while many faculty advocates have pushed for a ratio of 2:1 or more.

    In its new regulation, published as part of a complex 227-page final rule in today's Federal Register, the government said that it would be too complex to count actual hours, and it rejected proposals to treat instructors as full time only if they were assigned course loads equivalent or close to those of full-time instructors at their institutions.

    The administration continued to say that given the "wide variation of work patterns, duties, and circumstances" at different colleges, institutions should continue to have a good deal of flexibility in defining what counts as "reasonable."

    But in the "interest of predictability and ease of administration in crediting hours of service for purposes" of the health care law, the agencies said, the regulation establishes as "one (but not the only)" reasonable definition a count of 2.25 hours of work for each classroom hour taught. "[I]n addition to crediting an hour of service for each hour teaching in the classroom, this method would credit an additional 1 ¼ hours service" for "related tasks such as class preparation and grading of examinations or papers."

    Separately, instructors should also be credited with an hour of service for each additional hour they spend outside of the classroom on duties they are "required to perform (such as required office hours or required attendance at faculty meetings," the regulation states.

    The guidance states that the ratio -- which would essentially serve as a "safe harbor" under which institutions can qualify under the law -- "may be relied upon at least through the end of 2015."

    By choosing a ratio of 1 ¼ hours of additional service for each classroom hour, the government comes slightly higher than the 1:1 ratio that the higher education associations sought, and quite a bit lower than the ratio of 2:1 or higher promoted by many faculty advocates.

    David S. Baime, vice president for government relations and research at the American Association of Community Colleges, praised administration officials for paying "very close attention to the institutional and financial realities that our colleges are facing." He said community colleges appreciated both the continued flexibility and the setting of a safe harbor under which, in the association's initial analysis, "the vast majority of our adjunct faculty, under currernt teaching loads, would not be qualifying" for health insurance, Baime said.

    Maria Maisto, president and executive director of New Faculty Majority, said she, too, appreciated that the administration had left lots of room for flexibility, which she hoped would "force a lot of really interesting conversations" on campuses. "I think most people would agree that it is reasonable for employers to actually talk to and involve employees in thinking about how those workers can, and do, perform their work most effectively, and not to simply mandate from above how that work is understood and performed," she added.

    Maisto said she was also pleased that the administration appeared to have set the floor for a "reasonable" ratio above the lower 1:1 ratio that the college associations were suggesting.

    She envisioned a good deal of confusion on the provision granting an hour of time for all required non-teaching activities, however, noting that her own contract at Cuyahoga Community College requires her to participate in professional development and to respond to students' questions and requests on an "as-needed basis." "How does this regulation account for requirements like that?" she wondered.

    Student Workers

    The adjunct issue has received most of the higher education-related attention about the employer mandate, but the final regulations have significant implications for campuses that employ significant numbers of undergraduate and graduate students, too.

    Higher education groups had urged the administration to exempt student workers altogether from the employer mandate, given that many of them would be covered under the health care law's policies governing student health plans and coverage for those up to age 26 on their parents' policies. The groups also requested an exemption for students involved in work study programs.

    The updated guidance grants the latter exemption for hours of work study, given, it states, that "the federal work study program, as a federally subsidized financial aid program, is distinct from traditional employment in that its primary purpose is to advance education."

    But all other student work for an educational organization must be counted as hours of service for purposes of the health care mandate, Treasury and IRS said.

    Steven Bloom, director of federal relations at the American Council on Education, said higher ed groups thought it made sense to exempt graduate student workers, given that their work as teaching assistants and lab workers is generally treated as part of their education under the Fair Labor Standards Act. He said the new guidance is likely to force institutions that employ graduate students as TAs or research assistants -- and don't currently offer them health insurance as part of their graduate student packages -- to start counting their hours.

    The guidance also includes a potentially confounding approach to students who work as interns. The new regulation exempts work conducted by interns as hours of service under the health care employer mandate -- but only "to the extent that the student does not receive, and is not entitled to, payment in connection with those hours."

    Continued in article

    Jensen Question
    How should a university account for a doctoral student who happens to teach 33 hours one semester and works less than 30 hours in all other semesters of the doctoral program? Is the university required to provide health coverage for zero, one, or more years while the student is a full time student in the doctoral program? I assume the university must provide health insurance for one year, but I'm no authority on this issue.

    There also is a huge difference in hours of work required for teaching. A doctoral student who only teaches recitation sections under a professor who provides the lecture sections, writes the syllabus, writes the examinations, and essentially owns a course versus a doctoral student who owns only section of governmental accounting with no supervision from a senior instructor.

    When I was Chair of the Accounting Department at Florida State University, the wife (Debbie) of one of our doctoral students (Chuck Mulford) had total control of the lectures and 33 recitation sections of basic accounting each semester where most of the recitation "instructors" were accounting doctoral students. Debbie had her CPA license and a masters degree, but she was not a doctoral student. She was very good at this job. The recitation instructors had almost no preparation time and did not design or grade the examinations. They did not own all 33 sections like Debbie owned all 33 sections. It would be a bit unfair to give the recitation instructors as much pay for preparation as the selected doctoral students who taught more advanced courses and essentially owned those courses in terms of classroom preparation and examinations.

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

    Bob Jensen's threads on controversies in higher education (including use of adjuncts) ---
    http://www.trinity.edu/rjensen/HigherEdControversies.htm

     

    "Welcome Relief for Homeowners, Until the Tax Bill Arrives," by Shaila Dewan, The New York Times, February 4, 2014 ---
    http://www.nytimes.com/2014/02/05/business/economy/lenders-see-write-off-while-underwater-homeowners-face-stiff-taxes.html?_r=1 

    Come tax time, JPMorgan Chase will be able to write off the $1.5 billion in debt relief it must give homeowners to satisfy the terms of a recent settlement.

    But the homeowners who receive the help will have to treat it as taxable income, resulting in whopping tax bills for many families who have just lost their homes or only narrowly managed to keep them.

    They are not alone. A tax exemption for mortgage debt forgiveness, put in place when the economy began to falter in 2007, was allowed to expire on Dec. 31, leaving hundreds of thousands of struggling homeowners in financial limbo even as the Obama administration has tried to encourage such debt write-downs.

    Congress routinely allows tax breaks to expire and then reinstates them, usually retroactively, as it did last year. But the stakes are high for families dealing with large declines in their home values, and reinstatement of the tax breaks is more uncertain because of a movement in Congress to broadly overhaul the tax code, which, despite its long-shot prospects in an election year, could end up eclipsing smaller tax issues.

    “Frankly, I’m worried because this should have gotten done before the end of the year and we’ve got families that have to make decisions now,” said Senator Debbie Stabenow, Democrat of Michigan, who is the sponsor of a bill that would extend the mortgage tax break.

    The tax exemption was intended to help homeowners who are underwater — that is, who owe more on their mortgages than their homes are worth. According to the real estate data service CoreLogic, there are still more than 6.4 million households underwater.

    Typically, if someone lends you money and later says you do not have to pay it back, the I.R.S. counts the amount forgiven as income, except in cases of bankruptcy or insolvency.

    Short sales, in which a bank agrees to let homeowners sell their homes for less than they owe (a common way of avoiding outright foreclosure), are a form of canceled debt, as are loan modifications that reduce the amount owed.

    Loss of the exemption is a financial body blow to homeowners already struggling to make ends meet. “I’m in a hole here — I’m trying to work my way out,’” said Eric Heil, 50, a hospital imaging technician who said a divorce and reduced income were forcing him to sell the house he has owned for 18 years in Parma, Ohio. “And the government’s going to say you have to pay taxes on it?”

    Mr. Heil owes $250,000 on his mortgage, and has found a buyer willing to take the house for $150,000. The bank has agreed. But if Congress does not extend the exemption, he will be forced to count the $100,000 difference as income. That would mean a $28,000 tax bill, and Mr. Heil has no idea how he would afford it.

    The number of people using the mortgage debt relief exemption has increased every year, reaching almost 100,000 in 2011, the most recent year for which the I.R.S. has figures. That number could be far greater in 2013, when there were more than a quarter-million short sales, according to Daren Blomquist of RealtyTrac, who estimates that those families received an average debt reduction of roughly $37,000. If the exemption had not been in place, that would have translated to an extra $9,250 tax bill for those in the 25 percent bracket.

    Many homeowners are so deeply underwater that they require much more help. Under a separate mortgage settlement involving the five largest lenders, more than 90,000 homeowners received debt relief averaging $109,000 each.

     

    "(More) Clarity on Adjunct Hours (including healthcare insurance guidance)," by Doug Lederman, Inside Higher Ed, February 11, 2014 ---
    http://www.insidehighered.com/news/2014/02/11/irs-guidance-health-care-law-clarifies-formula-counting-adjunct-hours 

    The Obama administration on Monday released its long-awaited final guidance on how colleges should calculate the hours of adjunct instructors and student workers for purposes of the new federal mandate that employers provide health insurance to those who work more than 30 hours a week.

    The upshot of the complicated regulation from the Treasury Department and the Internal Revenue Service:

    Adjunct Hours

    The issues of how to count the hours of part-time instructors and student workers have consumed college officials and faculty groups for much of the last 18 months, ever since it became clear that the Affordable Care Act definition of a full-time employee as working 30 hours or more a week was leading some colleges to limit the hours of adjunct faculty members, so they fell short of the 30-hour mark.

    All that the government said in its initial January 2013 guidance about the employer mandate under the health care law was that colleges needed to use "reasonable" methods to count adjuncts' hours.

    In federal testimony and at conferences, college administrators and faculty advocates have debated the appropriate definition of "reasonable," with a focus on calculating the time that instructors spend on their jobs beyond their actual hours in the classroom. The American Council on Education, higher education's umbrella association and main lobbying group, proposed a ratio of one hour of outside time for each classroom hour, while many faculty advocates have pushed for a ratio of 2:1 or more.

    In its new regulation, published as part of a complex 227-page final rule in today's Federal Register, the government said that it would be too complex to count actual hours, and it rejected proposals to treat instructors as full time only if they were assigned course loads equivalent or close to those of full-time instructors at their institutions.

    The administration continued to say that given the "wide variation of work patterns, duties, and circumstances" at different colleges, institutions should continue to have a good deal of flexibility in defining what counts as "reasonable."

    But in the "interest of predictability and ease of administration in crediting hours of service for purposes" of the health care law, the agencies said, the regulation establishes as "one (but not the only)" reasonable definition a count of 2.25 hours of work for each classroom hour taught. "[I]n addition to crediting an hour of service for each hour teaching in the classroom, this method would credit an additional 1 ¼ hours service" for "related tasks such as class preparation and grading of examinations or papers."

    Separately, instructors should also be credited with an hour of service for each additional hour they spend outside of the classroom on duties they are "required to perform (such as required office hours or required attendance at faculty meetings," the regulation states.

    The guidance states that the ratio -- which would essentially serve as a "safe harbor" under which institutions can qualify under the law -- "may be relied upon at least through the end of 2015."

    By choosing a ratio of 1 ¼ hours of additional service for each classroom hour, the government comes slightly higher than the 1:1 ratio that the higher education associations sought, and quite a bit lower than the ratio of 2:1 or higher promoted by many faculty advocates.

    David S. Baime, vice president for government relations and research at the American Association of Community Colleges, praised administration officials for paying "very close attention to the institutional and financial realities that our colleges are facing." He said community colleges appreciated both the continued flexibility and the setting of a safe harbor under which, in the association's initial analysis, "the vast majority of our adjunct faculty, under currernt teaching loads, would not be qualifying" for health insurance, Baime said.

    Maria Maisto, president and executive director of New Faculty Majority, said she, too, appreciated that the administration had left lots of room for flexibility, which she hoped would "force a lot of really interesting conversations" on campuses. "I think most people would agree that it is reasonable for employers to actually talk to and involve employees in thinking about how those workers can, and do, perform their work most effectively, and not to simply mandate from above how that work is understood and performed," she added.

    Maisto said she was also pleased that the administration appeared to have set the floor for a "reasonable" ratio above the lower 1:1 ratio that the college associations were suggesting.

    She envisioned a good deal of confusion on the provision granting an hour of time for all required non-teaching activities, however, noting that her own contract at Cuyahoga Community College requires her to participate in professional development and to respond to students' questions and requests on an "as-needed basis." "How does this regulation account for requirements like that?" she wondered.

    Student Workers

    The adjunct issue has received most of the higher education-related attention about the employer mandate, but the final regulations have significant implications for campuses that employ significant numbers of undergraduate and graduate students, too.

    Higher education groups had urged the administration to exempt student workers altogether from the employer mandate, given that many of them would be covered under the health care law's policies governing student health plans and coverage for those up to age 26 on their parents' policies. The groups also requested an exemption for students involved in work study programs.

    The updated guidance grants the latter exemption for hours of work study, given, it states, that "the federal work study program, as a federally subsidized financial aid program, is distinct from traditional employment in that its primary purpose is to advance education."

    But all other student work for an educational organization must be counted as hours of service for purposes of the health care mandate, Treasury and IRS said.

    Steven Bloom, director of federal relations at the American Council on Education, said higher ed groups thought it made sense to exempt graduate student workers, given that their work as teaching assistants and lab workers is generally treated as part of their education under the Fair Labor Standards Act. He said the new guidance is likely to force institutions that employ graduate students as TAs or research assistants -- and don't currently offer them health insurance as part of their graduate student packages -- to start counting their hours.

    The guidance also includes a potentially confounding approach to students who work as interns. The new regulation exempts work conducted by interns as hours of service under the health care employer mandate -- but only "to the extent that the student does not receive, and is not entitled to, payment in connection with those hours."

    Continued in article

    Jensen Question
    How should a university account for a doctoral student who happens to teach 33 hours one semester and works less than 30 hours in all other semesters of the doctoral program? Is the university required to provide health coverage for zero, one, or more years while the student is a full time student in the doctoral program? I assume the university must provide health insurance for one year, but I'm no authority on this issue.

    There also is a huge difference in hours of work required for teaching. A doctoral student who only teaches recitation sections under a professor who provides the lecture sections, writes the syllabus, writes the examinations, and essentially owns a course versus a doctoral student who owns only section of governmental accounting with no supervision from a senior instructor.

    When I was Chair of the Accounting Department at Florida State University, the wife (Debbie) of one of our doctoral students (Chuck Mulford) had total control of the lectures and 33 recitation sections of basic accounting each semester where most of the recitation "instructors" were accounting doctoral students. Debbie had her CPA license and a masters degree, but she was not a doctoral student. She was very good at this job. The recitation instructors had almost no preparation time and did not design or grade the examinations. They did not own all 33 sections like Debbie owned all 33 sections. It would be a bit unfair to give the recitation instructors as much pay for preparation as the selected doctoral students who taught more advanced courses and essentially owned those courses in terms of classroom preparation and examinations.

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

    Bob Jensen's threads on controversies in higher education (including use of adjuncts) ---
    http://www.trinity.edu/rjensen/HigherEdControversies.htm

    In Canada
    "Shift to Applied Research Triggers Protests," by Karen Birchard 
and Jennifer Lewington, Chronicle of Higher Education, February 9. 2014 ---
    http://chronicle.com/article/Shift-to-Applied-Research/144659/

    What is the purpose of university research? Should it be driven by intellectual curiosity or focused on satisfying immediate national needs? American higher education has long grappled with those questions, and today it is a global debate. Academics worldwide are becoming more vocal about their concerns.

    Many agree that a proper balance can be struck between research that has an immediate benefit to the economy and research that opens the door for future discoveries. But for now, the balance may be off. In the following collection of articles, read more about three countries where scholars are taking steps to fight what they believe is a troubling focus on short-term, economic gains: Canada, Germany, and Britain.

    Canada’s National Research Council has long been the country’s premier scientific institution, with its researchers helping to produce such inventions as the pacemaker and the robotic arm used on the American space shuttle. But last year its mission changed.

    The Canadian government announced a transformation of the 98-year-old agency, once focused largely on basic research, into a one-stop "concierge service" to bolster historically weak technological innovation by industry and generate high-quality jobs.

    The move has set off a row over the future of Canada’s capacity to carry out fundamental research, with university scientists and academic organizations uncharacteristically vocal about the government’s blunt preference to harness research for commercial needs.

    "We are not sure the government appreciates the role that basic research plays," says Kenneth Ragan, a McGill University physicist and president of the Canadian Association of Physicists. "The real question is: How does it view not-​­directed, nonindustrial, curiosity-driven blue-sky research? I worry the view is that it is irrelevant at best and that in many cases they actually dislike it."

    The remodeling of the research council is one in a series of policy changes that have generated fierce pushback by Canadian academe in recent years. The Conservative government of Prime Minister Stephen Harper is also under fire for closing research libraries, shutting down research facilities like the world-renowned Experimental Lakes Area, and restricting when government scientists can speak publicly about their work.

    Last year the Canadian Association of University Teachers began a national campaign, "Get Science Right," with town-hall meetings across the country to mobilize public opposition to the policies. Scientists have even taken to the streets of several Canadian cities in protest.

    While the transformation of the National Research Council has been criticized, the government as well as some science-policy analysts say better connecting businesses with research is an important step for Canada.

    Having examined models in other countries, the National Research Council chose to streamline its operations to act as "the pivot between the two worlds" of industry and academics, with an eye toward new products and innovations, says Charles Drouin, a spokesman for the council. He says the agency has not moved away from support for fundamental research, but wants to focus such efforts better. "There is basic research, but it is directed as opposed to undirected as you would find it in universities."

    Another battleground for the future of basic research has been the Natural Sciences and Engineering Research Council, a federal granting agency that serves as the first stop for support of fundamental research by Canadian scientists.

    Continued in article

    Jensen Comment
    In the USA collegiate applied research varies greatly by discipline. Schools of engineering, medicine, and law have invented countless things of keep interest to the practicing professions. It is less so for schools of business and much, much less so for schools of accounting.

    The Pathways Commission makes a concerted effort for academic accounting researchers to become more engaged in doing research of practitioner needs. This, in my viewpoint, is less likely than growing coconut palm trees in New Hampshire ten years from now.

    I would like to challenge subscribers of the AECM to fill out the following table:

      Practitioner
    Clinical
    Application

    Invented by
    Accounting Professor
    1 Balanced Scorecard ---
    http://en.wikipedia.org/wiki/Balanced_scorecard     		Bob Kaplan (shared invention)
    2 REA ---
    https://www.msu.edu/~mccarth4/McCarthy.pdf     		Bill McCarthy
    3 Business Budgeting in 1922
    http://en.wikipedia.org/wiki/Budgeting     		James O. McKinsey
    4    
    5    
    6    
    7    
    8    
    9    
    10    

     

    This challenge is very easy for practitioner clinical applications in medicine, natural science, social science, computer science, engineering, and finance. It's not so easy to find where inventions/discoveries by accounting professors made splashes in the practitioner pond. It might be questioned whether Bob Kaplan invented all the components of the popular Balanced Scorecard widely applied by corporations around the world. An earlier version in 1987 was invented by a practitioner named Art Schneiderman. But I think Bob Kaplan beginning in 1990 made so many seminal contributions to the scorecard that I will give him credit for the invention that made a huge splash in the practitioner pond.

    When I was the 1986 Program Director for NYC Annual Meetings of American Accounting Association I posed this challenge to Joel Demski to address in his plenary session (shared with Bob Kaplan). Joel suggested the practitioner applications of Dollar-Value LIFO. Subsequently, accounting historian Dale Flesher dug into this and discovered that DVL was invented by Herbert T. McAnly who retired in 1964 as a partner at Ernst & Ernst after 44 years with the firm

    The Seminal Contributions to Accounting Literature Award of the American Accounting Association are as follows ---
    http://aaahq.org/awards/awrd2win.htm

    2007 � "Relevance Lost: The Rise and Fall of Management Accounting"
    by H. Thomas Johnson and Robert S. Kaplan
    Harvard Business School Press 1987

    2004 � "Towards a Positive Theory of the Determination of Accounting Standards"
    by Ross L. Watts and Jerold L. Zimmerman
    The Accounting Review (January) 1978

    1994 � "Economic Incentives in budgetary Control Systems"
    by Joel S. Demski and Gerald A. Feltham
    The Accounting Review (April) 1978

    1989 � "Information Content of Annual Earnings Announcements"
    by William H. Beaver
    Journal of Accounting Research 1968

    1986 � "An Empirical Evaluation of Accounting Income Numbers"
    by Ray Ball and Philip Brown
    Journal of Accounting Research 1968

    These are all tremendous contributions to the academic side of accountancy. However, none of the inventions of Professors Demski and Feltham to my knowledge made a splash in the practitioner pond. ABC costing focused upon by Johnson and Kaplan made a splash in the practitioner pond, but ABC costing was invented by cost accountants at John Deere.

    The contributions of Watts, Zimmerman, Beaver, Ball, and Brown made splashes of sorts in the practice pond, but I have difficulty calling them seminal "inventions." In these instances the authors were extending into accounting inventions attributed earlier to professors and practitioners in economics and finance.

    There are many other accounting professors who made seminal contributions to the academic side of accountancy. For example, Yuji Ijiri is a Hall of Famer who had many noteworthy accountancy inventions. However, to my knowledge Yuji did not make a ripple in the practitioner pond except maybe for selected practitioners trying to fend against the takeover of historical cost accounting by fair value accounting. Many seminal inventions of Yuji, like the "Force," were just not deemed practical.

    My own published research is best described as extensions and/or applications invented by others ---
    http://www.trinity.edu/rjensen/Resume.htm#Published
    To my knowledge none of my extensions made so much as a ripple in the practitioner pond.

    January 19, 2013 reply from Dan Stone

    A great idea.... which would probably be better in a research paper than on a list.

    Anna Cianci and Bob Ashton published a paper a few years ago demonstrating how the KPMG audit research support initiative led to changes in auditor / audit firm practices.

    So maybe:

    idea: the application of cognitive biases and decision aiding to audit practice Professors: a large cast many of whom got their PhD at Univ. of Illinois in the 1960s and 1970s including Bob Ashton, Bob Libby, Kathryn Kadous, and many, many others

    idea: the risk based audit Professors: KPMG monograph by Howard Thomas, Ira Solomon, Marc Peecher (along with many others)

    Dan Stone

     

    January 20, 2013 reply from Bob Jensen

    Hi Dan,

    Thanks for the added considerations.

    Among other things, your post suggests that some "inventions" do not have short names.

    Some of your suggestions do need further research into where credit can be given for the very first inventions of what eventually made a splash in the practitioner pond.

    For example, does anybody (Miklos?) on the AECM know of where the concept of Risk-Based Auditing had its original starting point? I fear that it may be like Dollar Based LIFO where accounting professors picked up on the seminal idea of a practitioner. For example, did some employee of the  Arthur Andersen accounting firm, that took risk-based auditing to its own demise, also invent the concept itself?

    Robert Knechel (University of Florida) supposedly traced the history of risk-based auditing, but I've not seen his paper in this regard.

    Respectfully,
    Bob Jensen

    "Academic Research With Mass Appeal," by Erin Zlome, Bloomberg Business Week, January 28, 2013 ---
    http://www.businessweek.com/articles/2013-01-28/academic-research-with-mass-appeal

    Business professors are great at writing jargon-filled, hard-to-digest research papers. But every once and a while, they knock it out of the park with the general public. A small pool of research achieved such blockbuster status in 2012 by becoming the most read, most downloaded, or most written-about pieces authored by professors at top business schools. Tax evasion, finding a job, and the benefits of teaching employees Spanish are some of the topics that got non-students reading.

    At Harvard Business School, an excerpt from Clayton Christensen�s book How Will You Measure Your Life? was the year�s most read preview of forthcoming research. The passage uses the downfall of Blockbuster and the rise of Netflix (NFLX) as an analogy for how we may end up paying a high cost for small decisions.

    Continued in article

    January 31, 2013 reply from Dale Flesher

    Bob:

    Although they didn�t invent it, Johnson and Kaplan deserve credit for rediscovering and popularizing Activity-Based Costing.  As I recall, Alexander Hamilton Church described ABC as early as 1908, but without computers it wasn�t practical.

    Also, James O. McKinsey, an accounting professor at the University of Chicago and 1924 AAA president who later founded McKinsey & Co., is credited with inventing the concept of business budgeting with the publication of his 1922 book on the subject.  Previously, budgeting had been considered a governmental topic.  Industry accountants (such as Donaldson Brown at General Motors, who had previously invented the DuPont Formula) applied McKinsey�s concepts and developed them further.  For example, GM (and also Westinghouse) developed flexible budgeting by 1928, which was not considered by McKinsey.

    Dale

    February 5, 2013 reply from Steve Zeff

    In 1989, Nick Dopuch wrote, "Because of its practical implications, audit judgement research is regarded as having had the biggest impact on practice of any area of research in accounting/auditing" - p. 54 in Frecka (editor), The State of Accounting Research As We Enter the 1990's - Illinois PhD Jubilee 1939-1959 (University of Illinois, 1989).

    Steve.

    February 6, 2013 reply from Bob Jensen

    My problem, in terms of my table, is that virtually all judgment research in accounting that I've encountered applies earlier inventions from other disciplines. Another problem with judgment research is that except in rare instances like Balanced Scorecard the practitioners applying judgment models have no clue as to a link between an academic accounting researcher and practice.

    This shortage of academic seminal inventions seems to be unique to the accounting profession. In nearly every other profession like engineering, medicine, economics, finance, marketing, management, sociology, psychology, education, etc. the table that I proposed filling could be filled in a New York minute with names of academic professor inventions and inventors linked to the practice of these professions.

    For example, eigenvector scaling of paired-comparison decision alternatives is somewhat widely applied in business. Those practitioners applying it most likely recall the seminal contributions of mathematician Tom Saaty to what is now termed the Analytical Hierarchy Process (Tom's terminology) of business judgment. But those of us who applied AHP in accounting judgment research are long forgotten --- search for "eigenvector" at
    http://www.trinity.edu/rjensen/Resume.htm#Published

    Analytic Hierarchy Process ---
    http://en.wikipedia.org/wiki/Analytic_hierarchy_process

    I'm probably stretching it to add a third name to the table below:

      Practitioner
    Clinical
    Application

    Invented by
    Accounting Professor
    1 Balanced Scorecard ---
    http://en.wikipedia.org/wiki/Balanced_scorecard     		Bob Kaplan (shared invention)
    2 REA ---
    https://www.msu.edu/~mccarth4/McCarthy.pdf     		Bill McCarthy
    3 Business Budgeting in 1922
    http://en.wikipedia.org/wiki/Budgeting     		James O. McKinsey
    4    
    5    
    6    
    7    
    8    
    9    
    10    

     

    Bob Jensen's threads on how accountics scientists need to change ---
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm

     

     

    From the CPA Newsletter on February 6, 2011

    Educate your clients on the IPSA of Conflict Mineral Reports
    The AICPA's Conflict Minerals Task Force developed a one-page flyer to help members educate clients on these reports and demonstrate that CPAs are the premier providers of Independent Private Sector Audits of Conflict Mineral Reports. Refer to the AICPA Conflict Minerals Resources webpage for topical background and other useful information about the use of conflict minerals.

    The Pathways Commission makes a special appeal for academic accounting researchers to become more immersed in conducting research to aid the practicing profession.

    The Pathways Commission strongly recommends much more focus applied problems of the accounting profession:

    Scrapbook1137 --- http://www.trinity.edu/rjensen/TheoryTAR.htm#Scrapbook1137  

    The Pathways Commission Implementing Recommendations for the Future of Accounting Education: The First Year Update
     American Accounting Association
     August 2013
     http://commons.aaahq.org/files/3026eae0b3/Pathways_Update_FIN.pdf
    Page 109 (Emphasis Added)

    Accounting Profession

    1. The need to enhance the bilateral relationship between the practice community and academe.

    From the perspective of the profession, one impediment to change has been the lack of a consistent relationship between a broadly defined profession (i.e., public, private, government) and a broadly defined academy—large and small public and private institutions. This impediment can be broken down into three subparts. First, the Commission recommends the organizations and individuals in the practice community work with accounting educators to provide access to their internal training seminars, so faculty can remain current with the workings of the profession. These organizations also need to develop internship-type opportunities for interested faculty.

    Second, the practice community and regulators need to reduce the barriers academics have in obtaining research data. All stakeholders must work together to determine how to overcome the privacy, confidentiality, and regulatory issues that impede a greater number of researchers from obtaining robust data needed for many of these research projects. Having access to this data could be instrumental in helping the academy provide timely answers to the profession on the impact of policy decisions on business practice.

    Third, the profession and the academy need to share pedagogy best practices and resources, especially with respect to rapidly changing educational delivery models as both are essential segments of the lifelong educational pathway of accounting professionals.

    Conversely, academia is not without fault in the development of this relationship. The Commission recommends that more institutions, possibly through new accreditation standards, engage more practitioners as executives in residence in the classroom. These individuals can provide a different perspective on various topics and thus might better explain what they do, how they do it, and why they do it. Additionally, the Commission recommends institutions utilize accounting professionals through department advisory boards that can assist the department in the development of its curriculum.

    The counter argument is that either practice problems are too mundane for Ph.D. research or that Ph.D. lack comparative advantage in bringing solutions to to the profession that practitioners have not already discovered on their own.

    Here's an example where accountics scientists actively engaged in research that they hope to publish in TAR, JAR, or JAE might bring skills to a practitioner project in Deloitte.

    "The Four Phases of Building a Scenario-based Planning Model with Econometrics," Deloitte, February 5, 2014 ---
    http://deloitte.wsj.com/cfo/2014/02/05/the-four-phases-of-building-a-scenario-based-planning-model-with-econometrics-2/

    Scenario-based planning is a tool CFOs can use to develop strategies for operating in any of several contrasting business and economic environments. Each scenario is a description of plausible future events that affect an organization’s strategy and operations.

    The outcomes of the scenario-based planning process can be used to establish a number of plans, from fundamental changes in strategy caused by global paradigm shifts to tactical contingency planning for shorter-term developments. “A robust scenario-based planning effort using econometric analysis can enhance the competitive advantage of a business,” says Dwight Allen, director, Strategy Development, Deloitte LLP. “When done correctly, these techniques can position an organization to be better able to adapt to an ever-changing business environment,” he adds.

    Following is an overview of the key phases of scenario-based planning and how econometrics—the application of statistical techniques to analyze economic data—can be used to help CFOs and their finance teams establish effective action-oriented processes.

    Phase I—Define the Purpose, Scenarios and Associated Strategic Implications

    As an example of how econometrics can be used in connection with a scenario-based planning initiative, consider a U.S.-based multinational manufacturing company with manufacturing operations in Asia. Most of the company’s sales are generated in the U.S. and in markets across Europe. The company’s executives are positive about prospects for the eurozone’s continued recovery from its financial crisis and recession, but as a precaution want to consider the implications if adverse developments were to return over the next year.

    The first step in developing scenarios for any situation is to ensure that the process is properly linked to the objective. In this case, that is to determine the effects of potential near-term developments involving credit and currency markets on the execution of an existing strategy. The next step is to formulate a set of scenarios. The number can vary; typically two to four are the most manageable. The scenarios reflect “what-ifs” concerning aspects of the business environment that are of greatest interest to the company. For example, assume in Scenario 1 that political turmoil and a new surge of financial difficulties cause a substantial fall in the value of the euro. In Scenario 2, a member nation defaults and it, along with several other countries, leave the eurozone, resulting in two or more sets of monetary and economic repercussions (inside and outside the eurozone). In Scenario 3, internal dissension causes a break-up of the eurozone altogether, with a wider range of aftereffects.

    Phase II—Conduct the Financial Impact Analysis

    In this phase, econometric modeling is used to estimate the financial impact of each scenario. In the first scenario, a weakened European economy would have a direct impact on European sales, as well as a potential indirect impact on U.S. sales. At the same time, the euro would be weakened compared to the U.S. dollar and Asian currencies. As this happens, the relative cost of manufacturing products in Asia becomes more expensive, coupled with weakening demand in Europe. Moreover, the weakened euro would make the European operations less profitable. In the second and third scenarios, there would be national currencies to consider as well. Which national and product markets are affected and to what extent will be different in each scenario.

    By analyzing the ripple effects of the different versions of a weakened European economy, executives can identify contingency plans and tactical, operational solutions, which are discussed in Phase III. “CFOs should continue to work with all levels of management involved in, and impacted by, the scenario-based planning to identify issues that may arise and impact the execution of strategies,” notes Michael Raynor, director, Deloitte Services LP, author of The Strategy Paradox and co-author of The Three Rules: How Exceptional Companies Think (Portfolio/Penguin, May 2013), with Mumtaz Ahmed, chief strategy officer at Deloitte LLP.

    Projecting Financial Impact

    To project the potential financial impact of scenarios, the first step is to identify the economic indicators that impact the business. The manufacturing company in the example may find that European revenue is correlated to three economic indicators: European sovereign state GDP, the exchange rate between the U.S. dollar and the euro, and durable goods orders. Other examples of indicators could include currency values, inflation rates, consumer spending or investment in a particular sector.

    Continued in article

    "David Ginsberg, chief data scientist at SAP, said communication skills are critically important in the field, and that a key player on his big-data team is a “guy who can translate Ph.D. to English. Those are the hardest people to find.”
    James Willhite (see below)

    Might we also say the same thing about accountics scientists slaving over their enormous purchased "big data" databases?

    "Getting Started in 'Big Data'," by James Willhite, The Wall Street Journal, February 4, 2013 ---
    http://blogs.wsj.com/cfo/2014/02/04/getting-started-in-big-data/?mod=djemCFO_h

    Wanted: Ph.D.-level statistician with the technical skill to use data-visualization software and a deep understanding of the _____ industry.

    Fill in the blank with almost any business: consumer products, entertainment, health care, semiconductors or fast food. The list reflects the growing range of companies trying to mine mountains of data in hopes of improving product design, supply chains, customer service or other operations.

    . . .

    At the most basic level, big data is the art and science of collecting and combing through vast amounts of information for insights that aren’t apparent on a smaller scale. Financial executives who want to harness big data face a critical hurdle: Finding people who can glean it, understand it, and translate it into plain English.

    The field is so new that the U.S. Bureau of Labor Statistics doesn’t yet have a classification for data scientists, according to BLS economist Sara Royster. That makes it tough to estimate the unemployment rate or salaries for job seekers in the field.

    But executives and recruiters, who compete for talent in the nascent specialty, point to hiring strategies that can get a big-data operation off the ground. They say they look for specific industry experience, poach from data-rich rivals, rely on interview questions that screen out weaker candidates and recommend starting with small projects.

    David Ginsberg, chief data scientist at business-software maker SAP AG , said communication skills are critically important in the field, and that a key player on his big-data team is a “guy who can translate Ph.D. to English. Those are the hardest people to find.”

    Along with the ability to explain their findings, data scientists need to have a proven record of being able to pluck useful information from data that often lack an obvious structure and may even come from a dubious source. This expertise doesn’t always cut across industry lines. A scientist with a keen knowledge of the entertainment industry, for example, won’t necessarily be able to transfer his skills to the fast-food market.

    Some candidates can make the leap. Wolters Kluwers NV, a Netherlands-based information-services provider, has had some success in filling big-data jobs by recruiting from other, data-rich industries, such as financial services. “We have found tremendous success with going to alternative sources and looking at different businesses and saying, ‘What can you bring into our business?’ ” said Kevin Entricken, the company’s chief financial officer.

    The trick, some experts say, is finding a candidate steeped in higher mathematics with hands-on familiarity with a particular business. “When you have all those Ph.D.s in a room, magic doesn’t necessarily happen because they may not have the business capability,” said Andy Rusnak, a senior executive for the Americas in Ernst & Young’s advisory practice.

    Companies can hamstring themselves in big-data projects by thinking too long term, Mr. Rusnak said. They should focus instead on what they can discover in an eight- to 10-week period, he said, and think less about business transformation.

    Dunkin’ Brands Group Inc. aims to wring all the value it can out of its data, by using it to entice customers to visit its stores more often and try new doughnuts and drinks. Last week, it went national with a loyalty program that will allow it to harvest data on customer habits.

    The program allows the company to target individuals who opt into the program with specific offers aimed at making them more frequent customers. “If you’ve only been coming in the morning, perhaps we’d give you an offer for the afternoon,” said Dunkin’ Chief Information Officer Jack Clare.

    Netflix’s Mr. Amatriain said, “I like to face candidates with real practical problems.” He said he will say to an applicant, “You have this data that comes from our users. How can you use it to solve this particular problem? How would you turn it into an algorithm that would recommend movies?” He said that the question is deliberately open-ended, forcing candidates to prove that they can understand not only the math, but what he calls “the big picture approach to using big data to gain insights.”

    Jensen Comment
    If accountics scientists are to accomplish the above they will have to abandoned their comfortable Cargo Cust isolation form the real world ---
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm

    "Academic Research With Mass Appeal," by Erin Zlome, Bloomberg Business Week, January 28, 2013 ---
    http://www.businessweek.com/articles/2013-01-28/academic-research-with-mass-appeal

    Business professors are great at writing jargon-filled, hard-to-digest research papers. But every once and a while, they knock it out of the park with the general public. A small pool of research achieved such blockbuster status in 2012 by becoming the most read, most downloaded, or most written-about pieces authored by professors at top business schools. Tax evasion, finding a job, and the benefits of teaching employees Spanish are some of the topics that got non-students reading.

    At Harvard Business School, an excerpt from Clayton Christensen’s book How Will You Measure Your Life? was the year’s most read preview of forthcoming research. The passage uses the downfall of Blockbuster and the rise of Netflix (NFLX) as an analogy for how we may end up paying a high cost for small decisions.

    Continued in article

    MIT, like Harvard, places enormous value on having both feet planted in the real world

    The professions of architecture, engineering, law, and medicine are heavily dependent upon the researchers in universities who focus on needs for research on the problems of practitioners working in the real world.

    If accountics scientists want to change their ways and focus more on problems of the accounting practitioners working in the real world, one small step that can be taken is to study the presentations scheduled for a forthcoming MIT Sloan School Conference.

    Financial Education Daily, May 2012 ---
    http://paper.li/businessschools?utm_source=subscription&utm_medium=email&utm_campaign=paper_sub

    Learning best practice from the best practitioners

    MIT Sloan invites more than 400 of the world’s finest leaders to campus every year. The most anticipated of these visits are the talks given as part of the Dean’s Innovative Leader Series, which features the most dynamic movers and shakers of our day.

    At a school that places enormous value on having both feet planted in the real world, the Dean’s Innovative Leader Series is a powerful learning tool. Students have the rare privilege of engaging in frank and meaningful discussions with the leaders who are shaping the present and future marketplace.

    Bob Jensen's threads on other steps that should be taken by accountics scientists to become more focused on the needs of the profession ---
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm

    From the IFRS Report Newsletter on the AICPA on February 6, 2014

    IASB completes hedge-accounting model
    The International Accounting Standards Board has completed its hedge-accounting model to be added to IFRS 9 Financial Instruments. The principles-based standard is intended to reflect risk-management activities more closely in financial statements. Key areas of change include more identifiable risk components, a reduced burden of proving the efficacy of a hedge and changes in accounting for the time value of an option. Financial Director (U.K.) (1/16)

    From the CFO Journal's Morning Ledger on February 12, 2014

    Companies unclear on EU derivatives rules.
    New reporting requirements for over-the-counter derivatives trades in Europe take effect today, but companies are still uncertain about whether the regulation applies to them, according to a survey by Chatham Financial. The European Market Infrastructure Regulation, known as EMIR, requires European and multinational companies to report over-the-counter and listed derivatives transactions with an EU-recognized trade repository. To comply, CFOs will need to report more than 60 data points for each transaction, and will also need to choose a repository,     Saranya Kapur notes. They may also decide to contract with a third party or delegate reporting responsibility to their bank counterparties, if all of their trade counterparties agree to take on the operational responsibility.

    Jensen Comment
    The bottom line is that the forthcoming IAS 9 is replete with "principles-based" subjectivity ---
    http://www.trinity.edu/rjensen/Theory01.htm#BrightLines
    Put another way the IASB yielded to pressures to go soft on rules to allow hedge accounting. If you are looking for differences between IFRS versus FASB standards, this is one of the biggest differences in accounting standards. If it intended to disclose more about risk management activities dropping the previous IAS 39 requirement to identify and possibly bifurcating embedded derivatives is a loser. Reduced standards on testing for hedge effectiveness is another huge loser.

    Bob Jensen's threads on hedge accounting are at
    http://www.trinity.edu/rjensen/caseans/000index.htm

    Teaching Case
    From The Wall Street Journal Accounting Weekly Review on February 7, 2014

    H-P Audit Alleges Autonomy Errors
    by: Spencer E. Ante
    Feb 04, 2014
    Click here to view the full article on WSJ.com
     

    TOPICS: Auditing, Restatement

    SUMMARY: "Hewlett-Packard Co. said it found major accounting errors in an audit of the 2010 financial statements of U.K. software maker Autonomy, the first significant evidence backing up H-P's claim that Autonomy inflated its revenue and profit before the U.S. company acquired it." The audits were prepared in order to make 2011 filings to the U.K.'s Companies House. H-P therefore filed restated financial statements which lowered the Autonomy unit's 2010 revenue and operating profit by 54% and 81%, respectively.

    CLASSROOM APPLICATION: The article may be used in an auditing class or in a financial accounting class when covering restatements.

    QUESTIONS: 
    1. (Introductory) Summarize the findings by Hewlett-Packard and its auditors regarding financial statements of Autonomy, which H-P acquired in 2011 for $11 billion.

    2. (Advanced) Why is Ernst & Young auditing 2010 financial statements that were already audited and filed with the U.K.'s Companies House when Autonomy was an independent entity? In your answer, also comment on why Autonomy's 2010 financial statements were re-filed in the U.K., but not the 2011 financial statements.

    3. (Advanced) Explain your understanding of the statements by "autonomy's former management" that 1. "...'given the size of H-P's write-down, we are very surprised by the small size of the adjustments in Autonomy Systems Limited that are attributed to the ongoing accounting dispute..."; and, 2. "the adjustments include revenue that will be recognized at a later time...."
     

    Reviewed By: Judy Beckman, University of Rhode Island
     

    RELATED ARTICLES: 
    H-P Says It Was Duped, Takes $8.8 Billion Charge
    by BenWorthen
    Nov 28, 2012
    Page: A1

    "H-P Audit Alleges Autonomy Errors," by Spencer E. Ante, The Wall Street Journal, February 4, 2014 ---
    http://online.wsj.com/news/articles/SB10001424052702303442704579360700736884622?mod=djem_jiewr_AC_domainid

    Hewlett-Packard Co. HPQ +1.71% said it found major accounting errors in an audit of the 2010 financial statements of U.K. software maker Autonomy, the first significant evidence backing up H-P's claim that Autonomy inflated its revenue and profit before the U.S. company acquired it.

    The alleged improprieties were discovered during an H-P audit of Autonomy's financial results for 2010 and 2011. The 2011 filings were required by a U.K. regulator. H-P purchased Autonomy for $11 billion in October 2011.

    As part of filing the British company's 2011 statements, H-P said it had to refile the statements for 2010 with significant reductions in revenue and profit for a large unit, Autonomy Systems Ltd.

    The unit's 2010 revenue was lowered by 54%, or roughly £95 million ($156 million), according to H-P's Jan. 31 filing with Companies House, the U.K. registry of companies. The restatement also showed an operating-profit decline of 81%, H-P said.

    H-P said it found similar accounting improprieties for 2011 as it did for 2010. But the company didn't detail those discrepancies because Autonomy hadn't filed its financials for 2011 as the deal was closing. Autonomy had previously filed financial statements for 2010, which required the restatement.

    A spokesman for Autonomy's former senior management said it continues to reject H-P's allegations.

    The U.K.'s Financial Reporting Council, which is investigating Autonomy's accounting in Britain, said its probe of Autonomy's financial reporting continues. "We announced our investigation in February 2013," a spokesman for the council added. He declined to comment further.

    The H-P audit of the two entities, conducted by Ernst & Young LLP, found that Autonomy significantly inflated revenue for Autonomy Systems in 2010 by booking deals that were unlikely to be paid for, booking deals prematurely before they were closed, and claiming transactions where there were no end customers, said an H-P spokesman.

    H-P also alleged errors in the accounting of certain expenses such as employee commissions and bonuses, according to the filings. Another part of the restatement involved a change in how H-P accounted for certain research-and-development expenses, in a way that was different than Autonomy used.

    "These restatements, and the reasons for them, are consistent with H-P's previous disclosures regarding accounting improprieties in Autonomy's pre-acquisition financials," said an H-P spokesman. "The substantial work necessary to prepare these accounts has revealed extensive accounting errors and misrepresentations in the previously issued 2010 audited financial statements, including the problems previously identified by H-P."

    H-P declined to say whether it had submitted the documents with officials in the U.S. and U.K. who are investigating the Autonomy deal. But H-P did say it continues to cooperate with authorities. H-P said it isn't required to file the statements with U.S. regulators.

    The Financial Reporting Council, the regulator tasked with promoting good corporate governance and financial reporting in the U.K., is investigating Autonomy's past financial reports.

    Autonomy developed software that allows businesses to search through documents, presentations, videos, emails and other data housed on their corporate intranets.

    The FRC's probe of Autonomy's accounts comes as the U.S. Justice Department investigates the alleged improprieties, according to H-P. The U.S. computer company also said it has provided information to the U.S. Securities and Exchange Commission and the U.K. Serious Fraud Office.

    About a year after the acquisition, H-P said it would write down the value of the U.K. enterprise-software company by $8.8 billion. H-P blamed more than $5 billion of the write-down on accounting irregularities that it said Autonomy had carried out to inflate revenue and profit ahead of the deal.

    Autonomy founder Mike Lynch denied H-P's claims, calling them "completely and utterly wrong."

    On Monday, the spokesman for Autonomy's former management said "given the size of H-P's write-down, we are very surprised by the small size of the adjustments in Autonomy Systems Limited that are attributed to the ongoing accounting dispute, which represent a few percent of group revenue."

    Continued in article

    From Bob Jensen's Archives on Autonomy

    Read Deloitte's Glowing Audit Report o Autonomy
    "H.P. Takes Huge Charge on ‘Accounting Improprieties’ by Michael J. De La Merced and Quentin Hardy, The New York Times, November 20, 2012 ---
    http://dealbook.nytimes.com/2012/11/20/h-p-takes-big-hit-on-accounting-improprieties-at-autonomy/

    "Where were the accountants in H-P’s Autonomy deal?" by Floyd Norris, New York Times, November 29, 2012 ---
    http://www.nytimes.com/2012/11/30/business/auditors-clash-in-hp-deal-for-autonomy.html?ref=business

    The battle over Hewlett-Packard’s claim that it was bamboozled when it bought Autonomy, a British software company, has been long on angry rhetoric and short on details about the accounting that was supposedly wrong and led to an $8.8 billion write-down.

    ¶ But the eternal question asked whenever a fraud surfaces — “Where were the auditors?” — does have an answer in this case.

    ¶ They were everywhere.

    ¶ They were consulting. They were advising, according to one account, on strategies for “optimizing” revenue. They were investigating whether books were cooked, and they were signing off on audits approving the books that are now alleged to have been cooked. They were offering advice on executive pay. There are four major accounting firms, and each has some involvement.

    ¶ Herewith a brief summary of the Autonomy dispute:

    ¶ Hewlett-Packard, a computer maker that in recent years has gone from one stumble to another, bought Autonomy last year. The British company’s accounting had long been the subject of harsh criticism from some short-sellers, but H.P. evidently did not care. The $11 billion deal closed in October 2011.

    ¶ Last week, H.P. said Autonomy had been cooking its books in a variety of ways. Mike Lynch, who founded Autonomy and was fired by H.P. this year, says the company’s books were fine. If the company has lost value, he says, it is because of H.P.’s mismanagement.

    ¶ Autonomy was audited by the British arm of Deloitte. H.P., which is audited by Ernst & Young, hired KPMG to perform due diligence in connection with the acquisition — due diligence that presumably found no big problems with the books.

    ¶ That covered three of the four big firms, so it should be no surprise that the final one, PricewaterhouseCoopers, was brought in to conduct a forensic investigation after an unnamed whistle-blower told H.P. that the books were not kosher. H.P. says the PWC investigation found “serious accounting improprieties, misrepresentation and disclosure failures.”

    ¶ That would seem to make the Big Four tally two for Autonomy and two for H.P., or at least it would when Ernst approves H.P.’s annual report including the write-down.

    ¶ But KPMG wants it known that it “was not engaged by H.P. to perform any audit work on this matter. The firm’s only role was to provide a limited set of non-audit-related services.” KPMG won’t say what those services were, but states, “We can say with confidence that we acted responsibly and with integrity.’

    ¶ Deloitte did much more for Autonomy than audit its books, perhaps taking advantage of British rules, which are more relaxed about potential conflicts of interest than are American regulations enacted a decade ago in the Sarbanes-Oxley law. In 2010, states the company’s annual report, 44 percent of the money paid to Deloitte by Autonomy was for nonaudit services. Some of the money went for “advice in relation to remuneration,” which presumably means consultations on how much executives should be paid.

    ¶ The consulting arms of the Big Four also have relationships that can be complicated. At an auditing conference this week at New York University, Francine McKenna of Forbes.com noted that Deloitte was officially a platinum-level “strategic alliance technology implementation partner” of H.P. and said she had learned of “at least two large client engagements where Autonomy and Deloitte Consulting worked together before the acquisition.” A Deloitte spokeswoman did not comment on that report.

    ¶ To an outsider, making sense of this brouhaha is not easy. In a normal accounting scandal, if there is such a thing, the company restates its earnings and details how revenue was inflated or costs hidden. That has not happened here, and it may never happen. There is not even an accusation of how much Autonomy inflated its profits, but if there were, it would be a very small fraction of the $8.8 billion write-off that H.P. took. Autonomy never reported earning $1 billion in a year.

    ¶ That $8.8 billion represents a write-off of much of the good will that H.P. booked when it made the deal, based on the conclusion that Autonomy was not worth nearly as much as it had paid. It says more than $5 billion of that relates to the accounting irregularities, with the rest reflecting H.P.’s low stock price and “headwinds against anticipated synergies and marketplace performance,” whatever that might mean.

    Continued in article

     

    "Business Autonomy:  Five ways in which Autonomy is alleged to have cooked the books," by Juliette Garside The Guardian, November 24, 2012 ---
    http://www.guardian.co.uk/business/2012/nov/25/autonomy-five-ways-alleged-cooked-books

    'CHANNEL STUFFING'

    The most serious of the allegations HP has made against unnamed members of Autonomy's management team. A spokeswoman for Lynch has denied any suggestions that the tactic was used.

    Channel stuffing involves offloading excessive amounts of product to resellers ahead of demand. Typically, the reseller is charged little or no money up front, and may not be obliged to pay unless they sell the product on. In accountancy terms, a line is crossed if those deals are booked as revenue before an end customer has actually bought the product.

    Autonomy had hundreds of resellers, one of which was Tikit, which specialises in legal and accountancy software and has just been bought by BT. In December 2010, Tikit reported a surge in the amount of inventory on its books, up from £100,000 worth per half year to £4m.

    Peel Hunt analyst Paul Morland says Tikit told him that it had done a big deal to acquire software at a discount.

    Tikit declined to comment and there is no evidence that Autonomy booked the deal as revenue. A spokeswoman for Lynch insisted Autonomy never recognised revenue from resellers if there was a right of return, and that such a right was almost never granted.

    US regulators have taken high-profile scalps in their efforts to stamp out channel stuffing. Drugs firm Bristol-Myers Squibb coughed up more than $800m in fines and legal settlements after admitting to pumping stocks of medicines onto wholesalers' books in order to inflate its own revenues. During the dotcom boom, the McAfee antivirus software company engaged in practices with a reseller called Ingram Micro which saw them eventually fined a combined $65m.

     

    USING ACQUISITIONS AS A SMOKESCREEN

    In Autonomy's last full year as an independent company, it claimed to be growing at 17%. This excluded the contribution of any acquisitions. But one financial analyst has claimed it was using its purchases to mask the fact that there was no growth at all.

    Over six years, Autonomy bought at least eight sizeable businesses, culminating in May 2011 with the digital archiving arm of US group Iron Mountain. "Once they had bought the company they would close parts of the business down," says Daud Khan, who followed Autonomy while working at JP Morgan Cazenove, and is now at Berenberg Bank. "Closing down a business costs money but the restructuring charges were always very low. Through magic dust Autonomy managed to do it with very little cost and they did that again and again." He believed Autonomy was claiming the discontinued revenues from acquired companies as part of its own organic growth.

     

    Lynch's spokeswoman says Autonomy's accountant, Deloitte, checked every acquisition. She said there were more than 30 analysts covering Autonomy's stock, and Khan's view was in the minority.

     

    DESCRIBING HARDWARE SALES AS SOFTWARE SALES

    HP said Autonomy sold hardware that was wrongly labelled in its accounts as software and sold hardware at "negative margin", in other words at a loss, and charged it as a marketing expense. The sale was then chalked up as licence revenue for growth calculations. HP said these sales accounted for up to 15% of Autonomy's total revenue, which was estimated at $1bn in 2011.

    Lynch said it was "no secret" Autonomy sold hardware, and it accounted for around 8% of revenue. The company would sometimes supply desktop computers to clients as part of a package. In some cases, Lynch said, deals were struck at a slight loss, in exchange for the client agreeing to market Autonomy products. These losses were then charged as a marketing expense. Crucially, he claims those sales accounted for less than 2% of total revenues.

     

    EXAGGERATING SEARCH REVENUES FROM OTHER SOFTWARE COMPANIES

    Autonomy's client roster reads like a software hall of fame. Its website lists most of the biggest names, from Adobe to IBM and Oracle, and in its last financial results, it claimed more than 400 separate products were using its "core" technology.

    Original equipment manufacturer (OEM) licences were one of Autonomy's growth engines, rising at 27% a year.

    Autonomy's top product is a search engine called IDOL (Intelligent Data Operating Layer), but Autonomy has rebranded less expensive products as IDOL, such as the document filter produced by a company called Verity it bought in 2005.

    A week after HP announced it was prepared to acquire Lynch's company at a 64% premium to its share price, Leslie Owens at Forrester Research published a piece entitled What is Autonomy, Without its Marketing?, in which she declared the development of IDOL was "stagnant", with no major release in five years.

    Technology analyst Alan Pelz-Sharpe, who reported Autonomy to the Serious Fraud Office last year, claimed last August in his blog: "Where Autonomy is present in 3rd-party software, it is more typically the old (and very basic) Verity engine, not IDOL."

    Autonomy would not be the first company to have overplayed the popularity of its products. Lynch's spokeswoman said there was no exaggeration of revenues from other software companies. The view of the analysts is simply that if sales of its flagship search software were not soaraway, Autonomy might not have been worth the premium HP paid.

     

    FRONTLOADING REVENUES
     

    Changing the payment model for storing large digital archives on behalf of customers is another way in which HP believes Autonomy boosted revenues. Autonomy was supposedly converting long-term "hosting" deals into short-term licensing deals.

    Red flags were raised by analysts after Autonomy's 2007 acquisition of a US email archiving company called Zantaz, whose clients included nine of the world's top 10 law firms and JP Morgan and Deutsche Bank. Khan claims Autonomy renegotiated contracts so that instead of spreading payments over a three- or four-year contract, it would take a big lump sum upfront and smaller payments in subsequent years.

    "There's nothing illegal with that but it generates growth that isn't real growth," says Khan. "If you value a business you have to ascertain whether it is growing."

    Lynch's spokeswoman said this was not an accurate characterisation of the changes: Zantaz customers that had been pay-as-you-go committed to much larger deals once Autonomy took over, often including on-premises software.


    Jensen Comment
    I view attempts to whitewash Autonomy with very legalized interpretations of IFRS much like I view Ernst & Young's legalistic use of FAS 140 to justify the Repo 105 and 109 deceptions for Lehman Bros. Such a defense may get auditors off the hook in court, but use of such defenses simply justifies auditors intentionally being party to deceptive accounting. There's such a thing as underlying spirit and intent of an audit to avoid deception even when clients and their auditors can get away with deception due to defects in the standards.

    The irony is that some financial analysts were raising red flags about Autonomy's accounting well in advance of when HP invested in that dubious company. I guess it boils  down to "buyers beware," and HP seems to have simply been ignorant of accounting tricks.
     

    Bob Jensen's threads on Autonomy ---
    http://www.trinity.edu/rjensen/Fraud001.htm#Deloitte
    Search for "Autonomy"

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

    Fiat to Get Full Control of Chrysler in 2014 -

    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on February 7m 2014

    Fiat Cuts Dividend, Offers Glum 2014 Outlook
     by: Gilles Castonguay and Christina Rogers
    Jan 30, 2014
    Click here to view the full article on WSJ.com
     

    TOPICS: Earnings Forecasts, Income Tax

    SUMMARY: "[F]ourth quarter results and a glum outlook for 2014 showed the challenges ahead for the the world's seventh largest auto maker. Now known as Fiat Chrysler Automobiles NV, the company reported higher fourth-quarter net profit largely because of a Chrysler tax benefit." The article follows on previous coverage of Fiat's acquisition of Chrysler's shares from the United Auto Workers Union health-care trust.

    CLASSROOM APPLICATION: The article may be used in covering business combinations or to discuss allowances for deferred tax assets. Release of an allowance accounted for most of the fourth quarter profit reported by the company.

    QUESTIONS: 
    1. (Introductory) Fiat's net income jumped to 1.3 billion euros in the fourth quarter of 2013 from 224 million euros in 2012-why did its stock fall 5% in trading in Milan?

    2. (Introductory) Chrysler reported a fourth quarter profit of $1.6 billion. What was the most significant portion of that profit?

    3. (Advanced) Explain the purpose of an allowance against a deferred tax asset. Also explain the current period profit impact when that allowance is no longer needed. You may use summary journal entries to present the information.

    4. (Advanced) Explain in your own terms why Chrysler was able to release the allowance against deferred tax assets.
     

    Reviewed By: Judy Beckman, University of Rhode Island
     

    RELATED ARTICLES: 
    Fiat to Get Full Control of Chrysler
    by Christina Rogers
    Jan 02, 2014
    Page: A1

    "Fiat Cuts Dividend, Offers Glum 2014 Outlook," by Gilles Castonguay and Christina Rogers, The Wall Street Journal, January 30, 2013 ---
    http://online.wsj.com/news/articles/SB10001424052702303973704579350251966278792?mod=djem_jiewr_AC_domainid

    The newly combined Fiat F.MI -0.41% SpA and Chrysler Group LLC rolled out a new name, a new logo and plans for a new corporate structure, but fourth-quarter results and a glum outlook for 2014 showed the challenges ahead for the world's seventh largest auto maker.

    Now known as Fiat Chrysler Automobiles NV, the company reported higher fourth-quarter net profit largely because of a Chrysler tax benefit. Its operations showed growing strains as losses in Europe and an earnings decline in South America offset gains from higher truck and sport-utility vehicle sales in North America. The company's profit forecast for this year was below analysts' expectations.

    Fiat Chrysler suspended its dividend to save cash in the wake of its $4.35 billion deal to purchase the rest of Chrysler it didn't already own. The company also said it would seek to raise $4.7 billion in fresh debt to pay off a note held by a United Auto Workers union health-care trust.

    The focus now shifts to May, when Chief Executive Sergio Marchionne is expected to lay out a plan for building a single company strong enough to compete with Volkswagen AG VOW.XE +0.72% , General Motors Co. GM -0.03% and Toyota Motor Corp. 7203.TO +1.99% , rivals that are as much as twice its size. Toyota's volume last year passed the 10-million vehicle mark for the first time. Fiat and Chrysler sold a combined 4.4 million vehicles last year.

    In comments on Wednesday, Mr. Marchionne acknowledged concerns about Fiat Chrysler's €29.9 billion ($40.88 billion) in debt, saying the company will take a deeper look at its capital needs after it completes a U.S. share listing and its incorporation in the Netherlands. The combined company will have its tax domicile in the U.K., where the main tax corporate rate is expected to decline to 21% effective April 1.

    "We understand the notion of leverage and the fact we're carrying a substantial amount of debt on our books," he said. "We'll do nothing that we consider value destructive," he added, referring to a shareholder rights' issue.

    Investors are watching for how the Italian executive will finance a revamping of its aging models including Alfa Romeo sports cars and revive factories in Italy, which are operating at less than half their capacity, and critical to turning around its unprofitable European operations.

    The company said it wrote down €390 million in assets, which included spending on new platforms for its Alfa Romeo and Maserati brands that it since abandoned. It is developing new underpinnings for those brands, the company said.

    Mr. Marchionne said on Wednesday that he remains "incredibly negative" about the European sales prospects this year for mass market auto brands, such as Fiat.

    Fiat didn't say where it will place the combined company's headquarters. Fiat is currently based in Turin, Italy, while Chrysler's executive offices are in suburban Detroit. The choice will resonate deeply in Italy, where Fiat is the largest private employer. The country has been rapidly shrinking in importance as Mr. Marchionne crafts a more global business profile for the auto maker.

    On Wednesday, the company forecast net profit this year of between €600 million and €800 million, or roughly $800 million to $1 billion, down from €943 million last year, excluding the tax benefit. Including the release of deferred tax assets stemming from Chrysler's improved outlook, last year's net was €1.9 billion.

    The tax benefit reverses charges the U.S. company had taken when its accountants weren't sure it would be able to use all of its losses to reduce future tax liabilities.

    Continued in article

    From Bob Jensen's Archives

    Fiat's No Cash Deal  the U.S. Government Bailout of  of Chrysler --- http://en.wikipedia.org/wiki/Fiat

    Since 2009, Marhionne has presided over a business that has experienced a loss in European market share from 9.3 to 6.2 percent.

    . . .

    On 20 January 2009, Fiat S.p.A. and Chrysler LLC announced their intention to form a global alliance. Under the terms of the agreement, Fiat would take a 20% stake in Chrysler and gain access to its North American distribution network in exchange for providing Chrysler with technology and platforms to build smaller, more fuel-efficient vehicles in the US and providing reciprocal access to Fiat's global distribution network.

    In addition, the proposed agreement would entitle Fiat to receive a further 15% (without cash consideration) through the achievement of specific product and commercial objectives. No cash or financial support was required from Fiat under the agreement. Instead it would obtain its stake mainly in exchange for covering the cost of retooling a Chrysler plant to produce one or more Fiat models for in the US. Fiat would also provide engine and transmission technology to enable Chrysler to introduce smaller, fuel-efficient models in the NAFTA market. The deal was engineered by Fiat chief Sergio Marchionne, who pulled the Italian group back from the brink of collapse after taking over in 2004. The principal objective of the partnership was to provide both groups with significantly enhanced economies of scale and geographical reach at a time when they were struggling to compete with larger and more global rivals such as Toyota, Volkswagen and alliance partners Renault S.A. and Nissan.[

     

    From The Wall Street Journal Accounting Weekly Review on January 10, 2014

    Fiat to Get Full Control of Chrysler
    by: Christina Rogers
    Jan 02, 2014
    Click here to view the full article on WSJ.com
    Click here to view the video on WSJ.com WSJ Video
     

    TOPICS: business combinations, Mergers and Acquisitions

    SUMMARY: Fiat is paying $4.35 billion to obtain the 41.5% of Chrysler Corp. now held by the United Auto Workers health-care trust. The price "is lower than some analysts had predicted." The transaction averts an IPO of those 41.5% of shares that the UAW and Chrysler were planning. "The trust had demanded that Chrysler register its shares for an offering, a right it received as part of an agreement that helped the U.S. auto maker emerge from bankruptcy." This change gives Fiat chief executive Sergio Marchionne "...the freedom he needs to further consolidate the companies' engineering and manufacturing operations. The agreement also will allow him to spend more time on reworking Fiat's operations in Europe, where it has suffered from a long slump in sales."

    CLASSROOM APPLICATION: The article may be used to introduce issues in identifying the purchase price paid and the implied fair value in a business combination transaction.

    QUESTIONS: 
    1. (Advanced) What portion of Chrysler Corp. does Fiat own prior to this acquisition of Chrysler shares? Does this represent a controlling interest? Explain your answer.

    2. (Introductory) What are the strategic reasons for Fiat to acquire the remainder of Chrysler's shares? You may refer to the related video to answer this question.

    3. (Advanced) How does the amount paid by Fiat imply a full value for Chrysler of "just over $10 billion." Specifically explain the calculation.
     

    Reviewed By: Judy Beckman, University of Rhode Island

    "Fiat to Get Full Control of Chrysler," by Christina Rogers, The Wall Street Journal, January 2, 2014 ---
    http://online.wsj.com/news/articles/SB10001424052702303640604579294631534003954?mod=djem_jiewr_AC_domainid

     Fiat said it would get full control of Chrysler Group LLC in a $4.35 billion deal, ending a standoff that had clouded the future of both companies.

    The deal, which helps clear the way for consolidation of the two auto makers, assumes a value for Chrysler at just over $10 billion, within the $9 billion to $12 billion valuation that banks underwriting a proposed initial public offering had been considering.

    The IPO now will be called off, a person familiar with the plans said.

    Analysts said the agreement is largely a win for Sergio Marchionne, the chief executive of both companies. The total price being paid for the 41.5% in Chrysler that Fiat didn't already own is lower than some analysts had predicted. And averting an IPO gives Mr. Marchionne the freedom he needs to further consolidate the companies' engineering and manufacturing operations.

    Fiat agreed to pay $4.35 billion to buy the rest of Chrysler, ending a standoff that clouded the future of both companies. Joe White reports on Lunch Break. Photo: Getty Images.

    The agreement also will allow him to spend more time on reworking Fiat's operations in Europe, where it has suffered from a long slump in sales.

    "The unified ownership structure will now allow us to fully execute our vision of creating a global auto maker," Mr. Marchionne said in a written statement Wednesday.

    The deal should give Fiat shares a lift, analysts said. Investors had expected Fiat would have to pay up to $5 billion to take full control of Chrysler. Analysts at Italy's Banca IMI calculated that any price less than $4.4 billion would add almost 15% of implicit value to Fiat's shares.

    Fiat Surges | Track Shares Debt Issues Don't Disappear Fiat's Chrysler Trick Is No Panacea Fiat-Chrysler Combination Still Faces Hurdles

    Chrysler itself is picking up the bulk of the price tag, which adds to the bullishness for Fiat's stock, a Milan-based analyst said. "That means Fiat doesn't have to raise fresh equity capital, which is clearly a good thing for its shares," the analyst said.

    Markets were closed Wednesday in Milan and New York for New Year's Day. Fiat had a market capitalization of €7.44 billion ($10.23 billion) based on Tuesday's close.

    In merging the two companies, Mr. Marchionne hopes to create a single, global auto maker with combined sales of six million vehicles, ranking as the world's seventh largest. Fiat and Chrysler reported combined revenue of €84 billion in 2012.

    But even combined, the company will face challenges in a global auto industry dominated by much larger and richer rivals, including Germany's Volkswagen AG VOW3.XE +1.43% , Japan's Toyota Motor Corp. 7203.TO +0.32% and Detroit's General Motors Co. GM +0.17% and Ford Motor Co. F +1.93%

    Fiat said it would pay the United Auto Workers health-care trust $3.65 billion for its 41.5% stake in Chrysler. The trust received the stake as part of Chrysler's government-led bankruptcy in 2009. The transaction is expected to close by Jan. 20, Fiat said. The trust also will get $700 million from Chrysler to be paid in four installments.

    The majority of the payments will come from Chrysler in the form of a $1.9 billion dividend payment and the $700 million in installment payments.

    Fiat will pay $1.75 billion directly to the trust, using money in its cash reserves to make the payment.

    In return, Fiat said the UAW agreed to support efforts to make Chrysler's operations more efficient.

    Since exiting bankruptcy in 2009, Chrysler has rebounded in the U.S., reporting rising sales and earnings. But over the next few years, the U.S. auto maker will have to spend heavily to update its car and truck line and improve the fuel efficiency of its vehicles. The fuel efficiency of Chrysler's fleet has trailed behind that of its competitors.

    Meanwhile, Italy's Fiat has been hit hard by the recession in Europe and is struggling to turn around unprofitable operations in the region. That has made it increasingly dependent on Chrysler's earnings to keep Fiat in the black.

    Fiat in October cut its outlook for 2013 profit to between €900 million and €1.2 billion, down from €1.2 billion and €1.5 billion. Fiat reported a net profit of €189 million for the third quarter, but without Chrysler, it would have posted a €247 million loss.

    Even with the deal, Fiat still won't have free access to Chrysler's cash because of restrictions on the U.S. auto maker's debt agreements.

    At the end of the third quarter, Chrysler had $11.5 billion in cash.

    Mr. Marchionne in the spring is expected to present the latest in a series of strategic plans for Fiat, the heart of which will how he plans to roll out Alfa Romeo as a global brand. He repeatedly has delayed the introduction, including the brand's return to the U.S. Alfa Romeo is seen by analysts as one of the group's brands with the greatest potential to help revive Fiat's fortunes.

    The deal ends a dispute over the value of Chrysler's shares that dragged on for more than a year.

    Continued in article

    STUCK WITH A LEMON,  by Newsweek Staff / January 16 2005 ---
    http://www.newsweek.com/stuck-lemon-117381

    . . .

    Since then, Fiat has become a "basket case," says GM analyst David Healy at Burnham Securities. It has had five top- level management changes, and the deaths of Gianni and Umberto Agnelli have left no clear successor. Troubles began almost immediately. The American corporate types were "on another planet," culturally speaking, from the Agnelli family management at Fiat, says Manaresi. As Fiat's cash woes mounted--their cars just weren't selling--it sold off Fidis, the financial-services arm of Fiat Auto. GM claimed the sale breached the agreement and made the put option invalid. Over four years, the companies collaborated on only a few models, like the Croma, which will be launched in March. Would GM do it again? "Hindsight is 20/20," says GM spokesperson Toni Simonetti. Analysts also believe that GM never thought the put option would come into play.

    Continued in article

    "

    "Fitch Dropped Fiat Long-Term Outlook," AllPar, September 19, 2013 ---
    http://www.allpar.com/news/index.php/2013/09/fitch-dropped-fiat-long-term-outlook

    Rating firm Fitch dropped Fiat’s long term outlook yesterday, while maintaining a BB- rating on its long term debt and a B rating on its short-term debt. The new “negative” outlook, according to Fitch, was based on weaknesses at Fiat’s core businesses, other than Chrysler. The agency noted that while Chrysler was a separate entity, its cash could not be easily diverted to Fiat, but that uncertainty over how Fiat would pay for the rest of Chrysler (and how much it would pay) brought doubt over the company’s long term prospects; they also expressed concern over risks in Fiat’s ambitious plan to move its brands upscale and increase exports from Europe. The drop in Fiat’s outlook could increase the cost of borrowing money, though Fiat appears to have already arranged for lines of credit to cover ongoing operations and possibly the cost of acquiring the remainder of Chrysler.

    While purchasing the rest of the VEBA’s stake in Chrysler and integrating the two companies would provide significant tax savings (assuming a tax headquarters in Britain or the Netherlands) and allow for Chrysler’s profits to be diverted into Fiat debt reduction, Chrysler itself still has significant debt which must be dealt with, and the interest on the loans is likely to be high. Fiat leaders must balance these costs and risks with the likelihood that Chrysler’s value will continue to rise, especially if the 2014 Jeep Cherokee is a hit, which seems likely based on critical reactions so far.

    Fitch raised the outlook slightly in October ---
    http://wardsauto.com/fiat-outlook-now-positive-was-stable-fitch

    Jensen Comment
    Fiats in general have poor consumer ratings. For example, the new Fiat 500L has good reviews on design and lousy reviews on the drive train.  Watch the video that is positive at first and then turns highly negative ---
    http://www.ask.com/youtube?q=fiat+AND+%22Consumer+Reports%22&v=2WchQAVvPJc&qsrc=472

    Chrysler's drive trains were so lousy the failing company began to give lifetime warranties on the drive trains that, fortunately, was never a mistake made by Yugo manufacturers. In the bailout deal, USA taxpayers gave Chrysler over a billion dollars just to fund those lifetime warranties --- which for young buyers could possibly carry on to the 22nd Century of free drive train replacements of very old Chrysler vehicles.

    Sadly, the Chrysler lifetime drive train warranties do not apply to its Jeep subsidiary. The classic weakness on a Jeep is in its differential bearings. I had to replace those bearings on an older Jeep Cherokee.  Mechanics just expect that those bearings will regularly give out.  A friend had to have those bearings replaced on a new Cherokee that's less than a year old. He'd best dump that Cherokee before his warranty expires.

    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on February 7m 2014

    Tax Refunds Add Urgency on Debt Ceiling
     by: http://online.wsj.com/article/SB10001424052702303942404579360594025818068.html
    Feb 04, 2014
    Click here to view the full article on WSJ.com
     

    TOPICS: Tax Return Filing, Taxation

    SUMMARY: "In October [2014], as part of the deal that ended the government shutdown, Congress suspended the borrowing limit until Feb. 7[, 2014]. After that, the Treasury Department is expected to use emergency measures, such as halting certain pension payments, to allow it to continue borrowing money to pay the government's bills. ... 'Without borrowing authority, at some point very soon, it would not be possible to meet all of the obligations of the federal government,'" said Treasury Secretary Jacob Lew on Monday in Congress. In 2011 and 2013, "Treasury was able to use emergency borrowing authority for several months. There won't be as much flexibility this time, Mr. Lew said, because the Treasury must issue billions of dollars in refunds to people who file their taxes this month."

    CLASSROOM APPLICATION: The article may be used in a governmental accounting or income tax class

    QUESTIONS: 
    1. (Introductory) Why does the U.S. government spend much more than it brings in during the month of February? How does that situation reverse in April?

    2. (Advanced) How does the U.S. Treasury finance the February cash disbursements? What must Congress do to authorize that financing?

    3. (Advanced) Define the term budget deficit. Does the U.S. budget deficit stem only from the mismatch of tax receipts and refunds each year? Explain your answer. (Hint: the related video linked to the online article gives a clear description of these issues.)

    4. (Advanced) How is the need for raising the debt ceiling related to U.S. government budget deficits? (Again, the related video gives clear insight into the issues.)
     

    Reviewed By: Judy Beckman, University of Rhode Island

    "Tax Refunds Add Urgency on Debt Ceiling," The Wall Street Journal, February 4, 2014 ---
    http://online.wsj.com/news/articles/SB10001424052702303942404579360594025818068?mod=djem_jiewr_AC_domainid

    A fresh battle over the debt ceiling is looming, and lawmakers will have less time and flexibility to negotiate than in earlier fights because of the annual rush of people seeking tax refunds this month.

    Treasury Secretary Jacob Lew on Monday urged Congress to intervene quickly to raise the debt limit, the latest in a drumbeat of warnings from the Obama administration that dawdling could potentially lead to delays or cuts in Social Security benefits and military pay.

    In October, as part of the deal that ended the government shutdown, Congress suspended the borrowing limit until Feb. 7. After that, the Treasury Department is expected to use emergency measures, such as halting certain pension payments, to allow it to continue borrowing money to pay the government's bills. Those powers will run out by the end of the month, Mr. Lew said, a much shorter fuse than during previous fights.

    "Without borrowing authority, at some point very soon, it would not be possible to meet all of the obligations of the federal government," Mr. Lew said in a speech to the Bipartisan Policy Center.

    Administration officials have said they won't negotiate budget or policy changes in exchange for an increase in the debt ceiling. But some congressional Republicans have said they would agree to an increase only in exchange for spending cuts or changes to the Affordable Care Act, among other things.

    House Republicans discussed how to proceed at a retreat last week, but didn't reach a consensus. A spokesman for House Speaker John Boehner (R., Ohio) said those talks continue.

    "We'll be continuing to discuss the issue with members this week, well aware of the upcoming deadline," said Brendan Buck, Mr. Boehner's spokesman.

    The deficit has come down sharply in recent years, but law dictates the Treasury can issue debt only up to a certain level set by Congress. With the debt continuing to rise—it now exceeds $17 trillion—the White House has had to return to Congress multiple times to ask for an increase.

    In the 2011 and 2013 debt fights, Treasury was able to use emergency borrowing authority for several months. There won't be as much flexibility this time, Mr. Lew said, because the Treasury must issue billions of dollars in refunds to people who file their taxes this month.

    Last year's government shutdown delayed the start of the tax-filing process until Jan. 31, roughly two weeks later than normal. That means many Americans seeking refunds are only now beginning the process and trying to file.

    "Saturday we were turning people away," said Russ Signorino, executive director of Gateway EITC Community Coalition, a group that helps prepare free tax returns for low- and moderate-income people in the St. Louis area. "We couldn't handle the load that came in."

    Even without the delay, the government in February traditionally spends much more than it brings in, driven by refunds. For each of the past 12 years, the government has run a bigger deficit in February than in any other month. Last year the February deficit was $203.5 billion. In April, when many people pay taxes they owe, the government ran a surplus of $112.9 billion.

    The Internal Revenue Service processed 45.9 million tax returns for the week ended March 1, 2013, paying out $135 billion in refunds, according to agency data. It processed 45.9 million additional tax returns the following week, paying out a further $154.7 billion in refunds.

    The government must repeatedly deal with the debt ceiling in large part because it spends more money than it brings in through revenue, running a deficit. The Treasury borrows money to cover the budget deficit by issuing new debt.

    If the debt ceiling isn't increased, Mr. Lew has said his agency will have to rely on the government's cash-on-hand and incoming tax revenue to continue paying bills.

    Outside groups have previously estimated the government's cash balance could continue covering bills for several weeks, but Mr. Lew said it wouldn't last long based on the current schedule. The government had about $70 billion in cash at the end of Friday.

    Continued in article

    Jensen Comment
    I don't understand the fuss over the debt ceiling. All President Obama has to do is yell for Yellen to print more money ---
    http://en.wikipedia.org/wiki/Janet_Yellen

    Teaching Case
    From The Wall Street Journal Accounting Weekly Review on February 14, 2014

    Car Makers Snip Pricing Now to Avoid Haircuts Later
    by: Jeff Bennett and Christina Rogers
    Feb 12, 2014
    Click here to view the full article on WSJ.com
     

    TOPICS: Inventory Systems, Revenue Recognition

    SUMMARY: Detroit's big auto makers are trying to sweeten discounts to clear unsold vehicles from dealer lots, but not so much to start a profit-killing price war." The article focuses on the industry's increasing days' supply of sales in dealer inventory as of January 31, 2014.

    CLASSROOM APPLICATION: The article may be used to cover inventory ratios in a managerial or financial accounting class. For financial accounting class, the topic of revenue recognition, and its impact on behavior, also is addressed.

    QUESTIONS: 
    1. (Introductory) Examine the chart entitled "Inventory Burden." What is the concern expressed in the chart about the overall state of the market for U.S. manufactured trucks and cars?

    2. (Advanced) How do you think that "days' supply of sales in dealer inventory" is calculated? Be specific in the amounts used in the formula and how the information is accumulated for the industry.

    3. (Introductory) "None of the auto makers say they plan to reduce production to counter the inventory overhang." How does the author of the article explain this reaction?

    4. (Advanced) "It is cheaper to offer these (sales discounts) incentives than to shut the plants." How would you make that determination?
     

    Reviewed By: Judy Beckman, University of Rhode Island

    "Car Makers Snip Pricing Now to Avoid Haircuts Later," by Jeff Bennett and Christina Rogers, The Wall Street Journal, February 12, 2014 ----
    http://online.wsj.com/news/articles/SB10001424052702304558804579377293202213988?mod=djem_jiewr_AC_domainid

    Detroit's big auto makers are trying to sweeten discounts to clear unsold vehicles from dealer lots, but not so much to start a profit-killing price war.

    It is a balancing act making Wall Street investors nervous. Analysts aren't sure whether the moves to counter a January slowdown in sales—particularly new discounts on large pickup trucks—will undermine the rising prices that have helped General Motors Co. GM -1.01% , Ford Motor Co. F +0.53% and Chrysler Group LLC rebuild profits during the past three years.

    On Tuesday, automotive sales tracking firm ALG Inc. warned industry inventory levels in January were the highest since August 2009, when the recession was in full force. It took U.S. dealers in January an average of 59 days to sell a new vehicle, nine days longer than the same period a year earlier and the highest level since the 68-day peak in 2009.

    None of the auto makers say they plan to reduce production to counter the inventory overhang. Paring output would reduce pressure to discount, but auto maker's book revenue when they ship vehicles to dealers and any slowdown would hit first-quarter revenue.

    They are counting on dealers to cut the backlog—without a wholesale change in manufacturers' incentives or production schedules.

    "We believe we can sell our way out," said GM spokesman Jim Cain. "We have worked hard to stay disciplined on pricing, incentives and production."

    So far, says IHS IHS +2.84% automotive analyst Tom Libby, GM and other car makers figure "it is cheaper to offer these incentives than to shut the plants. The problem is once you turn it on, [discounting] it is hard to turn it off, and now we are looking at another challenging month with February."

    But there are signs that the pain threshold has been crossed in some models. GM, the nation's largest auto maker, last week offered as much as $7,000 off some of its newest vehicles.

    Its Presidents Day sale, which continues through Feb. 28, offers reductions on Chevrolet, GMC and Buick vehicles with the largest on the six-cylinder versions of the newly-redesigned Chevrolet Silverado and GMC Sierra large pickups.

    Bill Willis, a Ford and GM dealer in Smyrna, Del., calls the moves a measured response to January's sales slowdown. GM's latest pricing, he added, is "cranking up the market. We lost a little share, we as in GM, but we're going to get it back."

    GM executives also insist the reductions are typical for the month. Last week, Chief Executive Mary Barra said the auto maker wouldn't cut prices to temporarily spur sales.

    In response to truck pricing, she said: "We will also look and react to the market to make sure we're competitive within the market. I'm very confident that we have a solid full sized truck…I have a lot of confidence in these products."

    Investor uncertainty is greater now because U.S. new-car sales growth is leveling off after four strong years. Industry sales are expected to top 16 million this year, up from 15.6 million in 2013, but the percentage increase is expected to be below that of recent years.

    Worries over the year's outlook have pressured share prices. GM shares are down nearly 14% this year and Ford is off 3%. Italian auto maker Fiat F.MI +1.50% SpA, which owns Chrysler, is up nearly 22% because it concluded its purchase of Chrysler shares on better-than-expected terms.

    After four years of rapid growth, the U.S. new-car sales pace "appears to have stalled," Morgan Stanley MS -0.83% analyst Adam Jonas said in a research note earlier this week. "We really think the best of the U.S. auto replacement cycle is over. The incremental buyer is moving from someone who needs to replace their car to one who just wants to."

    GM isn't alone in dealing with oversize inventories. The number of days it took dealers to sell a Ford F-150 pickup jumped last month by almost three weeks to 74 days. Chrysler also is coping with huge overstocks on some car models. It had 220 days of unsold Avengers at the end of January and 129 days of unsold Darts.

    Ford has said its unsold stocks normally are high in January and it prepares for higher demand in the spring. A sales slowdown in January blamed on extreme winter weather triggered the higher figure on days' supplies, a spokesman said.

    Continued in article

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

    Teaching Case
    From The Wall Street Journal Accounting Weekly Review on February 14, 2014

    European Banks Parry U.S. Rules
    by: Max Colchester and David Enrich
    Feb 11, 2014
    Click here to view the full article on WSJ.com
     

    TOPICS: Banking, Convertible Bonds, Regulation

    SUMMARY: "European banks are considering new ways to cushion the blow of U.S. financial-safety rules [stemming from the Dodd-Frank Act which applies to foreign banks with at least $50 billion in assets in their U.S. units]....The ideas are triggering criticism from some banking experts who say they won't strengthen the overall health of the banks and could draw unfavorable scrutiny from regulators...Bank executives say the steps they are considering are legitimate ways of adhering to increasingly onerous regulations, while minimizing cost to shareholders." Specific actions being considered are for U.S. units to sell convertible bonds to European parents which could be counted as capital, to completely move businesses out of the U.S., or to sell assets from the U.S. units to move below the $50 billion threshold.

    CLASSROOM APPLICATION: The article may be used when introducing convertible debt to consider the difficulty of distinguishing between liabilities and equity. It also may be used to keep abreast of banking regulations and the Dodd Frank Act. Finally, the idea of consolidated versus separate entity financial statements is a component of the issues presented in the article.

    QUESTIONS: 
    1. (Advanced) What is the Dodd Frank Act?

    2. (Introductory) What is the purpose of the three strategies described in the graphic entitled "capital games"?

    3. (Introductory) Which of these strategies supports the argument that increasing regulation can weaken competitiveness of U.S. businesses?

    4. (Advanced) Define the term convertible bonds.

    5. (Advanced) Consider the strategy described in the article as selling "internal convertibles." Why might some regulators allow this type of bond "to count as capital"?

    6. (Advanced) Consider the consolidated corporate entity of a U.S bank operation and its European parent. How are these entities financing the internal purchase of U.S. bank debt by European banks? How does this strategy skirt the intent of the Dodd Frank Act in relation to U.S. banks' financial strength?
     

    Reviewed By: Judy Beckman, University of Rhode Island

    "European Banks Parry U.S. Rules," by Max Colchester and David Enrich, The Wall Street Journal, February 11, 2014 ---
    http://online.wsj.com/news/articles/SB10001424052702303874504579374903059496182?mod=djem_jiewr_AC_domainid

    European banks are considering new ways to cushion the blow of U.S. financial-safety rules set to kick in as early as next year.

    The moves are a reaction to planned Federal Reserve rules that will require the U.S. arms of foreign banks to be better capitalized and subject them to annual "stress tests." European banks for years have run the operations on much thinner capital buffers than their American rivals.

    Among the tactics under consideration, banks including the U.K.'s Barclays BARC.LN -0.90% PLC, Germany's Deutsche Bank AG DBK.XE +0.28% and Switzerland's UBS AG UBSN.VX -0.37% could shore up their U.S. subsidiaries by buying debt from them, according to people familiar with the banks' strategies. Other banks are selling assets or considering moving businesses into legal structures outside the purview of U.S. regulators.

    The ideas are triggering criticism from some banking experts who say they won't strengthen the overall health of the banks and could draw unfavorable scrutiny from regulators, including the Fed, which is responsible for overseeing U.S. banks.

    Such moves "shouldn't be perceived as creating capital," said Cornelius K. Hurley, director of the Boston University Center for Finance, Law & Policy. "I doubt the Fed will fall for this…approach, let alone the foreign banks' home-country supervisors."

    Bank executives say the steps they are considering are legitimate ways of adhering to increasingly onerous regulations, while minimizing costs to shareholders. They note that any steps will need to win the support of regulators in both the U.S. and the banks' home countries.

    The Fed is expected to publish the rules in final form in coming weeks, but they won't go into effect until next year at the earliest. In addition to requiring banks to thicken their capital cushions and face yearly stress tests, the rules will subject banks to more-rigorous oversight from the Fed. The more-stringent capital rules, part of the Dodd-Frank financial-overhaul law, will apply to foreign banks with at least $50 billion in assets in their U.S. units.

    The rules have been subject to years of gamesmanship. In 2011, Deutsche Bank irked federal regulators by saying it would change the status of its main U.S. vehicle, Taunus Corp., so that it was no longer a "bank-holding company" and therefore wouldn't be subject to the Dodd-Frank provisions. Fed officials subsequently said they would adjust the rules to preclude banks from skirting them.

    Since then, European banks have heavily lobbied the Fed to soften its approach, according to disclosure statements filed with the Fed following meetings with bank executives. That is because the new rules are likely to force major European banks to add billions of dollars of loss-absorbing capital to their U.S. units, according to analysts and industry officials.

    Deutsche Bank, in particular, has been under pressure to figure out how to deal with the rules. Its U.S. unit at times has operated with virtually zero capital, drawing the ire of regulators. Deutsche Bank likely faces a capital shortfall of roughly $7 billion under the new rules, according to Citigroup analysts.

    One option under consideration by some banks with relatively small U.S. presences is to sell enough assets so they fall below the $50 billion threshold.

    Utrecht-America Holdings Inc., a unit of Dutch lender Rabobank, had $52.3 billion in assets at the end of 2013, according to Fed data. Rene Loman, a Rabobank spokesman, said the bank currently is "running off" parts of Utrecht-America, which owns a variety of U.S. financing businesses, and the total assets will be about $45 billion by the end of March. Rabobank separately has roughly $40 billion in assets in other U.S. operations, including a California retail bank.

    To reduce the amount of capital they have to hold in their U.S. units, Barclays and Royal Bank of Scotland Group RBS.LN -0.80% PLC have considered booking certain trades outside the U.S. or moving businesses into legal structures outside of the Fed's remit, according to people familiar with their plans, which remain preliminary.

    Another idea gaining traction among some European banks is having the U.S. subsidiaries sell bonds to their parents, according to the people familiar with the banks' strategies.

    As currently envisioned, the U.S. units would issue to their parents a type of bond that converts into equity if the U.S. business's capital falls below a certain level. Some European regulators have allowed this type of convertible bond to count as capital, although it is regarded as less helpful for absorbing losses than simple equity.

    The European parent companies would finance the purchases of their subsidiaries' debt by issuing bonds to investors, these people say.

    While the strategy isn't finalized, it is sufficiently advanced that some bank executives have given it the moniker of "internal convertibles."

    The tactic is appealing, executives say, because it would allow them to recapitalize their U.S. arms without issuing new stock to investors, which erodes the value of existing shares. Plus, the European parents can collect a regular interest payment on their subsidiaries' bonds, analysts say.

    It isn't clear whether U.S. regulators will sign off. They haven't previously allowed convertible bonds to be treated as capital, said Marc Saidenberg a principal in Ernst & Young's financial-services office. Regulators in countries like the U.K., where Barclays is based, are withholding judgment until the Fed's final rules are announced, according to a person familiar with the matter.

    Some critics say that while the maneuver could insulate the U.S. subsidiaries from losses, it will end up saddling the overall banking system with greater debt. That is something regulators world-wide have been trying to curb.

    "It's definitely not a good thing," said Anat Admati, a professor at the Stanford Graduate School of Business. "It would harm financial stability because the funding is ultimately done by debt, thus increasing the fragility of the system."

    Continued in article

    "Twitter's Recent 8-K Begs for More Transparency," by Anthony H. Catanach, Jr., Grumpy Old Accountants Blog, February 16, 2014 ---
    http://grumpyoldaccountants.com/blog/2014/2/16/twitters-recent-8-k-begs-for-more-transparency

    With all of the bad weather here in the East, this aging number cruncher has had his hands full with scraping and shoveling. But I just had to take a break and comment on Twitter’s recent Form 8-K (February 5, 2014), particularly given the Company CEO’s comments last Fall on the importance of transparency to being a good leader.

    According to Kurt Wagner of Mashable, CEO Dick Costolo said the following about transparency at a TechCrunch Disrupt event last September:

    The way you build trust with your people is by being forthright and clear with them from day one. You may think people are fooled when you tell them what they want to hear. They are not fooled. As a leader, people are always looking at you. Don't lose their trust by failing to provide transparency in your decisions and critiques.

    Well, when you go “on the record” about one of my favorite themes, I just had to give Twitter’s 8-K a look. And what did I find? Apparently, Twitter’s CFO does not share the same transparency philosophy as his boss.

    But before I begin, I thought it useful to report on the accuracy of some predictions that I made about Twitter’s financial performance before the Company’s IPO. In “What Will Twitter’s Financials Really Tell Us?”, I took a shot at forecasting the Company’s post-IPO balance sheet using a comp group consisting of Facebook, Sina Corp, Yelp Inc., and Meetme Inc. And while the average revenue to assets percentage for this comp group (46.84%) yielded total assets of only $1.3 billion instead of $3.4 billion, the forecasted balance sheet category percentages were quite close as illustrated in the following table:

    Continued in article

    Oh No! Please make Wells Fargo bear all the long-term risk
    "Wells Fargo Is Getting Back Into Subprime Mortgage Lending," by Peter Rudegeair and Michelle Conlin, Reuters via Business Insider, February 14, 2014 ---
    http://www.businessinsider.com/wells-fargo-getting-back-into-subprime-2014-2

    Wells Fargo & Co, the largest U.S. mortgage lender, is tiptoeing back into subprime home loans again.

    The bank is looking for opportunities to stem its revenue decline as overall mortgage lending volume plunges. It believes it has worked through enough of its crisis-era mortgage problems, particularly with U.S. home loan agencies, to be comfortable extending credit to some borrowers with higher credit risks.

    The small steps from Wells Fargo could amount to a big change for the mortgage market. After the subprime mortgage bust brought the banking system to the brink of collapse in the financial crisis, banks have shied away from making home loans to anyone but the safest of consumers.

    Any loosening of credit standards could boost housing demand from borrowers who have been forced to sit out the recovery in home prices in the past couple of years, but could also stoke fears that U.S. lenders will make the same mistakes that had triggered the crisis.

    So far few other big banks seem poised to follow Wells Fargo's lead, but some smaller companies outside the banking system, such as Citadel Servicing Corp, are already ramping up their subprime lending. To avoid the taint associated with the word "subprime," lenders are calling their loans "another chance mortgages" or "alternative mortgage programs."

    And lenders say they are much stricter about the loans than before the crisis, when lending standards were so lax that many borrowers did not have to provide any proof of income. Borrowers must often make high down payments and provide detailed information about income, work histories and bill payments.

    Wells Fargo in recent weeks started targeting customers that can meet strict criteria, including demonstrating their ability to repay the loan and having a documented and reasonable explanation for why their credit scores are subprime.

    It is looking at customers with credit scores as low as 600. Its prior limit was 640, which is often seen as the cutoff point between prime and subprime borrowers. U.S. credit scores range from 300 to 850.

    Lenders remain cautious in part because of financial reform rules. Under the 2010 Dodd-Frank law, mortgage borrowers must meet eight strict criteria including earning enough income and having relatively low debt. If the borrower does not meet those hurdles and later defaults on a mortgage, he or she can sue the lender and argue the loan should never have been made in the first place.

    Those kinds of rules have helped build a wall between prime and subprime borrowers. Lenders have been courting consumers who are legally easier to serve, and avoiding those with weaker credit scores and other problems. Subprime borrowers accounted for 0.3 percent of new home loans in October 2013, compared with an average of 29 percent for the 12 months ended February 2004, according to Mark Fleming, the chief economist of CoreLogic.

    With Wells Fargo looking at loans to borrowers with weaker credit, "we believe the wall has begun to come down," wrote Paul Miller, a bank analyst at FBR Capital Markets, in a research note.

    Lenders have an ample incentive to try reaching further down the credit spectrum now. Rising mortgage rates since the middle of last year are expected to reduce total U.S. mortgage lending in 2014 by 36 percent to $1.12 trillion, the Mortgage Bankers Association forecasts, due to a big drop in refinancings.

    Some subprime lending can help banks, but it may also help the economy. In September 2012, then Federal Reserve Chairman Ben Bernanke said housing had been the missing piston in the U.S. recovery.

    A recent report from think tank the Urban Institute and Moody's Analytics argued that a full recovery in the housing market "will only happen if there is stronger demand from first-time homebuyers. And we will not see the demand needed among this group if access to mortgage credit remains as tight as it is today."

    Subprime mortgages were at the center of the financial crisis, but many lenders believe that done with proper controls, the risks can be managed and the business can generate big profits.

    MAKING UP WITH THE AGENCIES

    For Wells Fargo, one of the critical factors in the new strategy was its clearing up of disputes with Fannie Mae and Freddie Mac, said Franklin Codel, Wells Fargo's head of mortgage production in Des Moines, Iowa. The 2013 settlements for $1.3 billion resolved a few battles in a half-decade war between banks and government mortgage agencies over who was responsible for losses from the mortgage crisis.

    Continued in article

    The first big sub-prime scandal ---
    http://www.trinity.edu/rjensen/2008Bailout.htm#Sleaze

    Jensen Comment
    The article below is an illustration for students about how difficult it is to devise environmental accounting rules that impact booked numbers in the accounting ledgers.

    "California's Auto-Emissions Policy Hits a Tesla Pothole Credits for electric vehicles have the ultimate effect of reducing overall fuel economy," by Christopher Knittel, The Wall Street Journal, February 14, 2014 ---
    http://online.wsj.com/news/articles/SB10001424052702303650204579376801103200852?mod=djemMER_h

    . . .

    The zero-emission mandate thus creates large transfers of wealth across automobile manufacturers. The beneficiaries of these transfers are companies selling more than their "fair share" of electric cars. For example, each Model S that Tesla sells generates seven zero-emission-vehicle credits that Tesla can sell to auto makers that are not selling their fair share. Recently, these credits sold for $5,000 each, bringing Tesla $35,000 in extra revenue for each Model S sold. Nissan 7201.TO +1.12% (the Leaf) and Toyota 7203.TO -1.32% (plug-in Prius) have also generated credits. On the other side of the ledger, companies selling few electric vehicles must raise the prices of their vehicles to pay for the zero-emission mandate.

    The California policy is then superimposed on the federal standards, which require that the average fuel economy across a manufacturer's entire fleet of U.S. vehicles exceeds federally mandated standards for greenhouse-gas emissions and fuel economy. For example, the 2016 target requires that the average fuel-economy rating per vehicle across all manufacturers be 35.5 miles per gallon.

    There are, however, a number of features that complicate this rule. For example, federal standards give special double credits for each electric vehicle a manufacturer produces. Given this feature, the end result of adding California's zero-emission-vehicle program to the federal standards is to reduce overall fuel economy—precisely the opposite of what was intended.

    Here's how this works: Ignoring all other special credits under the federal program, if no electric vehicles were sold, average fuel economy in 2016 would be exactly equal to 35.5 mpg. However, each time an electric car is sold, the average fuel economy of all regular vehicles sold is allowed to decrease by more than the reduction that could be credited to an extra electric vehicle on the road. Why? Because electric cars garner double credits. Admittedly, the reduction in fuel economy is likely to be small, but what is important is that fuel economy moves in the wrong direction.

    To be sure, supporters of the zero-emission-vehicle mandate may contend that there is another, more advantageous unintended consequence. They argue that these rules are promoting innovation in new technologies and new types of cars. Yet even if that were true, I would argue that there are better ways to promote innovation in the auto industry. The current process is flawed because it forces investment in a technology that may not end up being the ultimate winner.

    Focusing on zero tailpipe-emitting vehicles overlooks an excellent alternative because policy makers are suffering from something that many in the industry believe consumers suffer from: Miles Per Gallon Illusion. MPG Illusion is when consumers do not realize that increasing fuel economy from 15 mpg to 20 mpg saves much more gasoline than going from 45 mpg to 50 mpg, because the former increase represents much a larger percentage. In other words, for someone driving 15,000 miles a year, the 45-to-50 mpg jump saves only 33 gallons a year, while the 15-to-20 rise saves 250 gallons. While the zero-emissions mandate may shift some Prius buyers to an electric car, the best option for reducing petroleum consumption and greenhouse-gas emission is shifting a large SUV buyer into a less-large SUV.

    The government needs to be in the business of setting overall environmental goals and standards on both the state and federal levels that make sense both separately and together, not a confusing, conflicting set of rules. And it needs to get out of the business of picking market winners and losers.

    Mr. Knittel is the William Barton Rogers Professor of Energy and professor of applied economics at the MIT Sloan School of Management.

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

    "Ernst & Young donates $1.1M to UW-Madison School of Business," by Denise Lockwood, Milwaukee Business Journal, February 4, 2014 ---
    http://www.bizjournals.com/milwaukee/news/2014/02/04/ernst-young-donates-11-million-to.html

    Ernst & Young has gifted $1.1 million to the University of Wisconsin-Madison School of Business.

    The accounting and global management firm will give $850,000 to the Global Mindset Leaders Program, which teaches students about cultural and social diversity in business, and the remaining money will pay for programs in the School of Business' accounting department.

    “The Ernst & Young Foundation and my fellow contributing partners from Ernst & Young LLP are honored to make this gift. By creating the Global Mindset Leaders Program and investing in other accounting program and school initiatives, we are working toward our purpose of building a better working world,” said David Gay, a partner in the firm's Milwaukee office.

    The Global Mindset Leaders Program includes an academic and extra-curricular component that demonstrates "value of diversity in the classroom, workplace, and business environment," according to a press release by Ernst & Young. The program also includes a scholars program that supports minority students.

    “Business professionals who have a global mindset are more aware of cultural differences and open to diverse perspectives – both within and outside their home countries,” said Karla Johnstone, an Ernst & Young professor of accounting at UW. “They do not merely tolerate diversity; they embrace it and ask how the company might learn and benefit from views that differ from mainstream thinking. This gift will enable us to better prepare our students for the challenges and opportunities of our globalized business world.”

    Twitter Has Weak User Growth Amidst the Competition
    "Brutal Exchange Between Dick Costolo And Wall Street Analysts Sums Up All Twitter's Problems," by Jim Edwards, Business Insider, Business Insider, February 6, 2014 ---
    http://www.businessinsider.com/dick-costolo-and-wall-street-analyst-questions-on-user-growth-2014-2 

    Twitter's first ever earnings call was savaged by Wall Street as investors drove the stock down 17% or more when people saw how few new users had joined the social media platform.

    Twitter actually delivered robust financial numbers in revenues and earnings per share, beating analysts' estimates.

    But when everyone saw the user growth — and a decline in the level of their engagement in timeline views (people looking at their tweet streams, basically) — shareholders headed for the exits.

    It got worse an hour later on the conference call with analysts.

    One analyst suggested that he didn't believe Twitter's growth could ever accelerate in the U.S. again.

    Another suggested that users were trying Twitter and then rejecting it.

    Twitter reported 241 million users, adding only 9 million more since the last quarter. Only 1 million users were added in the U.S.

    CEO Dick Costolo was asked repeatedly what he was doing to turn the numbers around. At one point, one analyst (we didn't catch his name but will update this post later when the transcript comes out) hinted that he didn't believe it was possible for Twitter to reach 200 million Americans even over the course of a decade.

    The analyst suggested that Costolo assumes U.S. user growth had gone up by 3 million instead of the actual 1 million reported: "Even if you triple the current growth, it will take you 12 years to get to 200 million domestic users. Can you get there?"

    Costolo replied: "We have a plan to make a broader audience to get Twitter to understand more broadly. We've seen success on preliminary steps on that, we believe the cumulative effect of changes we make over the course of the year ... will result in changing the slope of the growth curve. We have every confidence that will happen. What exactly the slope of that growth curve will look like and when it will occur we cannot guess at."

    That's Twitter's problem — most growth curves in social media are viral or organic, and follow a predictable "hockey stick" pattern of fast growth followed by a plateau. Costolo now believes he can turn his plateau back into a hockey stick.

    A second analyst then asked whether Costolo would reveal a longstanding mystery about Twitter that the company has repeatedly declined to address: "How many people come on the platform, try Twitter, and then leave? ... that seems to be the problem."

    Costolo replied: "We're not going to speak specifically to any specific numbers of new user retention."

    He explained that Twitter was aware that new users had difficulty figuring out the best ways to use Twitter, and the company was working on making it easier so that they "get it" instantly: "It's not just 'get it' in the first weeks or months on Twitter, it's 'get it' on the first day on Twitter ... so that's a focus."

    Read more: http://www.businessinsider.com/dick-costolo-and-wall-street-analyst-questions-on-user-growth-2014-2#ixzz2sY06WKez

    "The Government Doesn’t Know How Much Its Student Loans Cost," by Karen Weise, Bloomberg Businessweek, January 31, 2013 ---
    http://www.businessweek.com/articles/2014-01-31/the-government-doesnt-know-how-much-its-student-loans-cost

    Depending on whom you ask, the government either makes tens of billions of dollars on the backs of student borrowers, or more or less breaks even. The debate, which boils down to the arcana of accounting techniques, was hotly contested last year, with Democrats such as Massachusetts Senator Elizabeth Warren decrying how the government “profits” off student loans. The controversy caused Congress to ask the Government Accountability Office to weigh in, which led to a report released today. The GAO came back with a non-answer, finding that there’s no good way to know how much the government spends or makes on funding student loans.

    The GAO said it could take as long as 40 years to figure the true costs of the program because there are so many variables, from the overall interest rate environment to the number of students who take advantage of different repayment options. In the meantime, the government is stuck using estimates that can vary greatly based on several factors, most important the amount students pay in interest and what it costs the government itself to borrow. The government readjusts its models each year based on more recent data, which can lead to highly volatile results. One year the budget assumed loans taken out in 2008 made the government $9.09 per hundred dollars borrowed. The next year it estimated the very same loans cost the government 24¢ per hundred dollars.

    One figure is pretty clear: how much the Department of Education spends administering the loans. That’s jumped from $314 million in 2007 to $864 million in 2012, reflecting changes in the federal program that removed banks as intermediaries and caused the number of loans directly issued by the government to increase threefold. Overall, the administration costs per borrower has stayed the same or even fallen slightly.

    The overall difficulty in nailing down these estimates is an increasingly relevant problem as student debt tops $1 trillion—most of it financed by the government.

    Over 75% Off-Balance-Sheet Financing by Federal and State Governments (not counting over a trillion dollars in unbooked entitlements obligations)
    "Hiding the Financial State of the Union -- and the States," State Data Lab, January 24, 2014 ---
    http://www.statedatalab.org/

    Next Tuesday, President Barack Obama will give the annual “State of the Union” address. One of the most important issues is the Financial State of the Union. But what about the Financial State of the States?

    Truth in Accounting has found that the lack of truth and transparency in governmental budgeting and financial reporting enables our federal and state governments to not tell us what they really owe. Obscure accounting rules allow governments to hide trillions of dollars of debt from citizens and legislators.

    The President and many governmental officials tell us the national debt is $17 trillion, but that does not include more than $58 trillion of retirement benefits that have been promised to our veterans and seniors. In addition, state officials do not report more than $948 billion of retirement liabilities.

    The charts above show 77% of the federal government's true debt is hidden and 75% of state government debt is hidden. Total hidden federal and state debt amounts to more than $59 trillion, or roughly $625,000 per U.S. taxpayer.

    The five states with the greatest hidden debt include Texas ($66 billion), Michigan ($67 billion), New York ($75 billion), Illinois ($106 billion), and California ($112 billion).

    Truth in Accounting promotes truthful, transparent and timely financial information from our governments, because citizens deserve to know the amount of debt they and their children will be responsible for paying in the future.

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

    "Hundreds of US soldiers pocketed ‘tens of millions’ of dollars in fraud scandal," by Jim Young, Reuters, February 4, 2014 ---
    http://rt.com/usa/us-soldiers-fraud-investigation-624/

    Hundreds of US soldiers are under investigation in the US for allegedly embezzling “tens of millions” of dollars using a National Guard fund. Lawmakers have called the investigation one of the largest in US army history.

    An Army audit revealed that American soldiers had been pocketing millions of dollars from a National Guard fund, which gives bonuses to troops that recruit their friends into the Army. The audit found that at least 1,200 recruiters had lined their pockets with potentially fraudulent pay outs, while another 2000 had received “questionable payments."

    As part of the investigation, 800 soldiers are currently being screened to ascertain whether they committed fraud, reports USA Today.

    Senator Claire McCaskill said that the fraudulent payments total “tens of millions” of dollars with one soldier reportedly embezzling $275,000.

    "This is discouraging and depressing," said McCaskill in an interview with CBS News. "Clearly, we're talking about one of the largest criminal investigations in the history of the Army."

    She went on to say that one of the main flaws in the system was the complete lack of controls to safeguard the funds.

    “At the end of the day if you’re going to set up a system where you’re going to give people thousands of dollars for helping sign someone who’s willing to become a member of the National Guard, you’ve got to make sure you’ve got basic controls in place,” said McCaskill who will take part in a Senate Homeland Security hearing on Tuesday to deal with the issue.

    The Army National Guard Recruiting Assistance Program was created in 2005, with the aim of filling out the thinning ranks of soldiers to meet demands for more manpower in conflict zones in Afghanistan and Iraq. The initiative rewarded soldiers who succeeded in persuading their peers to sign up with bonuses from $2,000 to $7,500.

    Although the program succeeded in its principle aim of boosting troop numbers, authorities began registering cases of fraud in 2007. As a result, the program administrator called for an initiative-wide audit by the Army’s Criminal Investigative Command (CID).

    Continued in article

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

    Selected American Accounting Association news, including a:
    New Case Study That Provides Tool in Fight Against Financial Fraud      

    From an American Accounting Association News Posting on February 26, 2014

    CAQNew Case Study Provides Tool in Fight Against Financial Fraud ---
    http://antifraudcollaboration.org/

    A new case study from the  Anti-Fraud Collaboration aims to help members of the financial reporting supply chain raise their awareness of financial fraud detection and deterrence. "Carolina Wilderness Outfitters" explores potential material fraud at a fictitious public company. This and other case studies can be found at the Center for Audit Quality's website, where instructors can also register for the discussion guide and access the videos and other case-method resources.

     

     

    JMARJournal of Management Accounting Research, Special Issue on Sustainability Accounting ---
    http://aaahq.org/MAS/JMAR/submissions_new.cfm
     Scholars are invited to submit manuscripts that examine the role of management accounting in addressing accounting, economic, behavioral, and organizational issues pertaining to sustainability for a special issue of the Journal of Management Accounting Research. Selected papers will be initially presented at the AAA Management Accounting Section Midyear Meeting in January 2015, and published in a special issue of JMAR in March 2016. Deadline: August 15, 2014

     

    Jensen Comment
    I recommend that AAA members commence to make regular use of the tremendous AAA Commons resource. Please encourage me to make fewer postings to the AAA Commons by taking over for me ---
    Scroll down to "AAACommons" at http://aaahq.org/index.cfm
    Note that the Commons is free only to AAA Members, including student members

    The virtual lack of support of the Commons by the AAA leadership over the past two years is an enormous disappointment to me. Hopefully this will change after the new leadership takes over in August 2014.

    Incoming President Elect Christine Botosan (UtaH) before this academic year made 88 postings and 15 comments to the Commons. This gives me great hope that the AAA leadership after August 2014 will more actively promote membership use of the AAA Commons.

    The Winter 2014 edition of Accounting Education News is out ---
    http://aaahq.org/pubs/AEN/2014/AEN_Winter14_WEB.pdf
    I think this newsletter is free to the public.

    This edition includes a "Vision Model for Accounting" rooted in the Pathways Commission Report
    by Pete and Carolyn Wilson
    The Vision Model focuses on a new type of basic accounting course:  "The Pathways Vision Committee was chartered to create a vision to transform the first course in accounting to attract diverse, high-potential students."

    This edition also has a "A Few Words from the AAA Executive Director"  (Tracey Sutherland)

    "HealthSouth, Inc.: An Instructional Case Examining Auditors' Legal Liability (for fraud detection)," by Ronald J. Daigle, Timothy J. Louwers, and Jan Taylor Morris, Issues in Accounting Education, November 2013 ---
    http://aaajournals.org/doi/abs/10.2308/iace-50530

    This instructional case explores auditors' legal liability under the Securities Exchange Act of 1934 by asking students to assume the role of either the plaintiffs' (investors') or defendants' (Ernst & Young's) legal counsel. By using publicly available documents and testimony (provided on a dedicated website for this instructional case) in their arguments, students not only explore in depth one of the more egregious accounting scandals of the new millennium, but also are exposed to the plaintiff's burden of proof and the defendant's defenses in a Rule 10b-5 action. Additionally, by understanding the root causes of the fraud and why it took so long to uncover, students can better understand a number of the provisions set forth by the Sarbanes-Oxley Act of 2002. Results of a student survey after completion of the case indicate that case objectives were met. Students also report enjoying the case materials and welcoming other cases using similar types of materials.

    Difficult times for auditors to claim financial statement audits should not uncover massive fraud
    HealthSouth Corp. has filed suit accusing its former outside auditor, Ernst & Young, of intentionally or negligently failing to uncover a massive accounting fraud at the medical services chain.
    "HealthSouth Sues Ernst & Young for Fraud," SmartPros, April 6, 2005 --- http://accounting.smartpros.com/x47712.xml
    Bob Jensen's threads on E&Y's legal woes are at http://www.trinity.edu/rjensen/fraud001.htm#Ernst

    Bob Jensen's threads on HealthSouth
    http://www.trinity.edu/rjensen/Fraud001.htm
    Conduct a word search for "HealthSouth" in the above link.

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

    Bob Jensen's threads on case teaching and research ---
    http://www.trinity.edu/rjensen/000aaa/thetools.htm#Cases

    SEC Charges Three California Residents Behind Movie Investment Scam ---
    http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540815507#.UwpWOIXXvae

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

    "The IRS Scandal, Day 294," by Paul Caron, TaxProf Blog, February 27, 2014 ---
    http://taxprof.typepad.com/taxprof_blog/2014/02/the-irs-scandal-23.html

    "Connecting the Dots in the IRS Scandal The 'smoking gun' in the targeting of conservative groups has been hiding in plain sight," by Bradley A. Smith, The Wall Street Journal, February 26, 2014 ---
    http://online.wsj.com/news/articles/SB10001424052702303426304579401513939340666?mod=djemMER_h&mg=reno64-wsj

    The mainstream press has justified its lack of coverage over the Internal Revenue Service targeting of conservative groups because there's been no "smoking gun" tying President Obama to the scandal. This betrays a remarkable, if not willful, failure to understand abuse of power. The political pressure on the IRS to delay or deny tax-exempt status for conservative groups has been obvious to anyone who cares to open his eyes. It did not come from a direct order from the White House, but it didn't have to.

    First, some background: On Jan. 21, 2010, the Supreme Court issued its ruling in Citizens United v. FEC upholding the right of corporations and unions to make independent expenditures in political races. Then, on March 26, relying on Citizens United, the D.C. Circuit Court of Appeals upheld the rights of persons (including corporations) to pool resources for political purposes. This allowed the creation of "super PACs" as well as corporate contributions to groups organized under Section 501(c)(4) of the Internal Revenue Code that spend in political races.

    The reaction to Citizens United was no secret. Various news outlets such as CNN noted that "Democrats fear the decision has given the traditionally pro-business GOP a powerful new advantage."

    The 501(c)(4) groups in question are officially known as "social-welfare organizations." They have for decades been permitted to engage in political activity under IRS rules, so long as their primary purpose (generally understood to be less than 50% of their activity) wasn't political. They are permitted to lobby without limitation and are not required to disclose their donors. The groups span the political spectrum, from the National Rifle Association to Common Cause to the Planned Parenthood Action Fund. If forced out of 501(c)(4) status, these nonprofit advocacy groups would have to reorganize as for-profit corporations and pay taxes on donations received, or reorganize as "political committees" under Section 527 of the IRS Code and be forced to disclose their donors.

    Now consider the following events, all of which were either widely reported, publicly released by officeholders or revealed later in testimony to Congress. These are the dots the media refuse to connect:

    • Jan. 27, 2010: President Obama criticizes Citizens United in his State of the Union address and asks Congress to "correct" the decision.

    • Feb. 11, 2010: Sen. Chuck Schumer (D., N.Y.) says he will introduce legislation known as the Disclose Act to place new restrictions on some political activity by corporations and force more public disclosure of contributions to 501(c)(4) organizations. Mr. Schumer says the bill is intended to "embarrass companies" out of exercising the rights recognized in Citizens United. "The deterrent effect should not be underestimated," he said.

    • Soon after, in March 2010, Mr. Obama publicly criticizes conservative 501(c)(4) organizations engaging in politics. In his Aug. 21 radio address, he warns Americans about "shadowy groups with harmless sounding names" and a "corporate takeover of our democracy."

    • Sept. 28, 2010: Mr. Obama publicly accuses conservative 501(c)(4) organizations of "posing as not-for-profit, social welfare and trade groups." Max Baucus, then chairman of the Senate Finance Committee, asks the IRS to investigate 501(c)(4)s, specifically citing Americans for Job Security, an advocacy group that says its role is to "put forth a pro-growth, pro-jobs message to the American people."

    • Oct. 11, 2010: Sen. Dick Durbin (D., Ill.) asks the IRS to investigate the conservative 501(c)(4) Crossroads GPS and "other organizations."

    • April 2011: White House officials confirm that Mr. Obama is considering an executive order that would require all government contractors to disclose their donations to politically active organizations as part of their bids for government work. The proposal is later dropped amid opposition across the political spectrum.

    • Feb. 16, 2012: Seven Democratic senators— Michael Bennet (Colo.), Al Franken (Minn.), Jeff Merkley (Ore.), Mr. Schumer, Jeanne Shaheen (N.H.), Tom Udall (N.M.) and Sheldon Whitehouse (R.I.)—write to the IRS asking for an investigation of conservative 501(c)(4) organizations.

    • March 12, 2012: The same seven Democrats write another letter asking for further investigation of conservative 501(c)(4)s, claiming abuse of their tax status.

    • July 27, 2012: Sen. Carl Levin (D., Mich.) writes one of several letters to then-IRS Commissioner Douglas Shulman seeking a probe of nine conservative groups, plus two liberal and one centrist organization. In 2013 testimony to the HouseOversight and Government Reform Committee, former IRS Acting Commissioner Steven Miller describes Sen. Levin as complaining "bitterly" to the IRS and demanding investigations.

    • Aug. 31, 2012: In another letter to the IRS, Sen. Levin calls its failure to investigate and prosecute targeted organizations "unacceptable."

    • Dec. 14, 2012: The liberal media outlet ProPublica receives Crossroads GPS's 2010 application for tax-exempt status from the IRS. Because the group's tax-exempt status had not been recognized, the application was confidential. ProPublica publishes the full application. It later reports that it received nine confidential pending applications from IRS agents, six of which it published. None of the applications was from a left-leaning organization.

    • April 9, 2013: Sen. Whitehouse convenes the Judiciary Subcommittee on Crime and Terrorism to examine nonprofits. He alleges that nonprofits are violating federal law by making false statements about their political activities and donors and using shell companies to donate to super PACs to hide donors' identities. He berates Patricia Haynes, then-deputy chief of Criminal Investigation at the IRS, for not prosecuting conservative nonprofits.

    • May 10, 2013: Sen. Levin announces that the Permanent Subcommittee on Investigations will hold hearings on "the IRS's failure to enforce the law requiring that tax-exempt 501(c)(4)s be engaged exclusively in social welfare activities, not partisan politics." Three days later he postpones the hearings when Lois Lerner (then-director of the IRS Exempt Organizations Division) reveals that the IRS had been targeting and delaying the applications of conservative groups applying for tax-exempt status.

    • Nov. 29, 2013: The IRS proposes new rules redefining "political activity" to include activities such as voter-registration drives and the production of nonpartisan legislative scorecards to restrict what the agency deems as excessive spending on campaigns by tax-exempt 501(c)(4) groups. Even many liberal nonprofits argue that the rule goes too far in limiting their political activity—but the main target appears to be the conservative 501(c)(4)s that have so irritated Democrats.

    • Feb. 13, 2014: The Hill newspaper reports that "Senate Democrats facing tough elections this year want the Internal Revenue Service to play a more aggressive role in regulating outside groups expected to spend millions of dollars on their races."

    In 1170, King Henry II is said to have cried out, on hearing of the latest actions of the Archbishop of Canterbury, "Will no one rid me of this turbulent priest?" Four knights then murdered the archbishop. Many in the U.S. media still willfully refuse to see anything connecting the murder of the archbishop to any actions or abuse of power by the king.

    Mr. Smith, a former chairman of the Federal Election Commission, is chairman of the Center for Competitive Politics.

     

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

    Bonuses Computed on the Bottom Line Before All the Bad Stuff
    From the CFO Journal's Morning Ledger on February 27, 2014

    More companies are straying from GAAP when it comes to determining executive bonuses
    Last year, 542 companies said they determine compensation using financial measurements that differ from U.S. accounting standards, according to an analysis by Audit Analytics for The Wall Street Journal. That’s more than twice the 249 companies that did so in 2009. As     the Journal’s Michael Rapoport writes, the practice can be controversial because it strips out various costs—from employee stock payments to asset write-downs—that can depress profits. “Everything you can think of to manipulate this has been done,” says Gary Hewitt, head of research at GMI Ratings, a corporate-governance research firm.

    One example cited by some corporate-governance advocates is McKesson, which awarded CEO John Hammergren $51.7 million in compensation for fiscal 2013. To help determine the $3.7 million he received in short-term incentive pay, McKesson used a measure of its earnings it adjusted not once but twice, Rapoport notes. It took the nonstandard earnings measures it disclosed to investors in its earnings reports, which already had stripped out a variety of expenses, to boost the year’s earnings by 74 cents a share, to $6.33, and then stripped out more costs to increase earnings an additional 88 cents, to $7.21. Activist shareholders have complained about McKesson’s pay structure and shareholders voted “no” by more than a 3-to-1 margin last year on a nonbinding say-on-pay resolution.

    Some observers think nonstandard measures better represent a company’s health and its executives’ performances. But Michael Pryce-Jones, a senior governance analyst at CtW Investment Group, argues that when companies use customized measures, investors “are being given the upside, but they’re not being given the downside.”

    From the CFO Journal's Morning Ledger on February 27, 2014

    The fraud behind a $14 million whistleblower award
    A record $14 million whistleblower award paid by the SEC last year was for a tip about an alleged Chicago-based scheme to defraud foreign investors seeking U.S. residency,     The Journal’s Jean Eaglesham reports. The case centers on allegations last year that about 250 investors, mostly Chinese, were “duped” by Anshoo R. Sethi and his two companies into paying a total of more than $155 million for a supposed plan to build a hotel and conference center. The SEC said the investors were led to believe they were boosting their chances of green cards, because the scheme was designed to qualify for an immigration program that offers U.S. residency for job-creating investments. In fact, the agency alleged, Mr. Sethi and his companies lacked the necessary building permits, their claims to have the support of major hotel chains were false and the documentation they gave to the immigration authorities was “phony.”

    From the CFO Journal's Morning Ledger on February 20, 2014

    Accounting fraud on the rise
    The 2014 Global Economic Crime Survey from PwC showed that two types of fraud—accounting fraud, and bribery and corruption—increased in 2014. The rise may be attributable in part to more companies’ implementing or enhancing internal controls, more robust compliance programs and increased risk assessments, all leading to more frauds’ being detected, the report noted. “The reality of fraud is that it can impact a company’s revenues as directly as other business and market forces,” Steven Skalak, a partner in PwC’s Forensic Services practice and lead editor of the global survey, tells Accounting Today. “The risk of bribery and corruption grows as U.S. organizations increasingly operate in and pursue opportunities in high-risk markets.”

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

    "25 Charged in Largest Medicaid Fraud Bust in D.C. History," CBS News, February 20, 2014 ---
    http://washington.cbslocal.com/2014/02/20/feds-to-announce-arrests-in-d-c-health-care-fraud-case/

    Federal authorities say 25 people have been charged in a wide-ranging scheme to obtain millions of dollars in fraudulent Medicaid payments from the District of Columbia government.

    U.S. Attorney Ronald Machen calls it the largest health-care fraud case in the city’s history. It involved bogus claims for home care services, a category of Medicaid claim that has grown dramatically in the city over the past eight years. Machen says fraud is largely responsible for the increase in those claims. The uptick in billings for home care — from $40 million in 2006 to $280 million last year — was part of what tipped off authorities to illegal activity, U.S. Attorney Ronald Machen said.

    “We concluded that much of the growth was due to aggressive networks of fraudsters paying kickbacks to beneficiaries to manufacture false claims for nonexistent services,” Machen said, later adding: “Medicaid fraud in the District of Columbia is at epidemic levels.”

    Among those charged Thursday was Florence Bikundi, 51, of Bowie, Md., the owner of a home care agency in suburban Maryland who had lost her nursing license and was ineligible to receive Medicaid payments. Authorities say that by using different names, she was able to bill the city for $75 million in Medicaid payments.

    Prosecutors say many of the defendants persuaded patients to fake illness or injury so they could bill Medicaid for home care they didn’t receive. Some of those patients received kickbacks, authorities said, although no patients have been charged.

    Machen said it wasn’t clear whether any of those payments went to legitimate home care services, but Bikundi was able to amass significant personal wealth, authorities said. Among the property seized from her were millions of dollars from 46 bank accounts, a 7,300-square-foot home valued at $927,000 and five luxury vehicles.

    No attorney was listed in court records for Bikundi, who is in custody, and no one answered a call to her home Thursday afternoon.

    Machen said there wasn’t any particular weakness in the district’s Medicaid program that made it vulnerable to bogus claims, and he noted that similar schemes have been perpetrated in other cities, including Detroit and Miami. The investigation is ongoing, and authorities said it was impossible to put a dollar amount on the fraudulent billings, although the indictments not involving Bikundi outlined schemes valued at less than $500,000.

    “These numbers could likely grow. This is what we know so far,” Machen said.

    A dozen people were charged in five federal indictments that were unsealed Thursday. Thirteen others were charged with fraud in D.C. Superior Court. All but three were in custody Thursday afternoon, authorities said.

    Many of those charged are immigrants from Cameroon in west Africa, but authorities did not go into detail about their nationalities.

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

    "Victims Of A $7 Billion Ponzi Scheme Are Still Penniless 5 Years Later," by Scott Cohn, CNBC via Business Insider, February 18, 2014
    http://www.businessinsider.com/victims-allen-stanford-ponzi-scheme-still-penniless-2014-2

    Five years after learning they were victims of a $7 billion Ponzi scheme, investors in the Stanford Financial Group say they feel abandoned, even though their losses rival those in the Madoff scam that was revealed two months earlier.

    Unlike the Madoff case, in which a court-appointed trustee has said he is well on his way to recovering all of the investors' principal—estimated at $17.5 billion—Stanford victims have recovered less than one penny on the dollar since the Securities and Exchange Commission sued the firm and a court placed it in receivership on Feb. 17, 2009.

    "I do have to say the Stanford victims do feel like the stepchildren in the Ponzi world," said Angela Shaw Kogutt, who estimates her family lost $4.5 million in the scam. Shaw heads the Stanford Victims Coalition, which has been trying for years to drum up support in Washington.

    Some 28,000 investors—10 times the number of direct investors in the Madoff case—bought certificates of deposit from Stanford International Bank in Antigua, which was owned by Texas financier R. Allen Stanford. Stanford's U.S. sales force had promised the investors—many of them retired oil workers—that the CDs were at least as safe as instruments from a U.S. bank. But a jury later found most of the clients' money financed Stanford's lavish lifestyle instead of the high-grade securities and real estate it was supposed to.

    Stanford, who portrayed himself as a self-made billionaire, exuded the American Dream. He claimed to have built his global financial empire from a family insurance business in his rural hometown of Mexia, Texas. A generous contributor to politicians of all stripes, Stanford effectively took over the financial sector in Antigua while nurturing rumors of his unique connections.

    But asked directly by CNBC in 2009 about suggestions he was a government informant, Stanford demurred.

    "You talkin' about the CIA?" he asked. "I'm not gonna talk about that."

    On the eve of the fifth anniversary of the scandal, Dallas attorney Ralph Janvey, appointed by a federal judge to head the receivership and round up assets for the victims, said he feels the victims' pain.

    "Even though my team and I have worked hard and made much progress over the last five years, the process of unwinding the fraud and the pace of recovering money have been frustratingly slow," Janvey wrote in an open letter to "all those affected by the Stanford fraud."

    In the Stanford case, progress is relative.

    Last April, Janvey won court approval to begin distributing $55 million to some investors. In the letter, he said $25 million has already been distributed, another $5.5 million could be paid this month and another $18 million in Stanford assets from Canada could be distributed this year as well.

    Continued in article

    Bob Jensen's threads on Ponzi frauds ---
    http://www.trinity.edu/rjensen/FraudRotten.htm#Ponzi

    "Fraud and the Detroit Bankruptcy Equation," by Mike Shedlock, Townhall, February 9, 2014 ---
    http://finance.townhall.com/columnists/mikeshedlock/2014/02/09/fraud-and-the-detroit-bankruptcy-equation-n1791944?utm_source=thdaily&utm_medium=email&utm_campaign=nl

    Jensen Comment
    This article has a little of everything, including interest rate swap speculation and hedging. It's about cheats (Corrupt Detroit leaders) cheating cheats (Wall Street Banks) and vice versa. It's about using casino profits as collateral on pension fund loans and issues of legality. It's about who knew what was legal versus not legal.

    The bottom line of all this is how difficult it is to be a Bankruptcy Judge who ends up with this complete mess to sort out.

    In the end this is going to cost Michigan taxpayers billions to get Detroit back on its feet. It's also a matter of fairness where cities in Michigan must pay for their own pension deals versus Detroit which is foisting its corruption costs on the State of Michigan.

    "Undisclosed Pension Extras Cost Detroit Billions," by Mary Williams Walsch, The New York Times, September 25, 2013 ---
    http://dealbook.nytimes.com/2013/09/25/undisclosed-payments-cost-detroit-pension-plan-billions/?_r=0

    Detroit’s municipal pension fund made undisclosed payments for decades to retirees, active workers and others above and beyond normal benefits, costing the struggling city billions of dollars, according to an outside actuary hired to examine the payments.

    The payments included bonuses to retirees, supplements to workers not yet retired and cash to the families of workers who died too young to get a pension, according to a report by the outside actuary and other sources.

    How much each person received is not known because payments were not disclosed in the annual reports of the fund.

    Detroit has nearly 12,000 retired general workers, who last year received pensions of $19,213 a year on average — hardly enough to drive a great American city into bankruptcy. But the total excess payments in some years ran to more than $100 million, a crushing expense for a city in steep decline. In some years, the outside actuary found, Detroit poured more than twice the amount into the pension fund that it would have had to contribute had it only paid the specified pension benefits.

    And even then, the city’s contributions were not enough. So much money had been drained from the pension fund that by 2005, Detroit could no longer replenish it from its dwindling tax revenues. Instead, the city turned to the public bond markets, borrowed $1.44 billion and used that to fill the hole.

    Even that didn’t work. Last June, Detroit failed to make a $39.7 million interest payment on that borrowing — the first default of what was soon to become the biggest municipal bankruptcy case in American history.

    Detroit said that making the interest payment would have consumed more than 90 percent of its available cash. And besides, the hole in its pension fund was growing again, and it needed yet another $200 million for that.

    When Detroit turned to the bond market in 2005, it acknowledged that it needed cash for its pension fund but did not explain its long history of paying out more than the plan’s legitimate benefits, including the bonuses, known as “13th checks,” which were reported earlier this month by The Detroit Free Press. Nor did the city describe the pension fund’s distributions to active workers, or that a 1998 shift to a 401(k)-style plan had been blocked and turned instead into a death benefit. In its most recent annual valuation of the fund, the plan’s actuary said it was still trying to determine the “effect of future retroactive transfers to the 1998 defined contribution plan,” without mentioning that it had not been carried out.

    All of these things eroded the financial health of the pension system, but neither the magnitude of the harm, nor its effect on the city’s own finances, were disclosed to investors. German banks were big buyers of Detroit’s pension debt; now, they are complaining that they were told it was sovereign debt.

    Finally, in 2011, the city hired the outside actuary to get a handle on where all the money was going. The pension system’s regular actuaries, with the firm of Gabriel Roeder Smith, would not provide the information because they worked for the plan trustees, not the city.

    The outside actuary, Joseph Esuchanko, concluded that the various nonpension payments had cost the struggling city nearly $2 billion from 1985 to 2008 because the city had to constantly replenish the money, with interest. The trustees began making the payments even before 1985, but it appears that Mr. Esuchanko could not get data for earlier years.

    His calculations included only the extra payments by Detroit’s pension fund for general workers. Detroit has a second pension fund, for police officers and firefighters, which also made excess payments in the past. But Mr. Esuchanko could not get the data he needed to calculate those, either.

    When Mr. Esuchanko reported his findings, Detroit’s city council voted to halt all payments except legitimate pensions, as described in plan documents. The police and firefighters’ plan trustees appear to have discontinued the practice earlier.

    Detroit’s pension trustees, and their lawyers, were unavailable on Wednesday to comment on the extra payments.

    Joseph Harris, who served as Detroit’s independent auditor general from 1995 to 2005, said the payments were approved by the pension board of trustees, and it would have been useless for the city to have tried to stop them during his term.

    “It was like dandelions,” he said. “You just accept them. They were there, something you’ve seen all your life.”

    Continued in article

     

    'The Hidden Danger in Public Pension Funds:  Their investments expose government budgets and taxpayers to 10 times more risk than in 1975," Andrew G. Biggs, The Wall Street Journal, December 15, 2013 ---
    http://online.wsj.com/news/articles/SB10001424052702303789604579196100329273892?mod=djemEditorialPage_h

    The threat that public-employee pensions pose to state and local government finances is well known—witness the federal ruling earlier this month that Detroit's pension obligations are not sacrosanct in a municipal bankruptcy. Less well known is that pensions are larger and their investments riskier than at any point since public employees began unionizing in earnest nearly half a century ago.

    Public pensions have long been advertised as offering generous, guaranteed benefits for public employees while collecting low and stable contributions from taxpayers. But with Detroit's bankruptcy filing, citing $3.5 billion in unfunded pension liabilities, and with four of the five largest municipal bankruptcies in U.S. history occurring in the past two years, reality tells us otherwise.

    How much riskier are public pensions now? According to my research, public pensions pose roughly 10 times more risk to taxpayers and government budgets than in 1975. And while elected officials—a few Democratic mayors included—are now pushing for reforms, even they may not realize the danger.

    In 1975, state and local pension assets were equal to 49% of annual government expenditures, according to my analysis of Federal Reserve data. Pension assets have nearly tripled to 143% of government outlays today. That's not because plans are better funded—today's plans are no better funded than in 1980—but mostly because pension plans have grown as public workforces have aged.

    The ratio of active public employees to retirees has fallen drastically, according to the State Budget Crisis Task Force. Today it is 1.75 to 1; in 1950, it was 7 to 1. This means that a loss in pension investments has three times the impact on state and local budgets than 40 years ago. Enlarge Image

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

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

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

    "Is XBRL the Future of Financial Reporting? (YES!)," by Tom Selling, The Accounting Onion, February 18, 2014 --- Click Here
    http://accountingonion.com/2014/02/xbrl_the_future_of_financial_analysis.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+typepad%2Ftheaccountingonion+%28The+Accounting+Onion%29

    For many of the financial reporting questions of the day, the right way forward is self-evident and direct. “Build it and they will come,” I say.

    But far too often, policy makers allow themselves to be bogged down by executive-class luddites and their minions who will say or do almost anything to preserve the advantages conveyed to them by the status quo.

    The resistance to XBRL is a prime example. I will grant that a good-faith exchange of ideas can take place about how to “build” the XBRL disclosure system; but the “will they come?” question is a no-brainer that has to trump the cavils of the luddites.

    Similarly, the FASB should take it as a given that XBRL will be a game changer for accounting standards. For example, the question of “net income” versus “other comprehensive income” fades to insignificance so long as an analyst can make her own pro forma reclassification that automatically flows through to ratios and valuation models – with just a few clicks on a web page.

    Another policy implication is that the FASB should be ensuring that users have access to enough quantitative data to unwind a stinky accounting treatment and/or to obtain a more profound understanding of reported earnings and changes in financial position. I have mentioned on more than one occasion that detailed reconciliations (roll-forwards) of balance sheet accounts combined with XBRL data tagging would be just the ticket for shedding light on financial results — without having to resort to manual deciphering of obscurantic narrative disclosures. If the FASB does not put XBRL front and center in its disclosure framework project, then it is doomed to fail miserably.

    Journalists in search of controversy where none should exist have reported on how financial professionals have found little use for XBRL, but that was before companies like Thinknum came on the scene. I get about one email each week from a start-up company that offers to write a blog post for me – about their product. For them, I have made an exception, because they seem to be among the first real players to step on the field of dreams that is XBRL.

    By way of background, Thinknum founders Justin Zhen and Greg Ugwi met at Princeton but went their separate ways after graduation; Greg to Goldman Sachs and Justin to a hedge fund. After learning with some chagrin that the financial analysis tools available to them as professionals could be vastly improved, they left their jobs and used their savings to start Thinknum. Current paying customers now include traders at bulge bracket wall street firms. To give you an idea of how they use XBRL data in the cash flow and time series analysis tools, here’s a brief excerpt from an interview they did with the CFA Institute:

    “We collect market data from exchanges, company filings on XBRL EDGAR, and macroeconomic data from government agencies like FRED, EUROSTAT, Ireland’s CSO, and others. These agencies are independent, often territorial, and have little incentive to ensure their data releases play well to [sic] each other. By bringing all these diverse data sources together on one platform, Thinknum enables investors to make interesting connections.”

    The following text and graphics was provided to me in response to examples that readers of the Accounting Onion would appreciate:

    For example, Thinknum has developed the Plotter, an application that allows users to plot data from corporate filings over time by clicking on a label in the financial statements. The plotter makes over 70 basic valuation ratios readily available, and more importantly, we allow users to create ratios on the fly by simply using mathematical expressions. For example, to view Google’s financial leverage you can type total_assets(goog)/total_equity(goog). This app has become enormously popular with our users and would not have been possible without XBRL.

    Continued in article

    Jensen Comment
    Clinton (Skip) Whte at the University of Delaware has a textbook on XBRL and teaches XBRL
    http://www.lerner.udel.edu/faculty-staff/faculty/clinton-white 
    See The Guide & Workbook for Understanding XBRL (4th edition), SkipWhite.com, 2010

    Video:  Tom Hood's interview with XBRL pioneer Eric Cohen ---
    http://www.youtube.com/watch?v=v_H3PdzUkBY&feature=youtu.be&a

    SEC:  You should know how Inline XBRL (IXBRL) differs from plain old XBRL
    "New XBRL Version May Answer SEC's Prayers:  With companies' lackluster use of XBRL and the SEC taking heat about its own low usage, a new Inline version could make it easier for filers as well as regulators." CFO.com, September 20, 2013 ---
    http://www3.cfo.com/article/2013/9/gaap-ifrs_xbrl-inline-xbrl-financial-reporting-darrell-issa

    Corporations have expressed their disdain for tagging financial data through eXtensible Business Reporting Language (XBRL) and the Securities and Exchange Commission itself has been criticized for not using it enough internally. But a new version of XBRL could make the data-formatting language more popular.

    Inline XBRL (iXBRL), which offers easier formatting than XBRL and can be viewed on Internet browsers instead of software, is being touted as an answer to much of the discord that has surfaced since CFOs and their staffs were required to use the language following an SEC mandate in 2009. The new Inline version eliminates the need to create separate XBRL and HTML attachments when filing their financial documents -- which bogs down current filers -- and allows filers to embed the XBRL tags in the financial documents.    

    The SEC, for its part, is considering Inline XBRL and working closely with its staff to evaluate a possible implementation, Virginia Meany, assistant director of the Office of Risk Assessment and Interactive Data in the SEC’s Division of Economic and Risk Analysis, told CFO. “We believe that the use of Inline XBRL creates a good opportunity to improve both efficiency and quality,” she says.

    That would eliminate the “double jeopardy” that Rob Blake, product director at Trintech, a provider of software solutions, and one who assisted with the early creation of XBRL, says comes about when having to use both XBRL and HTML when filing financial statements.

    As Meany notes, Inline XBRL, which is already being used in the United Kingdom for corporate- reporting purposes, has “potential benefits to all stakeholders, including preparers, investors and regulators.”  

    The SEC’s backing of the easier formatting language may not be enough, however, to soothe all of its critics. One of the more vocal ones, Rep Darrell Issa (R-Calif), chairman of the House Oversight Committee, sent a comment letter last week to SEC Chair Mary Jo White asking for an explanation from the Commission on why it hasn’t embraced XBRL more internally and used the data it collects from companies that way.  

    While Issa did not specifically address Inline XBRL in his comment letter, he believes by not using XBRL the SEC is not only wasting time and money, it is thwarting the enforcement of its original mandate to require the use of XBRL.

    In his letter, he said the SEC “does not fully utilize the structured financial data it already collects, continues to buy-back from commercial databases the same data it collects from filers and has failed to address concerns about the quality of structured-data filings.” In contrast to XBRL, an automated language in which users employ interactive data tags to assign a unique identifier to each piece of financial data, Issa complains that SEC staff members continue to monitor the information manually.

    So what’s the harm? The agency, according to Issa, continues to ask for more resources to pay for increased staff to check corporate data instead of integrating the XBRL data from the corporate filers.

    The quality of the data itself, however, could be one reason for the perceived slowdown in the project. According to Issa, more than 1.4 million errors have been identified as stemming from corporate filers using XBRL. 

    Improvements to XBRL can only come, he writes, as “the SEC integrates structured data into its existing review processes, enforces the quality of data submitted under the Interactive Data Rule, and articulates a vision for the transformation of its whole disclosure system from inaccessible documents into structured data.”

    Continued in article

    October 14, 2011 Message from Zane Swanson

    I started a blog http://blog.askaref.com/ this week to support my website www.askaref.com .  Four user groups are targeted: professors, students, statement preparers and analysts.  www.askaref.com is designed for mobile devices with the intent to help broaden the usage of XBRL.  However, in order to do so I thought it necessary to address situations why the users will want XBRL information in mobile devices.  A blog is a great way of communicating that type of application solution.  For example, professors may want to give mini case examples to students to introduce XBRL.  Students may want to know the definitions of accounting terms and reference ASC standards wherever and whenever.  And so on.

      I will be including scenario situations on the blog using the mobile device applications with screen shot walkthroughs.  I encourage anyone to visit the blog and post requests for XBRL mobile device needs that can be used in the classroom, business meeting, financial analyst session, etc.

    Zane Swanson

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

    "The Wurst of Deutsche Bank," by Tom Sellling, The Accounting Onion, February 11, 2014 ---
    http://accountingonion.com/2014/02/the-wurst-of-deutsche-bank.html

    It’s pretty hard for me to get riled up over the financial reporting games that companies play when they invoke so-called “non-GAAP financial measures.” That’s because, as I wrote not long ago, GAAP financial measures are themselves nothing to brag about either.

    But the recent case of Deutsche Bank’s 4Q 2014 earnings announcement may have plumbed new depths in spinning accounting numbers that is worth taking a look at.

    In a nutshell, DB has conjured up a non-GAAP earnings metric that some would describe as ‘income before any bad stuff.’  But, before I quote from the news article that brought DB to my attention, I want to pose a a more pointed question: of what use is any bank performance measure that excludes changes in the bank’s allowance for credit losses?  Here’s how it informs me: that any bank under management by people who would value that kind of metric is not the kind of bank I would invest in.

    But, we’re not talking about any bank here, we’re talking about the fourth largest bank in the world.  So, it’s a safe bet that if DB can get away with it, there are plenty of others that are also willing to give it a shot.  If accounting regulators were serious about promulgating high quality financial standards for banks in the wake of the 2008 Financial Crisis, they would have stopped dithering by now.  And, they would finally admit to the world that any approach to loan loss allowances is at best a half measure compared with market based estimates of economic value.

    Just this one contrivance is enough for DB to have made a mockery of financial reporting; but it’s only the beginning of the DB story.  There is a lot more bad stuff that DB management would have us ignore:

    “Buried in Deutsche Bank’s results was its preferred definition of profits: income before income taxes adjusted for credit valuation adjustment, funding valuation adjustment, costs to achieve, litigation and other items (or IBITAFCVADVAFVACtALOI)….

    …the CVADVAFVACtALOI for which IBIT has been adjusted … turn a poor year [italics supplied] into Deutsche Bank’s second best year for IBITAFCVADVAFVACtALOI on record.  This could catch on.

    It’s hard enough … to understand complex businesses like Deutsche Bank as it stands, without the added complexity of a pick’n’mix approach to reporting.”*

    Before I go further, however, I need to provide some background.  DB is listed on the NYSE, and is registered with the SEC.  In keeping with its status at the SEC of a “foreign private issuer,” it must furnish to the SEC on Form 6-K information distributed to security holders and other types of information made public in its home jurisdiction.  In DB’s Form 6-K filed on January 30, 2014, it listed not one, but 8 measures of non-GAAP performance that it was announcing to security holders pertaining to Q4 of 2013.  Here, verbatim from the 6-K is the laundry list:

    Revenues (adjusted)

    Adjusted cost base

    IBIT (adjusted) or Adjusted IBIT

    Core Bank reported IBIT, Core Bank adjusted IBIT

    Average active equity

    Tangible book value

    Post-tax return on average active equity

    Total assets (adjusted)

    I wonder if that’s some sort of record.

    Continued in article

    Jensen Comment
    Tom has a nice post here. We need to teach our students more about the "wurst" shenanigans. Those that ask the sausage maker what goes into the sausage will probably stop eating sausage. Equally important can be learning about what does not go into the sausage.

    "The 2008 FOMC Laugh Track: Gallows Humor at the Federal Reserve," The Wall Street Journal, February 21, 2014 ---
    http://blogs.wsj.com/economics/2014/02/21/the-2008-fomc-laugh-track-gallows-humor-at-the-federal-reserve/ 

    Federal Reserve policy meetings typically feature 19 central bank officials sitting around a table for a day or two, discussing the state of the economy at great length. They’re important gatherings, but they also can be long and dull affairs. So it’s only natural for officials to crack a joke or two.

    The Fed’s transcripts include a convenient [Laughter] tag to mark when central bank officials acted amused by a colleague’s comment — whether it was intended as a joke or not. We’ve been compiling them for years in our coverage of Federal Open Market Committee transcripts (read last year’s edition off the 2007 transcripts). Here are some of the best – and worst – jokes from the 2008 Fed meetings as officials moved out of and then back into a crisis mentality.

    (Note: FOMC meetings can run on for days, and except for these jokes they’re almost entirely serious. Read our comprehensive coverage of the serious discussions here on Real Time Economics.)

    - Compiled by Eric Morath, Sarah Portlock, Sudeep Reddy and Jeffrey Sparshott

    * * *

    January 2008

    St. Louis Fed President William Poole, at his final committee meeting (his 81st, according to Chairman Ben Bernanke), referenced the fact that his term spanned from the solid economic growth of the late 1990s to early 2008 when the economy was sluggish:

    Mr. Poole: I came here 10 years ago with a boom. I’m going out with a pause. [Laughter]

    During a discussion about the economy, Philadelphia Fed President Charles Plosser said it was “hard to put a good face” on recent readings.

    Mr. Plosser: You know, listening to the staff discussion I have certainly come to understand why everyone continues to believe that economics is a dismal science. [Laughter] It is quite a dismal picture.

    Fed Governor Frederic Mishkin pointed to housing as one of the most significant downside risks that worried him – and that he was “stupidly” in the midst of buying a house.

    Mr. Mishkin: As somebody who stupidly is just going to contract on a new house because I have to please my wife, I actually thought exactly along these lines and was thinking about pulling out but then decided that my marriage was more important.
    Minneapolis Fed President Gary Stern: It was close. [Laughter]
    Mr. Mishkin: By the way, if you know my wife, no it wasn’t close.

    * * *

    March 2008

    Dallas Fed President Richard Fisher, in a soliloquy about the philosophy of central banking, offered this metaphor: “I liken the fed funds rate to a good single malt whiskey—it takes time to have its ameliorative or stimulative effect.” [Laughter]

    Officials were discussing the merits of various programs they’d initiated, including the Term Auction Facility, Term Securities Lending Facility and Primary Dealer Credit Facility.

    Philadelphia Fed President Charles Plosser: I am very concerned about the developments in the financial markets. I’ve been supportive of the steps we’ve taken to enhance liquidity in the markets through the TAF, the TSLF, the PDCF, or whatever.
    Mr. Bernanke: AEIOU.
    New York Fed President Tim Geithner: Don’t say IOU. [Laughter]

     

    The day marked Richard Fisher’s 59th birthday, which gave officials a chance to reference a classic Fed metaphor: the punch bowl.

    Mr. Fisher: I can’t think of a better group of people to spend it with—or a less happy time to do it.
    Fed Governor Randall Kroszner: We sure know how to take the punch bowl away from this party. [Laughter]
    Mr. Fisher: Well, listen, I know we are suffering because our Deputy Secretary here sitting to your right, Mr. Chairman, just gave me a candle and had me blow it out with no cake attached. [Laughter]

     

    San Francisco Fed President Janet Yellen offers a rather dire rundown of her economic outlook:

    As a final anecdote, a banker in my District who lends to wineries noted that high-end boutique producers face a distinctly softening market for their products, although sales of cheap wine are soaring. [Laughter]

    * * *

    April 2008

    Mr. Mishkin: Also, if you ask people what TV shows they are watching, they will tell you that they are watching PBS and something classy, but you know they are watching “Desperate Housewives.” [Laughter]

    Chairman Bernanke: What is wrong with “Desperate Housewives”? [Laughter]

     

    Fed officials discussed a request from members of Congress, including former Sen. Christopher Dodd (D., Conn.), to expand the collateral in the emergency Term Securities Lending Facility to include student loans, auto loans and other consumer credit.

    Chairman Bernanke: On the one hand, we would get, I would call it for short, a Wall Street Journal editorial that the Federal Reserve is once again the craven cur and the spineless—boy, I am getting good at this—[laughter] lackey of the Congress by accommodating this request…  On the other side, I suppose that there would be what I could call the USA Today editorial, which is, “Why won’t the Fed, which is bailing out Wall Street left and right, include asset-backed paper in their facilities, even though it is consistent with all of their other practices and they take it in all of their other facilities?” and so on. So I think there are PR and political risks on both sides of this.

    Continued in article

     

    Global recession?  What global recession?
    Hilarious Transcripts of Fed Minutes Reveal Completely Clueless Fed ---
    http://finance.townhall.com/columnists/mikeshedlock/2014/02/22/hilarious-transcripts-of-fed-minutes-reveal-completely-clueless-fed-n1798911

    "Which macroeconomists missed the Global Financial Collapse and when did they miss it," by Karl Smith, Financial Times Alphaville, February 18, 2014 ---
    http://ftalphaville.ft.com/2014/02/18/1774262/which-macroeconomists-missed-the-global-financial-collapse-and-when-did-they-miss-it/

    Jensen Comment
    Also read the comments. Macroeconomists are still groping about in the dark.

    Bob Jensen's threads on the global recession, the bailout, and the largest fraud, according the The Nation magazine, in human history ---
    http://www.trinity.edu/rjensen/2008Bailout.htm

    "Five Really Dumb Money Moves Retirees Make:  How to Avoid Ever Having to Say 'I Lost the Nest Egg'," by Tom Lauricella, The Wall Street Journal, February 23, 2014 ---
    http://online.wsj.com/news/articles/SB10001424052702303775504579394930456252714

    After decades of saving for retirement, you never want to end up saying, "I lost the nest egg."

    For most people, retirement savings will need to be carefully tended if they are to last two or three decades, a typical life span after collecting one's final full-time paycheck.

    But there are plenty of mistakes that can be made. Some can deplete that nest egg in one fell swoop, while others can result in a slow bleed that becomes apparent only over time.

    Some missteps to avoid:

    1. Big purchases.

    It's a natural instinct for new retirees to want to kick back and treat themselves following decades of hard work.

    Ronald Myers, an adviser at Associated Financial Consultants in Fort Lauderdale, Fla., talks about clients who see some of their retirement funds as their "YOLO money"—You Only Live Once.

    "I'm the first guy to say go out and enjoy yourself early on—you aren't going to get any healthier," says Mr. Myers. But it's crucial, he says, to avoid blowing a hole in a retirement plan at the get-go. And given the uncertainty of the market, the depth of that hole may not become apparent until much later in life.

    He points to example of a retiree who plans to withdraw $25,000 a year from a $500,000 nest egg starting off by taking $50,000 to buy a boat—two years of income.

    Should that big withdrawal be followed by a market decline, the result could be many years shaved off the time those savings will last.

     

    2. No cushion.

    In retirement, a major, unexpected expense can quickly send a financial plan off the rails. But that doesn't have to happen.

    "I see a lot of people cutting it really close and living paycheck to paycheck, even though they are really paying themselves" out of their savings, says Blair duQuesnay, director of investments at ThirtyNorth Investments in New Orleans.

    The problem comes when an emergency crops up that requires laying out extra cash on short notice. If that outlay requires selling investments in the middle of a market downturn, the retiree could be locking in losses that can't be recovered.

    "It takes planning ahead," says Ms. duQuesnay. Her firm advises clients to keep six months to one year's worth of cash on hand for replenishing that stockpile.

    3. Forgetting common sense.

    Remember: "There's no such thing as a free lunch."

    That's especially the case with investments promising big payoffs with low risk.

    People "have a unique ability to suspend common sense, believing that strangers want to let us in on deals that are too good to be true, which of course, are," says Alan Roth, a financial planner in Colorado Springs, Colo.

    Mr. Roth says there are often telltale signs it's time to hang up the phone on a sales pitch. They include: a sense of urgency ("The deal is only good today!"), using a church or fraternal organization to vouch for its credibility or a play on emotions.

     

    4. Reaching for yield.

    The "no free lunch" risk to a nest egg also applies to investors who have cut back on holdings of relatively safe but low-yielding government bonds and bulked up on riskier investments that offer meatier yields—like high-yielding junk bonds, bank-loan funds or dividend-paying stocks.

    "When you substitute a fixed-income, low-volatility investment for a higher-volatility investment, the risk of a loss of principal in a down market is much higher," says Ms. duQuesnay.

    A simple litmus test for how well that higher-yielding investment will act are returns from during the financial crisis. Bank-loan funds, for example, lost an average of 29.7% in 2008.

     

    5. Letting emotions rule.

    "Acting emotionally in a down market could be mistake No. 1" when it comes to wrecking a nest egg, says Mr. Myers.

    He acknowledges that retirees who need their savings to help pay the bills will feel the pull of reacting to short-term losses. "During retirement, it's behavioral economics on steroids," he says.

    Retirees should build a portfolio that meets their long-term goals and one where they can withstand watching the inevitable downs in the markets that come with the ups.

    To put it another way, says Mr. Roth: "It's dumb to buy high and sell low."

    Frontline broadcast on "The Retirement Gamble,"April 23, 2013 ---
    http://www.pbs.org/wgbh/pages/frontline/retirement-gamble/
    For details see
    http://www.pbs.org/wgbh/pages/frontline/business-economy-financial-crisis/retirement-gamble/the-retirement-gamble-facing-us-all/

    If you’ve been watching any commercial television lately, you are well aware that the financial services industry is very busy running expensive ads imploring us to worry about our retirement futures. Open a new account today, they say.

    They are not wrong that we should be doing something: America is facing a retirement crisis. One in three Americans has no retirement savings at all. One in two reports that they can’t save enough. On top of that, we are living longer, and health care costs, as we all know, are increasing.

    But, as I found when investigating the retirement planning and mutual funds industries in The Retirement Gamble, which airs tonight on FRONTLINE, those advertisements are imploring us to start saving for one simple reason. Retirement is big business — and very profitable. It doesn’t take a genius to figure out that the more we save into the industry’s financial products, the more money they make in fees and commissions trading our hard-earned cash. And as long as they don’t run away with our money or invest it in a Ponzi scheme, they have little in the way of accountability to us when something goes wrong. And even then it can be hard to fight back.

    Big banks, brokerages, insurance companies and other financial service providers operate under something called a suitability standard — which says they don’t have to give you the best advice, just advice that isn’t too egregiously terrible.

    Let’s say you sit down with an adviser at your brokerage or bank and ask for some advice on how you should allocate your retirement savings, or which funds you might want to choose for your IRA.

    You’ll get lots of advice, but chances are it won’t be worth much. Eighty five percent of all financial advisers and financial planners are really just brokers or salesman. Their incentive is to sell you a product that makes them a higher commission, not necessarily a product that maximizes your chances of saving more. Only 15 percent of advisers are “fiduciaries” — advisers who by law must operate with your best interests in mind.

    Last year, the Obama administration proposed a rule to mandate that all financial advisers, financial planners and other assorted financial wizards would have to adopt a fiduciary standard when it came to employee retirement accounts such as your 401(k) or IRA account. The financial services industry, which today manages something upwards of $10 trillion of our retirement nest eggs, thought this was a bad idea and pushed back hard. Scores of their protest letters poured into the U.S. Labor Department, the branch of our government responsible for regulating employee retirement accounts.

    Congress, too, was hit with a furious lobbying campaign. This would be way too expensive, the industry said; if we have to provide such a standard of service, we will either have to pack up and find another business line, or have to pass the increased costs on to our customers. The Obama administration pulled their proposal last fall.

    How would a new fiduciary rule change things? Chances are you would be sold less expensive products, not only in your IRA accounts but inside your company 401(k) as well. It’s all about fees. While reporting on retirement plans for FRONTLINE, nothing has been more surprising to me than the corrosive effect of fees on our retirement savings.

    It’s this simple: Fund fees can erode as much as half or more of your prospective gains.

    For the sake of dramatizing the point, John Bogle, founder of Vanguard, the world’s largest mutual fund company and pioneer of low-cost index funds, gave me a startling example while we were filming. Assume you are invested in a mutual fund, he says, with a gross return of 7 percent, but that the mutual fund charges you an annual fee of 2 percent.

    Over a 50-year investing lifetime, that little 2 percent fee will erode 63 percent of what you would have had. As Bogle puts it, “the tyranny of compounding costs” is overwhelming.

    In short, fees matter. So what can you do? You aren’t going to find a fund that invests your money for free, but experts say you can come close by buying index funds. Their fees can be a tenth of what the average mutual funds charges. And over time, in bull and bear markets, on average, index funds perform better than their more expensive actively managed fund cousins. This is no secret to anyone who is paying attention.

    So why aren’t our trusted financial advisers and those ads telling us to buy index funds? Why do some 401(k) plans not even offer them on their menus?

    It’s because even though an index fund might be a better option for you and me, a broker operating under a suitability standard has no incentive to sell it to us. He or she will make higher commissions from options that have higher fees.

    Sadly, a recent AARP study reported that 70 percent of mutual fund savers were not even aware that they were paying any fees at all.

    Continued in article

    Dan Stone's summary of the above Frontline show:

    Enjoyed it though didn't find much new here. Basic messages:

    1. index funds are cheaper and, in the long run, preferred (Jack Bogle)
    2. managed funds are a scam to generate fees for the mutual fund industry
    (which some would certainly debate)
    3. most Americans don't have enough for retirement
    4. mutual funds make it hard to determine their fees
    5. the financial services industry, through massive donations, prevents any
    attempts to increase transparency in the financial services industry.

    I've bought Pound Foolish, after hearing an interview with its author, but haven't
    started reading it yet
    (http://www.amazon.com/Pound-Foolish-Exposing-
    Personal-Industry/dp/1591844894    )

     Dan Stone

    Jensen Comment
    It's hard to advise future retirees without knowing what they really do enjoy. For example, I think it's dumb to invest in retirement businesses unless you really, really enjoy retirement businesses or really, really need the income from retirement businesses. For example, a widow purchased a three-story house just down the road when she was a widow over 60 years of age. For a while making jewelry to pay for her mortgage payments seemed like a good idea. Now taking her truck and camper all alone to out-of-state jewelry shows has become a drag, but she needs the income in part because revaluations of her home have really clobbered her with higher property taxes in a down market (at least up here). Tax appraisers care more about village and school expenses than what property will realistically sell for up here in the remote White Mountains.

    It's probably a good idea that she invested in her jewelry business, but at her present age it's become more depressing. I don't think she's enjoying her "retirement," especially since she must do most of the house maintenance by herself. Last summer she was on a huge 40-foot extension ladder scraping and painting by herself  almost every sunny day.

    She also splits her own wood to heat that big house. What was her mistake? It was probably a mistake to purchase such a big house without the annual cash flow to cushion the expenses of taxes and maintenance while thinking she would forever enjoy making jewelry and traveling to shows.

    There's also a couple that I know who both retired from the military and invested $2 million in a bed and breakfast (mostly financed with three mortgages). Running a B&B sounded like fun until the reality of cooking breakfast for guests seven days a week became a drag year after year after year. Even with hired maid service, there are endless days of maintaining the grounds, keeping the plumbing working in 26 bathrooms, painting and papering 24 rooms, washing windows, fixing roof leaks, patching an ancient heating system, operating the front desk, dealing with happy and not-so-happy happy guests, and on and on and on. Retirement? What's that? They were more retired while on active duty.

    Then there's a retiree friend down on the highway who purchased a $180,000 motor home hoping to entice a woman friend into marrying him and touring all over North America. She considered the idea for 20 minutes and then said no way. The motor home with less than 500 miles on the odometer sat in his front yard with a "For Sale" sign for over five years (he lives on a state highway where drivers passing by could see the thing year after year). At long last he sold the thing, but I don't want to embarrass him by asking how much he lost on this dream (beside losing his would-be bride). He had 12 nice cabins and land out back that our village took over due to defaulted property tax payments.

    I paid too much for a retirement acreage, but I do enjoy this type isolated rural living. It would be a risk if my health failed and I had to hire everything done around here. However, I'm fortunate to have the retirement cash flow to do so if I must eventually hire everything done. And the outdoor work winter and summer is currently much more enjoyable than boring exercise routines in a gym. If and when I become gaga and have to go into a nursing home my estate will take a huge hit because it's impossible to recover much more than half of what I paid for this property in an up market before the real estate crash.

    However, in spite of contentment with my own retirement, it's important to note that many of those things you dreamed about all your working years may change over the course of your retirement. Firstly, you may lose some of your good health. Secondly, you may lose your spouse that was part of your retirement dreams all those years. And yet at age 65 when you're both in good health it probably would be a bummer moving into an assisted living apartment too soon. You both might quickly become depressed and bored to death in a small apartment if you have good health for the next 10-25 years.

    My own parents started their marriage in the Great Depression and never really got over feeling that saving was much, much more important than consumption. Being an only child I eventually inherited their life savings. But all the while they were retired I argued in vain that they should spend more to enjoy their retirement. But then again if they were spending more to enjoy their retirement they would probably would not have enjoyed their retirement. They were more happy living a very modest life beneath what they could well have afforded. Unlike me they did not enjoy expensive restaurants and hotels. They ordered the cheapest things on menus in small farm town restaurants and pretended those were the selections they enjoyed the most as long as there was a salad bar.

    My mother always said:  "If you're going to buy big, buy black dirt."

    Bob Jensen's personal finance helpers (but not his advice which is free and not worth the money) ---
    http://www.trinity.edu/rjensen/Bookbob1.htm#InvestmentHelpers

     

    "The Psychology of Trust in Life, Learning, and Love," by Maria Popova, Brain Pickings, February 3, 2014 ---
    http://www.brainpickings.org/index.php/2014/02/03/david-desteno-truth-about-trust/

    Jensen Comment
    At a point where laws and internal controls hit their limits, ethics, culture, and trust take over. Nothing is perfect to a degree that trust will never be violated. Much of what we teach is how reduce such violations and how to deal with them when they happen. The problem is that so many people become hardened and street smart without consciences when they harm others financially and physically. It always amazes me how many violators have no remorse other than the remorse of having been caught. We can only hope that they have no great joy and contentment when they don't get caught.

    Long Video:  Inside Cornell --- Analyzing the words of psychopaths ---
    http://www.cornell.edu/video/inside-cornell-analyzing-the-words-of-psychopaths
    Thank you Dennis Huber for the heads up. This is one of the most interesting videos I have ever watched in my entire life.

    "Cheating Scandals at the Navy and Air Force bring Integrity into Question:  Ethics Failures can be attributed to the Culture of the Military Services," by Steven Mintz, Ethics Sage, February  11, 2014 ---
    http://www.ethicssage.com/2014/02/cheating-scandals-at-the-navy-and-air-force-bring-integrity-into-question.html

    "UK Bribery Act: An Ethical Analysis:  A guest blog on whether there is a defense to bribery," by Steven Mintz, Ethics Sage, February  13, 2014 ---
    http://www.ethicssage.com/2014/02/a-guest-blog-on-whether-there-is-a-defense-to-bribery-from-time-to-time-i-receive-a-comprehensive-response-to-a-blog-i-have.html

    Question
    Why do we whip the "1%" in the media for becoming so much richer when it's mostly the 0.01%?

    "The Rise (and Rise and Rise) of the 0.01 Percent in America The average 1 percenter is quite rich. But she lives in a state of relative poverty compared to the astronomical wealth of "the 1 percent of the 1 percent."
    by Derek Thompson
    The Atlantic
    February 13, 2014
    http://www.theatlantic.com/business/archive/2014/02/the-rise-and-rise-and-rise-of-the-001-percent-in-america/283793/

    . . .

    Who even are these people—the 1 percent of the 1 percent?

    As Tim Noah explained, they're mostly executives and bankers. A 2010 study of the top 0.1 percent found that 61 percent of this group is either a banker or an executive/manager another big corporation. The rest are mostly lawyers (7 percent), doctors (6 percent), and real estate people (4 percent).

    How'd they all get so rich? It wasn't the way the rest of us get rich. It wasn't their wages. It was something else.

    The richer you are, the more likely your riches come from stocks, not salary. For the three groups graphed above—1 percent, 0.1 percent, and 0.01 percent—capital gains account for 22, 33 and 42 percent (respectively) of their average income. At the very tippy-top of the economy, the 400 richest tax returns analyzed by the IRS take home about 50 percent of their income from capital gains. 

    Practically all the growth in average income at the top comes from stocks. Between 1992 and 2007, the average salary of a top-400 tax return doubled, but average capital gains haul increased 13X. Wages are for normal people. The richest get richer from their investments.

    As Matt O'Brien explained, the incomes of top-earners ride a roller coaster, and that roller coaster is the stock and bond market. Just look at top incomes compared with gyrations in the S&P 500.

    Continued in article

    Also see https://medium.com/the-nib/700c51a43a4

    Sometimes cost accounting instructors are looking for illustrations of manufacturing processes.

    Video:  This Is How McNuggets Are Made --- http://newsletters.businessweek.com/c/1158310/432f990d4411617f/8

    February Reading List from Econometrics Expert and Doubter David Giles ---
    http://davegiles.blogspot.com/2014/02/the-february-reading-list.html

    As always - there's lots of interesting reading out there. Here are my suggestions for this month:

    David Giles Econometrics Beat Blog ---
    http://davegiles.blogspot.com/

    Common Accountics Science and Econometric Science Statistical Mistakes ---
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsScienceStatisticalMistakes.htm

     

    "8 "Groundhog" States Overspend Over and Over Again," State Data Lab, January 2014 ---
    http://www.statedatalab.org/chart_of_the_day/

    . . .

    (in millions)

    2010

    2011

    2012
           
    California

    $15,720

    $320

    $330
    Connecticut

    3,450

    480

    480
    Hawaii

    830

    430

    390
    Illinois

    9,260

    5,030

    1,590
    Louisiana

    860

    340

    730
    Maryland

    1,530

    490

    570
    New Jersey

    6,680

    4,770

    5,370
    New York

    5,860

    1,020

    1,380

     Continued in article

    Jensen Comment
    More governors should block the bridges to overspending approved budgets. In most of the above states the state share of Medicaid is about 30%-40% of total state spending.

    I don't know whether school district spending is factored into this data. I doubt it except for each state's contribution to school district funding --- which varies greatly by school district. On the local PBS television station, the Governor of Vermont is complaining that Vermont's funding of education is unsustainable. I suspect there are many school districts across the USA struggling with the same unsustainable funding issues. The big urban school districts like those in Chicago comprise Exhibit A.

    "Most tax-friendly states for retirees," by Robert Powell, Yahoo Finance, January 31, 2014 ---
    http://finance.yahoo.com/news/most-tax-friendly-states-for-retirees-163509985.html

     

    From the CPA Newsletter on February 5, 2014

    Survey: Employers frustrated by lack of skilled workers
    There is a shortage of high-skilled workers in professional and manufacturing jobs, according to PwC's Trendsetter Barometer, which reports that private companies expect to increase hiring by only 1.9% this year. Employers say there is a lack of white collar workers educated in science, technology, engineering and math, while manufacturers note the scarcity of workers with high-tech skills on the factory floor. The Wall Street Journal (tiered subscription model)/CFO Journal blog (2/4)

    Deja Vu All Over Again
    From the CFO Journal's Morning Ledger on February 12, 2014

    Car makers bet on pricing as inventories soar
    Detroit’s auto makers are trying to sweeten discounts enough to rid their dealers of unsold vehicles—but not so much as to start a profit-killing price war. Analysts aren’t sure whether the moves to counter a January slowdown in sales—particularly new discounts on large pickup trucks—will undermine the rising prices that have helped General Motors, Ford and Chrysler rebuild profits during the past three years,     write the Journal’s Jeff Bennett and Christina Rogers. None of the auto makers says it plans to reduce production to counter the inventory overhang. They are counting on dealers to cut the backlog—without a wholesale change in manufacturers’ incentives or production schedules.

    From the CFO Journal's Morning Ledger on February 7, 2014

    Target breach began with contractor’s billing link
    The hackers that carried out the massive data breach at Target appear to have gained access via a refrigeration contractor in Pittsburgh that connected to the retailer’s systems to do electronic billing,     the WSJ’s Paul Ziobro reports. Fazio Mechanical Services, a privately held company with about 125 employees, said Thursday it was “a victim of a sophisticated cyberattack operation” and was cooperating with investigators at the Secret Service. The connection between the two companies is another reminder of the risks faced by large corporations when they grant contractors access to their large, interconnected computer systems.

    "Target Breach Began With Contractor's Electronic Billing Link," by Paul Ziobro, The Wall Street Journal, February 6, 2014 ---
    http://online.wsj.com/news/articles/SB10001424052702304450904579367391844060778?mod=djemCFO_h

    The hackers that carried out the massive data breach at Target Corp. TGT +1.43% appear to have gained access via a refrigeration contractor in Pittsburgh that connected to the retailer's systems to do electronic billing.

    Fazio Mechanical Services Inc., a privately held company with about 125 employees, said Thursday it was "a victim of a sophisticated cyberattack operation" and was cooperating with investigators at the Secret Service.

    The details in a statement by the company's owner, Ross Fazio, provide new clues to how hackers infiltrated Target's computer system and eventually stole the data of 40 million credit- and debit-card numbers during a security breach that lasted from Nov. 27 to Dec. 18. The thieves also stole personal data like email addresses and phone numbers of 70 million customers.

    Fazio Mechanical began working with Target in 2006 installing and maintaining refrigerator systems in stores as the discounter expanded its fresh food offerings. Through that relationship, the contractor was linked remotely to Target's computer systems for "electronic billing, contract submission and project management," Mr. Fazio said.

    Secret Service agents visited Fazio Mechanical's offices earlier in the week, Fazio spokesman Dick Roberts said Thursday. The contractor is now helping investigators from the Secret Service and Target figure out how the hackers were able to access Fazio's network.

    The connection between the two is another reminder of the risks faced by large corporations when they grant contractors access to their large, interconnected computer systems. Hackers commonly go after low-level victims to get credentials to access a bigger company's network. Then they move through the system until they find a company's crown jewels—in this case credit and debit card numbers.

    Target last week said the hackers infiltrated its system using stolen vendor credentials, without providing further detail. Cybersecurity blogger Brian Krebs on Wednesday reported that Fazio Mechanical was the vendor that was infiltrated.

    A Target spokeswoman declined to comment Thursday.

    Fazio Mechanical operates in five states helping to install and maintain refrigerators for supermarket chains and other companies. Its clients include BJ's Wholesale Club Inc., Costco Wholesale Corp. COST +3.39% , Supervalu Inc., SVU +2.36% Trader Joe's and Wal-Mart Stores Inc. WMT -0.07%

    Target was the only customer to which Fazio Mechanical had remote access, and no other customer was affected in the breach, Mr. Fazio said.

    Fazio lists Target as a client on its website, but it is unclear how the hackers would have thought to look for the company or learned Fazio had access to Target's systems. A search on database service Factiva only shows one mention of the two companies together: A November 2012 newspaper listing of construction permits, including two for renovation and expansion of the grocery departments at two Target stores in projects conducted by Fazio costing $325,315 and $319,810.

    Continued in article

    "Disagreement on Target Breach Cause : Experts Debate Whether Third-Party Breach to Blame," by Tracy Kitten, Bank Info Security, February 10, 2014 ---
    http://www.bankinfosecurity.com/disagreement-on-target-breach-cause-a-6491?rf=2014-02-10-eb&utm_source=SilverpopMailing&utm_medium=email&utm_campaign=enews-bis-20140210%20%281%29&utm_content=&spMailingID=6109839&spUserID=NTQ5MzM0NjA2MTIS1&spJobID=380895303&spReportId=MzgwODk1MzAzS0

    February 7, 2014 reply from Steven Hornik

    I've been collecting articles about this breach in a FlipBoard that I use for my grad AIS class, which is really a computer/network security class - you should see the faces of the accounting students when they realize what they are in for!  At any rate, its best to view on a tablet or smartphone but here are links to the two FlipBoards I use in my class that you can view via a browser one is the Target FlipBoard and another one that I use in my class that students contribute to for jump-staring conversations.
     
    https://flipboard.com/section/the-target-breach-bplHz9  (Target)
    https://flipboard.com/section/cybersecurity-bW4GeU (In-class discussion)
     
    Let me know what you think.
     
    Steven
    ________________________
    Dr. Steven Hornik
    University of Central Florida
    Dixon School of Accounting
     407-823-5739
     about.me/shornik
    Second Life: Robins Hermano
     ReallyEngagingAccounting Island
     http://mydebitcredit.com
    twitter: shornik

     

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

    "John Cleese Has a Serious Side," Harvard Business Review Interview, February 6, 2014 ---
    http://blogs.hbr.org/2014/02/john-cleese-has-a-serious-side/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+harvardbusiness+%28HBR.org%29&cm_ite=DailyAlert-020714+%281%29&cm_lm=sp%3Arjensen%40trinity.edu&cm_ven=Spop-Email

    Jensen Comment
    John Cleese also moved (to Monaco I think) admittedly because of England's taxes on the 1%.

    Plato's Allegory of the Cave --- http://en.wikipedia.org/wiki/Allegory_of_the_Cave

    Two Animations of Plato’s Allegory of the Cave: One Narrated by Orson Welles, Another Made with Clay ---
    http://www.openculture.com/2014/02/two-animations-of-platos-allegory-of-the-cave.html

    "In Plato's Cave:  Mathematical models are a powerful way of predicting financial markets. But they are fallible" The Economist, January 24, 2009, pp. 10-14 --- http://www.trinity.edu/rjensen/2008Bailout.htm#Bailout

    Wall Street’s Math Wizards Forgot a Few Variables
    What wasn’t recognized was the importance of a different species of risk — liquidity risk,” Stephen Figlewski, a professor of finance at the Leonard N. Stern School of Business at New York University, told The Times. “When trust in counterparties is lost, and markets freeze up so there are no prices,” he said, it “really showed how different the real world was from our models.
    DealBook, The New York Times, September 14, 2009 ---
    http://dealbook.blogs.nytimes.com/2009/09/14/wall-streets-math-wizards-forgot-a-few-variables/

    Bob Jensen's threads on CDOs ---
    http://www.trinity.edu/rjensen/2008Bailout.htm

    From the CFO Journal's Morning Ledger on February 7, 2014

    Venezuela currency moves rattle foreign airlines
    Some foreign airlines are restricting ticket sales in Venezuela because of worries that the government’s currency moves last month could reduce the value of the billions of dollars they hold in the country by as much as 45%,     the WSJ reports. Copa Holdings, Air Canada and at least one European airline are among those that have stopped letting customers buy their tickets with Venezuelan bolívares. Meanwhile, American Airlines and others offer a limited number of tickets for sale in bolívares. Airlines also fear the devaluation will be retroactively applied to the $3.34 billion they hold in bolívares and can’t repatriate to dollars because of Venezuelan currency controls.

    Jensen Comment
    More drastic are the recent moves by the Venezuela government to destroy what little remains of the private sector with price controls that dysfunctionally leave the shelves empty. And we used to think the loud-mouthed socialist President Chavez was bad news. Although Venezuela sits on top of the world's largest pool of oil, economic mismanagement appears even worse than that of Argentina --- and that's not saying much.

    From the CFO Journal's Morning Ledger on February 6, 2014

    Mandatory audit firm rotation is essentially dead (in the USA)
    The PCAOB said yesterday that it is no longer pursuing a project to impose auditor term limits on public companies—nearly three years after proposing the idea    , CFOJ’s Emily Chasan reports. “We don’t have an active project or work going on within the board to move forward on a term limit for auditors,” said PCAOB Chairman James Doty, adding “We nevertheless will continue to think about what impacts independence. There may be a change of focus here.” Mr. Doty was addressing members of the SEC, who approved a $258.4 million 2014 budget for the auditor watchdog.

    The PCAOB has encountered heavy resistance to the idea of auditor rotation, receiving hundreds of comment letters from corporate-board members and companies arguing that the practice would leave companies with inexperienced auditors and so harm audit quality.

    While the initiative has hit a wall in the U.S., other countries are still moving ahead with proposals, Chasan notes. Last year, India proposed corporate auditor rotation after 10 years, and the European Union recently agreed in principle to require companies to rotate auditors every 10 to 24 years.

    Bob Jensen's threads on audit firm rotation controversies ---
    http://www.trinity.edu/rjensen/Fraud001c.htm#Rotation

    From the CFO Journal's Morning Ledger on February 3, 2014

    SEC judge who took on ‘Big Four’ known for bold moves
    Cameron Elliot, the U.S. administrative judge who recently delivered a stunning rebuke to the global “Big Four” accounting firms, has a reputation for not shying away from big cases,     writes Reuters’s Sarah N. Lynch. When he was a federal prosecutor, Mr. Elliot was known for being deliberate, unflappable and for going after powerful interests, including violent gang members and the activist group Greenpeace. Defense attorneys say Mr. Elliot is viewed as being sympathetic to the agency’s enforcement division. He has issued more than 50 “initial decisions” at the SEC, and while the SEC has not always gotten everything it wanted, he has yet to rule against the agency. And none of his initial decisions have been overturned on appeal, suggesting they have legal muster to withstand challenges.

    Seeking more transparency in tax free bond markets
    |"SEC Plans To Act on Many Muni Report Recommendations," by Kyle Glazier, The Bond Buyer, February 3, 2014 ---
    http://www.bondbuyer.com/issues/123_23/sec-plans-to-act-on-many-muni-report-recommendations-1059543-1.html

    The Securities and Exchange Commission plans to take action on many of the recommendations in its 2012 municipal market report as well as strengthen its oversight of municipal advisors, according to its draft strategic plan released Monday.

    The 42-page document lays out the SEC's "mission, vision, values, and strategic goals" for fiscal years 2014 through 2018. Among the topics covered is the nearly two year-old comprehensive muni market report, which was written after a lengthy examination of the market spearheaded by then-commissioner Elisse Walter. That 165-page report recommended a number of both legislative and regulatory changes that Congress and the SEC could make to strengthen transparency in the market.

    Among the recommendations for the SEC and the Municipal Securities Rulemaking Board were to require muni dealers to disclose to customers markups and markdowns of riskless principal transactions, and to encourage the use of alternative trading systems.

    "The SEC plans to pursue many of the recommendations highlighted in the July 2012 Report on the Municipal Securities Market through a combination of SEC, MSRB, and [Financial Industry Regulatory Authority] initiatives, in an effort to enhance the market structure for all fixed income securities, including taxable and tax-exempt securities," the draft plan states. "This effort will include initiatives aimed at promoting transparency and the development of new mechanisms to facilitate the provision of liquidity, as well as initiatives to improve the execution quality of investor orders."

    SEC commissioner Michael Piwowar said last week that he is working with the commission's Office of Municipal Securities on the need to disclose markups and markdowns in riskless principal transactions. The MSRB is working on some other aspects of the report, such as the expansion of MSRB's EMMA website to become a comprehensive central transparency platform and the development of a best execution rule requiring dealers to seek the best price for their customers. The SEC has oversight of the MSRB and must approve its rule proposals.

    The plan notes the SEC's mandate, under the Dodd-Frank Act, to regulate municipal advisors, and states that the commission will focus on getting MA's properly registered. The plan is open for public comment until March 10.

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

    Bootstrapping --- http://en.wikipedia.org/wiki/Bootstrapping_%28statistics%29

    In statistics, bootstrapping is a method for assigning measures of accuracy (defined in terms of bias, variance, confidence intervals, prediction error or some other such measure) to sample estimates. This technique allows estimation of the sampling distribution of almost any statistic using only very simple methods.Generally, it falls in the broader class of resampling methods.

    Bootstrapping is the practice of estimating properties of an estimator (such as its variance) by measuring those properties when sampling from an approximating distribution. One standard choice for an approximating distribution is the empirical distribution of the observed data. In the case where a set of observations can be assumed to be from an independent and identically distributed population, this can be implemented by constructing a number of resamples of the observed dataset (and of equal size to the observed dataset), each of which is obtained by random sampling with replacement from the original dataset.

    It may also be used for constructing hypothesis tests. It is often used as an alternative to inference based on parametric assumptions when those assumptions are in doubt, or where parametric inference is impossible or requires very complicated formulas for the calculation of standard errors.

    The bootstrap was introduced in 1979 by Bradley Efron. It was inspired by earlier work on the jackknife. Improved estimates of the variance were developed later. A Bayesian extension was developed in 1981. The ABC procedure was developed in 1992[ and the BCA procedure in 1996.

    Bradley Efron --- http://en.wikipedia.org/wiki/Bradley_Efron

    Video:  Interview Brad Efron --- http://www.youtube.com/watch?v=6l9V1sINzhE&feature=youtu.be

    "11 Facts About Starbucks That Will Blow Your Mind," by Ashley Lutz and Mike Nudelman, Business Insider, February 4, 2014 ---
    http://www.businessinsider.com/starbucks-facts-2014-2014-2 

    Jensen Comment
    Another fact is that Starbucks actively supports raising the minimum wage. However, in part this could be due to the fact that some of the mom and pop small coffee shops across the USA will be put out of business, thereby destroying the competition. Over half the business firms that pay minimum wage are very small locally owned and operated small businesses rather than the big chains that generally provide wages above the minimum level and health care except for those like Walgreens that dropped health care just before the ACA commenced. Although I support President Obama's initiative to raise the minimum wage to $10.10, it is sad that so many mom and pop businesses will give way to the big chains.

    The claim that always blows my mind is that Starbucks pays more for employee health care (for full time workers) than it spends on coffee that it sells.

    Starbucks Tax Avoidance by Shifting Profits Offshore --- http://www.youtube.com/watch?v=w-P3tovVapI
    Using legal ploys to minimize taxes is not unethical but the public outcry over Starbucks' tax evasion prompted Starbucks to make some voluntary tax payments.

     "Barclays Fires 12,000; Reports Horrible Earnings, Awards Itself Bigger Bonuses," by Tyler Durden, Zero Hedge, February 11, 2014 ---
    http://www.zerohedge.com/news/2014-02-11/barclays-fires-12000-reports-horrible-earnings-awards-itself-bigger-bonuses  
     

    List of AACSB Accredited Business Schools --- http://en.wikipedia.org/wiki/List_of_AACSB-accredited_schools_%28accounting%29

    "The Effects of AACSB Accreditation on Faculty Salaries and Productivity," by  David W. Hedrick, Ellensburg, Steven E. Henson and John M. Krieg, and  Charles S. Wassell, Jr., Journal of Education for Business, 85: 284–291, 2010 Copyright C Taylor & Francis Group, LLC ISSN: 0883-2323 DOI: 10.1080/08832320903449543

    Jim Hasselback's FAQs --- http://www.jrhasselback.com/AtgDoct/FAQs.pdf

    Keep in mind that the top accounting programs provide a lot of supplements and perks that aren't the salary databases. For example, Harvard accounting faculty, by virtue of being at Harvard, are given corporate training and other consulting opportunities that over the course of the year may pay more than their Harvard salaries. Also top accounting programs give $10,000-$30,000 "research expense funds" that cover a lot of travel that is sometimes antamount to paid vacations.

    "A China Fraud Dissected: Part 1 Milton Webster, AgFeed Audit Committee Member and Whistleblower," by Francine McKenna, re:TheAuditors, February 26, 2014 ---
    http://retheauditors.com/2014/02/26/a-china-fraud-dissected-part-1-milton-webster-agfeed-audit-committee-member-and-whistleblower/

    Lawrence Blitz v. AgFeed Industries, Inc., Goldman Kurland & Mohidin LLP, McGladrey & Pullen LLP, et al is a securities fraud class action where investors claim the company’s expansion was “fueled in large part by fraud.” AgFeed began in the 1990’s as a Chinese manufacturer of animal nutrition products. It grew rapidly by expanding sales for its animal nutrition operations through hundreds of independent dealers, and by acquiring dozens of independent Chinese hog farms in 2007 and 2008 to enter the hog breeding and production business.

    Until 2010, all of AgFeed’s operations were in China. In September 2010 it acquired M2P2, LLC a large United States hog producer in Tennessee. AgFeed was listed on NASDAQ in 2007 as the result of a reverse merger transaction. The lawsuit covers the period from March 16, 2009 through and including September 29, 2011.

    The company’s fraudulent strategy, referred to by company executives in emails as “enlarging by faking”, involved overstating asset values in the Chinese hog farms it purchased, overstating accounts receivable in its animal feed division, reducing its allowance for doubtful accounts to a minimum even when business conditions indicated customers were less likely to pay, and misrepresenting the value of equipment, inventory and cost of goods sold in its legacy hog business in its financial statements which were filed with the SEC.

    An excellent, long read by Dune Lawrence at Bloomberg last December describes how the fraud was discovered and why the company eventually delisted its own common stock from NASDAQ to avoid a mandatory delisting by the exchange. In July of 2013, the company filed for Chapter 11 bankruptcy. Lawrence’s story provides the background you’ll need to appreciate what I’m going to talk about next.

    There are four aspects of the AgFeed story that have not been written about in much detail. I will talk more about them in a series of posts.

    Milton Webster, an AgFeed whistleblower, was a member of the company’s board of directors, an Audit Committee member, who says he saw problems with the company’s accounting almost immediately after joining the board on February 24, 2011. He subsequently resigned on February 14, 2012.  It is highly unusual for a board member, especially an Audit Committee member, to be a fraud whistleblower in a public company.

    Goldman Parks Kurland Mohidin LLP (Goldman) is the CPA firm that provided accounting services to AgFeed from at least 2007 to November 2010. McGladrey & Pullen LLP (McGladrey) replaced Goldman as AgFeed’s independent auditor in November 2010 and continued in that capacity through the end of the period that is subject to the litigation. Both firms are registered with the PCAOB, have been inspected and continue to produce audit opinions for public issuers. Two China-based audit firms that supported Goldman and derive the majority of their revenue from Goldman are also registered with the PCAOB and have never been inspected given China’s prohibitions on physical inspections of Chinese audit firms by US regulators. Both firms continue to support Goldman.

    Protiviti, a division of Robert Half Int’l, provided support to AgFeed’s management in assessing its internal controls over financial reporting as required by Sarbanes-Oxley. Protiviti is a creditor of AgFeed in bankruptcy and is being evaluated as a potential additional defendant in the bankruptcy proceedings by the the debtor and equity committee for Protiviti’s apparent failure to catch the fraud.

    Once trouble started, law firm Latham and Watkins pitched itself to represent the company, directors, and executives in the securities and derivative litigation. L&W continues to serve in that capacity (except the derivative which was wiped out by the bankruptcy) and also serves as special counsel to the company in bankruptcy. The firm was eventually hired as counsel to the special investigative committee to address the various fraud allegations such as a second set of financial records, inflated asset valuations and undisclosed related-party transactions. Too many roles and, perhaps, too many conflicts of interest…

    I’m going to start with the story of Milton Webster.

    Milton Webster: Whistleblower

     

    Why don’t directors blow the whistle on fraud more often? Tom Gorman, a former SEC official and now a partner at law firm Dorsey told me, “I suspect that is because they typically have the authority and the position to do something about the issue. In contrast the typical whistleblower does not and not infrequently gets fired when trying to raise the issue.”

    Continued in article

    "McGladrey 2011 Report Follows (awful) Trend for Major Firms," by Tammy Whitehouse, Compliance Week, June 4, 2013 ---
    http://www.complianceweek.com/mcgladrey-2011-report-follows-trend-for-major-firms/article/296218/

    Nearly two years after it began inspecting McGladrey in 2011, the Public Company Accounting Oversight Board published its report saying half of the audits it checked were deficient.

    The PCAOB inspected 16 audits at McGladrey from August 2011 through December of that year and found problems with eight of the audits, in some cases numerous problems in a single audit. Many of the problems related to revenue recognition, allowances for loan losses, accounts receivable, taxes, inventory, and internal control over financial reporting.

    In terms of the failure rate, McGladrey's 2011 report was a little worse than the 2010 report, where PCAOB inspectors checked 19 audit files and found problems with 9. In one case, follow-up based on the PCAOB's 2011 inspection finding led to a change in a company's accounting practices, the PCAOB said.

    McGladrey said the firm has taken actions as appropriate under auditing standards to address the deficiencies called out by the PCAOB, including performing additional procedures and adding documentation to its work papers. “We believe the investments we have made and are continuing to make to audit processes and quality controls are resulting in improved audit quality,” the firm wrote in its letter to the PCAOB.

    Audit reports across all major firms showed a marked increase in failure rates from 2009 to 2010 and showed no improvement for most firms from 2010 to 2011. Crowe Horwath remains the only firm in the Big 4 or second tier of global firms whose 2011 inspection report is still unpublished.

    The PCAOB recently began offering a first view into 2012 inspection reports for the largest firms with the publishing of Deloitte's 2012 inspection results. The firm drew inspector criticism for 13 of the 52 audits examined for a failure rate of 25 percent, an improvement over rates of 42 percent in 2011 and 45 percent in 2010.

    The PCAOB's inspection process follows a risk-based approach, so inspectors are targeting audit files where they consider problems to be most likely. As such, the board cautions against generalizing failure rates to the entire collection of audit work.

    Continued in article

    "Accountants Should Focus on Detecting Fraud, Experts Say," by Ben DiPietro," The Wall Street Journal, October 9, 2013 ---
    http://blogs.wsj.com/riskandcompliance/2013/10/09/accountants-should-focus-on-detecting-fraud-experts-say/

    Accountants have been slow to embrace the idea that a core function of their job is to identify fraud during company audits. Part of the problem is it’s not always possible to know who in an organization is involved in deceptive number-crunching.

    Accountants have been slow to embrace the idea that a core function of their job is to identify fraud during company audits, and more education and training is needed to hasten the advancement of this idea. Part of the problem is while standards have evolved to incorporate fraud detection into the job description, it’s not always possible to know who in an organization is involved in deceptive number-crunching, say two accounting experts.

    While hard to believe, some CPAs believe detecting fraud still isn’t one of their core responsibilities, said Brian Fox, a certified fraud examiner and the founder and president of Confirmation.com, a cloud-based audit security tool used to prevent confirmation fraud. “For a long time we said finding fraud wasn’t our responsibility. Our responsibility was to find material errors in statements,” Mr. Fox said. “We’ve got great technology today, we don’t need to be paid to add up numbers. The public is relying on us to make sure accounting standards are being applied correctly and that management’s estimates are fairly stated and there is no fraud. They view us as the public’s watchdog.”

    Most auditors are not prepared to search for and identify the signs of financial fraud, and this lack of preparation is even more pronounced among staff and senior auditors, where the majority of the detailed audit work and client conversations take place, Mr. Fox said, adding this shows resistance remains as to whether this should be the responsibility of the accountant/auditor. “It’s also a bit of a legacy issue in not training our folks on ways to find fraud,” he said. “We cover some of that material but if you ask people in the public who rely on our audited statements they say it is our responsibility to find fraud. But the CPA exam, less than 1% focuses on fraud, it’s somewhat surprising, somewhat of a misalignment.”

    Standards requiring auditors to have responsibility for finding material misstatements in financial statements and designing audit procedures to detect that fraud have been around for more than a decade, but John Keyser, national director of assurance services at assurance, tax and consultant services firm McGladrey, said recent changes to rules have refined those standards to require additional procedures and additional inquiries of management and others charged with governance.

    Changes include more fraud awareness training, and identification of fraud control deficiencies that allow fraud to occur, he said, along with additional conversation among audit teams about where fraud could occur and the ways management might try to commit fraud, with the end result being the designing of policies to protect against those risks. “There’s been an evolution in required procedures, refined over time, of additional procedures directed at fraud,” Mr. Keyser said. He cited the development of the “fraud triangle,” or the three elements needed for fraud to occur: the opportunity to commit fraud, the incentive for someone to commit fraud and the ability to rationalize the fraud. Although auditors are good at identifying the areas where opportunities to commit fraud exist, it is harder for them to know who in an organization may have motivation to commit fraud and it is even more difficult to know who may be capable of rationalizing away such actions, he said.

    “I think there is more of a recognition of the types of fraud that occur and how those get perpetrated,” Mr. Keyser said. Auditors need to pay particular attention to year-end statements and performance targets that may be tied to executive bonuses, as these are areas where management may fudge the numbers to ensure they receive the most compensation they can. “Standards are pretty robust, I think, but at the same time we only can know what we can know. This does not provide absolute assurance. We can only make educated guesses and evaluate management’s assumptions to see if they are reasonable. There are limitations.”

    Continued in article

     

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

    "Ernst & Young Sued Over Georg Schaeffler Tax Probe," by Patricia Hurtado, Bloomberg Businessweek, February 26, 2014 ---
    http://www.bloomberg.com/news/2014-02-25/ernst-young-sued-over-georg-schaeffler-tax-probe.html 

    Ernst & Young LLP was accused by the U.S. of failing to comply with an Internal Revenue Service request for documents in an investigation of the tax liability of the billionaire chairman of industrial-bearing maker Schaeffler AG.

    The agency had asked for testimony and “books, records and other data” tied to a probe of Georg F. W. Schaeffler, the office of Manhattan U.S. Attorney Preet Bharara said in a lawsuit filed yesterday.

    The company, jointly owned by Schaeffler and his mother, Maria-Elisabeth Schaeffler, is struggling to reduce debt from an attempt spearheaded by former Chief Executive Officer Juergen Geissinger to buy a limited stake in car-component maker Continental AG that backfired amid the global recession of 2008.

    Schaeffler, 49, has a net worth of $7.8 billion, according to the Bloomberg Billionaires Index, and he ranks 168th on the index. He owns 80 percent of Schaeffler, which is based in Herzogenaurach, Germany, and is the world’s second-largest maker of automotive, aerospace and industrial roller bearings.

    The probe is tied to Schaeffler’s personal tax liabilities dating back to 2004, according to a declaration by Paul Doerr, an IRS agent investigating the case. The investigation also covers 2005, 2009 and 2010, Doerr said in the declaration filed in a Manhattan federal court lawsuit brought by Schaeffler last year against the IRS.

    Tax Liability

    Doerr said he previously conducted an investigation into Schaeffler’s tax liabilities for 2007 and 2008.

    The agency previously investigated “the valuation of assets related to the restructuring and refinancing transactions that occurred in 2009 and 2010, after the acquisition of Continental AG,” Doerr said.

    Continued in article

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

    "VC Horowitz Implicates Auditor PwC In Story About Dodging Backdating Bullet," by Francine McKenna, re:TheAuditors, February 13, 2014 ---
    http://retheauditors.com/2014/02/13/vc-horowitz-implicates-auditor-pwc-in-story-about-dodging-backdating-bullet/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+ReTheAuditors+%28re%3A+The+Auditors%29

    Imagine my surprise when Ben Horowitz, one half of the venture capital team of Andreessen Horowitz, wrote a blog post about dodging a jail term for stock option backdating that also implicated PwC.

    “Why I Did Not Go To Jail”

    Michelle (note: her name has been changed) comprehensively understood software accounting, business models, and best practices, and she was beloved by Wall Street in no small part due to her honest and straightforward reporting of her previous company’s business. In my reference checking, at least a dozen investors told me that they made far more money when the numbers disappointed than when the company outperformed, because they trusted Michelle when she said that things were not worse than they appeared and bought on the dips.

    Once she came on board, Michelle rapidly reviewed all of our practices and processes to make sure we were both compliant and competitive. One area where she thought we were less than competitive was our stock option granting process. She reported that her previous company’s practice of setting the stock option price at the low during the month it was granted yielded a far more favorable result for employees than ours. She also said that since it had been designed by the company’s outside legal counsel and approved by their auditors, it was fully compliant with the law.

    I’m not sure why Horowitz bothered to change the name of the CFO. It’s public knowledge. Sharlene Abrams was CFO of Opsware and her previous employer was Mercury Interactive.

    The New York Times Dealbook’s William Alden picks up on Horowitz’s hero story and gives us more details.

    The S.E.C. claimed in 2007 that Ms. Abrams and three other former officers committed fraud by backdating stock option grants and failing to record hundreds of millions of dollars of compensation expenses. As part of a settlement with the agency in 2009, Ms. Abrams was barred from serving as an officer or a director of a public company.

    She later pleaded guilty to tax evasion after a Justice Department inquiry into the stock options scheme.

    Sharlene P. Abrams, the chief financial officer of Opsware at that time, was forced to resign in 2006 after it emerged that the S.E.C. was planning an enforcement action against her in connection to her previous employment at Mercury Interactive, an enterprise software company.

    No one talks about stock options backdating much anymore. Certainly auditors are rarely mentioned even when someone actually does. Of all the parties who could have been seriously singed in the options back dating law enforcement conflagration ignited by Iowa academic Erik Lie, auditors were left pretty much unscathed.

    How did Horowitz, according to his account, avoid jail? He asked his General Counsel to review an Abrams proposal to advantageously date options.

    According to Horowitz:

    I told “Michelle” that a better stock granting process sounded great, but I needed Jordan Breslow, my General Counsel, to review it before making a decision. Jordan lived in my hometown of Berkeley and he certainly belonged there. With hippie sensibilities, Jordan was nearly allergic to corporate politics, showmanship, or any behavior that covered the truth. As a result, I knew that what he said was 100% what he believed and had nothing to do with anything else. I could trust it.

    “Michelle” was surprised, as her previous company had run this practice for years with full approval from PricewaterhouseCoopers, its accounting firm. I said: “That’s all fine and good, but I still need Jordan to review it first.”

    Jordan came back with an answer that I did not expect: “Ben, I’ve gone over the law six times and there’s no way that this practice is strictly within the bounds of the law. I’m not sure how PwC justified it, but I recommend against it.” I told “Michelle” that we were not going to implement the policy and that was that.

    Here’s what Mercury Interactive said Sharlene Abrams did when they sued her and the other executives:

    Continued in article

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

    "Failure to detect theft and fraud: It's not just an audit issue," by Sarah Beckett Ference, Journal of Accountancy, February 2014 ---
    http://www.journalofaccountancy.com/Issues/2014/Feb/20139031.htm

    Commonly referred to as the “expectation gap,” a disconnect sometimes exists between a CPA’s professional responsibility for detecting theft and fraud and the general public’s perception of a CPA’s duties. The AICPA Professional Standards for audit, review, and compilation services include a responsibility to inform the appropriate levels of management if any information or evidence comes to the CPA’s attention indicating a fraud may have occurred. However, claims made against CPAs in the AICPA Professional Liability Insurance Program alleging failure to detect theft and fraud emanate from all types of engagements, including those generally regarded by CPAs as low-risk, such as bookkeeping or tax compliance services. 

    In such cases, plaintiff attorneys may contend that the CPA failed to exercise due care in accordance with Article V of the Principles of Professional Conduct, which are included in the AICPA Code of Professional Conduct. Lawyers may allege that CPAs have a duty to identify and inform clients of fraud red flags such as suspicious activities or internal control deficiencies. While adherence to professional standards assists CPAs in defending these types of claims, there is no guarantee that such a defense will be successful. 

    CPAs may believe that longtime clients would never assert such a claim against them. However, a congenial working relationship can take an abrupt turn when fraud is discovered. Clients then may question why a CPA didn’t discover the fraud earlier or bring matters to the client’s attention that could have prevented it. 

    To illustrate how a CPA can get tangled up in a client’s fraud, consider the following scenarios based on real-life claims: 

    Scenario 1. A CPA was engaged to perform tax compliance and tax planning services for a recruiting agency. To understand potential year-end tax implications, the CPA summarized select income and payables accounts and discussed trends with the owner. The CPA also received monthly bank statements and bank reconciliations. The controller, a longtime employee of the agency, embezzled more than $1 million by writing checks to himself, reporting them as business expenses, and destroying the canceled checks (or scanned copies of them) when the bank statements were received. 

    The owner brought a claim against the CPA for failing to detect the embezzlement. Expert review of the engagement noted that the controller had unmonitored access and responsibilities in accounts payable and that the trend analysis the CPA performed noted unusual fluctuations in expense accounts. The plaintiff’s attorney argued that the CPA should have identified the trend fluctuations as a red flag and brought this and the internal control weakness to the owner’s attention for further investigation. In defense, the CPA’s counsel noted that the CPA received the bank statements for the sole purpose of understanding the tax implications. 

    Scenario 2. A CPA firm compiled annual financial statements for a local wine producer. The firm sued the client for outstanding fees, and the client countersued, alleging failure to detect a high six-figure embezzlement perpetrated by three of its employees, all of whom colluded to create false wire transfers and payroll checks. The CPA firm’s invoices, which were produced during the lawsuit’s discovery phase, indicated that the firm performed a review of financial statements, made changes in financial statement classifications and general ledger adjustments, and completed bank reconciliations. CPA firm representatives also worked extensively on-site with the employee/embezzlers and were involved in the company’s day-to-day financial operations, but they did not discover the fraudulent wire transfers or payroll checks. 

    In both scenarios, the lack of an engagement letter memorializing the scope and limitations of services performed and management’s responsibilities was detrimental to the CPA’s defense. 

    LIMITING RISK EXPOSURES

    CPAs can use several techniques to protect themselves against risk exposures related to failure to detect theft and fraud. They include:

    - Regularly evaluate the risk of the client and the engagement. Client and engagement acceptance and continuance are not simply for audit engagements. Regularly screen clients and consider the risks associated with both the client and the services you are being engaged to perform. It should raise a red flag for the CPA when clients dismiss internal control weaknesses brought to their attention. Is this a situation where the client has an unreasonable service expectation, or is it possibly one of questionable integrity? Either way, the CPA should take precautions. 

    - Use engagement letters on all engagements. That’s correct—all engagements. A well-crafted engagement letter can help reduce expectation gaps and can serve as key evidence in the defense of a professional liability claim. The engagement letter should include an understandable description of the scope and limitation of services to be performed, a statement that the engagement is not designed to detect theft or fraud, and the responsibilities of both the client and the CPA. The engagement letter should also be renewed and signed by the client annually.

    - Stay within the scope of the engagement. An engagement letter is useful only if the CPA adheres to the defined scope in rendering the professional services. Additional services, or modifications to agreed-upon services, should be memorialized in writing with the client, whether it’s through email, a new engagement letter, or an amendment to the existing engagement letter.

    - Be fraud aware. Train all firm personnel, not only auditors, about potential fraud risk factors and the “fraud risk triangle” (opportunity, rationalization, and incentive/pressure). Learn about the risk factors associated with common frauds, such as embezzlement by an unmonitored bookkeeper or controller with excessive authority or access, or use of business credit cards for personal expenses. Firm personnel should be educated about common internal control weaknesses that create an opportunity for fraud to occur, such as a lack of segregation of duties, poor tone at the top, or infrequent vacations taken by key financial employees.

    - Apply professional skepticism to all engagements. This is particularly important on engagements with longtime clients, where a level of established comfort could threaten objectivity. Trust your instincts and follow up on matters that don’t seem quite right.

    - If you see something, say something. Management letters with suggestions for control or process improvements are not designed solely for audit clients. If you observe a weakness in internal controls or believe management should follow up on an observation noted, inform your client orally and in writing. If the weakness persists year after year, keep telling the client both orally and in writing until the deficiency is addressed.

    - Document, document, document. Contemporaneous documentation represents critical evidence in the defense of professional liability claims. Strong documentation includes, at a minimum, a well-crafted and detailed engagement letter, documentation regarding client inquiries made and responses received, and communication of internal control matters or suspicious activities noted.  

    Jensen Comment
    Aside of ethics issues, financial statement audit firms would have to charge considerably more to pay client whistleblowers.

    "Harvard Professor Attacking Google Thrives as Web Sheriff," by John Hechinger, Bloomberg Businessweek, February 14, 2014 ---
    http://www.bloomberg.com/news/2014-02-14/harvard-professor-attacking-google-thrives-as-web-sheriff.html

    . . .

    Edelman, a 33-year-old associate professor, mixes scholarship, lucrative consulting and a digital version of the 1960s-style activism of his family, including his aunt, Marian Wright Edelman, the civil-rights and children’s advocate. While he ferrets out misdeeds on the Internet, his multiple roles have put his own work under scrutiny.

    “The Internet is what we make of it,” said Edelman, who arrived at his Ivy League office in jeans and sneakers this week after commuting by bicycle through Boston’s snowy streets. “We can shape it through diligence, by exposing the folks who are making it less good than it ought to be, like the neighborhood watch, or the busybody neighbor who yells at you when you throw your cigarette butt on the street.”

    Paid Crusades

    Unlike bloggers who have long formed a volunteer police force on the Internet, Edelman embarks on paid crusades that raise questions about whether he can remain objective in his academic roles as scholar and teacher.

    In a move that elevated his profile in the stock market and prompted a dispute about his financial disclosures, he published a blog on Jan. 28 that accused Internet video and advertising purveyor Blinkx Plc of using hidden software to inflate traffic counts. His posting caused Blinkx shares to fall the most in the company’s history.

    Blinkx responded to Edelman’s broadside with a statement saying the company “strongly refutes” his assertions and conclusions. Harvard pressed Edelman to say more about his clients, prompting him to disclose that they included two U.S. investors. Their names still aren’t known.

    While taking on some giants, such as Google Inc. and Facebook Inc., Edelman has worked for others, including Microsoft Corp. Google has said that he’s biased and hasn’t been forthright enough in disclosing that he’s a paid consultant to Microsoft.

    FTC Crackdown

    Edelman earns more from his outside activities than from his salary as a professor, which isn’t unusual among business school faculty, he said. His work has influenced the Federal Trade Commission and New York Attorney General’s Office, among other regulators, in their crackdown on companies.

    “He’s part academic and part cyber sleuth,” said Ken Dreifach, former chief of the Internet bureau of the New York Attorney General’s Office, whose prosecutors tracked Edelman’s blog posts as they filed cases against companies using malicious software.

    Edelman is expected to come up for tenure, academia’s guarantee of job security, at the end of 2015. While his credentials include a law degree and economics doctorate, both from Harvard, his attacks on companies are unusual at the business school, an institution better known for case studies celebrating successes.

    Critical Letter

    When he was considered for promotion to associate professor from assistant a few years ago, Edelman said an outside reviewer contacted by the school wrote a critical letter: “Ben seems not to like businesses. I thought this was a business school.” He was promoted anyway.

    Edelman’s outside consulting work has been encouraged by Harvard and is helping make the Internet a better place, said Brian Kenny, Harvard Business School’s chief marketing and communications officer.

    Since his Blinkx post, entitled “The Darker Side of Blinkx,” the shares have declined 37 percent. After its initial statement reacting on Jan. 30, the company has declined to comment.

    Edelman initially wrote that he prepared the research for an unnamed client. Harvard Business School said that disclosure wasn’t enough under its conflict-of-interest rules, which require professors to disclose paid and unpaid outside activities related to work available to the public. Harvard asked Edelman to say more.

    Revised Disclosure

    In his enhanced disclosure, Edelman said last week he was paid by two U.S. investors that jointly hired him. He didn’t name them, say how much he was paid or whether they were betting against, or shorting, the stock.

    In interviews, Edelman said his contract prohibited him from disclosing that information. Harvard is satisfied with his revised disclosure, Kenny said.

    Continued in article

    "The Shadowy World of Wikipedia's Editing Bots," MIT's Technology Review, February 13, 2014 ---
    http://www.technologyreview.com/view/524751/the-shadowy-world-of-wikipedias-editing-bots/?utm_campaign=newsletters&utm_source=newsletter-daily-all&utm_medium=email&utm_content=20140214

    Much of the editing work on Wikipedia is too mind-numbingly repetitive for humans, so automated bots do it instead. But keeping track of automated editing has always been hard … until now.

    In a little over a decade, Wikipedia has evolved from an Internet experiment into a global crowdsourcing phenomenon. Today, this online encyclopedia provides free access to more than 30 million articles in 287 languages.

    Less well known is Wikidata, an information repository designed to share basic facts for use on different language versions of Wikipedia. Wikidata therefore plays a crucial role in lubricating the flow of information between these online communities.

    Maintaining all this data is a difficult job. It requires significant editing and polishing, mostly involving mindless, repetitive tasks such as formatting links and sources but also adding basic facts.

    So much of this kind of work is automated. Behind the scenes, automated bots scan Wikipedia and Wikidata pages continually polishing the content for human consumption.

    But that raises an important question. How much bot activity is there? What are these bots doing and how does it compare to human activity?

    Today, we get an answer thanks to the work of Thomas Steiner at Google’s German operation in Hamburg. Steiner has created an application that monitors editing activity across all 287 language versions of Wikipedia and on Wikidata. And he publishes the results in real time online so that anybody can see exactly how many bots and humans are editing any of these sites at any instant.

    For example, at the time of writing, across all language version of Wikipedia there are 10,407 edits being carried out by Bots and 11,148 by human Wikipedians. So that’s a 49/51 split between bots and humans.

    But a closer look at the data reveals some interesting variations. For example, only 5 percent of the edits to the English language version of Wikipedia are being done by bots right now. By contrast, 94 percent of the edits to the Vietnamese version are by bots.

    And on Wikidata, 77 percent of the 15,000 edits are being done by bots.

    Steiner’s page also lists the most active bots. Wikipedia and Wikidata have long recognized the damage that bots can do and so have strict guidelines about their behavior. Wikidata even lists bots with approved tasks.

    What’s curious about the automated edits on Wikidata is that the most active bots are not on this list. For example, at the time of writing a bot called Succubot is making 5797 edits to Wikidata entries and yet appears to be unknown to Wikidata. What is this bot doing?

    Steiner’s page will give administrators a useful window into this seemingly shadowy behavior. In truth, any nefarious activity is usually spotted quickly and the perpetrator blocked. But this kind of oversight will still be hugely useful.

    Continued in article

    Bob Jensen's threads on Google and other search engines ---
    http://www.trinity.edu/rjensen/Searchh.htm

    "Next Up On The “Operation Broken Gate” Agenda? Could Be PwC and Thomson Reuters," by Francine McKenna, reTheAuditors, February 3, 2014 ---
    http://retheauditors.com/2014/02/03/next-up-on-the-operation-broken-gate-agenda-could-be-pwc-and-thomson-reuters/

    Now that the Securities and Exchange Commission and its “Operation Broken Gate” initiative has crossed KPMG’s independence violations off its to-do list, the agency can move on to the rest of the ones I’ve already identified for them.

    One set of facts that should be very easy to wrap up in shiny paper with a big bow would be the potentially illegal business relationships between PwC and its audit client Thomson Reuters. I wrote about them way back in December of 2012 at Forbes and then in more detail here.

    It goes like this:

    [There’s] a new business alliance between PwC China and Thomson Reuters, a PwC audit client. The three-year agreement is a license to use Thomson Reuters tax software exclusively – in an ironic twist of fate the software was originally developed by Deloitte – for client service in China. PwC UK already uses the software for its clients.

    PwC US is also a “Certified Implementer” (CIP) of Thomson Reuters One Source software. The deal was signed just this past August. That means PwC consulting professionals implement Thomson Reuters for third-parties, perhaps at times in joint engagements with Thomson Reuters. Are there incentives paid? There must be a joint marketing and training arrangement at least. Oh, there is…

    Through the CIP, Thomson Reuters will provide PwC US with training and technical support that PwC will use to work with clients who use Thomson Reuters software solutions in their corporate tax and accounting departments.

    There is a certainly a shared benefit to teaming up to sell software and consulting services. You can agree or disagree whether such arrangements should be prohibited, but under existing rules in the UK and for US listed audit clients of the global firms, they are prohibited.

    I checked and PwC is still listed is a “Certified Implementer” (CIP) of Thomson Reuters One Source tax software. In fact, the contact name for the PwC/Thomson Reuters business alliance is a partner right here in my hometown of Chicago.

    (PwC and Thomson Reuters never responded to my original requests for comment via Forbes on the Decemeber 2012  report. I didn’t, therefore, check again this time but if something’s changed they can give me a holler.)

    Thomson Reuters sells its software products all over the world and they are used by PwC member firms for their clients in at least the US, UK and now in China. Thomson Reuters is dual listed on the New York Stock Exchange and the Toronto Stock Exchange. Thomson Reuters recently changed auditors effective with the 2012 fiscal year—from the PwC Canada firm to the PwC US firm. That may not seem like a big deal but it is. The fees, $41 million in 2012, crossed the border with no disguises or fake passports necessary.

    As a result of the SEC’s recent investigation of KPMG’s independence violations, the staff is, I hope, now intimately and thoroughly reacquainted with its Final Rule: Revision of the Commission’s Auditor Independence Requirements effective February 5, 2001. The SEC put everyone on notice as a result of the recent enforcement action that the perception of auditor independence is as important, or maybe even more important, than the fact of auditor independence. That’s especially when it comes to putting your tax professionals on the job and in the audit client’s cafeteria every day.

    The SEC staff has also hopefully memorized Rule 2-01(b) of Regulation S-X (17 CFR 210.2-01.), amended under the Sarbanes-Oxley Act of 2002 to enhance auditor independence after the Enron and Arthur Andersen failures.

    Continued in article

    Bob Jensen's threads on audit firm independence and professionalism ---
    http://www.trinity.edu/rjensen/Fraud001c.htm

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

    Yesterday on February 19 I had my annual physical in a doctor's office in the Littleton Regional Hospital. He's a talker and usually loses track of time. One story he related is about filing his tax returns himself using Turbo Tax. Last year when his electronic filing was rejected because the IRS claimed somebody had already filed a 2012 tax return using his social security number. No details were revealed to him, but chances are high that the data in the ID thief's tax return were phony and the IRS paid out an enormous refund to that thief.

    The IRS did accept my doctor's mailed in tax return and cashed his check for taxes due. To date he's not heard another word from the IRS.

    The IRS has an Identity Theft Web Page at
    http://www.irs.gov/uac/Identity-Protection

    "IRS is overwhelmed by identity theft fraud:   Billions wrongly paid out as scammers find agency an easy target," by Michael Kranish, Boston Globe, February 16, 2014 ---
    http://www.bostonglobe.com/news/nation/2014/02/16/identity-theft-taxpayer-information-major-problem-for-irs/7SC0BarZMDvy07bbhDXwvN/story.html

    Rashia Wilson bought a $92,000 Audi, proclaimed herself a millionaire, and announced on her Facebook page that she was “the queen of IRS tax fraud,” as prosecutors told the story.

    But even more than her flamboyance, it was the seeming ease of her crime that was most stunning: She and an accomplice were alleged to have hijacked the identities of other taxpayers to get fraudulent refunds. They used stolen Social Security numbers, a computer, and basic knowledge of how to file a tax return, according to the government.

    After the Florida mother of three was caught and pleaded guilty last year to crimes totaling at least $3 million, her defense attorney, Mark O’Brien, made his own plea. He said in court that he hoped the “IRS will figure out a way to prevent this from happening in the future, so someone with a sixth-grade education can’t defraud them so easily.”

    cross the country, the theft of taxpayer identities has taken off, while receiving far less attention than the loss of credit card information. Even some drug dealers, always with an eye out for easy profits, have turned to taxpayer identity theft after hearing how uncomplicated it was to scam the IRS. A medical assistant at a nursing home stole the identities of hundreds of patients. A prison guard stole the identities of inmates and filed false returns under their names.

    All told, in just the first six months of last year, 1.6 million taxpayers were affected by identity theft, compared with 271,000 for all of 2010, according to a recent audit by the Treasury Department’s inspector general. While the IRS said it discovered many of the incidents, the cumulative thefts have resulted in billions of dollars in potentially fraudulent refunds, according to an array of government reports.

    “I’ve had a police chief tell me ‘street crime is down because everybody is now filing false IRS returns,’ ” IRS Commissioner John Koskinen,who took office last month, said in an interview.

    While Koskinen stressed that the IRS uses a series of “filters” that are increasingly successful in catching identity thefts before refunds are paid, he acknowledged that “this problem has exploded’’ and that the agency is in a constant race to keep its detection techniques a step ahead of the thieves. “It is,’’ he said, “a little like ‘Whac-a-Mole,’ knock them down here and they come up over there.”

    Kathryn Keneally, US Assistant Attorney General for the tax division, said her office has an increasing number of prosecutions of taxpayer identity theft underway. She listed one heart-wrenching case after another: military personnel who had their identities stolen while deployed, and parents who learned that their recently deceased child’s identity had been pilfered.

    “We have seen drug dealers go into this because it is easy access to money. Gangs go into this because it is easy access to money. Or at least they perceive it that way,” Keneally said, while adding: “Please, if you quote me on saying ‘It is easy access to money,’ include: ‘We are changing that equation and we are adding risk to that.’ ” The average prison sentence for taxpayer identity theft last year was more than three years, and the longest was 26 years.

    The problem is that even as prosecutions increase and the IRS improves its ability to stop many false tax returns up front, identity thieves also are increasing their efforts.

    “What the identity thieves do is play on volume,” Keneally said. “So if they file 10 returns and 9 are stopped, the 10th one went through and they got the money.”

    In case after case, court records show criminals have used tax-filing software to obtain refunds that are in the thousands of dollars, often receiving the funds paid via the US Treasury on debit cards or by direct deposit.

    Prisoners at jails across the country have obtained stolen Social Security numbers and filed thousands of false returns. Criminals in foreign locales have pilfered the personal information of Americans and received refunds. Thieves have even stolen the Social Security numbers of thousands of children, as well as tens of thousands of dead people, to obtain fraudulent tax refunds.

    A US Treasury audit released last September said that “billions of dollars in potentially fraudulent refunds continue to be paid” as a result of identity theft. If the problem is not stopped, the IRS could issue $21 billion in fraudulent refunds in the next five years, according to testimony by the Treasury Department’s inspector general for tax policy, J. Russell George.

    The IRS has disputed that estimate, saying it has improved its ability to detect identity theft. But a spokesman said the agency doesn’t have enough information to provide its own estimate of how much has been paid so far in fraudulent refunds.

    Continued in article

    Jensen Comment
    I used to wait until April to file my tax returns. Not anymore! For the past two years I filed a soon as the IRS will accept electronic filings. I hope to beat the bad guys who might want a phony tax refund using my ID information.

    IRS ID theft is one of those frauds that will probably forever be a major problem. The problem is that there is so much of this fraud that our prisons cannot hold all the crooks, and most of the crooks are so poor that fines are a sick joke. Many of them are not even citizens of the USA. Deport them one day, and they're back in the USA the next day.

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

    Just in Time to File for Illegal Tax Refunds
    "Hackers Make Off With 300,000 Personnel Records at U. of Maryland," Chronicle of Higher Education, February 20, 2013 ---
    http://chronicle.com/blogs/ticker/hackers-make-off-with-300000-personnel-records-at-u-of-maryland/73213?cid=at&utm_source=at&utm_medium=en

    Not Necessarily "All" --- But This is a Good Listing
    "Here Are All The Things You Can't Deduct On Your Taxes," Robert E. Flach, Business Insider, February 20, 2014 ---
    http://www.businessinsider.com/non-deductable-items-taxes-2014-2 

    "'Dirty Dozen' tax scam list now includes telephone scams," by Alistair M. Nevius, Journal of Accountancy, February 19, 2014 ---
    http://www.journalofaccountancy.com/News/20149633.htm

    The IRS also warns that some telephone scams target recent immigrants, who are threatened with arrest or deportation if they do not pay up promptly. The IRS asks that taxpayers who think they are being targeted by phone scammers to contact the Service at 800-829-1040, the Treasury Inspector General for Tax Administration at 800-366-4484, and the Federal Trade Commission using the FTC Complaint Assistant at FTC.gov.

    The rest of the “Dirty Dozen” is similar to last year’s list:

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

    From the CFO Journal's Morning Ledger on February 3, 2014

    U.S. companies are spending a lot more time explaining how they’re navigating the financial turmoil in Latin America
    During 3M‘s conference call with analysts last week, Venezuela proved to be a bigger talking point than China, even though the company’s Chinese sales are about 20 times its Venezuelan sales,     the WSJ’s James R. Hagerty and Robert Tita report. Weakness in Latin America helped hold 3M’s Q4 sales growth slightly below Wall Street expectations. CFO David Meline told analysts that the company’s sales declined in Venezuela last year, and that the company is trying to minimize its currency exposure there. 3M has “a little less” than $200 million of annual sales in Venezuela and a similar amount in Argentina, he said. One worry is that 3M’s Venezuela subsidiary owes $40 million to the parent company for imported goods, Mr. Meline said, adding: “That is something that we are watching and managing quite carefully, because we do recognize that there is risk there that we are going to have to manage through.”

    Companies should avoid relying on income from Latin American subsidiaries to repay dollar-denominated loans, said Michael Feder, a managing director at business consulting firm AlixPartners. If Latin American currencies continue to weaken, such loans will be more expensive to repay. “There’s no hedging policy that people can use to offset the significant risk of inflation or the risk of currency devaluation,” said Mr. Feder. His advice: “Focus on making these operations as self-sufficient as they can be.”

    CNH Industrial, the world’s second-largest seller of farm machinery behind Deere, reported last week that unfavorable currency movements turned what would have been a 4.2% increase in fourth-quarter revenue from a year earlier into a 1% decline, to $9.34 billion. Brazil is a major market for CNH, and the weakening of the Brazilian real cut the value of those sales in dollar and euro terms. “We had very good performance in Latin America,” said CEO Richard Tobin. “Unfortunately, we’re losing some of it in foreign exchange coming back.”

     

    "You Should Read Paul Krugman On The Emerging-Market Turmoil," by Joe Weisenthal, Business Insider, February 2, 2014 ---
    http://www.businessinsider.com/paul-krugman-on-em-2014-2

    From the CFO Journal's Morning Ledger on January 24. 2014

    Investors flee developing countries
    Investors are dumping currencies in emerging markets, underscoring growing anxiety about the ability of these countries to prop up their economies as they face uneven growth,     the WSJ reports. The emerging-market slide reflects worries about outside forces—such as a shift in U.S. monetary policy, or China’s efforts to reorient its economy—colliding with domestic political and economic tensions, unsettling investors at home and abroad. The current situation puts the central banks of developing countries in a squeeze. If they raise interest rates to curb currency losses and fight inflation, that would also tighten the spigot of credit and slow domestic economic growth. But a failure to raise rates at the right time can diminish the central bank’s credibility.

    The Emerging Market Currency Bloodbath In One Horrific Chart  ---
    http://www.businessinsider.com/chart-emerging-market-currency-weakness-2014-1

    "Mead Johnson Nutrition adopts mark-to-market pension accounting to boost earnings," by Barry B. Burr, Pensions and Investments, January 31, 2014 ---
    http://www.pionline.com/article/20140131/ONLINE/140139955/mead-johnson-nutrition-adopts-mark-to-market-pension-accounting-to-boost-earnings

    Mead Johnson Nutrition Co., Glenview, Ill., plans to adopt mark-to-market pension accounting, starting with the current quarter, which ends March 31, to bolster earnings, according to a filing Friday with the Securities and Exchange Commission.

    “As a result, we expect the change in accounting to have a positive impact on 2014 non-GAAP earnings,” the filing said, referring to generally accepted account principles. “This will not, however, reflect a change in the underlying business performance.”

    For 2013, it reported $43.1 million in pension and other postemployment retirement benefit plan expense.

    The company had $312.1 million in defined benefit pension assets and $463.6 million in liabilities as of Dec. 31, 2012, the latest data available. It made $28.1 million in pension contributions in 2012.

    Jensen Comment
    Such short term unrealized ups and downs of earnings, in my viewpoint, fictionalize earnings and obscure realized earnings in the firms eps index. Fair values of pension funds should be disclosed, but I do not think these unrealized ups and downs should be factored into eps.

     

    "50 Smartest Companies in 2014," MIT's Technology Review, February 2014 ---
    http://www.technologyreview.com/featuredstory/524671/50-smartest-companies-2014/?utm_campaign=newsletters&utm_source=newsletter-daily-all&utm_medium=email&utm_content=20140218

    "An Innovation Stifler?" by Doug Lederman, Inside Higher Ed, February 17, 2014 ---
    http://www.insidehighered.com/news/2014/02/17/u-people-earns-accreditation-challenging-view-agencies-stifle-innovation

    An accrediting agency just approved a free, online university with a largely volunteer faculty. Is accreditation really the squelcher of experimentation it is made out to be?

    Jensen Comment
    I think accreditation became somewhat of a joke when for-profit universities commenced to buy up small, remote, and bankrupt colleges for no reason other than to buy the accreditations of those bankrupt colleges. Then the for-profit universities declared that their massive online education programs were also  "accredited."

    Accreditation does indeed stifle some "innovation." When a diploma mill does "innovate" and let you buy a baccalaureate degree in two weeks or even a year lack of accreditation is stifling such "innovation."

    The gray zone is indeed the serious University of the Free People. What would help to lend credibility is to publish the resumes of faculty, syllabi, and grading distributions (or at least median course grades). Not all prestigious universities meet these criteria, but when you are doing something truly innovative like the University of the Free People you have to try harder to prove your case.

    Personally, I don't have a lot of hope for the long-term of a university comprised of volunteer faculty. It will be really tough to sustain a core faculty for the long term. And with faculty coming and going through a revolving door it will be very hard to maintain academic standards and reputation. A college's reputation is built upon its faculty and student admissions criteria. A revolving door faculty with open admi8ssions will be very hard to sustain, and reliance on a few huge donors creates problems of independence, especially when in terms of academic standards when the donors favor certain types of applicants.

    Another problem will be to have a balanced curriculum. For example, it may be possible to have some great volunteer faculty in the humanities, but when it comes down to faculty of the professions like computer science, information technology, systems engineering, chemical engineering, electrical engineering, accounting, premed, etc. it may be very tough to recruit volunteer faculty having great employment opportunities in traditional colleges and universities.

    At some point, it would seem that taxpayers or student tuition funding will eventually have to provide steady employment opportunities. The days of church support are numbered except for seminaries and some colleges with a very long history of support from a church. And most of those church-supported colleges are no longer tuition free for all students. Some states are now seriously trying to make community colleges tuition free, but these colleges are taxpayer funded.

    And I hate to sound arrogant, but volunteer universities also have to beware of offering false hopes. Universities having low admissions standards that promise careers in the professions can mislead students. For example, suppose such a university has a a premed program for low SAT students. If those students graduate and have MCAT scores too low for medical school, a college is misleading those students. Some colleges have accounting programs that rarely, if ever, have CPA alumni. Some law schools that offer promising careers in law have less than 50% passage rates on the BAR exam due in large measure to low admission standards.

    Bob Jensen's threads on accreditation issues are at
    http://www.trinity.edu/rjensen/Assess.htm#AccreditationIssues

    An Innovation Stifler
    "Professor Told to Remove Blow-Up Dolls From Office," Inside Higher Ed, February 17. 2014 ---
    http://www.insidehighered.com/quicktakes/2014/02/17/professor-told-remove-blow-dolls-office 

    "Former Christian radio host charged in Ponzi scheme," by Stephen Thompson, St. Petersburg Tribune, January 30, 2013 ---
    http://tbo.com/pinellas-county/former-christian-radio-host-charged-in-ponzi-scheme-20140130/

    Gary L. Gauthier, the former host of a Saturday morning Christian radio show called “It’s God’s Money,” is one of two men arrested this month in a Ponzi scheme that defrauded 38 people in the Tampa Bay area of $6 million, according to court documents.

    Gauthier, 64, who now lives in Okemos, Mich., was arrested last week in Tampa, according to the Florida Department of Law Enforcement. David George Dreslin, 54, of Seminole, was arrested earlier in the month, the FDLE reported.

    The two are charged with one count of racketeering, one count of conspiring to engage in a pattern of racketeering activity, two counts of organized fraud, six counts of the sale of an unregistered security, six counts of the sale of a security by an unregistered dealer and two counts of security fraud.

    Dreslin attracted people through his accounting practice, and Gauthier’s victims were the listeners of his Tampa radio shows, “It’s God’s Money” and “It’s All About Florida Real Estate,” the documents say.

    They were, for a time, broadcast on Tampa radio station WTBN and WGUL. General manager Barbara Yoder didn’t return a telephone call Wednesday for comment.

    “A majority of the victims stated they relied upon the statements made by Gauthier because they were made on a Christian radio station,” according to the document charging the pair.

    “Most of the victims were elderly, ... over the age of 60,” the document says.

    Denise Ferrari, a 62-year-old retired dental technician and postal worker living in Clearwater, was one of the victims. She said she was persuaded to deposit her $86,000 IRA in a company set up by the two men, and now she’s suing them to get the money back.

    “They put this guy on the air,” Ferrari said. “Folks called in and said, ‘We don’t have to work again because we invested in Gary Gauthier.’

    “I was shocked to find out it was a Ponzi scheme,” Ferrari said. “How was I to know? How were the victims to know?”

    The scheme occurred from April 20, 2005, through Aug. 15, with the men soliciting people in Pasco, Pinellas and Hillsborough counties.

    On his radio shows, Gauthier provided a telephone number listeners could call so he could meet them at their homes, a restaurant or in Dreslin’s office, the documents state.

    The people were encouraged to invest tens of thousands of dollars in various real estate development projects, the documents say. They were told they would see a return of 8 percent to 40 percent in a relatively short period, the documents state.

    But in most cases they saw no return on their investment, and “as a result, victims have lost their homes and many have lost their entire retirement,” the documents say.

    “Gauthier and Dreslin convinced them to liquidate their annuities, cash out their retirement accounts and, in some instances, to take cash out of the equity of their homes to invest in various pre-construction or existing real estate ventures,” the charging document states.

    And contrary to what clients were told, Gauthier and Dreslin didn’t put up their own money for the ventures, the documents state.

    Continued in article

    Bob Jensen's threads on Ponzi frauds ---
    http://www.trinity.edu/rjensen/FraudRotten.htm#Ponzi

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

    "Microfinance Has Been A Huge Disappointment Around The World The Conversation Kamal Munir," University of Cambridge
    Read more: http://www.businessinsider.com/microfinance-has-been-a-huge-disappointment-around-the-world-2014-2#ixzz2tgNKlCBC

    . . .

    Painting all the women in the world as heroic entrepreneurs doesn’t actually make them so. They are heroic all right, given the struggle they lead against brutal poverty – but entrepreneurial ventures have always had a high mortality rate. And there aren’t that many which can deliver the kind of returns one requires to be able to pay back interest rates in excess of 40%. Given that much of the loaned money is actually used for consumption, the chances of getting into debt are always high.

    Realising that poverty alleviation was an unsustainable and unachievable goal, the micro-credit industry shifted the goal posts. “Financial inclusion” was the new aspiration, which in practice meant access to credit, insurance and other financial products. This was based on the old Milton Friedman claim that the only difference between the poor and the rich was access to capital.

    The term micro-credit became microfinance and poverty alleviation quietly moved out of the spotlight. The fact that most borrowers were using the loans for consumption rather than production was not taken as a failure to achieve the original goal either. Instead, this “consumption smoothing” was celebrated as another achievement.

    Microfinance then had two different realities. One was the global celebration of this market-based model for poverty alleviation. The other was the cruel reality of many borrowers caught up in debt cycles and struggling against an oppressive neoliberal world order where the proportion of incomes spent on health, education and food kept going up.

    Read more: http://www.businessinsider.com/microfinance-has-been-a-huge-disappointment-around-the-world-2014-2#ixzz2tgNvkHQn

    Jensen Comment
    Corruption at all levels of government merely adds more pain to misery built upon a foundation of over population.

     

    The 10 worst stock market crashes in U.S. History ---
    http://dprogram.net/2008/10/08/the-10-worst-stock-market-crashes-in-us-history/

    "Jeopardy's Controversial New Champion Is Using Game Theory To Win Big," by Eric Levinson, Business Insider, February 1, 2014 ---
    http://www.businessinsider.com/jeopardys-controversial-new-champion-is-using-game-theory-to-win-big-2014-2

    . . .

    It's Arthur's in-game strategy of searching for the Daily Double that has made him such a target. Typically, contestants choose a single category and progressively move from the lowest amount up to the highest, giving viewers an easy-to-understand escalation of difficulty. But Arthur has his sights solely set on finding those hidden Daily Doubles, which are usually located on the three highest-paying rungs in the categories (the category itself is random). That means, rather than building up in difficulty, he begins at the most difficult questions. Once the two most difficult questions have been taken off the board in one column, he quickly jumps to another category. It's a grating experience for the viewer, who isn't given enough to time to get in a rhythm or fully comprehend the new subject area. And it makes for ugly, scattered boards, like above.

     

    However, Wednesday's game showed the benefits of that strategy. Arthur's searching was rewarded with all three of the game's Daily Doubles. Arthur was particularly fond of the "true" Daily Double, wagering all his money the first time (he lost it all) but quickly recovering with a massive wager later on another Daily Double. While most contestants are hesitant to go all-or-nothing, Arthur is happily taking those calculated risks.

    One Daily Double, in which he wagered just $5, was particularly strange. Arthur's searching landed him a Daily Double in a sports category, a topic he knew nothing about. (Ever the joker, he tweeted he'd rather have sex with his wife than learn about sports). Most contestants will avoid their topics of weakness, but not Arthur. Instead, he wagered just $5 on the sports question, effectively making its specifics irrelevant. Trebek and the audience giggled, and when the question came, Arthur immediately blurted out "I don't know." But that wasn't a waste of a Daily Double, as he kept that question out of the hands of the other contestants. Winning in Jeopardy just means beating the other two, and this strategy made that possible.

    Continued in article

    "Solar Thermal Technology Poses Challenges for Drought-Stricken California:  Reducing water consumption at solar thermal plants raises costs and decreases power production," by Kevin Bullis, MIT's Technology Review, February 2, 2014 --- Click Here
    http://www.technologyreview.com/news/523856/solar-thermal-technology-poses-challenges-for-drought-stricken-california/?utm_campaign=newsletters&utm_source=newsletter-daily-all&utm_medium=email&utm_content=20140203

    California’s ambitious goal of getting a third of its electricity from renewable energy sources by 2030 is being tested by its driest year on record, part of a multiyear drought that’s seriously straining water supplies. The state plan relies heavily on solar thermal technology, but this type of solar power also typically consumes huge quantities of water.

    The drought is already forcing solar thermal power plant developers to use alternative cooling approaches to reduce water consumption. This will both raise costs and decrease electricity production, especially in the summer months when demand for electricity is high. Several research groups across the country are developing ways to reduce those costs and avoid reductions in power output.

    Solar thermal power plants use large fields of mirrors to concentrate sunlight and heat water, producing steam that spins power-plant turbines. Utilities like them because their power output is much less variable than power from banks of solar panels (see “BrightSource Pushes Ahead on Another Massive Solar Thermal Plant” and “Sharper Computer Models Clear the Way for More Wind Power”).

    The drawbacks are that solar thermal plants generate large amounts of waste heat, and they consume a lot of water for cooling, which is usually done by evaporating water. Solar thermal plants can consume twice as much water as fossil fuel power plants, and one recently proposed solar thermal project would have consumed about 500 million gallons of water a year.

    Continued in article

    "Lake Mead is shrinking -- and with it Las Vegas' water supply," CBS News," January 30, 2014 ---
    http://www.cbsnews.com/news/lake-mead-is-shrinking-and-with-it-las-vegas-water-supply/

    When you head out on Nevada's Lake Mead, the first thing you notice is a white line. That's where the water used to be.

    What did this look like a decade ago?

    "This was all underwater," said Pat Mulroy, the general manager of the Southern Nevada Water Authority. "I mean boats were everywhere. There was a whole marina here."

    Mulroy said that the drought began 14 years ago. Satellite photos show the Colorado River, which feeds Lake Mead, is drying up -- so the lake is rapidly shrinking. Islands are growing, and boats are floating far from where they once we

    "It's a pretty critical point," Mulroy said. "The rate at which our weather patterns are changing is so dramatic that our ability to adapt to it is really crippled."

    Lake Mead was created by the Hoover Dam in 1935. It provides water for 20 million people in southern Nevada, southern California and Arizona. Since 2000, the lake has lost 4 trillion gallons of water. 

    The bathtub ring is going to get bigger. Lake Mead is expected to drop at least another 20 feet this year. If it does that could trigger automatic cuts to the water supply for Nevada and Arizona.

    That would hit Las Vegas hard. Ninety percent of the area's water comes from the lake. At least one of the city's two intake pipes could soon be above water. So to save the water supply Nevada is rushing to build a third intake even deeper.

    Concrete slabs are being lowered 650 feet underground where a massive drill is creating a three-mile-long tunnel, one inch per minute. The project should be finished next year and costs $817 million.

    "We're really scrambling to make sure that this intake is done in time before we lose our first intake," said J.C. Davis, the project's spokesperson. "Without Lake Mead, there would be no Las Vegas." 

    Despite its wasteful reputation, Las Vegas actually reuses 93 percent of its water. It's paid homeowners $200 million to rip up their thirsty lawns. The city added 400,000 people last decade but cut its water use by 33 percent.

    "All of us are in it together, and all of us are either going to survive this or all of us are going to feel the consequences," Mulroy said.

    The consequences of a western resource in retreat.

    Purportedly the best is Harvard University and the worst is Tilburg University in The Netherlands
    "The Best And Worst Business Schools, According To Alumni," by  John A. Byrne, Financial Times via Business Insider, February 2014

    . . .

    This year, some 10,986 alumni completed the survey — a response rate of 47%. But The Financial Times says that it also added the views of respondents from one or two preceding years when available. In other words, these recommendations are the basis of tens of thousands of alumni over several years.

    Which schools consistently are most highly recommended? Rather than look at one-year results, we crunched the numbers on the last five years from 2014 to 2010 to give a far more reliable look at the best and the worst. By taking that longer view, applicants can also see schools that may be trending up or down in satisfaction. Yale University’s School of Management is definitely doing better, improving its recommendation rank to 17 this year from 23 in 2010. UCLA’s Anderson School is going the other way, ranking 24th this year from 17 five years ago.

    Surprisingly, though, there was remarkable consistency for the best schools over the five-year period. Many schools stayed within a range of two to three places over the entire span. This was less true for the schools in the bottom 10% where MBA programs are far more likely to pop in and out of the FT’s ranking of the Top 100 schools. It’s relatively rare for a school near the bottom to have a full five-year data set.

    What we especially like about the results is that they are intuitive which suggests a high degree of reliability. After all, if a school like Hult International was ahead of a school like INSEAD you would have to scratch your head. That’s certainly not the case here. In fact, the top five schools scoring the best recommendations from their alumni are all familiar prestige names: No. 1 Harvard Business School, which has been ranked first for each of the past five years, No. 2 Stanford Graduate School of Business, No. 3 UPenn’s Wharton School, No. 4 London Business School, and No. 5 Northwestern University’s Kellogg School of Management.

    U.S. business schools dominate the top quartile of these highly recommended schools, with 19 of the top 25 based in America. Five European schools make the list. After London, it’s INSEAD in France and Singapore, IMD in Switzerland, IESE Business School in Spain, and HEC Paris in France. Only one Canadian school makes the cut: The University of Toronto’s Rotman School of Management.

    And the schools at the bottom? They’re led by Tilburg University in The Netherlands which this year was ranked dead last in recommendations at 100th. Portugal’s Lisbon MBA is next, followed by University College Dublin’s Smurfit School, Hult International, and the University of Pittsburgh’s Katz School in the bottom 10%.

    John Delaney, the dean of Katz, acknowledges the disappointing survey results for his school but notes that he and his staff have been working especially hard in the past two to three years to improve things. The school has made a concerted effort to focus on processes that make it easier for students to change courses and to get into high-demand classes as well as processes related to careers and employment. He says that Katz’s internal surveys show improvement in student satisfaction which he expects to be reflected in future surveys of alumni.

    To be fair, it’s worth pointing out that these schools are among the top 1% in the world. Otherwise, they would even be ranked among the top 100 by The Financial Times. So even those that are scoring at the bottom of the recommendation file are very good programs. Against this peer set, however, the competition is extremely tough and unrelenting.

    For the best of the bunch, we imposed one rule: That each school received a recommendation rank in each of the five years studied. That rule brings a greater degree of confidence that these MBA programs are the most recommended in the world. For the group of schools in the bottom 10%, we insured that every MBA program had at least two years worth of rankings data. Obviously, these schools tend to move on and off the FT’s radar screen, a natural consequence of being near the bottom of the list.

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

     

    The First in a Series of Posts About Flipping the Classroom (i.e., more asynchronous learning)

    "The inverted calculus course:  Overture," by Robert Talbert, Chronicle of Higher Education, January 27, 2014 ---
    http://chronicle.com/blognetwork/castingoutnines/2014/01/27/the-inverted-calculus-course-overture/?cid=wc&utm_source=wc&utm_medium=en

    Bob Jensen's threads on asynchronous learning ---
    http://www.trinity.edu/rjensen/255wp.htm

    Treasury explains how "MyRA" retirement accounts work ---
    http://www.smartbrief.com/01/29/14/treasury-explains-how-myra-retirement-accounts-work-5#.Uu-pzLRjU3g

    "MyRAs - Washington's Latest Scam," by Star Parker, Townhall, February 2, 2014 ---
    http://townhall.com/columnists/starparker/2014/02/03/myras--washingtons-latest-scam-n1787716?utm_source=thdaily&utm_medium=email&utm_campaign=nl

    . . .

    If handled correctly, the State of the Union should be like the annual report of a corporate chief executive to shareholders. It should convey key information so that stakeholders know what’s going on.

    But that’s not what happens. This isn’t about informing stakeholders. It’s about political calculations and pitching a laundry list of proposals, invariably with wonderful benefits, and rarely any perceivable costs, designed to make the President and his party look good.

    President Obama introduced in this year’s State of the Union address his proposal to create new retirement accounts for, in the words of the White House, “the millions of low and middle-income households earning up to $191,000.” What they are calling “MyRAs.”

    How could enhancing retirement savings not be a good idea? And, even better, it is a free lunch. Again in the words of the White House, “the account balance will never go down in value” and will be totally secure because it will be “backed by the U.S. government.”

    President Obama is creating these accounts with the greatest of ease, without even a new law from Congress, by doing what he has done better than any president in American history. Drive the U.S. government into debt.

    These wonderful new retirement accounts will receive bonds from the U.S. Government. And who guarantees them?

    Please, dear reader, if you are a U.S. taxpayer, look in the mirror and say “me.”

    If the State of the Union was really about the president informing Congress and the nation, he would have reported the following from the recent 2013 Long-Term Budget Outlook report of the Congressional Budget Office:

    “Federal debt held by the public is now about 73 percent of the economy’s annual output…higher than at any point in U.S. history, except a brief period around World War II, and it is twice the percentage at the end of 2007.”

    “CBO projects,” the report continues, “that federal debt held by the public would reach 100 percent of GDP by 2038….even without accounting for the harmful effects that growing debt would have on the economy.”

    Meanwhile, as President Obama uses U.S. government bonds to create magical new risk-free retirement savings accounts, there was not a word in the State of the Union of the broken state of affairs of the government’s oldest retirement plan – Social Security.

    According to Social Security’s latest trustees report, the revenue shortfall, in today’s dollars, of projected requirements of Social Security to meet its long-term obligations is $9.6 trillion. Beginning in 2033, when those now in their late forties start retiring, there will be only funds “sufficient to pay 77 percent of scheduled benefits.”

    If the president really wants to enhance retirement savings of low and middle income Americans, and create real savings and investment while addressing the fiscal disaster of Social Security, let these folks opt out of the Social Security black hole and use those funds to open a real retirement account.

    This is what was done in Chile and it worked. The Chilean economy grew because the new retirement accounts directed investments into the real economy (as opposed to creating more government debt) and Chilean workers have achieved real returns and newly created wealth.

    Wouldn’t it be novel if the president really reported on the State of the Union each year and if we solved our existing problems before creating new ones?

    "MyRAs Are the Wrong Way of Helping Ordinary People Save Money," by  Daniel J. Mitchell, Townhall, February 3, 2014 ---
    http://finance.townhall.com/columnists/danieljmitchell/2014/02/03/myras-are-the-wrong-way-of-helping-ordinary-people-save-money-n1788645?utm_source=thdaily&utm_medium=email&utm_campaign=nl

    . . .

    There are some good features to the MyRA plan, most notably the fact that money in the accounts would be protected from double taxation. Workers would put after-tax money in the accounts, but there would be no additional layers of tax on any earnings, or when the money is withdrawn.

    In other words, a MyRA would be akin to a back-ended (or Roth) IRA.

    But there are some bad features, including the fact that taxpayers would be subsidizing the earnings, or interest, paid to account holders (though this would be a relatively benign form of government spending, at least compared to Obamacare, ethanol, etc, etc).

    My biggest complaints, though, are the sins of omission, which I discuss in this interview for Blaze TV.

    Simply stated, if Obama was concerned about low returns for savers, he should be directing his ire at the Federal Reserve, which has artificially pushed interest rates to very low levels as part of its easy-money policy.

    But more importantly, MyRAs will be very inadequate for most workers with modest incomes. If the President really wanted to help ordinary people save for retirement, he would follow the successful example of more than 30 other nations and allow workers to shift their payroll taxes into personal retirement accounts.

    Critics say it would be very expensive to make a transition to this modern system, and they’re right. If we let younger workers put their payroll taxes in a personal accounts, we’ll have to come up with a new source of revenue to finance benefits being paid to current retirees and older workers.

    And we’re talking lots of money, as much as $7 trillion over the next few decades.

    But that’s a lot less than the $36 trillion cash shortfall that we’ll have to somehow deal with if we maintain the current system.

    In other words, we’re in a very deep hole. But if we shift to personal retirement accounts, the hole won’t be nearly as large.

    P.S. The video mentions that Chile and Australia deserve special attention. Click here if you want to learn about Chile’s successful system and click here if you want to see how Australia’s “superannuation” system has been a big winner.

    Continued in article

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

    "Seven ways for small businesses to rein in health care costs," by Ken Tysiac, Journal of Accountancy, February 2014 ---
    http://www.journalofaccountancy.com/News/20149468.htm

    New health care regulations in the United States have small business leaders bracing for increased costs and eager to save where they can.

    Although it was delayed a year, the employer mandate in the Patient Protection and Affordable Care Act (PPACA), P.L. 111-148, takes effect Jan. 1, 2015. Businesses with 50 or more full-time-equivalent employees (FTEs) will be forced to pay a penalty if they do not provide minimum essential health insurance coverage for employees.

    Small businesses that already provide employees with health insurance—which have faced rising costs for years—may face additional premium increases as an indirect result of the new legislation, experts say.

    Small businesses with 25 or fewer employees and average annual wages of less than $50,000 should determine if they are eligible to claim the credit of up to 50% of nonelective contributions they make on behalf of their employees for insurance premiums.

    And experts advise employers to start considering all their options now instead of waiting until the end of the year.

    In this environment, experts said during a recent AICPA webcast devoted to health care reform, numerous insurance options are emerging for small businesses as insurers develop new products that could provide better coverage and minimize cost increases

    One of the first questions businesses with 50 or more FTEs may want to consider is whether to provide health insurance to their employees or pay a penalty of $2,000 per year per employee (the first 30 employees are exempt). Brian Marks, an executive director at Virginia-based consultancy Digital Benefit Advisors, said that if direct costs were the only consideration, most 100-employee companies he knows would save money by paying the penalty.

    But there are a lot of other factors to consider.

    “Strategically how important is it to offer those benefits?” Marks asked on the AICPA webcast. “What do your employees need? And yet, can you sustain your current cost trend? Historically it has been pretty important to offer health coverage. Is it still?”

    Marks said he doesn’t foresee a lot of employers deciding to pay the penalty, but he said companies will have to analyze the possibility. The drawbacks of paying the penalty rather than providing insurance include:

    • Damaging morale. Declining to make this investment in employees could lead to resentment in the workplace. Associated consequences could include reduced productivity and retention problems.
    • Recruiting difficulties. Deciding not to provide coverage may hurt a company’s chances to attract potential employees who view employer-provided health insurance as an important benefit.
    • Reputational risks. Potential customers may take a negative view of companies that do not provide health insurance to employees. This could particularly be a concern if a company’s competitors or peers provide coverage, so it may be important for management to consider whether competitors choose to pay the penalty or provide health insurance.


    “A lot of employers don’t want to be the first one that drops coverage,” said Laura Westfall, a lawyer and associate with King & Spalding in New York who specializes in employee benefits. “And that is because of the … effect that will have on public opinion, in part.”

    Continued in article

    From the CFO Journal's Morning Ledger on February 26, 2014

    Fear of cyberattacks is forcing companies to reassess how much they spend on their defenses
    A     new report by BAE Systems Applied Intelligence shows that almost 60% of top companies in the U.S., Canada, Britain and Australia have boosted their spending on cyberdefenses since the data breach at Target. Reuters notes that U.S. businesses already spend 15% of their entire IT budgets on improving security—and the percentage looks set to rise.

    The Obama administration earlier this month issued guidelines urging companies in important industries such as energy, banking and telecommunications to do more to protect and monitor their networks, and to train employees. But some business groups criticized the proposal, saying it would push them to spend money for uncertain benefits, writes the WSJ’s Danny Yadron. Increased spending might not make sense for an individual company, they say, even if it might make the nation safer. Obama administration officials say they understand companies’ concern. “The amount of cash you have doesn’t change,” said Phyllis Schneck, the Department of Homeland Security’s deputy undersecretary for cybersecurity. Ms. Schneck said Washington’s guidelines will prompt “some really hard discussions” in boardrooms about the risks of cyberattacks.

    Companies wrestle daily with the question of how much security is enough, Yadron notes. But part of the problem is that it’s a lot cheaper to hack than to defend against a hack. For $1 million, Richard Bejtlich, chief security strategist at FireEye and a former cyberinvestigator for the U.S. Air Force, said he could assemble a team that could hack into nearly any target. But $1 million wouldn’t be nearly enough for a company to defend itself. Mr. Bejtlich agrees with other executives who say that if the government wants businesses to improve cyberdefenses, it should subsidize the cost—possibly with tax breaks.

    From the CFO Journal's Morning Ledger on February 26, 2014

    Target‘s fiscal Q4 results should leave little doubt that the retailer is damaged goods, writes Ahead of the Tape’s Spencer Jakab. Direct compensation for last year’s data breach could exceed $1 billion. Plus, new payment technology could cost $100 million; free credit monitoring for customers, about the same amount again. Add to that the immediate hit to earnings because of lower traffic, as well as discounts during the last week of the holiday season. All told, costs are around $1.4 billion before any continuing impact on sales.

    "How to Explore Cause and Effect Like a Data Scientist," by Thomas C. Redman, Harvard Business Review Blog, February 19, 2014 --- Click Here
    http://blogs.hbr.org/2014/02/how-to-explore-cause-and-effect-like-a-data-scientist/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+harvardbusiness+%28HBR.org%29&cm_ite=DailyAlert-022014+%281%29&cm_lm=sp%3Arjensen%40trinity.edu&cm_ven=Spop-Email

    Jensen Comment
    This is the way analysts mislead readers about studies that imply if you get a college degree your chances (as one person) are increased for substantially higher income. That is true if you become licensed in one of the professions that require college degrees such as law, medicine, and the CPA profession that now requires 150 credits of college.

    But it is not necessarily true in general. How the analysts mislead is that they imply college is the cause of higher lifetime earnings. Actually the college degrees are correlated with income generating attributes such a work ethic, motivation, intelligence, family financial support (say to start a business). and lots of serendipity and luck. Those are the underlying causal factors of success that are correlated with college performance. In research, to find causal factors we have to drill down deeper that what big data can provide in the way of underlying causes.

     

    "Study: Spanking linked to lower IQ," Breitbart, September 25, 2009 ---
     http://www.breitbart.com/article.php?id=upiUPI-20090925-121520-9596&show_article=1&catnum=0

     
    Statistics Lesson for the Week:  Spanking is a cause of lower IQ?
    U.S. children who were spanked had lower IQs four years later than those not spanked, researchers found. University of New Hampshire Professor Murray Straus, who is presenting the findings Friday at the 14th International Conference on Violence, Abuse and Trauma, in San Diego, called the study "groundbreaking." "The results of this research have major implications for the well being of children across the globe," Straus said in a statement. "It is time for psychologists to recognize the need to help parents end the use of corporal punishment and incorporate that objective into their teaching and clinical practice." "How often parents spanked made a difference. The more spanking the, the slower the development of the child's mental ability," Straus said. "But even small amounts of spanking made a difference."
    "Study: Spanking linked to lower IQ," Breitbart, September 25, 2009 ---
    http://www.breitbart.com/article.php?id=upiUPI-20090925-121520-9596&show_article=1&catnum=0
    Jensen Comment
    I think Straus was frequently spanked as a child. Could it be that lower IQ students get more frustrated and are inclined toward greater degrees of misbehavior?

    This is a little like the historic 0.63 correlation between stork nests and birth rates in Denmark --- http://www.jstor.org/pss/2983064

     

     Humor for February 1-28, 2014

    Cartoons from the March 2014 Issue of the Harvard Business Review ---
    http://blogs.hbr.org/2014/01/strategic-humor-cartoons-from-the-march-2014-issue/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+harvardbusiness+%28HBR.org%29&cm_ite=DailyAlert-020314+%281%29&cm_lm=sp%3Arjensen%40trinity.edu&cm_ven=Spop-Email
    There's a great deal of truth in the first cartoon, especially when it comes to some new upgrades of software.

    You've Got a Friend in Me --- http://www.youtube.com/embed/RR0BlQzbOUk?rel=0

    Yakov Smirnoff Remembers “The Soviet Department of Jokes” & Other Staples of Communist Comedy ---
    http://www.openculture.com/2013/12/yakov-smirnoff-remembers-the-soviet-department-of-jokes.html

    Bob Hope Entertaining the Troops --- http://biggeekdad.com/2011/02/bob-hope-christmas/

    Angry woman tows the tow truck --- http://zanylol.com/towed.html
    This may have been faked since the tow truck normally would have the brakes set.

    Photos of Men Who Hate Shopping ---
    http://www.businessinsider.com/photos-of-men-who-hate-shopping-2014-2

     

    Forwarded by Dr. Wolff

    Here are some little known, very interesting facts about Texas:

    1. Port Arthur to El Paso: 889 miles. Port Arthur to Chicago: 770 miles.

    2. Brownsville to Texline (north of Amarillo): 956 miles. Texline to Canada: 960 miles.

    3. El Paso is closer to California than to Dallas.

    4. World's first rodeo was in Pecos, Texas, July 4, 1883.

    5. The Flagship Hotel in Galveston is the only hotel in North America built over water. Destroyed by Hurricane Ike - 2008!

    6. The Heisman Trophy was named after John William Heisman who was the first full-time coach at Rice University in Houston, Texas.

    7. Brazoria County has more species of birds than any other area in North America.

    8. Aransas Wildlife Refuge is the winter home of North America's only remaining flock of whooping cranes.

    9. Jalapeno jelly originated in Lake Jackson in 1978.

    10. The worst natural disaster in US history was in 1900, caused by a hurricane in which over 8,000 lives were lost on Galveston Island.

    11. The first word spoken from the moon, July 20, 1969, was "Houston", but the Space Center was actually in Clear Lake City at the time.

    12. The King Ranch in South Texas is larger than the state of Rhode Island.

    13. Tropical Storm Claudette brought a US rainfall record of 43" in 24 hours in and around Alvin in July of 1979.

    14. Texas is the only state to enter the US by TREATY, (known as the Constitution of 1845 by the Republic of Texas to enter the Union) instead of by annexation. This allows the Texas Flag to fly at the same height as the US Flag, and Texas may choose to divide into 5 states.

    15. A Live Oak tree near Fulton is estimated to be 1500 years old.

    16. Caddo Lake is the only natural lake in the state.

    17. Dr Pepper was invented in Waco in 1885. There is no period in Dr Pepper.

    18. Texas has had six capital cities: Washington-on-the Brazos, Harrisburg, Galveston, Velasco, West Columbia, and Austin.

    19. The Capitol Dome in Austin is the only dome in the US which is taller than the Capitol Building in Washington, DC (by 7 feet).

    20. The San Jacinto Monument is the tallest free standing monument in the world and it is taller than the Washington Monument.

    21. The name 'Texas' comes from the Hasini Indian word 'tejas' meaning "friends". Tejas is NOT Spanish for Texas.

    22. The State Mascot is the Armadillo. An interesting bit of trivia about the Armadillo is they always have four babies. They have one egg, which splits into four, and they either have four males or four females.

    23. The first domed stadium in the US was the Astrodome in Houston.

    24. The Beck family ranch land grant is one days ride by horse (25 miles) in each direction from the headquarters.

    A Bit of Humor

    Cartoons from the March 2014 Issue of the Harvard Business Review ---
    http://blogs.hbr.org/2014/01/strategic-humor-cartoons-from-the-march-2014-issue/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+harvardbusiness+%28HBR.org%29&cm_ite=DailyAlert-020314+%281%29&cm_lm=sp%3Arjensen%40trinity.edu&cm_ven=Spop-Email
    There's a great deal of truth in the first cartoon, especially when it comes to some new upgrades of software.

    You've Got a Friend in Me --- http://www.youtube.com/embed/RR0BlQzbOUk?rel=0

    Yakov Smirnoff Remembers “The Soviet Department of Jokes” & Other Staples of Communist Comedy ---
    http://www.openculture.com/2013/12/yakov-smirnoff-remembers-the-soviet-department-of-jokes.html

    Bob Hope Entertaining the Troops --- http://biggeekdad.com/2011/02/bob-hope-christmas/

    Angry woman tows the tow truck --- http://zanylol.com/towed.html
    This may have been faked since the tow truck normally would have the brakes 

    How To Piss Off A Texan --- http://www.businessinsider.com/how-to-piss-off-a-texan-2014-2 

    The Conductor (even though the music bad) ---
    http://www.youtube.com/watch?v=i7W3ICpONVs

     

    Forwarded by Auntie Bev

    23 ADULT TRUTHS****** 

    1 Sometimes I'll look down at my watch 3 consecutive times and still not know what time it is.

    2. Nothing sucks more than that moment during an argument when you realize you're wrong. 

    3. I totally take back all those times I didn't want to nap when I was younger. 

    4. There is great need for a sarcasm font. 

    5. How the hell are you supposed to fold a fitted sheet? 

    6. Was learning cursive really necessary? 

    7. Map Quest really needs to start their directions on # 5. I'm pretty sure I know how to get out of my neighborhood. 

    8. Obituaries would be a lot more interesting if they told you how the person died.      

    9. I can't remember the last time I wasn't at least kind-of tired. 

    10. Bad decisions make good stories. 

    11. You never know when it will strike, but there comes a moment when you know that you just aren't going to do anything productive for the rest of the day. 

    12. Can we all just agree to ignore whatever comes after Blu-ray? I don't want to have to restart my collection...again. 

    13. I'm always slightly terrified when I exit out of Word and it asks me if I want to save any changes to my ten-page technical report that I swear I did not make any changes to.      

    14. I keep some people's phone numbers in my phone just so I know not to answer when they call. 

    15. I think the freezer deserves a light as well. 

    16. I disagree with Kay Jewelers. I would bet on any given Friday or Saturday night more kisses begin with Miller Light than Kay. 

    17. I wish Google Maps had an "Avoid Ghetto" routing option. 

    18. I have a hard time deciphering the fine line between boredom and hunger. 

    19. How many times is it appropriate to say "What?" before you just nod and smile because you still didn't hear or understand a word they said? 

    20. I love the sense of camaraderie when an entire line of cars team up to prevent a jerk from cutting in at the front. Stay strong, brothers and sisters! 

    21. Shirts get dirty. Underwear gets dirty. Pants? Pants never get dirty, and you can wear them forever. 

    22. Even under ideal conditions people have trouble locating their car keys in a pocket, finding their cell phone, and Pinning the Tail on the Donkey - but I'd bet everyone can find and push the snooze button from 3 feet away, in about 1.7 seconds, eyes closed, first time, every time.      

    23. The first testicular guard, the "Cup," was used in Hockey in 1874 and the first helmet was used in 1974. That means it only took 100 years for men to realize that their brain is also important. 

    Forwarded by Auntie Bev

    Why Did The Chicken Cross The Road?

    SARAH PALIN: The chicken crossed the road because, gosh-darn it, he's a maverick!

    BARACK OBAMA: Let me be perfectly clear, if the chickens like their eggs they can keep their eggs. No chicken will be required to cross the road to surrender her eggs. Period.

    JOHN McCAIN: My friends, the chicken crossed the road because he recognized the need to engage in cooperation and dialogue with all the chickens on the other side of the road.

    HILLARY CLINTON: What difference at this point does it make why the chicken crossed the road.

    GEORGE W. BUSH: We don't really care why the chicken crossed the road. We just want to know if the chicken is on our side of the road or not. The chicken is either with us or against us. There is no middle ground here.

    DICK CHENEY: Where's my gun?

    COLIN POWELL: Now to the left of the screen, you can clearly see the satellite image of the chicken crossing the road.

    BILL CLINTON: I did not cross the road with that chicken.

    AL GORE: I invented the chicken.

    JOHN KERRY: Although I voted to let the chicken cross the road, I am now against it! It was the wrong road to cross, and I was misled about the chicken's intentions. I am not for it now, and will remain against it.

    AL SHARPTON: Why are all the chickens white?

    DR. PHIL: The problem we have here is that this chicken won't realize that he must first deal with the problem on this side of the road before it goes after the problem on the other side of the road. What we need to do is help him realize how stupid he is acting by not taking on his current problems before adding any new problems.

    OPRAH: Well, I understand that the chicken is having problems, which is why he wants to cross the road so badly. So instead of having the chicken learn from his mistakes and take falls, which is a part of life, I'm going to give this chicken a NEW CAR so that he can just drive across the road and not live his life like the rest of the chickens.

    ANDERSON COOPER: We have reason to believe there is a chicken, but we have not yet been allowed to have access to the other side of the road.

    NANCY GRACE: That chicken crossed the road because he's guilty! You can see it in his eyes and the way he walks.

    PAT BUCHANAN: To steal the job of a decent, hardworking American.

    MARTHA STEWART: No one called me to warn me which way the chicken was going. I had a standing order at the Farmer's Market to sell my eggs when the price dropped to a certain level. No little bird gave me any insider information.

    DR SEUSS: Did the chicken cross the road? Did he cross it with a toad? Yes, the chicken crossed the road, but why it crossed I've not been told.

    ERNEST HEMINGWAY: To die in the rain, alone.

    JERRY FALWELL: Because the chicken was gay! Can't you people see the plain truth? That's why they call it the 'other side.' Yes, my friends, that chicken was gay. If you eat that chicken, you will become gay too. I say we boycott all chickens until we sort out this abomination that the Liberal media whitewashes with seemingly harmless phrases like 'the other side.' That chicken should not be crossing the road. It's as plain and as simple as that.

    GRANDPA: In my day we didn't ask why the chicken crossed the road. Somebody told us the chicken crossed the road, and that was good enough for us.

    BARBARA WALTERS: Isn't that interesting? In a few moments, we will be listening to the chicken tell, for the first time, the heart warming story of how it experienced a serious case of molting, and went on to accomplish it's lifelong dream of crossing the road.

    ARISTOTLE: It is the nature of chickens to cross the road.

    JOHN LENNON: Imagine all the chickens in the world crossing roads together, in peace.

    BILL GATES: I have just released eChicken2014, which will not only cross roads, but will lay eggs, file your important documents and balance your checkbook. Internet Explorer is an integral part of eChicken2014. This new platform is much more stable and will never reboot.

    ALBERT EINSTEIN: Did the chicken really cross the road, or did the road move beneath the chicken?

    Forwarded by Gene and Joan

    Ole Olson is on his deathbed and knows the end is near. He is with his nurse, his wife, his daughter and his two sons. "So", he says to them , "My oldest son Swen, I want you to take the Minnetonka houses; daughter Lena, take the apartments over in Edina; son Rasmus, I want you to take the offices over on Hennepin; and Gunhild, my dear wife, please take all the residential buildings downtown."

    The nurse is just blown away by all this, and as Ole slips away, she says, "Mrs. Olson, your husband must have been such a hardworking man to have accumulated all this property."

    Gunhild replies, "Property ?...The idiot had a paper route!"

    Forwarded by Paula

    Six year old Annie returns home from school and says she had her first family planning lesson at school.

    Her mother, very interested, asks; "How did it go?" "I nearly died of shame!" she answers.

    "Sam from over the road, says that the stork brings babies.

    Sally next door said you can buy babies at the orphanage.

    Pete in my class says you can buy babies at the hospital."

    Her mother answers laughingly, "But that's no reason to be ashamed."

    "No, but I can't tell them that we were so poor that you and daddy had to make me yourselves!"

    Forwarded by Paula

    This is something to think about when negative people are doing their best to rain on your parade.. So remember this story the next time someone who knows nothing and cares less tries to make your life miserable.

     

    A woman was at her hairdresser's getting her hair styled for a trip to Romewith her husband..  She mentioned the trip to the hairdresser, who responded:  

    " Rome?  Why would anyone want to go there? It's crowded and dirty. You're crazy to go to Rome.  So, how are you getting there?"

    "We're taking Continental," was the reply. "We got a great rate!"  

    "    Continental?" exclaimed the hairdresser. " That's a terrible airline. Their planes are old, their flight attendants are ugly, and they're always late. So, where are you staying in Rome  ?"

    "We'll be at this exclusive little place over on Rome 's     Tiber River called Teste.."  

    "Don't go any further. I know that place.  Everybody thinks its gonna be something special and exclusive, but it's really a dump."

    "We're going to go to see the Vatican and maybe get to see the Pope."

    "That's rich," laughed the hairdresser. You and a million other people trying to see him.  He'll look the size of an ant.

    Boy, good luck on this lousy trip of yours. You're going to need it."     

    A month later, the woman again came in for a hairdo. The hairdresser asked her about her trip to Rome . 

    "It was wonderful," explained the woman, "not only were we on time in one of Continental's brand new planes, but it was overbooked, and they bumped us up to first class. The food and wine were wonderful, and I had a handsome 28-year-old steward who waited on me hand and foot..  

    And the hotel was great! They'd just finished a $5 million remodeling job, and now it's a jewel, the finest hotel in the city. They, too, were overbooked, so they apologized and gave us their owner's suite at no extra charge!"

    "Well," muttered the hairdresser, "that's all well and good, but I know you didn't get to see the Pope."      

    "Actually, we were quite lucky, because as we toured the Vatican, a Swiss Guard tapped me on the shoulder, and explained that the Pope likes to meet some of the visitors, and if I'd be so kind as to step into his private room and wait, the Pope would personally greet me.  

    Sure enough, five minutes later, the Pope walked through the door and shook my hand! I knelt down and he spoke a few words to me.."      

    "Oh, really!  What'd he say ?"       

    He said: "Who f    **ked up your hair?

     

    Humor Between February 1-28, 2014 --- http://www.trinity.edu/rjensen/book14q1.htm#Humor022814

    Humor Between January 1-31, 2014 --- http://www.trinity.edu/rjensen/book14q1.htm#Humor013114

    Humor Between December 1-31, 2013 --- http://www.trinity.edu/rjensen/book13q4.htm#Humor123113

    Humor Between November 1-30, 2013 --- http://www.trinity.edu/rjensen/book13q4.htm#Humor113013

    Humor Between October 1-31, 2013 --- http://www.trinity.edu/rjensen/book13q4.htm#Humor103113

    Humor Between September 1 and September 30, 2013 --- http://www.trinity.edu/rjensen/book13q3.htm#Humor093013

    Humor Between July 1 and August 31, 2013 --- http://www.trinity.edu/rjensen/book13q3.htm#Humor083113

    Humor Between June 1-30, 2013 --- http://www.trinity.edu/rjensen/book13q2.htm#Humor063013

    Humor Between May 1-31, 2013 --- http://www.trinity.edu/rjensen/book13q2.htm#Humor053113

    Humor Between April 1-30, 2013 --- http://www.trinity.edu/rjensen/book13q2.htm#Humor043013

    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

    And that's the way it was on February 28, 2014 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

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    Yahoo (Practitioners)  http://groups.yahoo.com/group/xyztalk
    This forum is for CPAs to discuss the activities of the AICPA. This can be anything  from the CPA2BIZ portal to the XYZ initiative or anything else that relates to the AICPA.

    AccountantsWorld  http://accountantsworld.com/forums/default.asp?scope=1 
    This site hosts various discussion groups on such topics as accounting software, consulting, financial planning, fixed assets, payroll, human resources, profit on the Internet, and taxation.

    Business Valuation Group BusValGroup-subscribe@topica.com 
    This discussion group is headed by Randy Schostag [RSchostag@BUSVALGROUP.COM] 

     

     

    Concerns That Academic Accounting Research is Out of Touch With Reality

    I think leading academic researchers avoid applied research for the profession because making seminal and creative discoveries that practitioners have not already discovered is enormously difficult. Accounting academe is threatened by the twin dangers of fossilization and scholasticism (of three types: tedium, high tech, and radical chic)
    From http://www.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm      

    “Knowledge and competence increasingly developed out of the internal dynamics of esoteric disciplines rather than within the context of shared perceptions of public needs,” writes Bender. “This is not to say that professionalized disciplines or the modern service professions that imitated them became socially irresponsible. But their contributions to society began to flow from their own self-definitions rather than from a reciprocal engagement with general public discourse.”

     

    Now, there is a definite note of sadness in Bender’s narrative – as there always tends to be in accounts of the shift from Gemeinschaft to Gesellschaft. Yet it is also clear that the transformation from civic to disciplinary professionalism was necessary.

     

    “The new disciplines offered relatively precise subject matter and procedures,” Bender concedes, “at a time when both were greatly confused. The new professionalism also promised guarantees of competence — certification — in an era when criteria of intellectual authority were vague and professional performance was unreliable.”

    But in the epilogue to Intellect and Public Life, Bender suggests that the process eventually went too far. “The risk now is precisely the opposite,” he writes. “Academe is threatened by the twin dangers of fossilization and scholasticism (of three types: tedium, high tech, and radical chic). The agenda for the next decade, at least as I see it, ought to be the opening up of the disciplines, the ventilating of professional communities that have come to share too much and that have become too self-referential.”

     

    What went wrong in accounting/accountics research? 
    How did academic accounting research become a pseudo science?
     http://www.trinity.edu/rjensen/theory01.htm#WhatWentWrong

     

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    http://www.trinity.edu/rjensen/ElectronicLiterature.htm#Textbooks

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    Free CPA Examination Review Course Courtesy of Joe Hoyle --- http://cpareviewforfree.com/
     

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    http://www.trinity.edu/rjensen/Pictures.htm

     

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    January 31, 2014

    Bob Jensen's New Bookmarks January 1 - January 31, 2014
    Bob Jensen at Trinity University 

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    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/

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    http://www.trinity.edu/rjensen/Pictures.htm

     

    All my online pictures --- http://www.cs.trinity.edu/~rjensen/PictureHistory/

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    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

    "CONVERSATION WITH BOB JENSEN," by Joe Hoyle, Teaching Blog, October 8, 2013 ---
    http://joehoyle-teaching.blogspot.com/2013/10/conversation-with-bob-jensen.html

    List of FASB Pronouncements ---
    http://en.wikipedia.org/wiki/List_of_FASB_pronouncements

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    http://shop.ifrs.org/ProductCatalog/Product.aspx?ID=1717

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    http://www.trinity.edu/rjensen/Theory01.htm#MethodsForSetting
     

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    For example, enter "www.trinity.edu/rjensen/" without the http:\\

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    Galt Travel Reviews and Guides --- http://www.galttech.com/

    Quandl:  over 8 million demographic, economic, and financial datasets from 100s of global sources ---
    http://www.quandl.com/

    Alliance for Financial Inclusion (financial literacy initiative funded by Bill and Melinda Gates) ---  http://www.afi-global.org/
    Also see Bob Jensen's related helpers at http://www.trinity.edu/rjensen/Bookbob1.htm#InvestmentHelpers

    Find Real Estate for Sale ---
    http://www.trulia.com/

    While reading the latest public letter from the President of Trinity University, Dennis Ahlburg, I noted the following paragraph:

    School of Business professors Julie Persellin and Mike Wilkins, the Jesse H. Jones Professor of Business Administration, received the American Accounting Association's (AAA) Best Contribution to Teaching Award for a paper they wrote about ethics in accounting.

    Julie began as an assistant professor at Trinity. Mike was a tenured full professor of accounting at Texas A&M before answering the call to fill my old Jesse Jones Chair at Trinity. At the same time Mike's wife (not Julie) answered a call to fill the endowed finance chair previously held by Phil Cooley (nos retired).

    Congratulations to Mike and Julie. The Best Contribution to Teaching Award’ is granted by the Professionalism and Ethics Committee and Public Interest Section of the American Accounting Association

    "625 Free Movies On Line," MAAW's Blog, January 29, 2014 ---
    http://maaw.blogspot.com/2014/01/625-free-movies-on-line.html

    Bob Jensen's threads on videos in education ---
    http://www.trinity.edu/rjensen/000aaa/thetools.htm#Video

    Free Monitor
    I don't know anything about this free monitor or the open-source software for sight-impaired people, but it sounds wonderful
    http://www.nvaccess.org/
    Thank you Scott Bonacker for the heads up.

    "Archive Makes Over a Million Digital Books Available for Those Who Can't Use Print," by Mary Helen Miller, Chronicle of Higher Education, May 7, 2010 ---
    http://chronicle.com/blogPost/Archive-Makes-Over-a-Million/23816/?sid=wc&utm_source=wc&utm_medium=en

    Bob Jensen's threads on technology aids for disabled persons ---
    http://www.trinity.edu/rjensen/000aaa/thetools.htm#Handicapped

    BAR Exam Passage Rates
    "More on Overperforming and Underperforming California Law Schools," by Paul Caron, TaxProf Blog, January 29, 2014 ---
    http://taxprof.typepad.com/taxprof_blog/2014/01/more-on-overperforming.html

    Jensen Comment
    In most cases the collegiate passage rate on a certification examination in a function of the admissions standards of the college or university. Top students will do what it takes as a rule to eventually pass a certification examination.

    Having said this, first-time passage rates on the BAR examinations tend to be much higher than first-time passage rates on the CPA examination even among the most prestigious accounting education programs in the USA. In part I think this is due to the both the variety and the amount of technical detail on the CPA examination. It may also reflect somewhat having a uniform CPA examination across all 50 states, although the fact that no one state or one university can consistently have over a 90% fist-time pass rate on the CPA examination.

    "Kahng: Path Dependence in Tax Subsidies for Home Sales," by Paul Caron, TaxProf Blog, January 29, 2014 ---
    http://taxprof.typepad.com/taxprof_blog/2014/01/kahng.html

    At a time of looming fiscal crisis and virtual unanimity that tax expenditures must be curtailed, tax subsidies for homeownership stand out as among the most costly and unfair of these expenditures. As a result of tax subsidies for homeownership, the government foregoes billions of dollars in revenue each year, most of which benefits wealthy taxpayers. Moreover, subsidies for homeownership encourage overinvestment in housing and underinvestment in other business sectors, which impedes economic productivity, jobs creation and the ability of U.S. businesses to compete in the global marketplace.

    Scholars and commentators have analyzed extensively the tax subsidy for home mortgage indebtedness but have paid little attention to tax subsidies for home sales. This Article is the first to undertake a comprehensive examination of tax subsidies relating to home sales. The central thesis of this Article is that these subsidies rest upon questionable policy justifications, flawed logical reasoning, and poor design choices. To support this thesis, the Article traces the evolution of tax subsidies for home sales from their surprising origins in a World War I-era tax preference for requisitioned ships to their present incarnation as a practically unlimited tax exemption. This narrative account leads to several important findings. First, it shows how path dependence and bounded rationality have led lawmakers and policymakers to make questionable decisions and support problematic laws. Second, it demonstrates the power of the real estate lobby to shape the story — and the resultant legal rules ― from both tax and social policy perspectives. Finally, it illuminates the political and rhetorical forces that have shaped tax subsidies for home sales. The Article argues that only by understanding where we were before and how we got to where we are now, can we properly assess where we should go from here.

    In assessing tax subsidies for home sales, the Article evaluates the subsidies by reference to the established tax policy criteria of efficiency and fairness while remaining cognizant of the broader context of the social and economic policies regarding homeownership. Although a comprehensive assessment of federal housing policies and the role of tax subsidies in structuring the domestic housing market lie beyond its scope, the Article offers important new insights that will contribute significantly to the ongoing policy dialog about homeownership in our society. In particular, it analyzes the economic impacts of tax subsidies for home sales, including whether and to what extent the subsidies contributed to the real estate bubble. Moreover, the Article highlights the important, but underappreciated, disparate race and gender impacts of homeownership as a wealth-building vehicle. Finally, the Article calls for the repeal of tax subsidies for home sales and argues that the “exogenous shock” of the global financial crisis presents a rare and fleeting opportunity to effect this reform.

    More at
    Lily Kahng (Seattle), Path Dependence in Tax Subsidies for Home Sales, 65 Ala. L. Rev. 187 (2013)

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

    FASB parent to provide up to $3M to support IASB convergence work
    "AICPA Commends FAF for Funding IASB," by Jay Hyde, AICPA, January 28, 2014 ---
    http://www.aicpa.org/Press/PressReleases/2014/Pages/AICPA-Commends-FAF-for-Funding-IASB.aspx

    "COLUMBIA TAKES TOP AWARD AT DELOITTE'S NATIONAL MBA CASE COMPETITION," Accounting Education News, January 21, 2014 ---
    http://www.accountingeducation.com/index.cfm?page=newsdetails&id=152776

    Student teams from the following schools were also recognized for their efforts:

    University of North Carolina at Chapel Hill (Kenan-Flagler) - $10,000
    Cornell University (Johnson) - $6,000
    Massachusetts Institute of Technology (Sloan) - $3,000

    "Six fraud and corruption trends for 2014," by Neil Amato, CGMA Magazine, January 9, 2014 ---
    http://www.cgma.org/Magazine/News/Pages/20149359.aspx

    Fraud and corruption risks are not going away. The threats facing companies doing business anywhere, but especially in emerging markets, are growing in number and complexity.

    EY’s Fraud Investigation and Dispute Services practice recently released these six themes for fraud and corruption trends in 2014.

    1. Dealing with reputational harm and the business risk associated with cybercrime will become the responsibility of more than just the chief information security officer. Technology is great, except for all the problems it can cause. Companies must keep pace with technology to grow their businesses, but they also face greater threats associated with increased use of cloud-computing and social media. Organisations’ reputations can be dented faster than ever thanks to the viral nature of social media. And cyber-attacks, more organised and more global, can lead to losses of trust and actual property. EY says cybersecurity has become a board-level issue and risks in this arena require “immediate and planned responses” organised by legal counsel. In other words, it’s not just an IT problem anymore.

    2. Balancing significant growth opportunities in Africa with perceived corruption risk. EY research suggests that pressure placed on managers to generate growth in emerging markets leads companies to avoid addressing corruption risks. The research also showed that 83% of African respondents viewed bribery and corruption as widespread. The annual Corruption Perceptions Index by Transparency International shows many countries with high growth potential are perceived as corrupt, including the BRICS nations of Brazil, Russia, India, China and South Africa. EY recommends that companies setting up operations in emerging markets perform robust due diligence to manage these risks.

    3. The impact of regulation will be felt stronger than ever by the financial services industry. Regulatory enforcement pressure, EY writes, may affect midsize banks in 2014, not just the larger institutions in the US. One example of regulatory impact is the December passage of the so-called Volcker Rule, which prohibits institutional trading by US banks and limits their ability to invest in hedge funds. The Volcker Rule is a key provision of the 2010 Dodd-Frank Act. EY also says the financial services industry will be forced to reassess strategies in response to US Consumer Financial Protection Bureau rules on mortgage loans, student loans and credit cards. More intense regulation in banking is not just a US occurrence. A KPMG report in 2013 said that, for banks around the world, “the single most pervasive driver of change is the regulatory agenda.” Basel III standards, designed to ensure banks have enough liquidity to handle a potential run on funds, are among many new regulations.

    4. Compliance with the US Foreign Corrupt Practices Act (FCPA) and other global bribery legislation will remain a top priority for life sciences companies operating in emerging markets. “Staying on top of the differing anti-corruption laws and standards, particularly in markets where the rule of the law is not always clear, will present a challenge and opportunity for companies that depend deeply on growth in those markets,” EY writes. One litigator who focuses on corruption said the most frequent trouble experienced by companies under the FCPA and the UK Bribery Act involves corruption charges related to third parties in developing markets.
     
    5. Anti-money-laundering and corruption programmes face greater scrutiny. Regulatory pressure on the issues of money laundering, trade sanctions, and bribery and corruption will create the need for “robust programme controls, sophisticated monitoring systems and knowledgeable personnel at the watch,” EY writes. Regulatory scrutiny is moving beyond the banking sector to credit card issuers, insurance providers and gaming enterprises, according to EY. Banks whose anti-money-laundering controls fail can be subject to fines from regulators that exceed $1 billion, according to research by PwC that recommends strategies for strong anti-money-laundering deterrence.

    6. The opportunity to leverage Big Data in the context of compliance and anti-corruption will allow companies to ask new questions. Companies now can analyse their data to prevent fraud and to create effective fraud risk mitigation programmes, EY writes. The opportunities for harnessing the power of Big Data seem infinite, but more information can create more risk. A recent survey by international IT trade association ISACA showed that about one-fourth of respondents felt their organisations were adequately or extremely prepared to provide effective governance and manage privacy related to Big Data. A recent CGMA report offers five ways companies can become more data-centric.

    Continued in article

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

    Greek prosecutors nab public officials, corporate bosses for corruption

    By Julie DiMauro | Monday, January 20, 2014 at 11:13AM
    - See more at: http://www.fcpablog.com/blog/2014/1/20/greek-prosecutors-nab-public-officials-corporate-bosses-for.html#sthash.7tyyHPSH.dpuf

    Greek prosecutors nab public officials, corporate bosses for corruption

    By Julie DiMauro | Monday, January 20, 2014 at 11:13AM
    - See more at: http://www.fcpablog.com/blog/2014/1/20/greek-prosecutors-nab-public-officials-corporate-bosses-for.html#sthash.7tyyHPSH.dpuf

    Teaching Case
    From The Wall Street Journal Accounting Weekly Review on January 31, 2014

    Judge Suspends Chinese Units of Auditors
    by: Michael Rapoport
    Jan 23, 2014
    Click here to view the full article on WSJ.com
     

    TOPICS: Auditing

    SUMMARY: SEC administrative law judge Cameron Elliot has ruled that "the Chinese units of the Big Four accounting firms [plus a fifth China-based accounting firm, Dahua CPA, formerly associated with the accounting firm BDO] should be suspended from auditing US-traded companies for six months....[The] ruling...doesn't take effect immediately, and the firms might appeal the ruling, first to the [SEC] itself, then to the federal courts....The SEC had sought audit work papers from the firms to assist its investigations of some of the 130-plus Chinese companies trading on U.S. markets....But the Chinese firms refused...They said their hands were tied, as Chinese law treats the information in such audit documents as akin to 'state secrets'..." and thus could not cooperate with the SEC "without the Chinese government's blessing." The ruling could significantly affect audits of U.S. multinational companies because the Big Four use Chinese affiliates to assist in those engagements.

    CLASSROOM APPLICATION: The article may be used in an auditing, international accounting, or international business course. The related article was covered in this review; that review includes links to other articles as well.

    QUESTIONS: 
    1. (Advanced) Why is it important for the U.S. and China to have audit oversight and cross-border enforcement cooperation? What problems have arisen in this area?

    2. (Introductory) Why does the U.S./Chinese agreement described in the related article not resolve ongoing issues in audit oversight and cross-border enforcement cooperation?

    3. (Advanced) What is the impact on an audit report when the auditor relies on the work of an affiliate or another auditor? What do you think will happen to U.S. audit firms' work and their reports if Judge Elliot's ruling stands?
     

    Reviewed By: Judy Beckman, University of Rhode Island
     

    RELATED ARTICLES: 
    U.S., China Set Pact on Auditor Access
    by Michael Rapoport
    May 24, 2013
    Page: C3

    "Judge Suspends Chinese Units of Auditors," by Michael Rapoport, The Wall Street Journal, January 23, 2014 ---
    http://online.wsj.com/news/articles/SB10001424052702303448204579337183810731744?mod=djem_jiewr_AC_domainid

    The Chinese units of the Big Four accounting firms should be suspended from auditing U.S.-traded companies for six months, a judge ruled, a move that could complicate the audits of dozens of Chinese companies and some U.S.-based multinationals.

    he audit firms, plus a fifth China-based accounting firm, broke U.S. law when they refused to turn over documents about some of their clients to the Securities and Exchange Commission to aid the commission in investigating those U.S.-traded Chinese companies for possible fraud, ruled Cameron Elliot, an SEC administrative law judge.

    Judge Elliot's ruling Wednesday doesn't take effect immediately, and the firms can appeal the ruling, first to the commission itself, then to the federal courts. But if the ruling stands, it could temporarily leave more than 100 Chinese companies that trade on U.S. markets without an auditor. It also could throw a monkey wrench into the audits of U.S. multinational companies that have significant operations in China, because the Chinese affiliates of the Big Four—PricewaterhouseCoopers, Deloitte Touche Tohmatsu, KPMG and Ernst & Young—often help their U.S. sister firms complete those audits.

    Without audited financial statements, a company can't sell securities in the U.S. or stay listed on U.S. exchanges.

    "This is a body blow to the Big Four," said Paul Gillis, a Beijing-based professor at Peking University's Guanghua School of Management. "It's really quite a harsh ruling."

    The ruling will be inconvenient for the companies those Chinese firms audit, said Jacob S. Frenkel, a former SEC enforcement attorney now in private practice. It is a middle ground, he said. The judge could have gone further and permanently barred the Chinese firms from issuing audit reports on U.S.-traded companies, as the SEC had requested and as the accounting industry had feared.

    In a joint statement, the Big Four firms in China called the judge's decision "regrettable" and said they would appeal. "In the meantime the firms can and will continue to serve all their clients without interruption."

    The SEC said it was gratified by the ruling and that it upholds the commission's authority to obtain records that are "critical to our ability to investigate potential securities law violations and protect investors."

    Officials at China's Ministry of Finance and the China Securities Regulatory Commission said they didn't have an immediate comment.

    The fifth firm, Dahua CPA, was censured by Judge Elliot but not suspended. Dahua was an affiliate of another large accounting firm, BDO, until last April, but the two are no longer affiliated.

    The SEC had sought audit work papers from the firms to assist its investigations of some of the 130-plus Chinese companies trading on U.S. markets that have encountered accounting and disclosure questions in the past few years. Many of those companies have their independent audits performed by the Chinese affiliates of the Big Four, and the SEC had wanted to know more about what the auditors had found about the companies. (All the major accounting firms are international networks made up of individual, free-standing firms in each country in which they do business.)

    But the Chinese firms refused to turn over the documents. They said their hands were tied, as Chinese law treats the information in such audit documents as akin to "state secrets." The firms said their auditors could be thrown in jail if they cooperated with the SEC without the Chinese government's blessing.

    That led the SEC to file an administrative proceeding against the five firms in December 2012, arguing that U.S. law compels the firms to cooperate with such requests.

    The judge agreed, saying the firms "have failed to recognize the wrongful nature of their conduct" and showed "gall" in complaining that complying with the SEC's demands would hurt them. The firms knew when they registered with U.S. regulators and built their businesses in China that they might ultimately be put between a rock and a hard place in providing documents, the judge said.

    The judge wasn't deterred by an agreement last year between the U.S. and Chinese governments that somewhat alleviated the stalemate over documents, by allowing some documents from the audit firms to come to the U.S. after they were funneled through Chinese regulators. Since July, documents the SEC had sought relating to at least six companies have either been provided to U.S. regulators or were "in the pipeline" to be provided, the audit firms said in filings in November and December.

    The five Chinese firms involved in the case have a total of 103 U.S.-traded companies that they audit or in which they played a substantial role in the audit, according to their 2013 annual reports filed with U.S. regulators. The companies might have to make other arrangements for audits if their firm is suspended during the period when their yearly audit is being performed.

    Continued in article

    Also see
     "One Way Or Another: The SEC Versus The Chinese Big Four Firms," by Francine McKenna, re:TheAuditors, December 30, 2013 --- 
    http://retheauditors.com/2014/01/25/one-way-or-another-the-sec-versus-the-chinese-big-four-firms/

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

    Teaching Case
    From The Wall Street Journal Accounting Weekly Review on January 31, 2014

    Credit Suisse Nears Tax-Cheat Deal
    by: John Letzing, Francesco Guerrera and David Enrich
    Jan 23, 2014
    Click here to view the full article on WSJ.com
     

    TOPICS: International Business, International Taxation, Tax Evasion

    SUMMARY: The article describes the latest in a series on IRS efforts to uncover tax evaders hiding assets in foreign nations. The IRS has principally targeted banks in Switzerland where bank secrecy laws were codified in the 1930s. The related articles describe how, in 2009, UBS finally was required to turn over lists of U.S. clients to resolve the criminal case against the bank. The IRS has then used the list to track down further tax evaders at Switzerland's oldest bank, Wegelin, and now Credit Suisse.

    CLASSROOM APPLICATION: The article may be used in a tax class or an international business class.

    QUESTIONS: 
    1. (Advanced) Define and differentiate between the terms tax evasion and tax avoidance.

    2. (Introductory) How did Switzerland's laws allow for banking relationships which the IRS says sheltered assets of U.S. tax evaders?

    3. (Advanced) The IRS/U.S. Department of Justice charges against Credit Suisse are criminal. Summarize how this case is being resolved and compare to the resolutions reported in the related articles for UBS and Wegelin &Co. Also state in your answer your understanding of the impact on U.S. taxpayers.
     

    Reviewed By: Judy Beckman, University of Rhode Island
     

    RELATED ARTICLES: 
    Offshore Tax Probe Picks Up
    by Laura Saunders
    Mar 06, 2013
    Online Exclusive

    "Credit Suisse Settlement with U.S. Could Top $800 Million:  Credit Suisse, Justice Department Discussions in Early Stages," by John Letzing, Francesco Guerrera and David Enrich, The Wall Street Journal, January 23, 2014 ---
    http://online.wsj.com/news/articles/SB10001424052702304632204579336671237500260

    Talks between Credit Suisse Group AG CS -0.42% and U.S. authorities on settling allegations the Swiss bank helped Americans evade taxes have intensified, and a settlement of more than $800 million could be struck in the first half of the year, people familiar with the situation said.

    If the deal goes through, it would represent the biggest fine in the U.S. government's crackdown on offshore tax evasion in Switzerland.

    The discussions between Zurich-based Credit Suisse and the Justice Department are in early stages, one of the people familiar with the situation said. Both people said any settlement would likely top the $780 million UBS AG UBS +0.25% agreed to pay in 2009 to settle with the U.S.

    Representatives for Credit Suisse, the Justice Department and the Internal Revenue Service declined to comment.

    Credit Suisse is one of about a dozen Swiss banks that are under criminal investigation by the U.S. for allegedly helping Americans evade taxes by using Switzerland's bank-secrecy laws to hide assets. In 2011, Credit Suisse set aside 295 million Swiss francs ($324 million) to deal with the issue, which has also dogged a large portion of the Alpine country's roughly 300 lenders.

    Credit Suisse, the second-largest Swiss bank by assets behind UBS, reported a profit of 454 million francs for the third quarter of last year.

    Like other Swiss banks, Credit Suisse has stopped accepting American private-banking clients as U.S. authorities have increased efforts to hunt down offshore tax cheats. The lender has long been expected to settle its tax issue with U.S. authorities, though it is only one player in a legal battle that has ensnared a significant portion of Switzerland's financial sector.

    Jeffrey Neiman, a former prosecutor at the Justice Department now in private practice in Fort Lauderdale, Fla., said the possible deal shows that the U.S. isn't letting up its campaign against pursuing offshore tax evaders and those that enable it. But he said, "The real question is, will Credit Suisse and other banks be required to turn over client data directly to the U.S., as UBS was?"

    Credit Suisse has been seen as eager to resolve the tax-evasion issue with the U.S., which has lingered for years. Chief Executive Brady Dougan noted during a conference call with analysts in October that settling with the U.S. is among the biggest items on the bank's "litigation docket."

    Mr. Dougan has declined to comment about the timing of a settlement.

    As part of a restructuring unveiled in October, Credit Suisse created a nonstrategic unit for its private-banking business designed to absorb litigation costs, including those related to the U.S. tax issue.

    Credit Suisse and the other lenders under investigation by U.S. authorities aren't eligible to participate in a program unveiled by the Justice Department last year.

    The program invites other Swiss banks to step forward and disclose any undeclared U.S. assets on their books. Banks participating in the program face the possibility of significant fines but may also receive assurances that they won't be prosecuted.

    The Justice Department program has proved controversial in Switzerland, because it potentially exposes Swiss bankers and wealth advisers to legal risk in the U.S. even though their activities were allowed under Swiss law, which has protected banking secrecy since it was codified in the 1930s.

    As of mid-December, more than half of Switzerland's government-backed banks said they would participate in the program, such as Valiant Bank, Migros Bank, Bank Coop and PostFinance, which is backed by the Swiss postal system.

    In addition to Credit Suisse, other Swiss banks under investigation by the Justice Department and expected to reach settlements with the U.S. include Julius Baer Group AG JBAXY -0.05% and the Swiss unit of HSBC Holdings HSBC +1.02% PLC.

    The U.S. crackdown on the use of Swiss accounts to evade taxes intensified with the prosecution of UBS, which reached a deferred-prosecution agreement with the Justice Department in 2009.

    Under that agreement, UBS acknowledged helping Americans hide money abroad. The bank paid $780 million and turned over more than 4,000 names to U.S. authorities in order to avoid criminal charges.

    Continued in article

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

    "Greek prosecutors nab public officials, corporate bosses for corruption," by Julie DiMauro, CPA Blog, January 20, 2014 ---
    http://www.fcpablog.com/blog/2014/1/20/greek-prosecutors-nab-public-officials-corporate-bosses-for.html

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

    KPMG needs to write this on the blackboard another 1,000 times:
    "I will not sell another illegal tax shelter;"
    "I will not sell another illegal tax shelter;"
    "I will not sell another illegal tax shelter;"
    . . .
     

    "KPMG settles with client over illegal tax shelters," by Christopher Seward, The Atlanta Journal, January 20, 2014 ---
    http://www.ajc.com/news/business/attorney-kpmg-settles-with-client-over-illegal-tax/ncyH4/

    A California businessman who claimed he lost millions of dollars after relying on fraudulent tax shelters promoted by KPMG LLP and its Atlanta office has settled with the company, his attorney said Wednesday.

    Columbus attorney James Butler Jr. said his client, Christopher Cohan, former owner of a cable TV company and the NBA’s Golden State Warriors, “is very pleased with the settlement,” although he would not disclose a figure.

    KPMG’s Atlanta office could not be reached for comment. The audit, accounting and tax advisory firm had denied its tax shelter strategies cost Cohan millions and said the strategies prevented additional fines and penalties.

    Butler said Cohan would have no comment on the case.

    In 2005, KPMG admitted to tax fraud conspiracy and settled with the U.S. Justice Department and the Internal Revenue Service over the strategies. The company agreed to pay $456 million in fines, restitution and penalties. Former KPMG partners also were criminally prosecuted for their involvement in designing, marketing and implementing the shelters.

    Butler said KPMG’s Atlanta office was the “nerve center” of the tax shelter strategies, promising clients they could minimize their liabilities when they sold their companies. The Justice Department said the illegal shelters were marketed from 1996 through 2003.

    The government said KPMG generated at least $115 million in fees by arranging the illegal shelters for the wealthy clients the firm targeted.

    In 1996, Cohan was seeking a buyer for Sonic Cable TV and eventually sought KPMG’s help in finding tax shelters, the attorney said.

    “Because he relied on KPMG’s advice and followed its advice, Mr. Cohan ended up paying over $200 million in taxes, penalties and interest — more than he netted from the sale of his company Sonic, plus he lost his company, which plaintiffs’ corporate valuation expert testified would have been worth $450 million in 2013 had it not been sold in reliance on KPMG’s advice,” Butler said in a statement to The Atlanta Journal-Constitution.

    Cohan said KPMG marketed the tax shelters even though it knew the complex strategies were not legal and would not work.

    When Cohan filed suit in Fulton County State Court in 2012, he sought $500 million, claiming $281 million in damages and more than $200 million in lost value on Sonic Cable TV.

    Continued in article

    After KPMG was paid $456 million in 2006 fines for selling phony tax shelters, KPMG promised it would never happen again. Yeah Right!
    "Court Rejects STARS Tax Shelter, Calls Conduct of Banks, KPMG & Sidley Austin 'Reprehensible ... Waste of Human Potential'," by Paul Caron, TaxProf Blog, September 23, 2013 ---
    http://taxprof.typepad.com/taxprof_blog/2013/09/court-rejects-.html

    . . .

    For reasons that will be explained, the Court also finds that BB&T is liable for tax penalties for its participation in the STARS transaction. The conduct of those persons from BB&T, Barclays, KPMG, and the Sidley Austin law firm who were involved in this and other transactions was nothing short of reprehensible. Perhaps the business environment at the time was “everyone else is doing it, why don’t we?” Perhaps some of those who participated simply were following direction from others. Nevertheless, the professionals involved should have known better than to follow the STARS path, rife with its conflicts of interest, questionable pro forma legal and accounting opinions, and a taxpayer with a seemingly insatiable appetite for tax avoidance. One of Defendant’s experts, Dr. Michael Cragg, aptly stated that “enormous ingenuity was focused on reducing U.S. tax revenues.” Cragg, Tr. 4687. After wading through the intricacies of the STARS transaction, the Court shares Dr. Cragg’s view that “[t]he human effort, the amount of creativity and overall effort that was put into this transaction . . . is a waste of human potential.”

    Continued in article

     

    After the 2005 $456 million settlement with the U.S. Treasury, the Chairman and CEO of KPMG, Timothy Flynn,  issued the following Open Letter.  Among other things, KPMG announced it will almost entirely stop preparing tax returns for "individuals."

    August 29, 2005

    AN OPEN LETTER TO KPMG LLP'S CLIENTS (from Timothy P. Flynn Chairman & CEO KPMG LLP)

    This is to advise you that KPMG LLP (U.S.) has reached an agreement with the U.S. Attorney's Office for the Southern District of New York, resolving the investigation by the Department of Justice into tax shelters developed and sold by the firm from 1996 to 2002. This settlement also resolves the Internal Revenue Service's examination of these activities.

    As a result of this settlement, KPMG LLP (U.S.) continues as a multidisciplinary firm providing high quality audit, tax, and advisory services to large multinational and middle market companies, as well as federal, state and local governments.

    The Public Company Accounting Oversight Board (PCAOB) has reaffirmed that the resolution of this matter with the Department of Justice does not affect the ability of KPMG to perform quality audit services. Additionally, the Department of Justice states in the agreement that KPMG is currently a responsible contractor and expressly concludes that the suspension or debarment of KPMG is not warranted. KPMG currently audits the Department of Justice financial statements.

    Further details on the resolution of this matter can be found in the attached Media Statement that the firm issued today; a Key Provisions and Terms document detailing the settlement; and a Quality & Compliance Measures document that provides an overview of the quality initiatives the firm has undertaken since 2002, including specific changes to Tax operations.

    KPMG accepts the high level of responsibility inherent in performing its role as a steward of the capital markets. Let me be very clear: The conduct by former tax partners detailed in the KPMG statement of facts attached to the agreement is inexcusable. I am embarrassed by the fact that, as a firm, we did not identify this behavior from the outset and stop it. You have my personal assurance that the actions of the past do not reflect the KPMG of today.

    I am proud to be Chairman of this remarkable organization and proud of the tremendous professionals of KPMG. We are resolute in our commitment to maintain the trust of the public, our clients and our regulators. You have my promise that, as our first priority, KPMG will deliver on our commitment to the highest levels of professionalism — integrity, transparency, and accountability.

    We truly appreciate the strong support of our clients throughout this investigation. Your Lead Partner will be contacting you later to make sure that you have the information you need about this matter.

    On behalf of all of our partners and employees, thank you for your continued support.

    Timothy P. Flynn

    Chairman & CEO
    KPMG LLP

    Attachments following below:

    Media Statement

    Key Provisions and Terms

    Quality & Compliance Measures

     

    News
    For Immediate Release Contact: George Ledwith
    KPMG LLP
    Tel. (201) 505-3543

    KPMG LLP STATEMENT REGARDING SETTLEMENT
    IN DEPARTMENT OF JUSTICE INVESTIGATION

    NEW YORK, Aug 29 — KPMG LLP made the following statement today in regard to a resolution reached by the U.S. firm with the Department of Justice in its investigation into tax shelters developed and sold from 1996 to 2002 and related conduct:

    KPMG has reached an agreement with the U.S. Attorney's Office for the Southern District of New York and the Internal Revenue Service, resolving investigations regarding the U.S. firm's previous tax shelter activities.

    "KPMG LLP is pleased to have reached a resolution with the Department of Justice. We regret the past tax practices that were the subject of the investigation. KPMG is a better and stronger firm today, having learned much from this experience," said KPMG LLP Chairman and CEO Timothy P. Flynn. "The resolution of this matter allows KPMG to confidently face the future as we provide high quality audit, tax and advisory services to our large multinational, middle market and government clients."

    As part of the agreement, KPMG has agreed to make three monetary payments, over time, totaling $456 million to the U.S. government. KPMG will also implement elevated standards for its tax business.

    Under the terms of the settlement, a deferred prosecution agreement, the charges will be dismissed on December 31, 2006, when the firm complies with the terms of the agreement. Richard C. Breeden has been selected to independently monitor compliance with the agreement for a three-year period.

    All of the individuals indicted today are no longer with the firm. KPMG has put in place a process to ensure that individuals responsible for the wrongdoing related to past tax shelter activities are separated from the firm.

    "As KPMG's new leaders, Tim Flynn and I are extremely proud of the 1,600 partners and 18,000 employees of today's KPMG," said John Veihmeyer, KPMG Deputy Chairman and COO. "Looking toward the future, our people, our clients and the capital markets can be confident that KPMG, as its first priority, will deliver on our commitment to the highest levels of professionalism."

    With regard to claims by individual taxpayers, KPMG looks forward to resolving the civil litigation expeditiously and with full and fair accountability.

    The resolution of the Department of Justice's investigation into the U.S. firm's past tax shelter activities has no effect on KPMG International member firms outside the United States.

    KPMG LLP SETTLEMENT WITH THE U.S. DEPARTMENT OF JUSTICE
    KEY PROVISIONS AND TERMS

    SCOPE OF SETTLEMENT

    "Global settlement" that resolves both the IRS examination and the DOJ investigation into the U.S. firm's past tax shelter activities and related conduct.

    STRUCTURE OF AGREEMENT

    KPMG "Statement of Facts" accepting responsibility for unlawful conduct of certain KPMG tax leaders, partners and employees relating to tax shelter activities.

    Deferred Prosecution Agreement (DPA)

    –  Filing of charges, directed to past tax shelter activities.

    –  Dismissal of the charges on December 31, 2006, when KPMG has complied with the terms of the agreement.

    –  The agreement provides various remedies to the government, including extension of the term, should the firm fail to comply with the agreement.

    KPMG currently audits the financial statements of the Department of Justice. The Department of Justice states in the agreement that KPMG is currently a responsible contractor and expressly concludes that the suspension or debarment of KPMG is not warranted.

    KEY CONDITIONS TO BE MET BY KPMG LLP

    Monetary Payments

    Fine of $128 million; restitution to the IRS of $228 million; and IRS penalty of $100 million.
    Total of $456 million to the U.S. government.

    Timing: $256 million by September 1, 2005; $100 million by June 1, 2006; $100 million by December 21, 2006.

    Payments will not be deductible for tax purposes, nor will they be covered by insurance.

    Tax Practice Restrictions and Elevated Standards

    Discontinue by February 26, 2006, the remainder of the private client tax practice and the compensation and benefits tax practice (exclusive of technical expertise maintained within Washington National Tax).

    Continue individual tax planning and compliance services for (a) owners or senior executives of privately held business clients of KPMG; (b) individuals who are part of the international executive (expatriate) service program, which serves personnel stationed outside of their home country; and (c) trust tax return services provided to large financial institutions. Any tax planning and compliance services for individuals that do not meet these criteria will be discontinued by February 26, 2006, and no new engagements for individuals that do not meet these criteria will be accepted.

    Prohibit pre-packaged tax products, covered opinions with respect to any listed transaction, providing tax services under conditions of confidentiality, charging fees other than based solely on hours worked (with the exception of revenue sales and use tax audits), relying on opinions of others unless KPMG concurs with the conclusions of such opinion, and defending any "listed transaction."

    Comply with elevated standards regarding minimum opinion and tax return position thresholds.

    Cooperation and Consistent Standards

    Full cooperation with the government's ongoing larger investigation into the tax shelter activities; and toll the statute of limitations for five years.

    All future statements must be consistent with the information in the KPMG statement of facts, and any contradicting statement will be publicly repudiated.

    Compliance and Ethics Program

    Maintain a compliance and ethics program that meets the criteria set forth in the U.S. Sentencing Guidelines.

    Program to include related training programs and maintenance of hotline to contact monitor on an anonymous basis.

    Independent Monitor

    Richard Breeden

    Term: Three years.

    Scope:

    –  Review and monitor compliance with the provisions of the agreement, the compliance and ethics program, and the restrictions on the Tax practice as set forth in Paragraph 6 of the agreement.

    –  Review and monitor implementation and execution of personnel decisions made by KPMG regarding individuals who engaged in or were responsible for the illegal conduct described in the Information.

    Internal Revenue Service Closing Agreement

    An IRS closing agreement is part of the global settlement and DPA, which provides for enhanced IRS oversight of KPMG's Tax practice extending two years following the expiration of the monitor's term.

    Provisions include instituting a Compliance and Professional Responsibility Program that is focused on disclosure requirements of IRC Section 6111 and list-maintenance requirements of IRC Section 6112. (The program is intended to enhance the recordkeeping and review processes that KPMG has in place to comply with existing disclosure and list-maintenance requirements.

     

    From the CFO Journal's Morning Ledger on January 27. 2014

    KPMG settles SEC charges
    KPMG has agreed to pay $8.2 million to settle SEC allegations that the Big Four accounting firm violated rules intended to keep outside auditors from getting too close to their clients,     the WSJ reports. KPMG provided nonaudit services such as bookkeeping and payroll to affiliates of two of its audit clients, the SEC said, and the firm also hired a recently retired senior-level tax counsel of a third audit client’s affiliate only to lend him back to the affiliate to do the same work. KPMG didn’t admit or deny wrongdoing in agreeing to the settlement.

    "SEC Charges KPMG With Violating Auditor Independence Rules," SEC Press Release, January 24, 2014 ---
    http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540667080#.UuKm27ROlQx

    FOR IMMEDIATE RELEASE
    2014-12
    Washington D.C., Jan. 24, 2014 —

    The Securities and Exchange Commission today charged public accounting firm KPMG with violating rules that require auditors to remain independent from the public companies they’re auditing to ensure they maintain their objectivity and impartiality. 

     

    The SEC issued a separate report about the scope of the independence rules, cautioning audit firms that they’re not permitted to loan their staff to audit clients in a manner that results in the staff acting as employees of those companies.

    An SEC investigation found that KPMG broke auditor independence rules by providing prohibited non-audit services such as bookkeeping and expert services to affiliates of companies whose books they were auditing.  Some KPMG personnel also owned stock in companies or affiliates of companies that were KPMG audit clients, further violating auditor independence rules.

    KPMG agreed to pay $8.2 million to settle the SEC’s charges.

    “Auditors are vital to the integrity of financial reporting, and the mere appearance that they may be conflicted in exercising independent judgment can undermine public confidence in our markets,” said John T. Dugan, associate director for enforcement in the SEC’s Boston Regional Office.  “KPMG compromised its role as an independent audit firm by providing prohibited non-audit services to companies that it was supposed to be auditing without any potential conflicts.”

    According to the SEC’s order instituting settled administrative proceedings, KPMG repeatedly represented in audit reports that it was “independent” despite providing services to three audit clients that impaired KPMG’s independence.  The violations occurred at various times from 2007 to 2011.

    According to the SEC’s order, KPMG provided various non-audit services – including restructuring, corporate finance, and expert services – to an affiliate of one company that was an audit client.  KPMG provided such prohibited non-audit services as bookkeeping and payroll to affiliates of another audit client.  In a separate instance, KPMG hired an individual who had recently retired from a senior position at an affiliate of an audit client.  KPMG then loaned him back to that affiliate to do the same work he had done as an employee of that affiliate, which resulted in the professional acting as a manager, employee, and advocate for the audit client.  These services were prohibited by Rule 2-01 of Regulation S-X of the Securities Exchange Act of 1934. 

    The SEC’s order finds that KPMG’s actions violated Rule 2-02(b) of Regulation S-X and Rule 10A-2 of the Exchange Act, and caused violations of Section 13(a) of the Exchange Act and Rule 13a-1.  The order further finds that KPMG engaged in improper professional conduct as defined by Section 4C of the Exchange Act and Rule 102(e) of the Commission’s Rules of Practice.  Without admitting or denying the findings, KPMG agreed to pay $5,266,347 in disgorgement of fees received from the three clients plus prejudgment interest of $1,185,002.  KPMG additionally agreed to pay a penalty of $1,775,000 and implement internal changes to educate firm personnel and monitor the firm’s compliance with auditor independence requirements for non-audit services.  KPMG will engage an independent consultant to evaluate such changes.

    The SEC’s investigation separately considered whether KPMG’s independence was impaired by the firm’s practice of loaning non-manager tax professionals to assist audit clients on-site with tax compliance work performed under the direction and supervision of the clients’ management.  While the SEC did not bring an enforcement action against KPMG on this basis, it has issued a report of investigation noting that by their very nature, so-called “loaned staff arrangements” between auditors and audit clients appear inconsistent with Rule 2-01 of Regulation S-X, which prohibits auditors from acting as employees of their audit clients.

    The report also emphasized:

    • An auditor may not provide otherwise permissible non-audit services (such as permissible tax services) to an audit client in a manner that is inconsistent with other provisions of the independence rules.
    • An arrangement that results in an auditor acting as an employee of the audit client implicates Rule 2-01 regardless of whether the accountant also acts as an officer or director, or performs any decision-making, supervisory, or ongoing monitoring functions, for the audit client. 
    • Audit firms and audit committees must carefully consider whether any proposed service may cause the auditors to resemble employees of the audit client in function or appearance even on a temporary basis.

    The SEC’s Office of the Chief Accountant has a Professional Practice Group that is devoted to addressing questions about auditor independence among other matters.  Auditors and audit committees are encouraged to consult the SEC staff with questions about the application of the auditor independence rules, including the permissibility of a contemplated service.

    “The accounting profession must carefully consider whether engagements are consistent with the requirements to be independent of audit clients,” said Paul A. Beswick, the SEC’s chief accountant.  “Resolving questions about permissibility of non-audit services is always best done before commencing the services.”

    The SEC’s investigation was conducted by Britt K. Collins, Dawn A. Edick, Michael Foster, Heidi M. Mitza, and Kathleen Shields.  The SEC appreciates the assistance of the Public Company Accounting Oversight Board.

    Teaching Case
    From The Wall Street Journal Accounting Weekly Review on January 31, 2014

    KPMG to Pay $8.2 Million to Settle SEC Charges
    by: Michael Rapoport
    Jan 25, 2014
    Click here to view the full article on WSJ.com
     

    TOPICS: Auditor Independence, Consulting

    SUMMARY: "The Big Four firms have drawn attention for their push to provide more consulting and nonaudit services in recent years. They've been deriving much of their growth recently from consulting, rather than from their core auditing businesses." Regarding the $8.2 million in charge specifically, "KPMG provided nonaudit services such as bookkeeping and payroll to affiliates of two of its audit clients, the SEC said, and the firm also hired a recently retired senior-level tax counsel of a third audit client's affiliate only to loan him back to the affiliate to do the same work. Those moves by KPMG between 2007 and 2011... , the commission said, violated "auditor independence" rules...."

    CLASSROOM APPLICATION: The article may be used in an auditing or other professional accounting class to discuss concerns about current trends in the public accounting profession and the specific need for independence as a cornerstone of the practice of accounting.

    QUESTIONS: 
    1. (Introductory) List all actions in the article the SEC alleges were committed by KPMG. Describe how each action might lead to loss of independence from audit clients

    2. (Advanced) Why do Securities and Exchange Commission rules require auditors to maintain independence from audit clients?

    3. (Advanced) Do any other rules besides the SEC require independence of public accountants? Explain your answer and again comment on the reason for this needed independence by accountants.
     

    Reviewed By: Judy Beckman, University of Rhode Island

    "KPMG to Pay $8.2 Million to Settle SEC Charges," by Michael Rapoport, The Wall Street Journal, January 25, 2014 ---
    http://online.wsj.com/news/articles/SB10001424052702303448204579340820706911040?mod=djem_jiewr_AC_domainid

    KPMG LLP agreed Friday to pay $8.2 million to settle Securities and Exchange Commission allegations that the Big Four accounting firm violated rules intended to keep outside auditors from getting too close to their clients.

    KPMG provided nonaudit services such as bookkeeping and payroll to affiliates of two of its audit clients, the SEC said, and the firm also hired a recently retired senior-level tax counsel of a third audit client's affiliate only to loan him back to the affiliate to do the same work.

    Those moves by KPMG between 2007 and 2011, the commission said, violated "auditor independence" rules that require auditors to avoid conflicts of interest that could compromise their ability to audit a company's financial statements impartially and rigorously.

    In addition, certain KPMG employees owned stock in one of the clients and in affiliates of another, the SEC said. The clients weren't identified.

    KPMG didn't admit or deny wrongdoing in agreeing to the settlement.

    In a statement, KPMG said it is "fully committed to ensuring our independence with respect to all of our audit clients" and has implemented internal changes to help make sure it complies with the independence rules.

    The settlement spotlights concerns that have lingered since the Enron Corp. scandal of more than a decade ago, in which the now-defunct audit firm Arthur Andersen earned lucrative fees from both auditing Enron and providing it with consulting and other nonaudit services.

    Many observers believed that affected Andersen's impartiality as a watchdog of Enron's financial statements during the scandal, and the Sarbanes-Oxley Act subsequently barred audit firms from providing many types of consulting and nonaudit services to their audit clients.

    The SEC previously reached a separate but similar settlement with KPMG's Australian affiliate in 2011, in which the SEC alleged the affiliate had provided nonaudit services to audit clients from 2001 to 2004. The Australian firm didn't admit or deny any wrongdoing.

    In addition to the KPMG settlement, the SEC also issued a separate report warning audit firms that they aren't permitted to loan staff to their audit clients if it results in the staff acting as employees of the clients. The report was prompted by an SEC investigation of KPMG's practices in that area—the commission ultimately decided not to bring an enforcement action from its probe, but said it was "appropriate and in the public interest" to clarify the rules regarding loans of staff and how they might affect an auditor's independence.

    The Big Four firms have drawn attention for their push to provide more consulting and nonaudit services in recent years. They've been deriving much of their growth recently from consulting, rather than from their core auditing businesses.

    Revenues from KPMG's advisory business, for instance, rose 4.8% in U.S. dollar terms in fiscal 2013, and tax revenues rose 2.3%, compared with a 1% decline in audit revenues.

    Even though the consulting-revenue growth comes from companies that aren't audit clients, the trend has led to concern among some critics.

    "I think that this is an indication they're more focused on the bottom line than they are on their audits," said Lynn Turner, a former SEC chief accountant.

    Though the Sarbanes-Oxley rules are supposed to prevent any conflicts of interest from arising, the critics contend the firms' increased concentration on consulting still could be problematic, by leading them to lose focus on their responsibilities as auditors.

    Continued in article

    And One Year Earlier
    "SEC Charges KPMG Auditors in TierOne Failure    ," Tammy Whitehouse, Compliance Week, January 9, 2013 ---
    http://www.complianceweek.com/sec-charges-kpmg-auditors-in-tierone-failure/article/275490/

    Jensen Comment
    Why does the SEC even bother until it seriously takes on the criminals and not the firms.?

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

    Jensen Comment
    Why does the SEC even bother?

    Bob Jensen's threads on audit firm professionalism and independence ---
    http://www.trinity.edu/rjensen/Fraud001c.htm

    FASB issues final guidance for service concession arrangements

    The FASB issued final guidance stating that entities should not account for certain service concession arrangements entered into with public-sector entities as leases under ASC 840, Leases, and should not recognize the related infrastructure as property, plant and equipment. Instead, entities should refer to other US GAAP, such as ASC 605, Revenue Recognition, to account for these arrangements. While the final guidance is effective for annual periods beginning after 15 December 2014, early adoption is permitted.

    EY To the Point, January 28, 2014  --- Click Here
    http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2692_ServiceConcessionArrangements_28January2014/%24FILE/TothePoint_BB2692_ServiceConcessionArrangements_28January2014.pdf

    "Fracking Boom Keeps Home Heating Bills in Check Prices of Natural Gas Avoid Volatility of Past Winters," by Russell L. Gold, The Wall Street Journal, January 28, 2014 ---
    http://online.wsj.com/news/articles/SB10001424052702303277704579349092247419158?mod=djemCFO_h

    Freezing temperatures are creating near-record demand for natural gas in the U.S. as shivering Americans turn up the heat and plug in their electric blankets.

    Natural-gas prices have jumped in response, topping $5 per million British thermal units for the first time since 2010 as fuel has been pulled from underground storage vaults to keep furnaces running and electric utilities humming.

    But compared with past cold snaps, such as in 2000, the price surge has been muted, according to utilities and other big gas users.

    That is good news for businesses and consumers. Manufacturers that consume large amounts of the fuel—steelmakers, for example—say they have trouble planning for sharp price changes. And homeowners on fixed incomes can be hit especially hard when utilities raise prices.

    In the short term, higher prices help gas drillers, many of which have been losing money on wells in a supply glut. Over the long term, though, stable prices attract demand for gas from power companies, trucking firms and railroads.

    American Electric Power Co. AEP +0.70% , one of the country's biggest electricity generators, is pleased to have a less-volatile market. "It is a lot different," said Marguerite Mills, vice president of fuels procurement. "We can go out and find supply."

    The difference today is the U.S. energy boom, which over the past few years has created vast supplies of the fuel, in part through hydraulic fracturing. As a result, the natural-gas market isn't gripped with fear that refilling storage could take years, a concern behind panicky trading a few years ago that sent gas prices over $10 per million BTUs.

    Natural gas closed Tuesday at $5.03 per million BTUs, up 40% since the beginning of September. Some local markets jumped higher as pipelines maxed out.

    But during a cold snap in December 2000, gas prices doubled in 2½ months. In 2000, the U.S. produced about 52.5 billion cubic feet a day of gas. Last year, it produced 66 billion cubic feet a day.

    Today, there is a lot of "production to build back inventory levels to normal," said Jack Weixel, director of analysis for Bentek Energy, which tracks natural-gas data. "You can climb back onto the horse a lot quicker." Gas consumption on Tuesday was the second highest on record, he said, nearly eclipsing the record set Jan. 7.

    New supplies from shale formations, such as the Marcellus Shale in the Northeast, have had a profound impact on gas prices and lowered volatility.

    "The available of the Marcellus and other shale gas has really dampened the effects of weather," said Joe Gregorini, a vice president of Peoples Natural Gas, a Pittsburgh utility that has 700,000 customers. "This is one of the coldest winters we've seen in our service territories in decades, but the available of natural-gas supplies has insulated customers."

    AK Steel Holding Corp. AKS +18.70% said Tuesday that the rise in gas prices cost the West Chester, Ohio, company a few million dollars more than expected but that it wasn't terribly concerned. "Later this year or perhaps even later this month…gas will come back down," Chief Financial Officer Roger K. Newport said in an earnings conference call.

    In the past, price jumps driven by cold weather quickly trickled down into home-heating bills. About half of U.S. households use gas for heat. In 2000, gas prices began the winter at $4 per million BTUs, then spiked above $10 for several days.

    Local gas utilities passed along these higher prices, and the cost of home heating nearly doubled to $624 for the winter of 2000-'01 from $380 a year earlier, according to federal records.

    Businesses also were affected. The Federal Reserve Bank of San Francisco reported that farmers idled production to avoid paying more to keep their greenhouses warm.

    This year, some customers will get pinched by higher prices but there won't be a heavy wallop. Many states require that utilities lock in what their customers pay for natural gas and electricity for months at a time. The companies determine those fees from the prices they pay for gas under long-term contracts, which are less susceptible to price swings.

    Electricity generators that need to buy natural gas at higher winter prices can sometimes turn to other sources of fuel, such as coal, if natural-gas is scarce or prices are too high.

    Continued in article

    "New Jersey Taxes Could Eat Up All Of Peyton Manning's Super Bowl Earnings," by K. Sean Packard, Forbes, January 27, 2014 ---
    http://www.forbes.com/sites/kurtbadenhausen/2014/01/27/new-jersey-taxes-could-eat-up-all-of-peyton-mannings-super-bowl-earnings/

    This is a guest post from K. Sean Packard, CPA, who is Director of Tax at OFS. He specializes in tax planning and the preparation of tax returns for pro athletes. He can be reached at sean.packard@ofswealth.com  and on Twitter at @AthleteTax .

    Peyton Manning has the opportunity to pull a John Elway and ride off into the sunset as a Denver Bronco after winning his second ring, not that he wants to retire. His career will hinge upon an offseason exam on his surgically-repaired neck, according to ESPN ’s Chris Mortensen. Obviously, the most important implication of the exam will be Manning’s health. But whether his career continues will have an effect on how much tax New Jersey can collect from him for his appearance in the Super Bowl XLVIII.

    Should the Broncos beat the Seahawks, Manning—and the rest of his teammates—will earn $92,000. The loser’s share in the Super Bowl is $46,000. So why does Manning’s future beyond February 2 matter to New Jersey? It would seem logical that the Garden State would apply its tax rates on the $92,000 or $46,000 Manning earns for his week in East Rutherford. Unfortunately, we are dealing with tax laws, not logic.

    New Jersey, and every other state that imposes a jock tax, taxes players on their calendar-year income from each employer. If the Broncos defeat the Seahawks, Manning’s 2014 playing income to this point would be $157,000 derived from playoff bonuses. If the Broncos lose, his playing income would be $111,000.

    If Manning is unable to continue playing, New Jersey would apply its tax rates to his income and multiply that amount by the ratio of 7/33 to determine his tax liability. The 7 in the numerator represents the week he spends in the state practicing and attending required NFL events. The 33 is the total number of duty days performed during the year—31 days in January plus two in February. If Manning is forced to retire, New Jersey will collect approximately $1,575 from him if the Broncos win and $982 if they lose.

    But should Manning continue his career into the 2014 season, New Jersey will collect an additional $45,000 from him by taxing income he has not even earned yet. Manning is due $15 million next season, which would push his 2014 earnings to $15,157,000 or $15,111,000, and bump him into Jersey’s highest 8.97% tax bracket. Luckily, his duty day ratio would go from 7/33 to 7/200, without regard to the Broncos’ game at MetLife MET +1.31% Stadium against the Jets next season.

    If Manning is able to play next season, his New Jersey income tax would be $46,989 on $92,000 for winning the Super Bowl, or 51.08%. If they lose and he is able to play in 2014, he will pay New Jersey $46,844 on his $46,000, which amounts to a 101.83% tax on his actual Super Bowl earnings in the state—and this does not even consider federal taxes!

    Because the Broncos play at the Jets next season, Manning’s effective New Jersey tax rate will be more in line with the state’s tax table. He will pay roughly $60,414 if they win the Super Bowl and $60,229 if they lose based on allocable income of $682,065 or $679,995 (9/200 x total 2014 calendar-year pay). However, if the Super Bowl were held anywhere other than New Jersey, he would only be paying them $13,425 or $13,384 for his 2014 game against the Jets.

    At this point his only tax-planning tools would be to retire or demand a trade in the offseason. A trade would mean that he will earn his $15 million for a team other than the Broncos, thus saving him about $59,000 in New Jersey taxes. This is because duty days are calculated separately for each team on which he plays. Of course he would have to choose his destination wisely, because there are very few NFL destinations that enjoy lower taxes than Colorado.

    I am actually cheering for New Jersey on this one. Not because I want Manning to fund a state-mandated traffic jam, but because football is better with Peyton Manning. I think the residents of Nebraska’s largest city would agree.

    Continued in article

    Jensen Comment
    I read where New Jersey has the highest rate of citizens relocating elsewhere, a higher rate than in California and New York where people are also rushing to live elsewhere. Of course taxation is only one of the causal factors, but it is a big factor. Taxes can indirectly impact relocation when business firms elect to steer clear of high taxation states. New York now has set up tax free zones around the SUNY campuses, but this "loss leader" is likely to fail since new businesses only have 10 years to avoid taxes and then WHAMO like a punch in the face! Business firms that are too stupid to see that coming deserve a broken nose.

    Accounting method changes under tangible property/repair regulations subject of new rules

    "Guidance issued on accounting method changes under repair regs.," by Alistair M. Nevius, Journal of Accountancy, January 24, 2014 ---
    http://www.journalofaccountancy.com/News/20149496.htm

    The IRS on Friday issued long-awaited guidance on accounting method changes under the so-called repair regulations, which govern the treatment of expenditures incurred in acquiring, producing, or improving tangible assets (Rev. Proc. 2014-6).

    Several sections of the repair regulations require taxpayers to secure the IRS’s consent before changing to an accounting method provided for in the regulations. The revenue procedure generally sets rules for obtaining automatic consent to change to those accounting methods provided in the repair regulations.

    The revenue procedure both amends existing accounting method change procedures found in Rev. Proc. 2011-14 and provides new procedures consistent with the repair regulations. It also provides for automatic consent for changes to a reasonable method under Sec. 263A, provided the taxpayer meets certain conditions. The revenue procedure provides tables with the designated automatic accounting method change numbers for various accounting method changes.

    The final tangible property regulations were issued in September 2013 (T.D. 9636) and were effective Jan. 1, 2014, although taxpayers are allowed to apply them to tax years beginning on or after Jan. 1, 2012. The revenue procedure is effective Jan. 24, 2014. However, if a taxpayer requested consent for a change in accounting method described in Rev. Proc. 2014-6, and the Form 3115, Application for Change in Accounting Method, is pending with the IRS national office on Jan. 24, 2014, the taxpayer can choose to make the change under Rev. Proc. 2014-6 if the taxpayer is otherwise eligible under the revenue procedure.

    Rev. Proc. 2014-6 supersedes Rev. Proc. 2012-19, which was released following the issuance of the temporary and proposed repair regulations in 2011. If a taxpayer had properly filed an application under Rev. Proc. 2012-19 with the IRS office in Ogden, Utah, to make a change in accounting method and the application was either postmarked or received by the IRS on or before Jan. 24, 2014, the taxpayer generally will make the change under Rev. Proc. 2012-19. However, in that situation, the taxpayer can choose to file an amended application under Rev. Proc. 2014-6 by following procedures outlined in the revenue procedure.

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

    From the Fitch Ratings Newsletter on January 24, 2014

    Revenue to Fall for Some European Corporates Under new IFRS Rules
    A new report issued by Fitch Ratings, shows that new IFRS accounting standards which update the rules on group accounting will result in a material fall in reported revenues, assets and liabilities in FY13 for some European corporates. Significantly, IFRS 11 Joint Arrangements prescribes new accounting rules that prohibit proportionate consolidation for what are now defined as 'joint ventures'. A Fitch survey of 24 large European non-financial corporates found that 13 of these entities had been using proportionate consolidation to account for interests in jointly controlled entities. IFRS 11 will force companies to use equity accounting instead for structures that are classified as ‘joint ventures.’

    Bob Jensen's threads on Revenue Accounting Controversies --- http://www.trinity.edu/rjensen/ecommerce/eitf01.htm
     

    From the Fitch Ratings Newsletter on January 31, 2014

    Accounting and Financial Reporting - 2014 Global Outlook Will 2014 be the breakthrough year for major accounting standard setting projects? This certainly looks set to be the year that the long-awaited new standard for revenue recognition is finally released, with publication due in Q1. New rules for financial instruments are also due out in the first half of 2014. However, projects on accounting for leases and insurance contracts are expected to take longer to complete.

    The projects mark the tail-end of a process to converge US GAAP and IFRS. Progress was made in 2013 on bringing the two GAAPs closer together, work continued on new joint revenue recognition and leasing standards that will align the two platforms to a hitherto unprecedented extent. Joint proposals were also released on insurance accounting. Yet clear water also started to open between the two platforms. There may be less appetitive among US constituents to change insurance accounting. Financial instruments rules also now look set to diverge.

    For IFRS reporters December 2013 accounts will reflect a number of accounting changes. Companies with defined benefit pension schemes will likely report sharply increased pension liabilities if they had previously applied the ‘corridor method’, an accounting exemption that had kept some pension obligations off-balance sheet. Companies with interests in jointly controlled entities they had previously proportionately consolidated may also see significant change: proportionate consolidation is prohibited for "joint ventures". Affected entities should not see profitability or net assets affected – unless joint ventures are loss making – but revenue, expenses, gross assets and liabilities could be reduced.

    Details at
    http://click.fitchemail.fitchratings.com/?qs=4a33e0e9e5ce1e1604a3981794bff9746d204a8e2964e2c2b65aedb8616d001d

     

    "Unreliable German Solar and Wind Forcing New Coal Boom," PJ Media, January 25, 2014 ---
    http://pjmedia.com/blog/unreliable-german-solar-and-wind-forcing-new-coal-boom/?singlepage=true

    Not surprisingly, a wind farm operator is at the center of Germany’s latest major financial swindle.

    With 1,300 employees, Prokon is a relatively small company. Yet its advertisements were well-known to Germans. They always had three parts: pictures of a wind farm; a vague message that “something” had to be “changed”; and a request to make a loan to Prokon. In return, one was promised nothing less than “a future worth living,” and 8 percent interest per annum.

    One of these propositions must have been alluring to many Germans, for the company successfully gathered about 1.3 billion euros (2 billion dollars) in borrowed capital. That’s small money compared to Enron, Lehman Brothers, or Greece, but in the case of Prokon, no banks or equity funds were involved. All of the capital came from retail investors, some of whom gave a big chunk of their lifetime savings, according to media reports.

    Now, we know that the whole operation was a Ponzi scheme. The interest was paid with the money from newcomers. Journalists are adding insult to injury, asking how Prokon´s creditors could have been so naïve with such an “extraordinarily high” interest rate being promised. Some coverage has mentioned that many of the investors were allegedly “elderly people.”

    According to this media, one has to be well beyond the peak of cerebral activity to believe that a windfarm could generate enough profit to pay an 8 percent interest. Very well, then. But if so, how can it possibly be wise that windmills are supposed to become the backbone of the German electricity grid?

    Is Germany a gigantic Prokon?

    In his “climate change speech” at Georgetown University in June 2013, President Obama said:

    Countries like China and Germany are going all in the race for clean energy. I want America to win that race, but we can’t win it if we’re not in it.

    If it were up to the majority of the German people, however, they would rather opt out and let someone else win. According to surveys, only 18 percent approve of the current energy policy. Sixty percent of Germans reject the push for so-called “green” energy if it leads to higher prices, and the same amount think it inevitably does.

    They are correct: the electricity price in Germany has doubled between 2000 and 2013. It is now about three times pricier than electricity in the U.S. because staggering amounts of money were channeled into solar and windmill companies. Last year alone, German households paid 20 billion euros (27 billion USD) for a “renewable energies surcharge,” which amounts to 240 euros (325 USD) for every citizen. More than 100 billion euros have been sunk into solar energy, which is the least efficient source and contributes only four percent to German electricity production. Germany has as many solar panels as the rest of the world combined — in a country where the sky is usually overcast.

    Outside of the urban areas, there are windmills everywhere. Residents complain about the destruction of the landscape, the health hazards of infrasound, and plummeting real estate prices.

    Electricity prices rise further with every windmill and solar panel installation because of how the “renewable energies surcharge” is calculated. The law is based on the idea that the owner of a windmill or a solar panel deserves a fixed return on his investment. Owners are guaranteed a long-term feed-in tariff — which is way above the market price. The consequence has been a massive overbuilding of “renewables” at the expense of consumers (industrial companies with high electricity consumption are exempted from the surcharge). This has triggered a debate about families with low incomes who have to spend an ever-growing segment of their budget on electricity.

    Common sense suggests that nobody should pay for unsolicited goods. Unfortunately, common sense has no jurisdiction here. Instead, statist remedies are being discussed to cure an illness caused by statism.

    Last year, Peter Altmaier – then the German minister for the environment — proposed that the state provide the poor with new refrigerators. Next, he said the unemployed could be trained to become advisors on energy saving. Like members of a Soviet Komsomol brigade, they would go door-to-door telling people to put a lid on the pot when cooking. Nobody embraced Altmaier´s ideas, but nobody offered a different proposition. So the question was dropped altogether.

    It has become clear that “renewable” energies cause problems for the grid. There are no viable means for storing the electricity; it has to be consumed as it is produced. Production and consumption have to match. The larger the percentage of production coming from fickle solar and wind energy, the more difficult the job of the grid operator is. When Germany doesn’t produce enough electricity, it needs to import it from its neighbors, like it did in 2011 and 2012, when Merkel’s decision to immediately shut down eight nuclear power plants (out of fear that a tsunami like in Japan could strike them) would have caused a blackout. Austria and France stepped in to fill the gap. Sure enough, nobody ever thanked Germany’s friends. Instead, German environmentalists bragged about Germany’s record electricity exports.

    Continued in article

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

    From TaxProf Blog on January 27, 2014

    Check out #SixWordPeerReview.  My favorites:

    More at https://twitter.com/search?q=%23SixWordPeerReview&src=hash

    Jensen Additions (not using the six-word constraint)

    "Factory Jobs Are Gone. Get Over It," by Charles Kenny, Bloomberg Businessweek, January 23, 2014 ---
    http://www.businessweek.com/articles/2014-01-23/manufacturing-jobs-may-not-be-cure-for-unemployment-inequality

    In the runup to this year’s State of the Union address, President Obama has been busy trying to fulfill pledges from last year’s. He went to Raleigh, N.C., to announce it would become a high-tech manufacturing hub to ensure that the U.S. attracts “the good, high-tech manufacturing jobs that a growing middle class requires.”

    The president is one of many politicians of both parties as well as pundits who think manufacturing deserves special treatment. But this factory obsession is based on flawed economics. As the Brookings Institute economist Justin Wolfers asked recently, “What’s with the political fetish for manufacturing? Are factories really so awesome?”

    Not really—at least not for the U.S. in 2014. Any attempt to draw lessons from the 1950s, when many a high school-educated (white, male) person got a job in a factory and joined the middle class, doesn’t account for the changes in the U.S. and global economy since the middle of the last century. While it’s smart to focus on creating more stable, remunerative jobs, few of them are likely to come from manufacturing.

    BLOG: More Companies See Advantage to Manufacturing in the U.S.

    In 1953 manufacturing accounted for 28 percent of U.S. gross domestic product, according to the U.S. Bureau of Economic Analysis. By 1980 that had dropped to 20 percent, and it reached 12 percent in 2012. Over that time, U.S. GDP increased from $2.6 trillion to $15.5 trillion, which means that absolute manufacturing output more than tripled in 60 years. Those goods were produced by fewer people. According to the Bureau of Labor Statistics, the number of employees in manufacturing was 16 million in 1953 (about a third of total nonfarm employment), 19 million in 1980 (about a fifth of nonfarm employment), and 12 million in 2012 (about a tenth of nonfarm employment).

    Service industries—hotels, hospitals, media, and accounting—have taken up the slack. Even much of the value generated by U.S. manufacturing involves service work—about a third of the total. More than half of all people still employed in the U.S. manufacturing sector work in such services as management, technical support, and sales.

    Over the past 30 years, manufacturers have spent more on labor-saving machinery and hired fewer but more skilled workers to run it. From 1980 to 2012 across the whole economy, output per hour worked increased 85 percent. In manufacturing output per hour climbed 189 percent. The proportion of manufacturing workers with some college education has increased from one-fifth to one-half since 1969.

    STORY: American Made Movie Builds Hope for Manufacturing at Home

    Across richer countries, growth has been accompanied by a decline in the number of manufacturing jobs and the rise of service jobs. Some of the richer countries, such as France, that have seen the slowest decline in manufacturing’s share of employment have actually suffered some of the most sluggish growth. In the U.S., Eric Fisher of the Federal Reserve Bank of Cleveland suggests that those states where the shift from manufacturing employment has been the most rapid are those where wages have climbed the fastest.

    Developing countries have taken over much of the low-skilled, low-capital production once done in the U.S.: Consider the garment industry or tire manufacturing. Such low-tech work is even more mind-numbing and poorly paid than it was when the work was done in the U.S. through the 1970s. Many of the workers killed in the recent Rana Plaza garment factory collapse in Bangladesh earned just $3 a day. Some politicians have regretted the loss of similar jobs in the U.S. The question is: Do we want such jobs here now?

    Shutting the borders to low-cost imports in the hope of reviving low-skilled manufacturing employment at home would likely kill jobs, not save them. When Obama in 2009 slapped tariffs on Chinese tire imports that had flooded the U.S. market, he temporarily preserved 1,200 jobs in the tire industry as supplies tightened and U.S. tiremakers helped make up the difference. But the impact on the U.S. labor force as a whole was negative. Gary Hufbauer of the Peterson Institute estimates that the cost to U.S. consumers was more than $1 billion. As tires got more expensive, tire buyers had less money to spend on other goods. The effect of that drop in demand on retail employment was a loss of 3,731 jobs, three times the number preserved in the tire industry.

    Story: Etsy Wants to Be the Rust Belt's New Factory

    Champions of reindustrialization often cite the cluster effect as a reason to back manufacturing. If a company builds a factory, then other factories will pop up in the same place to benefit from the industry knowledge and experienced workforce found there. If that theory were strongly supported by the facts, that might be a reason for governments to subsidize early investors in building the first plant somewhere. But work by economists Glenn Ellison of Massachusetts Institute of Technology and Ed Glaeser of Harvard suggests that while “slight concentration is widespread” among industries, “extreme concentration” is the exception. High levels of concentration aren’t a particularly common or unique feature of high-tech manufacturers (although high-tech service industries cluster in Silicon Valley). In manufacturing, the two economists suggest clustering is most evident in fur, wines, hosiery, oil and gas, carpets and rugs, sawmills, and costume jewelry.

    Continued in article

    Jensen Comment
    In the meantime cost and managerial courses and textbooks should be making the shift to accompany changing labor patters such as accounting for complicated indirect costs and services such as medical services, food services, and online selling.

    Bob Jensen's threads on managerial and cost accounting ---
    http://www.trinity.edu/rjensen/Theory02.htm#ManagementAccounting

    Management and Accounting Web (MAAW) --- http://maaw.info/

    "Global Accounting Standards— From Vision to Reality," by Paul Pacter, The CPA Journal, January 201 ---
    http://www.ifrs.org/Alerts/Publication/Documents/2014/CPA-Journal-Global-Accounting-Standards-January-2014.pdf

    Reply from Bob Jensen on January 17, 2014

    I had not seen Paul's latest article. It has a fitting title given that Paul was involved with IFRS (when the standards were instead called IASC standards) from the beginning (the "Vision") to where things stand today (the Reality")" The major group that changed vision to reality in the history of the IASC/IASB was IOSCO. Pau's writing on the early days can be found at
    http://www.trinity.edu/rjensen/acct5341/speakers/pacter.htm

    I'm sure that Paul is disappointed that I do not support letting the IASB become a world monopoly on the setting of accounting standards, but I'm also certain that my views one way or the other had nothing to do with the "Reality" that evolved. Paul's views and actions played an enormous role in affecting the "Reality" that evolved.

    I might add that Paul played a major role in the writing of accounting standards in China before he became a board member on the IASB. Of course he worked part-time in the writing of IFRS standards for most of his career. He had two apartments --- one for London when he was working for the IASB and one in Hong Kong when he was working for Deloitte and the World Bank.

    Paul Pacter, a former student, has tens of thousands of photographs taken over the years as he traveled around the world countless times
    Welcome to Paul's Photo Gallery --- http://www.whencanyou.com/index.htm

    Respectfully,
    Bob Jensen

     

    "The Dangerous Rise of 'Entrepreneurship Porn',” by Morra Aarons-Mele, Harvard Business Review Blog, January 6, 2014 ---
    http://blogs.hbr.org/2014/01/the-dangerous-rise-of-entrepreneurship-porn/ 

    Sir Richard Branson has proclaimed 2014 “The Year of the Entrepreneur.” Breathless coverage abounds: sexy stories of the young and old who threw off the yoke and started their own businesses. It’s all goodbye cubicle — hello freedom, vitality, creativity.

    Fed by media and online coverage of an idealized lifestyle, this “entrepreneurship porn” presents an airbrushed reality in which all work is always meaningful and running your own business is a way to achieve better work/life harmony.

    But the reality of starting and running a small business is different from the fantasy – and I should know, because I run one, and am married to a long-time entrepreneur. Starting a company doesn’t mean being freed from the grind; it means that the buck stops with you, always, even if it’s Sunday morning or Friday night.

    Moreover, it’s just not possible that every smart young graduate can launch her own successful enterprise. Part of me wants to cry every time I meet a smart young student and the notion of joining a respected, existing institution cannot compete with the thought of creating her own.

    Very few of the talented young people I meet want to work for something that already exists. On the contrary, they want to create new enterprises. They want to work according to their own rules, not a boss’s rules. Part of this may be youth, but surely part of it is what these young people have seen: their parents and older friends grinding it out, feeling unrecognized and judged on the wrong criteria. Women leaving high-powered jobs once they have children and stifled in a desire to be both a good mother and good worker, and men who cannot express their need to have a life at home and at work.

    I went to graduate school to study why people — women in particular — leave work, and how employers can help them to stay. I also went to graduate school to escape my own struggles with a frustrating corporate environment; I quit 10 jobs before I was 31. In the years since, I’ve spent hours interviewing both experts in human capital and the men and women who’ve left firms.

    I’ve come to suspect that the rise of “entrepreneurship porn” is at least as much about escaping a company as starting one. Most Americans don’t like their work. Data on Americans’ dissatisfaction regarding their work – in corporate environments, in particular, show:

    Entrepreneurial escapism thrives in such an environment. A joint study from INSEAD/Princeton shows that “Non-pecuniary motivations are more important than monetary motivations for people to start a new business. One is autonomy: People want to be their own boss. The other is identity fulfillment, which is more about people having a vision about a product or a service. But their employers do not give them the freedom to develop within the company structure. That is a key driver.”

    Despite these noble yearnings, the data show the most effective workplaces with happy employees are not necessarily startups. The criteria that define happy workplaces are work-life fit, autonomy, job challenge and learning, a climate of respect and trust, supervisor task support, and financial security. None of these spells “small business” to me.

    The longer the fantasy of entrepreneurship continues and the media continues to churn out entrepreneurship porn the weaker our established institutions become. The data on creating effective workplaces are clear, and can basically be boiled down into simple tenets: Create an environment that treats employees like grown ups. Focus on accountability, not face time. Allow men and women to live whole lives.

    Continued in article

    SAT Test --- http://en.wikipedia.org/wiki/SAT_test

    ACT Test --- http://en.wikipedia.org/wiki/ACT_test

    In the USA, how does any selected state compare with other selected states on SAT performance and career readiness? ---
    The 2013 SAT Report on College & Career Readiness, The College Board, 2013 ---
    http://research.collegeboard.org/programs/sat/data/cb-seniors-2013

    National Center for Education Statistics --- http://nces.ed.gov/

    Jensen Comment
    Much of the report focuses on averages. Averages can be misleading without accompanying information on standard deviations and kurtosis and sample sizes. The biggest worry with means is the impact of outliers.

    Note the the ACT test is generally assumed to be somewhat easier such that many worried students opt for the ACT in place of the SAT. Elite colleges seldom admit to bias, but in my opinion the SAT may be more important for elite college admission unless there are intervening factors such as affirmative action factors.

    Bob Jensen's threads on sources of economic and other data ---
    http://www.trinity.edu/rjensen/Bookbob1.htm#EconStatistics

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

    When we watch our favorite BBC Mystery videos, including Inspector Morse and Inspector Lewis in Oxford settings, British universities are pictured much like they were during the Renaissance period --- now old and decadent. Inspector Lewis has yet to search Oxford's glass-walled Said Business School for villains.

    "MBA Bubble Looms Larger Than Ever As Schools Build Huge New Campuses," The Economist via Business Insider, January 17, 2014 ---
     http://www.businessinsider.com/build-it-and-they-may-come-2014-1

    Business-school students are a pampered bunch. Scholars sipping a glass of red in the posh rooftop bar of Oxford's Saïd Business School could be forgiven for thinking they had wandered into the nearby Randolph Hotel by mistake. Stanford students can view an impressive modern-art collection housed in its own museum. Harvard Business School MBAs can book a masseuse to relieve the stress of a hard day slaving over case studies.

    Life for the next generation of business students is to get even cushier. In the past few years the leading schools have been raising vast amounts to spend on new facilities. On January 9th Yale's School of Management formally opened its swanky new home, designed by Foster + Partners, Norman Foster's architecture practice. The Kellogg School of Management in Illinois will soon start work on a new headquarters (see artist's impression, above) for its MBA programme on the shores of Lake Michigan, at a cost of $200m. Stanford's business school spent $345m on its new campus, largely thanks to the largesse of Phil Knight, the founder of Nike.

    The biggest project, at least in terms of cost, is under way in New York. Columbia Business School is within touching distance of raising the $600m it needs to complete a new campus in West Harlem. From Cambridge, MA, to Cambridge, UK, an arms race is under way to provide MBAs with the plushest place to study.

    There are several reasons for this. One is that many business schools built campuses in a previous expansionary phase in the 1960s and 70s, and these are now ripe for regeneration. Rising expectations among prospective students also play a part. The posher the school, the more demanding its applicants. Harvard Business School's campus is the envy of all its competitors, and for good reason. Yet in a survey by The Economist in 2013, MBA students ranked its facilities (measured, admittedly, by more than just the quality of its buildings) a lowly 27th in the world, below those of institutions such as Brunel University, a modest college in Uxbridge, in west London. Since Harvard puts the total cost of taking its MBA at around $200,000, students have every right to expect perfection.

    Breaking ground on expensive new facilities is not without risk. Demand for MBAs remains soft. Some schools, particularly lower down the pecking-order, may find their new state-of-the-art classrooms sparsely populated. In the 2012-13 testing year there were 238,000 entries for GMATs, the de facto business-school entrance exam. That is 50,000 fewer tests taken than the year before and the lowest number for six years.

    For some schools, the risk is lower. The University of Cambridge's Judge Business School is raising £52m ($85m) for a new building that will, among other things, house its lucrative non-degree executive-education programmes. These are currently scattered around Cambridge's other colleges. Judge thinks it will recoup the outlay of bringing them together under one, expensive roof within a few years.

    In any case, the money for most big schools' projects comes from wealthy alumni and sponsors, who do not expect it back. Of the $600m Columbia is raising, for example, only $100m is from university coffers. The rest will come from gifts, including donations of $100m each from two private-equity fund managers, Ronald Perelman and Henry Kravis. Kellogg says not a single tuition-fee dollar will be spent on its new building.

    Indeed, one reason more schools can afford big capital projects is that they have turned philanthropy into a professional business. Nearly all the top schools now employ full-time fund-raisers. Their preferred targets tend to be former students who have made it big since graduation. Deans are often judged on just two criteria: how a school fares in rankings (including ours, at economist.com/whichmba) and how much money they have screwed out of rich alumni.

    But if there is little financial risk to schools, there is a danger of obsolescence. Higher education is, many think, on the brink of being disrupted by distance-learning technology. In the future, many more students are expected to study remotely. Trophy campuses could become relics. "Our industry is about to transform itself," says Sally Blount, Kellogg's dean. "And you have to decide whether you are in or out of face-to-face education."

    Continued in article

    The top MBA and other graduate business distance education degree programs where students only have virtual campuses ---
    http://www.usnews.com/education/online-education/mba/rankings
    Indiana University is the big winner

    US News Rankings of Varieties of Higher Education Programs (including global programs) --- http://www.usnews.com/rankings

    "Computer Usage and Social Media Linked to Anti-Social Behavior:  Tweeting, Texting, and Smartphone use can lead to Violence, Cyberbullying, and Hedonistic Behavior," by Steven Mintz, Ethics Sage, January 16, 2014 ---
    http://www.ethicssage.com/2014/01/computer-usage-and-social-media-linked-to-anti-social-behavior.html

    "Facebook and Business Ethics: Five Questions to Ponder," by Steven Mintz, Ethics Sage, January 30, 2014 ---
    http://www.ethicssage.com/2014/01/facebook-and-business-ethics-five-questions-to-ponder.html

    From the CFO Journal's Morning Ledger on January 27. 2014

    Google unloads handset business
    Google    ‘s experiment making Motorola phones has ended after just 22 months, with the company unloading the handset business to Lenovo for $2.91 billion,     the WSJ reports. Google said it would retain the vast majority of Motorola’s patent portfolio, a key motivation of the original transaction that lets it defend phone makers using its Android software against patent suits. Google has struggled to compete in the cutthroat phone-hardware business—its share of the world-wide smartphone market fell to about 1% last year from 2.3% a year earlier. The deal also signals the rising ambitions of Lenovo, which is seeking to be a bigger player in the global technology market.

    From the CFO Journal's Morning Ledger on January 27. 2014

    The prospect of higher interest rates is creating a debt-issuance dilemma for CFOs
    The question is whether to issue fixed- or floating-rate debt. Missteps can be costly because even small fluctuations in rates can cost or save a company millions of dollars in interest expenses,     writes Chana R. Schoenberger for CFO Journal. With strong economic growth in Q3 and falling unemployment, some CFOs predict that the Fed will raise short-term interest rates sooner than it has telegraphed. On the flip side, business investment and inflation remain weak, so some finance chiefs don’t expect a rate rise before at least 2015. There's a pretty split community on this among senior executives, said Amol Dhargalkar, a managing director at Chatham Financial, who advises companies on corporate finance.

    Level 3 Communications sold $300 million of high-yield floating-rate debt in November. The company chose a floating rate because it expects interest rates to rise at a slow march over the next two years, and it is easier to refinance floating-rate debt than fixed-rate debt, says CFO Sunit Patel.

    One fixed-rate fan is Snap-On CFO Aldo Pagliari. The company had $980 million of debt at the end of the third quarter, all fxed-rate except for a $100 million interest-rate swap that will run until 2019. Mr. Pagliari thinks rates will rise over the long term, but will remain low compared with historical norms. If Snap-On were to issue a 10-year note today, it would likely yield about 4.1%, which is still below the 5.6% average blended yield on the company's outstanding debt, he said.

     

    From the CFO Journal's Morning Ledger on January 27. 2014

    Securities lawsuits on the rise
    U.S. corporations have worked for two decades to fend off securities class-action lawsuits. But new figures show that such cases haven’t abated. Stockholders filed 234 federal securities class-action suits against U.S. companies last year, the most since 2008,     writes the WSJ’s Jacob Gershman. Lawsuits over corporate mergers have jumped in recent years. Last year, they represented about a fifth of the new securities class-action filings in federal court. And allegations that companies gave misleading earnings forecasts accounted for 41% of class-action filings last year, up from 29% in 2012. Michael Klausner, a corporate-law professor at Stanford University, says securities class actions prevent corporate fraud. “They lead to CEOs, CFOs and other executives losing their jobs. And to my mind, that creates a substantial deterrence,” he says.

    From the CFO Journal's Morning Ledger on January 24. 2014

    Lease-accounting overhaul likely to be scaled back
    The FASB and IASB moved forward with plans that could limit the scope of their project to overhaul lease-accounting rules and allow them to refocus their efforts on bringing over $1 trillion in off-balance-sheet leases onto corporate books,     Emily Chasan reports. In a joint meeting, the accounting rule makers discussed scaling back their efforts to simultaneously revamp so-called “lessor” accounting for companies that lease assets, such as airplanes or photocopiers, to other firms. Investors and other users of financial statements “are telling us this isn’t something we need,” Scott Muir, a FASB staff member, said at the meeting. Some users and analysts have told the board that the cost of making changes to lessor accounting outweighs the benefits, and significant changes may harm their analyses, Mr. Muir said.

    Bob Jensen's threads on lease accounting ---
    http://www.cs.trinity.edu/~rjensen/temp/LeaseAccounting.htm

    From the CFO Journal's Morning Ledger on January 24. 2014

    Investors flee developing countries
    Investors are dumping currencies in emerging markets, underscoring growing anxiety about the ability of these countries to prop up their economies as they face uneven growth,     the WSJ reports. The emerging-market slide reflects worries about outside forces—such as a shift in U.S. monetary policy, or China’s efforts to reorient its economy—colliding with domestic political and economic tensions, unsettling investors at home and abroad. The current situation puts the central banks of developing countries in a squeeze. If they raise interest rates to curb currency losses and fight inflation, that would also tighten the spigot of credit and slow domestic economic growth. But a failure to raise rates at the right time can diminish the central bank’s credibility.

    The Emerging Market Currency Bloodbath In One Horrific Chart  ---
    http://www.businessinsider.com/chart-emerging-market-currency-weakness-2014-1

    Question
    What do conman jail birds and pedophiles have in common?

    Answer
    Criminal recidivism. Ex-con conmen are more apt to book public speaking tours where they confess their sins and promise never to do it again. But time and time again they succumb to temptation soon afterwards. Barry Minkow is a classic example.

    "Conman Minkow convicted of fraud...again," CNBC, January 23, 2014 ---
    http://www.cnbc.com/id/101357919

    A man who went from teenage millionaire to convicted con artist to professional fraud fighter and pastor was convicted Wednesday of cheating his San Diego church congregation out of some $3 million.

    Barry Minkow pleaded guilty to embezzling funds from the San Diego Community Bible Church, a U.S. attorney's statement said. He was already serving a five-year sentence for a securities fraud conviction in Florida and could get five additional years when he is sentenced for the new conviction April 7.

    Under the plea, Minkow admitted that he opened unauthorized church bank accounts, forged signatures on checks and used member donations for personal benefit.

    "Barry Minkow is again convicted of fraud, this time for stealing money from the parishioners of San Diego Community Bible Church," U.S. Attorney Laura Duffy said. "We stand vigilant against those who cheat and steal without regard to the consequences wrought on their victims and their communities."

    Minkow gained national attention as a teenager in the 1980s by founding the ZZZZ Best carpet cleaning company in Southern California. At age 21, he became the youngest person at the time in U.S. history to take a company public, and he became very wealthy on paper.

    But ZZZZ Best turned out to be involved in a fraud scheme in which investors poured $100 million into fake fire and water restoration projects. And in 1988, Minkow was sentenced to 25 years in prison after being convicted of 57 fraud charges.

    (Read more: About 100 people accused in NYC disability scam: DA)

    He was released in 1995. Minkow became pastor of the San Diego church two years later, after undergoing a religious conversion in prison.

    He also founded the Fraud Discovery Institute, which helped the FBI and other law enforcement agencies ferret out white-collar crimes around the country.

    But even while working with the institute, he was engaged in manipulating the stock prices of the companies he was investigating, federal prosecutors said.

    In 2011 in Miami, a federal judge sentenced Minkow to five years in prison for involvement in a scam that cost homebuilder Lennar Corp. some $580 million in lost stock value.

    Continued in article

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

    From the CFO Journal's Morning Ledger on Januaary 22. 2014

    Buyback Controversies
    Buybacks may please some shareholders, but they come with longer-term risks. Heavy reliance on buybacks at dozens of mature U.S. companies are an ominous sign that CEOs are stuck—reluctant to build new plants, launch products or pursue an acquisition,     writes the WSJ’s Dennis K. Berman. The 100 largest companies in the S&P have plowed nearly $1 trillion into buybacks since 2008. The danger is that those buybacks have been substituting for investment, be it in software engineers, new products or extra marketing. And that could eventually leave businesses ill-equipped to adapt to changes in their industries, especially tech-intensive ones.

    Investor Jim Chanos, one of Wall Street’s best-known short sellers,  has been quietly building an investment thesis around the idea that buybacks are a sign of corporate weakness, not strength. “Corporate CEOs, with their massive share-buyback programs, are in effect investing in the stock market rather than in expanding business opportunities at their companies,” he says.

    IBM has been an avid buyer of its own stock for the past 20 years. In 1993, it had 2.3 billion shares outstanding. Today it has 1.1 billion, shrinking at more than 1% per quarter over the past few years. If it continued at its current pace, there would be no more publicly traded IBM shares left by 2034, Berman notes. The strategy has many on Wall Street worried that the company is more focused on its stock price than its long-term path. “Only IBM knows what it might be forgoing,” says Barclays analyst Ben Rietzes. But “one can make an argument for organic investments,” especially with revenues shrinking 3% and fresh competition from cloud-computing competitors.

     

    From the CFO Journal's Morning Ledger on January 21, 2014

    How companies rebuild reputations after restatements
    For companies trying to recover from a serious financial restatement, making rapid changes to their executive team, improving corporate governance, and even stepping up charitable giving can quickly mend fences and nurse a declining share price back to health,     writes Emily Chasan. Companies, on average, lose more than a quarter of their market value following a financial restatement or fraud. But researchers at Stanford and Emory universities found that in the year after a restatement, companies often take about 10 actions aimed at repairing their tarnished images. Each action lifts their shares by about 2%. After a restatement, “credibility is lost and it can take a long time to build that back up,” said Ed deHaan, an assistant professor of accounting at Stanford. “But after one year, firms that are aggressive in taking most of these actions have more or less restored their reputations.”

    "New Michael Lewis Book on Financial World Will Be Published in March," by Julie Bosmanian, New York Times, January 14, 2014 ---
    http://www.nytimes.com/2014/01/15/business/media/new-michael-lewis-book-on-financial-world-will-be-published-in-march.html?partner=socialflow&smid=tw-nytimesbusiness&_r=0

     Michael Lewis, whose colorful reporting on money and excess on Wall Street has made him one of the country’s most popular business journalists, has written a new book on the financial world, his publisher said on Tuesday.

    The book, titled “Flash Boys,” will be released by W.W. Norton & Company on March 31. A spokeswoman for Norton said the new book “is squarely in the realm of Wall Street.”

    Starling Lawrence, Mr. Lewis’s editor, said in a statement: “Michael is brilliant at finding the perfect narrative line for any subject. That’s what makes his books, no matter the topic, so indelibly memorable.”

    Mr. Lewis is the author of “Moneyball,” “Liar’s Poker” and “The Big Short.”

    Jensen Comment
    His books are both humorous and well-researched.

    Absolutely Must-See CBS Sixty Minutes Videos
    You, your students, and the world in general really should repeatedly study the following videos until they become perfectly clear!
    Two of them are best watched after a bit of homework.

    Video 1
    CBS Sixty Minutes featured how bad things became when poison was added to loan portfolios. This older Sixty Minutes Module is entitled "House of Cards" --- http://www.cbsnews.com/video/watch/?id=3756665n&tag=contentMain;contentBody
    This segment can be understood without much preparation except that it would help for viewers to first read about Mervene and how the mortgage lenders brokering the mortgages got their commissions for poisoned mortgages passed along to the government (Freddie Mack and Fannie Mae) and Wall Street banks. On some occasions the lenders like Washington Mutual also naively kept some of the poison planted by some of their own greedy brokers.
    The cause of this fraud was separating the compensation for brokering mortgages from the responsibility for collecting the payments until the final payoff dates.

    First Read About Mervene --- http://www.trinity.edu/rjensen/2008Bailout.htm#Sleaze

    Then Watch Video 1 at http://www.cbsnews.com/video/watch/?id=3756665n&tag=contentMain;contentBody

     

    Videos 2 and 3
    Inside the Wall Street Collapse     (Parts 1 and 2) first shown on March 14, 2010

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

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

     

    My wife and I watched Videos 2 and 3 on March 14. Both videos feature one of my favorite authors of all time, Michael Lewis, who hhs been writing (humorously with tongue in cheek) about Wall Street scandals since he was a bond salesman on Wall Street in the 1980s. The other person featured on in these videos is a one-eyed physician with Asperger Syndrome who made hundreds of millions of dollars anticipating the collapse of the CDO markets while the shareholders of companies like Merrill Lynch, AIG, Lehman Bros., and Bear Stearns got left holding the empty bags.

     

    "The End," by Michael Lewis December 2008 Issue The era that defined Wall Street is finally, officially over. Michael Lewis, who chronicled its excess in Liar’s Poker, returns to his old haunt to figure out what went wrong.
    http://www.trinity.edu/rjensen/2008Bailout.htm#TheEnd 

    Liars Poker II is called "The End"
    The Not-Funny Punch Line is Not Until Page 9 of This Tongue in Cheek Explanation of the Meltdown on Wall Street!

    Now I asked Gutfreund about his biggest decision. “Yes,” he said. “They—the heads of the other Wall Street firms—all said what an awful thing it was to go public (beg for a government bailout) and how could you do such a thing. But when the temptation arose, they all gave in to it.” He agreed that the main effect of turning a partnership into a corporation was to transfer the financial risk to the shareholders. “When things go wrong, it’s their problem,” he said—and obviously not theirs alone. When a Wall Street investment bank screwed up badly enough, its risks became the problem of the U.S. government. “It’s laissez-faire until you get in deep shit,” he said, with a half chuckle. He was out of the game.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    Continued in article

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

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

    Reply from Tom Hood
    Thanks Bob for the Michael Lewis article, “The End” – great explanation of the mess we a re in and how we got here. Just found this one that does a great job of summarizing the mess – visually http://flowingdata.com/2008/11/25/visual-guide-to-the-financial-crisis/
    Tom Hood, CPA.CITP, CEO & Executive Director, Maryland Association of CPAs
    443-632-2301, http://www.macpa.org 
    Check out our blogs for CPAs http://www.cpasuvvess.com
    http://www.newcpas.com 
    http://www.cpaisland.com 

     

    Financial WMDs (Credit Derivatives) on Sixty Minutes (CBS) on August 30, 2009 ---
    http://www.cbsnews.com/video/watch/?id=5274961n&tag=contentBody;housing
    The free download will only be available for a short while. I downloaded this video (a little over 5 Mbs) using a free updated version of RealMedia --- Click Here
    http://www.real.com/dmm/superpass?pcode=cj&ocode=cj&cpath=aff&rsrc=1275588_10303897_SPLP

    Steve Kroft examines the complicated financial instruments known as credit default swaps and the central role they are playing in the unfolding economic crisis. The interview features my hero Frank Partnoy. I don't know of anybody who knows derivative securities contracts and frauds better than Frank Partnoy, who once sold these derivatives in bucket shops. You can find links to Partnoy's books and many, many quotations at http://www.trinity.edu/rjensen/FraudRotten.htm#DerivativesFrauds

    For years I've used the term "bucket shop" in financial securities marketing without realizing that the first bucket shops in the early 20th Century were bought and sold only gambles on stock pricing moves, not the selling of any financial securities. The analogy of a bucket shop would be a room full of bookies selling bets on NFL playoff games.
    See "Bucket Shop" at http://en.wikipedia.org/wiki/Bucket_shop_(stock_market)

     

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

    From SmartPros on January 21, 2014

    FASB Issues Two Updates for Private Companies on Accounting for Goodwill, Interest Rate Swaps ---
    http://accounting.smartpros.com/x75722.xml

    The Financial Accounting Standards Board (FASB) issued two updates to U.S. generally accepted accounting principles (GAAP) that provide alternatives for private companies on the subsequent accounting for goodwill and for interest rate swaps, specifically a simplified hedge accounting approach for certain types of swaps.
     

    "KPMG faces investigation over Co-op Bank Auditing," SmartPros, January 20, 2014 ---
    http://accounting.smartpros.com/x75725.xml

    The Financial Reporting Council has launched an investigation into KPMG's auditing of the Co-operative Bank. The FRC, the disciplinary body for accountants and actuaries in the UK, will investigate the preparation, approval and audit of the financial statements of the Co-op Bank, up to the year ended 31 December 2012. The Co-op Bank was forced to withdraw a bid to buy 632 Lloyds Banking Group last year when it discovered a £1.5bn capital black hole. Earlier this month the FCA and Prudential Regulation Authority announced they are launching enforcement investigations into the Co-op Bank.

    The Co-op Bank is also subject to an internal review, an independent Treasury-commissioned inquiry and a Treasury select committee inquiry into the failed Lloyds' branches bid. There is also a police investigation into former Co-op Bank chair Reverend Paul Flowers over drug allegations last year. In December partners at KPMG were grilled by Treasury select committee MPs over KPMG's role in the Co-op's takeover of Britannia Building Society and its financial troubles. Following the FRC investigation, the body will decide whether to bring disciplinary proceedings and if so will refer the matter to a disciplinary tribunal, which can impose sanctions and costs orders.

    A spokeswoman for KPMG says: "Given the issues which the bank has experienced in recent months and in the light of the high media profile and public interest associated with these issues, it is understandable that there should be appropriate regulatory scrutiny. "As auditor to the bank we believe that we have provided, and continue to provide, robust audits which provide rigorous challenge to the judgments and disclosures proposed by the bank's management. "We look forward to co-operating fully with the FRC and other regulatory authorities in their investigations."

    Bob Jensen's threads on the two faces of KPMG ---
    http://www.trinity.edu/rjensen/Fraud001.htm

    This is 'loonie"
    "The Canadian Dollar Is Tanking," by Matthew Boesler, Business Insider, January 21, 2014 ---
    http://www.businessinsider.com/the-canadian-dollar-is-tanking-2014-1

    How will World War III be fought to bring down the USA?
    Target Breach Malware Partly Written in Russian

    From the CFO Journal's Morning Ledger on January 17, 2014

    Target breach was part of broad attack
    The holiday data breach at Target appears to be part of a broad and sophisticated international hacking campaign against multiple retailers, the WSJ’s Danny Yadron reports. Parts of the malicious computer code used against Target’s credit-card readers had been on the Internet’s black market since last spring and were partly written in Russian. Both details suggest the attack may have ties to organized crime in the former Soviet Union.

     

    "District court says premium tax credits are available in federal health care exchanges," by Sally P. Schreiber, Journal of Accountancy, January 16, 2014 ---
    http://www.journalofaccountancy.com/News/20149450.htm

    In a decision that aids the implementation of a key provision of 2010’s health care reform legislation, the federal district court for the District of Columbia held that the Sec. 36B premium tax credit is available to taxpayers who purchase health insurance through the 34 state health care exchanges that are run by the federal government (Halbig v. Sebelius, No. 13-0623 (PLF) (D.D.C. 1/16/14)).

    In May 2012, the IRS issued final regulations interpreting the Patient Protection and Affordable Care Act, P.L. 111-148, as allowing the IRS to grant tax credits to eligible individuals who purchase health insurance on either a state-run or a federally run health care exchange (Regs. Sec. 1.36B-1(k)). The plaintiffs in the case sued to have this regulation struck down, arguing that the IRS’s interpretation was contrary to the plain language of Sec. 36B(b)(2)(A), which provides a credit to eligible individuals who purchase health insurance through “an Exchange established by the State.” They asserted that the regulation therefore exceeded the IRS’s statutory authority and violated the Administrative Procedure Act.

    The court applied an analysis from Chevron U.S.A. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), by asking first whether the statute was ambiguous. After looking at the text of the statute, the statutory structure, and the legislative purpose, the court concluded that Sec. 36B(b)(2)(A) is not ambiguous and that Congress clearly intended to make premium tax credits available on all exchanges, whether or not established by a state. As a result, the court held that Regs. Sec. 1.36B-1(k) is a valid interpretation of the law. 

    Continued in article

    Jensen Comment
    Note that these are tax credits that dollar-for-dollar reduce the amount of tax owed before the credit is applied. I assume that this can add to tax credits to where the credits exceed the tax owed, thereby becoming a negative income tax where a taxpayer receives a refund in excess of the tax owed before the credit.

    I don't think such credits are available for qualified health insurance purchased outside the exchanges, but I could be wrong on this. For example, President Obama declared it possible for some people to stay on their own individual plans. I think they may not be eligible for the tax credits. But I could be wrong on this.

    Glass-Steagall Act --- http://en.wikipedia.org/wiki/Glass-Steagall_Act

    "JPMorgan's Madoff Settlement Could Prove Elizabeth Warren Right," by Linette Lopez, Business Insider, January 7, 2014 ---
    http://www.businessinsider.com/jpm-settlement-proves-warrens-point-2014-1

    Another day, another $1.7 billion in fines for JP Morgan. This time, it's for failing to catch Ponzi schemer Bernie Madoff as it managed his ill gotten gains. Now the bank has to admit that it didn't have the systems in place to catch Madoff and implement them under a deferred criminal prosecution agreement.

    You could call this a case of "too big to manage," one of anti-Wall Street crusader Senator Elizabeth Warren's (D-MA) favorite catchphrases.

    Back in November, she used it to talk about reinstating Glass-Steagall, the regulation that once split commercial and investment banks.

    "The new Glass-Steagall Act would attack both 'too big' and 'to fail,'" Warren said..."It would reduce failures of the big banks by making banking boring, protecting deposits, and providing stability to the system even in bad times. And it would reduce 'too big' by dismantling the behemoths, so that big banks would still be big—but not too big to fail or, for that matter, too big to manage, too big to regulate, too big for trial, or too big for jail."

    In terms of management, the Madoff case is a catastrophe arguably worse than the London Whale.

    Sure, the London Whale ended up costing JP Morgan $6 billion, and it was born in the bank's own Chief Investment Office, but that failing trade was only hidden from JPM's execs for about half a year. Madoff managed to fool everyone for decades.

    Well, almost everyone. There were people at JP Morgan who sounded the alarm, according to Iriving Picard, the trustee appointed by New York's bankruptcy trustee to review Madoff's case for his "clients".

    Picard's 2011 report indicates that two JPM executives knew something was wrong with Madoff, Risk Chairman John Hogan and COO Matt Zames.

    Here's a quote from Hogan back in 2007 (From Picard's report, via CNN Money):

    Continued in article

    Jensen Comment
    For its inception I've never been a cheerleader for repeal the Glass-Steagall Act.

    Teaching Case
    From The Wall Street Journal Accounting Weekly Review on January 17, 2014

    Rubbing Tax Salt in J.P. Morgan's Settlement Wound
     by: David Reilly
    Jan 09, 2014
    Click here to view the full article on WSJ.com
     

    TOPICS: Income Taxes

    SUMMARY: JP Morgan Chase's securities filing Tuesday discussing the deferred-prosecution agreement related to criminal violations involving work for convicted Ponzi schemer Bernard Madoff. The company has mostly accrued already for the penalties from this case but added $400 million to its liabilities. The interesting analysis in this article finds that the company showed an $850 million earnings reduction from this accounting and guesses that JPMorgan may not have anticipated this payment as a penalty which would never be tax deductible.

    CLASSROOM APPLICATION: This is an interesting article to discuss a permanent difference between book and tax income for JPMorgan in relation to another accounting issue-the Bernard Madoff Ponzi scheme.

    QUESTIONS: 
    1. (Introductory) Why was JP Morgan Chase required to pay $1.7 billion to the U.S. government in relation to the Bernard Madoff Ponzi scheme?

    2. (Advanced) Define the term "permanent difference" between book income and taxable income.

    3. (Advanced) According to the article, how does a $400 million increase in liabilities for penalties to be paid to the U.S. government result in an $850 million increase in expenses/decrease in profits? Relate your answer to the notion of a permanent difference that you defined above.
     

    Reviewed By: Judy Beckman, University of Rhode Island

    "Rubbing Tax Salt in J.P. Morgan's Settlement Wound," by David Reilly, The Wall Street Journal, January 9, 2014 ---
    http://online.wsj.com/news/articles/SB10001424052702303754404579308580666896714?mod=djem_jiewr_AC_domainid

    J.P. Morgan Chase's JPM -0.83% $1.7 billion Madoff payout was painful enough for investors. But it came with a sting in the tail.

    The bank's securities filing Tuesday discussing the deferred-prosecution agreement related to criminal violations involving work for convicted Ponzi schemer Bernard Madoff contained an interesting disclosure. The agreement, along with other payments J.P. Morgan would make to regulators, would result in a $400 million increase in litigation reserves for the fourth quarter of 2013.

    That likely reflects a $350 million settlement with the Office of the Comptroller of the Currency, for which J.P. Morgan doesn't appear to have previously reserved and which was above and beyond the $1.7 billion. Aside from that, the bank said it was substantially reserved for the agreements announced Tuesday, which included private litigation as well as the government actions and totaled $2.6 billion.

    Yet J.P. Morgan quantifies the "total impact" on fourth-quarter net income at about $850 million. How does a $400 million expense translate into an $850 million earnings hit?

    That is due to the nature of litigation reserves and a particular provision of the agreement. The bank appears to have anticipated the $1.7 billion included as part of the deferred-prosecution agreement, meant to compensate victims of Mr. Madoff's fraud. At least, its statement that it was already substantially reserved for the agreements implies this.

    Reserves are an expense, though, and create a tax benefit. Indeed, when the bank agreed last fall to a $13 billion settlement with federal and state agencies over sales of mortgage bonds, $7 billion of that was considered a compensatory payment. So that portion was deductible for tax purposes, J.P. Morgan finance chief Marianne Lake said on a conference call at the time.

    The government took heat for that back then. So this time, the $1.7 billion will be treated "as a penalty paid to the United States government," according to the Justice Department. As such, this wouldn't be tax-deductible, both the bank and the government said. J.P. Morgan doesn't appear to have expected that when it initially reserved for the deal.

    The upshot? J.P. Morgan will have to go back and adjust its litigation reserve to reverse the tax benefit it would have accrued. This explains the higher, $850 million earnings hit.

    The bottom-line impact isn't grave: J.P. Morgan is still forecast to have earned about $5 billion in the last quarter. It is a reminder, though, that in deciphering bank results, investors need to keep a close eye on the vagaries of litigation expenses.

    Bob Jensen's threads on the Madoff Ponzi scandal ---
    http://www.trinity.edu/rjensen/FraudRotten.htm#Ponzi

    Harris Poll:  Why Americans Are Going To The Movies Less Today Than Ever Before ---
    http://www.businessinsider.com/americans-are-going-to-the-movies-less-2014-1

    "Seven changes new revenue standard may bring," by Ken Tysiac, Journal of Accountancy, December 30, 2013 ---
    http://journalofaccountancy.com/News/20139337.htm

    The prospect of preparing for a historic, game-changing revenue recognition standard at a huge, global public company is a bit daunting for GE Technical Controller Russell Hodge, CPA.

    “I’ll admit to it being a little bit overwhelming to us,” Hodge said. “We have $150 billion of revenue and so many diverse, different business models. It’s a tough question. It’s a tough thing to think about.”

    The new, converged revenue recognition standard that’s in the final stages of development by FASB and the International Accounting Standards Board is expected to lead to at least some changes in financial reporting for virtually all entities that use U.S. GAAP or IFRS.

    The boards are scheduled to release the standard in the first quarter of 2014. Hodge and other panelists at the AICPA Conference on Current SEC and PCAOB Developments earlier this month described in detail some of the changes companies may face in moving from the industry-specific guidance in U.S. GAAP to one principles-based standard.

    Christopher Bolash, CPA, a partner in EY’s Financial Accounting Advisory Services practice, encouraged CPAs to start thinking about the standard even before it is issued. He urged companies to build a project team and a plan, and take inventory of major revenue streams so they will be ready to begin implementation when the final standard is issued.

    Here are some of the changes the panelists said companies may need to wrestle with under the new standard:

    1. Updated criteria for contract determination

    For a contract to exist under the new guidance, Bolash explained, an arrangement must have:

    • Commercial substance, which means changes in cash flows would be expected as a result of the arrangement.
    • Approval and commitment to perform obligations from both parties.
    • Identification of rights and responsibilities—and payment terms—by both parties.

     

    This is a bit different from the “persuasive evidence of arrangement” criteria some companies use in U.S. GAAP today, Bolash said. Companies will need to examine whether their arrangements meet the new criteria to be considered a contract. They may need to change their accounting policies if previously they only relied on the persuasive evidence of arrangement to determine whether a contract existed.

    2. New depictions of contract modifications

    The standard will include a new framework for reporting on contract modifications that could cause challenges and be a huge undertaking for some companies. Companies that retrospectively adopt the new standard will need to consider past contract modifications in determining contract balances.

    GE has many 15- and 20-year contracts that have changed over the years, and that could lead to implementation difficulties, Hodge said.

    “That’s going to be a huge change,” he said. “Having to go back and retrospectively restate those, thinking about all the modifications that have occurred in those contracts over the last 15 or 20 years, is overwhelming to think about.”

    3. Identifying different performance obligations

    Companies that have followed long-term contract accounting under AICPA Statement of Position 81-1 typically think of the contract as the unit of account, Bolash said. But the new guidance may cause companies to find components of a contract that they would identify separately and think about differently, perhaps with a new recognition pattern for those components.

    “We believe at Microsoft that we’ll be pulling forward a lot of revenue because we’re going to be separating our performance obligations, the license separated from the upgrades—when available—or other services,” said Microsoft Director of Corporate Revenue Assurance Stacy Harrington.

    4. Judgment in selling price estimate

    A lot of judgment will be involved in the estimation of the selling price, Hodge said. He said it will be important for management to establish and maintain sound policies, adjusting where necessary. Documenting the judgments also will be important.

    Harrington said companies will have to build out an infrastructure to support their estimates. Identifying key credits such as rebates, price protections, and returns—and booking the reserves for them—will be important, Harrington said.

    “I think this is going to be a change for a lot of companies because they can estimate,” Harrington said. “… They have the history of the refunds and returns, et cetera, so they are going to have to recognize revenue as a sell-in model.”

    5. New depiction of transfer over time

    Many companies—particularly in the aerospace and defense industry—use percentage of completion in a “units-of-delivery” method under U.S. GAAP to depict transfer of goods or services over time to a customer, Bolash said.

    Under the new guidance, Bolash said, shifting to a “cost-to-cost” approach may provide more accurate depiction of the transfer of goods over time. The cost-to-cost method presents the ratio of costs already incurred compared to the expected total cost of completing a project. But that might lead to operational challenges.

    “Some companies like to use the output measures because you can objectively identify it, and it drives the right operational behavior, right?” Hodge said. “You get the unit done and out the door, and that’s your milestone. I think that’s going to create some challenges for [some] companies.”

    6. Change in performance incentives

    A switch from “units of delivery” to “cost-to-cost” may create a need for different performance incentives for operations, Bolash said.

    That’s one of a handful of areas where it may be important to make sure employee incentives are changed, if necessary, to reward behavior that benefits the company under the new revenue standard, panelists said.

    For instance, a company that is newly recognizing revenue upon sales to a reseller would want to make sure that commission policies do not incentivize the sales force to engage in channel stuffing, Harrington said.

    “If the nature of your revenue recognition is changing, maybe you need to revisit your commission structures,” Bolash said. “And there are all kinds of different approaches in terms of a commission on booking, a commission on collecting cash, or revenue recognition.”

    7. New disclosures

    Even companies that do not anticipate recognition or measurement differences are likely to have significant changes in the disclosures they need to make under the new standard, Bolash said.

    Disclosures will include disaggregation of reported revenue, narrative explanations of changes in balances, and information about performance obligations, according to the panelists. Significant judgments will need to be explained, particularly those regarding the timing of satisfaction of performance obligations, and the determination of transaction price and allocation to performance obligations, the panelists said.

    “Start thinking about, what are those disclosure requirements?” Bolash said. “Take an inventory of those disclosure requirements. Do you have the systems and processes in place today to capture that information? Otherwise, start thinking about what you need to do to build that out.”

    Continued in article

    Jensen Question
    How will dealers (cars, furniture, etc.) recognize long-term (e.g., seven year) interest free loans with zero down?

    "Six areas where new revenue recognition standard will require judgment," by Ken Tysiac, Journal of Accountancy, August 9, 2013 ---
    http://journalofaccountancy.com/News/20138470.htm

    From PwC Concerning Proposed Changes to Revenue Recognition Rules

    The FASB and IASB (the "boards") met in October to finalize several outstanding issues related to their joint revenue recognition project. Specifically, the boards addressed the constraint on recognizing revenue from variable consideration, accounting for licenses and collectibility.

    The boards confirmed that an estimate of variable consideration is included in the transaction price if it is "probable" (U.S. GAAP) or "highly probable" (IFRS) that the amount would not result in a significant revenue reversal. The boards also reintroduced an exception for revenue from sales- or usage-based royalties on licenses of intellectual property (IP).

    The boards decided to retain the proposed model for distinct licenses, which distinguishes between two types of licenses - one that provides a right to use IP and one that provides access to IP. Criteria will be provided to help determine the accounting based upon the nature of the license. Lastly, the boards introduced a collectibility threshold. An entity only applies the revenue guidance to contracts when it is "probable" the entity will collect the consideration it will be entitled to in exchange for the goods or services it transfers to the customer.

    Continued at
    http://click.edistribution.pwc.com/?qs=e7f95a842a29b50c78a17fc062074b2d2a7f6c19bb4e0e3989acf338473615800319bf6dff13f45a

     

    "My Safest Prediction for 2014: New Revenue Recognition Rules that Nobody Wants," by Tom Selling, The Accounting Onion, January 3, 2014 --- Click Here ---
    http://accountingonion.com/2014/01/my-safest-prediction-for-2014-new-revenue-recognition-rules-that-nobody-wants.html 

    Jensen Comment
    At the same time there's not much desire in the exposure draft comments to retain the status quo for without new revenue recognition rules.

    "Reducing Complexity” — The Latest Red Herring from the FASB," by Tom Selling, The Accounting Onion, January 21, 2014 ---
    http://accountingonion.com/2014/01/reducing-complexity-the-latest-red-herring-from-the-fasb.html

    Jensen Comment
    I think we have to first ask why newer accounting standards and revisions are so complex? The Number One reason in my book is that contracts that we account for have become so varied and complex in recent decades. I remember when Andersen's standards executive partner guru on accounting standards, John Stuart, pointed out that accounting for derivatives was complex because there were over 1,000 types of derivatives contracts that do highly varied things. Either we have a complex accounting standard to address complex contracts or we do like the recent IASB simplifications to IAS 39 that are a cop out --- if it's a complicated contract let the accountant subjectively account for the contract such that the same contract may be accounted for differently in different clients ---
    http://www.trinity.edu/rjensen/Theory01.htm#BrightLines

    Accounting standards seek comparability in financial reporting. If a standard covers over 1,000 uniquely different contracts there should be some hope that identical contracts will be accounted for in the same way if the way they are measured significantly affects the financial statements. For example, there should be some guidance on accounting for embedded derivatives rather than take the IASB approach of no longer having to bifurcate embedded derivatives or even discover if they exist. What nonsense!

    The FASB had to form the Derivatives Implementation Group (DIG) for FAS 133 which served as a panel of experts for issuing guidelines on accounting for derivatives contracts that standard setters had not previously encountered. The DIG pronouncements are very technical and complicated ---
    http://www.trinity.edu/rjensen/acct5341/speakers/133glosf.htm#D-Terms (Scroll down)
    But at the same time there's a chance that such contracts will be accounted for consistently rather than have the auditor in charge any audit making subjective decisions on how to account for technical and complicated contracts.

    Derivatives contracts are by no means the only very technical and very complex contracts. In fact complexity of contracting is the name of the game, especially in large corporations.

    I defy any accounting standard setting body to come up with simple standards that apply to complicated contracts. Yes there's a commandment that declares "though shall not kill." But the legal archives are stuffed with court cases where killing is justified in unique circumstances. But we don't allow each killer carte blanche rules are when killing is justified. Instead we have numerous and complicated statutes that try to have greater consistency as to when killing is justified.

    In a similar manner, the FASB dictates that hedgers cannot simply act carte blanche regarding deciding what portion of a hedge is effective for accounting purposes. Sadly, the IASB made hedge effectiveness decisions  carte blanche for purposes of reducing complexity in IAS 39.

    Of course that does not mean we should ignore problems of complexity of accounting standards, and I'm certain that Tom probably has some good suggestions in this regard. However, I will only go along with Tom's suggestions if there is high probability that two identical contracts in different companies will be accounted for consistently. I don't think that will happen by simply assuming there are valuation markets that do not exist. I vote for DIG type implementation interpretations for dealing with complexity --- much like the USA legal system deals with complexity.

    "SUNY Outlines First Degrees in Its New Online Initiative," Inside Higher Ed, January 15, 2015 ---
    http://www.insidehighered.com/quicktakes/2014/01/15/suny-outlines-first-degrees-its-new-online-initiative 

    Open SUNY -- through which the State University of New York plans to take existing online programs in the 64-campus system and to build on them, making them available for students throughout the system -- has its first degree programs. In her annual address on the state of the university, Chancellor Nancy Zimpher announced the first degree programs and the campuses that are producing them. The offerings include associate, bachelor's and master's degrees. Two SUNY institutions -- Empire State College and SUNY Oswego -- are each offering two programs. The others are being offered by Broome Community College, Finger Lakes Community College, SUNY Delhi and SUNY Stony Brook.

    Bob Jensen's threads on distance education ---
    http://www.trinity.edu/rjensen/HigherEdControversies.htm#KnowledgePortals

    Bob Jensen's threads on asynchronous learni8ng ---
    http://www.trinity.edu/rjensen/255wp.htm 

    Bob Jensen's threads on education technology ---
    http://www.trinity.edu/rjensen/000aaa/0000start.htm

    Important IRS Publication
    The IRS has released a revised edition of Publication 17, Your Federal Income Tax (288 pages), for use in preparing 2013 tax returns ---
    http://www.irs.gov/pub/irs-pdf/p17.pdf

    Jensen Comment
    It's tempting to ignore this and related tax publications and turn your tax return preparation to Turbot Tax or other relatively cheap tax preparation software. Even though you, like me, use this software to file your annual returns, it may well be to your advantage to learn a bit more about what is going on with your money. For example, if the software asks what energy savings investments you made, it may be a good idea to read more about the tax advantages and traps of energy saving investments.

    Always remember that the so-called "experts" who prepare your tax returns are probably not so great at tax planning. You can find out by doing your homework in advance by asking them questions that true "experts" should be able to answer without doing a Web search before responding.

    One of the hardest areas of tax planning entails retirement planning and saving. Another complicated area entails gains and losses and adjustments to income.

    There are many other (probably more important tax sites) at the IRS which, contrary to the belief that the government is incapable of creating good Web sites, is a very, very good site.

    Always there almost always is some risk to investments that offer tax savings. This does not mean that you should not become somewhat aggressive in sheltering some earnings from current taxes. I'm an advocate of balancing portfolios with tax exempt and tax sheltered investments, but what is a good idea for me is not necessarily a good idea for you. You may be more worried about fluctuating value whereas I'm more concerned about having steady monthly cash flows that are exempt from taxation in spite of value fluctuations of my Vanguard "Insured" Long-Term Exempt Fund. Among other things learn what "insured" really means in this fund or related tax exempt mutual funds.

    Also understand that age makes a huge difference. I'm a retired accounting accounting professor with one foot in the grave. Inflation risk does not concern me like it should concern you working stiffs. At some point inflation will be more worrisome on the nightly news than the winter weather. It's just that nobody knows when inflation will erupt like a volcano.

    "Report To Congress: IRS Is Increasingly Unable To Meet Taxpayer Needs," Forbes, January 9, 2014 ---
    http://www.forbes.com/sites/kellyphillipserb/2014/01/09/report-to-congress-irs-is-unable-to-meet-taxpayer-needs/

    NY Times: Charting the Decline in Service at the IRS ---
    http://taxprof.typepad.com/taxprof_blog/2014/01/ny-times-2.html

    "Typical Boomer Retirement Modest Compared to Parents’," by Barry Ritholtz, January 4th, 2014,---
    http://www.ritholtz.com/blog/2014/01/typical-boomer-retirement-modest-compared-to-parents/
    Jensen Comment
    The Fed's absurd policy of near-zero interest return on USA savings funds is killing the boomer retirement plans unless they invest in higher risk alternatives that leave them somewhat vulnerable to losing a lot of their savings if the stock market crashes and --- it always crashes at some point in time!

    When my father died in 2001, most of his savings (other than his pensions, home in town, and the family farm) were tied up in bank Certificates of Deposits (CDs) paying around 6% compounded interest. This gave him cash liquidity since he and my mother spent some of the interest each year without touching the capital. Since 2008 CDs pay little more than zero interest.

    The next time you enter your bank bring out a crying tissue and ask the bank for the current rates on Certificates of Deposits (CDs). TIAA interest rates are a bit better, but they are nowhere near what they were in 2006 when I retired. My point is that your retirement deals vary a lot with when you retire, but now the deals are much lower due to Quantitative Easing by the Fed that reduces savings rates to almost zero.

    Thanks Ben and Janet for making boomers remain in their jobs until they are over 80 years of age.  I ain't yellen' for Yellen's confirmation. ---
    http://en.wikipedia.org/wiki/Janet_Yellen

    Video:  Nobel Laureate Eugene Fama on QE, Tapering, and Volatility
    http://video.cnbc.cohttp://video.cnbc.com/gallery/?video=3000211021 m/gallery/?video=3000211021

    Jensen Comment
    Where QE has been monumentally successful is in compensating the savings of older people. Many could previously retire and have saving supplemented by safe Certificate Deposit interest income. Thanks to QE the CDs and other save savings alternatives pay virtually zero interest such that these old folks must more of their savings capital for living expenses. Thanks Ben. You wiped out the old folks and provide zero incentives for younger folks to save early in the career for compounded interest. Compounded interest? What's that?

    From 24/7 Wall Street on January 7, 2014

    As Americans across the country rang in the new year, many were unaware that, at midnight, more than 50 different tax breaks expired. According to the Tax Foundation, among them were credits for everything from building motorsports facilities, producing biofuels, conducting business research and development, and even training a mine rescue team. Clearly, the U.S. tax system can be very complex. Understanding the basics, especially the different types of taxes you may face, can be a valuable tool in financial planning. Here are seven ways Americans pay taxes.

    January 11, 2014 Weekly Tax Roundup by Paul Caron ---
    http://taxprof.typepad.com/taxprof_blog/2014/01/weekly-1.html

  • Bloomberg, Ex-UBS Banker Weil Pleads Not Guilty in Tax-Probe Case, by Nick Madigan & David Voreacos
  • Bloomberg, Republicans Balked at Camp Tax Plan Drafts, Schock Says, by Richard Rubin
  • Forbes, Balanced Budget And Comprehensive Tax Reform Made Simple? The Automated Payment Transaction Tax, by Peter J. Reilly
  • Forbes, Are IRS Property Seizures the Stuff of Reality TV?, by Peter J. Reilly
  • Forbes, IRS Continues to Attack Offshore Captive Insurance, by Josh Ungerman
  • Forbes, Pritzker Trust Dodges Illinois State Income Tax, by Peter J. Reilly
  • Forbes, Taxing Bitcoin: IRS Review Has Big Implications for Investors in Virtual Currency, by Howard Gleckman
  • Strategist, The Home Office Deduction: The New Simplified Option for 2013 Taxes, by Gabriella Khorasanee
  • Tax Analysts Blog, The Tax Code in 2014 -- It Still Stinks, by Christopher Bergin
  • Wall Street Journal, Lamar's Eligibilty for Potential REIT Status Faces More Hurdles; Eligibility of Outdoor Advertising Displays for REIT Status Unclear, by Tess Stynes
  • Wealth Management, Trust Me, Michael Jackson Is Still Paying Taxes: The King of Pop vs. the IRS, by Robert W. Wood
  • Wills, Trusts & Estates Prof Blog, Will the Estate of Michael Jackson Have to Pay Estate Taxes?, by Gerry W. Beyer

    • Weekly Tax Roundup on January 18, 2014 by Paul Caron

  • ABA Journal, ABA Urges Federal Lawmakers to Nix Draft Provision Requiring Law Firms to Adopt Accrual Accounting
  • Accounting Today, Union President Warns of Continued IRS Underfunding
  • Bloomberg, Beanie Baby Maker Ty Warner Avoids Jail in Tax Case, by Andrew Harris
  • Bloomberg, U.S. Banks Must Report Foreign Clients’ Interest: Judge, by Edvard Petersson
  • Chronicle of Philanthropy op-ed, Charities, Not Donors, Should Get Big Benefits From Advised Funds, by Ray Madoff (Boston College)
  • Forbes, JP Morgan's Nondeductible Madoff Deal Could Kill Deductible Legal Settlements, by Robert W. Wood
  • Forbes, No Jail Time for Beanie Babies Billionaire Tax Evader Ty Warner, by Janet Novack
  • Forbes, You Can't Deduct Your Ex On Your Taxes, by Robert W. Wood
  • Tax Analysts Blog, Stop Beating on the IRS, by Martin A. Sullivan
  • Tax Vox Blog, IRS Gets Hammered in the 2014 Budget Agreement, by Howard Gleckman
  • Wall Street Journal, Beanie Babies Creator Sentenced to Probation for Tax Evasion, by Mark Peters & Laura Saunders
  • Wall Street Journal, IRS Funding Takes Hit in Spending Bill

  • Holiday Tax Roundup on January 21, 2014 by Paul Caron
    Saturday    :

    Sunday:

    Monday:

    Weekly Tax Roundup, Paul Caron, January 24, 2014

     

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

    By the way I don't do any tax advising to individuals or business firms. I ceased being a CPA tax accountant in 1960 and went on to become an accounting professor who taught no tax course. In fact I did not teach much of anything practical. The Academy works that way.

    "Obama Plans ‘MyRA’ Retirement Savings Accounts" retirement accounts work," by Michael Cohn, Accounting Today, January 29, 2014
    http://www.accountingtoday.com/ad_includes/welcome.html

    President Obama introduced a new retirement savings vehicle that he called a “MyRA” in his State of the Union address on Tuesday evening, and the White House has followed up with more details on Wednesday about it.

    “Let's do more to help Americans save for retirement,” said Obama (see Obama Calls for Wage Increases and Tax Reforms in State of the Union). “Today, most workers don't have a pension. A Social Security check often isn't enough on its own. And while the stock market has doubled over the last five years, that doesn't help folks who don't have 401(k)s. That’s why, tomorrow, I will direct the Treasury to create a new way for working Americans to start their own retirement savings: MyRA. It's a new savings bond that encourages folks to build a nest egg. MyRA guarantees a decent return with no risk of losing what you put in."

    The White House press secretary's office said in a fact sheet it released Wednesday that MyRA would provide a new simple, safe and affordable “starter” retirement savings account that will be offered through employers to help Americans begin to save for retirement.

    The new product will be targeted to the many Americans who currently lack access to workplace retirement savings plans, which is usually the most effective way to save for retirement, the White House noted. It wsa created by executive action Wednesday, bypassing Congress.

    Unlike a 401(k), however, MyRA will offer “principal protection” so a saver’s account balance “will never go down,” the White House said. “The product will be offered via a familiar Roth IRA account, and savers will benefit from principal protection, so the account balance will never go down in value. The security in the account, like all savings bonds, will be backed by the U.S. government. Contributions can be withdrawn tax free at any time.”

    To make MyRA a more user-friendly, “portable” account, contributions will be voluntary, automatic and small. Initial investments could be as low as $25 and contributions that are as low as $5 could be made through automatic payroll deductions. “Savers have the option of keeping the same account when they change jobs and can roll the balance into a private-sector retirement account at any time,” said the White House.

    In addition, MyRA is expected to provide the same secure investment return currently available to federal employees. Savers will earn interest at the same variable interest rate as the federal employees’ Thrift Savings Plan Government Securities Investment Fund.

    MyRA is expected to be widely available to millions of lower- and middle-income Americans through their employers. It will be available to households earning up to $191,000 a year. The accounts will be offered through an initial pilot program to employees of employers who choose to participate by the end of 2014. “The accounts are little to no cost and easy for employers to use, since employers will neither administer the accounts nor contribute to them,” said the White House. “Participants could save up to $15,000, or for a maximum of 30 years, in their accounts before transferring their balance to a private sector Roth IRA.”

    New York CPA Reactions A group of New York State Society of CPAs members offered various reactions to the President’s MyRA proposal.

    “The concept sounds great and it has the potential to build a foundation for people to begin saving for their retirement,” said David Young, CPA, a member of the NYSSCPA’s Rochester Chapter. “The challenge could be in the implementation for the employers and employees. The cost of the implementation and administration may outweigh the benefit gained from the ‘My RA’ program.”

    Another NYSSCPA member, Catherine Censullo, a CPA and personal financial specialist from White Plains, N.Y., said she was concerned about the rate of return. “The bonds will have very small returns, which are not good for keeping up with inflation over the long term growth, but participants will not have to worry about losing their money invested,” she said.

    “My other concern is that it will be too easy to take the money back out, which may defeat the purpose of putting money away and not touching it before retirement,” Censullo added. ”What remains to be seen is how the plans will be structured and what the incentive will be for employers to participate in the plan.”

    Another certified financial advisor shared his concerns. “President Obama's "MyRA" is another simple-minded response to a serious problem afflicting our nation's citizenry,” said Daniel G. Mazzola, a certified financial analyst and CPA from Long Island, N.Y. “Is it appropriate to encourage people to invest in long-term Treasury bonds in a climate of historically low interest rates? Will the money deducted be placed in a separate account for each individual or a general trust fund like the Social Security Trust Fund with which the government has access and can use for general expenditures?”

    “Is the President unaware that it is relatively easy for a private sector worker to establish an IRA at a local bank or brokerage house?" Mazzola added. “Making it easier for people to set aside money for retirement is a small measure when compared to providing an overall environment in which they have an opportunity to be successful.”

    Auto-IRA Despite President Obama’s recent emphasis on issuing executive orders as a way to get around a gridlocked Congress, the White House said the administration would continue to work with Congress on the President’s existing proposals to make sure that all Americans can secure a dignified retirement. “While Social Security is and must remain a rock-solid, guaranteed progressive benefit that every American can rely on, the most secure retirement requires a three-legged stool that includes savings and pensions,” said the fact sheet. “That’s why the President is using his executive authority to create the ‘myRA’ and has already proposed to work with Congress on the following proposals to help Americans save for their retirement.”

    Those proposals, which depend on passage in Congress, include giving every employee access to easy, payroll-based savings through the “Auto-IRA.” Approximately half of all American workers do not have access to employer-sponsored retirement plans like 401(k)s, which puts the onus on individuals to set up and invest in an Individual Retirement Account, the White House noted. Up to 9 out of 10 workers automatically enrolled in a 401(k) plan through their employer make contributions, even years later, while fewer than 1 out of 10 workers eligible to contribute to an IRA voluntarily do so. The President’s budget will propose to establish automatic enrollment in IRAs (or “auto-IRAs”) for employees without access to a workplace savings plan, in keeping with a plan that he has proposed in every budget since he took office. Employers that do not provide any employer-sponsored savings plan would be required to connect their employees with a payroll deduction IRA. This proposal could provide access to one-quarter of all workers, according to a recent study.

    Workers would not be required to contribute to an Auto-IRA and are free to opt out. Employers would also not contribute. The plan would also help defray the minimal administrative costs of establishing auto-IRAs for small businesses, including through tax incentives, the White House pointed out.

    Continued in article

    Bob Jensen's personal finance helpers ---
    http://www.trinity.edu/rjensen/Bookbob1.htm

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

    Question
    Who are the taxpayers that pay the highest taxes in the USA are they as undeserving as Paul Krugman would like to make us think?
    http://www.cs.trinity.edu/~rjensen/temp/SunsetHillHouse/SunsetHillHouse.htm#TheOnePercent

    "Jobs and Income Growth of Top Earners and the Causes of Changing Income Inequality: Evidence from U.S. Tax Return Data," by Jon Bakija, Adam Cole, and Bradley T. Heim, April 2012 ---
    http://web.williams.edu/Economics/wp/BakijaColeHeimJobsIncomeGrowthTopEarners.pdf

    Jensen Comment
    If you made an assignment for students to critically evaluate this study and the above table in particular, what things might you look for.

    1. I would look for the difference between wealth and income. This is probably the most fundamental problem of Table 1 above. Many wealthy people are "land poor" or otherwise have their wealth tied up in investments that yield very taxable little income relative to wealth. For example, a rancher that owns a $100 million ranch may actually be losing money and would not be included in Table 1 above. The rancher might even qualify for Medicaid free medical care and medicines under the new ACA rules in some states. A billionaire may have money tied up in her company's stock and stock options that pay no dividends while her salary is so modest that she's not included in the above Table 1. I would argue that Table 1 above may in fact not include the most really wealthy people because they have tax shelters galore.
       
    2. The above Table 1 ignores the underground economy where multimillionaires from drug and other crime operations don't report most of their massive cash inflow. Big players in the underground economy may not be hardened criminals per se but deal in the world of tax avoidance in a big way.
       
    3. Table 1 above raises enormous questions regarding how taxpayers are classified. Is Oprah Winfrey in classified as "media" or as an  "executive of several closely held businesses?" How does "real estate" differ from "large-scale farmers" from  "CEO of an enormous corporation that deals heavily in real estate, agribusiness, manufacturing, and information technology? Taxpayers might, on their tax returns, identify themselves as CEOs of their companies when in fact they could have reported themselves as being in such occupations as "sports." medical," "engineering," "computer," "ranchers," etc. Ted turner owns more ranch land than any other living person. Is he a "rancher?"  My point is that taxpayers self-select when reporting their occupations on tax returns. Thus occupation reporting is subject to a huge amount of self-selection error.
       
    4. High income people typically have enormous variations in income over time for a nearly infinite variety of reasons whether they are wealthy or not.  Maybe they are like President Obama who doubled his salary early in his presidency with book royalties that faded away after the first couple of years. Sometimes taxpayers were short-term CEOs of high-flying companies for several years before those companies crashed. Sometimes they split their assets in a divorce where she "got the gold mine and he got the shaft." Sometimes they simply had a year in which they willingly or unwillingly had atypical capital gains. More often they still are doing quite well after discovering tax shelters that make them look almost poor. My point is that many (most?) taxpayers in Table 1 made it only once or move in and out of Table 1. Thus the tendency to identify the "1%" as a stable subset of taxpayers in Table 1 is a fallacy.

    Paul Krugman alleges that most of the above people are "undeserving rich" because they have such high incomes
    "The Underserving Rich," by Paul Krugman, The New York Times, January 19, 2014 ---
    http://www.nytimes.com/2014/01/20/opinion/krugman-the-undeserving-rich.html?partner=rssnyt&emc=rss&_r=0

    . . .
     

    What’s wrong with this story? Even on its own terms, it postulates opportunities that don’t exist. For example, how are children of the poor, or even the working class, supposed to get a good education in an era of declining support for and sharply rising tuition at public universities? Even social indicators like family stability are, to an important extent, economic phenomena: nothing takes a toll on family values like lack of employment opportunities.

    But the main thing about this myth is that it misidentifies the winners from growing inequality. White-collar professionals, even if married to each other, are only doing O.K. The big winners are a much smaller group. The Occupy movement popularized the concept of the “1 percent,” which is a good shorthand for the rising elite, but if anything includes too many people: most of the gains of the top 1 percent have in fact gone to an even tinier elite, the top 0.1 percent.

    And who are these lucky few? Mainly they’re executives of some kind, especially, although not only, in finance. You can argue about whether these people deserve to be paid so well, but one thing is clear: They didn’t get where they are simply by being prudent, clean and sober.

    So how can the myth of the deserving rich be sustained? Mainly through a strategy of distortion by dilution. You almost never see apologists for inequality willing to talk about the 1 percent, let alone the really big winners. Instead, they talk about the top 20 percent, or at best the top 5 percent. These may sound like innocent choices, but they’re not, because they involve lumping in married lawyers with the wolves of Wall Street. The DiCaprio movie of that name, by the way, is wildly popular with finance types, who cheer on the title character — another clue to the realities of our new Gilded Age.

    Again, I know that these realities make some people, not all of them hired guns for the plutocracy, uncomfortable, and they’d prefer to paint a different picture. But even if the facts have a well-known populist bias, they’re still the facts — and they must be faced.

    Jensen Question
    What is Paul Krugman really saying and has he backed it up with evidence worthy of an academic rather than as a politician?
    He's actually obfuscating, because he has no idea how most of the taxpayers in Table 1 got to be included in Table 1. I concede that many of the CEOs are horribly overpaid because they stacked their corporate boards with cronies who approved their outrageous salaries. Some are in Table 1  because of golden parachutes that rewarded them outrageously for poor performance. Some are there because the stock prices of their companies soared for reasons other than credits that can be give to the CEO's policies and leadership such as windfall asset value increases ---
    Bob Jensen's threads on Outrageous Executive Compensation Schemes ---
    http://www.trinity.edu/rjensen/FraudConclusion.htm#OutrageousCompensation

    Some of the taxpayers in Table 1 are somewhat undeserving because they inherited most of their wealth and should be given credit simply for not having squandered it away.

    But Paul Krugman does not give enough credit to deserving taxpayers in Table 1 who raised themselves up from almost nothing.
    Exhibit A is Bill Gates; Exhibit B is Steve Jobs; Exhibit C is Oprah Winfrey; and Exhibit D is Martha Stewart. There are additionally hundreds of thousands of millionaires who similarly raised themselves up from nothing due to determination, extremely hard work, talent, risk-taking, and/or luck.

    Paul Krugman gives way too much credit to education being a condition to becoming a millionaire or billionaire.
    Education is more of a condition to becoming middle class or upper middle class like becoming an accountant, engineer, pharmacist, professor, or medical doctor.

    The millionaires and billionaires may or may not be able to attribute huge financial success to their educations.
    More often than not it was more of a function of risk taking, blood, sweat, tears, talent, and luck. Many millionaire farmers, ranchers, hotel owners, restaurant owners, sports stars, movie actors, writers, inventors, musicians, and other types of small business owners and performers succeeded because of working 80 hours a week and taking chances by borrowing money on a shoe string business while living the American Dream ---
    http://www.cs.trinity.edu/~rjensen/temp/SunsetHillHouse/SunsetHillHouse.htm

    If Paul Krugman really wants to back up his allegations that most of the millionaires and billionaires are "The Underserving Rich" I suggest that he and his students examine the Forbes listings of USA multi-millionaires and billionaires and show us how many seemingly succeeded because of American Dream  talent, tireless work, and financial risk taking.

    The worst thing you can do to the poor is to take away the American Dream. The worst thing you can do is take away the incentives to work tirelessly and take chances on financial leverage to become millionaires. If you crush that dream in the USA you will not be helping the poor in the long run. Eliminating inequality is not synonymous with helping the poor. In my opinion, inequality is a necessary condition for helping the poor.

    What we can do is to try to eliminate opportunities for becoming both rich undeserving.
    We can find ways to eliminate outrageous executive compensation and golden parachutes and the conflicts of interest cause by having corporate boards appointed by CEOs deciding on lavish pay of the CEOs who appointed their cronies to those boards. We can eliminate lawyer billion-dollar puniotive damage windfalls that are completely out of line with their labor and risk taking.  We can try much harder to reduce the $2 trillion underground cash economy. We can get much more serious about punishing individuals for frauds and not just their companies and banks. 

    One of the more controversial areas is elimination of tax shelters. Elimination and modification of tax shelters may be a goal, but great care must be taken in doing so. Some tax shelters have become part and parcel to motivating financial risk taking that, in turn, is an important factor in the American Dream. Also, a degree of equilibrium has been reached in the financing of charities, financing of local, county, and state government and development, financing of pensions, etc. Great care must be taken to avoid enormous and unfair shocks in the economic and social fabric of the nation.

    I do favor increased estate taxation, but here again I think those increases should not greatly damage the American Dream. This is difficult, because many of the people striving to achieve the American Dream are doing so more for the benefit of their children and grandchildren than themselves. Thus, I'm not in favor of estate taxation that that is totally dysfunctional to the American Dream. Thus I'm in favor of letting each child or grandchild inherit a million or somewhat more dollars, but I object to a child inheriting multi-millions.

    The bottom line is that we can do a lot to build up rather than tear down the American Dream. The American Dream is part and parcel to the continued economic prosperity of the USA. Without such a dream the incentives to work, innovate, and take entrepreneurial risks might evaporate as witnessed in Sweden and Finland where marginal tax rates on high income taxpayers were lowered to stimulate the GDP.

    Shahid Khan: The New Face Of The NFL And The American Dream "Face of the American Dream: Immigrant-Turned-Billionaire" ---
    http://www.cs.trinity.edu/~rjensen/temp/SunsetHillHouse/SunsetHillHouse.htm#ShahidKhan

    Bob Jensen's threads on the American Dream ---
    http://www.cs.trinity.edu/~rjensen/temp/SunsetHillHouse/SunsetHillHouse.htm

    Special Problems in Accounting for Law Firms

    "ABA urges federal lawmakers to NIX draft provision requiring law firms to adopt accrual accounting." by Martha Neil, ABA Journal, January 16, 2014 ---
    http://www.abajournal.com/news/article/ABA_urges_federal_lawmakers_to_nix_draft_provision_requiring_law_firms/?utm_source=maestro&utm_medium=email&utm_campaign=weekly_email

  • The American Bar Association is urging federal lawmakers to rethink a possible plan to require businesses to use the accrual method instead of traditional cash accounting in the discussion draft Tax Reform Act of 2013.

    Accrual accounting would be more complex and expensive, the ABA's president writes in letters to lawmakers, than the system currently used by many law firms, which recognizes income and expenses for tax purposes when money is actually received and paid out, respectively. A number of others also have objected to forcing businesses to adopt the accrual method, which could require companies and law firms to pay tax on income they not only haven't received but may never receive, according to the ABA and The Hill's On the Money blog.

    "Although we commend you for your efforts to craft legislation aimed at simplifying the tax laws—an objective that the ABA and its Section of Taxation have long supported—we are concerned that Section 212 would have the opposite effect and cause other negative unintended consequences," President James R. Silkenat wrote in Jan. 13 letters to leaders of the Senate Finance Committee (PDF) and the House Ways and Means Committee (PDF).

    "This far-reaching provision would create unnecessary complexity in the tax law by disallowing the use of the cash method; increase compliance costs and corresponding risk of manipulation; and cause substantial hardship to many law firms and other personal service businesses by requiring them to pay tax on income they have not yet received and may never receive," Silkenat continues. "Therefore, we urge you and your committee to remove this provision from the overall draft legislation."

    The potential law in its present form would apply to businesses with annual gross receipts above $10 million.

    Jensen Comment
    The FASB requires cash flow statements as supplements to accrual accounting financial statements. Accrual accounting for revenues (apart from mark-to-market accounting for financial instruments) recognizes revenues when they become legally earned irrespective of the the timing of payments. Cash flow accounting without accrual accounting as well is frowned upon because management can manipulate (manage) earnings by simply writing contracts that time collections in advance of or after legally earning revenues.

    There can also be misleading matchings expenses against cash flow revenues. For example, in one year firms can take an "earnings bath" by timing cash outflows for the purpose of next year showing an enormous jump in cash flow earnings because so many expenses were deducted the year before the revenues they helped generate are realized in cash.

    Accrual accounting is generally required for firms that sell their stocks and bonds to the public. It is also generally required for firms that borrow money from financial institutions. Law firms are different in that partners of a law firm can usually choose most any accounting method they want since outsiders are less impacted by "misleading" financial statements.

    Law firms have special problems with accounting.
    Most of the expenses are for relatively high priced labor. Many of the cases have great uncertainties as to when and if they will generate revenues. Whereas medical and accounting firms are relatively assured of collecting fees for cases, it's sometimes very hard to over many years to account for pending law firm cases that are still open on the books. Capitalized (accumulated prepaid expenses) cases are soft assets that are not as a rule traded among law firms like pending oil wells can be traded among oil firms.

    I suspect there's a history of student projects and term papers focused on accounting for law firms. If not, now is a very good time to consider such projects that demonstrate how memorized bookkeeping in textbooks can become difficult to apply in the real world.

    Bob Jensen's threads on accrual versus cash flow accounting are at
    http://www.trinity.edu/rjensen/Theory02.htm#CashVsAccrualAcctg

    Bob Jensen's threads on earnings manipulation are at
    http://www.trinity.edu/rjensen/Theory02.htm#Manipulation

    Accounting students might enjoy writing purchase versus lease cases that entail research across different regions of the USA. A Cadillac ELR priced at $76,000+ can be leased for about $700 per month. Of course if you have to ask you can't afford it either way.

    Sounds Like a Lot of Money for a Glorified Chevy Volt having a 37-mile Range on a Fully Charged Battery (less than 20 miles in cold weather)
    "Early Buyers Will Get A Free Charging Station With Cadillac's $76,000 Electric Car," by Stephen Edelstein, Business Insider, January 29, 2014 ---
    http://www.businessinsider.com/free-charging-station-with-electric-cadillac-2014-1

    Jensen Comment
    The Cadillac ELR luxury coupe and the Chevy Volt have two advantages over the popular Tesla electric cars. Firstly, Tesla does not have a network of dealers for repairs and maintenance in all 50 states. Secondly, Tesla does not have a hybrid gas engine to take over when the batteries poop out.

    Technology reports show that the cold-temperature battery poop-out problem is not likely to be overcome anytime soon. The Cadillac ELR is an expensive gasoline car alternative for cold climates --- which now seems to include North Carolina, South Carolina, Georgia, Alabama and other parts of the south. The Tesla also faces a low highway clearance problem that will never work in driveway snow drifts. Perhaps in the north the Tesla should come equipped with a snow shovel.

    I wonder if the Cadillac dealers in Maine, New Hampshire, and Vermont will sell one ELR --- possibly to a buyer who can afford a $76,000+ summer car. The market for these electric and hybrid-electric cars is more for commuters facing commutes of 50 miles or less in warm climates. Tesla does a bit better on range, but without a gasoline engine backup drivers must fear becoming stranded with pooped out batteries.

    I read where parking garages with charging stations are facing an increased problem of vandals pulling the plugs on electric cars while the owners are elsewhere. Of course when gasoline was over $5 per gallon, drivers faced the possibility of having their fuel siphoned off.

    In any case, accounting students might enjoy writing purchase versus lease cases that entail research across different regions of the USA.

     

    Weekly Roundup of SSRN Tax Research, by TaxProf Paul Caron, January 18, 2014

  • Richard Thompson Ainsworth (Boston University), Transfer Pricing: UN Practical Manual – China
  • Herbert N. Beller (Northwestern) & William Pauls (Sutherland Asbill & Brennan, Washington, D.C.), The Aftermath of a Section 355 Transaction (Parts 1 and 2)
  • Marika Cabral (Texas) & Neale Mahoney (Chicago), Externalities and Taxation of Supplemental Insurance: A Study of Medicare and Medigap
  • Katharine D. Drake, Stephen J. Lusch & James Stekelberg (all of University of Arizona, Department of Accounting), Investor Valuation of Tax Avoidance and Tax Risk: Evidence from the Pre- and Post-FIN 48 Periods
  • Gunnar Du Rietz & Magnus Henrekson (both of the Research Institute of Industrial Economics), Swedish Wealth Taxation, 1911-2007
  • Scott Dyreng (Duke), Michelle Hanlon (MIT) & Edward L. Maydew (North Carolina), Rolling the Dice: When Does Tax Avoidance Result in Tax Uncertainty?
  • Philipp Meyer-Brauns (Max Planck), Financial Contracting with Tax Evaders
  • Matthew J. Rossman (Case Western), Evaluating Trickle Down Charity – A Solution for Determining When Economic Development Aimed at Revitalizing America's Cities and Regions Is Really Charitable, 80 Brook. L. Rev. ___ (2014)
  • Daniel Saavedra (MIT, Sloan School of Management), Analysis of Unsuccessful Tax Avoiders

  • 152 SSRN Accounting Research Working Papers Added in January 2014
    http://www.ssrn.com/en/

    Here's a Sampling

    106 Incl. Electronic Paper The Misrepresentation of Earnings
    Ilia D. Dichev , John R. Graham , Campbell R. Harvey and Shivaram Rajgopal
    Emory University - Goizueta Business School , Duke University , Duke University - Fuqua School of Business and Emory University - Goizueta Business School
     
    Date posted: 
    09 Jan 2014

    working papers series
    281 Downloads
    122 Incl. Electronic Paper Financial Analysts' Perceptions of Goodwill Accounting Under IFRS
    Jani Saastamoinen , Kati Pajunen and Hannu Tapani Ojala
    University of Eastern Finland , University of Eastern Finland and Aalto University - Aalto University School of Economics
     
    Date posted: 
    07 Jan 2014

    working papers series
    37 Downloads
    125 Incl. Electronic Paper The Value Relevance of Mandated Cash Flow Forecasts: Evidence from Royalty Trusts
    Panos N. Patatoukas , Richard G. Sloan and Jenny Zha
    University of California, Berkeley - Haas School of Business , University of California at Berkeley - Haas School of Business and University of California, Berkeley - Haas School of Business
     
    Date posted: 
    07 Jan 2014
    Last revised: 
    10 Jan 2014

    working papers series
    44 Downloads
    129 Incl. Electronic Paper How to Analyze Annual Reports, Financial Statements, and the Quality of Earnings Part 2
    Raymond Wai Pong Yuen
    Universidad Empresarial de Costa Rica
     
    Date posted: 
    06 Jan 2014

    working papers series
    17 Downloads
    131   ‘Big 4 Fee Premium’ and Audit Quality. Latest Evidence from UK Listed Companies
    Managerial Auditing Journal, Vol. 28, No. 8, 2013
    Domenico Campa
    Trinity College Dublin
     
    Date posted: 
    06 Jan 2014

    Accepted Paper Series
    133 Incl. Electronic Paper Securitization Vehicles: Is Unconsolidated Status Easier Under IFRS 10 and IFRS 12?
    Vinod Kothari
    Visiting Faculty, Indian Institute of Management
     
    Date posted: 
    05 Jan 2014

    working papers series
    5 Downloads
    142 Incl. Electronic Paper Salam Accounting
    Muhammad Hanif
    National University of Computer & Emerging Sciences (NUCES) - FAST School of Business
     
    Date posted: 
    03 Jan 2014

    working papers series
    39 Downloads
    147 Incl. Electronic Paper Testing Elaborate Theories: A Nonparametric Framework
    Devin Caughey , Allan Dafoe and Jason Seawright
    Massachusetts Institute of Technology (MIT) - Department of Political Science , Yale University and Northwestern University - Department of Political Science
     
    Date posted: 
    02 Jan 2014

    working papers series
    17 Downloads
    51   Earnings Management and Participation in Accounting Standard-Setting
    Central European Journal of Operations Research, Forthcoming
    Roland Koenigsgruber and Stefan Palan
    Vrije Universiteit Amsterdam and Karl-Franzens-University
     
    Date posted: 
    23 Jan 2014

    Accepted Paper Series
    56 Incl. Electronic Paper Baffling Budgets: Canada's Cities Need Better Financing Reporting
    C.D. Howe Institute Commentary 397
    Benjamin Dachis and William B. P. Robson
    C.D. Howe Institute and C.D. Howe Institute
     
    Date posted: 
    23 Jan 2014

    working papers series
    1 Downloads
    57 Incl. Electronic Paper The Legitimacy of Global Accounting Standards in the Wake of the Financial Crisis
    Masatsugu Sanada and Masaki Kusano
    Osaka City University - Department of Accounting and Kyoto University
     
    Date posted: 
    22 Jan 2014

    working papers series
    9 Downloads
    61 Incl. Electronic Paper Stop Bashing: Chinese Firms Even Have Better Financial Reporting Quality
    Zhefeng Frank Liu , Fayez A. Elayan , Jennifer Li and Kareen Brown
    Brock University , Brock University - Department of Accounting, Faculty of Business , Brock University and Brock University
     
    Date posted: 
    22 Jan 2014

    working papers series
    24 Downloads
    89 Incl. Fee Electronic Paper A Copula‐Based Approach to the Simultaneous Estimation of Group and Meta‐Frontiers by Constrained Maximum Likelihood
    Australian Journal of Agricultural and Resource Economics, Vol. 58, Issue 1, pp. 90-110, 2014
    Alexandre Repkine
    Konkuk University - Department of Economics
     
    Date posted: 
    14 Jan 2014

    Accepted Paper Series
    90 Incl. Electronic Paper The Survey on the Polish Corporate Auditors’ Procedures and the Most Commonly Detected Irregularities as Measures of Preventing Creative Accounting
    Joanna M. Wyrobek and Zbigniew Stanczyk
    Cracow University of Economics and Cracow University of Economics
     
    Date posted: 
    13 Jan 2014

    working papers series
    12 Downloads
    93   Fair Value or Historical Cost Accounting: Also a Question of the Appropriate Representation of Risk -- Fair Value (oder Anschaffungskosten: Auch eine Frage der angemessenen Abbildung von Risiken in der Rechnungslegung)
    Zeitschrift für betriebswirtschaftliche Forschung (2013), Special Issue 67, pp. 123-154,
    Dirk Hachmeister and Niklas Lampenius
    University of Hohenheim and University of Hohenheim
     
    Date posted: 
    12 Jan 2014

    Accepted Paper Series
    9 Incl. Electronic Paper Private Equity's Diversification Illusion: Economic Comovement and Fair Value Reporting
    Kyle T. Welch
    Harvard Business School
     
    Date posted: 
    30 Jan 2014

    working papers series
    202 Downloads
    10 Incl. Electronic Paper What Determines Time Spent in Peer Reviews? – Evidence from The Accounting Review
    Marcus Bravidor
    University of Bayreuth, Chair of International Accounting
     
    Date posted: 
    30 Jan 2014

    working papers series
    3 Downloads
    16 Incl. Electronic Paper Corporate Reporting of Intangible Assets
    OECD Working Paper, Forthcoming
    Alissa Amico (Koldertsova)
    Organization for Economic Co-Operation and Development (OECD)
     
    Date posted: 
    29 Jan 2014

    Accepted Paper Series
    1 Downloads
    22 Incl. Electronic Paper XBRL Taxonomy Design: Empirical Evidence from IFRS and U.S. GAAP Filers
    Dirk Beerbaum
    University of Surrey
     
    Date posted: 
    27 Jan 2014

    working papers series
    3 Downloads
    26 Incl. Electronic Paper Fair Value Accounting, Fragile Bank Balance Sheets and Crisis: A Model
    Accounting, Organizations and Society, Forthcoming
    Phillip de Jager
    University of Cape Town - Department of Finance and Tax
     
    Date posted: 
    27 Jan 2014

    Accepted Paper Series
    6 Downloads
    35   What Can We Learn About Uncertain Tax Benefits from Fin 48?
    National Tax Journal, Vol. 60, No. 3, September 2007
    Jennifer L. Blouin , Cristi A. Gleason , Lillian F. Mills and Stephanie A. Sikes
    University of Pennsylvania - Accounting Department , University of Iowa - Department of Accounting , University of Texas at Austin - McCombs School of Business and University of Pennsylvania - Accounting Department
     
    Date posted: 
    26 Jan 2014

    Accepted Paper Series
    49   What You Measure is What You Get: The Effects of Accounting Standards Effects Studies
    Gross, Christian und Königsgruber, Roland, What You Measure is What You Get: The Effects of Accounting Standards Effects Studies, Accounting in Europe, Vol. 9, Issue 2, 171-190, 2012.,
    Roland Koenigsgruber and Christian Gross
    Vrije Universiteit Amsterdam and University of Graz
     
    Date posted: 
    23 Jan 2014

    Accepted Paper Series
    50   Does European Union Policy Making Explain Accounting Choices? An Empirical Analysis of the Effects of Investigations by the Directorate General for Competition on Accounting Choices
    Königsgruber, Roland, and Windisch, David, Does European Union policy making explain accounting choices? An empirical analysis of the effects of investigations by the Directorate General for Competition on accounting choices, Journal of Management and Governance, Forthcoming.,
    Roland Koenigsgruber and David Windisch
    Vrije Universiteit Amsterdam and University of Graz
     
    Date posted: 
    23 Jan 2014

    Accepted Paper Series

    The above items are only a sampling of the 152 postings for accounting research in January 2014

    "British University to Accept Bitcoin as Payment for Some Courses," by Megan O'Neil, Chronicle of Higher Education, January 21. 2014---
    http://chronicle.com/blogs/wiredcampus/british-university-to-accept-bitcoin-as-payment-for-some-courses/49639?cid=wc&utm_source=wc&utm_medium=en

    Interactive Demonstration: This Is How You Mine Some Bitcoin ---
    http://www.businessweek.com/articles/2014-01-13/interactive-simulation-how-to-mine-bitcoin
    First you buy a pack mule and digging tools.

    Digital Currencies (virtual currency) --- http://en.wikipedia.org/wiki/Digital_currency

    Bitcoin Digital Currency --- http://en.wikipedia.org/wiki/Bitcoin

    Private Currencies (including Barter Credits) --- http://en.wikipedia.org/wiki/Private_currency

    Jensen Comment
    Both bitcoins (and other virtual currencies) and barter credits are sometimes traded on exchanges that set values apart from the fair values of the items traded initially. In the exchange markets values can be complicated by speculators in the virtual currencies and the varying willingness of businesses to accept them.

    Virtual currencies differ from private currencies. One key difference is that private currencies tend to trade in terms of specified commodities (such as gold) or regions (such as BerkShares in the Berkshire region of Massachusetts) whereas virtual currencies tend to take on a life of their own. apart from commodities or spending regions.

    It seems like accounting for bitcoins may become less complicated than accounting for private currencies in that bitcoins and other virtual currencies are more like international legal tender than private currencies subject to possible thinner markets such as the market for BerkShares. Of course bitcoins are not yet legal tender per se.

    Barter credit accounting is also complicated by other revenue recognition rules. For example, if barter credits apply to discount coupons then all the complications of revenue accounting for discount coupons enter the picture.

    I don't think the IRS, the FASB, and the IASB have yet dealt with all the complications of private currencies or virtual currencies traded on exchanges and the liquidity risks and speculation risks inherent in such transaction valuations. One complication is that the markets may be very thin such as the BerkShares trading market restricted to vendors in the Berkshires region.

    "SEC Charges Texas Man in Bitcoin-Related Ponzi Fraud:  Agency Warns Investors to Be Wary of Schemes Tied to Virtual Currencies," by Robin Sidel, The Wall Street Journal, July 23, 2013 ---
    http://online.wsj.com/article/SB10001424127887324144304578624221093071466.html?mod=djemCFO_

    Forbes, Taxing Bitcoin: IRS Review Has Big Implications for Investors in Virtual Currency, by Howard Gleckman

    If environmental expenses must be measured and deducted on financial statements, why not make them deductable for taxes?

    "Robert Rubin Off in Accounting Wilderness," by Jonathan Weil, Bloomberg News, January 21, 2014 ---
    http://www.bloomberg.com/news/2014-01-21/robert-rubin-off-in-accounting-wilderness.html

  • Robert Rubin, the former Treasury secretary and one-time chairman of Citigroup Inc.'s executive committee, has put forth an odd idea for new accounting standards. Speaking last week at a conference on climate change, he said that companies should be required to include environmental costs that they impose on the rest of society as expenses in their own earnings reports.

    Here's the relevant excerpt from Rubin's comments last week, as reported by Bloomberg News:

    The key to this is really the political system. If you had accounting rules that result in the externalities [i.e., the costs of greenhouse-gas emissions] being captured in financial statements, then obviously people would react.

    It’s not a carbon price issue, it’s an accounting issue: ‘I run a business. I emit. I don't pay the price for the emissions. I produce the good. I sell it. I don't care about the emissions because it's not my cost. It's society’s cost.’ That's an externality.

    [Once] you have accounting standards that require you to reflect that cost in your reported earnings, then it becomes something that every analyst is going to look at and evaluate in your stock.

    The problem with this proposal is it makes no sense. A company that emits greenhouse gasses may very well harm the world at large. However, if the emissions aren't creating a cost for the company itself, there is no incremental expense for it to report on its financial statements.

    You can't just make up numbers (at least you're not supposed to) and put them on a company's income statement and call it an expense if the company isn't incurring any costs or otherwise making any economic sacrifice. Accounting isn't supposed to be about moral judgment or electoral politics. The purpose is to provide information about a business's financial performance.

    Changing the accounting standards the way Rubin suggested would require an overhaul of the Financial Accounting Standards Board's definition of the term "expenses." Here's how the FASB defines it now: "Expenses are outflows or other using up of assets or incurrences of liabilities (or a combination of both) from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity’s ongoing major or central operations."

    Back in 2008, when Rubin was at Citigroup, the U.S. Comptroller of the Currency sent Citigroup a letter pointing out all sorts of shortcomings with the valuation model that the bank was using for the subprime mortgage bonds on its books. Now Rubin would have companies come up with expense figures for greenhouse-gas emissions out of thin air to include in their earnings. If Citigroup had so much difficulty figuring out the value of its collateralized debt obligations, you have to wonder how it would determine the total cost of pollution that Citigroup causes around the world every year.

    One final note: Rubin was talking about changing the accounting standards, not the tax code. My guess is that most companies would love to be able to make up whatever numbers they want for emissions expenses and use those figures as deductions for tax purposes on their Internal Revenue Service filings.

    Continued in article

    Jensen Comment
    I've never had any respect for Robert Rubin as an economist. Now I have even less respect for him as an accountant.

    Environmental accounting should require meaningful disclosures and some physical measurements such as tons of carbon expelled from smoke stacks or gallons of some pollutants discharged (treated or untreated) into waterways.

    But assigning costs to environmental discharges and booking them into the ledger as expenses essentially pollutes financial statements as much as it pollutes the environment. I called such accounting Phantasmagoric Accounting in 1976. Nothing has transpired to date to make me change my mind about booking environmental costs into the ledgers.

    Volume No. 14. Phantasmagoric Accounting
    By Robert E. Jensen. Published 1976, 209 pages.
    Studies in Accounting Research
    American Accounting Assoiciation
    http://aaahq.org/market/display.cfm?catID=5

    If you want to destroy financial statements fill them with numbers plucked out of the clouds. I would argue that we do too much of that already.

    However, if you want to improve financial reporting make qualitative disclosures more informative, especially now that masses of information can be archived online and searched efficiently with search engines.

    More than 3,000 companies worldwide produce sustainability reports. A new initiative by the International Integrated Reporting Council zeros in on the creation of value.
    "The greening of accounting," by Yan Barcelo, CA Magazine (Canada), November 2013 ---
    http://www.camagazine.com/archives/print-edition/2013/nov/features/camagazine76387.aspx

    Teaching Case
    From The Wall Street Journal Accounting Weekly Review on January 31, 2014

    How IKEA Protects the Environment and Sofa Margins
    by: Emily Chasan
    Jan 29, 2014
    Click here to view the full article on WSJ.com
     

    TOPICS: Cost Management

    SUMMARY: IKEA reported good fiscal 2103 results (for the year ended August 31, 2013) focusing on the company's cost savings obtained through environmentally friendly practices. Increased sales in units and increased profits came from sales price reductions based on the cost savings. "IKEA cut transportation costs, retooled warehouses and changed its purchasing...." The company also is investing in environmentally friendly heating and light with photovoltaic and geothermal systems. Ninety percent of the company's U.S. units have solar installations and the company will install a geothermal system in a Kansas City store opening in FY 2014. "While construction is more costly, the return on investment for geothermal energy can come in as few as 8 years, [U.S. CFO Rob] Olson said."

    CLASSROOM APPLICATION: The article may be used in a managerial accounting class to cover corporate social responsibility for environmental matters, product and period cost savings leading to price reductions but increased sales and profits, and the definition of payback period versus return on investment.

    QUESTIONS: 
    1. (Introductory) What price reduction was reported by IKEA? How are these price reductions related to environmental concerns?

    2. (Advanced) Name three components of product cost. Which of these component costs did IKEA reduce in order be able to reduce its product price?

    3. (Advanced) What period costs did IKEA reduce which led to its ability to reduce its product price?
     

    Reviewed By: Judy Beckman, University of Rhode Island

    "How IKEA Protects the Environment and Sofa Margins," by Emily Chasan, The Wall Street Journal, January 29, 2014 ---
    http://blogs.wsj.com/cfo/2014/01/28/how-ikea-protects-the-environment-and-sofa-margins/?mod=djem_jiewr_AC_domainid

    IKEA’s U.S. financial chief is no couch potato when it comes to cutting sofa prices.

    The Swedish furniture company reported fiscal year figures Tuesday, noting a 40% price cut on the EKTORP line of sofas with Svanby covers and significant reductions on other lines. Most of the sofa savings came from using more environmentally conscious production methods. IKEA cut transportation costs, retooled warehouses and changed its purchasing, for example.

    “Lower prices are better for the consumer and if we can find efficiencies in the supply chain then it’s a win-win,” Rob Olson told CFO Journal.

    The CFO explained the key was designing a more efficient way to fit the sofa into shipping containers. The price cut also stemmed from more efficient warehousing and energy savings. In addition, IKEA sought new sources for wood and cotton.

    “It’s really about how do we fit more in a cube,” Mr. Olson said.

    It adopted a similar strategy with its tea light candles, for example, switching from loose-packaging to vacuum-packed stacks that increased the number of candles in each container by 50%, he said.

    “Even if it’s fraction of an inch it might mean that we can fit one more item per cube, or we might be able to combine supply with something else on that transport – there are opportunities there,” Mr. Olson said.

    The firm has also modified what it is doing in the U.S. on the ground. Last year, IKEA ended the use of wooden pallets to move retail products around stores by switching to thin cardboard mats. Working with suppliers, sofas now go directly to stores rather than stopping at distribution centers.

    It is “less distance for transport, less resources spent uploading and reloading, and less potential for damage,” Mr. Olson said.

    After spikes in the price of cotton over the past few years, IKEA also shifted to the sustainable cotton production standard and mitigate shortages, Mr. Olson said.

    For another sofa, the company found it could trim costs by 18% by eliminating glue, swapping some materials and improving packaging and delivery. About 10% of the savings came from logistics and 5% from materials.

    Continued in article

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

    "Successful Onboarding for New Audit Committee Members," Deloitte, January 31, 2014 ---
    http://deloitte.wsj.com/cfo/2014/01/31/successful-onboarding-for-new-audit-committee-members/

    The demands placed on audit committee members can be extensive, and there often is a significant learning curve for those new to the position. Key responsibilities for committee members include:

    • Maintaining an effective relationship with management and the internal auditors
    • Appointing and maintaining an effective relationship with the independent auditor and monitoring independence
    • Overseeing the financial reporting process, including the dissemination of earnings guidance, press releases and financial information
    • Overseeing the establishment of appropriate controls and antifraud programs
    • Monitoring compliance with a robust code of ethics
    • Executing a risk-intelligent governance approach
    • Establishing a process for investigating allegations, especially those against senior management.

    In addition to these tasks, new members have the added challenge of educating themselves with respect to the company and preparing to participate in the next quarterly financial statement process. Effective onboarding that maintains the continuity of the audit committee function is an essential element of strong governance.

    Given the inherent differences between companies in terms of scope, industry and many other factors, onboarding is not a one-size-fits-all process. The audit committee should establish a comprehensive framework for onboarding that can be adapted based on the background and experience of the new director.

    New members who have experience on audit committees may need company- or industry-specific information. Alternatively, a current director who is changing committee assignments may have strong knowledge of the company but less familiarity with the regulatory requirements for the audit committee. If the new committee member is a qualified financial expert, the background he or she will need on financial reporting issues may not be as detailed. In all cases, it is beneficial for new committee members to communicate directly with senior financial management, internal audit executives and the audit partner of the independent audit firm.

    “Changing audit committee members gives an organization the chance to benefit from new perspectives and fresh insights; however, this will be most successful if the new member has the appropriate background and orientation,” notes Andrew G. McMaster Jr., vice chairman of Deloitte LLP.

    The importance of committee onboarding is highlighted by the significant number of open board positions. Turnover has been increasing over the past few years as a result of factors such as age limits, mandatory rotation policies and increased time requirements.

    Leading Practices for Onboarding

    The audit committee should provide new members with a package of advance reading materials and schedule meetings with the financial management leadership team, including the chief financial officer, the chief accounting officer and the treasurer; internal audit executives; general counsel and the independent auditor. The board also should consider having the new member meet with the chief compliance officer and the chief risk officer as part of the onboarding process.

    In addition, it can be effective to have a new member attend an executive session with the audit committee chairperson to better understand the committee’s operations and culture and to clarify the expectations for the role.

    Although specific needs will vary, there are several areas a new member could consider during the onboarding process:

    Company Overview

    • Understand the business, including key operational risks
    • Review the code of conduct and the company’s ethics, antifraud and compliance policies, including the whistleblower hotline process
    • Clarify which accounting policies are most significant to the financial statements
    • Obtain a high-level understanding of internal control over financial reporting, including any history of significant deficiencies or material weaknesses
    • Meet with the chief financial officer, controller and other senior finance leaders to better understand the organization, their background and their skills

    Industry Perspective

    • Understand the overall risk profile for the company’s industry
    • Evaluate trends that are affecting the business or could have an impact in the future
    • Understand the company’s competitive position

    Audit Committee Governance

    • Understand the charter and scope for the audit committee
    • Review the activity planning calendar
    • Understand the interaction between various board committees, especially with regard to risk oversight
    • Clarify the scope of the committee’s legal and compliance responsibilities
    • Obtain information on the background and experience of the other audit committee members
    • Consider the results of the committee self-assessment for the prior year
    • Review the continuing education programs offered to consider opportunities for supplemental education

    Internal Audit Function

    • Review the charter and mission for the department
    • Understand the level of coordination with the independent auditors
    • Understand the quality and quantity of internal audit resources
    • Learn about the nature of the significant projects undertaken
    • Seek the internal auditors’ perspective on the company’s “tone at the top” and the effectiveness of control processes
    • Solicit views on the strengths and weaknesses of the finance organization and the internal audit function
    • Review the current year’s audit plan and risk assessment results
    • Understand how the internal auditors communicate with the audit committee

    Independent Auditor

    • Understand the nature and scope of the relationship with the independent auditor, including both audit and nonaudit services
    • Understand the process for preapproving services
    • Review the background and experience of the audit partner and other key team members
    • Seek the independent auditor’s perspective on the company’s “tone at the top” and the effectiveness of control processes
    • Ask the independent auditor for perspectives on key risks and accounting policies
    • Solicit views on the strengths and weaknesses of the finance organization and the internal audit function
    • Review the prior-year evaluation of the auditor

    In addition, the audit committee member needs to be familiar with applicable SEC filing and reporting requirements, the provisions of the Sarbanes-Oxley Act, NYSE and NASDAQ requirements and emerging regulatory matters.

    Continued in article

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

    Question
    Even without a minimum wage hike (which I favor) how low would free market wages have to go to become competitive with emerging robots? In France workers threw shoes called sabots into the gears of machinery to stop the machines --- hence the origin of the word "sabotage" ---
    http://en.wikipedia.org/wiki/Sabot_%28shoe%29 

    "Business Math: Robots or Minimum Wage Workers?" Townhall, January 26, 2014 ---
    http://finance.townhall.com/columnists/politicalcalculations/2014/01/26/business-math-robots-or-minimum-wage-workers-n1784745?utm_source=thdaily&utm_medium=email&utm_campaign=nl

    . . .

    Mark Perry points to an example where that situation is increasingly playing out in America's wine country, starting with a video of the automation technology increasingly being used there to sort grapes in action:

    The video above shows the Bucher Delta Vistalys R2 optical grape sorting system in operation. Modern Farmer featured the futuristic farming technology on its website this week in the article "How a Robot Can Sort 2 Tons of Grapes in 12 Minutes."

    Head winemaker Steve Leveque is now using a $150,000 optical grape sorter at Hall Winery in Napa Valley, and he says "Most wineries can sort about two tons of grapes per hour, using 15 human sorters. We now processes the same amount of grapes in only twelve minutes, with zero human sorters."

    We thought this example might make a great case study of the economics involved. First, let's look at the nature of the work itself. Wine Spectator describes the job of sorting grapes:

    As freshly picked grapes enter the winery, they have to be sorted for quality, a process commonly known as triage in French. Traditionally, the bunches were dumped on a sorting table, where sorters would look over the clusters and separate the good from the inferior, removing unripe, diseased or damaged grapes, along with any leaves that snuck in. Today, the grapes usually travel down a conveyor belt past a line of sorters making the selections. The belt often vibrates to shake out bad grapes that might sneak in under cover of the good ones.

    Jensen Comment
    When I was a tiny boy on an Iowa farm corn was picked by hand. By the time I was in school there were corn picking machines that filled our wagons with ears of bright yellow corn. Later combines were invented that could both pick the corn and shell the corn before loading the trucks.

    Combining machine technology spread. We now have combines that pick tomatoes and other types of fruit and vegetables that were once considered too fragile for the machine picking and processing.  The days of a worker with a hammer smashing walnuts and sorting out the meat are long gone.

    All along the food chain machines and robots are replacing farm and factory workers to a point that Amazon can get a case of canned tomato juice at your doorstep via a drone (now possible if it were not for FAA regulations). All along chain from tomato fields to canned juice the workers have almost entirely been replaced by machines and robots.

    The day is not far off when even our soldiers engaged in battle will be lethal robots. Surgeons in the field will be replaced by workers with replacement components on the damaged warrior robots. Even the workers changing the replacement parts on the battlefield may be robots. Sigh!

    Raytheon's guided missiles are now 100% manufactured by robots. Soon they will be fired from robotic ships, airplanes, and robotic tanks.

    What will become of all those unemployed soldiers, sailors, and air crews?

    Even our burgers will be flipped, packaged, and sold by robots.

    To make matters worse we're already producing twice and many Ph.D.s than are needed in our Academy (except in selected disciplines where supply is restricted). There will be shortages of physicians our future, but how many high school graduates are capable of becoming skilled physicians?

    Maybe we should start tossing our robot-made sabots at our robots!

    technological unemployment…due to our discovery of means of economising the use of labour outrunning the pace at which we can find new uses for labour
    .New Disease as defined by J.M. Keynes

    "The Future Of Jobs: The Onrushing Wave," The Economist via Business Insider, January 17, 2014 ---
    http://www.businessinsider.com/the-future-of-jobs-the-onrushing-wave-2014-1

    Previous technological innovation has always delivered more long-run employment, not less. But things can change.

    IN 1930, when the world was "suffering…from a bad attack of economic pessimism", John Maynard Keynes wrote a broadly optimistic essay, "Economic Possibilities for our Grandchildren". It imagined a middle way between revolution and stagnation that would leave the said grandchildren a great deal richer than their grandparents. But the path was not without dangers.

    One of the worries Keynes admitted was a "new disease": "technological unemployment…due to our discovery of means of economising the use of labour outrunning the pace at which we can find new uses for labour." His readers might not have heard of the problem, he suggested--but they were certain to hear a lot more about it in the years to come.

    For the most part, they did not. Nowadays, the majority of economists confidently wave such worries away. By raising productivity, they argue, any automation which economises on the use of labour will increase incomes. That will generate demand for new products and services, which will in turn create new jobs for displaced workers. To think otherwise has meant being tarred a Luddite--the name taken by 19th-century textile workers who smashed the machines taking their jobs.

    For much of the 20th century, those arguing that technology brought ever more jobs and prosperity looked to have the better of the debate. Real incomes in Britain scarcely doubled between the beginning of the common era and 1570. They then tripled from 1570 to 1875. And they more than tripled from 1875 to 1975. Industrialisation did not end up eliminating the need for human workers. On the contrary, it created employment opportunities sufficient to soak up the 20th century’s exploding population. Keynes’s vision of everyone in the 2030s being a lot richer is largely achieved. His belief they would work just 15 hours or so a week has not come to pass. When the sleeper wakes

    Yet some now fear that a new era of automation enabled by ever more powerful and capable computers could work out differently. They start from the observation that, across the rich world, all is far from well in the world of work. The essence of what they see as a work crisis is that in rich countries the wages of the typical worker, adjusted for cost of living, are stagnant. In America the real wage has hardly budged over the past four decades. Even in places like Britain and Germany, where employment is touching new highs, wages have been flat for a decade. Recent research suggests that this is because substituting capital for labour through automation is increasingly attractive; as a result owners of capital have captured ever more of the world’s income since the 1980s, while the share going to labour has fallen.

    At the same time, even in relatively egalitarian places like Sweden, inequality among the employed has risen sharply, with the share going to the highest earners soaring. For those not in the elite, argues David Graeber, an anthropologist at the London School of Economics, much of modern labour consists of stultifying "bullshit jobs"--low- and mid-level screen-sitting that serves simply to occupy workers for whom the economy no longer has much use. Keeping them employed, Mr Graeber argues, is not an economic choice; it is something the ruling class does to keep control over the lives of others.

    Be that as it may, drudgery may soon enough give way to frank unemployment. There is already a long-term trend towards lower levels of employment in some rich countries. The proportion of American adults participating in the labour force recently hit its lowest level since 1978, and although some of that is due to the effects of ageing, some is not. In a recent speech that was modelled in part on Keynes’s "Possibilities", Larry Summers, a former American treasury secretary, looked at employment trends among American men between 25 and 54. In the 1960s only one in 20 of those men was not working. According to Mr Summers’s extrapolations, in ten years the number could be one in seven.

    This is one indication, Mr Summers says, that technical change is increasingly taking the form of "capital that effectively substitutes for labour". There may be a lot more for such capital to do in the near future. A 2013 paper by Carl Benedikt Frey and Michael Osborne, of the University of Oxford, argued that jobs are at high risk of being automated in 47% of the occupational categories into which work is customarily sorted. That includes accountancy, legal work, technical writing and a lot of other white-collar occupations.

    Answering the question of whether such automation could lead to prolonged pain for workers means taking a close look at past experience, theory and technological trends. The picture suggested by this evidence is a complex one. It is also more worrying than many economists and politicians have been prepared to admit. The lathe of heaven

    Economists take the relationship between innovation and higher living standards for granted in part because they believe history justifies such a view. Industrialisation clearly led to enormous rises in incomes and living standards over the long run. Yet the road to riches was rockier than is often appreciated.

    In 1500 an estimated 75% of the British labour force toiled in agriculture. By 1800 that figure had fallen to 35%. When the shift to manufacturing got under way during the 18th century it was overwhelmingly done at small scale, either within the home or in a small workshop; employment in a large factory was a rarity. By the end of the 19th century huge plants in massive industrial cities were the norm. The great shift was made possible by automation and steam engines.

    Industrial firms combined human labour with big, expensive capital equipment. To maximise the output of that costly machinery, factory owners reorganised the processes of production. Workers were given one or a few repetitive tasks, often making components of finished products rather than whole pieces. Bosses imposed a tight schedule and strict worker discipline to keep up the productive pace. The Industrial Revolution was not simply a matter of replacing muscle with steam; it was a matter of reshaping jobs themselves into the sort of precisely defined components that steam-driven machinery needed--cogs in a factory system.

    The way old jobs were done changed; new jobs were created. Joel Mokyr, an economic historian at Northwestern University in Illinois, argues that the more intricate machines, techniques and supply chains of the period all required careful tending. The workers who provided that care were well rewarded. As research by Lawrence Katz, of Harvard University, and Robert Margo, of Boston University, shows, employment in manufacturing "hollowed out". As employment grew for highly skilled workers and unskilled workers, craft workers lost out. This was the loss to which the Luddites, understandably if not effectively, took exception.

    With the low-skilled workers far more numerous, at least to begin with, the lot of the average worker during the early part of this great industrial and social upheaval was not a happy one. As Mr Mokyr notes, "life did not improve all that much between 1750 and 1850." For 60 years, from 1770 to 1830, growth in British wages, adjusted for inflation, was imperceptible because productivity growth was restricted to a few industries. Not until the late 19th century, when the gains had spread across the whole economy, did wages at last perform in line with productivity (see chart 1).

    Along with social reforms and new political movements that gave voice to the workers, this faster wage growth helped spread the benefits of industrialisation across wider segments of the population. New investments in education provided a supply of workers for the more skilled jobs that were by then being created in ever greater numbers. This shift continued into the 20th century as post-secondary education became increasingly common.

    Claudia Goldin, an economist at Harvard University, and Mr Katz have written that workers were in a "race between education and technology" during this period, and for the most part they won. Even so, it was not until the "golden age" after the second world war that workers in the rich world secured real prosperity, and a large, property-owning middle class came to dominate politics. At the same time communism, a legacy of industrialisation’s harsh early era, kept hundreds of millions of people around the world in poverty, and the effects of the imperialism driven by European industrialisation continued to be felt by billions.

    The impacts of technological change take their time appearing. They also vary hugely from industry to industry. Although in many simple economic models technology pairs neatly with capital and labour to produce output, in practice technological changes do not affect all workers the same way. Some find that their skills are complementary to new technologies. Others find themselves out of work.

    Take computers. In the early 20th century a "computer" was a worker, or a room of workers, doing mathematical calculations by hand, often with the end point of one person’s work the starting point for the next. The development of mechanical and electronic computing rendered these arrangements obsolete. But in time it greatly increased the productivity of those who used the new computers in their work.

    Many other technical innovations had similar effects. New machinery displaced handicraft producers across numerous industries, from textiles to metalworking. At the same time it enabled vastly more output per person than craft producers could ever manage. Player piano

    For a task to be replaced by a machine, it helps a great deal if, like the work of human computers, it is already highly routine. Hence the demise of production-line jobs and some sorts of book-keeping, lost to the robot and the spreadsheet. Meanwhile work less easily broken down into a series of stereotyped tasks--whether rewarding, as the management of other workers and the teaching of toddlers can be, or more of a grind, like tidying and cleaning messy work places--has grown as a share of total employment.

    But the "race" aspect of technological change means that such workers cannot rest on their pay packets. Firms are constantly experimenting with new technologies and production processes. Experimentation with different techniques and business models requires flexibility, which is one critical advantage of a human worker. Yet over time, as best practices are worked out and then codified, it becomes easier to break production down into routine components, then automate those components as technology allows.

    If, that is, automation makes sense. As David Autor, an economist at the Massachusetts Institute of Technology (MIT), points out in a 2013 paper, the mere fact that a job can be automated does not mean that it will be; relative costs also matter. When Nissan produces cars in Japan, he notes, it relies heavily on robots. At plants in India, by contrast, the firm relies more heavily on cheap local labour.

    Even when machine capabilities are rapidly improving, it can make sense instead to seek out ever cheaper supplies of increasingly skilled labour. Thus since the 1980s (a time when, in America, the trend towards post-secondary education levelled off) workers there and elsewhere have found themselves facing increased competition from both machines and cheap emerging-market workers.

    Read more: http://www.businessinsider.com/the-future-of-jobs-the-onrushing-wave-2014-1#ixzz2qkNio9nY

    Jensen Comment
    The current economic recovery points to the "new disease" in which the recovery is taking place without the customary restoration of old jobs and creation of new jobs at the same pace as the recovery. Minimum wage jobs that used to be filled by teens are now being usurped by their parents and grandparents. It's even worse in Europe where unemployment among people under 25 years of age is hovering at nearly 50%.

    What's more depressing is that we cannot seem to find a cure for the "new disease." Instead we are building greater varieties of robots to displace labor that we previously would never be replaced by automation. We've not yet met Hal the robotic teacher who will be an astonishing teacher and Helene the astonishing surgeon, but Hal and Helene are not far off in the horizon.

     

    Question
    Do business professors negotiate pensions better university pensions?

    "Six-figure salary and a buyout create quite a pension," by Johanna Somers, TheDay Connecticut, January 12, 2014 ---
    http://theday.com/article/20140112/NWS12/301129954

    Of all the state pension checks cashed in 2012, none was bigger than John F. Veiga's.

    The Coventry resident spent 37 years teaching business at the University of Connecticut. In 2009, he accepted an early retirement buyout offer from the state after contributing $222,128 to his pension during his UConn career.

    Now, at age 70, that pension pays him $276,364 a year, the largest amount paid to a single state retiree in 2012, nearly nine times the $31,666 average state employee pension.

    According to calculations by the data analysis firm VisiGov: Visible Government Online Inc. for The Day, Veiga could collect another $4 million in his lifetime.

    "I don't know what to tell you," Veiga said. "Is it fair? It was what was offered. It seemed fair at the time."

    Of the top 10 state pensions in 2012 - all six figures - all but two were paid to former employees of UConn or the UConn Health Center. Nine retired under the most generous retirement plan, called Tier I.

    Veiga left Kaiser Aluminum in 1968, earned his doctorate in 1971 and became a professor at UConn after a brief stint teaching at Northeastern University in Boston. He said his former boss called him "crazy" to leave Kaiser, where he was earning $50,000 to $55,000 as a senior industrial engineer, for an assistant professor position at UConn with a starting salary of $16,000.

    But over the nearly 40 years that Veiga worked for the state, that salary gap narrowed. Private companies cut back pension and retiree health benefits, according to a 2012 Employee Benefit Research Institute report. More and more, private companies came to rely on "defined contribution plans" - 401(k)-type plans that have no guaranteed annual benefit amount.

    Veiga said the early retirement incentive package offered in 2009 during Gov. M. Jodi Rell's administration was too good to pass up. More than 4,700 state employees took advantage of the offer.

    The buyout "made it very hard to say, 'Well, I am going to keep working,' when I can earn as much on a pension as I can working," Veiga said. It added three years to his to his term of service, and the state let him add three more years because he had worked as a residence hall director at Kent State University in Ohio, and another year because he had been an assistant professor of management at Northeastern University. That brought his credited years of service to 44.

    His pension also comes with annual cost-of-living adjustments, Medicare insurance and prescription drug coverage, and supplemental health insurance and prescription coverage through the state. He pays a co-payment at the doctor's office occasionally, he said, but otherwise he does not pay for his health care.

    State Comptroller Kevin Lembo said early retirement incentive programs put a lot of stress on pension systems. While they reduce payroll, they increase lifetime pensions because they add additional years of service. To Lembo, "They are short-term thinking at best."

    The tier system
    Veiga served as chairman of the management department at the School of Business for more than two decades and as the interim dean of the School of Business in 1991 to 1992. He was named the Northeast Utilities endowed chairman of business ethics in 2000, and a Board of Trustees Distinguished Professor in 2001. His final average salary for pension calculation purposes was $361,293 annually.

    State retirees are classified according to a system of "tiers." Tier I, the most generous, was closed to new employees in 1984. As a Tier I retiree, Veiga's pension is determined by several factors, including his credited years of service and the average of his three highest salary years.

    He also receives a cost-of-living adjustment ranging from 2.5 to 6 percent.

    Pension benefits have been reduced as each new retirement tier was added. Under Tier II, retirees' benefits were based on a smaller percentage of their annual salary. Tier IIA, which began in 1997, required retirees to contribute to their retirements. With Tier III, which began in 2011, the retirement age was increased.

    The Tier I average annual pension benefit in 2012 was $36,404; for Tier II, $23,106; and for Tier IIA, $11,556. Data for Tier III retirees is not yet available.

    According to The Day's analysis, Veiga was one of 492 Tier I retires who, because of their high salaries, collected six-figure pensions in 2012. That number represents just 1.6 percent of the 30,472 Tier I retirees.

    Although the Connecticut State Employees' Retirement System is funded at only 42 percent, Veiga said that will change when the economy rebounds in the next five to 10 years. People wouldn't even be discussing whether retirees' benefits were too rich if the economy hadn't gone downhill or if the state had managed its pensions better, he said.

    "Every chance they get, where it is not obvious, they use the money right now and don't fund it all," Veiga said. "Can you imagine having money in a 401(k) somewhere and them saying, 'We will, for the next five years, not give you any interest or earnings, we are not going to do our part?' That is basically what they did."

    From fiscal years 1996 through 2013, the state rarely contributed the annual amount recommended by actuaries. If it had done so, there would be $2 billion more in the State Employees' Retirement System fund, according to the State Comptroller's Office.

    Continued in article

    The Underfunded Pension Mess in the USA
    From the CFO Journal's Morning Ledger on July 25, 2013

    Companies are getting closer to bringing their pension plans back to fully funded status this quarter, says CFOJ’s Emily Chasan.  Rising interest rates and stock prices have narrowed the gap of underfunded pension liabilities by 40% this year, and some companies—including Alaska Air, Cytec Industries and VF Corp.— have announced their pensions are nearly topped up. “A reduction in our pension expense is right around the corner, which is important because most of our competitors don’t have pension plans,” said VF Chief Financial Officer Bob Shearer.

    The vast majority of pension plans are still in the red, but more than 208 S&P 500 companies with pension plans have improved their funded status by over $100 million each since the end of last year. Boeing, Ford, General Electric and IBM are all expected to improve their funding by more than $5 billion at the end of the year.

    Ford, which reported a 19% jump in quarterly profit yesterday,  is seeing a marked improvement in its pension plan this year, says CFO Bob Shanks. Ford chipped in $2 billion, but rising discount rates were the big reason the company has closed its $9.7 billion funding gap by about $4 billion this year. That would bring the funded status to about 85%, up from 82% last year. “We’re very encouraged by the progress we’re seeing,” Mr. Shanks said.

    Jensen Comment
    Government pensions, including teacher pensions, are in far worse shape. For example, the Governor of Illinois is withholding pay of state legislators until they come to agreement on how to my public pensions in Illinois sustainable. The USA Postal Service cannot figure out how to meet its pension obligations

    From the CFO Journal's Morning Ledger on January 30, 2014

  • More companies are rethinking their investment strategies as pension-funding levels improve.
    “Companies with pension plans are saying, We don’t want what happened in 2008 and 2009 to happen to us again—if we’re fully funded, we want to stay that way,” Bob Collie, chief research strategist for the     U.S. institutional group at Russell Investments, tells CFOJ’s Emily Chasan.

    Many firms are reporting double-digit asset returns and an increase in the so-called discount rate, which is used to calculate the present value of payments companies expect to make over the life of their pension plans. American Electric Power CFO Brian Tierney said on a conference call this week that his company’s post-employment benefit plan is now 117% funded. The improved status pushed the company to work hard this year “to match the duration of the assets to the liabilities” and “de-risk” its pension plan, he said. Because the discount rates companies use on their pension funds are linked to a mix of corporate bond rates, companies are likely to switch assets into longer-duration corporate bonds to lock in their funding status, Russell Investments’ Mr. Collie said. “People are revisiting their asset-allocation strategies and in some cases quite substantially,” he added.

    Meanwhile, some companies are signaling they’ll reorganize assets down the line. Alaska Air reported last week that its pension plans are now 100% funded. CEO Bradley Tilden said on the company’s conference call that Alaska Air doesn’t anticipate making any contributions to fund the plan next year and aims to “let it ride” by reorganizing its assets. The firm is looking for “a right time in the market to move all the assets into fixed income instruments that basically match the liability,” Mr. Tilden said.

     

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

    "Author Characteristics for Major Accounting Journals: Differences among Similarities 1989–2009," by Timothy J. Fogarty and Gregory A. Jonas, Issues in Accounting Education, November 2013 ---
    http://aaajournals.org/doi/full/10.2308/iace-50520   (Not free)

    Abstract
    Many academic accountants have explicit or implicit motivations to publish their research in the best journals in the discipline. However, whether the chances of success are better at some of these journals is unknown. This paper examines the archival record to find differences within the authorship of three such publications (The Accounting Review, Journal of Accounting Research, Journal of Accounting and Economics) over a recently completed 20-year period. The journals do not differentiate according to the authors' doctoral training, but are differently sensitive to place of faculty employment. The journals are equally receptive to non-U.S. authors, but different in their receptivity to recently graduated and frequently appearing authors. Although areas of change over time are noted, both among journals and within each journal itself, the record also shows a good deal of consistency in other relationships over the 20-year period.

    . . .

    As expected, the average institutional prestige scores for all of the journals are concentrated at the low (high-prestige) end of the metric. With a higher average of slightly over 19 and a larger standard deviation, TAR appears to present a more diverse set of schools where its authors received their terminal degrees. The other two journals are less distinguishable on this dimension. Both exhibit author pools that average below 16 on a scale that has much more range on the high side (max = 98.5).

    Jensen Comment
    One confounding factor not mentioned by the authors is number of articles published per year. In 2001 and earlier JAR only published two or three issues per year. Soon afterwards this became five per year. In 2001 and earlier JAE published only two issues per year and later three issues per year.

    In contrast, in 2005 TAR increased the number of issues from the traditional four per year to five per year. In 2008 this increased to six issues per year  More importantly by 2010 the number of articles increased to 12 per issue thereby resulting in 72 publlished TAR artiocles per hear.  TAR may, therefore, "present a more diverse set of schools where the authors received their terminal degrees" partly because TAR publishes more articles per year.

    Also TAR has a higher number of co-authors on average as pointed out in this article. This increases the odds, for example, that one of three co-authors will received a doctorate from a slightly less prestigious university.

    This increases the odds, for example, that one of three co-authors is employed in a slightly less prestigious university.

    . . .

    Statistical tests demonstrate that the distribution of authors based on the prestige of the authors' employing institution shows much more patterning by journal. Significant pairwise differences exist between TAR and JAR (p < 0.01) and between TAR and JAE (p < 0.05). The difference between JAR and JAE is not significant (p > 0.10). TAR authors tend to be employed at less prestigious schools than the authors in JAR and those in JAE. The change in the odds of an author's manuscript appearing in TAR, as opposed to JAR or JAE, increases as the quartile of the employing institution's prestige score increases by 37.0 percent and 27.6 percent, respectively. No such statements about relative prestige of employing institution can be said about JAR and JAE. On balance, the evidence suggests that journal differences do exist. Therefore, the null H1b should be rejected.

     

    Panel C of Table 2 also reports on whether the interaction between the two institutional prestige variables varies by journal. Albeit not the subject of a hypothesized relationship, the interaction effect recognizes the tendency of graduates from high-prestige doctoral programs to take positions at other high-prestige programs. These interactions did not vary between any of the pairs of journals. The consequence of people from prestigious doctoral programs taking positions at other prestigious schools appears to be consistent across the author pools at the three journals.

    Jensen Comment
    I don't get too excited about prestige schools hiring their own since so many of these new hires do not stick around long in a high prestige university. Some never intended to stick around long but did so to coauthor for a short time with prestigious researchers. This often pays dividends in getting TAR, JAR, and JAE hits as coauthors and when milking a fresh thesis.

    But for many reasons these newly hired move on from prestigious universities before they get tenure. Some move on because of real estate costs that are often out of sight in such places as NYU, Columbia, Harvard, MIT, Stanford, etc. Some move after frustration with commute times such as the time more or less wasted commuting long distances into NYC or Stanford. Some move on because they find prestigious campuses are surrounded by horrid public schools and the costs and logistics of private schooling are very troublesome.

    And some new hires in prestigious universities have very low chances of getting tenure even when they are doing quite well in publishing in JAR, TAR, and JAE.
    Some are getting brutilized in teaching evaluations for various reasons, including poor English language and teaching skills. Some have little or no real-world experience to draw upon for teaching, and this is often very important in prestigious universities that require business experience when admitting students. Experienced students tend to raise questions about business and practice that an econometrician that has never had a real job can answer.

    And most prestigious accounting programs won't admit to it, but there probably is a quota constraint on the number of tenured faculty. Even Harvard cannot absorb many of its new hires simply because there aren't enough courses to keep giving tenure to all the new hires.

    . . .

    Utilizing the frequency of author appearance in each journal (a variable called “Publication Count”), Panel C of Table 3 summarizes the statistical comparisons for H2a. All pairwise comparisons are significant at the p < 0.01 level. JAE tends to publish more work by frequently appearing authors than either JAR or TAR. Moreover, JAR publishes more work from repeat authors than does TAR. Of particular note is that as an author's publication count increases within JAE, the odds of that author's manuscript again appearing in JAE increases by 19.8 percent relative to TAR. With journal differences pervasive, the null H2a should be rejected.

    Jensen Comment
    In JAE and to a certain extent JAR, the implication that the referees do not know who write most of the submissions is highly questionable. Firstly, there are many fewer submissions to JAE and JAR and it seems likely that referees get clues from topic and/or the mathematics to know the identities of those "unknown" authors. Similarly, the authors are likely self-selecting to appeal to the long-time (decades) editors and referees of JAE and JAR. The editors and associate editors of TAR change much more often and new referees are added more frequently to TAR since referees are not paid and tend to grow weary of providing time-consuming refereeing services year after year.

    The next research expectation concerns possible journal differences in the tendency of the journals to publish the work of relatively new academics. Leveraging the idea that early scholarly recognition contributes importantly to the establishment of a successful academic career, H2b seeks to identify the degree of relative journal support. As shown by Table 3, Panel B, both TAR and JAR seem to be slightly more predisposed than JAE toward the early career work of accounting scholars. The difference between each of these two pairs of journals is statistically significant at the p < 0.01 level. However, regarding publishing the work of new authors, TAR and JAR cannot be distinguished (p > 0.10). Differences between the journals based on descriptive statistics appear quite small (less than one percentage point or one author-manuscript per year between any journal pair comparison of non-senior authors). However, the more proper interpretation is that, after controlling for author publication frequency and interaction between frequency and being a new scholar, the odds of a new scholar's work appearing in JAE, as opposed to TAR or JAR, are 42.9 percent and 34.3 percent greater, respectively. On balance, the evidence is not consistent with the null H2b that expressed the expectation of no journal differences in the mix of less experienced faculty within the successful author pools.

    . . .

    H3 posited the lack of difference between the journals on the relative presence of non-U.S. authors. The results of multinomial tests, found in Panel B of Table 4, indicate that even the greatest of these differences is not statistically significant (p > 0.10). The odds of a non-U.S. author achieving a publication in any of these three journals are not significantly different. Two of the three odds comparisons are less than 10 percent.

    . . .

    In total, five null hypotheses evaluate possible ways in which the three major journals in accounting could vary, supplemented by the prospects of change over time. At the highest level of abstraction, two of these produced evidence of similarity and three showed mostly differences. In seven of the 15 pairwise comparisons, a statistically significant variation was noted. The bulk of the evidence suggests that these three outlets should not be grouped together in the minds of interested parties. However, the ways that one journal is different from the others is not permanent, but subject to moderate levels of change over relatively lengthy periods of time.

    How journals become what they are is a product of a self-sustaining cycle of purposeful gatekeeping, and the selective response of authors to the resultant perceived odds of success. Studies of the editorial boards of the major accounting journals reveal enduring concentrations of individuals trained and employed at the same prestigious schools that dominate the ranks of the authorship (Lee 2001; Urbanic 1989). Perhaps more consequential is the considerable degree of overlap in the composition of the editorial boards of the major journals in accounting (Lee 1997). Concentration, whether or not it reflects the differential abilities of some to work at the levels demanded by the major journals, operates to benefit some people and to hinder others. If publication chances are predictably concentrated, the statistically derived odds of publishing (e.g., Hasselback et al. 1995) tend to understate the chances for some and overstate the odds for others.

    Previous studies have implied that the three major journals in accounting move in similar ways and, therefore, can be understood to form a unified aspiration level for authors. This conclusion may have been strengthened by empirical observations of the editorial board interlock (e.g., Lee and Williams 1999) and strong intra-network citation patterns (e.g., Brown 1996). This paper asserted that an untested empirical issue existed in the actual similarity of the major journals in the accounting discipline. For these purposes, the historical distribution of author characteristics was examined.

    Perhaps the most important finding from this research is how authors' institutional prestige credentials are differentiated by journal. Previous research has shown the independent influence of the prestige of authors' doctoral degrees, and that of their employing institutions, on their publishing success (Fogarty and Ruhl 1997; Maranto and Streuly 1994). This paper shows that the influence of the employing institution also patterns where in the top-tier level of journals such scholarship might appear. Specifically, TAR has had a less exclusive appetite for the work done by scholars employed by the most prestigious schools. However, the prestige of doctoral programs has not been a differentiating feature of authors' backgrounds vis-à-vis the likelihood of publishing in one, as opposed to another, of the three major journals.

    That doctoral training does not matter for this purpose suggests that accounting is a field in which there are at least three journals in which everyone wants to publish. A super-elite has not selected one of these publications as an outlet valued over the others, and has not built such a preference into doctoral training. Likewise, those trained at good schools (but not the best) do not feel consigned to that which is left over.

    The results show that the institutional prestige of employing schools is a discriminating attribute for publishing within the three major accounting journals. Those employed by the most prestigious schools show a stronger tendency to publish in JAR and JAE, relative to TAR. That this institutional prestige difference exists, apart from doctoral origins, suggests the possible influence of divergent reward structures put into place by some employing institutions.

    The results pertaining to institutional prestige bear out the distinctiveness of TAR. As the only association-managed journal, and the only one not strongly associated with a particular university, TAR might have been expected to be the outlier relative to the other journals. The results prove consistent with this expectation. TAR shows a distinctive willingness to publish the work of faculty employed at schools from a wider cross-section of the academy than either JAR or JAE. If alternative traditions (e.g., behavioral, psychological, sociological) are more likely to be advocated at less prestigious schools, the distinctiveness of TAR could be based on its relative willingness to range further from the economics paradigm that more clearly marks JAE and JAR.

     

    Jensen Comment About the Chicken Versus the Egg
    All three journals are significantly impacted by North American accounting doctoral programs. This is a chicken and egg issue. Did those doctoral programs stop accepting dissertations without equations because the top journals only accept articles with equations or did those journals stop publishing articles without equations because the doctoral students found it easier to used purchased databases like CRSP, Compustat, AuditAnalytics, etc. that relieve the drudgery of having to collect data and be responsible for data errors.

    Once again I remind readers of the following Pathways Commission recommendation.

    Recommendation 2 of the American Accounting Association Pathways Commission (emphasis added)

    Scapbook1083--- http://www.trinity.edu/rjensen/TheoryTar.htm#Scrapbook1083

     

    Promote accessibility of doctoral education by allowing for flexible content and structure in doctoral programs and developing multiple pathways for degrees. The current path to an accounting Ph.D. includes lengthy, full-time residential programs and research training that is for the most part confined to quantitative rather than qualitative methods. More flexible programs -- that might be part-time, focus on applied research and emphasize training in teaching methods and curriculum development -- would appeal to graduate students with professional experience and candidates with families, according to the report.
         http://commons.aaahq.org/groups/2d690969a3/summary

     

    Most doctoral students accounting doctoral students want to milk their dissertations for one or several articles that pave their tenure tracks. Why would they want to collect data when they can use purchased public databases and stir the data with regression equations?  Why would they want to use qualitative methods if these methods are rejected by the top three academic accounting research journals?

    Qualitative research in accounting is too difficult and unappreciated by our peers. Stick to those equations ---
    http://www.trinity.edu/rjensen/Theory01.htm#DoctoralPrograms

    More importantly, the referees of TAR, JAR, and JAE tend to overlook those "big mistakes of accountics science and econometrics science.
    Common Accountics Science and Econometric Science Statistical Mistakes ---
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsScienceStatisticalMistakes.htm

     

    574 Shields Against Validity Challenges in Plato's Cave ---
    http://www.trinity.edu/rjensen/TheoryTAR.htm

    Real Science versus Pseudo Science ---
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm#Pseudo-Science

    How Accountics Scientists Should Change: 
    "Frankly, Scarlett, after I get a hit for my resume in The Accounting Review I just don't give a damn"
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm
    One more mission in what's left of my life will be to try to change this
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm

    "How Non-Scientific Granulation Can Improve Scientific Accountics"
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsGranulationCurrentDraft.pdf

    Gaming for Tenure as an Accounting Professor ---
    http://www.trinity.edu/rjensen/TheoryTenure.htm
    (with a reply about tenure publication point systems from Linda Kidwell)

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

    Do You Want to Teach? ---
    http://financialexecutives.blogspot.com/2009/05/do-you-want-to-teach.html

    Jensen Comment
    Here are some added positives and negatives to consider, especially if you are currently a practicing accountant considering becoming a professor.

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

    Why must all accounting doctoral programs be social science (particularly econometrics) "accountics" doctoral programs?
    http://www.trinity.edu/rjensen/theory01.htm#DoctoralPrograms

    What went wrong in accounting/accountics research?
    http://www.trinity.edu/rjensen/theory01.htm#WhatWentWrong

     

    AN ANALYSIS OF THE EVOLUTION OF RESEARCH CONTRIBUTIONS BY THE ACCOUNTING REVIEW: 1926-2005 ---
    http://www.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm#_msocom_1

    Systemic problems of accountancy (especially the vegetable nutrition paradox) that probably will never be solved ---
    http://www.trinity.edu/rjensen/FraudConclusion.htm#BadNews

    "The Accounting Doctoral Shortage: Time for a New Model,"
    by Neal Mero, Jan R. Williams and George W. Krull, Jr. .
    Issues in Accounting Education     24 (4)
    http://aaapubs.aip.org/getabs/servlet/GetabsServlet?prog=normal&id=IAEXXX000024000004000427000001&idtype=cvips&gifs=Yes&ref=no

    ABSTRACT:
    The crisis in supply versus demand for doctorally qualified faculty members in accounting is well documented (Association to Advance Collegiate Schools of Business [AACSB] 2003a, 2003b; Plumlee et al. 2005; Leslie 2008). Little progress has been made in addressing this serious challenge facing the accounting academic community and the accounting profession. Faculty time, institutional incentives, the doctoral model itself, and research diversity are noted as major challenges to making progress on this issue. The authors propose six recommendations, including a new, extramurally funded research program aimed at supporting doctoral students that functions similar to research programs supported by such organizations as the National Science Foundation and other science-based funding sources. The goal is to create capacity, improve structures for doctoral programs, and provide incentives to enhance doctoral enrollments. This should lead to an increased supply of graduates while also enhancing and supporting broad-based research outcomes across the accounting landscape, including auditing and tax. ©2009 American Accounting Association

    Bob Jensen's threads on accountancy doctoral programs are at
    http://www.trinity.edu/rjensen/theory01.htm#DoctoralPrograms

    "Is mathematics an effective way to describe the world?" by Lisa Zyga, Physorg, September 3, 2013 ---
    http://phys.org/news/2013-09-mathematics-effective-world.html

    Mathematics has been called the language of the universe. Scientists and engineers often speak of the elegance of mathematics when describing physical reality, citing examples such as π, E=mc2, and even something as simple as using abstract integers to count real-world objects. Yet while these examples demonstrate how useful math can be for us, does it mean that the physical world naturally follows the rules of mathematics as its "mother tongue," and that this mathematics has its own existence that is out there waiting to be discovered? This point of view on the nature of the relationship between mathematics and the physical world is called Platonism, but not everyone agrees with it.

    Derek Abbott, Professor of Electrical and Electronics Engineering at The University of Adelaide in Australia, has written a perspective piece to be published in the Proceedings of the IEEE in which he argues that mathematical Platonism is an inaccurate view of reality. Instead, he argues for the opposing viewpoint, the non-Platonist notion that mathematics is a product of the human imagination that we tailor to describe reality.

    This argument is not new. In fact, Abbott estimates (through his own experiences, in an admittedly non-scientific survey) that while 80% of mathematicians lean toward a Platonist view, engineers by and large are non-Platonist. Physicists tend to be "closeted non-Platonists," he says, meaning they often appear Platonist in public. But when pressed in private, he says he can "often extract a non-Platonist confession."

    So if mathematicians, engineers, and physicists can all manage to perform their work despite differences in opinion on this philosophical subject, why does the true nature of mathematics in its relation to the physical world really matter?

    The reason, Abbott says, is that because when you recognize that math is just a mental construct—just an approximation of reality that has its frailties and limitations and that will break down at some point because perfect mathematical forms do not exist in the physical universe—then you can see how ineffective math is.

    And that is Abbott's main point (and most controversial one): that mathematics is not exceptionally good at describing reality, and definitely not the "miracle" that some scientists have marveled at. Einstein, a mathematical non-Platonist, was one scientist who marveled at the power of mathematics. He asked, "How can it be that mathematics, being after all a product of human thought which is independent of experience, is so admirably appropriate to the objects of reality?"

    In 1959, the physicist and mathematician Eugene Wigner described this problem as "the unreasonable effectiveness of mathematics." In response, Abbott's paper is called "The Reasonable Ineffectiveness of Mathematics." Both viewpoints are based on the non-Platonist idea that math is a human invention. But whereas Wigner and Einstein might be considered mathematical optimists who noticed all the ways that mathematics closely describes reality, Abbott pessimistically points out that these mathematical models almost always fall short.

    What exactly does "effective mathematics" look like? Abbott explains that effective mathematics provides compact, idealized representations of the inherently noisy physical world.

    "Analytical mathematical expressions are a way making compact descriptions of our observations," he told Phys.org. "As humans, we search for this 'compression' that math gives us because we have limited brain power. Maths is effective when it delivers simple, compact expressions that we can apply with regularity to many situations. It is ineffective when it fails to deliver that elegant compactness. It is that compactness that makes it useful/practical ... if we can get that compression without sacrificing too much precision.

    "I argue that there are many more cases where math is ineffective (non-compact) than when it is effective (compact). Math only has the illusion of being effective when we focus on the successful examples. But our successful examples perhaps only apply to a tiny portion of all the possible questions we could ask about the universe."

    Some of the arguments in Abbott's paper are based on the ideas of the mathematician Richard W. Hamming, who in 1980 identified four reasons why mathematics should not be as effective as it seems. Although Hamming resigned himself to the idea that mathematics is unreasonably effective, Abbott shows that Hamming's reasons actually support non-Platonism given a reduced level of mathematical effectiveness.

    Here are a few of Abbott's reasons for why mathematics is reasonably ineffective, which are largely based on the non-Platonist viewpoint that math is a human invention:

    • Mathematics appears to be successful because we cherry-pick the problems for which we have found a way to apply mathematics. There have likely been millions of failed mathematical models, but nobody pays attention to them. ("A genius," Abbott writes, "is merely one who has a great idea, but has the common sense to keep quiet about his other thousand insane thoughts.")

    • Our application of mathematics changes at different scales. For example, in the 1970s when transistor lengths were on the order of micrometers, engineers could describe transistor behavior using elegant equations. Today's submicrometer transistors involve complicated effects that the earlier models neglected, so engineers have turned to computer simulation software to model smaller transistors. A more effective formula would describe transistors at all scales, but such a compact formula does not exist.

    • Although our models appear to apply to all timescales, we perhaps create descriptions biased by the length of our human lifespans. For example, we see the Sun as an energy source for our planet, but if the human lifespan were as long as the universe, perhaps the Sun would appear to be a short-lived fluctuation that rapidly brings our planet into thermal equilibrium with itself as it "blasts" into a red giant. From this perspective, the Earth is not extracting useful net energy from the Sun.

    • Even counting has its limits. When counting bananas, for example, at some point the number of bananas will be so large that the gravitational pull of all the bananas draws them into a black hole. At some point, we can no longer rely on numbers to count.

    • And what about the concept of integers in the first place? That is, where does one banana end and the next begin? While we think we know visually, we do not have a formal mathematical definition. To take this to its logical extreme, if humans were not solid but gaseous and lived in the clouds, counting discrete objects would not be so obvious. Thus axioms based on the notion of simple counting are not innate to our universe, but are a human construct. There is then no guarantee that the mathematical descriptions we create will be universally applicable.

    For Abbott, these points and many others that he makes in his paper show that mathematics is not a miraculous discovery that fits reality with incomprehensible regularity. In the end, mathematics is a human invention that is useful, limited, and works about as well as expected.

    Continued in article

    574 Shields Against Validity Challenges in Plato's Cave ---
    http://www.trinity.edu/rjensen/TheoryTAR.htm

    Real Science versus Pseudo Science ---
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm#Pseudo-Science

    How Accountics Scientists Should Change: 
    "Frankly, Scarlett, after I get a hit for my resume in The Accounting Review I just don't give a damn"
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm
    One more mission in what's left of my life will be to try to change this
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm

    "How Non-Scientific Granulation Can Improve Scientific Accountics"
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsGranulationCurrentDraft.pdf

     

    Common Accountics Science and Econometric Science Statistical Mistakes ---
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsScienceStatisticalMistakes.htm

    Accountics is the mathematical science of values.
    Charles Sprague [1887] as quoted by McMillan [1998, p. 1]
    http://www.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm#_msocom_1

    Tom Lehrer on Mathematical Models and Statistics ---
    http://www.youtube.com/watch?v=gfZWyUXn3So
    You must watch this to the ending to appreciate it.

    Strategies to Avoid Data Collection Drudgery and Responsibilities for Errors in the Data

    Obsession With R-Squared

    Drawing Inferences From Very Large Data-Sets

    The Insignificance of Testing the Null

    Zero Testing for Beta Error

    Scientific Irreproducibility

    Can You Really Test for Multicollinearity?  

    Models That aren't Robust

    Reverse Regression

    David Giles' Top Five Econometrics Blog Postings for 2013

    David Giles Blog

    A Cautionary Bedtime Story

    574 Shields Against Validity Challenges in Plato's Cave ---
    http://www.trinity.edu/rjensen/TheoryTAR.htm

    Real Science versus Pseudo Science ---
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm#Pseudo-Science

    How Accountics Scientists Should Change: 
    "Frankly, Scarlett, after I get a hit for my resume in The Accounting Review I just don't give a damn"
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm
    One more mission in what's left of my life will be to try to change this
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm

    "How Non-Scientific Granulation Can Improve Scientific Accountics"
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsGranulationCurrentDraft.pdf

    Gaming for Tenure as an Accounting Professor ---
    http://www.trinity.edu/rjensen/TheoryTenure.htm
    (with a reply about tenure publication point systems from Linda Kidwell)

     

     

    The IRS Gets a Pass:  Officials say there will be no criminal charges for political targeting ---
    http://online.wsj.com/news/articles/SB10001424052702304049704579319122765730020?mod=djemMER_h
    The FBI would say if it conducted any investigations, but odds are that there were no serious investigations of fellow IRS employees or the Administration.

    Also see
    http://online.wsj.com/news/articles/SB10001424052702304049704579318870529059830?mod=djemMER_h

    Also see
    http://taxprof.typepad.com/taxprof_blog/2014/01/the-irss-candal.html

    Jensen Comment
    The same thing happens when Wall Street bankers and traders never or only rarely face criminal charges. Never facing fear of fines and imprisonment is simply a license to carry on with the criminal activities. I fully expect the IRS to continue patsy for the political party that controls the White House. And don't expect Wall Street bankers and traders to stop instigating felonies if they have no fear of jail time.

    Fraud Analytics: Strategies and Methods for Detection and Prevention
    by Delena D. Spann, United States Secret Service, Chicago Field Office
    ISBN: 978-1-118-23068-8
    October 2013
    176 pages
    http://www.wiley.com/WileyCDA/WileyTitle/productCd-111823068X.html

    There are only three reviews to date at Amazon. Two reviewers give it five stars and one reviewer only gave it the lowest possible rating (one star) ---
    http://www.amazon.com/Fraud-Analytics-Strategies-Detection-Prevention/dp/111823068X/ref=sr_1_1?s=books&ie=UTF8&qid=1389726327&sr=1-1&keywords=Fraud+Analytics%3A+Strategies+and+Methods+for+Detection+and+Prevention
    The low rater is Brian Spiering. I don't know him, but he claims to be a quant.

    I might add that I'm not an optimist for fraud analytics. There are just too many non-stationarities, missing variables, covariances, and issues of outliers. Still this might be a useful reference book even if Spiering is correct about the poor writing and lousy cases. Then again maybe the two high raters are more discerning.

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

    "The Top 10 Tax Stories of 2013," by Paul Caron, TaxProfBlog, January 2, 2014 ---
    http://taxprof.typepad.com/taxprof_blog/2014/01/the-top-10-1.html

    1. International Tax Enforcement Cooperation, by Hugh Ault (Boston College) & Steve Johnson (Florida State)
    2. The IRS Scandal, by Andy Gewal (Iowa) & Richard Schmalbeck (Duke)
    3. Windsor and Rev. Rul. 2013-17:  Marriage Equality and the Tax Law, by John Miller (Idaho)
    4. Tina Turner and the Renunciation of U.S. Citizenship, by Allison Christians (McGill)
    5. Loving:  The Regulation of Tax Preparers, by Steve Johnson (Florida State)
    6. The IRS and the Affordable Care Act, by Jordan Barry (San Diego), Bryan Camp (Texas Tech) & Steve Johnson (Florida)
    7. Quality Stores:  Severance Pay, Payroll Taxes, and the Intersection of Tax and Administrative Law, by Kristin Hickman (Minnesota)
    8. Internet Sales Taxes, by Adam Thimmesch (Nebraska)
    9. PPL:  Foreign Tax Credits and International Tax Reform, by Reuven Avi-Yonah (Michigan) & Jordan Barry (San Diego)
    10. The Sunset of the Bush Tax Cuts, by David Elkins (Netanya)

    Nobody is Sure Which Expired Tax Breaks Will Return
    "Congress just let 55 tax breaks expire," byBrad Plumer, The Washington Post, January 2, 2014 ---
    http://www.washingtonpost.com/blogs/wonkblog/wp/2014/01/02/from-nascar-to-wind-power-congress-just-let-55-tax-breaks-expire/
    To date there are 160 comments.

    Just in Time for Spring 2014 Financial Accounting Courses (some things in the textbooks have changed)
    Deloitte's Accounting Roundup: Year in Review—2013     ---
    http://deloitte.wsj.com/riskandcompliance/files/2014/01/Accounting_Roundup_2013_Review.pdf

    Khan Academy --- http://en.wikipedia.org/wiki/Khan_Academy

    The Harvard Business Review interviews Salman Khan, founder of Khan Academy
    "Salman Khan on the Online Learning Revolution," Harvard Business Review Blog, January 16, 2014 ---
    http://en.wikipedia.org/wiki/Khan_Academy
    A written transcript will be available January 24, 2014

    Jensen Comment
    I listened to the audio file for this interview. A big part of this interview emphasizes that many Khan Academy modules are great for corporate training, such as in leadership training, as well as education in general. "If you are talking for more than three minutes in a meeting it should be a video" to study before the meeting.

    Khan Academy plans to probe deeper into interactive models.

    I don't like this Khan Academy video
    Is it better to rent or buy a home? --- http://emails.khanacademy.org/523a1d5a191b2a646d943fa61elux.18b5/Up_B8OYQoMDMypzUD29f4

    Jensen Comment
    Khan Academy tries to simplify videos and in most cases I go along with the simplifications. But this is one instance too many important variables are omitted from the lesson.

    In due respect, Mr. Khan promises to produce a more comprehensive video in the future. Below are some criticisms of his first tutorial that might be overcome in his second tutorial.

    Firstly, no consideration is given for cash flow differences in home maintenance and insurance. One can argue that maintenance and insurance are factored into the rent amount --- which is true. But there's maintenance and then there's exceptional maintenance that's subject to a lot of estimation error. For example, it's very uncertain for rural property with respect to water well and septic system failures. Sometimes these systems last for 30 or more years but on occasion there there are more frequent and unanticipated failures that were not factored into rent expenses. Rent is impacted more by pricings of competitors such that landlords cannot simply tack on huge expense cushions in the rents. Hence there are occasional big losses and assessments that must be borne by the owner and not the renter. When I was landlord of an Iowa farm the unanticipated need to lace the fields with more drainage tile zapped all rental profits. The renter, however, benefitted from this tile without having to pay for it. Rental prices of farm land is generally impacted more by supply and demand of rental land than it is by expense recovery. In my case the renter demanded additional improvements every time I tried to raise the rent. I do not like being a landlord and sold the farm almost as soon as I could find a buyer.

    Secondly, sometimes too much expense is factored into the rent. The landlord tries to factor in the cost of damages and accelerated depreciation on the assumption that renters tend to wreck the place. Hence rent prices may factor in the cost of frequent new floors, room painting/wallpapering, kitchen appliance replacements, etc. that home owners can avoid with exceptional care of their owned home.

    Thirdly, the mortgage interest tax deduction is a complicated benefit. Many renters cannot get any marginal benefits of other itemized deductions if they have not financed their owned home. The mortgage deduction may kick in the other itemized deduction benefits such that the net tax benefit of home ownership is more than just the mortgage interest benefit.

    Fourthly, the Khan Academy video works out the renter versus owner cash flow differences for the first year (ignoring transactions costs) when in fact these differences can vary a great deal over the ensuing years. The renter may be subject to frequent situations where the renter must pay whatever increase in rent the landlord demands when the short-term lease (e.g., one-year) expires or face the serious expenses and trauma of moving. The home owner has decreasing mortgage interest expense annually on fixed-rate mortgages and risks of increases in property taxes. Mr. Khan lives in California where Proposition 13 protects against huge jumps in property taxes when property values soar. In Texas and New Hampshire this most definitely is not the case.

    Fifthly, Mr. Khan assumes a 6.0% fixed mortgage rate that is a bit high but not worth quibbling over in this tutorial. But his assumption of a 4.0% on savings with a CD is ancient history. Anything above 1.0% is fantasy or subject to financial risk that greatly change the return. My point here is that the decision to rent or buy can change greatly with the parameters. When I moved from Florida to Texas in 1982 mortgage rates were around 18%. If Trinity University had not financed my home in San Antonio at a bargain rate I would not have sold my Florida property and moved. The interest on my Florida acreage was 6%. I loved that land where I raised horses. But I never did and still do not like poisonous snakes. Alligators I can take without much fear. But snakes --- definitely not.

    Additional Considerations
    Mr. Khan totally ignores front-end and back-end transactions costs. For example, in New Hampshire there is a 15% transfer tax when you buy and when you sell your home. On a $1 million home that's $150,000 when you buy and another $150,000 when you sell --- subject to changes in property values and how buyers and sellers negotiate sharing of this tax. Then there's the realtor commission (6%-10%) added on when you sell the property. Then there's the stress of worrying about how much your property will decrease or increase in value over the years.

    The video makes no warning about home ownership rules of thumb. Unless the real estate market is very, very hot it generally does not pay to flip home ownership in less than five years or more. This greatly affects college professors still facing tenure decisions and other employees that are planning transfers or moves. In the Roaring 1990s it generally paid off to buy a home even if you expected to move in a couple of years. Now that can be a disaster even if you are getting a bargain price on your new home.

    My wife and I owned a big house in San Antonio for over 24 years. When I retired and was planning a move to New Hampshire I only had one offer for that house that was on sale for over a year (before we moved). I never even got a bottom feeder's offer for half price or lower. To this day I thank my lucky stars that this offer was reasonable but resulted in a net loss in terms of my cash outflow over the years. Now the buyer of our house in San Antonio has had it on sale (due to having to move to Washington DC) for over two years with zero reasonable offers. I don't know if there have been any bottom feeder offers.

    In the meantime, the property taxes have taken a jump in San Antonio while neighborhood security has taken a plunge. Our former home in San Antonio is not in a gated neighborhood --- which is becoming more and more of a necessity within large cities, including San Antonio. It did not used to be such an important variable. But now there are home invasions, home and auto thefts, neighborhood car jackings, etc.

    Another consideration is housing availability. Sometimes there is just not a suitable alternative to rent. And sometimes there's just not a suitable alternative to buy. For example, in Manhattan and San Francisco it's very hard to find either type of property without including a body part. Families who rent in suburbia are somewhat more flexible when a rare good deal comes available in the city.

    On  January 6, 2014 CBS Sixty Minutes did a depressing module on how the $150 billion of taxpayer dollars lost in stimulus funding of alternative energy plants. But pennies of that $150 loss may be recovered. The Chinese are buying up these empty plants at pennies on the dollar for alternative uses like making automobile parts to ship to China. USA taxpayers monumentally stimulated the Chinese economy.

    But instead of breakthroughs, the sector suffered a string of expensive tax-funded flops. Suddenly Cleantech was a dirty word.
    "The Cleantech Crash:  Despite billions invested by the U.S. government in so-called “Cleantech” energy, Washington and Silicon Valley have little to show for it," by Leslie Stahl, CBS News, January 5, 2014 ---
    http://www.cbsnews.com/news/cleantech-crash-60-minutes/

    The following is a script from "The Cleantech Crash" which aired on Jan. 5, 2014. Lesley Stahl is the correspondent. Shachar Bar-On, producer.

    About a decade ago, the smart people who funded the Internet turned their attention to the energy sector, rallying tech engineers to invent ways to get us off fossil fuels, devise powerful solar panels, clean cars, and futuristic batteries. The idea got a catchy name: “Cleantech.”

    Silicon Valley got Washington excited about it. President Bush was an early supporter, but the federal purse strings truly loosened under President Obama. Hoping to create innovation and jobs, he committed north of a $100 billion in loans, grants and tax breaks to Cleantech. But instead of breakthroughs, the sector suffered a string of expensive tax-funded flops. Suddenly Cleantech was a dirty word.

    Investor Vinod Khosla, known as the father of the Cleantech revolution, has poured over a billion dollars of his own money into some 50 energy startups. He took us to one in Columbus, Miss. KiOR is a biofuel company that’s replacing oil drilling with oil making.

    Vinod Khosla: Nature takes a million years to produce our crude oil. KiOR can produce it in seconds.

    The company took over this old paper mill, where logs are picked up by a giant claw, dropped into a shredder and pulverized into woodchips.

    Vinod Khosla: And we take that, add this magic catalyst-

    Lesley Stahl: This is the secret sauce?

    Vinod Khosla: Yeah.

    Lesley Stahl: You throw that on top of the chips?

    Vinod Khosla: And then, out comes something that looks that looks just like crude oil.

    The crude is created through a thermo-chemical reaction in seconds. And by using wood instead of corn, this biofuel doesn’t raise food prices which was a concern with ethanol.

    Vinod Khosla: It smells like crude, it works like crude except it's 100 percent renewable.

    Then it’s distilled onsite into…

    Lesley Stahl: Clean gasoline?

    Vinod Khosla: Clean green gasoline.

    Lesley Stahl: This goes right into the tank, right? You don’t have to build a new infrastructure?

    Vinod Khosla: Absolutely.

    Lesley Stahl: You make it sound almost – sorry – too good to be true. There must be a downside.

    Vinod Khosla: There is no downside.

    Well there is: first off, his clean green gasoline costs much more than what you pay at the pump. And despite hundreds of millions of dollars invested – including 165 million of Khosla’s own money, KiOR is still in the red, and the manufacturing is so complex, it is riddled with delays.

    Lesley Stahl: All kinds of glitches.

    Vinod Khosla: That always happens but part of anything, whether you're building a refinery or a solar facility or a computer factory, you get exactly the same unanticipated glitches.

    He’s downplaying the glitches. But the venture capital model is that for every 10 startups, nine go under. And he says he expects at least half of his energy companies will fail. But Khosla can take that gamble. He earned billions with two giant Silicon Valley winners: Sun Microsystems and Juniper Networks. It was successes like these that gave Khosla and the other Silicon Valley moneymen the moxie to jump into energy.

    Steven Koonin: I think they saw it as a technical opportunity, thinking that the people in energy are just troglodytes and they don't understand what they're doing.

    Former Energy Department under secretary, Physicist Steven Koonin, says there was a lot of arrogance. He thought the venture capitalists and Internet geniuses were underestimating the challenges of the energy sector.

    Lesley Stahl: Like what?

    Steven Koonin: Managing risks that have to do with market, with supply, with operation, with regulation. And in the end, hoping that you get returns on a 20 or 30-year time scale.

    Lesley Stahl: Yeah, but they must’ve known they weren’t going to get a payoff for 20 or 30 years.

    Steven Koonin: I don’t think they understood that. The average venture capitalist likes to get in and out in about 3 to 5 years.

    While other venture capitalists have withdrawn from the energy sector, Khosla is staying in, but with a lot of help from taxpayers. Over the years, the federal government has committed north of a hundred million dollars to his various Cleantech ventures and several states have pitched in hundreds of millions as well. But his critics say he’s in over his head.

    Robert Rapier: Vinod Khosla is very smart, but would you let him operate on your heart?

    Lesley Stahl: No.

    Robert Rapier: No, because that’s not his area of expertise.

    Robert Rapier, a chemical engineer specializing in Biofuels, says Khosla and almost all the other venture capitalists in Silicon Valley got caught up in their own hype.

    Robert Rapier: He set up a system where he overpromised and under-delivered and so the public and the politicians all developed unreasonable expectations.

    Lesley Stahl: But hasn’t technology advanced enough so that somebody like Vinod Khosla could think: “Ah, we can do it more cheaply, faster."

    Robert Rapier: Well yeah, but in the field of advanced biofuels, he has not done very well. The companies that he’s brought out are in trouble. Their share prices are down 80, 85 percent. "[Vinod Khosla] set up a system where he overpromised and under-delivered, and so the public and the politicians all developed unreasonable expectations."

    Lesley Stahl: What about this criticism that what it takes to be successful in Silicon Valley does not translate into the energy business? It's such a completely different field.

    Vinod Khosla: That's fair criticism. But I am learning. And I am trying. And they're sitting there doing nothing. They're being the nay-sayers, the pundits who say why it can't be done. But they won't try. Now, sure we've done lots of things that failed in energy. But every time, we learned. Picked ourselves up and tried something new.

    Robert Rapier: He’s getting up that learning curve, but taxpayers funded that. A billionaire came into the energy business –

    Lesley Stahl: You’re saying we paid him to learn is what—

    Robert Rapier: We paid him to learn the energy business.

    The federal government has allocated a total of $150 billion to Cleantech – through loans, grants and tax breaks with little to show for it.

    Lesley Stahl: The taxpayers have lost a lotta money in the general Cleantech area.

    Vinod Khosla: Look, we have to take risks. And risks mean the risk of losing money. So let me ask you a question. We've been looking for a cure for cancer for a long time. How much money has the U.S. government spent? Billions and billions of dollars. Should we stop looking for a cure for cancer because we haven't found a cure?

    But under the Obama Stimulus Act, the government wasn’t just supporting research. With Cleantech it was shoveling money to build assembly lines, helping startups in the manufacturing phase. Over half a billion dollars went to a solar-panel company named Solyndra to build a factory. When solar was undercut by low prices in China, Solyndra died.

    Another half billion in loan guarantees went to Fisker, a clean car startup that promised to open a plant in Delaware, but went bankrupt. And in other cases production was ramped up before there was any demand – as with LG Chem in Michigan. "Look, we have to take risks. And risks mean the risk of losing money. So let me ask you a question. We've been looking for a cure for cancer for a long time. How much money has the U.S. government spent? Billions and billions of dollars. Should we stop looking for a cure for cancer because we haven't found a cure?"

    [Obama: Shovels will soon be moving earth and trucks will be pouring concrete where we are standing.]

    The plant was built with $151 million from the stimulus to make batteries for electric cars that people never bought. So the plant went idle and workers were paid tax dollars to sit around and do nothing.

    These loans and grants were administered by the Energy Department. They wouldn’t give us an interview, but Steven Koonin was actually the head scientist for the department, approving many of the stimulus projects.

    Lesley Stahl: The government spent about $150 billion into these innovations. Taxpayer dollars. Money well spent?

    Steven Koonin: I think there are significant developments that have come out of that spending that impact our energy system now. New technologies demonstrated. I think it was good value for the money.

    Lesley Stahl: Well, Solyndra went through over half a billion dollars before it failed. Then I'm gonna give you a list of other failures: Abound Energy, Beacon Power, Fisker, V.P.G., Range Fuels, Ener1, A123. ECOtality. I'm exhausted.

    Steven Koonin: As I told you in the beginning, the energy business is tough.

    Lesley Stahl: What happened?

    Steven Koonin: Oh, gosh, there are so many reasons. I put some of the major blame on the government, both the executive branch and Congress, for an inability to set a thoughtful and consistent energy policy.

    Lesley Stahl: Let me interrupt you. You were the government. How many of the loans were you involved in?

    Steven Koonin: Difficult to know the exact number. But I would say in the order of 30.

    Lesley Stahl: Did you make mistakes?

    Steven Koonin: I think I didn’t do as good a job as I could’ve. In retrospect, I would’ve done things a bit differently.

    Lesley Stahl: Part of this was supposed to be creating new jobs. Everything I've read there were not many jobs created.

    Steven Koonin: That's correct.

    Lesley Stahl: So what went wrong there?

    Steven Koonin: I didn't say it would create jobs. Other people did.

    Lesley Stahl: So you never thought it was gonna create-

    Steven Koonin: I didn't think it mattered as a job creation, no.

    Lesley Stahl: So, is Cleantech dead?

    Steven Koonin: There are parts of it that I would say are on life support right now.

    The stimulus investment wasn’t a total bust. It helped create the successful electric car company Tesla. A few of other companies are starting to show promise, and loans are being repaid.

    But Cleantech was dealt a hammer blow by this: plentiful, inexpensive and relatively clean domestic natural gas. So by 2012, the moneymen of Silicon Valley were dropping energy from their portfolios and soon struggling and bankrupt Cleantech companies were on the auction block at firesale prices. And guess who snatched them up? China! The most aggressive buyer is arguably this man.

    Pin Ni and his autoparts company Wanxiang have made six big investments in American Cleantech so far, including buying A123, another electric car battery startup that lost over 130 million tax dollars.

    Lesley Stahl: A lot of the companies that you have bought in the Cleantech area got a lot of federal subsidies. I have the list.

    Pin Ni: A123 did, yes.

    Lesley Stahl: Well, Ener1 did –

    Pin Ni: Ener1 did, yeah.

    Lesley Stahl: Smith Electric Trucks.

    Pin Ni: I would think so, yeah.

    Lesley Stahl: There's something that just doesn't feel right about a Chinese company coming in and scooping it all up after the taxpayers put so much money into it.

    Pin Ni: My answer will be: Do we like the capitalism or not? If we do, that is the capitalism.

    Lesley Stahl: But do you think it’s a good business? Do you think Cleantech is going well?

    Pin Ni: Cleantech is not going well.

    But China is willing to make a long-term bet on the technology, and spend what it takes to develop the manufacturing. But here’s where it gets complicated: this is Wanxiang’s American subsidiary with 27 plants in 13 states and some 6,000 American workers. Pin Ni says every third car made in the U.S. has Wanxiang parts.

    Lesley Stahl: You understand the suspicion around you, this company that you're here just to take our high-tech-

    Pin Ni: Sure. Absolutely.

    Lesley Stahl: --technology, you know, and get it back to China as fast as you can.

    Pin Ni: But my simple question is: for what? I'm not the president of China. I'm the president of Wanxiang America, right? So whatever we do has to benefit us. We are here to conduct business. We are here to make money.

    And so the irony: that taxpayer money for Cleantech and jobs ended up with a Chinese company creating Cleantech and Jobs… in America.

    Lesley Stahl: American taxpayers have spent billions on Cleantech. Have we gotten our money's worth?

    Pin Ni: If you measure them by today's standard I would say definitely not. You didn't see anything come out of it. But if you view this as a step stone to the future, when you get there, when you look back, I would say yes.

    But Vinod Khosla says if the U.S. government doesn’t put more money into this technology – when we get there, it will all be in China. He wants to open KiOR biofuel plants like this in every defunct paper mill in the country.

    Continued in article

    Jensen Comment
    Vinod Khosla wants to covert all the defunct paper mills into losing biomass fuel plants with the taxpayers footing the bill. Actually that is not quite true. If the Fed simply prints another trillion dollars Vinod's fiascos can be funded for with free money. But Vinod's gasoline will still be $20 per gallon.

    "Are College Professor-Authors being cheated out of Royalties on their Textbooks?" by Steven Mintz, Ethics Sage, January 22, 2014 ---
    http://www.ethicssage.com/2014/01/are-college-professor-authors-being-cheated-out-of-royalties-on-their-textbooks-the-brave-new-world-of-college-textbook-dis.html

    There is no doubt that the cost of traditional-form college textbooks has gotten out of hand. That is why secondary markets are flourishing. College textbook prices are 812 percent higher than they were a little more than three decades ago, the American Enterprise Institute, a think tank, reports. Textbook costs have well outpaced the 559 percent increase in tuition and fees over roughly the same period. The National Association of College Stores (NACS) says the average college student will spend $655 on textbooks each year.

    As an author of a college textbook I am sensitive to the cost issue and believe these costs should be reduced significantly. That is one reason why publishers have gone to e-books as a cheaper alternative. College kids are used to reading materials on line so it seems like a good solution.

    In this blog I address another aspect of the issue, which is whether authors such as I are receiving our fair share of royalties on the sale of our books. Having researched this issue, I think intellectual property rights are being abused.

    My textbook, Ethical Obligations and Decision Making in Accounting, is used in about 40 colleges and universities. The third edition was just published by McGraw-Hill. I met my classes for the first time last week and discovered there was an ‘international version’ of the book. I looked at a copy one student had purchased and it had a different cover than the McGraw-Hill USA book; a different ISBN; and the paper was of a lower quality.

    How could this happen, I thought. I contacted McGraw-Hill and was told there is no international version. I investigated further and not only found the site on which she bought the international version, but other sites selling it as well. In fact, a Google search identified sellers of the international version including eBay that included the statement under the true cover: “This image is for reference. We sell an international edition.”

    Upon questioning, McGraw-Hill USA admitted it knew nothing about it. They would get back to me. I found out there is a Tata McGraw-Hill India and figure it is the source of the international sales because the book was composed in India.

    How ironic it is that an ethics textbook is sold in ways that are ethically questionable especially since there is no reason to believe the authors get paid the correct amount of royalties. My royalty statement does not show specific vendors. What makes it worse is there are dozens of secondary vendors of both the domestic and international versions.

    We all know Amazon and Barnes & Noble sell our textbooks on line. But, what I didn’t know is there are at least a dozen links through the Amazon website to secondary sellers. There are even links to secondary sellers on the websites of secondary sellers. A prime example is bigwords.com that not only sells the book but links to what it calls the “Uber Marketplace” and another dozen or so sellers come up including the Amazon Marketplace. Do I receive any royalties from these sources, I wondered?

    For years I’ve known that study guides for my text are sold on line and they weren’t developed by me. Cram101 seems to be one of the big vendors in this area. Is it ethical for a secondary seller to develop its own, unauthorized, study guide for a text and sell it on line in a way that might mislead students into thinking it is somehow instructor-sanctioned? Of course not because information originally developed by the author is being used in a way that the author did not sanction. It’s not as if the author (and publisher) found an academic to do a study guide.

    It gets worse. I found both the Instructor’s Manual and Test Bank being sold online through Google Groups. The problem here is, of course, any instructor who chooses to take exams from the author’s test bank that is available on the publisher’s website does so at his or her peril.

    Writing a textbook, especially for a small market, offers limited royalties to authors like myself given the amount of time and effort we put into developing the book. We do so because of a desire to make a contribution to our field and enhance student learning. My accounting ethics text was motivated by the desire to encourage future CPAs and other accounting professionals to think and decide from an ethical point of view; to develop the courage to withstand employer and client pressures to act unethically; and for students to examine their own personal behavior and strive to be better human beings.

    Continued in article

    "Sport Ethics:  Gamesmanship versus Sportsmanship," by Steven Mintz, Ethics Sage, January 5, 2014 ---
    http://www.ethicssage.com/2014/01/sport-ethics-.html

    U.S. GAAP Financial Reporting Taxonomy Now Available (2014 Glossary and XBRL)---
    http://www.fasb.org/jsp/FASB/Page/SectionPage&cid=1176163688345 

    Get Your Sign Values Correct in XBRL Files ---
    http://www.aicpa.org/InterestAreas/FRC/AccountingFinancialReporting/XBRL/DownloadableDocuments/XBRL Update 2013 Final.pdf

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

    "Has Your Business Degree Failed You? Answer 5 Basic Questions to Find Out!," by Anthony H. Catanach, Grumpy Old Accountants, January 14, 2014 ---
    http://grumpyoldaccountants.com/blog/2014/1/14/has-your-business-degree-failed-you-answer-5-basic-questions-to-find-out

    If your goal in getting a college business degree was simply to get a “job” with the least effort expended, stop reading now!  But if you were serious about learning the fundamental skills needed to support a long-term professional career in business, including a life-long learning perspective, your passion and zeal just may not have been enough according to a number of recent articles in the popular business.

    Some suggest that college in general should be questioned.  Glenn Harlan Reynolds, a University of Tennessee law professor, encourages parents and students to “be skeptical” about the value of college.  With average student debt exceeding $29,000 and 40 percent of college graduates taking jobs that don’t require a college degree, he suggests that:

    America's higher education problem calls for both wiser choices by families and better value from schools.

    It’s hard to disagree with this statement particularly when so many parents and students conduct more due diligence in a car purchase than selecting the “right” college or university. 

    Reynolds also notes that the value proposition for a college degree is frequently obscured by the “bait and switch” tactics increasingly used by administrators, as well their lack of budget transparency.  Many schools now routinely “outsource” class instruction to low-paid adjuncts to cut costs (and let’s not even get into on-line “classroom” initiatives), and it is next to impossible to see where one’s tuition dollars actually are being spent (e.g., administration, athletics, research, or teaching).

    And guess what? Surprise…surprise…many employers now are questioning the skills of today’s graduates. Richard Vedder and Christopher Denhart from Ohio University confirm that:

    Declining academic standards and grade inflation add to employers' perceptions that college degrees say little about job readiness.

    They argue that the numbers just don’t work when college degree benefits are questionable and college costs are increasing. And the narrowing gap between what college and high school graduates earn particularly concerns them.  As an old jarhead, I found one of their statements particularly telling:

    We now have more college graduates working in retail than soldiers in the U.S. Army, and more janitors with bachelor's degrees than chemists.

    But what about business degrees specifically?  Dan Kadlec, a journalist for TIME, believes that:

    Colleges are minting money-focused graduates in a work world that increasingly values critical thinking and softer skills like the ability to communicate.

    Melissa Korn of the Wall Street Journal reports that “undergraduate business majors are a dime a dozen” and “may be worth even less,” since more than 20 percent of undergraduates in the United States are business majors. And graduate business education doesn’t get a free pass either. John A. Byrne, a contributor to CNN Money, documents the case of Josh Kaufman who believes that MBA programs “teach many worthless, outdated, even outright damaging concepts and practices.” 

    Still not convinced that there just might be a flame or two behind all this “smoke,” then just take a look at look at Lynn O’Shaughnessy’s number one reason why NOT to get a business degree: business majors don't learn much in business school!  Her conclusion was based on Academically Adrift, a bestselling book that finds that business majors are among the students who learn the least in college. 

    All of this negativism makes this Grumpy Old Accountant seem absolutely cheery doesn’t it?  Well, I must confess that my recent interactions with experienced business graduates (both at the bachelor and master levels) employed as accountants, analysts, managers, and reporters have raised more than a few doubts in my own mind. So, I decided to create a short, five question test (no accounting included, I promise) that administrators, current students, faculty, and recent graduates may find useful for assessing the effectiveness of their B-school experience.  And it’s no coincidence that the five questions mirror the major themes routinely discussed today by business academics and professionals alike. Being naturally grumpy, this exam is a closed book, closed note, essay test that should be completed with no outside assistance…what did you expect?

    Question One: What is a business?

    Believe it or not, many B-school graduates cannot answer this query in a clear, concise manner.  Often, the response is a long-winded, rambling summary of discrete topics that parallel course requirements that fails to accurately capture the essence of today’s enterprises. To receive full credit, the answer should be close to the following:

     A business is an economic entity that creates wealth (e.g., value, cash flow, etc.) by using financial, human, and physical capital to deliver products or services that the market demands.

    And if you really want to wow this old prof, throw in a bit of the “nexus of contract theory” to motivate the need for information to monitor the various contracts which companies execute with shareholders, employees, suppliers, customers, debtors, and the like.

    Question Two: What is business strategy?

    So, once you decide on a business, what’s the strategy? The answers commonly received to this question are particular disturbing in that they refer to assorted permutations of action plans and related documents.  Sorry, just not specific or good enough. To receive full credit, the answer should address two key issues:

    Business strategy is how an organization creates value for its customers and differentiates itself from competitors in the marketplace.

    Value creation and differentiation must be addressed in every good strategy whether it be for a company as a whole, or each individual operating unit.  This short definition specifically focuses managers on their markets and customer needs.  If customers don’t value a company’s product or are indifferent to it vis-a-vis that of the competition, the company is unlikely to succeed in the long-run, regardless of its stated “strategy.”  If you add some verbage about Michael Porter’s Five Forces model in your differentiation discussion in the context of today’s technology dominated world, you will bring a smile to this Grumpy Old Accountant’s face.

    Question Three: What is a business model?

    This dot-com era buzzword can generate some very interesting definitions which provide great insight into what has been learned (or not) in the B-school.  Frequent responses include a business idea, an overly-complicated financial model, or a business plan.  These answers don’t even warrant partial credit!  So what is it?

     A business model describes how the pieces of a business fit together as a system to execute the firm’s stated strategy.

    Every business model whether it be for the whole entity or each individual operating unit must address ALL of the following fundamental “value chain” activities: market analysis, product development and design, sales and marketing; procurement, production, and distribution, and after sale customer service.  How do each of these activities contribute to strategy execution?  Answer that and now you have a business model!  And some references to “How to Design a Winning Business Model” by Ramon Casadesus-Masanell and Joan E. Ricart will likely get you some bonus points.

    Question Four: How should a business evaluate its performance?

    As an accounting professor, I find the answers I often receive to this question to be downright depressing: stock price appreciation, revenue growth, earnings per share, and a host of other financial statement driven metrics.  These might earn some partial credit, but if you even hint at “adjusted EBITDA,” you get a zero.

    Answering this question requires getting Question Three correct!  To evaluate performance you must have something concrete to measure.  In the case of a business, it’s how each of the five value chain activities that comprise a firm’s business model are performing.

    A business should measure its performance by monitoring the implementation, execution, and effectiveness of its entire business model.

    This means that managers need both financial and non-financial metrics to judge their market analysis, research and development, selling and marketing, production and distribution, and customer service activities.  Unfortunately, all too often, companies rely almost exclusively on financial statement numbers to do so.  The best answers to this question will be organized around Kaplan and Norton’s Balanced Scorecard framework.

    Question Five: What role does innovation play in business today?

    Historically, business innovation has been equated primarily with the development of new products and new technologies.  But as Birkinshaw, Bouquet, and Barsoux suggest, “products and services represent just the tip of the innovation iceberg.” So, a few points might be awarded for this weak “common sense” response.  But to receive full credit, respondents must have scored well on Questions 3 and 4. The following represents a more complete response:

    Business innovation refers to any ideas and/or actions that can positively transform any part of the business model or its individual value chain activities, as well as the development of new products or service offerings.

    Continued in article

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

     

    ASC = Accounting Standard Codification of the FASB

    January 8, 2014 message from Zane Swanson

    Another faculty person created a video (link follows)
     http://www.screencast.com/t/K8gruSHTv

    which introduces the ASC.  This video has potential value at the beginning of the semester to acquaint students with the ASC.  I am thinking about posting the clip to AAA commons.  But, where should it be posted and does this type of thing get posted in multiple interest group areas?

     Any thoughts / suggestions?

    Zane Swanson
    www.askaref.com a handheld device source of ASC information

    Jensen Comment
    A disappointment for colleges and students is that access to the Codification database is not free. The FASB does offer deeply discounted prices to colleges but not to individual teachers or students.

    There are other access routes that are not free such as the PwC Comperio ---
    http://www.pwc.com/gx/en/comperio/index.jhtml

    Hi Zane,
     
    This is a great video helper for learning how to use the FASB.s Codification database.
     
    An enormous disappointment to me is how the Codification omits many, many illustrations in the pre-codification pronouncements that are still available electronically as PDF files. In particular, the best way to learn a very complicated standard like FAS 133 is to study the illustrations in the original FAS 133, FAS 138, etc.
     
    The FASB paid a fortune for experts to develop the illustrations in the pre-codification  pronouncements. It's sad that those investments are wasted in the Codification database.
     
    What is even worse is that accounting teachers are forgetting to go to the pre-codification pronouncements for wonderful illustrations to use in class and illustrations for CPA exam preparation ---
    http://www.fasb.org/jsp/FASB/Page/PreCodSectionPage&cid=1218220137031
     
    Sadly the FASB no longer seems to invest as much in illustrations for new pronouncements in the Codification database.

    Bob Jensen

     

    Examples of great FAS 133 pre-codification illustrations are as follows:

                  
[   ] 133ex01a.xls                     12-Jun-2008 03:50  345K  
[   ] 133ex02.doc                      17-Feb-2004 06:00  2.1M  
[   ] 133ex02a.xls                     12-Jun-2008 03:48  279K  
[   ] 133ex03a.xls                     04-Apr-2001 06:45   92K  
[   ] 133ex04a.xls                     12-Jun-2008 03:50  345K  
[TXT] 133ex05.htm                      04-Apr-2001 06:45  371K  
[   ] 133ex05a.xls                     12-Jun-2008 03:49  1.5M  
[TXT] 133ex05aSupplement.htm           26-Mar-2005 13:59   57K  
[   ] 133ex05aSupplement.xls           26-Mar-2005 13:50   32K  
[TXT] 133ex05d.htm                     26-Mar-2005 13:59   56K  
[   ] 133ex06a.xls                     29-Sep-2001 11:43  123K  
[   ] 133ex07a.xls                     08-Mar-2004 16:26  1.2M  
[   ] 133ex08a.xls                     29-Sep-2001 11:43  216K  
[   ] 133ex09a.xls                     12-Jun-2008 03:49   99K  
[   ] 133ex10.doc                      17-Feb-2004 16:37   80K  
[   ] 133ex10a.xls 
    [TXT] 133summ.htm                      13-Feb-2004 10:50  121K  
[TXT] 138EXAMPLES.htm                  30-Apr-2004 08:39  355K  
[TXT] 138bench.htm                     07-Dec-2007 05:37  139K  
[   ] 138ex01a.xls                     09-Mar-2001 13:20  1.7M  
[TXT] 138exh01.htm                     09-Mar-2001 13:20   31K  
[TXT] 138exh02.htm                     09-Mar-2001 13:20   65K  
[TXT] 138exh03.htm                     09-Mar-2001 13:20   42K  
[TXT] 138exh04.htm                     09-Mar-2001 13:20  108K  
[TXT] 138exh04a.htm                    09-Mar-2001 13:20  8.2K  
[   ] 138intro.doc                     09-Mar-2001 13:20   95K  
[TXT] 138intro.htm                     09-M

    Others --- http://www.cs.trinity.edu/~rjensen/

     

    "Islamic Accounting Needs Broader Adoption, Says AAOIFI Chief," by Asa Fitch, The Wall Street Journal, December 11, 2013 ---
    http://blogs.wsj.com/middleeast/2013/12/11/islamic-accounting-needs-broader-adoption-says-aaoifi-chief/

    The Islamic finance industry has grown quickly in recent years. Yet while standards for financial instruments that comply with Islamic law are well-developed, the adoption of specialized Islamic accounting methods is lagging, according to the head of the Bahrain-based Accounting and Auditing Organization for Islamic Financial Institutions, one of the world’s biggest Islamic standards-setting bodies.

    “For Shariah standards [AAOIFI] is dominating the market,” Khaled Al Fakih, the body’s secretary general and chief executive, said on Tuesday. “Everyone is referring to AAOIFI when applying their standards. As for accounting, this is the big problem.”

    Many Islamic banks in the Arab Gulf already use AAOIFI’s Islamic accounting standards. But plenty of lenders that do a combination of Islamic financing and conventional lending continue to use the popular IFRS or U.S. GAAP standards. The main difference between conventional and Islamic financing is the prohibition on charging or paying interest in Islamic structures.

    Banks’ failure to use Islamic accounting standards is a problem because the conventional methods don’t classify Islamic structures accurately, Mr. Al Fakih said. A deposit at a bank, for example, is considered a liability under conventional accounting rules: a bank has to pay that money back, after all. An Islamic deposit, however, isn’t technically as secure.

    “Islamic bank deposits are not capital-guaranteed – depositors are contributing to an investment and are willing to bear a loss,” Mr. Al Fakih said. “They’re quasi-equity.”

    If banks were to reclassify their Islamic deposits, he added, they could benefit from reduced charges on their capital, freeing up more money to put toward new financing. The fundamental issue, though, is one of accuracy. “The substance of the contract should be properly reflected,” Mr. Fakih said.

    “When you go to IFRS or U.S. GAAP, the Islamic transaction is not there,” he said. “Everything is about lending and borrowing.”

    Bob Jensen's threads on Islamic Accounting are at
    http://www.trinity.edu/rjensen/Theory01.htm#IslamicAccounting

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

    Teaching Case
    From The Wall Street Journal Accounting Weekly Review on January 10, 2014

    Delaying IRA Contributions Can Be Costly
    by: Jonnelle Marte
    Jan 05, 2014
    Click here to view the full article on WSJ.com
     

    TOPICS: Individual Income Taxation, Individual Taxation, IRA Contributions, IRAs

    SUMMARY: Taxpayers can contribute up to $5,500 each year to individual retirement accounts--$6,500 for those over 50. "An analysis of traditional and Roth IRA contributions made by Vanguard Group customers for the 2007 through 2012 tax years showed that, on average, 41% of the dollars contributed to IRAs for any given tax year are invested between January and April of the following year. Half of those dollars are contributed in the first half of April...and only 10% of dollars are contributed in January of the corresponding tax year...." A time value of money comparison in the article shows that this habit-which most advisers think stems from investor laziness-can cost a substantial difference in final savings available at retirement

    CLASSROOM APPLICATION: The article may be used in a class on personal taxes or when covering topics in the time value of money.

    QUESTIONS: 
    1. (Advanced) What is an individual retirement account? A Roth IRA?

    2. (Advanced) According to tax law, when are taxpayers allowed to make IRA deductions?

    3. (Introductory) According to findings by Vangauard Group from analyzing their customer deposits to IRA accounts, when do most taxpayers make IRA contributions?
     

    Reviewed By: Judy Beckman, University of Rhode Island"

    "Delaying IRA Contributions Can Be Costly," by Jonnelle Marte, The Wall Street Journal, January 5, 2014 ---
    http://online.wsj.com/news/articles/SB10001424052702304477704579256610849790176?mod=djem_jiewr_AC_domainid

    It's a new year. And that means it's time for investors to do what they could have done last year—but didn't.

    Namely: make contributions to their 2013 individual retirement accounts. Indeed, an analysis of traditional and Roth IRA contributions made by Vanguard Group customers for the 2007 through 2012 tax years showed that, on average, 41% of the dollars contributed to IRAs for any given tax year are invested between January and April of the following year. Half of those dollars are contributed in the first half of April—the final weeks when contributions for the previous year can be made.

    The study found only 10% of dollars are contributed in January of the corresponding tax year, the earliest month contributions can be made. "We are trying to encourage people to change their way of thinking and think about it sooner," says Maria Bruno, a senior investment analyst with Vanguard Investment Strategy Group. Valid Excuse?

    There are legitimate reasons that big dollars flow into IRAs near the tax-filing deadline. At that point, taxpayers typically know whether their income for the prior year was low enough to qualify for deductible contributions, and can see by exactly how much a contribution would lower their tax bill.

    But some advisers say the habit is one of the ultimate examples of investor laziness, nearly on par with not maxing out the company match for 401(k) contributions or not seeking retirement advice until after retirement.

    "As humans we naturally procrastinate," says Mackey McNeill, an accountant and financial adviser in Bellevue, Ky.

    Procrastination can be costly. The problem, advisers and retirement consultants say, is that investors who make IRA contributions at the last moment miss out on 16 months of potential gains (from January of one year until April of the following year), as well as the chance for those gains to compound over many years. Even if two investors contribute the same amount of money over the years, the person who starts earlier could end up with significantly more savings down the line.

    Compare a saver who makes the maximum annual IRA contribution of $5,500 for those under age 50 in January of each year with another saver who contributes the same amount each April 15 of the following year. Over 31 years, assuming the money is invested in a moderate portfolio earning a hypothetical 7% annual return, the saver who makes full contributions in January could end up with $83,000 in additional savings after 30 years, even though both investors contributed equal amounts—about $170,500—overall, according to an analysis by Ms. McNeill. Tax Burden

    Another downside to putting off contributions: It could add to your tax bills. Money in a taxable account over that 16-month period may incur gains that would have been deferred in an IRA, says Ed Slott, an accountant and founder of IRAHelp.com, a website for retirement savers.

    Some pros say investors' excuses for not contributing as early as possible are looking thin. Most people don't see their income swing wildly from one year to the next, Ms. Bruno says. They can likely use last year's tax return to decide whether to make a contribution for the current tax year each January.

    Procrastinators still have time to change their ways. Some can catch up if they now make their 2013 and 2014 contributions—a total of $11,000 for those under 50 contributing the maximum for each year, Ms. McNeill says. Those investors can then get in the habit of making their IRA contributions at the start of each year. (Investors 50 or older can contribute as much as $6,500 to their IRAs each year.)

    While a doubled-up contribution is a lot to set aside at once, she says: "You've only got to make this change for one year."

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

     

    PwC Dataline: Accounting for centrally cleared derivatives Understanding the accounting implications of Dodd-Frank Title VII (No. 2013-30) --- Click Here 
    http://www.pwc.com/us/en/cfodirect/publications/dataline/2013-30-centrally-cleared-derivatives.jhtml?display=/us/en/cfodirect/publications/dataline&j=346566&e=rjensen@trinity.edu&l=621246_HTML&u=15025430&mid=7002454&jb=0

    Dodd-Frank Title VII (Dodd-Frank) significantly changed the trading requirements for derivative instruments, such as mandating that certain derivatives be centrally cleared.

    A number of financial reporting implementation questions have arisen as companies consider the Dodd-Frank requirements. These include determining fair value of centrally cleared derivatives, accounting for collateral, assessing the impact on hedge accounting, and determining the appropriate presentation (gross versus net).

    This Dataline discusses the financial reporting implications of the new requirements, primarily focusing on end-users that trade in the affected derivatives and who do not qualify for the end-user exception.

    Continued in article

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

    "Former NYC workers charged in disability scam," by Jennifer Peltz and Collen Long, Associated Press, January 7, 2014 ---
    http://hosted.ap.org/dynamic/stories/U/US_POLICE_DISABILITY_FRAUD?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT&CTIME=2014-01-07-14-39-55

    One retired police officer who said he couldn't work taught martial arts, prosecutors said. Another who claimed he was incapable of social interactions manned a cannoli stand at a street festival, they said. A third who said his depression was so crippling that it kept him house-bound was photographed aboard a Sea-Doo watercraft.

    All were wrongly receiving thousands in federal disability benefits, prosecutors said Tuesday in announcing a sweeping fraud case involving scores of retired officers, as well as former firefighters and jail guards. The retirees faked psychiatric problems, authorities said, and some falsely claimed their conditions arose after the Sept. 11 attacks.

    "The brazenness is shocking," said Manhattan District Attorney Cyrus R. Vance Jr.

    Four ringleaders coached the former workers on how to feign depression and other mental health problems that allowed them to get payouts high as $500,000 over years, Vance said. The ringleaders made tens of thousands of dollars in secret kickbacks, Vance said.

    The four - retired officer Joseph Esposito, 64; John Minerva, 61, a disability consultant with the detective's union; lawyer Raymond LaVallee, 83; and a benefits consultant Thomas Hale, 89 - sat stolidly as they pleaded not guilty Tuesday to high-level grand larceny charges. All were released on bail, ranging from $250,000 to $1 million.

    Their lawyers said all four staunchly denied the accusations, and some noted that their clients had legitimate jobs helping people seek benefits. Minerva did "what he thought was being done in the correct fashion," said his lawyer, Glenn Hardy. "I don't think he was steering people or telling people what to say when they applied for those benefits."

    Hale's lawyer, Brian Griffin noted that according to prosecutors, many of the benefit-seekers had been found eligible for city disability pensions before they got federal benefits.

    But prosecutors argued that eligibility for Social Security disability benefits is a higher bar - complete inability to work - than qualifying for a city worker disability pension. And they said the applicants strategically lied, with the ringleaders' guidance, to make themselves appear to meet it.

    They were taught how to fail memory tests and how to act like a person suffering from depression or post-traumatic stress disorder, prosecutors said. If they were claiming to be traumatized by 9/11, "they were instructed to say that they were afraid of planes or they were afraid of tall buildings," Assistant District Attorney Christopher Santora told a judge.

    More than 100 were arrested, including 72 city police officers, eight firefighters, five corrections officers and one Nassau County Police Department officer.

    Police Commissioner William Bratton said the arrests were an effort to ensure "the memories of those who did in fact contribute their lives or their physical well-being to dealing with 9/11 are not sullied."

    Former police officer Louis Hurtado taught martial arts in Odessa, Fla., according to the studio's website. Online photos showed onetime cop Joseph Morrone smiling at the cannoli stand during a TV interview during the San Gennaro Festival in 2009. In another photo, a smiling, tanned Glen Lieberman, a retired officer, gestures obscenely at the camera from aboard a watercraft.

    Morrone pleaded not guilty and was released without bail. There was no answer at Hurtado's listed number in Florida. The Associated Press couldn't locate a home phone number for Lieberman.

    Many of the defendants said they could not use a computer but had Facebook pages, Twitter handles and YouTube channels, prosecutors said.

    Patrick Lynch, president of the Patrolmen's Benevolent Association, said the union didn't condone the filing of false claims, but "we caution everyone to recognize that there are serious psychological illnesses resulting from the devastating work performed by first responders following the attack on the World Trade Center and in performing the dangerous and difficult work of police officers."

    Continued in article

    Jensen Comment
    The only surprise is that more city employees did not jump on the gravy train like disability recipients in Florida.

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

    Audit Fees By Industry, As Presented By Audit Analytics ---
    http://goingconcern.com/post/audit-fees-industry-presented-audit-analytics

    Jensen Comment
    In auditing courses, students might do some research on misleading aspects of the above data apart from being self reported data. For example, some clients save on audit fees by spending more in internal audit activities. Audit fees may vary depending upon the quality of internal controls or lack thereof.

    Audit fees may differ for two clients in the same industry where one client is in great financial shape and the other client's employees are wearing waders. There may also be differences between what different audit firms charge for similar services. Aggregations of apples and oranges can be somewhat misleading.

    Accountics scientists prefer purchased data such as data from Audit Analytics so that the accountics scientists are not responsible for errors in the data. My research of TAR suggests that accountics science research uses purchased databases over 90% of the time. That way accountics scientists are not responsible for collecting data or errors in that data. Audit Analytics is a popular database purchased by accountics scientists even though it is probably more prone to error than most of the other purchased databases. A huge problem is reliance on self reporting by auditors and clients.

    Pale King (an unfinished novel by David Foster Wallace at the time of his suicide) ---
    http://en.wikipedia.org/wiki/Pale_King

    Read David Foster Wallace’s Notes From a Tax Accounting Class, Taken to Help Write The Pale King ---
    http://www.openculture.com/2014/01/david-foster-wallaces-notes-from-a-tax-accounting-class.html

    . . .

    In writing The Pale King, a novel of 1980s IRS agents stultified by boredom in Peoria, Illinois, David Foster Wallace joined the latter group. Although Wallace had left an unfinished manuscript when he committed suicide in 2008, he had spent more than a decade working on it. In fact, a year after the release of his opus, Infinite Jest, Wallace enrolled in accounting classes at Illinois State University to learn about precisely what IRS agents did. According to The New York Times’ Jennifer Schuessler, the author began “plowing through shelves of technical literature, transcribing notes on tax scams, criteria for audit and the problem of ‘agent terrorism’ into a series of notebooks.”

    Today, we bring you two pages of his notes (click the images to enlarge). In the first, above, Wallace has jotted down a few key points about accrual and deferral, alongside what is likely a note to self on the subject’s difficulty: “A BITCH.”

    Continued in article

    January 15, 2014 reply from Patricia A. Doherty

    This was really interesting. I've actually read (and loved) Infinite Jest. My daughter actually gave it to me. In high school, she took an entire course that was completely devoted to the book. They read, analyzed and discussed it for the entire course term. It was one of the most popular courses at the school.
    Patricia A. Doherty
    Senior Lecturer in Accounting Coordinator, Managerial Accounting
    Boston University School of Management
    595 Commonwealth Ave. Room 524A Boston, MA 02215

    Infinite Jest with 388 numbered endnotes --- http://en.wikipedia.org/wiki/Infinite_Jest

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

    Question
    Why aren't successful economic policies and strategies always transportable between nations and cultures?

    "The effect of transport policies on car use: Evidence from Latin American cities," by Francisco A. Gallego, Juan-Pablo Montero and Christian Salas, Journal of Political Economics, 2013, vol. 107, issue C, pages 47-62 ---
    http://econpapers.repec.org/article/eeepubeco/v_3a107_3ay_3a2013_3ai_3ac_3ap_3a47-62.htm

    Jensen Comment
    I've been in Chile twice and never found traffic and pollution to be nearly as problematic as in Mexico City. Perhaps success of a severe correctional solution depends upon how severe the problem is in the first place. Also I noticed that drivers in Chile tend to ignore traffic laws, including the cop directing traffic at the middle of an intersection. However, I think this may be problematic in most Latin American cities. Rodney Dangerfield might have been directing traffic in Santiago when he coined the phrase:  "I ainn't got no respect."

    Year 2013:  Asian-Named Authors in The Accounting Review

    Previously on the AECM I noted that an increasing number of attendees at the American Accounting Association (an international organization) Annual meeting have Asian names in the directories of meeting registrants. Chuck Pier replied by noting an an increasing proportion of Asian names in the Directory of Accounting Faculty edited by Jim Hasselback.

    In connection with something else I am doing, I noted the following 63 Asian-named authors in the six volumes of the 2013 Accounting Review (TAR). The number is 61 if you adjust for two authors appearing twice.

    Chen Chen
    Chen Chen
    Chongyang Chen
    Feng Chen
    Zhihong Chen
    Zhihong Chen
    Lin Cheng
    Qiang Cheng
    Peng-Chia Chiu
    Lawrence Chui
    Zhonglan Dai
    Mai Dao
    Kai Du
    Yiwei Dou
    Yuyan Guan
    Chun Keung Hoi
    Hyun A. Hong
    Pinghsun Huang
    Shawn X. Huang
    Bin Ke
    Bin Ke
    Yongtae Kim,
    Lian Fen Lee
    Chan Li
    Edward Xuejun Li
    Siqi Li
    Yue Li
    Scott Liao
    Philip P. M. Joos
    Edith Leung
    Hai Lu
    Ting Luo
    Xiumin Martin
    Jeffrey Ng
    Carrie Pan
    Rui Shen
    Tao Shu
    Siew Hong Teoh
    Feng Tian
    Yao Tian
    Donghui Wu
    Qiang Wu
    Chuan-San Wang
    Xin Wang
    Zhifeng Yang
    Zhifeng Yang
    Kun Yu
    Yong Yu
    Heng Yue
    Danqing Young
    Andrew (Jianzhong) Zhang
    Guochang Zhang
    Haiwen Zhang
    Hao Zhang
    Harold H. Zhang
    Yan Zhang
    Yue (May) Zhang
    X. Frank Zhang
    X. Frank Zhang
    Xiao-Jun Zhang
    Yuping Zhao
    Zili Zhuang
    Luo Zuo

    It should be noted that having an Asian name does not mean the author is necessarily Asian.
    For example, the author may simply have assumed the last name of an Asian-named spouse.  I could have also made a mistake in picking out only "Asian" names. In some instances where I had questions I found the resumes of the authors. I could also have made a mistake in attributing a name to be non-Asian. However, I don't think the error rate is high in the above listing.

    It should be noted that all of the 72 TAR articles in 2013 are accountics science articles in that they feature equations. I've not found a TAR article in years and years that did not feature equations.

    For the 72 articles in TAR I counted 184 authors including a few authors I counted twice because they were included among the authors of two papers. There were not many such authors appearing more than once.

    By my calculations about 34% of 184 authors appearing in TAR in 2013 had Asian names.

    My intent is not to be racist in pointing out the above outcome. I am, however, always interested in learning more about accountics scientists.

    This suggests two hypotheses that could be texted more formally:

    Hypothesis 1:  The proportion of Asian-named authors in TAR has increased greatly in the 21st Century relative to the 20th Century.

    Hypothesis 2:  Asian-named authors are more apt to author research papers featuring equations than papers that do not feature equations.
                            Of course this is probably true fon non-Asian authors as well.

    I have not tested either hypothesis. I think that Asian-named authors who submitted papers to TAR and reside outside the USA are especially more apt to submit articles to TAR that feature equations. This in great measure is due to the emphasis placed upon mathematics and statistics in Asian preparatory schools and universities. Many of the Asian authors who now reside in the USA had much of their schooling in Asia or grew up in the USA with parents who placed high priority on excelling in mathematics and statistics.

    I did not determine what proportion of the above authors received their accounting doctoral degrees in North America, but I think it's a bunch. If they have a propensity to become accountics scientists it could be that their only option, even at Harvard University, in North America is to become an accountics scientist! ---
    http://www.trinity.edu/rjensen/Theory01.htm#DoctoralPrograms

     

    From the CFO Journal's Morning Ledger on January 15, 2014
     

  • Goodwill Impairment: Minimizing Global Discrepancies ---
    http://deloitte.wsj.com/cfo/2014/01/15/goodwill-impairment-minimizing-global-discrepancies/

    For acquirers, inaccurate goodwill accounting can have serious consequences, including distorted financial reporting, a falling share price and exposure to legal, regulatory and reputational risks. CFOs and other executives can benefit from understanding differences in the way goodwill impairment is analyzed across countries, lessons learned from a case study and the global efforts underway to improve the reliability of goodwill accounting information.

    From the CFO Journal's Morning Ledger on November 12, 2013

    Write-downs from deals gone bad soared last year, but 2013 is turning out different
    Suitors are paying the lowest premiums for target companies in nearly 20 years and stocks are trading near records, giving companies cover to avoid write-downs on the value of their assets,     write CFOJ’s Emily Chasan and Maxwell Murphy in today’s Marketplace section. That’s a big change from last year, when U.S. companies slashed the value of their past acquisitions by $51 billion because the deals didn’t pan out as expected, according to a study set for release today.”There could be less stress on values now than there was in prior years,” said Gary Roland, a managing director at Duff & Phelps, the financial-advisory firm that led the study.

    Goodwill write-downs don’t affect cash flow, but they could indicate the acquiring company’s management botched its evaluation and overpaid, Chasan and Murphy write. “There’s a reason you put goodwill on the books. Yes, it’s a noncash charge, but at the end of the day, it’s a measure of whether we have been able to derive the value we said we would from those assets,” said Perrigo CFO Judy Brown. Perrigo expects to book $1.19 billion of goodwill on its acquisition of Irish biotech company Elan. “Ultimately, it’s a measure of whether you put your shareholders’ money to work in an effective way,” Ms. Brown said.

    There’s a risk that a rise in interest rates or a drop in the stock market could spark an increase in goodwill write-downs. But corporate boards are showing more discipline in approving acquisitions. U.S. buyers this year are paying an average premium of 19% to the target’s share price the week before the deals are announced. Historically, premiums have averaged 30%. And last year was the first year in which companies could use a new FASB rule that lets them judge on a qualitative basis whether they need to perform traditional quantitative tests on their asset values. Because the new rule makes the decision more subjective, optimistic executives may be able to stave off a potential write-down, says PJ Patel, a managing director at Valuation Research, which advises companies on goodwill accounting.

    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.

    Teaching Case
    From the Wall Street Journal Accounting Weekly Review on November 15, 2013

    Companies Get More Wiggle Room on Soured Deals
    by: Emily Chasan and Maxwell Murphy
    Nov 12, 2013
    Click here to view the full article on WSJ.com
     

    TOPICS: business combinations, Goodwill, Impairment, Intangible Assets, Mergers and Acquisitions

    SUMMARY: "Last year U.S. companies slashed the value of their past acquisitions by $51 billion because the deals didn't pan out as expected...This year, however, there have been only a handful of big corporate mea culpas." The article is an excellent introduction to the meaning of accounting for goodwill and related impairment charges. In 2012, nearly half of the total goodwill write-downs came from three companies: Hewlett-Packard, stemming from its acquisition of software firm Autonomy; Microsoft, mostly from its purchase of aQuantive; and Boston Scientific, primarily from its acquisition of Guidant. The H-P/Autonomy acquisition and goodwill write-off were covered in this review for which this review lists a related article.

    CLASSROOM APPLICATION: The article may be used in any financial reporting class either covering intangible assets or business combination accounting.

    QUESTIONS: 
    1. (Introductory) According to the article, how is goodwill determined?

    2. (Advanced) Would you like to add any further details to the description given in the article about how goodwill is determined? Explain.

    3. (Introductory) How much goodwill have companies written off in recent years? What factors have led to this trend in goodwill write-offs?

    4. (Advanced) What is an alternative name for a goodwill write-off used in accounting standards?

    5. (Advanced) What does a goodwill write-off imply about the business combination transaction from which it was generated?

    6. (Introductory) According to the article, how are goodwill write-offs determined?

    7. (Advanced) Would you like to add any further details to the description given in the article about determining and/or recording goodwill write-offs? Explain.
     

    Reviewed By: Judy Beckman, University of Rhode Island
     

    RELATED ARTICLES: 
    H-P Says It Was Duped, Takes $8.8 Billion Charge
    by Ben Worthen
    Nov 28, 2012
    Page: A1

    "Companies Get More Wiggle Room on Soured Deals," by Emily Chasan and Maxwell Murphy, The Wall Street Journal, November 12, 2013 ---
    http://online.wsj.com/news/articles/SB10001424052702304868404579191940788875848?mod=djem_jiewr_AC_domainid

    Last year U.S. companies slashed the value of their past acquisitions by $51 billion because the deals didn't pan out as expected, according to a study set for release Tuesday. That was the highest yearly total for such write-downs since the financial crisis.

    This year, however, there have been only a handful of big corporate mea culpas. Suitors are paying the lowest premiums for target companies in nearly 20 years, stocks are trading near records, giving companies cover to avoid write-downs on the value of their assets, and new accounting rules may be allowing more of them to delay the charges.

    "There could be less stress on values now than there was in prior years," said Gary Roland, a managing director at Duff & Phelps, the financial advisory firm that led the study.

    Write-downs of soured acquisitions jumped 76% last year from 2011, but remained far below the $188 billion in charges recorded in 2008, as the recession bit down.

    Nearly half last year's write-downs came from three deals gone bad. Hewlett-Packard Co. HPQ +0.40% took the biggest—$13.7 billion—thanks largely to the vanishing value of its 2011 acquisition of software firm Autonomy, which H-P said it was duped into buying at an inflated price. Autonomy's former chief executive has denied the allegation.

    Microsoft Corp. MSFT -0.19% took a $6.2 billion write-down largely on its 2007 purchase of online-advertising company aQuantive, and Boston Scientific Corp. BSX -0.21% shaved off another $4.35 billion, mostly related to its problem-plagued 2006 takeover of medical-device maker Guidant. In all, 235 companies erased value from prior deals last year. That's up from 227 the year before but down from 502 in 2008.

    Last year's list also included Cliffs Natural Resources Inc. CLF +2.32% 's roughly $1 billion charge on its 2011 purchase of Consolidated Thompson Iron Mines.

    When one company acquires another it calculates the value of the target's assets, including property, equipment, trademarks and licenses. If the purchase price is higher, the acquirer carries the difference on its books as so-called goodwill.

    At least once a year, companies must verify the value of what they bought. If the acquired company had a product recall, for example, the value of some of its assets might have to be discounted.Goodwill write-downs don't affect cash flow, and so are often ignored by investors, but they could indicate the acquiring company's management botched its evaluation and overpaid.

    "There's a reason you put goodwill on the books. Yes, it's a noncash charge, but at the end of the day, it's a measure of whether we have been able to derive the value we said we would from those assets," said Judy Brown, chief financial officer of Perrigo Co. PRGO -0.46%

    Perrigo, a drug manufacturer and distributor, expects to book $1.19 billion of goodwill on its acquisition of Irish biotech company Elan Corp. DRX.DB -0.15% , according to a regulatory filing. "Ultimately, it's a measure of whether you put your shareholders' money to work in an effective way," Ms. Brown said.

    There is a risk, of course, that a run-up in interest rates or a drop in the stock market could spark an increase in goodwill write-downs. Companies in the S&P 500 index are still carrying a total of $2 trillion in goodwill on their books. They include AT&T Inc., T +0.80% Bank of America Corp. BAC +0.61% , Procter & Gamble Co. PG +0.50% , Berkshire Hathaway Inc. BRKB +0.10% and General Electric Co. GE +0.63% , which each have more than $50 billion in goodwill on their balance sheets, according to S&P Capital IQ.

    Boston Scientific, for example, has written down goodwill in five of the past six years for a total of $9.9 billion in charges, including $423 million this year. The company said in a recent regulatory filing that another roughly $1.36 billion of its $5.55 billion in remaining goodwill is at "higher risk" of a write-down.

    "They clearly overpaid" in buying Guidant for $28.4 billion, said Tau Levy, an analyst at Wedbush Securities. Part of the reason was a bidding war with Johnson & Johnson, JNJ -0.01% but part was because Boston Scientific's prior top managers "underestimated the problems going on with Guidant," Mr. Levy said.

    A Boston Scientific spokeswoman declined to "speculate on the reasons for past decisions."

    Only a handful of other large companies have taken hefty goodwill charges this year. U.S. Steel Co. X +1.96% took a $1.8 billion write-down, and Best Buy Co. BBY +0.72% recorded an $822 million charge. Cardinal Health CAH -0.37% slashed the value of its pharmacy business by $829 million.

    In a separate Duff & Phelps survey this summer, more than two-thirds of the 115 companies participating said they don't expect goodwill write-downs this year. Only 10% of the public companies polled said they expected such a charge, down from 17% in last year's survey.

    Corporate boards are showing more discipline in approving acquisitions, despite favorable borrowing conditions and a soaring stock market. U.S. buyers this year are paying an average premium of 19% to the target's share price the week before the deals are announced, according to Dealogic. That's the lowest average premium since at least 1995, as far back as Dealogic's records go. Historically, premiums have averaged 30%.

    Continued in article

     

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

    From the CFO Journal's Morning Ledger on January 13, 2014

    Accenture to take over fixing health-care site
    Fixing the HealthCare.gov site will fall to Accenture, which was tapped to replace an embattled contractor that was largely responsible for creating the health portal    , the WSJ reports. Accenture Federal Services, a subsidiary based in Arlington, Va., won a one-year contract to continue technical improvements to the site after the government chose not to renew its contract with CGI Group. Accenture faces a tough task as the new lead contractor: repairing the online insurance marketplace quickly enough to enroll millions more consumers under the Affordable Care Act.

    Jensen Comment
    Accenture may fix the healthcare.com Website. But Accenture cannot fix the problem that health insurance premiums are too expensive for the middle class except for the millions that are subsidized heavily by taxpayers. The ACA was built on a foundation of deception and is not sustainable until major revisions are accomplished in a Congress that may never agree to revisions needed to stop the subsidy and Medicaid hemorrhaging.

    From the CFO Journal's Morning Ledger on January 10, 2014

    Alcoa affiliate pleads guilty to bribery
    An Alcoa-controlled company pleaded guilty to bribing Bahraini officials to win a supply deal    , the WSJ reports. The plea is part of settlements with the Justice Department and SEC in which Alcoa and the company agreed to pay $384 million. According to documents released by the Justice Department, Alcoa World Alumina conspired to use shell companies to extract inflated payments for alumina, the raw material for aluminum, from its biggest customer, Aluminum Bahrain BSC, or Alba, which runs Bahrain’s state-controlled aluminum smelter. Part of those payments, which were routed through shell companies, financed kickbacks to royal-family members, the documents said.

    Diamond (think walnuts) settles with SEC; ex-CFO still fighting civil charges
    Diamond Foods     will pay $5 million to settle SEC fraud charges, the WSJ reports. The core of the alleged scheme involved underpaying for walnuts in a given year, then making up the difference with special payments the following year that were given terms like “continuity” and “momentum” payments, according to the SEC. Regulators reached a settlement with former CEO Michael Mendes, but continue to pursue civil charges against Steven Neil, the company’s former chief financial officer. Mr. Neil, portrayed by the SEC as the architect of the plan to underreport Diamond’s costs to make its profits look better than they were, is fighting the SEC’s civil charges. His attorney says he has done nothing wrong and that he looks forward to prevailing at trial.

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

    Quiz time:
    How well do you know the world of management accounting? Uncertainty about the global economy lingers, and projections for growth are tepid. Issues such as risk management, recruitment and retention of talent, and regulatory red tape remain on the minds of finance professionals. Test your knowledge of the events and trends in management accounting in 2013 with this 13-question quiz from CGMA Magazine ---

    "The CGMA Magazine quiz: 13 questions about management accounting in 2013," by Neil Amato, CGA Magazine, January ---
    http://www.cgma.org/Magazine/News/Pages/20139268.aspx

    Jensen Comment
    I think better questions could be posed about such topics as the future of activities-based costing, capacity accounting, behavioral issues, CAM-I, Chinese Management Accounting, COSO Implementation, electronic commerce, health care managerial accounting, lean accounting, system security, etc.

    From the CFO Journal's Morning Ledger on January 14, 2014

    Audits are getting tougher
    Financial executives say their external auditors are requesting far more documents and details than usual on everything from pension assets to management reviews,     CFOJ’s Emily Chasan writes in today’s Marketplace section. It’s all because of the PCAOB’s warning in October that it had found “high levels of deficiencies” in audits of internal controls. Loretta Cangialosi, Pfizer‘s controller, notes that the alert came just as companies were planning their year-end audits for 2013 and budgets for 2014. “They’re really focusing on the audits of internal controls,” she said.

    The PCAOB’s warning has pushed audit firms to make big changes. To test management’s oversight controls, for example, auditors in the past might have checked that managers signed off on a particular transaction. Now, Chasan writes, auditors are asking for more documentation, going line-by-line through budgets, sitting in on meetings to observe internal controls in action, and meeting with company accountants to understand their thinking when they signed a specific document. The intensity forces companies to produce more minutes from meetings in which executives approved transactions and produce more evidence for valuation assumptions, says Ms. Cangialosi. “The view is, if it’s not documented it didn’t happen.”

    Regulators say the tougher audits will curb fraud. “Audit firms are getting the message,” said James Doty, chairman of the PCAOB. But some companies complain that because auditors are making changes in response to PCAOB inspections of past audits, their new requests and procedures can vary. Companies “have been operating in somewhat of a black hole, with only the ability to react to the changes, as opposed to being able to proactively work with our auditors,” says Gilead Sciences CFO Robin Washington.

    A Tear Jerker from the Center for Audit Quality
    "Year in Review for 2013"---
    http://www.thecaq.org/docs/reports-and-publications/caq_year_in_review_2013.pdf?sfvrsn=4

    Something we don't teach in Auditing 101
    From the CFO Journal's Morning Ledger on January 27, 2014

    PCAOB chief auditor: One in three audits fail
    More than one in three audits inspected by the U.S. government’s audit watchdog were so deficient the auditors shouldn’t have signed off, a PCAOB official said. “When we look at an audit, the rate of failure has been in a range of around 35% to 40%,” Martin Baumann, chief auditor of the Public Company Accounting Oversight Board told the New York State Society of CPAs conference.  In those cases, the PCAOB said it found that auditors did not have sufficient evidence to support their opinions, Emily Chasan notes. That doesn’t necessarily mean the underlying corporate financial statements are incorrect, but the audit failures could start to undermine investor confidence, Mr. Baumann said. “Investors are relying on the audit,” he said.

    Until this article I thought the PCAOB thought the worst audit firms were in the Big Four
    Turns out Grant Thornton has the worst record with 65% audit "failures" as defined by the PCAOB for 2012
    "PCAOB Gives Grant Thornton Record Failure Rate," by Tammy Whitehouse, Compliance Week, January 9, 2014 ---
    http://www.complianceweek.com/pcaob-gives-grant-thornton-record-failure-rate/article/328793/

    The Public Company Accounting Oversight Board gave a failing grade to Grant Thornton on 65 percent of audits inspected in 2012, the highest failure rate ever registered in a single inspection report by a major firm.

    The PCAOB found fault with 22 of the 34 Grant Thornton audits scrutinized, a notable jump from the 15 of  35 audits, or 43 percent, with problems in 2011. In the four years that the PCAOB has provided data in its reports on how many audits it inspects, only Crowe Horwath has registered a failure rate above 60 percent, hitting 62 percent in 2011 and 2010.

    s the PCAOB has hammered firms to get tougher on internal control over financial reporting, inspectors found internal control problems in 19 of Grant Thornton's 22 problem audits in 2012, or 86 percent. In a letter attached to the inspection report, Grant Thornton acknowledged the disturbing figures. “The volume of findings in this report is concerning and of great importance to our dedicated professionals,” wrote CEO Stephen Chipman along with Trent Gazzaway, national managing partner of audit services.

    Chipman and Gazzaway also note, however, that the report addresses 2011 financial statements that were audited in 2012 and inspected in 2013. The firm revised its audit methodology and training around internal control in the summer of 2012 based on concerns raised by the PCAOB about the quality of internal control auditing across the profession. “Those changes were in effect during our audits of 2012 financial statements (conducted in 2013), and we believe have been effective at improving audit quality in this important area,” they wrote.

    Beyond internal control, the PCAOB also called out 10 audits where the firm failed to comply with standards on assessing the risks of material misstatements, and nine cases where the firm had difficulty with auditing fair value measurements. Seven audits also contained problems with auditing accounting estimates.

    Over the latter part of 2013, the PCOAB published reports for all four Big 4 firms, with their failure rates ranging from a low of 25 percent for Deloitte to a high of 48 percent for EY. Among major firms, 2012 reports are still outstanding for McGladrey, BDO USA, and Crowe Horwath.

    Jensen Comment
    When are large auditing firms going to take the PCAOB criticisms seriously?

    Bob Jensen's threads on audit firm professionalism and independence ---
    http://www.trinity.edu/rjensen/Fraud001c.htm

    Bob Jensen's threads on Grant Thornton ---
    http://www.trinity.edu/rjensen/Fraud001.htm

    "Apparently Mathew Martoma Was Expelled From Harvard Law For Falsifying Documentd," by Nate Raymond, Joseph Ax, and Emily Flitter, Reuters via Business Insider, January 9, 2014 ---
    http://www.reuters.com/article/2014/01/09/us-sac-martoma-harvard-idUSBREA081C720140109#ixzz2pzwsZOPX

    Bob Jensen's threads on students who cheat ---
    http://www.trinity.edu/rjensen/Plagiarism.htm

    Octomom' Charged With Welfare Fraud (failed to report $30,000 in earnings) ---
    http://www.businessinsider.com/octomom-charged-with-welfare-fraud-2014-1

    Question
    Why does the company the world love to hate keep dominating its market? (91% market share)

    Hint
    The company (Apple)everybody loves never has made much headway in the operating systems markets for desktops and laptops.

    "Microsoft (MSFT)’s Windows 8 and 8.1 Gained Ground, And Overall Sales Forecast Looks Good in Markets," by Asif Imtiaz, US Finance Post, January 2, 2014 ---
    http://usfinancepost.com/microsoft-msfts-windows-8-and-8-1-gained-and-overall-sales-forecast-looks-good-11689.html

    Microsoft released its latest upgrade to the much discussed Windows 8 operating system, Windows 8.1, in October of 2013. Last month, during December, devices running the Windows 8 and 8.1 crossed over 10 percent market share for the first time. A month earlier, in November, it only had a 9.30 percent market share. Effectively, last month Windows 8.x versions gained over 1.49 percent market share, reported The Next Web.

    The gain represents a fundamental shift in the Windows userbase, as Windows XP users were forced to abandon the platform as Microsoft is discontinuing support and security updates for XP from April 8, 2014.

    As Windows 8.1 was offered as a free upgrade, it will not provide Microsoft (NASDAQ:MSFT) MSFT +0.77% with any revenue gain. However, discontinuing Windows XP will eventually drive the sales of Windows 8.x operating system further up over the course of next few quarters. Back in the first quarter of 2013, Microsoft’s revenues went up 24 percent (in the first three months) compared to the previous year’s first three months; as Windows 8 sales pushed revenues of the Windows division alone to US$ 5.7 billion from US$ 4.633 billion. However, overall as a company, Microsoft’s revenue has been declining since the start of 2013.


    Read more at http://usfinancepost.com/microsoft-msfts-windows-8-and-8-1-gained-and-overall-sales-forecast-looks-good-11689.html#FDkfo3oEcAg0OkOt.99

    Regardless of how stalled Microsoft Corporation’s (NASDAQ:MSFT) MSFT +0.77% business seems to Wall Street analysts, the fact of the matter is that this company powers 90.73 percent of the Desktops and Notebooks around the world. Its nearest competitor at second place is Apple’s (NASDAQ:AAPL) AAPL +0.72% Mac operating system which has only 7.54 percent market share.

    Microsoft released its latest upgrade to the much discussed Windows 8 operating system, Windows 8.1, in October of 2013. Last month, during December, devices running the Windows 8 and 8.1 crossed over 10 percent market share for the first time. A month earlier, in November, it only had a 9.30 percent market share. Effectively, last month Windows 8.x versions gained over 1.49 percent market share, reported The Next Web.

    The gain represents a fundamental shift in the Windows userbase, as Windows XP users were forced to abandon the platform as Microsoft is discontinuing support and security updates for XP from April 8, 2014.

    As Windows 8.1 was offered as a free upgrade, it will not provide Microsoft (NASDAQ:MSFT) MSFT +0.77% with any revenue gain. However, discontinuing Windows XP will eventually drive the sales of Windows 8.x operating system further up over the course of next few quarters. Back in the first quarter of 2013, Microsoft’s revenues went up 24 percent (in the first three months) compared to the previous year’s first three months; as Windows 8 sales pushed revenues of the Windows division alone to US$ 5.7 billion from US$ 4.633 billion. However, overall as a company, Microsoft’s revenue has been declining since the start of 2013.

    Continued in article

     

    Fiat to Get Full Control of Chrysler in 2014 -

    Question
    Why did the second Italian Navy have glass bottom ships?

    Answer
    To help find the first Italian Navy!

    Fiat's No Cash Deal  the U.S. Government Bailout of  of Chrysler --- http://en.wikipedia.org/wiki/Fiat

    Since 2009, Marhionne has presided over a business that has experienced a loss in European market share from 9.3 to 6.2 percent.

    . . .

    On 20 January 2009, Fiat S.p.A. and Chrysler LLC announced their intention to form a global alliance. Under the terms of the agreement, Fiat would take a 20% stake in Chrysler and gain access to its North American distribution network in exchange for providing Chrysler with technology and platforms to build smaller, more fuel-efficient vehicles in the US and providing reciprocal access to Fiat's global distribution network.

    In addition, the proposed agreement would entitle Fiat to receive a further 15% (without cash consideration) through the achievement of specific product and commercial objectives. No cash or financial support was required from Fiat under the agreement. Instead it would obtain its stake mainly in exchange for covering the cost of retooling a Chrysler plant to produce one or more Fiat models for in the US. Fiat would also provide engine and transmission technology to enable Chrysler to introduce smaller, fuel-efficient models in the NAFTA market. The deal was engineered by Fiat chief Sergio Marchionne, who pulled the Italian group back from the brink of collapse after taking over in 2004. The principal objective of the partnership was to provide both groups with significantly enhanced economies of scale and geographical reach at a time when they were struggling to compete with larger and more global rivals such as Toyota, Volkswagen and alliance partners Renault S.A. and Nissan.[

     

    From The Wall Street Journal Accounting Weekly Review on January 10, 2014

    Fiat to Get Full Control of Chrysler
    by: Christina Rogers
    Jan 02, 2014
    Click here to view the full article on WSJ.com
    Click here to view the video on WSJ.com WSJ Video
     

    TOPICS: business combinations, Mergers and Acquisitions

    SUMMARY: Fiat is paying $4.35 billion to obtain the 41.5% of Chrysler Corp. now held by the United Auto Workers health-care trust. The price "is lower than some analysts had predicted." The transaction averts an IPO of those 41.5% of shares that the UAW and Chrysler were planning. "The trust had demanded that Chrysler register its shares for an offering, a right it received as part of an agreement that helped the U.S. auto maker emerge from bankruptcy." This change gives Fiat chief executive Sergio Marchionne "...the freedom he needs to further consolidate the companies' engineering and manufacturing operations. The agreement also will allow him to spend more time on reworking Fiat's operations in Europe, where it has suffered from a long slump in sales."

    CLASSROOM APPLICATION: The article may be used to introduce issues in identifying the purchase price paid and the implied fair value in a business combination transaction.

    QUESTIONS: 
    1. (Advanced) What portion of Chrysler Corp. does Fiat own prior to this acquisition of Chrysler shares? Does this represent a controlling interest? Explain your answer.

    2. (Introductory) What are the strategic reasons for Fiat to acquire the remainder of Chrysler's shares? You may refer to the related video to answer this question.

    3. (Advanced) How does the amount paid by Fiat imply a full value for Chrysler of "just over $10 billion." Specifically explain the calculation.
     

    Reviewed By: Judy Beckman, University of Rhode Island

    "Fiat to Get Full Control of Chrysler," by Christina Rogers, The Wall Street Journal, January 2, 2014 ---
    http://online.wsj.com/news/articles/SB10001424052702303640604579294631534003954?mod=djem_jiewr_AC_domainid

     Fiat said it would get full control of Chrysler Group LLC in a $4.35 billion deal, ending a standoff that had clouded the future of both companies.

    The deal, which helps clear the way for consolidation of the two auto makers, assumes a value for Chrysler at just over $10 billion, within the $9 billion to $12 billion valuation that banks underwriting a proposed initial public offering had been considering.

    The IPO now will be called off, a person familiar with the plans said.

    Analysts said the agreement is largely a win for Sergio Marchionne, the chief executive of both companies. The total price being paid for the 41.5% in Chrysler that Fiat didn't already own is lower than some analysts had predicted. And averting an IPO gives Mr. Marchionne the freedom he needs to further consolidate the companies' engineering and manufacturing operations.

    Fiat agreed to pay $4.35 billion to buy the rest of Chrysler, ending a standoff that clouded the future of both companies. Joe White reports on Lunch Break. Photo: Getty Images.

    The agreement also will allow him to spend more time on reworking Fiat's operations in Europe, where it has suffered from a long slump in sales.

    "The unified ownership structure will now allow us to fully execute our vision of creating a global auto maker," Mr. Marchionne said in a written statement Wednesday.

    The deal should give Fiat shares a lift, analysts said. Investors had expected Fiat would have to pay up to $5 billion to take full control of Chrysler. Analysts at Italy's Banca IMI calculated that any price less than $4.4 billion would add almost 15% of implicit value to Fiat's shares.

    Fiat Surges | Track Shares Debt Issues Don't Disappear Fiat's Chrysler Trick Is No Panacea Fiat-Chrysler Combination Still Faces Hurdles

    Chrysler itself is picking up the bulk of the price tag, which adds to the bullishness for Fiat's stock, a Milan-based analyst said. "That means Fiat doesn't have to raise fresh equity capital, which is clearly a good thing for its shares," the analyst said.

    Markets were closed Wednesday in Milan and New York for New Year's Day. Fiat had a market capitalization of €7.44 billion ($10.23 billion) based on Tuesday's close.

    In merging the two companies, Mr. Marchionne hopes to create a single, global auto maker with combined sales of six million vehicles, ranking as the world's seventh largest. Fiat and Chrysler reported combined revenue of €84 billion in 2012.

    But even combined, the company will face challenges in a global auto industry dominated by much larger and richer rivals, including Germany's Volkswagen AG VOW3.XE +1.43% , Japan's Toyota Motor Corp. 7203.TO +0.32% and Detroit's General Motors Co. GM +0.17% and Ford Motor Co. F +1.93%

    Fiat said it would pay the United Auto Workers health-care trust $3.65 billion for its 41.5% stake in Chrysler. The trust received the stake as part of Chrysler's government-led bankruptcy in 2009. The transaction is expected to close by Jan. 20, Fiat said. The trust also will get $700 million from Chrysler to be paid in four installments.

    The majority of the payments will come from Chrysler in the form of a $1.9 billion dividend payment and the $700 million in installment payments.

    Fiat will pay $1.75 billion directly to the trust, using money in its cash reserves to make the payment.

    In return, Fiat said the UAW agreed to support efforts to make Chrysler's operations more efficient.

    Since exiting bankruptcy in 2009, Chrysler has rebounded in the U.S., reporting rising sales and earnings. But over the next few years, the U.S. auto maker will have to spend heavily to update its car and truck line and improve the fuel efficiency of its vehicles. The fuel efficiency of Chrysler's fleet has trailed behind that of its competitors.

    Meanwhile, Italy's Fiat has been hit hard by the recession in Europe and is struggling to turn around unprofitable operations in the region. That has made it increasingly dependent on Chrysler's earnings to keep Fiat in the black.

    Fiat in October cut its outlook for 2013 profit to between €900 million and €1.2 billion, down from €1.2 billion and €1.5 billion. Fiat reported a net profit of €189 million for the third quarter, but without Chrysler, it would have posted a €247 million loss.

    Even with the deal, Fiat still won't have free access to Chrysler's cash because of restrictions on the U.S. auto maker's debt agreements.

    At the end of the third quarter, Chrysler had $11.5 billion in cash.

    Mr. Marchionne in the spring is expected to present the latest in a series of strategic plans for Fiat, the heart of which will how he plans to roll out Alfa Romeo as a global brand. He repeatedly has delayed the introduction, including the brand's return to the U.S. Alfa Romeo is seen by analysts as one of the group's brands with the greatest potential to help revive Fiat's fortunes.

    The deal ends a dispute over the value of Chrysler's shares that dragged on for more than a year.

    Continued in article

    STUCK WITH A LEMON,  by Newsweek Staff / January 16 2005 ---
    http://www.newsweek.com/stuck-lemon-117381

    . . .

    Since then, Fiat has become a "basket case," says GM analyst David Healy at Burnham Securities. It has had five top- level management changes, and the deaths of Gianni and Umberto Agnelli have left no clear successor. Troubles began almost immediately. The American corporate types were "on another planet," culturally speaking, from the Agnelli family management at Fiat, says Manaresi. As Fiat's cash woes mounted--their cars just weren't selling--it sold off Fidis, the financial-services arm of Fiat Auto. GM claimed the sale breached the agreement and made the put option invalid. Over four years, the companies collaborated on only a few models, like the Croma, which will be launched in March. Would GM do it again? "Hindsight is 20/20," says GM spokesperson Toni Simonetti. Analysts also believe that GM never thought the put option would come into play.

    Continued in article

    "

    "Fitch Dropped Fiat Long-Term Outlook," AllPar, September 19, 2013 ---
    http://www.allpar.com/news/index.php/2013/09/fitch-dropped-fiat-long-term-outlook

    Rating firm Fitch dropped Fiat’s long term outlook yesterday, while maintaining a BB- rating on its long term debt and a B rating on its short-term debt. The new “negative” outlook, according to Fitch, was based on weaknesses at Fiat’s core businesses, other than Chrysler. The agency noted that while Chrysler was a separate entity, its cash could not be easily diverted to Fiat, but that uncertainty over how Fiat would pay for the rest of Chrysler (and how much it would pay) brought doubt over the company’s long term prospects; they also expressed concern over risks in Fiat’s ambitious plan to move its brands upscale and increase exports from Europe. The drop in Fiat’s outlook could increase the cost of borrowing money, though Fiat appears to have already arranged for lines of credit to cover ongoing operations and possibly the cost of acquiring the remainder of Chrysler.

    While purchasing the rest of the VEBA’s stake in Chrysler and integrating the two companies would provide significant tax savings (assuming a tax headquarters in Britain or the Netherlands) and allow for Chrysler’s profits to be diverted into Fiat debt reduction, Chrysler itself still has significant debt which must be dealt with, and the interest on the loans is likely to be high. Fiat leaders must balance these costs and risks with the likelihood that Chrysler’s value will continue to rise, especially if the 2014 Jeep Cherokee is a hit, which seems likely based on critical reactions so far.

    Fitch raised the outlook slightly in October ---
    http://wardsauto.com/fiat-outlook-now-positive-was-stable-fitch

    Jensen Comment
    Fiats in general have poor consumer ratings. For example, the new Fiat 500L has good reviews on design and lousy reviews on the drive train.  Watch the video that is positive at first and then turns highly negative ---
    http://www.ask.com/youtube?q=fiat+AND+%22Consumer+Reports%22&v=2WchQAVvPJc&qsrc=472

    Chrysler's drive trains were so lousy the failing company began to give lifetime warranties on the drive trains that, fortunately, was never a mistake made by Yugo manufacturers. In the bailout deal, USA taxpayers gave Chrysler over a billion dollars just to fund those lifetime warranties --- which for young buyers could possibly carry on to the 22nd Century of free drive train replacements of very old Chrysler vehicles.

    Sadly, the Chrysler lifetime drive train warranties do not apply to its Jeep subsidiary. The classic weakness on a Jeep is in its differential bearings. I had to replace those bearings on an older Jeep Cherokee.  Mechanics just expect that those bearings will regularly give out.  A friend had to have those bearings replaced on a new Cherokee that's less than a year old. He'd best dump that Cherokee before his warranty expires.

    "SEARS CRASHING AFTER GIGANTIC LOSS," by Mamta Badkar, Business Insider, January 9. 2014 ---
    http://www.businessinsider.com/sears-crashing-2014-1 

    "Wal-Mart Is Laying Off 2,300 Sam's Club Workers," by Haley Peterson, Business Insider, January 24, 2014 ---
    http://www.businessinsider.com/sams-club-is-laying-off-2300-workers-2014-1 

    Jensen Comment
    Big box mall stores are nearly all hemorrhaging because on the growth in online shopping. I went into the huge Concord Mall this week and it's becoming more and more like a tomb. Only two tiny food court food providers remain in the food court. The restaurants are gone, including Burger King and the Chinese take out. Some of the smaller stores are having going-out-of-business sales next to empty stores.. Three large anchor stores (Sears, JC Penney, and Bon-Ton) are hanging on for a time but the cashiers are mostly reading novels.

    The big malls may never come back due to many advantages of online shopping, especially from Amazon. Firstly, there's the element of convenience and two-day delivery of online shopping. Secondly there are price advantages on most items. Thirdly, there's the cost of carrying inventory in mall stores, including multiple sizes for clothing, shoes, appliances, etc. Fourthly, there are enormous shoplifting losses in mall stores. Fifthly, there are security risks in malls, including credit card copiers, phone snatching, and car jacking. In the cities teen gangs are fearsome in some malls.

    And the list of mall problems goes on and on, including an exceptionally bad winters in parts of the USA that are not accustomed to bad winters. I sit beside the fireplace and order what we want from Amazon and watch the downloaded movies. Erika and I have not been to a movie theater in years.

    I loved to walk up and down the aisles of bookstores in malls. Are there any bookstores left in malls except for a miniscule inventory of books in gift shops?

    One problem with making the shift to online shopping for big chains like Sears and JC Penney is that there are enormous economies of scale where Amazon now has the advantage in terms of variety of products for sale, variety of partner vendors, and enormous distribution centers built for efficient picking and shipping of orders by Amazon. To compete even LL Bean is constantly having sale prices on virtually everything and free shipping.

    Malls probably won't completely disappear, but only some smaller ones may survive in most towns. The big malls will probably still prosper near USA borders such as the Lone Star Mall in San Antonio that caters to wealthy shoppers from south of the Rio Grande and the Bangor Mall that caters to Canadian shoppers from the Eastern Provinces. Big malls are still good places to launder money. But this type of business is probably not enough to save the really big box-store chains like Sears, JC Penney, Macy's, Bon Ton, and (sigh) even some Sam's Wholesale Clubs (see above).

    Big Box lumber stores like Home Depot and Lowes will carry on because of merchandise that does not ship well from online vendors such as lumber, roofing materials, dry wall, fencing, plumbing supplies, garden supplies, garden houses, etc. But it may be that some of the competitor stores may fold. For example, how long can both Home Depot and Lowes survive side-by-side? One of them will have to give up, and it may be a Home Depot in one town and a Lowes store in another town.

    "The Good News Behind Macy's Hefty Layoffs," by Kyle Stock, Bloomberg Businessweek, January 9, 2014 ---
    http://www.businessweek.com/articles/2014-01-09/macys-new-store-openings-and-high-profit-forecasts-trump-layoffs-news 

    Jensen Comment
    This is good news only if you cheer for decreasing Macy's cash outflows by $100 million for labor. It's obviously not good news for laid off workers. It's not good for the five stores that are closing. It's good news for the new stores that are opening with apparently less labor. Kyle Stock contends that Macy's is changing it's business model to be more like Amazon.

    My wife treats online QVC and HSN like fitting rooms. When UPS arrives with the new clothes she tries them on at home and judges how they look and feel. Much more than half the time she sends the clothes back to the vendors for full credit. Meanwhile I'm doing my share for UPS bottom lines by paying for shipping both ways. But we don's have to travel to the big cities for shopping, and I'm thereby saving on fuel expenses, hotel bills,  and taxis (I never drive in big cities these days). And she avoids the frustrations of department stores not having enough selections and sizes.

    In retirement I don't need much in the way of new clothes. I can get my sweat suits, overalls, snow suits, boots, and tennis shoes online  from Amazon or LL Bean. They always have my sizes and usually give me kickbacks of one kind or another. Amazon is great for kickbacks.

    "Arkansas Lt. Governor Announces Resignation Over Ethics Violations," by Steve Barnes, Reuters via Business Insider, January 10, 2014 ----
    http://www.businessinsider.com/arkansas-lt-governor-resign-2014-1 

    Jensen Comment
    It bugs me is his implication that these dirty deeds would not be ethics violations in the private sector. In the private sector he probably would have been fired sooner if his employer had decent internal controls. In the public sector the internal controls are often not as strong due to tight accounting budgets.

    "Why SAC Capital's Steven Cohen Isn't in Jail," by Sheelah Kolhatkar, Bloomberg Businessweek, January 3, 2014 ---
    http://www.businessweek.com/articles/2014-01-02/why-sac-capitals-steven-cohen-isnt-in-jail?campaign_id=DN010314

    Ten thousand dollars an hour worth of lawyers filed into a courtroom in lower Manhattan on the morning of Nov. 8. The legal team represented Steven Cohen’s hedge fund, SAC Capital Advisors, which had agreed to pay $1.2 billion to settle criminal charges that it had engaged in securities fraud. The hearing was the culmination of a long legal struggle between SAC and the government that has dramatically altered what was once one of Wall Street’s most powerful firms. Eight former or current SAC employees have been charged with insider trading. Six of them have pleaded guilty; one, Mathew Martoma, is due to go on trial on Jan. 6, and another, Michael Steinberg, was convicted on Dec. 18 of insider trading in two technology stocks. Separately, Cohen was charged in a civil case with failing to supervise his employees by the Securities and Exchange Commission, which is seeking to bar him from the securities industry. Cohen’s company is transforming itself into a much smaller operation that manages only Cohen’s money. SAC had fostered an unprecedented “culture of corporate corruption,” U.S. Attorney Preet Bharara said when the criminal charges against the company were first unveiled.

    The man who was conspicuously absent from the courtroom that day was Cohen. After seven years of investigations, wiretaps, unearthed documents, and undercover informants, the government had not been able to assemble enough evidence to charge Cohen criminally with insider trading—though people familiar with the investigation say the pursuit of the billionaire hedge fund founder continues. It’s becoming increasingly apparent, however, that Cohen was just clever—or lucky—enough to avoid the harshest penalties levied against some of his own employees. The reasons why may trace back to his actions during a few pivotal weeks in the summer of 2008.

    SAC, at the beginning of 2008, was at its peak, with close to 1,200 employees and more than $16 billion in assets. The firm had just gone through several years of rapid expansion, moving into areas beyond its specialty as a short-term stock-trading shop, having launched a private equity group in 2007, a Hong Kong office the year before, and other new funds and divisions in the preceding years. There were lavish holiday parties, three in-office masseuses, and the occasional cigarette boat stashed outside the firm’s headquarters in Stamford, Conn. The collection of cars in the parking lot was legendary: a portfolio manager’s Mercedes with gullwing doors, Maseratis, Ferraris, a brown Bentley just like Justin Bieber’s. Few at SAC could have imagined what was to come during the next 12 months, when the firm’s “edge” would evaporate and two portfolio managers would commit acts that would have them facing prison five years later. The year 2008 was, and remains, SAC’s only down year, when the firm’s flagship fund lost almost 28 percent.

    Both Jon Horvath and Martoma had been with SAC for more than a year. Martoma, now 39, had grown up in Florida, graduated from Duke University, and had an impressive collection of degrees and residencies, including a stretch at Harvard Law School, a Stanford MBA, and time logged at a Boston hedge fund called Sirios Capital Management. Horvath, 44, a Swedish native who’d been raised in Toronto, graduated from Queen’s University in Kingston, Ont., with a degree in Commerce. He had shaggy hair and a slightly dazed expression that made him perpetually look as if he’d been up partying the night before. He’d worked at Lehman Brothers in San Francisco analyzing computer stocks at its Neuberger Berman asset management group before joining SAC’s Sigma Capital Management unit in New York in September 2006, following a vetting process that lasted six months.

    Continued in article

    Video: Why Steven Cohen Remains a Free Man

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

    Accounting Professor Mark Holtzman's Videos on Excel

    "Goodbye, Dilbert: ‘The Rise of the Naked Economy’," Knowledge@Wharton, January 7, 2014 ---
    http://knowledge.wharton.upenn.edu/article/goodbye-dilbert-rise-naked-economy/

    In 1989, Scott Adams began publishing Dilbert, a comic strip that first focused on the title character’s life at home but soon moved to the workplace. It was there that it found its groove and came to capture something essential about life in late 20th-century America.

    With a light deadpan touch, Adams critiqued the inanity of a drone worker negotiating his way through a micromanaged corporate maze. Adams singled out the omnipresent office cubicle as a symbol of the disconnection and absurdity of contemporary corporate culture, and over the years, the titles of his collections have reflected that obsession: Journey to Cubeville, Another Day in Cubicle Paradise, Dispatches from Cubicleland. His comics eventually became a common presence in the very cubicles they satirized and made several appearances on the cover of Forbes magazine. In 2001, the design company IDEO even collaborated with Adams on the creation of Dilbert’s Ultimate Cubicle.

    Yet even as the comic strip was achieving its peak of popularity, the actual nature of work was undergoing the initial stages of a seismic shift that threatens to make Dilbert’s cubicle an outdated relic. Increasingly, a stable (if at times unsatisfying) career working for one company is being replaced by a more volatile and unpredictable reality: In 2010, the U.S. Bureau of Labor Statistics reported that the average time spent at a given job had dropped to less than four and a half years. Even more to the point, a growing segment of the workplace is no longer tied to a single, full-time employer. As many as 30% of those in today’s job market are either self-employed or part-time, and the nation’s largest companies report that 30% of their procurement dollars are spent on contingent or “fractional” workers.

    Understandably, these changes are being met with a certain degree of anxiety over legitimate concerns about job security and benefits such as health insurance. But in their new book, The Rise of the Naked Economy: How to Benefit from the Changing Workplace, Ryan Coonerty and Jeremy Neuner make a spirited and compelling case that the new reality has a serious upside. If embraced and correctly harnessed, they argue, the forces reshaping the nature of work can result in “more productive, happier, and sustainable lives.”

    No More Gold Watches

    The gold watch presented to the worker of an earlier generation upon his retirement came to symbolize a social contract that defined working life for many in the 20th century. In return for job security and a defined set of benefits, employees declared loyalty and ceded considerable control to a corporate employer. A brand of welfare capitalism had been forged out of the strife that characterized the early years of the Industrial Revolution as a kind of peace treaty between capital and labor. The concessions on both sides were substantial. Corporations made accommodations with unions and government regulations, while the workforce gave up the Jeffersonian ideal of the independent yeoman farmer. The unit of organization at the center of this social contract was no longer the independent shop or the family farm, but The Company.

    Continued in article

    Nevada's biggest casinos lose $1.35B in 2013 ---
    http://www.myfoxdc.com/story/24418581/nevadas-biggest-casinos-lose-13b-in-2013#axzz2q6pEZ6vS

    From the CFO Journal's Morning Ledger on January 9, 2014

    Companies switching to “mark-to-market” pension accounting could reap benefits this earnings season
    AT&T    , Verizon Communications and about 30 other companies have migrated to mark-to-market,     the WSJ’s Michael Rapoport notes. In 2011 and 2012, that change weighed on earnings, largely because interest rates were falling. But 2013 is different, thanks to surging interest rates and strong stock-market performance. “It’s going to account for a huge rise in operating earnings” at the affected companies, said Dan Mahoney, director of research at accounting-research firm CFRA.

    Some mark-to-market companies with fiscal years ended in September have already reported pension gains. Chemical maker Ashland had a $498 million pretax mark-to-market pension gain in its Q4, versus a $493 million pension loss in its fiscal 2012 fourth quarter. That made up about 40% of the company’s $1.24 billion in operating income for fiscal 2013.

    Most companies don’t use mark-to-market pension accounting. Instead, they filter pension gains and losses into earnings gradually, and compute pension performance using an estimated rate of return, not the actual return, Rapoport says. That system is still acceptable under GAAP, but it has been widely criticized as confusing, and accounting rule-makers recently indicated they may consider revisions.

    Teaching Case
    From The Wall Street Journal Accounting Weekly Review on January 17, 2014

    Pension Drag on Earnings May Reverse
    by: Michael Rapoport
    Jan 09, 2014
    Click here to view the full article on WSJ.com
     

    TOPICS: Mark-to-Market, Pension Accounting

    SUMMARY: Thirty-seven companies have changed their pension accounting to mark assets to market value and report actual movements to pension liabilities immediately, avoiding the corridor approach to slowly recognize gains and losses on these two pension components. "In 2011 and 2012, that change hurt the companies' earnings, largely because interest rates were falling at the time. But for 2013, it may be a big help to them, accounting experts said, a factor of the year's surge in interest rates and strong stock-market performance."

    CLASSROOM APPLICATION: The article may be used to introduce the corridor approach to handling pension asset and liability gains and losses, as well as its possible alternative treatment.

    QUESTIONS: 
    1. (Advanced) Summarize the impact on pension accounting of the corridor approach to recognizing gains and losses. In your answer, address what types of gains and losses are handled through this "corridor."

    2. (Introductory) According to the article, why have some companies switched back to mark-to-market accounting and away from using the corridor approach?

    3. (Advanced) When pension accounting under current standards was introduced, concerns about inappropriate earnings volatility led standards setters to introduce the corridor approach. What factors in this article indicate that such earnings volatility has materialized for those companies that switched away from the corridor accounting approach?
     

    Reviewed By: Judy Beckman, University of Rhode Island

    "Pension Drag on Earnings May Reverse," by Michael Rapoport, The Wall Street Journal, January 9, 2014 ---
    http://online.wsj.com/news/articles/SB10001424052702303754404579308953893270342?mod=djem_jiewr_AC_domainid

    Rising rates and a banner year for stocks could lift earnings at some large companies that have made an arcane but significant change to the way their pension plans are valued.

    Companies including AT&T Inc. T -0.44% and Verizon Communications Inc. VZ -0.04% could show stronger results than some expect when they report fourth-quarter earnings in coming weeks. They and about 30 other companies in the past few years switched to "mark-to-market" pension accounting to make it easier for investors to gauge plan performance.

    With the switch, pension gains and losses flow into earnings sooner than under the old rules, which are still in effect and allow companies to smooth out the impact over several years. Companies that switch to valuing assets at up-to-date market prices may incur more volatility in their earnings, but it offers a more current picture of a pension plan's health and its contribution to the bottom line.

    In 2011 and 2012, that change hurt the companies' earnings, largely because interest rates were falling at the time. But for 2013, it may be a big help to them, accounting experts said, a factor of the year's surge in interest rates and strong stock-market performance.

    "It's going to account for a huge rise in operating earnings" at the affected companies, said Dan Mahoney, director of research at accounting-research firm CFRA.

    Wall Street analysts tend not to include pension results in their earnings estimates, focusing instead on a company's underlying businesses. That makes it hard for investors to know what the impact of the change will be. Some companies may not see a big impact at all, because of variations from company to company in how they've applied mark-to-market changes.

    Gains for 2013 would be a reversal from 2011 and 2012. In 2012, AT&T took a $10 billion hit to operating profit because of the accounting switch. As interest rates fell in those years, the value of future obligations rose,increasing the current value of pension plans' future obligations to retirees, and impacting the plans' expenses.

    But interest rates were higher at the end of 2013, reducing the obligations' current value, and potentially reducing expenses. Last year's stock market rally, the biggest for the Dow Jones Industrial Average in 18 years, swelled the value of some of the assets used to fund pension payments. Most companies build asset returns of between 7% and 8% into their models.

    Some mark-to-market companies with fiscal years ended in September have reported pension gains. Chemical maker Ashland Inc. ASH -0.15% had a $498 million pretax mark-to-market pension gain in its September-end fourth quarter, versus a $493 million pension loss in its fiscal 2012 fourth quarter. That made up about 40% of the Covington, Ky., company's $1.24 billion in operating income for fiscal 2013.

    AT&T and Verizon, which report fourth-quarter and full-year earnings this month, haven't said whether they expect such gains. They do say their new accounting is more transparent and benefits investors. "We believe this gives investors a clearer view of AT&T's operational performance," said a spokesman for the company, whose pension fund had more than $45 billion in assets as of the end of 2012. But FirstEnergy Corp. FE +0.12% has already indicated it expects a fourth-quarter, after-tax mark-to-market pension gain of up to $150 million.

    Most companies don't use mark-to-market pension accounting. Instead, they filter pension gains and losses into earnings gradually, and compute pension performance using an estimated rate of return, not the actual return.

    That system is still acceptable under generally accepted accounting principles, or GAAP, but it has been widely criticized as confusing. U.S. accounting rule-makers recently indicated they may consider revisions.

    A small number of companies—37 since 2010, according to Jack Ciesielski, president of accounting-research firm R.G. Associates—have switched on their own. Those companies now count big pension gains and losses in the same year they are incurred, and many of them account for the switch through an earnings adjustment in each year's fourth quarter.

    For 2011 and 2012, that adjustment led to a significant charge, as rates declined and the resulting losses had to be recognized up front instead of being smoothed in. AT&T's fourth-quarter 2012 charge contributed to a $6 billion operating loss for the quarter. Verizon's 2012 charge including non-mark-to-market items was $7.2 billion.

    That trend should reverse itself, though the companies aren't disclosing details. AT&T said it expects a fourth-quarter mark-to-market adjustment for 2013 but wouldn't provide specifics; Verizon declined to comment.

    Bob Jensen's threads on fair value accounting ---
    http://www.trinity.edu/rjensen/theory02.htm#FairValue

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

     

    Illinois auditor: 5 state pension funds owed $100.5 billion; accounting change may have backfired ---
    http://www.statedatalab.org/news/detail/illinois-auditor-5-state-pension-funds-owed-1005-billion-accounting-change-may-have-backfired

    Includes “Illinois lawmakers thought they were saving money five years ago by changing the way the cash-strapped state counts its pension debts, but a report released Wednesday suggests the effort may have landed taxpayers with billions of dollars in extra costs. Auditor General William Holland reported the system-wide pension debt hit $100.5 billion last summer. But the total would have been $3 billion less had the Legislature not required "smoothing," an actuarial process that considers gains and losses over a five-year span, not current market values. If another state law switched back to counting current market value instead of "smoothed" value, it could save taxpayers money in the amount the state must put up as its annual pension contribution in the budget year that begins in July, although the savings were not reported. Pension leaders advise against that. "Market value is a snapshot, but is it the correct snapshot, or should we be looking more over time?" asked Rep. Elaine Nekritz, a Northbrook Democrat who was instrumental in landmark legislation signed into law last month to deal with the huge pension debt. "Smoothing looks more over time." Smoothing, Holland said in an interview, gives a more realistic look at the numbers. But five years ago when the economy was in the tank, it made them rosier. Now that the market has improved, assets "smoothed" over the past five years makes the outcome gloomier than current market value of the pension systems' assets. That calculation puts the debt at $97.5 billion, according to Holland's audit. …”

    Jensen Comment
    I have mixed feelings about mark-to-market of unrealized value changes in market\ values subject to frequent short-term transitory impacts that are often washed out over longer periods such that the ups and downs of short term values are more fiction than fact. For example, computer generated bid and ask trading tends to over-react to media jolts like when the President proposes legislation that has not even begun to to run the gauntlet through both legislative branches where legislation proposals can and usually do become greatly modified if the President's proposals even pass at all.

    For example the Dow went down purportedly when President Obama proposed legislation in 2014 for restoring long-term unemployment benefits. The ultimate impact of such legislation on stock prices depends upon whether this proposal ultimately passes both the House and Senate and how the spending is financed. If the Democrats agree to budget cuts in other areas, the impact on stock prices will be greatly affected by what cuts are used to fund the added  unemployment compensation.

    While the President's proposal is tied up in the legislative process the short-term pension fund mark-to-market values will move up and down in values changes that are never realized until the proposed legislation either passes or is rejected.

    What is more worrisome are those events that really spike stock prices temporarily such as reports of severe droughts or floods that greatly impact crop production in one summer but have very little impact on over multiple years.

    I also hate the way unrealized value changes are mixed with recognized earned revenue in the calculation of business net earnings. Some of the changes in earnings thereby are fictional.

    Bob Jensen's threads on fair value accounting ---
    http://www.trinity.edu/rjensen/theory02.htm#FairValue

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

    From the CFO Journal's Morning Ledger on January 6, 2014

    J.P. Morgan to pay fine in Madoff case
    U.S. prosecutors and regulators are expected to announce this week that J.P. Morgan will pay slightly more than $2 billion in penalties for alleged failures to warn about Bernie Madoff    , the WSJ reports. The bulk of the fines are expected to be routed to victims of Mr. Madoff. Penalties paid to the Justice Department are expected to form the largest chunk of the total—an amount exceeding $1.5 billion. The rest will be paid to the Office of the Comptroller of the Currency and the Financial Crimes Enforcement Network, both of which are part of the Treasury Department.

    Bob Jensen's threads on Ponzi frauds where Bernie Madoff was a king ---
    http://www.trinity.edu/rjensen/FraudRotten.htm#Ponzi

    From the CFO Journal's Morning Ledger on January 6, 2014

    The expiration of the R&D tax credit could cloud some Q1 earnings reports
    The tax break expired for the ninth time at the end of last year and Congress is widely expected to renew it as it has in the past. But the uncertainty around the timing and length of a renewal could pose challenges,     writes CFOJ’s Emily Chasan.

    “Last year, these firms would have had essentially five quarters of the R&D tax credit in their first-quarter number. If it’s not extended, this quarter they’ll have zero,” said Jeffrey Hoopes, an assistant professor at the Ohio State University’s Fisher College of Business. In the first quarter last year, S&P 500 companies collectively saw a 5.6% reduction in their effective tax rates, largely due to the extension of the credit, the WSJ’s notes.

    Mr. Hoopes says if Congress doesn’t extend the credit in the first quarter, companies could also see wider bid-ask spreads on their stocks and confusion around earnings forecasts from Wall Street analysts. “Analysts don’t seem to understand as well when they try to add back the credit,” Mr. Hoopes says. “It makes earnings numbers more difficult to understand.”

    From the CFO Journal's Morning Ledger on January 2, 2014

    What CEOs are worried about in 2014z
    The     WSJ’s John Bussey asks members of The Wall Street Journal’s CEO Council to ponder the unpredictable: What development outside their control might significantly affect their businesses in 2014?  Among the top concerns were political stalemate in Washington and the Affordable Care Act. While some of the CEOs endorsed the intent of the new health-care law, they believe there will be more surprises and unintended consequences as the reforms roll out. And that could push up corporate costs, push down revenue, or just generally whack consumer confidence. Meanwhile, Lenovo CEO Yang Yuanqing says the ever-increasing consumption of the world’s expanding middle class, especially in China, is key to all global companies. “There is an incredible amount of purchasing power that will soon be unleashed as emerging markets become stronger and the global economy becomes healthier,” he say

    From the CFO Journal's Morning Ledger on January 2, 2014

    Welcome back! The new year is bringing some big changes for businesses. A handful of key tax credits expired at the end of 2013, so some companies are beginning the year with higher effective tax rates, writes CFOJ’s Emily Chasan in this must-read overview of what’s in store this year. Congress could extend some of the tax breaks, but lawmakers “might not get that done until the end of 2014,” said Kate Barton, a tax-services adviser at Ernst & Young. Among the biggest changes this year will be the way companies can write off repair costs for fixed assets, such as windows or factory generators, and new accounting standards for leases on an array of property—from buildings to airplanes. The SEC, meanwhile, is likely to write rules for companies to claw back some executive pay following a financial restatement. There also will be new pay-for-performance disclosures.

    As for health care, companies got a reprieve when the provision requiring large employers to provide coverage for workers or pay a penalty was delayed until 2015. But new rules this year will limit the cost to employees and the waiting periods for coverage, and will extend coverage to dependents until age 26. Some of the new rules will increase costs for companies that provide health insurance, said Judy Bauserman, a partner at benefits consultant Mercer, but none of this year’s new costs are as significant as the 2015 penalties.

    To handle the increase in work stemming from new rules, Joseph Bellino, CFO of aerospace and defense manufacturer Ducommun, has added about four people to his department over the past year, expanding his finance staff by about 15%. His team has been poring over customer contracts and debt covenants to see if they will be affected by new revenue-accounting rules expected in the first quarter, among other regulations. “The regulatory environment drives a lot of the work that we do,” he said.

    "IASB proposes narrow-scope annual improvements ," by Ken Tysiac, CGMA Magazine, December 11, 2013 ---
    http://www.cgma.org/magazine/news/pages/20139249.aspx

    Five proposed narrow-scope amendments to four standards were exposed for public comment Wednesday by the International Accounting Standards Board (IASB) as part of its annual improvement process.

    Two changes are proposed to IFRS 7, Financial Instruments: Disclosures. One proposal is related to servicing contracts, and the other is related to condensed interim financial statements.

    Changes also are proposed to:

    • IFRS 5, Non-current Assets Held for Sale and Discontinued Operations.
    • IAS 19, Employee Benefits.
    • IAS 34, Interim Financial Reporting.

    From 24/7 Wall Street on January 9, 2014

    The U.S. has the highest corporate tax rate in the developed world
    After Japan lowered its tax rate last year, the combined federal and average state tax rate of 39.2% in the U.S. was the highest of any nation in the Organization for Economic Co-operation and Development. Some mega-corporations pay little in federal or state taxes. General Motors, which had annual revenue of more than $150 billion, received a tax benefit of $28.6 billion.     These are the companies paying the most (and least) taxes.
    http://247wallst.com/special-report/2014/01/08/companies-paying-the-most-taxes/2/

    Jensen Comment
    The amount of taxes paid by corporations, especially large corporations, can vary greatly from year-to-year. For example, a few years ago GE was paying no corporate income tax, but this has since changed since GE's CEO became the top economic advisor to President Obama.

    The USA may have the highest corporate tax breaks but Congress salivating over lobbying graft has salted the corporate tax code with lots of tax breaks. This is the reason why many of the largest USA corporations pay a lot less than others. This is why I personally favor eliminating corporate income taxes in favor of offsetting VAT taxes. Businesses hate the VAT tax since it's easier to collect and more immune from cheating. Business firms also fear that federal and state governments will run wild with a VAT tax. Nations in other parts of the world favor the VAT tax, especially nations having weak corporate and personal tax law enforcement --- like Greece.

     

    Accounting Standards Update (ASU) on reclassification of collateralized mortgage loans to foreclosed residential real estate property
    From EY:  Receivables—Troubled De bt Restructurings by Creditors (Subtopic 310-40), January 2014 --- Click Here
    http://www.fasb.org/cs/BlobServer?blobkey=id&blobnocache=true&blobwhere=1175828206382&blobheader=application%2Fpdf&blobheadername2=Content-Length&blobheadername1=Content-Disposition&blobheadervalue2=2287159&blobheadervalue1=filename%3DASU_2014-04.pdf&blobcol=urldata&blobtable=MungoBlobs

    Summary
    Why Is the FASB Issuing This Accounting Standards Update (Update)? In recent years, the rate of default on loans collateralized by residential real estate properties resulting from general economic conditions, including weakness in the housing market, has affected the rate of residential real estate foreclosures and the levels of foreclosed real estate owned by banks or similar lenders (creditors). U.S. generally accepted ac counting principles on troubled debt restructurings include guidance on situations in which a creditor obtains one or more collateral assets in satisfaction of all or part of the receivable. That guidance indicates that a creditor should reclassify a collateralized mortgage loan such that the loan should be derecognized and the collateral asset recognized when it determines that there has been in substance a repossession or foreclosure by the creditor, that is, the creditor receives physical possession of the debtor’s assets regardless of whether formal foreclosure proceedings take place . However, the terms in substance a repossession or foreclosure and physical possession are not defined in the accounting literature and there is diversity about when a creditor should derecognize the loan receivable and recognize the real estate property. That diversity has been highlighted by recent extended foreclosure timelines and processes related to residential real estate properties.

    The objective of the amendments in this Update is to reduce diversity by clarifying when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized.

    Who Is Affected by the Amendments in This Update?
    The amendments in this Update apply to all creditors who obtain physical possession (resulting from an in substance repossession or foreclosure) of residential real estate property collateralizing a consumer mortgage loan in satisfaction of a receivable.

    What Are the Main Provisions?
    The amendments in this Update clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical properties existing as of the beginning of the annual period for which the amendments are effective. Assets reclassified from real estate to loans as a result of adopting the amendments in th is Update should be measured at the carrying value of the real estate at the date of adoption. Assets reclassified from loans to real estate as a result of adopting the amendments in this Update should be measured at the lower of the net amount of loan receivable or the real estate’s fair value less costs to sell at the time of adoption. For prospective transition, an entity should apply the amendments in this Update to all instances of an entity receiving physical possession of residential real estate property collateralized by consumer mortgage loans that occur after the date of adoption. Early adoption is permitted.

    How Do the Provisions Compare with International Financial Reporting Standards (IFRS)?
    IFRS does not contain any guidance specific to the reclassification of collateralized mortgage loans to foreclosed residential real estate property.

    Continued in article

    Bob Jensen's threads on CDOs: A Securitization Scheme for Hiding Debt That Won't Go Away ---
    http://www.trinity.edu/rjensen/Theory02.htm#CDO

    "Financial instruments convergence in doubt after FASB decisions," by Ken Tysiac, Journal of Accountancy, December 23, 2013 ---
    http://www.journalofaccountancy.com/News/20139333.htm

    FASB took what appears to be two steps back from convergence with the International Accounting Standards Board (IASB) last week with a pair of major tentative decisions in its project on accounting for financial instruments.

    In the classification and measurement portion of the project, the board decided not to continue to pursue its proposed “solely payment of principal and interest (SPPI)” model to determine the classification and measurement of financial assets.

    The fundamental principles of FASB’s proposed SPPI model were aligned with the IASB’s model, although the boards already differed in other areas on classification and measurement.

    FASB instead decided to retain the bifurcation requirements for embedded derivative features in hybrid financial assets in current U.S. GAAP. Board members said that although the current guidance is complex, the SPPI model also was complex.

    “The outcome [of the SPPI model] would be similar, but the cost would be great,” FASB Chairman Russell Golden said.

    The board directed the staff to perform additional analysis of whether FASB should develop a new approach for using a cash flow characteristics test for financial assets.

    Decisions made last week also keep FASB’s proposed model separated from the IASB’s proposed model on impairment in the accounting for financial instruments project. FASB voted to continue refining its proposed current expected credit loss (CECL) model for impairment.

    The proposed CECL model would call for the allowance for credit losses on the balance sheet to represent lifetime expected credit losses. At each reporting date, the changes to that allowance would be immediately recognized as an increase or decrease of the allowance, and an impairment expense in net income.

    FASB’s proposed CECL model calls for more upfront recognition of loan losses than the IASB’s proposed model. The IASB has proposed initial recognition of expected credit losses for 12 months. After initial recognition in the IASB model, lifetime expected credit losses would be recognized for financial assets that experience significant deterioration in credit quality.

    Continued in article

    Jensen Comment
    Some of the most important divergences came when the IASB elected to water down accounting for financial instruments and hedge accounting. The fact that IFRS no longer requires finding and evaluating embedded derivatives is a huge mistake in my opinion. I also do not agree with the IFRS obliteration of bright lines in hedge effectiveness testing.

    It appears that divergence is increasing in FAS 133 versus IAS 39/IFRS 9 in accounting for derivative financial instruments. Most of the differences are caused by the IASB's softening of accounting standards.

    From PwC on December 23, 2013

    At its December 18 meeting, the FASB made two significant decisions in its financial instruments projects that reduce the likelihood of convergence with the IASB:

     
    • Classification and measurement - the FASB decided unanimously to abandon the solely payment of principal and interest model governing the classification of debt investments, and instead retain the current guidance for bifurcating hybrid financial instruments

       
    • Impairment - the FASB agreed to retain its "full lifetime expected credit loss" model


    Both of these decisions diverge from the IASB's approach in their parallel projects, leaving the prospects for convergence in jeopardy.

    Jensen Comment
    There are other differences, particularly in the IASB's obliterating of bright lines in hedge effectiveness testing --- which is tantamount causing enormous inconsistencies in providing hedge accounting for ineffective hedges.

    More at
    http://www.pwc.com/us/en/cfodirect/publications/in-brief/2013-50-fasb-fi-project-convergence-not-likely.jhtml?display=/us/en/cfodirect/issues/financial-instruments&j=342137&e=rjensen@trinity.edu&l=616328_HTML&u=14862449&mid=7002454&jb=0

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

    Bob Jensen's threads in accounting theory (including convergence or lack thereof) are at
    http://www.trinity.edu/rjensen/Theory01.htm

    Video Series
    Milton Friedman & John Kenneth Galbraith’s Present Their Opposing Economic Philosophies on Two TV Series (1977-1980) ---
    http://www.openculture.com/2014/01/milton-friedman-john-kenneth-galbraith-tv-shows.html

    The Age of Uncertainty

    1. The Prophets and Promise of Classical Capitalism
    2. The Manners and Morals of High Capitalism
    3. The Dissent of Karl Marx
    4. The Colonial Idea
    5. Lenin and the Great Ungluing
    6. The Rise and Fall of Money
    7. The Mandarin Revolution
    8. The Fatal Competition
    9. The Big Corporation
    10. Land and People
    11. The Metropolis
    12. Democracy, Leadership, Commitment
    13. Weekend in Vermont (part one, part two, part three)

    Free to Choose

    1. The Power of the Market
    2. The Tyranny of Control
    3. Anatomy of a Crisis
    4. From Cradle to Grave
    5. Created Equal
    6. What’s Wrong with Our Schools?
    7. Who Protects the Consumer?
    8. Who Protects the Worker?
    9. How to Cure Inflation
    10. How to Stay Free

    Related Content:

    Milton Friedman on Greed

    The History of Economics & Economic Theory Explained with Comics, Starting with Adam Smith

    An Introduction to Great Economists — Adam Smith, the Physiocrats & More — Presented in a Free Online Course

    60-Second Adventures in Economics: An Animated Intro to The Invisible Hand and Other Economic Ideas

    Economics: Free Online Courses

    Jensen Comment
    For me the most important point in all the above is Professor Friedman's warning about ruining an economy with unfunded and runaway entitlement obligations that can only be settled with breach of promises or hyperinflation. The most ruinous form of entitlement is a promise to pay whatever the cost such as medical care and medication obligations in Medicare and Medicaid insurance. In particular, the Medicare D prescription drug program initiated by George W. Bush will be a disaster. President Obama admits that  Medicare entitlements cannot be sustained, but reducing those entitlements is tantamount to political suicide.

    Medicaid will become a disaster now that even millionaires with proper financial planning can qualify for free medical care and medications --- such as students with million dollar trust funds.

    Entitlements are two-thirds of the federal budget. Entitlement spending has grown 100-fold over the past 50 years. Half of all American households now rely on government handouts. When we hear statistics like that, most of us shake our heads and mutter some sort of expletive. That’s because nobody thinks they’re the problem. Nobody ever wants to think they’re the problem. But that’s not the truth. The truth is, as long as we continue to think of the rising entitlement culture in America as someone else’s problem, someone else’s fault, we’ll never truly understand it and we’ll have absolutely zero chance...
    Steve Tobak ---
    http://www.foxbusiness.com/business-leaders/2013/02/07/truth-behind-our-entitlement-culture/?intcmp=sem_outloud

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

    Transitioning from a small college to a mega university

    "4+1 Interview: Gavin LaRose," by David Talbot, Chronicle of Higher Education, December 29, 2013 ---
    http://chronicle.com/blognetwork/castingoutnines/2013/12/29/41-interview-gavin-larose/?cid=wc&utm_source=wc&utm_medium=en

    . . .

    3. What’s the biggest pedagogical challenge you see right now, either in
    your own classes or those of your colleagues?

    Perhaps because I’m working in technology and have been seeing examples of it in the past couple of years, I think the biggest challenge is the increasing reality that students can get, on-line, solutions to any problem we can pose to them. Tools like Wolfram Alpha can solve almost any problem that evaluates skills that we want our students to learn, and many other problems as well. This coupled with the availability of social networking and answer sites that range from the simple (Yahoo Answers) to sophisticated (Stack Exchange) means that we are suddenly in a world where any question we ask of our students—from introductory courses to graduate level courses in pure mathematics—can be answered by use of a networked device, be it a phone, tablet, or more traditional computer. We’ve always had to be concerned with students’ abilities to get answers from other sources (talking with ones neighbor is a time-honored method of getting an answer to a difficult problem), but the issue is suddenly much more significant when the neighbor can be a smarter Ph.D. mathematician than I (a world away!) or an application with language processing capability that is able to perform any calculation we expect our students to learn how to do.

    Continued in article

     

    Jensen Comment
    This is an interesting article on the differences between small colleges and mega universities. Gavin LaBose is a mathematics professor, but his comments apply to most undergraduate disciplines in mega university.

    Some things left unsaid probably are obvious. One is the need in most instances for small college professors to teach more preps and highly varied preps. For example, a math professor in a small college might have to teach Calculus I and II plus advanced number theory and topology. That would be almost unheard of in a mega university.

    Years ago I shared a speaking platform with a woman who taught all the accounting courses at a small Catholic university --- from Principles 101 to Corporate Tax 304 to Auditing 416.. She was the Accounting Department. But her class sizes were very small. I recall that her pedagogy in intermediate accounting was rooted in The Wall Street Journal. She would find articles impacted by accounting rules and then expand upon those rules in her classes. Coverage may have been somewhat random, but students probably remembered what they learned better than if they memorized textbook passages.

    It's more difficult to generalize about variance in quality of students. Small colleges can have enormous variances when the bar is pretty low for admissions. Mega universities can have similar variances, although some disciplines within such universities have higher bars. For example, the mega university in thr article above is the University of Michigan. The Mathematics Department at Michigan must deal with the lowest SAT admissions to the highest SAT admissions. The Accounting Department at the University of Michigan, on the other hand, does not have to teach remedial courses and restricts admissions to become an accounting major. I don't know what the bar is today, but in the past the bar was a 3.94 grade average to become an accounting major.

    Teaching Case on Pro Forma
    From The Wall Street Journal Accounting Weekly Review on January 24, 2014

    Heard on the Street: Smoothing May Rough Up 2014 Earnings
    by: Justin Lahart
    Jan 21, 2014
    Click here to view the full article on WSJ.com
     

    TOPICS: Analysts' Forecasts, Pro Forma Earnings

    SUMMARY: During 2013, corporate earnings "posted middling gains." Investors can look forward to profit growth accelerating in 2014 only in terms of "pro forma earnings." GAAP earnings showed higher growth in 2013 than pro forma earnings but were nearly level in 2012 relative to the preceding year. Expectations may therefore show 2014 to be a moderating year for earnings on a GAAP basis rather than continuing to grow as is expected for the pro forma results.

    CLASSROOM APPLICATION: The article may be used to introduce the notion of pro forma earnings and analyst expectations in a financial reporting or accounting theory class.

    QUESTIONS: 
    1. (Advanced) Define the term "pro forma earnings."

    2. (Introductory) For 2012 and 2013, what was the average reported growth of the S&P 500 firms' earnings per share determined in accordance with U.S. GAAP? What was that growth when using the firms' pro forma measures of earnings?

    3. (Advanced) How do the comparisons given in answer to question 2 support the notion of "income smoothing" by companies using pro forma earnings?
     

    Reviewed By: Judy Beckman, University of Rhode Island

    "Heard on the Street: Smoothing May Rough Up 2014 Earnings," by Justin Lahart, The Wall Street Journal, January 21, 2014 ---
    http://online.wsj.com/news/articles/SB10001424052702304027204579334731895904424?mod=djem_jiewr_AC_domainid

    After a year in which corporate earnings posted middling gains, investors can look forward to profit growth accelerating in 2014. Unless they bother digging into the numbers, that is.

    Fourth-quarter earnings season is getting into high gear. But, as always, it is what companies will say about coming quarters, rather than the one just past, that will interest investors the most.

    On this score, analysts are hopeful, forecasting that earnings for companies in the S&P 500 will be 10.6% higher in 2014 than last year. Even after allowing for analysts' ingrown optimism, that suggests earnings will show a bigger increase than the estimated 2013 gain of 5.1%, or the 2012 gain of 6.1%.

    But the widely cited Thomson Reuters figures represent so-called pro forma results: measures of profitability that exclude various charges that companies have been able to convince analysts to treat as one-time items. Companies' professed reason is that this gives a better view into how results are trending. But more cynical investors refer to pro-forma figures as "earnings before bad stuff."

    A look at earnings under generally accepted accounting principles tells a different story. Under these, according to S&P Dow Jones Indices, earnings in 2013 rose an estimated 14.9% after falling 0.5% the prior year.

    Put differently, companies called a great many of the things that weighed on results in 2012 one-time items. This allowed them to report pro-forma earnings gains. But last year they paid the price for this smoothing operation in the form of lower pro-forma earnings growth.

    The takeaway may be that earnings growth in 2014 will actually be moderating rather than accelerating—though companies will probably take pains to keep investors from recognizing that.

    Bob Jensen's threads on Pro Forma earnings ---
    http://www.trinity.edu/rjensen/Theory02.htm#ProForma

    Teaching Case
    From The Wall Street Journal Accounting Weekly Review on January 24, 2014

    U.S. Stock Values Have Analysts Worried
     by: E.S. Browning
    Jan 21, 2014
    Click here to view the full article on WSJ.com
     

    TOPICS: Earnings Per Share, Financial Ratios

    SUMMARY: "[Fourth quarter 2013] corporate-earnings reports are trickling in and they aren't great....Money managers are wondering whether soft earnings will justify more stock gains, given the Dow Jones Industrial Average's 26.5% rise last year....Among their biggest questions: Just how expensive are stocks, anyway? Are they overpriced compared with likely earnings gains? What do stocks typically do when they get this pricey? What should investors do? The answer: By a variety of measures the market is frothy." The measures examined include the percent of fourth quarter results that have beat expectations, revenue gains, and the P/E ratio based on both forecasted earnings and the preceding 12 months. Quoted extensively is Brown Brothers Harriman Wealth Management chief investment strategist, Scott Clemens.

    CLASSROOM APPLICATION: The article may be used to introduce financial statement ratios in a financial reporting class.

    QUESTIONS: 
    1. (Introductory) What are the main concerns expressed in this article about the current state of corporate earnings, stock market values, and the relationship between the two?

    2. (Advanced) Name one financial statement ratio reported in this article and state how the ratio is calculated.

    3. (Advanced) Explain how the financial statement ratio you gave in answer to question 2 helps to assess the concerns you identified in question 1.
     

    Reviewed By: Judy Beckman, University of Rhode Island

    "U.S. Stock Values Have Analysts Worried, E.S. Browning, The Wall Street Journal, January 21, 2014 ---
    http://online.wsj.com/news/articles/SB10001424052702304027204579332382662860774?mod=djem_jiewr_AC_domainid

    Corporate-earnings reports are trickling in, and they aren't great. J.P. Morgan Chase JPM -1.94% & Co. was a little better than anticipated; General Electric Co. GE -0.65% was as expected; Best Buy Co. BBY +0.23% was terrible.

    Money managers are wondering whether soft earnings will justify more stock gains, given the Dow Jones Industrial Average's 26.5% rise last year. That helps explain why the Dow is down 118 points to start the year.

    Among their biggest questions: Just how expensive are stocks, anyway? Are they overpriced compared with likely earnings gains? What do stocks typically do when they get this pricey? What should investors do?

    The answer: By a variety of measures the market is frothy. Some measures, but not all, are close to 2007 and 2008 extremes. They are far from most extremes of 2000, however. So while many investors are turning cautious, few are pulling back wholesale.

    "This market isn't bubble-level by any stretch of the imagination," says Scott Clemons, chief investment strategist at Brown Brothers Harriman Wealth Management, which oversees $23 billion.

    His worry is that with the earnings outlook tepid, the risk of a pullback is rising. Many of his clients are risk-averse, so his firm has trimmed stockholdings just in case. That kind of defensive thinking is affecting stock prices.

    Investors face two problems: The first is earnings. Of the 52 companies in the S&P 500 index that have reported fourth-quarter results, 52% beat expectations according to S&P Capital IQ, below the average 67% of the past four quarters. Moreover, revenue gains have been weak. Earnings season has just begun and money managers will be watching coming reports closely, including from International Business Machines Corp. IBM +0.26% , Verizon Communications Inc. VZ +1.12% and McDonald's Corp. this week.

    A second, deeper question is whether future earnings will push stocks much higher, even if they meet analysts' expectations.

    Goldman Sachs GS -1.69% investment strategist David Kostin startled investors a week ago by warning that prices are high compared with analysts' forecasts. The chances are two out of three that the S&P will fall at least 10% sometime this year, before finishing with an overall yearly gain of around 3%, he said.

    Mr. Kostin measured stocks many ways; against sales, book value, cash flow, inflation, interest rates and other items. He looked in particular at prices compared with analysts' earnings forecasts for the next 12 months.

    The S&P 500 trades at 16 times forecast earnings, he calculates, well above 13, the average going back to the 1970s. Since 1976, it has hardly ever surpassed 17 times forecast earnings. The main exception came during the stock bubble of the late 1990s and early 2000s.

    So he figures it will be hard for price/earnings ratios to rise much. That would limit stock gains to the rate of earnings gains, which have been slowing.

    Continued in article

    Teaching Case on Restatements
    From The Wall Street Journal Accounting Weekly Review on January 24, 2014

    The Big Number: 2%
    by: Emily Chasan
    Jan 21, 2014
    Click here to view the full article on WSJ.com
     

    TOPICS: Accounting Theory, Financial Reporting, Financial Statement Fraud

    SUMMARY: Companies who make financial restatements take many actions: examples include rapidly changing executive teams and even increasing community actions such as charitable giving. The article reports that 94 such companies earned an average 2% share price increase for each action they took following restatements between 1997 and 2006. These results are based on research by an accounting assistant professor at Stanford University, Ed deHaan.

    CLASSROOM APPLICATION: The article can be used to introduce the concept of reliability of financial information and its importance for investor confidence in reporting entities.

    QUESTIONS: 
    1. (Introductory) Define the terms "financial restatement" and "fraud."

    2. (Advanced) Does a "serious" financial restatement occur only after fraud? Support your answer.

    3. (Advanced) Define the concept of reliability according to the FASB/IASB Conceptual Framework. How does this article show this importance of this concept?
     

    Reviewed By: Judy Beckman, University of Rhode Island

    "The Big Number: 2%," by Emily Chasan, The Wall Street Journal, January 21, 2014 ---
    http://online.wsj.com/news/articles/SB20001424052702304603704579327050935222152?mod=djem_jiewr_AC_domainid

    2%

    The average share-price boost from each action a firm takes to rebuild its reputation after a financial restatement

    For companies trying to recover from a serious financial restatement, making rapid changes to their executive team, improving governance, and even stepping up charitable giving, can quickly mend fences and nurse a share price back to health.

    Companies, on average, lose more than a quarter of their market value following a financial restatement or fraud. But researchers at Stanford and Emory universities found that in the year after a restatement, companies often take about 10 actions aimed at repairing their tarnished images. Each action lifts their shares by about 2%.

    After a restatement, "credibility is lost and it can take a long time to build that back up," said Ed deHaan, an assistant professor of accounting at Stanford. "But after one year, firms that are aggressive in taking most of these actions have more or less restored their reputations."

    Shares of Diamond Foods Inc. DMND -0.63% have nearly doubled from a November 2012 low after the company discovered $80 million in payments to walnut growers weren't accounted for correctly. It fired its top executives and launched new marketing campaigns. This month it reached a settlement with the Securities and Exchange Commission without admitting or denying guilt.

    "The company's reputation is paramount," said Diamond Foods' new CFO, Ray Silcock.

    The study, which examined 10,000 news releases following 94 restatements from 1997 to 2006, excluding firms that filed for bankruptcy, found companies usually took less-costly actions, such as charitable donations.

    Bob Jensen's threads on quality of earnings, restatements, and core earnings ---
    http://www.trinity.edu/rjensen/Theory02.htm#CoreEarnings

    "GlaxoSmithKline Keeps Name of PwC Lead Engagement Partner Under Wraps," by Francine McKenna, re:TheAuditors, December 30, 2013 ---  Click Here
    http://retheauditors.com/2013/12/30/glaxosmithkline-keeps-name-of-pwc-lead-engagement-partner-under-wraps/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+ReTheAuditors+%28re%3A+The+Auditors%29

     

    Does the PCAOB’s proposal on naming lead audit partners for US listed issuer audits contemplate any exemptions for personal safety? There’s a significant discussion of exemptions in the latest reproposal but, in the end, it doesn’t.

    The Board has not included an exception to the disclosure requirement analogous to that in the EU’s Eighth Directive in the reproposed amendments. Further, a requirement to disclose the engagement partner’s name has been in place in certain foreign jurisdictions for quite some time, yet no specific experience brought to the Board’s attention provided persuasive information that personal risks to the engagement partners would increase as a result of these requirements.

    GlaxoSmithKline (GSK), audited by PwC, is headquartered in the UK although its shares are listed on the New York Stock Exchange and the London stock exchange. The UK Companies Act governs GSK plc. The Act requires that each and every copy of the auditors’ reports to the company’s shareholders on the Annual Report, and other auditable reports, which are published by or on behalf of the company, must state, where the company’s auditors are a firm, the name of the person who signed them in his or her own name as senior statutory auditor in relation to the audit, for and on behalf of the auditors.

    GSK approved an exemption to the partner naming rule and that means PwC and GSK can keep the name of the lead partner under wraps.

    The experience in the EU and the UK, where the naming convention has been in place for a while, is frequently held up as an example of “much ado about nothing” with regard to auditors’ worries about pitchfork-wielding crowds coming after them at their homes in the event of a failure of one of their client companies, like a bank. That doesn’t happen although audit partners are more often mentioned by name in news accounts when bad things happen or they go on to bigger and better things like leading a firm or a regulator after presiding over a disaster like Royal Bank of Scotland or HBOS.

    The opposite argument by US regulators proposing the same naming requirement—that naming lead partners will improve quality by deterring negligence and forcing higher standards of independence and professional skepticism because of concerns about one’s professional reputation— is also less than convincing. The UK had as many or more failures, forced acquisitions and nationalizations than the US during the financial crisis yet we continue to see new scandals pointing to auditor negligence emerge there such as Deloitte/MG Rover, EY and Farepack, and the fraud claims against Deloitte client Autonomy by acquirer HP. That’s in spite of the lead audit partners names being public before, during, and after the alleged negligence or fraud occurred.

    For many years, according to the company, GSK plc has “been the focus of protests by various animal protection groups, some of which have engaged in aggressive, abusive and hostile acts.” GSK has taken advantage of an exemption, perhaps based on a request from PwC, that allows the company to leave the engagement partner’s name off its public reports because someone thinks naming the partner might “create, or be likely to create, a serious risk that he or she or any other person would be subject to violence or intimidation.”

    Continued in article

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

    From the CFO Journal's Morning Ledger on January 27. 2014

    SEC to drop suit against Deloitte
    The SEC said it would drop a federal lawsuit in which the commission had demanded documents from Deloitte Touche Tohmatsu‘s Chinese affiliate to help with its investigation of a U.S.-traded Chinese company,     the WSJ reports. Dismissal of the case is subject to the judge’s approval. The move doesn’t directly affect a broader SEC administrative case against the Chinese affiliates of Deloitte and the other Big Four accounting firms—PricewaterhouseCoopers, KPMG and Ernst & Young—over similar document-handover issues. Last week, an SEC administrative law judge ruled in the broader case that the firms should be suspended from auditing U.S.-traded companies for six months. The firms have said they will appeal.

     

    "One Way Or Another: The SEC Versus The Chinese Big Four Firms," by Francine McKenna, re:TheAuditors, December 30, 2013 --- 
    http://retheauditors.com/2014/01/25/one-way-or-another-the-sec-versus-the-chinese-big-four-firms/

    . . .

    We’ve already seen the Big Four plus one have lawyers and a key law firm opinion in common. The judge’s opinion also contains many mentions, via the firms’ testimony, of joint meetings between the firms and the regulators in China to discuss the regulatory impasse and their approach to US regulators requests. Here are a few examples:

    Another meeting took place the next day, October 10, 2011, at CSRC headquarters. A request went out in the morning for a meeting in the afternoon. Attendees included at least one official from the CSRC and MOF, and representatives of Dahua, E&Y, DTTC, PwC, Grant Thornton, and KPMG, with KPMG represented by Yan [[Len Jui (Jui), who heads KPMG's regulatory and public affairs unit] and Tian [Belinda, another KPMG partner]. The accounting firms briefed the CSRC and MOF regarding the requests they had received and their responses, which included whether each accounting firm had produced any work papers to overseas regulators.

    According to PwC, in December 2012, after issuance of the OIP, PwC and the other Respondents (except Dahua) attended a meeting with the CSRC and MOF.

    On June 4, 2013, representatives of all Respondents, including Yan for KPMG, met with the CSRC and MOF to discuss the present proceeding, in particular, to discuss it in light of the announced hearing date and to find out if the recent MOUEC changed anything. The CSRC and MOF told the accounting firms that they “just have to wait for instruction” from the CSRC and MOF.

    When the judge’s decision was announced, the China Big Four even issued a joint statement to media:

    It is regrettable that the SEC’s administrative law judge has recommended sanctions against the big four firms in China for failing to produce work papers to the SEC in circumstances where such production would have violated Chinese law and regulations. However, the firms note that the decision is neither final nor legally effective unless and until reviewed and approved by the full US SEC Commission. The firms intend to appeal and thereby initiate that review without delay. In the meantime the firms can and will continue to serve all their clients without interruption.

    The firms are heartened by the significant progress on information sharing between the Chinese and US regulators over the past year, which the firms have worked hard to support. The firms continue to support this co-operative working relationship and believe it is in the best interests of all parties.

    (My copy of the statement came for a spokesman at DTTC.)

    If the US and UK Government is looking for another reason to investigate the China Big Four auditors and their international leadership they might want to try collusion and anti-trust.

    Nota Bene: I just got a note from Professor Don Clark who provided expert witness testimony on behalf of the SEC in this case.  He pointed me to his post on the case from earlier in January that has useful citations for background on the relevant law.

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

    Honda ships more vehicles out of USA than it imports
    "Honda's U.S. Factories Hit Export Milestone," by Yoshio Takahashi, The Wall Street Journal, January 28, 2014 ---
    http://online.wsj.com/news/articles/SB10001424052702303553204579347142210408598?mod=djemCFO_h

    Jensen Comment
    However, may of the components in those vehicles are imported from outside the USA.

    "CPS report highlights stolen funds, fake vendors, ‘ghost students’," by Stefano Esposito, Chicago Sun Times, January 3, 2043 ---
    http://www.suntimes.com/24739105-761/cps-report-highlights-stolen-funds-fake-vendors-ghost-students.html

     A Chicago Public Schools technology coordinator stole more than $400,000 in school funds before fleeing to Mexico, where he was later found dead, according to a just-released Chicago Board of Education Office of the Inspector General annual report.

    The technology coordinator — who is not named in the 43-page report — created “fake vendors”, with much of the money going into his own personal bank account, according to the report. Over one 22-month period, the coordinator received more than $144,00 in suspect reimbursements, according to the report. Most of the fake vendors were “either classmates of the technology coordinator when he attended the high school or were students at the school” when the coordinator worker there, the report states.

    During the course of the investigation, the technology coordinator withdrew $70,000 from a personal bank account, refused on advice of counsel to speak with the inspector general’s office, resigned from CPS, fled to California and was found dead in Tijuana, Mexico, a short time later, according to the report.

    In that case, one of many highlighted in the report, the inspector general’s office worked with federal investigators, but to date, no criminal charges have been filed, investigators said.

    In a separate case, two CPS employees — including a high school principal — enrolled “ghost students” in an attempt to qualify for more staff.

    In another case highlighted in the report, CPS employees allowed a vendor to provide “inferior, substitute products,” costing CPS nearly $100,000 in unnecessary charges.

    The inspector general’s office received a total of 1,460 complaints this year — about 36 percent of which were reported anonymously. About 18 percent of the complaints had to do with residency issues, another 13 percent concerned “inattention to duty” and 9 percent involved allegations of “on-duty criminal conduct.”

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

    I think this applies to all academic disciplines!

    "Digital Humanists: If You Want Tenure, Do Double the Work," by Sydni Dunn, Chronicle of Higher Education, January 5, 2014 ---
    https://chroniclevitae.com/news/249-digital-humanists-if-you-want-tenure-do-double-the-work?cid=wc&utm_source=wc&utm_medium=en

    As interactive databases and open-access online journals fill academic dossiers, one question continues to be discussed: What happens when the scholars who build them come up for tenure?

    It’s clear that timeworn tenure incentives—those that reward monographs published by prestigious university presses, say, or a series of individually written journal articles—aren’t a good fit for digital work.

    So scholarly groups and universities with an interest in digital humanities are stepping up efforts to establish alternatives. But consensus is still a long way off. At many institutions, enthusiasm about the trending field is outpacing progress in rethinking the evaluation process.

    This leaves digital humanists in a difficult position: convinced that their scholarly work is worth doing but unclear on what it will get them, careerwise. Some scholars who do digital work have found so-called alt-ac, alternative academic, careers, working at universities but off the traditional tenure track. But for those who want to stay on that classic track, a digital-only portfolio is a gamble. To play it safe, they are putting in overtime to satisfy the traditional requirements of an evaluation process that hasn’t caught up to their digital work.

    In fact, many digital humanists who have successfully navigated the promotion process agree that the most reliable way to impress a tenure committee is to mix traditional work with the technological.

    “We want to push the boundaries, but it’s hard to disrupt the expectations,” says Matthew K. Gold, an associate professor of English and digital humanities at the City University of New York’s College of Technology and Graduate Center. “So, unfortunately, going this route of creating digital projects still requires twice as much work.”

    First, some good news: Earning tenure and promotion for digital scholarship is no longer a left-field idea, says Victoria E. Szabo, an assistant research professor of art, art history, and visual studies and program director of information science and information studies at Duke University. A growing number of digital humanists are moving up in the academy.

    At the annual convention of the Modern Language Association, this month in Chicago, Szabo, a member of the group’s Committee on Information Technology, assembled a panel that can attest to that. A discussion titled “Evaluating Digital Scholarship: Candidate Success Stories” was to convene Gold, Cheryl E. Ball, Kari M. Kraus, Adeline Koh, and Alex Gil—all scholars who have secured tenure or promotion on the basis, at least partially, of their digital scholarship.

    The MLA, for its part, is trying to create more success stories. It has joined the American Historical Association and an array of academic commenters, like Geoffrey Rockwell and Bethany Nowviskie, in offering guidance on how to assess digital scholarship.

    The recommendations advise making expectations clear to candidates; asking faculty members familiar with digital work to participate in the review; accepting the work in its original, electronic form and not only, for example, as printed screen shots; and staying informed about technological innovations that help people with disabilities to conduct research, among other principles.

    But, as the advocates of digital work will tell you, those broad guidelines are not hard-and-fast rules.

    “The pace of technological change makes it impossible for any one set of guidelines to account completely for the ways digital media and the digital humanities are influencing literacies, literatures, and the teaching of modern languages,” the MLA guidelines warn. “A general principle nonetheless holds: Institutions that recruit or review scholars working in digital media or digital humanities must give full regard to their work when evaluating them for reappointment, tenure, and promotion.”

    Meanwhile, some universities trying to build out their digital-humanities programs, such as Emory University and the University of Nebraska at Lincoln, are leading their own efforts to clearly define what’s at stake with tenure and promotion.

    According to a policy adopted in November, Emory’s College Humanities Council will evaluate digital humanities by reviewing digital projects in their electronic forms, working with tenure candidates to understand the extent and nature of their projects, and ascertaining the relationship among the “form, design, and medium” of the projects.

    “We’re at a very different place than we were in 2009,” says Brian Croxall, a digital-humanities strategist and lecturer of English at Emory.

    When departments and professors have the same objectives, communicating about digital scholarship can seem pretty easy. Kari M. Kraus, an associate professor in the College of Information Studies and the department of English at the University of Maryland, is a case in point.

    Kraus, who began in her tenure-track post in 2007 and was promoted in the spring of 2013, was not required—or even encouraged—to have a published book, she says. Although she listed both traditional and nontraditional scholarship in her dossier, she felt she was able to expand her scholarly repertoire “by not being tied to the book model.”

    But Kraus, whose focus is new media, digital preservation, game studies, transmedia storytelling, and speculative design, may be an exception that proves the rule. Her tenure home was in Maryland’s information-studies school, so most of the readers deciding her academic future were familiar with digital work.

    Her department’s tenure requirements also varied greatly from those of the English department, which expects more text-driven application materials, she says.

    Kraus’s experience is a demonstration: It is up to individual university departments to decide how digital work should be weighed, and reward systems vary on the basis of the nature of the institution.

    That remains true, Croxall says, even now that most academics are willing to understand and support digital work.

    “For people in the digital humanities, it’s no longer a question of, ‘Will my institution count it?’” he says. “It can get counted. It just might involve a bit more work on your part than what you would like.”

    Adeline Koh, an assistant professor of literature and director of digital humanities at the Richard Stockton College of New Jersey, began her tenure-track job in 2010 and received tenure and a promotion in 2013. (Her title will be upgraded for the next academic year.) For both tenure and promotion, she says, the experience was welcoming and supportive.

    But it wasn’t all about her digital work, which includes projects like Trading Races, a historical role-playing game designed to teach race consciousness. The job description for her literature professorship didn’t include a digital-humanities component, she says, so she listed her projects as a supplement to her traditional publications and discussed them in her interview. The panel focused more on her printed material, she says, but her digital work was also recognized.

    - See more at: https://chroniclevitae.com/news/249-digital-humanists-if-you-want-tenure-do-double-the-work?cid=wc&utm_source=wc&utm_medium=en#sthash.nH8SMvhF.dpuf
    As interactive databases and open-access online journals fill academic dossiers, one question continues to be discussed: What happens when the scholars who build them come up for tenure?

    It’s clear that timeworn tenure incentives—those that reward monographs published by prestigious university presses, say, or a series of individually written journal articles—aren’t a good fit for digital work.

    So scholarly groups and universities with an interest in digital humanities are stepping up efforts to establish alternatives. But consensus is still a long way off. At many institutions, enthusiasm about the trending field is outpacing progress in rethinking the evaluation process.

    This leaves digital humanists in a difficult position: convinced that their scholarly work is worth doing but unclear on what it will get them, careerwise. Some scholars who do digital work have found so-called alt-ac, alternative academic, careers, working at universities but off the traditional tenure track. But for those who want to stay on that classic track, a digital-only portfolio is a gamble. To play it safe, they are putting in overtime to satisfy the traditional requirements of an evaluation process that hasn’t caught up to their digital work.

    In fact, many digital humanists who have successfully navigated the promotion process agree that the most reliable way to impress a tenure committee is to mix traditional work with the technological.

    “We want to push the boundaries, but it’s hard to disrupt the expectations,” says Matthew K. Gold, an associate professor of English and digital humanities at the City University of New York’s College of Technology and Graduate Center. “So, unfortunately, going this route of creating digital projects still requires twice as much work.”

    First, some good news: Earning tenure and promotion for digital scholarship is no longer a left-field idea, says Victoria E. Szabo, an assistant research professor of art, art history, and visual studies and program director of information science and information studies at Duke University. A growing number of digital humanists are moving up in the academy.

    At the annual convention of the Modern Language Association, this month in Chicago, Szabo, a member of the group’s Committee on Information Technology, assembled a panel that can attest to that. A discussion titled “Evaluating Digital Scholarship: Candidate Success Stories” was to convene Gold, Cheryl E. Ball, Kari M. Kraus, Adeline Koh, and Alex Gil—all scholars who have secured tenure or promotion on the basis, at least partially, of their digital scholarship.

    The MLA, for its part, is trying to create more success stories. It has joined the American Historical Association and an array of academic commenters, like Geoffrey Rockwell and Bethany Nowviskie, in offering guidance on how to assess digital scholarship.

    The recommendations advise making expectations clear to candidates; asking faculty members familiar with digital work to participate in the review; accepting the work in its original, electronic form and not only, for example, as printed screen shots; and staying informed about technological innovations that help people with disabilities to conduct research, among other principles.

    But, as the advocates of digital work will tell you, those broad guidelines are not hard-and-fast rules.

    “The pace of technological change makes it impossible for any one set of guidelines to account completely for the ways digital media and the digital humanities are influencing literacies, literatures, and the teaching of modern languages,” the MLA guidelines warn. “A general principle nonetheless holds: Institutions that recruit or review scholars working in digital media or digital humanities must give full regard to their work when evaluating them for reappointment, tenure, and promotion.”

    Meanwhile, some universities trying to build out their digital-humanities programs, such as Emory University and the University of Nebraska at Lincoln, are leading their own efforts to clearly define what’s at stake with tenure and promotion.

    According to a policy adopted in November, Emory’s College Humanities Council will evaluate digital humanities by reviewing digital projects in their electronic forms, working with tenure candidates to understand the extent and nature of their projects, and ascertaining the relationship among the “form, design, and medium” of the projects.

    “We’re at a very different place than we were in 2009,” says Brian Croxall, a digital-humanities strategist and lecturer of English at Emory.

    When departments and professors have the same objectives, communicating about digital scholarship can seem pretty easy. Kari M. Kraus, an associate professor in the College of Information Studies and the department of English at the University of Maryland, is a case in point.

    Kraus, who began in her tenure-track post in 2007 and was promoted in the spring of 2013, was not required—or even encouraged—to have a published book, she says. Although she listed both traditional and nontraditional scholarship in her dossier, she felt she was able to expand her scholarly repertoire “by not being tied to the book model.”

    But Kraus, whose focus is new media, digital preservation, game studies, transmedia storytelling, and speculative design, may be an exception that proves the rule. Her tenure home was in Maryland’s information-studies school, so most of the readers deciding her academic future were familiar with digital work.

    Her department’s tenure requirements also varied greatly from those of the English department, which expects more text-driven application materials, she says.

    Kraus’s experience is a demonstration: It is up to individual university departments to decide how digital work should be weighed, and reward systems vary on the basis of the nature of the institution.

    That remains true, Croxall says, even now that most academics are willing to understand and support digital work.

    “For people in the digital humanities, it’s no longer a question of, ‘Will my institution count it?’” he says. “It can get counted. It just might involve a bit more work on your part than what you would like.”

    Adeline Koh, an assistant professor of literature and director of digital humanities at the Richard Stockton College of New Jersey, began her tenure-track job in 2010 and received tenure and a promotion in 2013. (Her title will be upgraded for the next academic year.) For both tenure and promotion, she says, the experience was welcoming and supportive.

    But it wasn’t all about her digital work, which includes projects like Trading Races, a historical role-playing game designed to teach race consciousness. The job description for her literature professorship didn’t include a digital-humanities component, she says, so she listed her projects as a supplement to her traditional publications and discussed them in her interview. The panel focused more on her printed material, she says, but her digital work was also recognized.

    - See more at: https://chroniclevitae.com/news/249-digital-humanists-if-you-want-tenure-do-double-the-work?cid=wc&utm_source=wc&utm_medium=en#sthash.nH8SMvhF.dpuf

    As interactive databases and open-access online journals fill academic dossiers, one question continues to be discussed: What happens when the scholars who build them come up for tenure?

    It’s clear that timeworn tenure incentives—those that reward monographs published by prestigious university presses, say, or a series of individually written journal articles—aren’t a good fit for digital work.

    So scholarly groups and universities with an interest in digital humanities are stepping up efforts to establish alternatives. But consensus is still a long way off. At many institutions, enthusiasm about the trending field is outpacing progress in rethinking the evaluation process.

    This leaves digital humanists in a difficult position: convinced that their scholarly work is worth doing but unclear on what it will get them, careerwise. Some scholars who do digital work have found so-called alt-ac, alternative academic, careers, working at universities but off the traditional tenure track. But for those who want to stay on that classic track, a digital-only portfolio is a gamble. To play it safe, they are putting in overtime to satisfy the traditional requirements of an evaluation process that hasn’t caught up to their digital work.

    In fact, many digital humanists who have successfully navigated the promotion process agree that the most reliable way to impress a tenure committee is to mix traditional work with the technological.

    “We want to push the boundaries, but it’s hard to disrupt the expectations,” says Matthew K. Gold, an associate professor of English and digital humanities at the City University of New York’s College of Technology and Graduate Center. “So, unfortunately, going this route of creating digital projects still requires twice as much work.”

    First, some good news: Earning tenure and promotion for digital scholarship is no longer a left-field idea, says Victoria E. Szabo, an assistant research professor of art, art history, and visual studies and program director of information science and information studies at Duke University. A growing number of digital humanists are moving up in the academy.

    At the annual convention of the Modern Language Association, this month in Chicago, Szabo, a member of the group’s Committee on Information Technology, assembled a panel that can attest to that. A discussion titled “Evaluating Digital Scholarship: Candidate Success Stories” was to convene Gold, Cheryl E. Ball, Kari M. Kraus, Adeline Koh, and Alex Gil—all scholars who have secured tenure or promotion on the basis, at least partially, of their digital scholarship.

    The MLA, for its part, is trying to create more success stories. It has joined the American Historical Association and an array of academic commenters, like Geoffrey Rockwell and Bethany Nowviskie, in offering guidance on how to assess digital scholarship.

    The recommendations advise making expectations clear to candidates; asking faculty members familiar with digital work to participate in the review; accepting the work in its original, electronic form and not only, for example, as printed screen shots; and staying informed about technological innovations that help people with disabilities to conduct research, among other principles.

    But, as the advocates of digital work will tell you, those broad guidelines are not hard-and-fast rules.

    “The pace of technological change makes it impossible for any one set of guidelines to account completely for the ways digital media and the digital humanities are influencing literacies, literatures, and the teaching of modern languages,” the MLA guidelines warn. “A general principle nonetheless holds: Institutions that recruit or review scholars working in digital media or digital humanities must give full regard to their work when evaluating them for reappointment, tenure, and promotion.”

    Meanwhile, some universities trying to build out their digital-humanities programs, such as Emory University and the University of Nebraska at Lincoln, are leading their own efforts to clearly define what’s at stake with tenure and promotion.

    According to a policy adopted in November, Emory’s College Humanities Council will evaluate digital humanities by reviewing digital projects in their electronic forms, working with tenure candidates to understand the extent and nature of their projects, and ascertaining the relationship among the “form, design, and medium” of the projects.

    “We’re at a very different place than we were in 2009,” says Brian Croxall, a digital-humanities strategist and lecturer of English at Emory.

    When departments and professors have the same objectives, communicating about digital scholarship can seem pretty easy. Kari M. Kraus, an associate professor in the College of Information Studies and the department of English at the University of Maryland, is a case in point.

    Kraus, who began in her tenure-track post in 2007 and was promoted in the spring of 2013, was not required—or even encouraged—to have a published book, she says. Although she listed both traditional and nontraditional scholarship in her dossier, she felt she was able to expand her scholarly repertoire “by not being tied to the book model.”

    But Kraus, whose focus is new media, digital preservation, game studies, transmedia storytelling, and speculative design, may be an exception that proves the rule. Her tenure home was in Maryland’s information-studies school, so most of the readers deciding her academic future were familiar with digital work.

    Her department’s tenure requirements also varied greatly from those of the English department, which expects more text-driven application materials, she says.

    Kraus’s experience is a demonstration: It is up to individual university departments to decide how digital work should be weighed, and reward systems vary on the basis of the nature of the institution.

    That remains true, Croxall says, even now that most academics are willing to understand and support digital work.

    “For people in the digital humanities, it’s no longer a question of, ‘Will my institution count it?’” he says. “It can get counted. It just might involve a bit more work on your part than what you would like.”

    Adeline Koh, an assistant professor of literature and director of digital humanities at the Richard Stockton College of New Jersey, began her tenure-track job in 2010 and received tenure and a promotion in 2013. (Her title will be upgraded for the next academic year.) For both tenure and promotion, she says, the experience was welcoming and supportive.

    But it wasn’t all about her digital work, which includes projects like Trading Races, a historical role-playing game designed to teach race consciousness. The job description for her literature professorship didn’t include a digital-humanities component, she says, so she listed her projects as a supplement to her traditional publications and discussed them in her interview. The panel focused more on her printed material, she says, but her digital work was also recognized.

    - See more at: https://chroniclevitae.com/news/249-digital-humanists-if-you-want-tenure-do-double-the-work?cid=wc&utm_source=wc&utm_medium=en#sthash.nH8SMvhF.dpuf

    Bob Jensen's threads on the dark sides of digital scholarship ---
    http://www.trinity.edu/rjensen/000aaa/theworry.htm

    Gaming for Tenure as an Accounting Professor ---
    http://www.trinity.edu/rjensen/TheoryTenure.htm
    (with a reply about tenure publication point systems from Linda Kidwell)

     

    Questions
    How does the English Literature major differ from a Sociology major or a Gender Studies major at UCLA?

    Would Accounting Majors object if we did the same thing in the accounting curriculum?

    Jensen Comment
    There can be differences between sexual orientation studies in sociology versus English literature in term of focus on selected scholars in history and perhaps neglected contributions of those scholars to a discipline. But I think the research and writing contributions should stand on their own apart from the gender, race, and sexual orientation of the scholar.

    I sympathize that we should expand what we know and teach in every academic discipline. Genetic discoveries should replace much of what we used to teach in biology. Surgeons should become skilled with laser scalpels. We should learn more about the important contributions of diverse races and women in history.

    But do we really care to study the sexual orientation of John Maynard Keynes if doing so pushes out some of the required study of his economic theories? I don't! His sexual orientation was his personal business.

    I think undergraduate students in any discipline facing certification examinations would object if certification examination content was extensively removed from the curriculum in favor of extensive sociology and gender studies content. For example, accounting majors would object if we took most CPA examination content out of the curriculum in favor of most any other academic content. Engineering majors would object if they took most engineering out of the curriculum. Nursing majors would object if they had studied minimal nursing examination content. The same with pharmacy majors, education majors, etc. Who cares about English "Literature" majors? Sigh!

    It's bad enough that we took accounting out of accountancy doctoral programs ---
    http://www.trinity.edu/rjensen/Theory01.htm#DoctoralPrograms

    For those of you wanting to replace Accounting Principles 102 content with gender studies of accountants, some of the course material might be drawn from http://www.trinity.edu/rjensen/bookbob2.htm#Women
    There are also some good modules on accounting gender studies in the AAA Commons.

    I don't have any curriculum material for transgendering and sexual orientation in accounting, although one of my closest friends (in church) is a transgendered accountant. In the discipline of economics there is a transgendering book reference at |
    http://en.wikipedia.org/wiki/Deirdre_McCloskey
    Deirdre has the good sense to not let her transgendering overtake her devotion to classical economic history and statistics history in her courses. I got to know her somewhat in personal correspondence and really, really respect her classical scholarship where I think she would prefer that transgendering be ignored in her course and research content ---
    http://www.cs.trinity.edu/~rjensen/temp/DeirdreMcCloskey/StatisticalSignificance01.htm  

    Some undergraduate majors like math majors might object to taking traditional math out of the curriculum even if they do not face certification examinations. They may especially object if political activists have pushed out traditional discipline content in mathematics.

    At the moment are there better places to major in English literature than UCLA? I can't really answer that, but I know that I would prefer that at least one course in Shakespeare should be required in every English literature curriculum. Then I could perhaps get an intelligent answer about Shakespeare when having lunch with an English literature graduate. And I really don't care about the sexual orientation of Shakespeare or having a conversation about his sexual orientation with someone who has never studied any of Shakespeare's plays and poetry. It would not really interest me if the Bard was or was not a cross dresser.

    "The Humanities Have Forgotten Their Humanity When Shakespeare lost out to 'rubrics of gender, sexuality, race, and class' at UCLA, something vital was harmed," by Heather Mac Donald,  The Wall Street Journal, January 3, 2014 ---
    http://online.wsj.com/news/articles/SB10001424052702304858104579264321265378790?mod=djemEditorialPage_h

    In 2011, the University of California at Los Angeles wrecked its English major. Such a development may seem insignificant, compared with, say, the federal takeover of health care. It is not. What happened at UCLA is part of a momentous shift that bears on our relationship to the past—and to civilization itself.

    Until 2011, students majoring in English at UCLA had to take one course in Chaucer, two in Shakespeare, and one in Milton —the cornerstones of English literature. Following a revolt of the junior faculty, however, during which it was announced that Shakespeare was part of the "Empire," UCLA junked these individual author requirements. It replaced them with a mandate that all English majors take a total of three courses in the following four areas: Gender, Race, Ethnicity, Disability and Sexuality Studies; Imperial, Transnational, and Postcolonial Studies; genre studies, interdisciplinary studies, and critical theory; or creative writing.

    In other words, the UCLA faculty was now officially indifferent to whether an English major had ever read a word of Chaucer, Milton or Shakespeare, but the department was determined to expose students, according to the course catalog, to "alternative rubrics of gender, sexuality, race, and class."

    Such defenestrations have happened elsewhere, and long before 2011. But the UCLA coup was particularly significant because the school's English department was one of the last champions of the historically informed study of great literature, uncorrupted by an ideological overlay. Precisely for that reason, it was the most popular English major in the country, enrolling a whopping 1,400 undergraduates.

    The UCLA coup represents the characteristic academic traits of our time: narcissism, an obsession with victimhood, and a relentless determination to reduce the stunning complexity of the past to the shallow categories of identity and class politics. Sitting atop an entire civilization of aesthetic wonders, the contemporary academic wants only to study oppression, preferably his or her own, defined reductively according to gonads and melanin.

    Course catalogs today babble monotonously of group identity. UCLA's undergraduates can take courses in Women of Color in the U.S.; Women and Gender in the Caribbean; Chicana Feminism; Studies in Queer Literatures and Cultures; and Feminist and Queer Theory.

    Not so long ago, colleges still reflected the humanist tradition, which was founded not on narcissism but on the all-consuming desire to engage with the genius and radical difference of the past. The 14th-century Florentine poet Francesco Petrarch triggered the explosion of knowledge known today as Renaissance humanism with his discovery of Livy's monumental history of Rome and the letters of Cicero, the Roman statesman whose orations, with their crystalline Latin style, would inspire such philosophers of republicanism as John Adams and Thomas Jefferson.

    But Petrarch wanted to converse with the ancients as well as read them. So he penned heartfelt letters in Latin to Virgil, Seneca, Horace and Homer, among others, informing them of the fate of their writings and of Rome itself. After rebuking Cicero for the vindictiveness revealed in his letters, Petrarch repented and wrote him again: "I fear that my last letter has offended you. . . . But I feel I know you as intimately as if I had always lived with you."

    In 1416, the Florentine clerk Poggio Bracciolini discovered the most important Roman treatise on rhetoric moldering in a monastery library outside Constance, a find of such value that a companion exclaimed: "Oh wondrous treasure, oh unexpected joy!"

    Bracciolini thought of himself as rescuing a still-living being. The treatise's author, Quintilian, would have "perished shortly if we hadn't brought him aid . . ." Bracciolini wrote to a friend in Verona. "There is not the slightest doubt that that man, so brilliant, genteel, tasteful, refined, and pleasant, could not longer have endured the squalor of that place and the cruelty of those jailors."

    This burning drive to recover a lost culture propelled the Renaissance humanists into remote castles and monasteries to search for long-forgotten manuscripts. The knowledge that many ancient texts were forever lost filled these scholars with despair. Nevertheless, they exulted in their growing repossession of classical learning.

    In François Rabelais's exuberant stories from the 1530s, the giant Gargantua sends off his son to study in Paris, joyfully conjuring up the languages—Greek, Latin, Hebrew, Chaldean and Arabic—that he expects his son to master, as well as the vast range of history, law, natural history and philosophy.

    This constant, sophisticated dialogue between past and present would become a defining feature of Western civilization, prompting the evolution of such radical ideas as constitutional government and giving birth to arts and architecture of polyphonic complexity. And it became the primary mission of the universities to transmit knowledge of the past, as well as—eventually—to serve as seedbeds for new knowledge.

    Compare the humanists' hunger for learning with the resentment of a Columbia University undergraduate, who had been required by the school's core curriculum to study Mozart. She happens to be black, but her views are widely shared, to borrow a phrase, "across gender, sexuality, race and class."

    "Why did I have to listen in music humanities to this Mozart?" she groused in a discussion of the curriculum reported by David Denby in "Great Books," his 1997 account of re-enrolling in Columbia's core curriculum. "My problem with the core is that it upholds the premises of white supremacy and racism. It's a racist core. Who is this Mozart, this Haydn, these superior white men? There are no women, no people of color." These are not the idiosyncratic thoughts of one disgruntled student; they represent the dominant ideology in the humanities today.

    W.E.B. Du Bois would have been stunned to learn how narrow is the contemporary multiculturalist's self-definition and sphere of interest. Du Bois, living during America's darkest period of hate, nevertheless heartbreakingly affirmed in 1903 his intellectual and spiritual affinity with all of Western civilization: "I sit with Shakespeare and he winces not. Across the color line I move arm in arm with Balzac and Dumas. . . . I summon Aristotle and Aurelius and what soul I will, and they come all graciously with no scorn nor condescension."

    It is no wonder, then, that we have been hearing of late that the humanities are in crisis. A recent Harvard report from a committee co-chaired by the school's premier postcolonial studies theorist, Homi Bhabha, lamented that 57% of incoming Harvard students who initially declare interest in a humanities major eventually change concentrations. Why may that be? Imagine an intending lit major who is assigned something by Professor Bhabha: "If the problematic 'closure' of textuality questions the totalization of national culture. . . ." How soon before that student concludes that a psychology major is more up his alley?

    No, the only true justification for the humanities is that they provide the thing that Faust sold his soul for: knowledge. It is knowledge of a particular kind, concerning what men have done and created over the ages.

    The American Founders drew on an astonishingly wide range of historical sources and an appropriately jaundiced view of human nature to craft the world's most stable and free republic. They invoked lessons learned from the Greek city-states, the Carolingian Dynasty and the Ottoman Empire in the Constitution's defense. And they assumed that the new nation's citizens would themselves be versed in history and political philosophy.

    But humanistic learning is also an end in itself. It is simply better to have escaped one's narrow, petty self and entered minds far more subtle and vast than one's own than never to have done so. The Renaissance philosopher Marsilio Ficino said that a man lives as many millennia as are embraced by his knowledge of history. One could add: A man lives as many different lives as are embraced by his encounters with literature, music and all the humanities and arts. These forms of expression allow us to see and feel things that we would otherwise never experience—society on a 19th-century Russian feudal estate, for example, or the perfect crystalline brooks and mossy shades of pastoral poetry, or the exquisite languor of a Chopin nocturne.

    Continued in article

    Jensen Comment
    As long as the English majors at UCLA don't care if they've not studied Shakespeare since high school, who are we to care? Perhaps Oscar Wilde is more important than Shakespeare in terms of core studies in English literature at UCLA.

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

    "The Integration of Women and Minorities into the Auditing Profession since the Civil Rights Period," by Paul Madsen, The Accounting Review, November 2013, pp. 2145-2177 ---
    http://aaajournals.org/doi/full/10.2308/accr-50540  (not free)

    Following the Civil Rights Movement and the “quiet revolution” in women's work over the years from 1950 to 1970, women and minorities increasingly joined the auditing profession while the profession ramped up efforts to encourage integration. The purpose of this study is to rigorously examine how the integration of auditors has evolved since the civil rights and quiet revolution period. The primary distinctive feature of this study is that it evaluates the auditing profession's integration by comparing it to samples of occupations similar to auditing for the purpose of isolating auditing-specific forces influencing integration. I find that the pay structure in auditing is unusually equal, consistent with “equal pay for equal work.” The results for women, Hispanics, and miscellaneous minorities are consistent with members of these groups responding as one might expect to equal pay in auditing: groups that are poorly paid in other occupations select into auditing at higher rates, and groups that are well paid in other occupations select out of auditing at higher rates. The results for blacks are anomalous in that their pay in auditing has been good relative to many comparable occupations, but they have nevertheless been poorly represented in auditing. There are a number of theories that could potentially explain why blacks may be anomalously underrepresented in auditing. To begin to test them, I perform an exploratory analysis of the representation of women and minorities among college freshmen, college graduates, and young auditors. The results suggest that accounting is a popular degree among black college freshmen and that a relatively high percentage of accounting graduates are black. However, although they are well represented in the pool of potential new auditors, black accounting graduates enter the auditing profession at very low rates relative to other occupations requiring levels of education similar to auditing. The results suggest that black underrepresentation in auditing is not due to a lack of awareness among, or role models for, young blacks.

    Jensen Comment
    In recent years the CPA profession has hired more women than men, which is consistent with both admissions and graduation data for universities.

    The study does not show what proportion of newly hired African American graduates are from "historically black colleges and universities," but my guess is that it's relatively high relative to total first-year hirings of African Accounting Graduates in total in accountancy. My guess is that a relatively high proportion of those hirings are in government (e.g., the IRS) and clients of CPA firms as opposed to CPA firms themselves.

    I will now make a statement that is probably not politically correct and certainly is anecdotal. I have a acquaintance who is a retired dean of the business school of a well-known historically black university. She told me that her program played down a CPA examination preparation curriculum in favor of an industry and government accounting curriculum. One reason was fund raising, where large corporations showered her business school with scholarship funding and with multi-year internships for nearly all of the accounting students. Another reason was that her accounting program could attract more students if it offered career opportunities that did not require the highly stressful CPA examination.

    "African American Students and the CPA Exam Mentoring, internships and scholarship programs can draw students into the profession," by Quinton Booker, Journal of Accountancy, May 2005 ---
    http://www.journalofaccountancy.com/Issues/2005/May/AfricanAmericanStudentsAndTheCpaExam.htm

    EXECUTIVE SUMMARY
    DESPITE DECADES OF EFFORT by organizations such as the AICPA and NASBA to bring more minority candidates into the profession, the numbers are still small. Still, there were 5,731 African American candidates for the CPA exam in 2002—the largest for any year since 1997.

    THE DATA SUGGEST A SEVERE SHORTAGE of African American males under age 25 holding graduate degrees.

    SINCE MANY STUDENTS DECIDE TO major in accounting as early as high school, employers should begin to build relationships with high school juniors and seniors through summer job opportunities.

    THE VAST MAJORITY OF CANDIDATES are concentrated in 10 states. Employers in other states need to be more creative in finding and hiring CPAs.

    PROGRESS IS BEING MADE. Much of the success can likely be attributed to mentoring, internship and co-op programs, and scholarship programs at the undergraduate, master’s and doctoral levels.

    QUINTON BOOKER, CPA, DBA, is professor and chairman of the department of accounting at Jackson State University, Mississippi. His e-mail address is qbooker@jsums.edu .

    National Association of Black Accountants --- http://en.wikipedia.org/wiki/National_Association_of_Black_Accountants

    Association of Latino Professionals in Finance and Accounting ---
    http://en.wikipedia.org/wiki/Association_of_Latino_Professionals_in_Finance_and_Accounting

    American Society of Women Accountants --- http://en.wikipedia.org/wiki/University_of_Cambridge#Women.27s_education

    History of women accountants in the 1880. US Federal Census ---
    http://repository.usfca.edu/cgi/viewcontent.cgi?article=1001&context=acct

    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

    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

     

    Bob Jensen's threads on the history of women in the accounting profession are at
    http://www.trinity.edu/rjensen/bookbob2.htm#Women

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

    Questions
    At what point do local taxpayers object to paying for billion-dollar professional sports stadiums for teams owned by billionaires, rewarding players earning tens of millions each year, and providing kickbacks to corrupt business firms and labor unions largely at taxpayer expense?

    Is public debt serving the debt of a mega-sports stadium in Detroit, Chicago, etc. more important than funding municipal services and schools? I think the economic benefits of such stadiums to cities is over hyped.

    At what point do nations refuse to host costly and corruption-ridden Olympics events. The price tag for the Winter Olympics in Russia is over $51 billion and counting.

    "The Waste and Corruption of Vladimir Putin's 2014 Winter Olympics," By Joshua Yaffa, Bloomberg Businessweek, January 3, 2014 ---
    http://www.businessweek.com/articles/2014-01-02/the-2014-winter-olympics-in-sochi-cost-51-billion

    Here Are The USA States and Canadian Provinces That Everyone Using Atlas Van Lines Moved Into And Out Of In 2013 ---
    http://www.businessinsider.com/atlas-2013-moving-map-2014-1

    Caution
    The data are based upon only household moves of Atlas Van Lines. It probably is misleading to extrapolate the outcomes to total migration data. That means, among other things, that California is not really in steady-state yet. And Florida may be drowning in retirees who sold all their possessions up north and simply bought new condos, flip flops, and shorts after landing in Florida airports.

    Compare the historical patterns here --- http://www.atlasvanlines.com/migration-patterns/archives/

    Jensen Comment

    There are some surprises here, notably the household moves from nearly all of Canada into the USA. Reasons could be climate, economic opportunity. lower taxes, and a desire for Obamacare. Yeah Right! The provinces having the highest percentages of outbounders are Saskatchewan, Ontario, and Quebec. But the flows across the USA's northern border are nothing like the flood tides on its southern border. Most of the moves across the southern border did not use van lines of any type.

    Another surprise is that California is not hemorrhaging with population net loss due to having high and ever increasing taxes. The states with the highest percentages of outbound population were Connecticut, New York, and Indiana. Connecticut and New York outbounders were probably driven by high and ever-increasing taxes. But Indiana's outbounders confuse me. The highest inbounder states are largely due to low taxes and oil and gas opportunities --- except for North Carolina. What's in North Carolina?

    Florida is a bit of a surprise. I would have guessed it was flooding in new tax dodgers and sun-seeking retirees. The same goes for Arizona, although Arizona has fewer tax incentives.

    Nevada is also a bit of a surprise because of the tremendous tax incentives. But Nevada is the worst of the 50 USA states in terms of job opportunities.

    New Hampshire is one of the states with a high proportion if inbounders. I will vote for a 10-foot double fence surrounding the entire state. Come on folks. There's no oil and gas or jobs in New Hampshire. Must be the lure of low taxes.

    The bottom line is that this is mostly an exercise for students seeking to learn how to mislead with statistics and graphs.

    This is a similar study by United Van Lines ---
    http://www.businessinsider.com/2013-moving-map-2014-1

    Chuck Pier forwarded more a more accurate migration graphic for the USA ---
    http://vizynary.com/2013/11/18/restless-america-state-to-state-migration-in-2012/
    California and New York seem to be losing it. Wonder why?

     

    Paul Krugman --- http://en.wikipedia.org/wiki/Paul_Krugman

    . . .
    Krugman's columns have drawn criticism as well as praise. A 2003 article in     The Economist[111] questioned Krugman's "growing tendency to attribute all the world's ills to George Bush," citing critics who felt that "his relentless partisanship is getting in the way of his argument" and claiming errors of economic and political reasoning in his columns.[81] Daniel Okrent, a former The New York Times ombudsman, in his farewell column, criticized Krugman for what he said was "the disturbing habit of shaping, slicing and selectively citing numbers in a fashion that pleases his acolytes but leaves him open to substantive assaults."[11

    "Why Was Paul Krugman So Wrong?" by William Greider, The Nation, Date Unknown ---
    http://www.thenation.com/article/173593/why-was-paul-krugman-so-wrong#

    . . .

    In recent years, as the global system broke down, Krugman had less to say about international trade theory, his academic specialty, because he directed his wrath mostly at conservative Republicans demanding balanced budgets. But for many years Krugman made it his personal duty to act as the watchdog warning the public against non-economists peddling false ideas. In practice, this usually meant skewering progressive writers who criticized globalization from a liberal-labor perspective—offshoring of jobs, stagnating wages, sweatshops and all that. 

    Krugman was notorious among opponents for a snide polemical style. An old friend, another liberal author, once confided to me that he had “inoculated” his own forthcoming book against a blistering Krugman review. He attacked Krugman in print first, which effectively disqualified Krugman as a potential reviewer.

    So Krugman chewed on my new book instead—One World, Ready or Not: The Manic Logic of Global Capitalism—which he described as “a thoroughly silly book.” He made a nasty campaign against it, first on Slate, Microsoft’s online magazine, next a harsh review in The Washington Post, then again in his book entitled The Accidental Theorist. I have to admit it. In Krugman’s telling, I did sound like a drooling idiot

    Cotinued in article.

    Jensen Comment
    I have to admire Professor Krugman for being an equal opportunity critic. I think he was correct in the case of the book mentioned above. I think he was correct in the case of the WSJ article mentioned below, although in the latter case I have to ultimately agree with Bret Stephens.

     

    "About Those Income Inequality Statistics An answer to Paul Krugman," by Bret Stephens, The Wall Street Journal, January 3, 2014 ---
    http://online.wsj.com/news/articles/SB10001424052702304325004579298502492870522?mod=djemEditorialPage_h

    Let me do something New York Times NYT -0.13% columnist Paul Krugman isn't exactly famous for doing, at least not graciously: acknowledge a mistake.

    In my Dec. 31 column on income inequality, I used a data set from the U.S. Census Bureau to make the case that incomes in the U.S. have been growing across the board, even if the incomes of the wealthy have grown faster than those of others further down the income scale. But I wrote those lines looking at a set of numbers that had not been adjusted for inflation.

    Professor Krugman, in a post on his New York Times blog, takes me to task for this. Had I done so looking at the inflation-adjusted table, it would have shown the incomes of the bottom 20% essentially stagnating since 1979 (and long before then, too), though it also would have shown incomes for the top 20% rising far less dramatically.

    That was an error, roughly of the kind the Nobel Laureate economist made last August when he confused an x for a 1/x. As is his charming wont, Mr. Krugman accuses me not of making an honest mistake, but of "pulling a fast one."

    My mistake is all the more unfortunate because the basic point I was making is right: Americans are getting richer across the entire income spectrum, even if they are getting richer at very different rates. That much is confirmed by data from the Congressional Budget Office. The CBO finds that between 1979 and 2007 income for poor households grew by 18%, for the middle classes by nearly 40%, and for the top 81-99% by 65%. It's the top 1% who have made out very handsomely, with a jump of 275% over nearly three decades.

    The difference between the Census Bureau and CBO data comes down to the complicated (and ultimately subjective) way in which "income" is defined. The Census Bureau data relies on a definition of income that is pre-tax but post-transfer cash income. But it also excludes the non-cash benefits that go to many of the poor, such as food stamps, Medicaid, CHIP (children's Medicaid) and housing subsidies. (and now more free or subsidized medical care and medications)

    By contrast, the CBO numbers measure after-tax, after-transfer income. It also includes non-cash transfers. Those benefits may not be fungible, but they do have value. And they vindicate my core point: "The richer have outpaced the poorer in growing their incomes, just as runners will outpace joggers who will, in turn, outpace walkers." What mattered, I said, was that "the walking man walks."

    My column also noted that President Obama erred when he said the top 10% take half of aggregate income; in fact, it's the top 20% who take half the income, according to Census Bureau data. Mr. Krugman takes issue with this, too, saying the Census Bureau figures are pretty much worthless when it comes to quantifying the aggregate incomes of the very rich. Much better, he says, is data from a controversial study by two left-wing French economists, Emmanuel Saez and Thomas Piketty, which is in line with President Obama's contention.

    Talk about a fast one. As Greg Mankiw, chairman of the Harvard Economics department, notes, Saez-Piketty has its own set of very large problems: "The data are on tax units rather than households, they do not include many government transfer payments, they are pre-tax rather than post-tax, they do not adjust for changes in household size, and they do not include nontaxable compensation such as employer-provided health insurance."

    Ultimately, debates about income inequality are never going to be settled because both "income" and "inequality" are very hard to measure. Is the best measure of inequality wage inequality, income inequality, or consumption inequality? If a poor family today can now afford a car, an air conditioner, a computer and other goods unaffordable or unavailable to the poor of 35 years ago, can they really be said to have stagnated economically? How do changes in the tax code affect the ways in which income can be reported, sheltered and measured? What is the true money value of health insurance?

    And so on and on. The argument I made in my column is that inequality should only matter to Americans if, Russia-like, the rich are getting richer at the expense of the poor. Neither the Census Bureau nor the CBO figures show that.

    None of this is to excuse the fact that I goofed in my use of data. My apologies. As for Mr. Krugman, he should bear in mind something the public editor of the New York Times once said about him: "Paul Krugman has the disturbing habit of shaping, slicing and selectively citing numbers in a fashion to please his acolytes but leaves him open to substantive assaults."

     

    Over 3,000 Cuban doctors defected from Venezuela in 2013:  Most Cuban doctors defecting to the US over the last 12 months came from Venezuela, ---
    http://www.eluniversal.com/nacional-y-politica/131228/over-3000-cuban-doctors-defected-from-venezuela-in-2013

    Over the last 12 months some 3,000 Cubans, mostly doctors, have arrived in the United States after deserting one of the Venezuelan government's social programs they staff. This accounts for a 60% increase as compared with 2012.

    In 2012 there were about 5,000 refugee Cuban doctors and nurses in the United States coming from all over the world. Through December 1, 2013 this figure had surged to 8,000, 98% of them came from Venezuela.

    These are estimates by Dr. Julio Cesar Alfonso, head of the South Florida group Solidarity Without Borders Inc. (SWB), which helps Cuban medical professionals who try to desert the medical programs Havana sells worldwide as "exports of services."

    Venezuela hosts the largest contingent of Cuban medical professionals under the cooperation agreement signed by Caracas and Havana in 2003.

    By 2012, 44,804 Cubans staffed the seven social programs starting in 2003, according to the last official data released.

    "In 2012 we had 5,000 refugee medical professionals in the United States under federal assistance, but that figure has surged so far in 2013 reaching 8,000 doctors, 98% of whom defected from Venezuela because of continuously worsening conditions in that country," Alfonso says.

    "Most Cubans who have defected complain about low salaries, late payment, increased workload in the Barrio Adentro neighborhood clinics and CDIs (Comprehensive Diagnostic Centers) across Venezuela, which to some critics amounts to modern-day slavery," Alfonso says.

    "Cuban doctors only get USD 300 a month, but the Venezuelan government pays the Castro regime around USD 6,000 per doctor, so individual doctors are paid less than 10% of what Cuba collects," Alfonso says.

    Since 2006, Cuban doctors and some other health workers who are serving their government overseas are allowed to request a United States visa under the Cuban Medical Professional Parole (CMPP) Program.

    After requesting assistance from the US Embassy in Caracas, most doctors defect to the United States via Colombia, but Brazil is also being used as an alternative transit route to freedom.

    Cuban medical professionals are required to produce numerous patient records for the purposes of drafting reports, many of which contain patient data that have been tampered with.

    "This is done so that Cuba can show positive reports to the Venezuelan government," Alfonso says.

    Jensen Comment
    Cuba and Venezuela have done more than nearly all other nations have done more to eliminate income inequality than other nations. Contrary to the lies you hear from Michael Moore, their efforts do not appear to be healthy. Soon the U.S. and parts of Europe may be getting an influx of very skilled French physicians.

     

    Over 3,000 Cuban doctors defected from Venezuela in 2013:  Most Cuban doctors defecting to the US over the last 12 months came from Venezuela, ---
    http://www.eluniversal.com/nacional-y-politica/131228/over-3000-cuban-doctors-defected-from-venezuela-in-2013

    Over the last 12 months some 3,000 Cubans, mostly doctors, have arrived in the United States after deserting one of the Venezuelan government's social programs they staff. This accounts for a 60% increase as compared with 2012.

    In 2012 there were about 5,000 refugee Cuban doctors and nurses in the United States coming from all over the world. Through December 1, 2013 this figure had surged to 8,000, 98% of them came from Venezuela.

    These are estimates by Dr. Julio Cesar Alfonso, head of the South Florida group Solidarity Without Borders Inc. (SWB), which helps Cuban medical professionals who try to desert the medical programs Havana sells worldwide as "exports of services."

    Venezuela hosts the largest contingent of Cuban medical professionals under the cooperation agreement signed by Caracas and Havana in 2003.

    By 2012, 44,804 Cubans staffed the seven social programs starting in 2003, according to the last official data released.

    "In 2012 we had 5,000 refugee medical professionals in the United States under federal assistance, but that figure has surged so far in 2013 reaching 8,000 doctors, 98% of whom defected from Venezuela because of continuously worsening conditions in that country," Alfonso says.

    "Most Cubans who have defected complain about low salaries, late payment, increased workload in the Barrio Adentro neighborhood clinics and CDIs (Comprehensive Diagnostic Centers) across Venezuela, which to some critics amounts to modern-day slavery," Alfonso says.

    "Cuban doctors only get USD 300 a month, but the Venezuelan government pays the Castro regime around USD 6,000 per doctor, so individual doctors are paid less than 10% of what Cuba collects," Alfonso says.

    Since 2006, Cuban doctors and some other health workers who are serving their government overseas are allowed to request a United States visa under the Cuban Medical Professional Parole (CMPP) Program.

    After requesting assistance from the US Embassy in Caracas, most doctors defect to the United States via Colombia, but Brazil is also being used as an alternative transit route to freedom.

    Cuban medical professionals are required to produce numerous patient records for the purposes of drafting reports, many of which contain patient data that have been tampered with.

    "This is done so that Cuba can show positive reports to the Venezuelan government," Alfonso says.

    Jensen Comment
    Cuba and Venezuela have done more than nearly all other nations have done more to eliminate income inequality than other nations. Contrary to the lies you hear from Michael Moore, their efforts do not appear to be healthy. Soon the U.S. and parts of Europe may be getting an influx of very skilled French physicians.

    "Some Thoughts About Accounting Scholarship," by Joel Demski, AAA President's Message, Accounting Education News, Fall 2001
    http://aaahq.org/pubs/AEN/2001/Fall2001.pdf 

    Some Thoughts on Accounting Scholarship From Annual Meeting Presidential Address, August 22, 2001
    Tradition calls for me to reveal plans and aspirations for the coming year. But a slight deviation from tradition will, I hope, provide some perspective on my thinking.

    We have, in the past half century, made considerable strides in our knowledge of accounting institutions. Statistical connections between accounting measures and market prices, optimal contracting, and professional judgment processes and biases are illustrative. In the process we have raised the stature, the relevance, and the sheer excitement of intellectual inquiry in accounting, be it in the classroom, in the cloak room, or in the journals.

    Of late, however, a malaise appears to have settled in. Our progress has turned flat, our tribal tendencies have taken hold, and our joy has diminished.

    Some Warning Signs
    Some Warning Signs One indicator is our textbooks, our primary communication medium and our statement to the world about ourselves. I see several patterns here. One is the unrelenting march to make every text look like People magazine. Form now leads, if not swallows, substance. Another is the insatiable appetite to list every rule published by the FASB (despite the fact we have a tidal wave thanks to DIG, EIFT, AcSEC, SABs, and what have you). Closely related is the interest in fads. Everything, including this paragraph of my remarks, is now subject to a value-added test. Benchmarking, strategic vision, and EVA ® are everywhere. Foundations are nowhere. Building blocks are languishing in appendices and wastebaskets.

    A second indicator is our journals. They have proliferated in number. But we struggle with an intertemporal sameness, with incremental as opposed to discontinuous attempts to move our thinking forward, and with referee intrusion and voyeurism. Value relevance is a currently fashionable approach to identifying statistical regularities in the financial market arena, just as a focus on readily observable components of compensation is a currently fashionable dependent variable in the compensation arena. Yet we know measurement error abounds, that other sources of information are both present and hardly unimportant, that compensation is broad-based and intertemporally managed, and that compensating wage differentials are part of the stew. Yet we continue on the comfortable path of sameness.

    A third indicator is our work habits. We have embraced, indeed been swallowed by, the multiple adjective syndrome, or MAS: financial, audit, managerial, tax, analytic, archival, experimental, systems, cognitive, etc. This applies to our research, to our reading, to our courses, to our teaching assignments, to our teaching, and to the organization of our Annual Meeting. In so doing, we have exploited specialization, but in the process greatly reduced communication networks, and taken on a near tribal structure.

    A useful analogy here is linearization. In accounting we linearize everything in sight: additive components on the balance sheet, linear cost functions, and the most glaring of all, the additive representation inherent in ABC, which by its mere structure denies the scope economy that causes the firm to jointly produce that set of products in the first place. Linearization denies interaction, denies synergy; and our recent propensity for multiple adjectives does precisely the same to us. We are doing to ourselves what we’ve done to our subject area. What, we might ask, happened to accounting? Indeed, I worry we will someday have a section specialized in depreciation or receivables or intangibles.

    I hasten to add this particular tendency has festered for some time. Rick Antle, discussing the “Intellectual Boundaries in Accounting Research” at the ’88 meeting observed:

    In carving out tractable pieces of institutionally defined problems, we inevitably impose intellectual boundaries. ... My concern arises when, instead of generating fluid, useful boundaries, our processes of simplification lead to rigid, dysfunctional ones. (6/89 Horizons, page 109).

    I fear we have perfected and made a virtue out of Rick’s concern. Fluid boundaries are now held at bay by our work habits and natural defenses.

    A final indicator is what appears to be coming down the road, our work in progress. Doctoral enrollment is down, a fact. It is also arguably factual that doctoral training has become tribal. I, personally, have witnessed this at recent Doctoral and New Faculty Consortia, and in our recruiting at UF. This reinforces the visible patterns in our textbooks, in our journals, and in our work habits. Some Contributors

    Some Contributors
    These patterns, of course, are not accidental. They are largely endogenous. And I think it is equally instructive to sketch some of the contributors.

    One contributor is employers, their firms, and their professional organizations. Employers want and lobby for the student well equipped with the latest consulting fad, or the student well equipped to transition into a billable audit team member or tax consultant within two hours of the first day of employment. Immediacy is sought and championed, though with the caveat of critical-thinking skills somehow being added to the stew.

    Continued in article

    Jensen Comment
    I agree with much of what Joel said, but I think he overlooks what I think is a major problem in accounting scholarship. That major problem in my viewpoint is the takeover of accountancy doctoral programs in North America where accounting dissertations are virtually not acceptable unless they have equations ---
    http://www.trinity.edu/rjensen/Theory01.htm#DoctoralPrograms

    Recommendation 2 of the American Accounting Association Pathways Commission (emphasis added)

    Scapbook1083--- http://www.trinity.edu/rjensen/TheoryTar.htm#Scrapbook1083

     

    Promote accessibility of doctoral education by allowing for flexible content and structure in doctoral programs and developing multiple pathways for degrees. The current path to an accounting Ph.D. includes lengthy, full-time residential programs and research training that is for the most part confined to quantitative rather than qualitative methods. More flexible programs -- that might be part-time, focus on applied research and emphasize training in teaching methods and curriculum development -- would appeal to graduate students with professional experience and candidates with families, according to the report.
         http://commons.aaahq.org/groups/2d690969a3/summary

    It has been well over a year in which I've scanned the media for signs of change. But in well over a year I've seen little progress and zero encouragement that accounting doctoral programs and our leading accounting research journals are going to change. A necessary condition remains that an accounting doctoral dissertation and an Accounting Review article is not acceptable unless it has equations.

    Accounting scholarship in doctoral programs is still "confined to quantitative rather than qualitative methods." The main reason is simple. Quantitative research is easier.

    My theory is that accountics science gained dominance in accounting research, especially in North American accounting Ph.D. programs, because it abdicated responsibility:

    1.     Most accountics scientists buy data, thereby avoiding the greater cost and drudgery of collecting data.

     

    2.     By relying so heavily on purchased data, accountics scientists abdicate responsibility for errors in the data.

     

    3.     Since adding missing variable data to the public database is generally not at all practical in purchased databases, accountics scientists have an excuse for not collecting missing variable data.
     

    4.  Software packages for modeling and testing data abound. Accountics researchers need only feed purchased data into the hopper of statistical and mathematical analysis programs. It still takes a lot of knowledge to formulate hypotheses and to understand the complex models. But the really hard work of collecting data and error checking is avoided by purchasing data.

    Some Thoughts About Accounting Scholarship," by Joel Demski, AAA President's Message, Accounting Education News, Fall 2001
    http://aaahq.org/pubs/AEN/2001/Fall2001.pdf 

    . . .

    A second indicator is our journals. They have proliferated in number. But we struggle with an intertemporal sameness, with incremental as opposed to discontinuous attempts to move our thinking forward, and with referee intrusion and voyeurism. Value relevance is a currently fashionable approach to identifying statistical regularities in the financial market arena, just as a focus on readily observable components of compensation is a currently fashionable dependent variable in the compensation arena. Yet we know measurement error abounds, that other sources of information are both present and hardly unimportant, that compensation is broad-based and intertemporally managed, and that compensating wage differentials are part of the stew. Yet we continue on the comfortable path of sameness.

    Nobody is listening on the AECM or anywhere else! Sadly the accountics researchers who generate this stuff won't even discuss their research on the AECM or the AAA Commons:

    "Frankly, Scarlett, after I get a hit for my resume in The Accounting Review I just don't give a damn"
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm
    One more mission in what's left of my life will be to try to change this
    http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm

     

    "Buffalo Grove may not be so great, after all," State Data Lab, January 14, 2014 ---
    http://www.statedatalab.org/news/detail/buffalo-grove-may-not-be-so-great-after-all

    CNN Money included Buffalo Grove as one of the top 50 places to live. CNN placed the village at 46 and highlighted that the village "enjoys economic stability."

    Truth in Accounting reviewed the village's audited financial report and found a different story.  While the balance sheet indicates the village has $21 million available to be used to meet a current and future bills, this amount does not take into account more than $60 million of off-balance sheet liabilities.

    These liabilities represent unfunded pension and retirees' health care commitments of $62.7 million. If this amount was included in its bills, the village needs $41.9 million to pay the bills it has accumulated to date. 

    This amount is almost three times the property taxes collected.  Each taxpayer's (household's) share is $2,585.

    Buffalo Grove, like most Cook County municipalities, has large amounts of unfunded retirement benefits. Buffalo Grove's police and firefighters’ pensions are unfunded by more than four times their payroll. In other words, the village would have to stop paying their police and firefighters for four years and divert all of those funds to their pension plans just to catch up.

    The lack of truth and transparency in local government finances has resulted in the accumulation of significant debt without public knowledge. Fortunately, people are now focusing on the debt of Illinois and the federal government. Unfortunately, people aren't aware that debt is most likely a problem in their local government as well.

    Continued in article

    Truth in Accounting has also examined the comparisons between Chicago and the bankrupt city of Detroit ---
    http://www.rebootillinois.com/chicago-detroit-comparison-not-far-fetched-says-truth-in-accounting  

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

     

    Some Doubts About Econometric Research by Econometrics Experts

    Unlike real scientists, accountics scientists seldom replicate published accountics science research by the exacting standards real science ---
    http://www.trinity.edu/rjensen/TheoryTAR.htm#Replication

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

    Robust Statistics --- http://en.wikipedia.org/wiki/Robust_statistics

    Robust statistics are statistics with good performance for data drawn from a wide range of probability distributions, especially for distributions that are not normally distributed. Robust statistical methods have been developed for many common problems, such as estimating location, scale and regression parameters. One motivation is to produce statistical methods that are not unduly affected by outliers. Another motivation is to provide methods with good performance when there are small departures from parametric distributions. For example, robust methods work well for mixtures of two normal distributions with different standard-deviations, for example, one and three; under this model, non-robust methods like a t-test work badly.

    Continued in article

    Jensen Comment
    To this might be added that models that grow adaptively by adding components in sequencing are not robust if the mere order in which components are added changes the outcome of the ultimate model.

    David Johnstone wrote the following:

    Indeed if you hold H0 the same and keep changing the model, you will eventually (generally soon) get a significant result, allowing “rejection of H0 at 5%”, not because H0 is necessarily false but because you have built upon a false model (of which there are zillions, obviously).

    Jensen Comment
    I spent a goodly part of two think-tank years trying in vain to invent robust adaptive regression and clustering models where I tried to adaptively reduce modeling error by adding missing variables and covariance components. To my great frustration I found that adaptive regression and cluster analysis seems to almost always suffer from lack of robustness. Different outcomes can be obtained simply because of the order in which new components are added to the model, i.e., ordering of inputs changes the model solutions.

    Accountics scientists who declare they have "significant results" may also have non-robust results that they fail to analyze.

    When you combine issues on non-robustness with the impossibility of testing for covariance you have a real mess in accountics science and econometrics in general.

    It's relatively uncommon for accountics scientists to criticize each others' published works. A notable exception is as follows:
    "Selection Models in Accounting Research," by Clive S. Lennox, Jere R. Francis, and Zitian Wang,  The Accounting Review, March 2012, Vol. 87, No. 2, pp. 589-616.

    This study explains the challenges associated with the Heckman (1979) procedure to control for selection bias, assesses the quality of its application in accounting research, and offers guidance for better implementation of selection models. A survey of 75 recent accounting articles in leading journals reveals that many researchers implement the technique in a mechanical way with relatively little appreciation of important econometric issues and problems surrounding its use. Using empirical examples motivated by prior research, we illustrate that selection models are fragile and can yield quite literally any possible outcome in response to fairly minor changes in model specification. We conclude with guidance on how researchers can better implement selection models that will provide more convincing evidence on potential selection bias, including the need to justify model specifications and careful sensitivity analyses with respect to robustness and multicollinearity.

    . . .

    CONCLUSIONS

    Our review of the accounting literature indicates that some studies have implemented the selection model in a questionable manner. Accounting researchers often impose ad hoc exclusion restrictions or no exclusion restrictions whatsoever. Using empirical examples and a replication of a published study, we demonstrate that such practices can yield results that are too fragile to be considered reliable. In our empirical examples, a researcher could obtain quite literally any outcome by making relatively minor and apparently innocuous changes to the set of exclusionary variables, including choosing a null set. One set of exclusion restrictions would lead the researcher to conclude that selection bias is a significant problem, while an alternative set involving rather minor changes would give the opposite conclusion. Thus, claims about the existence and direction of selection bias can be sensitive to the researcher's set of exclusion restrictions.

    Our examples also illustrate that the selection model is vulnerable to high levels of multicollinearity, which can exacerbate the bias that arises when a model is misspecified (Thursby 1988). Moreover, the potential for misspecification is high in the selection model because inferences about the existence and direction of selection bias depend entirely on the researcher's assumptions about the appropriate functional form and exclusion restrictions. In addition, high multicollinearity means that the statistical insignificance of the inverse Mills' ratio is not a reliable guide as to the absence of selection bias. Even when the inverse Mills' ratio is statistically insignificant, inferences from the selection model can be different from those obtained without the inverse Mills' ratio. In this situation, the selection model indicates that it is legitimate to omit the inverse Mills' ratio, and yet, omitting the inverse Mills' ratio gives different inferences for the treatment variable because multicollinearity is then much lower.

    In short, researchers are faced with the following trade-off. On the one hand, selection models can be fragile and suffer from multicollinearity problems, which hinder their reliability. On the other hand, the selection model potentially provides more reliable inferences by controlling for endogeneity bias if the researcher can find good exclusion restrictions, and if the models are found to be robust to minor specification changes. The importance of these advantages and disadvantages depends on the specific empirical setting, so it would be inappropriate for us to make a general statement about when the selection model should be used. Instead, researchers need to critically appraise the quality of their exclusion restrictions and assess whether there are problems of fragility and multicollinearity in their specific empirical setting that might limit the effectiveness of selection models relative to OLS.

    Another way to control for unobservable factors that are correlated with the endogenous regressor (D) is to use panel data. Though it may be true that many unobservable factors impact the choice of D, as long as those unobservable characteristics remain constant during the period of study, they can be controlled for using a fixed effects research design. In this case, panel data tests that control for unobserved differences between the treatment group (D = 1) and the control group (D = 0) will eliminate the potential bias caused by endogeneity as long as the unobserved source of the endogeneity is time-invariant (e.g., Baltagi 1995; Meyer 1995; Bertrand et al. 2004). The advantages of such a difference-in-differences research design are well recognized by accounting researchers (e.g., Altamuro et al. 2005; Desai et al. 2006; Hail and Leuz 2009; Hanlon et al. 2008). As a caveat, however, we note that the time-invariance of unobservables is a strong assumption that cannot be empirically validated. Moreover, the standard errors in such panel data tests need to be corrected for serial correlation because otherwise there is a danger of over-rejecting the null hypothesis that D has no effect on Y (Bertrand et al. 2004).10

    Finally, we note that there is a recent trend in the accounting literature to use samples that are matched based on their propensity scores (e.g., Armstrong et al. 2010; Lawrence et al. 2011). An advantage of propensity score matching (PSM) is that there is no MILLS variable and so the researcher is not required to find valid Z variables (Heckman et al. 1997; Heckman and Navarro-Lozano 2004). However, such matching has two important limitations. First, selection is assumed to occur only on observable characteristics. That is, the error term in the first stage model is correlated with the independent variables in the second stage (i.e., u is correlated with X and/or Z), but there is no selection on unobservables (i.e., u and υ are uncorrelated). In contrast, the purpose of the selection model is to control for endogeneity that arises from unobservables (i.e., the correlation between u and υ). Therefore, propensity score matching should not be viewed as a replacement for the selection model (Tucker 2010).

    A second limitation arises if the treatment variable affects the company's matching attributes. For example, suppose that a company's choice of auditor affects its subsequent ability to raise external capital. This would mean that companies with higher quality auditors would grow faster. Suppose also that the company's characteristics at the time the auditor is first chosen cannot be observed. Instead, we match at some stacked calendar time where some companies have been using the same auditor for 20 years and others for not very long. Then, if we matched on company size, we would be throwing out the companies that have become large because they have benefited from high-quality audits. Such companies do not look like suitable “matches,” insofar as they are much larger than the companies in the control group that have low-quality auditors. In this situation, propensity matching could bias toward a non-result because the treatment variable (auditor choice) affects the company's matching attributes (e.g., its size). It is beyond the scope of this study to provide a more thorough assessment of the advantages and disadvantages of propensity score matching in accounting applications, so we leave this important issue to future research.

    Jensen Comment
    To this we might add that it's impossible in these linear models to test for multicollinearity.

    David Johnstone posted the following message on the AECM Listserv on November 19, 2013:

    An interesting aspect of all this is that there is a widespread a priori or learned belief in empirical research that all and only what you have to do to get meaningful results is to get data and run statistics packages, and that the more advanced the stats the better. Its then just a matter of turning the handle. Admittedly it takes a lot of effort to get very proficient at this kind of work, but the presumption that it will naturally lead to reliable knowledge is an act of faith, like a religious tenet. What needs to be taken into account is that the human systems (markets, accounting reporting, asset pricing etc.) are madly complicated and likely changing structurally continuously. So even with the best intents and best methods, there is no guarantee of reliable or lasting findings a priori, no matter what “rigor” has gone in.

     

    Part and parcel of the presumption that empirical research methods are automatically “it” is the even stronger position that no other type of work is research. I come across this a lot. I just had a 4th year Hons student do his thesis, he was particularly involved in the superannuation/pension fund industry, and he did a lot of good practical stuff, thinking about risks that different fund allocations present, actuarial life expectancies etc. The two young guys (late 20s) grading this thesis, both excellent thinkers and not zealots about anything, both commented to me that the thesis was weird and was not really a thesis like they would have assumed necessary (electronic data bases with regressions etc.). They were still generous in their grading, and the student did well, and it was only their obvious astonishment that there is any kind of worthy work other than the formulaic-empirical that astonished me. This represents a real narrowing of mind in academe, almost like a tendency to dark age, and cannot be good for us long term. In Australia the new push is for research “impact”, which seems to include industry relevance, so that presents a hope for a cultural widening.

     

    I have been doing some work with a lawyer-PhD student on valuation in law cases/principles, and this has caused similar raised eyebrows and genuine intrigue with young colleagues – they just have never heard of such stuff, and only read the journals/specific papers that do what they do. I can sense their interest, and almost envy of such freedom, as they are all worrying about how to compete and make a long term career as an academic in the new academic world.

     

     

    "Good Old R-Squared," by David Giles, Econometrics Beat:  Dave Giles’ Blog, University of Victoria, June 24, 2013 ---
    http://davegiles.blogspot.com/2013/05/good-old-r-squared.html 

    My students are often horrified when I tell them, truthfully, that one of the last pieces of information that I look at when evaluating the results of an OLS regression, is the coefficient of determination (R2), or its "adjusted" counterpart. Fortunately, it doesn't take long to change their perspective!

    After all, we all know that with time-series data, it's really easy to get a "high" R2 value, because of the trend components in the data. With cross-section data, really low R2 values are really common. For most of us, the signs, magnitudes, and significance of the estimated parameters are of primary interest. Then we worry about testing the assumptions underlying our analysis. R2 is at the bottom of the list of priorities.

    Continued in article

    Also see http://davegiles.blogspot.com/2013/07/the-adjusted-r-squared-again.html

    Bob Jensen's threads on validity testing in accountics science ---
    http://www.trinity.edu/rjensen/TheoryTAR.htm

    "Can You Actually TEST for Multicollinearity?" by David Giles, Econometrics Beat:  Dave Giles’ Blog, University of Victoria, June 24, 2013 ---
    http://davegiles.blogspot.com/2013/06/can-you-actually-test-for.html

    . . .

    Now, let's return to the "problem" of multicollinearity.

     
    What do we mean by this term, anyway? This turns out to be the key question!

     
    Multicollinearity is a phenomenon associated with our particular sample of data when we're trying to estimate a regression model. Essentially, it's a situation where there is insufficient information in the sample of data to enable us to enable us to draw "reliable" inferences about the individual parameters of the underlying (population) model.


    I'll be elaborating more on the "informational content" aspect of this phenomenon in a follow-up post. Yes, there are various sample measures that we can compute and report, to help us gauge how severe this data "problem" may be. But they're not statistical tests, in any sense of the word

     

    Because multicollinearity is a characteristic of the sample, and not a characteristic of the population, you should immediately be suspicious when someone starts talking about "testing for multicollinearity". Right?


    Apparently not everyone gets it!


    There's an old paper by Farrar and Glauber (1967) which, on the face of it might seem to take a different stance. In fact, if you were around when this paper was published (or if you've bothered to actually read it carefully), you'll know that this paper makes two contributions. First, it provides a very sensible discussion of what multicollinearity is all about. Second, the authors take some well known results from the statistics literature (notably, by Wishart, 1928; Wilks, 1932; and Bartlett, 1950) and use them to give "tests" of the hypothesis that the regressor matrix, X, is orthogonal.


    How can this be? Well, there's a simple explanation if you read the Farrar and Glauber paper carefully, and note what assumptions are made when they "borrow" the old statistics results. Specifically, there's an explicit (and necessary) assumption that in the population the X matrix is random, and that it follows a multivariate normal distribution.


    This assumption is, of course totally at odds with what is usually assumed in the linear regression model! The "tests" that Farrar and Glauber gave us aren't really tests of multicollinearity in the sample. Unfortunately, this point wasn't fully appreciated by everyone.


    There are some sound suggestions in this paper, including looking at the sample multiple correlations between each regressor, and all of the other regressors. These, and other sample measures such as variance inflation factors, are useful from a diagnostic viewpoint, but they don't constitute tests of "zero multicollinearity".


    So, why am I even mentioning the Farrar and Glauber paper now?


    Well, I was intrigued to come across some STATA code (Shehata, 2012) that allows one to implement the Farrar and Glauber "tests". I'm not sure that this is really very helpful. Indeed, this seems to me to be a great example of applying someone's results without understanding (bothering to read?) the assumptions on which they're based!


    Be careful out there - and be highly suspicious of strangers bearing gifts!


     
    References

     
    Bartlett, M. S., 1950. Tests of significance in factor analysis. British Journal of Psychology, Statistical Section, 3, 77-85.

     
    Farrar, D. E. and R. R. Glauber, 1967. Multicollinearity in regression analysis: The problem revisited.  Review of Economics and Statistics, 49, 92-107.

     
    Shehata, E. A. E., 2012. FGTEST: Stata module to compute Farrar-Glauber Multicollinearity Chi2, F, t tests.

    Wilks, S. S., 1932. Certain generalizations in the analysis of variance. Biometrika, 24, 477-494.

    Wishart, J., 1928. The generalized product moment distribution in samples from a multivariate normal population. Biometrika, 20A, 32-52.

    Bob Jensen's threads on validity testing in accountics science ---
    http://www.trinity.edu/rjensen/TheoryTAR.htm

    "Statistical Significance - Again " by David Giles, Econometrics Beat:  Dave Giles’ Blog, University of Victoria, December 28, 2013 ---
    http://davegiles.blogspot.com/2013/12/statistical-significance-again.html

    Statistical Significance - Again

     
    With all of this emphasis on "Big Data", I was pleased to see this post on the Big Data Econometrics blog, today.

     
    When you have a sample that runs to the thousands (billions?), the conventional significance levels of 10%, 5%, 1% are completely inappropriate. You need to be thinking in terms of tiny significance levels.

     
    I discussed this in some detail back in April of 2011, in a post titled, "Drawing Inferences From Very Large Data-Sets". If you're of those (many) applied researchers who uses large cross-sections of data, and then sprinkles the results tables with asterisks to signal "significance" at the 5%, 10% levels, etc., then I urge you read that earlier post.

     
    It's sad to encounter so many papers and seminar presentations in which the results, in reality, are totally insignificant!

    Also see
    "Drawing Inferences From Very Large Data-Sets,"   by David Giles, Econometrics Beat:  Dave Giles’ Blog, University of Victoria, April 26, 2013 ---
    http://davegiles.blogspot.ca/2011/04/drawing-inferences-from-very-large-data.html

    . . .

    Granger (1998; 2003) has reminded us that if the sample size is sufficiently large, then it's virtually impossible not to reject almost any hypothesis. So, if the sample is very large and the p-values associated with the estimated coefficients in a regression model are of the order of, say, 0.10 or even 0.05, then this really bad news. Much, much, smaller p-values are needed before we get all excited about 'statistically significant' results when the sample size is in the thousands, or even bigger. So, the p-values reported above are mostly pretty marginal, as far as significance is concerned. When you work out the p-values for the other 6 models I mentioned, they range from  to 0.005 to 0.460. I've been generous in the models I selected.

    Here's another set of  results taken from a second, really nice, paper by     Ciecieriski et al. (2011) in the same issue of Health Economics:

    Continued in article

    Jensen Comment
    My research suggest that over 90% of the recent papers published in TAR use purchased databases that provide enormous sample sizes in those papers. Their accountics science authors keep reporting those meaningless levels of statistical significance.

    What is even worse is when meaningless statistical significance tests are used to support decisions.

    Bob Jensen's threads on the often way analysts, particularly accountics scientists, often cheer for statistical significance of large sample outcomes that praise statistical significance of insignificant results such as R2 values of .0001 ---
    The Cult of Statistical Significance: How Standard Error Costs Us Jobs, Justice, and Lives ---
    http://www.cs.trinity.edu/~rjensen/temp/DeirdreMcCloskey/StatisticalSignificance01.htm

    "Solution to Regression Problem," by David Giles, Econometrics Beat:  Dave Giles’ Blog, University of Victoria, December 26, 2013 ---
    http://davegiles.blogspot.com/2013/12/solution-to-regression-problem.html

    O.K. - you've had long enough to think about that little regression problem I posed the other day. It's time to put you out of your misery!

     
    Here's the problem again, with a solution.


    Problem:
    Suppose that we estimate the following regression model by OLS:

     
                         yi = α + β xi + εi .

     
    The model has a single regressor, x, and the point estimate of β turns out to be 10.0.

     
    Now consider the "reverse regression", based on exactly the same data:

     
                        xi = a + b yi + ui .

     
    What can we say about the value of the OLS point estimate of b?
     
    • It will be 0.1.
    • It will be less than or equal to 0.1.
    • It will be greater than or equal to 0.1.
    • It's impossible to tell from the information supplied.
    Solution:

    Continued in article

    David Giles' Top Five Econometrics Blog Postings for 2013 ---
    Econometrics Beat:  Dave Giles’ Blog, University of Victoria, December 31, 2013 ---
    http://davegiles.blogspot.com/2013/12/my-top-5-for-2013.html

    Everyone seems to be doing it at this time of the year. So, here are the five most popular new posts on this blog in 2013:
    1. Econometrics and "Big Data"
    2. Ten Things for Applied Econometricians to Keep in Mind
    3. ARDL Models - Part II - Bounds Tests
    4. The Bootstrap - A Non-Technical Introduction
    5. ARDL Models - Part I

    Thanks for reading, and for your comments.

    Happy New Year!

    Jensen Comment
    I really like the way David Giles thinks and writes about econometrics. He does not pull his punches about validity testing.Bob Jensen's threads on validity testing in accountics science ---
    http://www.trinity.edu/rjensen/TheoryTAR.htm

     

     

     

  • Humor January 1-31, 2014

    1964 when Jack Paar handed a simple stick to Jonathan Winters without a script ---
    http://biggeekdad.com/2013/04/jonathan-winters-stick/#.UXfWSphGZzg.email

    Lutheran Airlines --- http://www.youtube.com/watch?v=KakIacaDyCI&feature=share

    Google Funnies --- https://plus.google.com/explore?cfem=1

    It's So Cold That Beers At The Packers-49ers Game Will Freeze In An Hour ---
    Read more: http://www.businessinsider.com#ixzz2pWeDt26M
    Jensen Advice:  Hold your breath if you approach anybody in the parking lot who sat through the entire game.

    Yakov Smirnoff Remembers “The Soviet Department of Jokes” & Other Staples of Communist Comedy ---
    http://www.openculture.com/2013/12/yakov-smirnoff-remembers-the-soviet-department-of-jokes.html

    Bob Hope Entertaining the Troops --- http://biggeekdad.com/2011/02/bob-hope-christmas/

    “Lol My Thesis” Showcases Painfully Hilarious Attempts to Sum up Years of Academic Work in One Sentence ---
    http://www.openculture.com/2014/01/lol-my-thesis.html

    Forwarded by Paula

    Paddy texts his wife...

    "MARY, I’M JUST HAVING ONE MORE PINT WITH THE LADS.

    IF I’M NOT BACK IN 20 MINUTES, READ THIS MESSAGE AGAIN.”

    Jensen Comment
    This is an example of dynamic messaging where a message sends a signal and then, after 20 minutes, sends another and another and another until something turns the dynamic message off. In the days of Fortran programming we used to call this a "Do Loop."

    Forwarded by Auntie Bev

    I very quietly confided to my best friend
    that I was having an affair.
    ... and he asked, 'Are you having it catered'?

    -----------------------------------------------------------------------

     

    Just before the funeral services, the undertaker came
    up to the very elderly widow and asked,
    'How old was your husband?'

    '98,' she replied: 'Two years older than me'
    'So you're 96,' the undertaker commented.
    She responded, 'Hardly worth going home, is     it?'

    ---------------------------------------------------------------------------

     

    Reporters interviewing a 104-year-old woman:

    'And what do you think is the best thing about being 104?'
    the reporter asked.
    She simply replied, 'No peer pressure.'

    ---------------------------------------------------------------------------

     

    I've sure gotten old!
    I've had two bypass surgeries, a hip replacement,
    new knees, fought prostate cancer and diabetes
    I'm half blind, can't hear anything quieter than a jet
    engine,     take 40 different medications that
    Make me dizzy, winded, and subject to blackouts.
    Have bouts with dementia.     
    Have poor circulation; hardly feel my hands
    and feet anymore.
    Can't remember if I'm 85 or 92.
    Have lost all my friends. But, thank God I live in Florida ,
    I still have my driver's license.
     ---------------------------------------------------------------------------

     

    I feel like my body has gotten totally out of shape,
    so I got my doctor's permission to
    Join a fitness club and start exercising.

    ---------------------------------------------------------------------------

     

    I decided to take an aerobics class for seniors.
    I bent, twisted, gyrated, jumped up and down, and perspired

    for an hour… But, by the time I got my leotards on,
    The class was over.
     ---------------------------------------------------------------------------

     

    An elderly woman decided  to prepare
    her will and told her preacher she
    had two final requests.
    First, she wanted to be cremated, and second,
    she wanted her ashes scattered over Wal-Mart.

    'Wal-Mart?' the preacher exclaimed.
    'Why Wal-Mart?'
    'Then I'll be sure my daughters visit me twice a week'

    ---------------------------------------------------------------------------

     

    My memory's not as sharp as it used to be.
    Also, my memory's not as sharp as it used to be.
     ---------------------------------------------------------------------------


    Know how to prevent sagging?
    Just eat till the wrinkles fill out.
     ---------------------------------------------------------------------------


    It's scary when you start making the same noises as
    your coffee maker.
     ---------------------------------------------------------------------------


     These days about half the stuff in my shopping cart
    says, 'For fast relief.'
    ---------------------------------------------------------------------------


    THE SENILITY PRAYER:
    Grant me the senility to forget the people
    I never liked anyway,
    The good fortune to run into the ones I do,
    And the eyesight to tell the difference.
     ---------------------------------------------------------------------------


    Now,
    I think you're supposed to share this
    with 5 or 6, maybe 10 others.
    Oh heck, give it to a bunch of your friends
    if you can remember who they are!
    ---------------------------------------------------------------------------


    Always REMEMBER this:
    You don't stop laughing because you grow old,
    You grow old because you stop laughing...
     ---------------------------------------------------------------------------

     

    THOUGHT FOR THE DAY:
    I don't want to brag or make anyone jealous or anything,
    but I can still fit into the earrings I wore in high schooi

     

     

    Forwarded by Auntie Bev

    Jim Baker and Jimmy Swaggert have written an impressive new book. It's called, 'Ministers Do More Than Lay People.'
    Maxine

    The difference between the Pope and your boss, the Pope only expects you to kiss his ring.
    Maxine

    My mind works like lightning, one brilliant Flash and it is gone.
    Maxine

    It used to be only death and taxes, Now, of course, there's shipping and handling, too.
    Maxine

    A husband is someone who, after taking the trash out, gives the impression that he just cleaned the whole house.
    Maxine

    My next house will have no kitchen – just vending machines and a large trash can.
    Maxine

    Definition of a teenager? God's punishment...for enjoying sex.
    Maxine

    #SixWordPeerReview
    From TaxProf Blog on January 27, 2014

    Check out #SixWordPeerReview.  My favorites:

    • You didn't cite my paper: reject
    • Your bibliography is a giant selfie
    • Too similar to my next paper
    • I don't understand the stats. Accept
    • Nobody gets tenure with Comic Sans
    • OK accept. Sent from my iPhone
    • Contradicts my findings. Can’t be true
    • Let's pretend I don't know you
    • Author made all required revisions. Reject
    • For sale: doctoral degree, never used
    • My anecdote beats your controlled study
    • Statistically significant different from actually significant
    • You should not be citing Wikipedia
    • Please cite more of my papers (and papers written in Journals published by

    More at https://twitter.com/search?q=%23SixWordPeerReview&src=hash

    Jensen Additions (not using the six-word constraint)

    • Please cite more of papers published by Elsevier (this really is not a joke since it happens)
    • Needs more equations to be published in this journal
    • If it has more elegant using unneeded equations nobody will ever criticize your paper --- they won't even read it
    • Take out the summary in English since it makes the paper look stupid --- summarize using Greek symbols and obscure philosophical gibberish
    • Resubmit the proofs in the appendices for publication --- the paper itself is nonsense
    • Replace the Appendix C proof that runs on for six pages--- here's my daughter's three-line proof from the seventh grade (she got a C+ for this proof)
    • Don't admit Wolfram Alpha solved this
    • I'll  publish yours if you publish mine
    • Not worth replicating --- hence I recommend publishing it
    • Not worth wasting time of the referees
    • If you send it somewhere else I promise to deny ever seeing this paper
    • I think your dissertation adviser is a jerk --- reject
    • Your dissertation adviser is one of my best friends --- accept
    • Would you consider adding me as a co-author

     

     

    Forwarded by Paula

    Did I read that right? "TOILET OUT OF ORDER. PLEASE USE FLOOR BELOW"

    In a Laundromat: AUTOMATIC WASHING MACHINES: PLEASE REMOVE ALL YOUR CLOTHES WHEN THE LIGHT GOES OUT

    In a London department store: BARGAIN BASEMENT UPSTAIRS

    In an office: WOULD THE PERSON WHO TOOK THE STEP LADDER YESTERDAY PLEASE BRING IT BACK OR FURTHER STEPS WILL BE TAKEN

    In an office: AFTER TEA BREAK STAFF SHOULD EMPTY THE TEAPOT AND STAND UPSIDE DOWN ON THE DRAINING BOARD

    Outside a secondhand shop: WE EXCHANGE ANYTHING - BICYCLES, WASHING MACHINES, ETC. WHY NOT BRING YOUR WIFE ALONG AND GET A WONDERFUL BARGAIN?

    Notice in health food shop window: CLOSED DUE TO ILLNESS

    Spotted in a safari park: ELEPHANTS, PLEASE STAY IN YOUR CAR

    Seen during a conference: FOR ANYONE WHO HAS CHILDREN AND DOESN'T KNOW IT, THERE IS A DAY CARE ON THE 1ST FLOOR

    Notice in a farmer's field: THE FARMER ALLOWS WALKERS TO CROSS THE FIELD FOR FREE, BUT THE BULL CHARGES.

    Message on a leaflet: IF YOU CANNOT READ, THIS LEAFLET WILL TELL YOU HOW TO GET LESSONS

    On a repair shop door: WE CAN REPAIR ANYTHING. (PLEASE KNOCK HARD ON THE DOOR - THE BELL DOESN'T WORK)

    Man Kills Self Before Shooting Wife and Daughter This one I caught in the SGV Tribune the other day and called the Editorial Room and asked who wrote this. It took two or three readings before the editor realized that what he was reading was impossible!!! They put in a correction the next day.

    Something Went Wrong in Jet Crash, Expert Says Really? Ya think?

    Police Begin Campaign to Run Down Jaywalkers Now that's taking things a bit far!

    Panda Mating Fails; Veterinarian Takes Over What a guy!

    Miners Refuse to Work after Death No-good-for-nothing' lazy so-and-so's!

    Juvenile Court to Try Shooting Defendant See if that works any better than a fair trial!

    War Dims Hope for Peace I can see where it might have that effect!

    If Strike Isn't Settled Quickly, It May Last Awhile Ya think?!

    Cold Wave Linked to Temperatures Who would have thought!

    Enfield ( London ) Couple Slain; Police Suspect Homicide They may be on to something!

    Red Tape Holds Up New Bridges You mean there's something stronger than duct tape?

    Man Struck By Lightning:Faces Battery Charge He probably IS the battery charge!

    Astronaut Takes Blame for Gas in Spacecraft That's what he gets for eating those beans!

    Kids Make Nutritious Snacks Do they taste like chicken?

    Local High School Dropouts Cut in Half Chainsaw Massacre all over again!

    Hospitals are Sued by 8 Foot Doctors Boy, are they tall!

    In a Thailand department store rest room Smoking not allowed. 2,000 baths fine So light up and get clean (two thousand times!)!

    And the winner is.... Typhoon Rips Through Cemetery; Hundreds Dead Did I read that right?

     

     

    Humor Between January 1-31, 2014 --- http://www.trinity.edu/rjensen/book14q1.htm#Humor013114

    Humor Between December 1-31, 2013 --- http://www.trinity.edu/rjensen/book13q4.htm#Humor123113

    Humor Between November 1-30, 2013 --- http://www.trinity.edu/rjensen/book13q4.htm#Humor113013

    Humor Between October 1-31, 2013 --- http://www.trinity.edu/rjensen/book13q4.htm#Humor103113

    Humor Between September 1 and September 30, 2013 --- http://www.trinity.edu/rjensen/book13q3.htm#Humor093013

    Humor Between July 1 and August 31, 2013 --- http://www.trinity.edu/rjensen/book13q3.htm#Humor083113

    Humor Between June 1-30, 2013 --- http://www.trinity.edu/rjensen/book13q2.htm#Humor063013

    Humor Between May 1-31, 2013 --- http://www.trinity.edu/rjensen/book13q2.htm#Humor053113

    Humor Between April 1-30, 2013 --- http://www.trinity.edu/rjensen/book13q2.htm#Humor043013

    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

     

    And that's the way it was on January 31, 2014 with a little help from my friends.

    Bob Jensen's gateway to millions of other blogs and social/professional networks ---
    http://www.trinity.edu/rjensen/ListservRoles.htm

    Bob Jensen's Threads --- http://www.trinity.edu/rjensen/threads.htm

    Bob Jensen's Blogs --- http://www.trinity.edu/rjensen/JensenBlogs.htm
    Current and past editions of my newsletter called New Bookmarks --- http://www.trinity.edu/rjensen/bookurl.htm
    Current and past editions of my newsletter called Tidbits --- http://www.trinity.edu/rjensen/TidbitsDirectory.htm
    Current and past editions of my newsletter called Fraud Updates --- http://www.trinity.edu/rjensen/FraudUpdates.htm
    Bob Jensen's past presentations and lectures --- http://www.trinity.edu/rjensen/resume.htm#Presentations   

    Free Online Textbooks, Videos, and Tutorials --- http://www.trinity.edu/rjensen/ElectronicLiterature.htm#Textbooks
    Free Tutorials in Various Disciplines --- http://www.trinity.edu/rjensen/Bookbob2.htm#Tutorials
    Edutainment and Learning Games --- http://www.trinity.edu/rjensen/000aaa/thetools.htm#Edutainment
    Open Sharing Courses --- http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI

    Bob Jensen's Resume --- http://www.trinity.edu/rjensen/Resume.htm
     

    Bob Jensen's Homepage --- http://www.trinity.edu/rjensen/

     

    For an elaboration on the reasons you should join a ListServ (usually for free) go to   http://www.trinity.edu/rjensen/ListServRoles.htm

    AECM (Accounting Educators)  http://listserv.aaahq.org/cgi-bin/wa.exe?HOME
    The AECM is an email Listserv list which started out as an accounting education technology Listserv. It has mushroomed into the largest global Listserv of accounting education topics of all types, including accounting theory, learning, assessment, cheating, and education topics in general. At the same time it provides a forum for discussions of all hardware and software which can be useful in any way for accounting education at the college/university level. Hardware includes all platforms and peripherals. Software includes spreadsheets, practice sets, multimedia authoring and presentation packages, data base programs, tax packages, World Wide Web applications, etc

    Roles of a ListServ --- http://www.trinity.edu/rjensen/ListServRoles.htm
     

    CPAS-L (Practitioners) http://pacioli.loyola.edu/cpas-l/  (closed down)
    CPAS-L provides a forum for discussions of all aspects of the practice of accounting. It provides an unmoderated environment where issues, questions, comments, ideas, etc. related to accounting can be freely discussed. Members are welcome to take an active role by posting to CPAS-L or an inactive role by just monitoring the list. You qualify for a free subscription if you are either a CPA or a professional accountant in public accounting, private industry, government or education. Others will be denied access.

    Yahoo (Practitioners)  http://groups.yahoo.com/group/xyztalk
    This forum is for CPAs to discuss the activities of the AICPA. This can be anything  from the CPA2BIZ portal to the XYZ initiative or anything else that relates to the AICPA.

    AccountantsWorld  http://accountantsworld.com/forums/default.asp?scope=1 
    This site hosts various discussion groups on such topics as accounting software, consulting, financial planning, fixed assets, payroll, human resources, profit on the Internet, and taxation.

    Business Valuation Group BusValGroup-subscribe@topica.com 
    This discussion group is headed by Randy Schostag [RSchostag@BUSVALGROUP.COM] 

     

     

    Concerns That Academic Accounting Research is Out of Touch With Reality

    I think leading academic researchers avoid applied research for the profession because making seminal and creative discoveries that practitioners have not already discovered is enormously difficult. Accounting academe is threatened by the twin dangers of fossilization and scholasticism (of three types: tedium, high tech, and radical chic)
    From http://www.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm      

    “Knowledge and competence increasingly developed out of the internal dynamics of esoteric disciplines rather than within the context of shared perceptions of public needs,” writes Bender. “This is not to say that professionalized disciplines or the modern service professions that imitated them became socially irresponsible. But their contributions to society began to flow from their own self-definitions rather than from a reciprocal engagement with general public discourse.”

     

    Now, there is a definite note of sadness in Bender’s narrative – as there always tends to be in accounts of the shift from Gemeinschaft to Gesellschaft. Yet it is also clear that the transformation from civic to disciplinary professionalism was necessary.

     

    “The new disciplines offered relatively precise subject matter and procedures,” Bender concedes, “at a time when both were greatly confused. The new professionalism also promised guarantees of competence — certification — in an era when criteria of intellectual authority were vague and professional performance was unreliable.”

    But in the epilogue to Intellect and Public Life, Bender suggests that the process eventually went too far. “The risk now is precisely the opposite,” he writes. “Academe is threatened by the twin dangers of fossilization and scholasticism (of three types: tedium, high tech, and radical chic). The agenda for the next decade, at least as I see it, ought to be the opening up of the disciplines, the ventilating of professional communities that have come to share too much and that have become too self-referential.”

     

    What went wrong in accounting/accountics research? 
    How did academic accounting research become a pseudo science?
     http://www.trinity.edu/rjensen/theory01.htm#WhatWentWrong

     

    Accountancy, Tax, IFRS, XBRL, and Accounting History News Sites  --- http://www.trinity.edu/rjensen/AccountingNews.htm

    Accounting Professors Who Blog --- http://www.trinity.edu/rjensen/ListservRoles.htm

    Cool Search Engines That Are Not Google --- http://www.wired.com/epicenter/2009/06/coolsearchengines

    Free (updated) Basic Accounting Textbook --- search for Hoyle at
    http://www.trinity.edu/rjensen/ElectronicLiterature.htm#Textbooks

    CPA Examination --- http://en.wikipedia.org/wiki/Cpa_examination
    Free CPA Examination Review Course Courtesy of Joe Hoyle --- http://cpareviewforfree.com/
     

    Bob Jensen's Pictures and Stories
    http://www.trinity.edu/rjensen/Pictures.htm

     

    Bob Jensen's Homepage --- http://www.trinity.edu/rjensen/

     

     

     

    Bob Jensen's Homepage --- http://www.trinity.edu/rjensen/

     

    For an elaboration on the reasons you should join a ListServ (usually for free) go to   http://www.trinity.edu/rjensen/ListServRoles.htm

    AECM (Accounting Educators)  http://listserv.aaahq.org/cgi-bin/wa.exe?HOME
    The AECM is an email Listserv list which started out as an accounting education technology Listserv. It has mushroomed into the largest global Listserv of accounting education topics of all types, including accounting theory, learning, assessment, cheating, and education topics in general. At the same time it provides a forum for discussions of all hardware and software which can be useful in any way for accounting education at the college/university level. Hardware includes all platforms and peripherals. Software includes spreadsheets, practice sets, multimedia authoring and presentation packages, data base programs, tax packages, World Wide Web applications, etc

    Roles of a ListServ --- http://www.trinity.edu/rjensen/ListServRoles.htm
     

    CPAS-L (Practitioners) http://pacioli.loyola.edu/cpas-l/  (closed down)
    CPAS-L provides a forum for discussions of all aspects of the practice of accounting. It provides an unmoderated environment where issues, questions, comments, ideas, etc. related to accounting can be freely discussed. Members are welcome to take an active role by posting to CPAS-L or an inactive role by just monitoring the list. You qualify for a free subscription if you are either a CPA or a professional accountant in public accounting, private industry, government or education. Others will be denied access.

    Yahoo (Practitioners)  http://groups.yahoo.com/group/xyztalk
    This forum is for CPAs to discuss the activities of the AICPA. This can be anything  from the CPA2BIZ portal to the XYZ initiative or anything else that relates to the AICPA.

    AccountantsWorld  http://accountantsworld.com/forums/default.asp?scope=1 
    This site hosts various discussion groups on such topics as accounting software, consulting, financial planning, fixed assets, payroll, human resources, profit on the Internet, and taxation.

    Business Valuation Group BusValGroup-subscribe@topica.com 
    This discussion group is headed by Randy Schostag [RSchostag@BUSVALGROUP.COM] 

     

     

    Concerns That Academic Accounting Research is Out of Touch With Reality

    I think leading academic researchers avoid applied research for the profession because making seminal and creative discoveries that practitioners have not already discovered is enormously difficult. Accounting academe is threatened by the twin dangers of fossilization and scholasticism (of three types: tedium, high tech, and radical chic)
    From http://www.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm      

    “Knowledge and competence increasingly developed out of the internal dynamics of esoteric disciplines rather than within the context of shared perceptions of public needs,” writes Bender. “This is not to say that professionalized disciplines or the modern service professions that imitated them became socially irresponsible. But their contributions to society began to flow from their own self-definitions rather than from a reciprocal engagement with general public discourse.”

     

    Now, there is a definite note of sadness in Bender’s narrative – as there always tends to be in accounts of the shift from Gemeinschaft to Gesellschaft. Yet it is also clear that the transformation from civic to disciplinary professionalism was necessary.

     

    “The new disciplines offered relatively precise subject matter and procedures,” Bender concedes, “at a time when both were greatly confused. The new professionalism also promised guarantees of competence — certification — in an era when criteria of intellectual authority were vague and professional performance was unreliable.”

    But in the epilogue to Intellect and Public Life, Bender suggests that the process eventually went too far. “The risk now is precisely the opposite,” he writes. “Academe is threatened by the twin dangers of fossilization and scholasticism (of three types: tedium, high tech, and radical chic). The agenda for the next decade, at least as I see it, ought to be the opening up of the disciplines, the ventilating of professional communities that have come to share too much and that have become too self-referential.”

     

    What went wrong in accounting/accountics research? 
    How did academic accounting research become a pseudo science?
     http://www.trinity.edu/rjensen/theory01.htm#WhatWentWrong

     

    Accountancy, Tax, IFRS, XBRL, and Accounting History News Sites  --- http://www.trinity.edu/rjensen/AccountingNews.htm

    Accounting Professors Who Blog --- http://www.trinity.edu/rjensen/ListservRoles.htm

    Cool Search Engines That Are Not Google --- http://www.wired.com/epicenter/2009/06/coolsearchengines

    Free (updated) Basic Accounting Textbook --- search for Hoyle at
    http://www.trinity.edu/rjensen/ElectronicLiterature.htm#Textbooks

    CPA Examination --- http://en.wikipedia.org/wiki/Cpa_examination
    Free CPA Examination Review Course Courtesy of Joe Hoyle --- http://cpareviewforfree.com/
     

    Bob Jensen's Pictures and Stories
    http://www.trinity.edu/rjensen/Pictures.htm

     

    Bob Jensen's Homepage --- http://www.trinity.edu/rjensen/

     

     

     

     

     

  •  

  • Bob Jensen's Threads --- http://www.trinity.edu/rjensen/threads.htm

    Bob Jensen's Blogs --- http://www.trinity.edu/rjensen/JensenBlogs.htm
    Current and past editions of my newsletter called New Bookmarks --- http://www.trinity.edu/rjensen/bookurl.htm
    Current and past editions of my newsletter called Tidbits --- http://www.trinity.edu/rjensen/TidbitsDirectory.htm
    Current and past editions of my newsletter called Fraud Updates --- http://www.trinity.edu/rjensen/FraudUpdates.htm
    Bob Jensen's past presentations and lectures --- http://www.trinity.edu/rjensen/resume.htm#Presentations   

    Free Online Textbooks, Videos, and Tutorials --- http://www.trinity.edu/rjensen/ElectronicLiterature.htm#Textbooks
    Free Tutorials in Various Disciplines --- http://www.trinity.edu/rjensen/Bookbob2.htm#Tutorials
    Edutainment and Learning Games --- http://www.trinity.edu/rjensen/000aaa/thetools.htm#Edutainment
    Open Sharing Courses --- http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI

    Peter, Paul, and Barney: An Essay on 2008 U.S. Government Bailouts of Private Companies ---
    http://www.trinity.edu/rjensen/2008Bailout.htm

    Health Care News --- http://www.trinity.edu/rjensen/Health.htm

    Bob Jensen's Resume --- http://www.trinity.edu/rjensen/Resume.htm

    574 Shields Against Validity Challenges in Plato's Cave ---
    http://www.trinity.edu/rjensen/TheoryTAR.htm

     

     

    Bob Jensen's Personal History in Pictures --- http://www.cs.trinity.edu/~rjensen/PictureHistory/

    Bob Jensen's Homepage --- http://www.trinity.edu/rjensen/