Best Selling Books December 2, 2005; Page W4 http://online.wsj.com/article/SB113348795046512005.html?mod=todays_us_weekend_journal The Wall Street Journal's list of best-selling books for the week ended November 26. Fiction No. Title Author / Publisher This Week Last Week 1 Mary, Mary James Patterson / Little, Brown 77 122 2 Light From Heaven Jan Karon / Viking 50 46 3 Harry Potter and the Half-Blood Prince J.K. Rowling / Arthur A. Levine/Scholastic 48 21 4 At First Sight Nicholas Sparks / Warner Books 47 28 5 Penultimate Peril Lemony Snicket / HarperCollins 43 40 6 Camel Club David Baldacci / Warner Books 33 26 7 The Lighthouse P. D. James / Knopf 29 New 8 Predator Patricia Cornwell / Putnam 28 34 9 Dark Lord: The Rise of Darth Vader James Luceno / Del Rey 26 New 10 A Feast for Crows George R.R. Martin / Spectra 24 36 11 Eldest Christopher Paolini / Knopf 24 18 12 Christ the Lord Anne Rice / Knopf 21 23 13 Knife of Dreams Robert Jordan / Tor 19 18 14 The Da Vinci Code Dan Brown / Doubleday 18 14 15 Son of a Witch Gregory Maguire / ReganBooks 15 13   Nonfiction No. Title Author/Publisher This Week Last Week 1 Our Endangered Values Jimmy Carter / Simon & Schuster 51 39 2 Teacher Man Frank McCourt / Simon & Schuster 50 54 3 Team of Rivals Doris Kearns Goodwin / Simon & Schuster 48 40 4 The World Is Flat Thomas L. Friedman / Farrar, Straus & Giroux 39 33 5 Healthy Aging Andrew Weil / Knopf 28 19 6 The Year of Magical Thinking Joan Didion / Knopf 27 26 7 Marley & Me John Grogan / William Morrow 25 21 8 Freakonomics Steven D. Levitt, Stephen J. Dubner / William Morrow 24 22 9 700 Sundays Billy Crystal / Warner Books 23 16 10 Martha Stewart's Baking Handbook Martha Stewart / Potter 22 14 11 You: The Owner's Manual Michael F. Roizen, Mehmet Oz / HarperResource 22 -- 12 My Friend Leonard James Frey / Riverhead 19 19 13 The Truth (With Jokes) Al Franken / Dutton 19 21 14 The Education of a Coach David Halberstam / Hyperion 19 7 15 1776 David McCullough / Simon & Schuster 18 7   Business No. Title Author/Publisher This Week Last Week 1 Freakonomics Steven D.Levitt, Stephen J. Dubner / William Morrow (H) 24 22 2 Jim Cramer's Real Money James Cramer / Simon & Schuster (H) 12 10 3 Secrets of the Millionaire Mind T. Harv Eker / HarperBusiness (H) 8 12 4 The Tipping Point Malcolm Gladwell / Back Bay (P) 8 12 5 Rich Dad Poor Dad Robert Kiyosaki, Sharon Lechter / Warner Business (P) 5 9 6 Now, Discover Your Strengths Marcus Buckingham, Donald O. Clifton / Free Press (H) 4 7 7 Who Moved My Cheese Spencer Johnson / Putnam (H) 4 7 8 The Five Dysfunctions of a Team Patrick M. Lencioni / Jossey-Bass (H) 3 5 9 Winning Jack Welch, Suzy Welch / HarperBusiness (H) 3 5 10 Little Red Book of Selling Jeffrey Gitomer / Bard Press (H) 2 6 11 Getting Things Done David Allen / Penguin (P) 2 1 12 The Martha Rules Martha Stewart / Rodale Press (H) 2 3 13 Rich Dad's Before You Quit Your Job Robert Kiyosaki, Sharon Lechter / Warner Business (P) 2 2 14 Money Book for the Young, Fabulous and Broke Suze Orman / Riverhead (H) 2 2 15 How Full Is Your Bucket Tom Rath, Donald O. Clifton / Gallup Press (H) 2 1 The Wall Street Journal's list reflects nationwide sales of hardcover books during the week ended last Saturday at more than 2,500 Barnes & Noble, B. Dalton, Bookland, Books-a-Million, Books & Co., Bookstar, Bookstop, Borders, Brentano's, Coles, Coopersmith, Doubleday, Scribners and Waldenbooks stores, as well as sales from online retailers Amazon.com and barnesandnoble.com. The business list also includes figures from 800-CEO-READ. A sales index of 100 is equivalent to the median number of copies of the No. 1 fiction bestselling titles sold each week during 2005.

Short List of Short Stories
Three collections of stories, from a writing heavyweight, a small-press author and an Irish immigrant, have been named finalists for the second annual Story Prize, a $20,000 award for short fiction that will be presented after a reading by the authors at the New School in Manhattan on Jan. 25. The finalists are Jim Harrison, the acclaimed novelist, poet and essayist, for "The Summer He Didn’t Die," three novellas published by Atlantic Monthly Press; Maureen F. McHugh, best known for her science fiction novels, for "Mothers & Other Monsters," 13 stories published by Small Beer Press of Northampton, Mass.; and Patrick O’Keeffe, a lecturer at the University of Michigan who immigrated to the United States from Ireland in the mid-1980’s, for "The Hill Road," four stories published by Viking.
Edward Wyatt, "Short List of Short Stories," The New York Times, December 7, 2005 --- http://snipurl.com/NYTshorts
 

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Top 10 Books in 2005 According to The New York Times --- http://snipurl.com/NYTtop10
 

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Suggestions for accountancy from the Directors of the SEC and the FASB

From The Wall Street Journal Accounting Weekly Review on December 9, 2005

TITLE: SEC's Cox Wants Simpler Rules, More Competition for Accounting
REPORTER: Judith Burns
DATE: Dec 06, 2005
PAGE: C3
LINK: http://online.wsj.com/article/SB113381176660114298.html
TOPICS: Accounting, Auditing, Auditing Services, Public Accounting, Sarbanes-Oxley Act, Securities and Exchange Commission

SUMMARY: Questions relate to helping students understand the status various influences on the accounting profession from the AICPA, the SEC, the FASB, and the legislature via the Sarbanes-Oxley Act.

QUESTIONS:
1.) Where did SEC Chairman Christopher Cox describe the ways in which he wants to see change in the accounting and auditing professions? What is the purpose of that organization? (Hint: you may find out about the organization's mission via its web site at www.aicpa.org 

2.) In accordance with law, how is the Securities and Exchange Commission (SEC) responsible for accounting and reporting requirements in the United States? Hint: you may investigate the SEC's mission via its web site at www.sec.gov 

3.) What are the issues associated with complex accounting rules? Who establishes those rules? In what way are those rules influenced by the SEC?

4.) The SEC has named an interim chairman of the Public Company Accounting Oversight Board (PCAOB). How is this speech's topic related to the process of change in leadership at the PCAOB?

5.) Commissioner Cox indicated his concern over the fact that only 4 public accounting firms perform audit and accounting work for most of the publicly traded companies in the U.S. and that regulators may have contributed to that concentration. How is that the case? What might regulators do to change that situation?

"SEC's Cox Wants Simpler Rules, More Competition for Accounting," by Judith Burns, The Wall Street Journal, December 6, 2005; Page C3 --- http://online.wsj.com/article/SB113381176660114298.html

U.S. securities regulators hope to make accounting rules less complicated while increasing competition in a field now dominated by just four firms, Securities and Exchange Commission Chairman Christopher Cox said.

Addressing a meeting of the American Institute of Certified Public Accountants, Mr. Cox called for clearer, more straightforward accounting rules, saying that would benefit investors, public companies and accountants.

"Plain English is just as important in accountancy," he said.

Mr. Cox also raised concern about concentration in the U.S. accounting profession, with the Big Four firms -- Deloitte & Touche LLP, Ernst & Young LLP, KPMG and PricewaterhouseCoopers -- handling the vast majority of public-company audits. He said this "intense concentration" isn't desirable, adding that regulators need to consider whether their rules are inhibiting competition in the field.

SEC Commissioner Paul Atkins, who also addressed the meeting, acknowledged that regulators were surprised by the cost of internal-control rules that took effect for the largest U.S. companies last year, and he said he hopes such costs will be lower this year.

The rules stem from the Sarbanes-Oxley Act, passed by Congress in 2002. They mandate that public companies make an annual examination of their internal controls related to financial reporting, subject to review by these companies' outside auditors.

The SEC is "at an early stage" in considering who should head the Public Company Accounting Oversight Board now that William McDonough, its former chairman, has stepped down, Mr. Atkins said.

Last week the SEC named oversight board member Bill Gradison, a member of Congress, as interim oversight board chairman. Mr. Atkins said Mr. Gradison, an Ohio Republican, could be in the running as a permanent chair "if he wants to be."

In repeated speeches, Dennis Beresford, former Chairman of the FASB, has called for simplification of accounting standards and guidelines.  For example see the following reference:
"Can We Go Back to the Good Old Days?" by Dennis R. Beresford, The CPA Journal --- http://www.nysscpa.org/cpajournal/2004/1204/perspectives/p6.htm 

December 6, 2005 message from Dennis Beresford [dberesfo@terry.uga.edu]

 National Conference on Current SEC and PCAOB Developments. His (Cox, the new Director of the SEC) talk is available at: http://www.sec.gov/news/speech/spch120505cc.htm 

He had three main messages:

1. Accounting rules need to be simplified. "The accounting scandals that our nation and the world have now mostly weathered were made possible in part by the sheer complexity of the rules." "The sheer accretion of detail has, in time, led to one of the system's weaknesses - its extreme complexity. Convolution is now reducing its usefulness."

2. The concentration of auditing services in the Big 4 "quadropoly" is bad for the securities markets. The SEC will try to do more to encourage the use of medium size and smaller firms that receive good inspection reports from the PCAOB.

3. The SEC will continue to push XBRL. "The interactive data that this initiative will create will lead to vast improvements in the quality, timeliness, and usefulness of information that investors get about the companies they're investing in."

A very interesting talk - one that seems to promise a high level of cooperation with the accounting profession.

The SEC web site has posted several presentations by members of the SEC accounting staff. These were all presentations at the AICPA SEC conference yesterday - the premiere financial reporting and auditing conference of the year. Scott Taub's (acting Chief Accountant) remarks are particularly interesting as they build on what Cox had to say in the areas of reducing complexity and making interactive data more available. Scott also spoke about fair value accounting and using professional judgment. His remarks are at: http://www.sec.gov/news/speech/spch120505sat.htm  . . . there are about ten other presentations on more detailed accounting and auditing matters also available at the SEC web site.

FASB Chairman Bob Herz' speech earlier today at the AICPA SEC conference is available at: http://www.fasb.org/herz_aicpa_12-06-05.pdf 

Bob builds on yesterday's comments by SEC Chairman Cox and argues that "continued progress on reducing complexity and improving the transparency and usefulness of reported financial information is imperative and consistent with our nation's longstanding commitment to the importance of high-quality financial reporting to the health and vitality of our capital markets and our economy." Bob calls for the FASB, SEC, PCAOB and all other interested parties to take "collective action to address these issues."

Denny

Jensen Comment --- Here's a related news item

SEC's Cox Wants Simpler Rules, More Competition for Accounting," by Judith Burns, The Wall Street Journal, December 6, 2005; Page C3 --- http://online.wsj.com/article/SB113381176660114298.html?mod=todays_us_money_and_investing

US-EU agreement on international cooperation --- http://www.iasplus.com/europe/0512useudialogue.pdf

Bob Jensen's threads on accounting standard setting are at http://www.trinity.edu/rjensen//theory/00overview/theory01.htm

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

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I loved the Marx Brothers Analogy in This One

"Is This Any Way to Run a Railroad? You think you've got problems? Amtrak's got an overpaid workforce. Its trains and tracks are falling apart. Worse, the carrier's balance sheet is a flat-out mess," by John Goff, CFO Magazine, November 2005 --- http://www.cfo.com/article.cfm/5077873/c_5101083?f=magazine_featured

As Marx Brothers movies go, Go West isn't much. The aging comedy team was running out of ideas, and it shows: the plot is predictable and the gags are stale. Yet there is one memorable scene in the 1940 film. In it, the boys — desperate to keep a steam-powered locomotive chugging along — feed the entire train to itself, car by car, piece by piece, caboose to tender.

Management at the National Railroad Passenger Corp., better known as Amtrak, performed a similar sacrifice in 2001. Four years into an effort to wean itself from federal operating subsidies, the rail carrier was running on empty. Executives had already started diverting funds earmarked for capital projects to help plug operating holes. But even that wasn't enough, and soon, Amtrak's management began cannibalizing the railroad. Recalls Cliff Black, Amtrak's director of media relations: "We mortgaged everything."

Things got so bad that the railroad took out a loan on New York's Pennsylvania Station to cover three months of expenses. It was a move the U.S. Office of Management and Budget called "a financial absurdity equivalent to a family taking out a second mortgage on its home to pay its grocery bills." Eventually, Amtrak conceded it couldn't break even, and Congress continued pumping funds back into the rail operator.

The damage to the balance sheet had been done, however. During the five-year plan, the carrier's debt load nearly tripled, from $1.7 billion to $4.8 billion. Once dubbed the "Glide Path to Profitability," Amtrak's intended march to self-sufficiency is termed something else by current CFO David Smith. "I call it the slippery slope to hell," he says.

Since taking the reins last November, Smith has personally spent considerable time in purgatory — stuck awaiting vital federal funding for the carrier while politicians dither over the future of passenger rail service. "Amtrak's never had full support from any Administration. And it has no ongoing real capital budget," notes James Coston, chairman of Corridor Capital LLC, which specializes in finance and development for intercity and commuter rail systems. "So each year, they go up to Capitol Hill with a tin cup."

And that cup remains far from full. Last February, for example, the White House announced it intended to cut off Amtrak's billion-dollar-plus annual subsidy — which covers about half the railroad's total budget — unless the carrier agreed to a radical restructuring. Both the House and the Senate defied the Administration, calling for subsidies ranging from $1.17 billion to $1.45 billion for 2006 (the carrier generated $1.9 billion in revenues last year against $2.9 billion in costs). But the details have yet to be ironed out, and it's still unclear just how much money Amtrak will get.

Amid the revenue uncertainty, Smith must somehow pay down Amtrak's borrowings, upgrade its information technology and financial skills, and wring concessions from entrenched unions. He is also charged with mapping out long-term capital investments on the railroad's antiquated infrastructure — a tall order when you don't actually know what funds will be available to finance the repairs. And he must do all this under the scrutiny of an Administration whose purported goal, says Amtrak president and CEO David Gunn, is "to destroy Amtrak."

It is, in sum, a nearly impossible to-do list. But judging from his efforts so far, Smith has what it takes to defy long odds: steadiness, belief, and a certain imperviousness to the Coliseum crowd. Some observers say his first year on the job could be used as a case study for grace under fire. Says Coston: "I can't imagine a tougher job than being CFO at Amtrak."

Continued in article

December 6, 2005 reply from Bob Jensen

From the KPMG Audit Report on September 30, 2004 --- http://www.amtrak.com/pdf/04financial.pdf The Company (Amtrak) has a history of substantial operating losses and is highly dependent upon substantial Federal government subsidies to sustain its operations. There are currently no Federal government subsidies authorized or appropriated for any period subsequent to the fiscal year ending September 30, 2005 (“fiscal year 2005”). Without such subsidies, Amtrak will not be able to continue to operate in its current form and significant operating changes, restructuring or bankruptcy may occur. Such changes or restructuring would likely result in asset impairments.

************************

I guess I have to agree Paul that the difference between Amtrak and other businesses, like farmers, dependent upon government subsidies is largely semantic (rhetorical). In a sense, Amtrak is less like Fanny Mae since Amtrak's debt is not guaranteed by the Federal government. It is also less like the U.S. Post Office since Amtrak did sell equity (that has nearly been wiped out by huge deficits). Like the Post Office, Amtrak does negotiate directly with the government for appropriations to a particular business. But unlike the Post Office, I think Amtrak can set prices without an act of Congress.

The lines are indeed fuzzy between government enterprises, private enterprises directly subsidized, private enterprises indirectly subsidized, and the theoretical private firms that have no government subsidies. There may not be any such private firms in modern times since nearly every product or service is indirectly subsidized somewhere along the supply chain.

One possible distinction between public and private enterprises is whether the government is obligated to pay creditors off in full if the enterprise fails. I gather that this is the case for NC state universities, the U.S. Post Office, and Fannie Mae (even though Fanny Mae also sells equity shares). Debt guarantees are not assured in the case of Amtrak such that Amtrak is closer to being private in this context. In this context, classifying public versus private enterprises becomes a sliding scale as to what portion of the debt is guaranteed by the government. Pension guarantees cloud this issue since these are a form of insurance that enterprises must buy into to become partly covered.

I'm not certain where your argument bears much fruit if we don't have some distinction between public and private. If subsidies make every enterprise a government enterprise, wouldn't all businesses become government enterprises? It would not be helpful to have no definition of private enterprise since many equity owners and creditors can still fail and do every day in firms where the government does not guarantee repayment of all debt.

One problem of debt guarantees like we have in Fanny Mae and the Post Office is that managers of those companies can be tempted put their companies in extremely high levels of debt risk because creditors are always willing to loan to the hilt if the government guarantees repayment. Then cowboy managers might be tempted to borrow great amounts to pay for highly inefficient operating costs or make extremely high risk investments (as Fannie Mae did with billions invested in losing manufactured housing mortgages).

When I started this thread I mistakenly thought that Amtrak's debt was guaranteed by the government. What amazes me is how Amtrak is still able to borrow money to finance losing operations. Creditors (who are largely in Canada and France) must have faith that the U.S. government will not allow Amtrak to fail in spite of Amtrak's bleak future for ever earning a profit. Apparently the close association of Amtrak and government make it not like Penn Central in the eyes of lenders.

Bob Jensen

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White collar crime still is punished lightly

"Ex-Finance Chief At HealthSouth Gets 5 Years in Jail," by Chad Terhune, The Wall Street Journal, December 10, 2005; Page A3 --- http://online.wsj.com/article/SB113415352157818617.html?mod=todays_us_page_one

A federal judge in Birmingham, Ala., sentenced former HealthSouth Corp. finance chief William T. Owens, the star witness against company founder Richard Scrushy at his criminal trial, to five years in prison.

U.S. District Judge Sharon Blackburn expressed reservations at sending Mr. Owens, 47 years old, to prison, saying she believed Mr. Scrushy directed the $2.7 billion accounting fraud at the health-care company. Mr. Scrushy's trial ended in acquittal in June.

Friday, the judge called it a "travesty" that Mr. Scrushy wouldn't spend any time in prison in connection with the scheme. Mr. Scrushy and his lawyers have repeatedly denied participating in the fraud, claiming that Mr. Owens was the mastermind of the plan and hid it from Mr. Scrushy. In a statement, Mr. Scrushy said Judge Blackburn's comments were "totally inappropriate given that there was not one shred of evidence or credible testimony linking me to the fraud."

Frederick Helmsing, the lawyer for Mr. Owens, had sought probation, in light of Mr. Owens's extensive cooperation with the government investigation since 2003. Prosecutors requested an eight-year prison term.

Continued in article

Bob Jensen's threads on light punishment of white collar crime are at http://www.trinity.edu/rjensen/FraudConclusion.htm#CrimePays

HealthSouth's auditing firm was Ernst & Young --- http://www.trinity.edu/rjensen/Fraud001.htm#Ernst
 

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"Embedded Audit Modules in Enterprise Resource Planning Systems: Implementation and Functionality," by Roger S. Debreceny, Glen L. Gray, Joeson Jun-Jin Ng, Kevin Siow-Ping Lee, and Woon-Foong Yau, Journal of Information Systems, Fall 2005, pp. 7-28 --- http://aaahq.org/ic/browse.htm

Embedded Audit Modules (EAMs) are a potentially efficient and effective compliance and substantive audit-testing tool. Early examples of EAMs were implemented in proprietary accounting information systems and production systems. Over the last decade, there has been widespread deployment of Enterprise Resource Planning (ERP) systems that provide common business process functionality across the enterprise. These application systems are based upon a common foundation provided by large-scale relational database-management systems. No published research addresses the potential for exploiting the perceived benefits of EAMs in an ERP environment. This exploratory paper seeks to partially close this gap in the research literature by assessing the level and nature of support for EAMs by ERP providers.

We present five model EAM-use scenarios within a fraud-prevention and detection environment. We provided the scenarios to six representative ERP solution providers, whose products support "small," "medium," and "large" scale clients. The providers then assessed how they would implement the scenarios in their ERP solution. Concurrent in-depth interviews with representatives of the ERP providers address the issue of implementing EAMs in ERP solutions.

The research revealed limited support for EAMs within the selected ERP systems. Interviews revealed that the limited support for EAMs was primarily a function of lack of demand from the user community. Vendors were consistent in their view that EAMs were technically feasible. These results have a number of implications for both practice and future research. These include a need to understand the barriers to client adoption of EAMs and to build a framework for integrating EAMs into firm risk-management environment.

Bob Jensen's threads on ERP education are at http://www.trinity.edu/rjensen/245glosap.htm
Also see http://www.trinity.edu/rjensen/FraudConclusion.htm#ERP

Bob Jensen's threads on audit bots are at http://www.trinity.edu/rjensen/FraudConclusion.htm#ContinuousAuditing

 

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Study the Options When Time To Repay Those Student Loans," by Kelly K. Spors, "The Wall Street Journal, November 30, 2005; Page D3 --- http://online.wsj.com/article/SB113331374356009720.html?mod=todays_us_personal_journal

Many of last spring's college graduates will soon be facing an important decision: how to repay their student loans.

As their six-month loan-grace period nears an end, the biggest choice these graduates face is whether to consolidate all their federal student loans into a single loan at a fixed rate. Most financial advisers say that interest rates are likely headed higher and that locking in a rate is the best option.

Graduates must decide among a variety of repayment choices, including the ability to stretch repayment for up to 30 years. Lenders also are making it easier for student borrowers to adjust their repayment arrangements online. But some experts say that because student-loan rates are comparatively low, it could make more sense to repay other debt first while making the minimum payment on student loans.

Student loans under the government's popular Stafford program, which are the most common type of education loans, let students borrow up to a certain amount each year, based on their year in school. The loans can be made by various lenders and are backed by the federal government. Under government rules, the loans have rates that readjust each year, but can't exceed 8.25%. Repayment is initially scheduled over 10 years. Students also can take out private loans, which aren't subject to the same standardized terms, to cover expenses that exceed the size of their federal loans.

Rates on Stafford loans readjust every July 1. Students and graduates can consolidate their loans anytime before then to lock in the current rate, which is 4.75% for those still in school or in their grace period and 5.375% for those in a repayment period. The rates are among the lowest on record. By contrast, most banks' prime rate, a benchmark banks use for most consumer loans, is currently 7%.

For students holding other kinds of federal loans, such as Perkins loans that carry a fixed 5% rate for the life of the loan, the consolidated rate would be based on the weighted average rate of all the debt being combined. Repayments can be stretched out over various periods. But only students with loans totaling $60,000 or more can stretch repayment out to the maximum 30 years.

On top of lengthening the term, lenders also offer several monthly payment choices: Level repayment means paying a constant monthly sum over the loan's term. A graduated repayment increases monthly payments over time. And an income-sensitive repayment plan provides for borrowers to make monthly payments based on a percentage of earnings.

Many lenders, and the companies that sometimes service their loans, are making it easier for borrowers to change their payment schedules or make extra big payments -- even when monthly payments are automatically withdrawn from a bank account. Student lender Sallie Mae recently enhanced the "Manage Your Loans" feature on its Web site to allow borrowers to increase their payments in a particular month or to request a shorter term. Those scheduled to pay off loans in, say, 30 years, can request that they be moved to a 10-year repayment schedule, which would require higher monthly payments, says spokeswoman Martha Holler. The site also lets borrowers switch the type of repayment plan.

Other lenders also let borrowers make a one-time extra payment through their Web sites, or by mail. If you do that, it is important to tell the servicer to apply your overpayment toward the loan's principal -- not future interest payments, says Cheryl Resh, director of the financial-aid department at the University of California at Berkeley. "You want to make sure you're getting the most bang for your buck" by paying down principal.

If a tough financial situation has you craving relief on your student loans, you can usually get that, too. Just make sure to talk with your loan servicer before your loan goes into default and ruins your credit. You have two main options for postponing payments: Borrowers with certain economic hardships -- or who are back in school -- can qualify for "deferment" under federal rules, while "forbearance" is at the lenders' discretion.

There may be good reasons to hold off retiring student loans, some experts say. Many graduates have locked in rates below 5% in the past few years. With rates so low, it is often wise to pay off debt with higher interest rates first and even start funding a 401(k) or build up some emergency savings before worrying too much about repaying student loans fast. And for many just starting out, saving for a down payment on a first home is a higher priority than paying off college debt. Still, student loans are real debt, and borrowers can reap some nice savings by paying them off sooner rather than later.

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Economics is the only field in which two people can get a Nobel Prize for saying exactly the opposite thing.
 --- http://netec.mcc.ac.uk/JokEc.html

Two Leading Economists in a Ten Rounder With Gloves Off:  Harvard Versus Princeton

"Novel Way to Assess School Competition Stirs Academic Row:  To Do So, Harvard Economist Counts Streams in Cities; A Princetonian Takes Issue Charges and Countercharges." by Jon E. Hilsenrath, The Wall Street Journal, October 24, 2005; Page A1 --- http://online.wsj.com/article/SB113011672134577225.html?mod=todays_us_page_one

Five years ago Harvard's Caroline Hoxby, a rising star in economics, wrote a paper that reached an unusual conclusion: Cities with more streams tended to have schools with higher test scores.

Today her work is a widely cited landmark in the fierce national debate over free-market competition in public schools. And it's at the center of a bitter dispute with another economist that is riveting social scientists across the country.

Her adversary is Jesse Rothstein, a young professor at Princeton, who says her study is full of flaws. In a rebuttal to her critic, Dr. Hoxby wrote of his work: "Every claim is wrong." She has also accused him of ideological bias. Dr. Rothstein, in turn, says she resorts to "name-calling" and "ad hominem attacks" on him.

The unusual spat has put a prominent economist in the awkward position of having to defend one of her most influential studies. Along the way, it has spotlighted the challenges economists face as they study possible solutions to one of the nation's most pressing problems: the poor performance of some public schools. Despite a vast array of statistical tools, economists have had a very hard time coming up with clear answers.

"They're fighting over streams," marvels John Witte, a University of Wisconsin-Madison professor of political science and veteran of a brawl over school vouchers in Milwaukee in the 1990s. "It's almost to the point where you can't really determine what's going on."

Milton Friedman, the Nobel Prize-winning economist known for his free-market views, proposed 50 years ago that to improve schools, parents could be given vouchers -- tickets they could spend to shop for a better education for their kids. He theorized that the resulting competition among schools would spark improvements in the system. Free-market advocates loved the idea. Teachers' unions hated it, arguing that it could drain resources from some public schools and direct resources to religious institutions.

Research on these programs turns up evidence of benefits from school choice. But it hasn't proved strongly convincing, and testing the hypothesis is anything but simple. In the mid-1990s, researchers battled over how to interpret studies of voucher use in Milwaukee. In 2003, they tried to evaluate voucher experiments in New York and ended up squabbling over the right way to decide if a child was African-American. Last year, in assessing charter schools -- institutions that are publicly funded but not bound by traditional rules -- they argued over how to take into account differing backgrounds of the children who attend.

Analysts have searched as far away as New Zealand for evidence about the effects of competition in education -- and disagreed about what was found there, too. Now there is Hoxby vs. Rothstein.

Dr. Hoxby, 39 years old, is one of only two women tenured in Harvard's economics department, a distinction she achieved just seven years after earning a doctorate from Massachusetts Institute of Technology. Other universities, such as Stanford, have tried to lure her away. Harvard, in turn, has given her a prestigious endowed chair.

Although her father, Steven Minter, was an official in the Carter administration Education Department, she has become a favorite in Republican circles for producing statistical evidence that competition improves schools. "This is a person who is smart, who is logical, who is committed and who is dedicated," says Rod Paige, President Bush's first Secretary of Education. Dr. Hoxby also is a distinguished visiting fellow at the Hoover Institution, the right-leaning research center affiliated with Stanford.

Dr. Rothstein, 31, is the son of Richard Rothstein, a former textile-union organizer who's now a lecturer at Columbia. Father and son have both worked closely with the left-leaning Economic Policy Institute in Washington. The son got interested in the streams paper while studying for his doctorate at the University of California, Berkeley. He is now an assistant professor at Princeton, not yet eligible for tenure. His Berkeley thesis adviser, David Card, describes Dr. Rothstein, who had majored in math as a Harvard undergraduate, as "tenacious" and having "very good technical skills."

In her 2000 paper, published in the prestigious American Economic Review, Dr. Hoxby explored competition among public schools. She noticed that some metropolitan areas, like Boston, had dozens of school districts, while others, such as Las Vegas, were dominated by just one. She reasoned that if pro-competition economists were right, school systems with many districts should produce better results, because parents in those cities would have more choices about where to live and educate their children, creating a more competitive environment.

To test this notion she might have simply counted the number of school districts in cities. But there were factors that muddied the waters. Sometimes the quality of the school districts influenced their number. That is, in some cases, it appeared cities had numerous districts partly because some were bad -- so bad they couldn't be closed or merged with others. It was the kind of chicken-and-egg problem that often trips up economic research.

Dr. Hoxby tried to find a way around this. She noticed that the number of school districts seemed related to geography. Streams were natural boundaries around which districts were formed many years ago. Cities with lots of streams had more school districts than cities with few streams.

An Opportunity

Testing a hypothesis in economics isn't as straightforward as, say, testing a drug, where researchers can randomly assign some subjects to receive a placebo. Many economists believe they can approach scientific rigor, however, by taking advantage of random events like draft lotteries and judicial assignments. For Dr. Hoxby, streams offered such an opportunity: Cities with lots of streams had been randomly chosen by nature to have more school districts and more school competition, while cities with few streams were naturally home to fewer districts and less competition.

"By using the variation in the number of school districts in a metropolitan area that is driven by streams, we can isolate the effect that interests us: the causal effect of more districts on achievement," she said in an interview via email.

When she found that metro areas with more streams tended to have more districts, and also higher student achievement, many academics thought she had come up with an ingenious way of testing Dr. Friedman's competition thesis. "Caroline had a great idea with that paper," says David Figlio, an education economist at the University of Florida. "It is incontrovertible that it was a brilliant insight."

Dr. Rothstein says it doesn't stand up to scrutiny. He makes several technical challenges, but his main attack is on the way the author counted streams.

A problem she faced at the outset was that some streams can affect more than school-district borders. Large, navigable ones affect commerce and wealth in an area and the kind of population it attracts -- influences that could distort her test. Small streams wouldn't have this problem, Dr. Hoxby said. She divided her streams into larger and smaller ones and entered them into her equations separately to make the distinction clear. Studying detailed maps published by the U.S. Geological Survey, she measured dimensions of water bodies in hundreds of metropolitan areas.

. . .

The rejoinder irked his defenders. "Her nasty, vicious response is really about shutting down debate," said Lawrence Mishel, president of the Economic Policy Institute. The group has sparred with her before. A book co-written by Dr. Mishel and Richard Rothstein, Jesse's father, dedicates a section to challenging her work on charter schools.

In an email, Dr. Hoxby responds that "EPI's work is funded by unions, and the teachers' unions are openly opposed to charter schools for reasons of self-interest." EPI says it gets 29% of its funds from unions.

Continued in article

Some Very Confusing Energy Economics

"Exelon Rex Will power deregulation in Illinois benefit consumers or utilities?," by Arthur B. Laffer and Patrick N. Giordano, The Wall Street Journal, December 1, 2005 --- http://www.opinionjournal.com/cc/?id=110007618 

Any minute now, an administrative law judge will recommend a method for Illinois electricity deregulation. His recommendation could defend the interests of Illinois consumers, or it could help an Illinois energy company pull a fast one.

In 1997, as part of a move to deregulate Illinois's retail electricity market, Exelon Corp.'s utility subsidiary, Commonwealth Edison Co. (which serves the northern third of Illinois), and other Illinois utilities were barred from increasing retail electricity rates for 10 years. Now, with the end of the rate freeze in sight, ComEd has proposed an auction market for electricity in what has heretofore been a highly regulated industry. But before we describe ComEd's auction proposal, a little background goes a long way to illuminate just why ComEd's proposal is what it is.

ComEd is a wholly owned subsidiary of the Exelon Corp., which also owns Exelon Generation. Exelon Generation is a huge generator of electricity derived primarily from nuclear power plants once owned by ComEd and then transferred to Exelon Generation. It's all quite incestuous and confusing but nonetheless important to understand: ComEd is owned by the same company that owns Exelon Generation. Exelon Generation is the principal supplier of electricity to ComEd, which no longer owns any generating plants. It is obviously in ComEd's interest to have Exelon Generation make as much money as possible. For ComEd's auction proposal or any other proposal to go forward, the Illinois Commerce Commission must approve. An administrative law judge who has heard oral testimony and read briefs will issue a proposed order soon. The ICC is expected to make a final decision in January.

ComEd's proposed auction would start by setting a very high purchase price for electricity and then asking all qualified electricity suppliers how much they would be willing to supply at that very high price. With a high enough price, far more than 100% of ComEd's need would be offered by potential suppliers. The price is then allowed to decline in discrete amounts (a "reverse" auction) until a price is found at which the total amount offered by all suppliers is equal to ComEd's need.

In ComEd's proposal the auction is halted at the so-called market-clearing price and all sellers receive that same uniform price--even those suppliers, like Exelon Generation, that might have been willing to sell at lower prices because their generation costs are very low.

Significantly, under ComEd's proposal all bidders would be told how much energy other bidders are willing to supply at each price as the auction proceeds. ComEd spokespeople describe this as transparency. But to us, it is simply an inducement for the suppliers to collude.

ComEd's proposal makes sense from its perspective. Higher prices for electricity supply directly benefit Exelon Generation, and thereby the parent company of both ComEd and Exelon Generation. Any proposal by ComEd that didn't benefit Exelon Generation disproportionately would be a breach of Exelon Corp.'s fiduciary duty to its shareholders. ComEd's "uniform price" approach, however, violates a basic tenet of public policy: providing the lowest prices for consumers. Stopping the auction when the amount offered equals the amount needed starts at the wrong end of the supply curve. Meanwhile, showing each bidder all the other bids encourages implicit collusion. You don't have to be an industry expert to predict that ComEd's approach will result in consumer prices well above those reached in a truly free market. ComEd's proposal is particularly objectionable in Illinois because utility consumers long ago paid to build the nuclear plants now owned by Exelon Generation.

It would be much better to let the market operate freely under a "pay as bid" reverse auction, instead of the "uniform price" auction ComEd proposed. A pay-as-bid approach allows suppliers to continue to bid in the auction until no bidder is left willing to supply electricity at lower prices.

Continued in article

This module may seem a little off topic.  But it fits nicely into past AECM threads about Big Brotherism in the age of technology.  David Fordham expressed it well by stating that almost anything about a person is either available for free or for sale.  It is in the spirit of those threads that I forward the following tidbit.  Those of you with liberal arts backgrounds may especially like this tidbit.  My threads on this are at http://www.trinity.edu/rjensen/ecommerce/000start.htm#Cellphones

Bob

"Making Ideas Beautiful:  Do art and ideas mix? It depends on who's stirring the pot," by Terry Teachout, The Wall Street Journal, December 10, 2005; Page P15 ---
 http://online.wsj.com/article/SB113416176976318692.html?mod=todays_us_pursuits

Sometimes a heartfelt compliment can blow up in the recipient's face, as when T.S. Eliot said of Henry James that he had "a mind so fine that no idea could violate it," thus making him sound like a plot-spinning idiot savant. What Eliot really meant was that James understood how an artist who dabbles in ideas can lose sight of the true purpose of art, which is (as Renoir said) to "make everything more beautiful." You can't paint a picture of E = mc2, or compose a symphony about the law of supply and demand. Nevertheless, art is so effective at swaying men's minds that there have always been cultural commissars prepared to enlist it in the service of ideas by any means necessary -- including brute force.

To see what happens when politicians ram ideas down artists' throats, take a trip to "Russia!" This once-in-a-lifetime blockbuster show of Russian art from the 12th century to the present, on display at the Guggenheim Museum through Jan. 11, is billed as "the most comprehensive and significant exhibition of Russian art outside Russia since the end of the Cold War." It's that, for sure, but it's also an object lesson in the power of ideas to hijack a great culture.

In the '30s and '40s, Russian artists were expected not merely to toe the Marxist line, but to embody it in their work. Unless you wanted to end up in the Gulag -- or worse -- you did what Stalin said. The deliberately anti-modern style that resulted, known as "socialist realism," was a crude burlesque of 19th-century realism in which the Soviet Union was portrayed as a proletarian paradise. Visual artists had an especially tough time of it, for the once-thriving Russian avant-garde was replaced overnight by a school of simple-minded poster artists who specialized in cheery canvases with titles like "Collective Farm Worker on a Bicycle." To stroll through "Russia!" is to be stupefied by the sheer banality of the assembly-line art these brush-wielding apparatchiks cranked out.

That's one kind of idea-driven art in which the artist illustrates ideas, often with the intention of bludgeoning others into embracing them. But there's another kind, in which an idea is so radically transformed by the artist that the resulting work of art floats free from its initial inspiration, taking on the haze of ambiguity that is part and parcel of beauty.

I saw a wonderful example of the latter kind of art last week at Brooklyn's BAM Harvey Theater. "Super Vision" is an evening-long piece of performance art created by the Builders Association, a New York-based touring experimental theater troupe, in collaboration with dbox, the multidisciplinary design studio. On paper it sounds like a "Nineteen Eighty-Four"-style documentary about how governments and corporations misuse the mountains of personal data they collect from private citizens. In the theater, though, "Super Vision" blossoms into something completely different, a computer-enhanced visual poem about the pitfalls and promise of life in the information age.

"Super Vision," which is being performed this weekend at Montclair State University in Montclair, N.J. (for a tour itinerary, go to www.superv.org ), consists of three interwoven stories in which six actors move through a breathtakingly complex series of digitally generated three-dimensional projections. In one story line, a computer-savvy swindler named John steals his young son's identity, uses it to run up $400,000 in debt, then vanishes. John and his wife are played by real-life actors, but John Jr. exists only as a video image, while the suburban house in which they live is entirely animated.

Again, this bald description makes "Super Vision" sound like a technical tour de force -- which it is. Yet it's far more than that. "I think of the stories in 'Super Vision' as the emotional side of data," explains Marianne Weems, the show's director. "The point is to bring visceral sensation and visual impact to these stories -- and as we move more deeply into interpreting the factual material on which they're based, we move away from the literal."

This is what lifts "Super Vision" out of the pedestrian realm of the purely factual. Yes, Ms. Weems and her collaborators are rightly disturbed by what she calls "this new form of surveillance and its constant incursions into the realm of our selves." But instead of preaching a strident sermon about how "dataveillance" threatens the right to privacy, they've transformed their fears into a fast-flowing stream of nonliteral images that stick in your mind like the swirling colors of an abstract painting. Just when John, the identity thief, thinks he's gotten away clean, you see in the distance what looks like a flock of birds. Then, as it draws nearer, you realize that it's actually a cloud of computer-generated data points hurtling through the air to chase him down. That's not politics -- it's poetry. And it's the quintessence of "Super Vision," a work of theatrical alchemy in which ideas are turned into art by making them more beautiful.

December 5, 2005 message from Larry Gordon

Dear Bob:

As you know, Martin Loeb and I have published a stream of research articles over the last five years in the area we broadly define as "economic aspects of cyber/information security." In order to bring this research to a larger audience, we have summarized much of our research to date into a book entitled MANAGING CYBERSECURITY RESOURCES: A Cost-Benefit Analysis. This book was just published by McGraw-Hill and information about it can be found at: ( http://www.rhsmith.umd.edu/faculty/lgordon/cybersecuritybook.htm ).

Although our initial papers in the area were published in the academic computer science journals (e.g., ACM Transactions on Information and System Security and Journal of Computer Security), the issues addressed are inherently related to the design of management accounting and financial control systems. Accordingly, we are pleased to inform you that the third annual Forum on "Financial Information Systems and Cybersecurity: A Public Policy Perspective" will be held on May 24, 2006 at the Smith School of Business (see attached Call for Papers). We hope you will consider submitting a paper for the Forum.

(See attached file: FINANCIAL INFORMATION SYSTEMS AND CYBER SECURITY -2006.doc)

Sincerely,

Larry _____________________________________________________________
Lawrence A. Gordon, Ph.D.
Ernst & Young Alumni Professor of Managerial Accounting and Information Assurance
Director, Ph.D. Program
Affiliate Professor in University of Maryland Institute for Advanced Computer Studies
Robert H. Smith School of Business
3359 Van Munching Hall
University of Maryland College Park, MD 20742-1815
(301) 405-2255 TEL (301) 314-9611 FAX
 lgordon@rhsmith.umd.edu 
http://www.rhsmith.umd.edu     http://www.rhsmith.umd.edu/faculty/lgordon/

Update on Mutual Fund Fraud

"Millennium Settles in 'Timing' Case; Funds, Executives to Pay $180 Million," by Ian McDonald and Gregory Zuckerman, The Wall Street Journal, December 2, 2005; Page C1 ---
http://online.wsj.com/article/SB113345122389011396.html?mod=todays_us_money_and_investing

Hedge funds run by New York money manager Millennium Management LLC and four of the firm's top executives agreed to pay $180 million to settle regulatory charges that they tricked mutual-fund firms into allowing them to make trades that cheated other investors.

The executives, including Millennium founder Israel Englander, used more than 100 "shell companies" to open more than 1,000 brokerage accounts and make more than 76,000 rapid trades in mutual funds from 1999 to 2003, according to civil complaints filed by New York Attorney General Eliot Spitzer and the Securities and Exchange Commission. Rapid trades in and out of funds -- known as market timing -- are barred by most fund firms because they raise expenses and lower returns for long-term shareholders.

The case "shows the lengths people will go in order to deceive mutual funds and profit from market timing," said Helene Glotzer, associate regional director in the SEC's New York office. More settlements with hedge funds that improperly traded in mutual funds are likely in coming months, she said.

"The fraudulent practices increased in intensity and amount as mutual funds became more vigilant in trying to stop market-timing activities," added Charles Caliendo, an assistant attorney general in New York.

Mr. Englander declined to comment through a spokesman and didn't respond to an email. In a letter to investors yesterday, he said, "We have addressed our issues forthrightly and as promptly as circumstances permitted."

Since Mr. Spitzer shook up the sleepy mutual-fund world with allegations of improper trading in September 2003, 15 firms have reached settlements totaling more than $3.5 billion in fines, penalties and fee cuts for investors. Millennium is the second hedge fund to settle. Canary Capital Partners was the first; it paid $40 million.

Millennium's Mr. Englander, who has built a reputation as one of the most successful traders on Wall Street since founding the firm in 1989, will personally pay a $30 million penalty and will be banned from working for an SEC-registered investment fund for three years. The 57-year-old Mr. Englander will still be able to work at Millennium, which is an unregistered investment adviser. Millennium and the individuals settled without admitting or denying wrongdoing.

New York authorities say the mutual-fund trades totaled more than $52 billion. In addition, they say Millennium traded more than $19 billion improperly through fund-like accounts held in insurance products such as variable annuities, which are essentially tax-deferred retirement accounts with an insurance wrapper that typically guarantees a given payout if the contract holder dies. Millennium also received same-day pricing for some trades made after the market closed in an illegal practice known as "late trading," they say.

Investors in Mr. Englander's funds will bear the brunt of the pain. Under the settlement, outside investors in Millennium's $5.4 billion funds will pay $106 million of the $180 million bill, disgorging gains that came from the allegedly improper trading. The balance will be paid by the firm and its executives.

Continued in article

Bob Jensen's threads on mutual fund fraud are at http://www.trinity.edu/rjensen/FraudRotten.htm#MutualFunds

From The Wall Street Journal Accounting Weekly Review on December 2, 2005

TITLE: Ahold to Settle Shareholder Suit For $1.1 Billion
REPORTER: Nicolas Parasie, Fred Pals, Chad Bray
DATE: Nov 29, 2005
PAGE: A5
LINK: http://online.wsj.com/article/SB113316836281807923.html 
TOPICS: Accounting, Contingent Liabilities, Financial Accounting, Auditing

SUMMARY: "Ahold NV said it settled a U.S. class-action lawsuit related to its accounting scandal two years ago, agreeing to pay 945 million euro, or about $1.1 billion, to shareholders world-wide." The company "...operates Stop & Shop and Giant supermarkets in the US."

QUESTIONS:
1.) For what losses did Ahold NV shareholders file their class-action lawsuit? In your answer, define the term "class-action." How was this lawsuit resolved?

2.) Based on information given in the main article and a related one, what were the means by which the company overstated its profits? What steps were undertaken to avoid the outside auditor's detection of the accounting irregularities? Is it possible for an auditor to undertake procedures to overcome such collusion?

3.) What factors besides the accounting irregularities committed by the company could have impacted Ahold NV's share price during the years 2003 and 2004? How likely do you think it is that the company might have been able to defend against the shareholder lawsuit on the argument that other factors caused the company's stock price decline? Explain your reasoning for your answer to this question.

4.) Access Ahold's SEC filing on Form 20-F for under company name Royal Ahold (Ticker Symbol AHO). How were these outstanding lawsuits disclosed in the company's financial statements for the year ended January 2, 2005 filed with the SEC on June 24, 2005? To answer, describe the specific location of the disclosure and summarize the statements made therein.

5.) In what time period was most of the expense associated with this lawsuit settlement recorded? Based on the information provided in the article, provide a summary journal entry to account for the lawsuit settlement.

6.) What accounting literature in USGAAP requires the disclosure described in answer to question 4 and the accounting treatment described in answer to question 5? Specifically cite the standard and its paragraphs promulgating this accounting and reporting.

Reviewed By: Judy Beckman, University of Rhode Island

--- RELATED ARTICLES ---
TITLE: U.S. Regulator Settles Charges in Ahold Case
REPORTER: Siobhan Hughes
ISSUE: Nov 03, 2005
LINK: http://online.wsj.com/article/SB113096020915986526.html 

TITLE: Ahold's Net Loss Widens on Settlement Charge
REPORTER: Fred Pals ISSUE: Nov 29, 2005
LINK: http://online.wsj.com/article/SB113325102735508927.html

"Ahold to Settle Shareholder Suit For $1.1 Billion," by Nicolas Parasie, Fred Pals, and Chad Bray, The Wall Street Journal,  November 29, 2005; Page B2 --- http://online.wsj.com/article/SB113316836281807923.html 

Ahold NV said it settled a U.S. class-action lawsuit related to its accounting scandal two years ago, agreeing to pay €945 million, or about $1.1 billion, to shareholders world-wide.

Separately, a Pennsylvania supermarket vendor pleaded guilty in federal court in Manhattan to a conspiracy charge in connection with the alleged accounting fraud at Ahold's U.S. unit.

Amsterdam-based Ahold, which operates Stop & Shop and Giant supermarkets in the U.S. and the Albert Heijn supermarkets in the Netherlands, came close to bankruptcy proceedings after disclosing a €1 billion profit overstatement at its U.S. Foodservice unit in 2003. Revelations of accounting irregularities over a five-year period followed, and Ahold was sued by shareholders for the resulting drop in share price.

The settlement will result in an after-tax charge of €585 million for the third quarter. Shareholders will receive about $1 to $1.30 for each Ahold share before tax, it said. The company also has reached an agreement with the Dutch shareholders' association VEB, to which it will pay €2.5 million.

Ahold reports third-quarter results today.

"We will avoid lengthy, costly and time-consuming litigation," said Ahold board member and chief legal counselor Peter Wakkie.

Ahold said this settlement is the last one "with significant financial exposure" to the litigation resulting from the 2003 overstatement. There is one continuing investigation being carried out by the U.S. Justice Department that is mainly focusing on executives at U.S. Foodservice, Mr. Wakkie said.

Federal prosecutors have also charged 16 U.S. Foodservice vendors with aiding former executives at the Columbia, Md., company in the alleged scheme to artificially inflate U.S. Foodservice's results. So far, 15 of those suppliers or brokers, including one yesterday, have pleaded guilty to criminal charges in the matter.

At a hearing yesterday before U.S. District Court Judge Jed S. Rakoff, Robert Henuset, a sales manager at Crowley Foods LLC in Yardley, Pa., pleaded guilty to one count of conspiracy. Mr. Henuset, who was a supplier to U.S. Foodservice, admitted to signing an audit-confirmation letter in January 2003 that overstated the amount of money owed to U.S. Foodservice by Crowley.

Mr. Henuset, 55 years old, faces as much as five years in prison in connection with the conspiracy charge. Sentencing is set for March 20.

The external auditors of Ahold came from Deloitte and Touche.  You can read more about the Ahold accounting scandal at http://www.trinity.edu/rjensen/fraud001.htm#Deloitte

Free Spreadsheet Software
December 13, 2005 message from Richard J. Campbell [campbell@RIO.EDU]

Ray Ozzie of Microsoft has been talking about providing pieces of Office as a web service.

Here is a link to a free online spreadsheet:

www.numsum.com 

Richard J. Campbell

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

Popup Protection Comes Free
December 13, 2005 message from Richard J. Campbell [campbell@RIO.EDU]

Whether you realize it or not, you may be protected from popups via the Google, Yahoo or antispyware software.

Here is a link to test If you are protected.

http://www.popupcheck.com/ 

On the other hand there are many developers (like myself) that like to use popups to display educational material.

So it is also important that you find out how to allow these popups when the situation warrants it.

Richard J. Campbell

Some Complicated Finance in a Hedge Fund World:  Why some equity holders want to force bankruptcy

"Executives' Ouster Shows Growing Hedge-Fund Clout: As Calpine CEO Stumbled, Investors Turned Up Heat; A Fight Over Bankruptcy," by Rebecca Smith and Henny Sender, The Wall Street Journal, December 1, 2005; Page A1 --- http://online.wsj.com/article/SB113340459048110983.html?mod=todays_us_page_one

In recent years, Calpine fell into trouble after its ambitious plan to build the nation's biggest portfolio of power plants grew increasingly hard to sustain following Enron Corp.'s collapse in 2001. Further hurt by soaring natural-gas prices, the company turned to a new breed of lender -- the hedge funds that now hold the vast majority of its debt.

The company's plight illustrates just how much the business of financing troubled companies has changed in recent years. Moreover, the outcome of any battle over Calpine will be a significant early test of new financing methods and products that have gained prominence in the past few years.

Corporations have traditionally borrowed from banks, mutual funds or other investors who lent with the expectation that they would get their money back, with interest. Calpine's lenders, by contrast, are hedge funds with different expectations. In some cases, they carefully structured their investments with an eye toward a possible bankruptcy filing. In fact, some hedge funds stand to be among the prime beneficiaries if the company does file for bankruptcy protection, especially those who had taken "short" positions in the stock, betting its value would fall. But others may well find the value of their debt is worth less than they anticipated, paving the way for fights among creditors as intense as those between Calpine and its lenders.

While it may seem counterintuitive that bondholders would press a company to file for bankruptcy protection -- since court fights are expensive and unpredictable -- there are logical reasons for some to do so. A bankruptcy filing means that the company's management has to take creditors' interests into consideration, rather than running the company for the benefit of shareholders alone. A filing also stops the clock, in a sense, preventing a company from further destroying value and burning through its cash.

Showing their willingness to play hardball, many funds have taken Calpine to court in an effort to put further pressure on it, and thereby increasing the likelihood of a bankruptcy filing. For example, the Harbert Convertible Arbitrage Master Fund and its offshore equivalent, along with Wilmington Trust Co., as trustee, have sued Calpine in New York Supreme Court alleging technical default on $736 million of convertible notes and asking that Calpine redeem them. Court documents say Harbert holds more than $90 million of these notes. The case is still being litigated. A fund manager at Harbert involved with various litigation against Calpine declined to comment.

Wilmington Trust is also the trustee for a group of noteholders that is overwhelmingly made up of hedge funds, who are fighting Calpine in the Court of Chancery of the State of Delaware for "openly and brazenly violating the asset sale provisions of the second lien indentures," according to court documents. Last week, a judge ruled in favor of the noteholders, in a decision that "makes it much harder for cash-strapped Calpine to keep on going," analysts at CreditSights Inc. said.

Continued in article

Who is Jay Cooke and what does he have, if anything, to do with the Enron scandal?

From Jim Mahar's blog on November 4, 2005 --- http://financeprofessorblog.blogspot.com/

Looking for an unsung hero of the US Civil War? You could do much worse than picking Jay Cooke.

Jay Cooke was what we would now call an investment banker.. He had made quite the name for himself selling all types of securities but especially state bonds---his Pennsylvania and Texas bond sales are particularly interesting and could be the focus of a future entry just by themselves

Cooke did things differently than most bankers at the time. Whether by necessity or plan, he marketed his securities directly to the people. Additionally he played on not only their desire for a good deal, but their patriotism.

For instance, a typical advertisement that he ran in newspapers:

“…independent of any motives of patriotism, there is considerations of self-interest which may be considers in reference to this Loan. It is a six percent loan free of any taxation”

While his pre-war career had been successful, he should be most remembered for his work during the Civil War. Starting in 1862 (after the Union lost the Battle of Bull Run), he helped sell several large Federal bond offers that literally helped to win the war by allowing the North to outspend the South. This ability to spend seemingly endless amounts of money, was a major determining factor in the North's eventual victory.

The details of his sales are fascinating. His place in history is guaranteed for his paving the way for future generations of “war bonds” and helping to open the world of finance to a much broader audience—a fact that during the later 1800s the railroads would use to their advantage). To help make these bonds available to the general public, he made bonds available in with par values as low as $50 and instructed his network of offices to remain open well into the evening so that the “working man” could invest after work.

It should be noted that these were not just “plain vanilla” bonds. He was selling debt that was callable and had a longer maturity (up to 20 years) than most debt of the day.

But that is not all; he also ran what some consider to be the first “wire house” whereby his firm used telegraphs to sell securities throughout the North from their office in Washington.

And even after the actual fighting ended (a time when the Union needed millions of dollars to help rebuild) he kept at his original ways (which angered the more traditional bankers) and now gets credit for initiating price stabilization (a practice whereby the investment banking syndicate enters the secondary market and helps to stabilize the price of the security they just helped to sell to the public).

There is today a middle school named after Cooke in Philadelphia.

Source: Wall Street: a History From Its Beginnings to the Fall of Enron, by Charles R. Geisst, pp. 49-58.

Additional sources: http://en.wikipedia.org/wiki/Jay _Cooke http://www.buyandhold.com 

Bob Jensen's threads on the Enron/Andersen scandals are at http://www.trinity.edu/rjensen/FraudEnron.htm

I added the above module to my Enron Quiz at http://www.trinity.edu/rjensen/FraudEnronQuiz.htm

"Economists Caution Investors on Hidden Risks of Hedge Funds," Stanford News, November 2005 --- http://www.gsb.stanford.edu/news/headlines/vanhorne_hedgefunds.shtml

"This is Only a Test," by Peter Berger, The Irascible Professor, December 5, 2005 --- http://irascibleprofessor.com/comments-12-05-05.htm

Back in 2002 President Bush predicted "great progress" once schools began administering the annual testing regime mandated by No Child Left Behind. Secretary of Education Rod Paige echoed the President's sentiments. According to Mr. Paige, anyone who opposed NCLB testing was guilty of "dismissing certain children" as "unteachable."

Unfortunately for Mr. Paige, that same week The New York Times documented "recent" scoring errors that had "affected millions of students" in "at least twenty states." The Times report offered a pretty good alternate reason for opposing NCLB testing. Actually, it offered several million pretty good alternate reasons.

Here are a few more.

There's nothing wrong with assessing what students have learned. It lets parents, colleges, and employers know how our kids are doing, and it lets teachers know which areas need more teaching. That's why I give quizzes and tests and one of the reasons my students write essays.

Of course, everybody who's been to school knows that some teachers are tougher graders than others. Traditional standardized testing, from the Iowa achievement battery to the SATs, was supposed to help us gauge the value of one teacher's A compared to another's. It provided a tool with which we could compare students from different schools.

This works fine as long as we recognize that all tests have limitations. For example, for years my students took a nationwide standardized social studies test that required them to identify the President who gave us the New Deal. The problem was the seventh graders who took the test hadn't studied U.S. history since the fifth grade, and FDR usually isn't the focus of American history classes for ten-year-olds. He also doesn't get mentioned in my eighth grade U.S. history class until May, about a month after eighth graders took the test.

In other words, wrong answers about the New Deal only meant we hadn't gotten there yet. That's not how it showed up in our testing profile, though. When there aren't a lot of questions, getting one wrong can make a surprisingly big difference in the statistical soup.

Multiply our FDR glitch by the thousands of curricula assessed by nationwide testing. Then try pinpointing which schools are succeeding and failing based on the scores those tests produce. That's what No Child Left Behind pretends to do.

Testing fans will tell you that cutting edge assessments have eliminated inconsistencies like my New Deal hiccup by "aligning" the tests with new state of the art learning objectives and grade level expectations. The trouble is these newly minted goals are often hopelessly vague, arbitrarily narrow, or so unrealistic that they're pretty meaningless. That's when they're not obvious and the same as they always were.

New objectives also don't solve the timing problem. For example, I don't teach poetry to my seventh grade English students. That's because I know that their eighth grade English teacher does an especially good job with it the following year, which means that by the time they leave our school, they've learned about poetry. After all, does it matter whether they learn to interpret metaphors when they're thirteen or they're fourteen as long as they learn it?

Should we change our program, which matches our staff's expertise, just to suit the test's arbitrary timing? If we don't, our seventh graders might not make NCLB "adequate yearly progress." If we do, our students likely won't learn as much.

Which should matter more?

Even if we could perfectly match curricula and test questions, modern assessments would still have problems. That's because most are scored according to guidelines called rubrics. Rubric scoring requires hastily trained scorers, who typically aren't teachers or even college graduates, to determine whether a student's essay "rambles" or "meanders." Believe it or not, that choice represents a twenty-five percent variation in the score. Or how about distinguishing between "appropriate sentence patterns" and "effective sentence structure," or language that's "precise and engaging" versus "fluent and original."

These are the flip-a-coin judgments at the heart of most modern assessments. Remember that the next time you read about which schools passed and which ones failed.

Unreliable scoring is one reason the General Accountability Office condemned data "comparisons between states" as "meaningless." It's why CTB/McGraw-Hill had to recall and rescore 120,000 Connecticut writing tests after the scores were released. It's why New York officials discarded the scores from its 2003 Regents math exam. A 2001 Brookings Institution study found that "fifty to eighty percent of the improvement in a school's average test scores from one year to the next was temporary" and "had nothing to do with long-term changes in learning or productivity." A senior RAND analyst warned that today's tests aren't identifying "good schools" and "bad schools." Instead, "we're picking out lucky and unlucky schools."

Students aren't the only victims of faulty scoring. Last year the Educational Testing Service conceded that more than ten percent of the candidates taking its 2003-2004 nationwide Praxis teacher licensing exam incorrectly received failing scores, which resulted in many of them not getting jobs. ETS attributed the errors to the "variability of human grading."

The New England Common Assessment Program, administered for NCLB purposes to all students in Vermont, Rhode Island, and New Hampshire, offers a representative glimpse of the cutting edge. NECAP is heir to all the standard problems with standardized test design, rubrics, and dubiously qualified scorers.

NECAP security is tight. Tests are locked up, all scrap paper is returned to headquarters for shredding, and testing scripts and procedures are painstakingly uniform. Except on the mathematics exam, each school gets to choose if its students can use calculators.

Whether or not you approve of calculators on math tests, how can you talk with a straight face about a "standardized" math assessment if some students get to use them and others don't? Still more ridiculous, there's no box to check to show whether you used one or not, so the scoring results don't even differentiate between students and schools that did and didn't.

Finally, guess how NECAP officials are figuring out students' scores. They're asking classroom teachers. Five weeks into the year, before we've even handed out a report card to kids we've just met, we're supposed to determine each student's "level of proficiency" on a twelve point scale. Our ratings, which rest on distinguishing with allegedly statistical accuracy between "extensive gaps," "gaps," and "minor gaps," are a "critical piece" and "key part of the NECAP standard setting process."

Let's review. Because classroom teachers' grading standards aren't consistent enough from one school to the next, we need a standardized testing program. To score the standardized testing program, every teacher has to estimate within eight percentage points how much their students know so test officials can figure out what their scores are worth and who passed and who failed.

If that makes sense to you, you've got a promising future in education assessment. Unfortunately, our schools and students don't.

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

"What Fraud Training?" SmartPros, October 31, 2005 --- http://accounting.smartpros.com/x50425.xml

According to Professor J. Edward Ketz, a frequent SmartPros contributor through The Accounting Cycle column, today's accounting students are graduating without the necessary tools to fight fraud. He makes seven recommendations to remedy this problem: The accounting industry must raise salaries. Educators must stop watering down courses with watered-down accounting textbooks. Accounting courses need to focus more on the practical content. Students should study financial statement analysis. Students need more work in Information Systems. Accounting firms should utilize more senior, more experienced individuals on an audit. Accounting firms need to supplement the training of newly minted accounting graduates.

Jensen Comment
In the above article reporting a survey of 300 respondents, 65% reported that they had zero preparation to deal with fraud prevention in there college courses in accounting.  Once again I will repeat that the most "watered down" part of the accounting curriculum and accounting textbooks is in accounting for derivative financial instruments where much of the fraud takes place in financial reporting.  Also it is not possible to do financial statement analysis of most companies, who hedge risk with derivatives, without understanding new hedge accounting rules in FAS 133 and IAS 39.  There are, of course, other watered down topics, particularly AIS where internal controls are often fallible.  In my judgment, the textbooks and curricula are too focused on CPA exam content which is itself "watered down."

I discuss this problem in greater detail at http://www.trinity.edu/rjensen/caseans/000index.htm

November 1, 2005 reply from David Albrecht [albrecht@PROFALBRECHT.COM]

Bob, I'm coming around to your point of view. Perhaps we can simply refer to these "watered down" courses "fully diluted".

Is a new FAS needed to reissue the term "fully diluted"?

Dave Albrecht

Pivot Table Downloads from Microsoft's Investor Relations --- http://www.microsoft.com/msft/history.mspx
Jensen's archives of these downloads --- http://www.cs.trinity.edu/~rjensen/MicrosoftInvestorRelationPivots/ 

When I teach students how to make and analyze pivot tables in Excel, I commenced in 2000 downloading the Excel XLS pivot tables that Microsoft Corporation makes available at its Investor Relations site.  The three XLS files that could be downloaded in the past were as follows:

• Microsoft's history of financial statements pivot table XLS

• Microsoft's history of revenue by segments pivot table XLS

• Microsoft's "What if" pivot tables and pivot chart XLS (for making forecasts based upon your own chosen assumptions)

Microsoft no longer provides the revenue by segments pivot table, but the other two current pivot tables (with pivot charts) can be downloaded from http://www.microsoft.com/msft/history.mspx

Microsoft does not provide its pivot table downloads from the early years.  If you are interested, I archived the downloads for Years 2000, 2001, 2002, and 2005. I also have an old (read that OLD) wmv video file on how to use these pivot tables and pivot charts.  The link to these archived at http://www.cs.trinity.edu/~rjensen/MicrosoftInvestorRelationPivots/

One thing you can do with the above files is to note how the "What if" pivot tables changed over the years.  These are great illustrations for students learning how to create and use pivot tables.

Question
What networked computer "appears" to be immune to both viruses and spyware (so far)?

Answer
Apple's excellent Tiger operating system, which hasn't yet attracted any successful viruses and has no reported spyware.

Walter S. Mossberg and Katherine Boehret,"A New Gold Standard for PCs:  Apple's Revamped iMac Is Cheaper and Better, But Lacks Memory-Card Slots, The Wall Street Journal, November 30, 2005; Page D1 --- http://online.wsj.com/article/SB113331174822009686.html?mod=todays_us_personal_journal

When Apple Computer launched its video iPod last month, the hype was so great that another important Apple product announcement was lost in the shuffle. The company also released that day a new, improved, and yet cheaper, version of the already excellent iMac G5, its flagship consumer desktop computer.

At the same time, Apple Computer also introduced a new software program called Front Row -- embedded in the improved iMac -- that, like Microsoft's Windows Media Center, allows users to play music and to view photos, videos and DVDs from across a room, using an included remote control.

We've been testing this new iMac, and our verdict is that it's the gold standard of desktop PCs. To put it simply: No desktop offered by Dell or Hewlett-Packard or Sony or Gateway can match the new iMac G5's combination of power, elegance, simplicity, ease of use, built-in software, stability and security. From setup to performing the most intense tasks, it's a pleasure to use. And, contrary to common misconceptions, this Mac is competitively priced, when compared with comparably equipped midrange Windows PCs; and it handles all common Windows files, as well as the Internet and email, with aplomb.

As for Front Row, we liked it as well. Though it does less than Microsoft's very nicely designed Media Center version of Windows, Front Row is cleaner and simpler, with a much easier remote control. It could use some improvements, but, even in this first version, it enhances an already-terrific computer.

The combination of the new, improved hardware, plus Front Row, makes the iMac G5 the best consumer desktop you can buy this holiday season, period. For mainstream consumers doing typical tasks -- Web surfing, email, office productivity, photos, music, home videos, etc. -- it's the finest desktop PC on the market, at any price. Hard-core game players, stock-market day traders, serious video producers and some other niche users should look for other computers. But, for most people, the new iMac G5 is the best choice.

At first glance, the new iMac G5 looks very similar to the model it replaced. Like its forerunner, it packs an entire computer, including the very fast and powerful G5 processor, into a slender, striking, white flat-panel monitor. The guts of the computer are entirely contained behind this gorgeous, vivid 17- or 20-inch screen. People viewing the machine for the first time often mistake it for merely a monitor.

But the new model has a slightly faster processor and is even thinner and lighter than its predecessor. And it now has a high-quality built-in camera for videoconferencing and taking snapshots, formerly a $150 external option. Plus, it includes the remote control and Front Row.

Yet the top-of-the-line model, with a 20-inch screen, is now $1,699, down $100 from its predecessor. The 17-inch model is still $1,299, despite the added features.

About the only hardware feature we wish the iMac included is a set of slots for the flash memory cards used by digital cameras and other portable devices. Many Windows models now include such slots, but iMac owners will have to buy an external card reader.

The new model is 15% sleeker and 10% lighter than before. While the older iMac's shape was flat across its white rear panel, this one tapers off at the edges to give it a slightly thinner, more elegant, look. The power button, and the USB, FireWire, Ethernet and other ports, are still on the rear, though they've been rearranged.

Unlike most desktops, the iMac G5 comes with built-in Wi-Fi wireless networking, so you can use it far away from a wired Internet connection. It also includes Bluetooth wireless networking; a DVD and CD burner; 512 megabytes of memory; and Apple's new two-button mouse. The 20-inch model has a 250-gigabyte hard disk and a processor that runs at 2.1 gigahertz. The 17-inch model has a 160-gigabyte hard disk and a processor that runs at 1.9 gigahertz.

Like all Macs, the new iMac comes with Apple's excellent Tiger operating system, which hasn't yet attracted any successful viruses and has no reported spyware. Tiger already includes the key features Microsoft is promising for its next version of Windows, due in about a year. These include an integrated desktop search, parental controls and tougher security. And it comes with Apple's iLife suite of first-rate multimedia programs for managing and creating music, photos, videos and DVDs -- better than any similar software for Windows.

Continued in article

November 30, 2005 reply from Glen Gray [glen.gray@CSUN.EDU]

The popularity of Apple computers continue to grow—partly due the increased visibility of the Apple brand due to the popularity of iPods. As such, I have a growing (but still small) population of students each semester who own Apple computers. The problem is we use Microsoft Access in a few courses—and there is no version of Access for Apple computers. As such, these students have to do their Access projects in our busy labs. Then these students ask me the obvious question: Did I make a mistake buying an Apple compute? Most tax and accounting software that accounting students may use on the future jobs do not have Apple versions. So, I don’t really have a clear answer to that question.

Glen L. Gray, PhD, CPA
Dept. of Accounting & Information Systems
College of Business & Economics
California State University, Northridge
Northridge, CA 91330-8372
http://www.csun.edu/~vcact00f 

November 30, 2005 reply from Bob Jensen

Since PCs are so cheap these days, most of us in the working world (not necessarily students) can afford both. Since I have had two computers wiped out by Trojan horses and keep finding spyware on my Windows machines, I plan to use a Mac on the Web as much as possible. The Windows machine offline will then be clean and healthy for MS Office software like MS Access and Excel.

I agree that students should learn the Windows operating system and MS Office products since the working world is still pretty much a Windows world. But that does not mean that professors must always do Windows. I was a loyal Windows fan all these years until all this bad stuff commenced to happen (Trojan horses, viruses, trap doors, spyware, phishing, spoofing, pharming (really bad), and spam. Mac has what Consumer Reports calls the best spam deflector.

My laments on the above problems with Windows are at http://www.trinity.edu/rjensen/ecommerce/000start.htm#SpecialSection 

November 30, 2005 reply from David Fordham, James Madison University [fordhadr@JMU.EDU]

Bob, you've hit the nail right on the head. Windows AND iMacs are the way to go if you want to be fully prepared.

If Glen's students are like mine (and I expect they are, since even my own children are like this!), most of them are unlike us, and won't have the headaches learning, and then moving between, the two different operating systems and their respective suites of application software.

Individuals in my generation (and Bob's, Glen's, and most of the rest of us on this list) grew up with one primary operating system and one set of application software on our personal computers at a time. First it was CP/M accompanied by BASIC and assemblers. Then along came DOS, accompanied by Visicalc, Lotus 1-2-3, and later WordPerfect 5.0. Then came Windows 3.1, and later still Windows98 accompanied by MS Office.

Note this: In each case, we had a lengthy learning curve because of relative unfamiliarity with the new techniques used for interfacing. To make matters worse for us, OUR other electronic gadgets had "operating systems" that were either so simple they were intuitive (microwave ovens, electronic desk telephones, answering machines, faxes, etc.), or were so weird and unique they stood out like sore thumbs (TV remote controls, Xerox copier control panels, etc.) and baffled our rank and file. For us, learning a new control was a chore because nothing new seemed to relate to anything we already knew.

Not so with today's generation. They are used to transitioning easily between dozens of different, albeit "universally menu-driven, object-oriented, icon- illustrated, nested level, preference-preserving" control programs -- for every kind of gadget imaginable.

Today's students can pick up a new multipurpose cellphone/camcorder, a GPS mapping device, a multi-function all-in-one printer/scanner/copier/floor-scrubber/cappucino- maker, (or in the case of my 19-year-old son who's a pilot, a new Cirrus airplane cockpit that is entirely computer- based!) -- and with a couple minutes experimentation, have the gadget singing, dancing, rolling over and doing tricks long before us grey-hairs could even get the manual out of the zip-lock bag!

Today's generation has the mind-set that if you know what the gadget is supposed to do, you should be able to figure out how to work it. They have no trepidation at trying new devices, and know what to expect in the way of figuring out the logic of the interface, given the expected purpose of the gadget.

Indeed, the similarity in purpose between the iMac and the Windows machines makes it that much easier for them to pick up the other one, compared to say, transitioning between a Windows machine and a Canon copier/scanner or video cell phone, for instance -- things that they have no problem with at all.

The transition between Mac and Windows is made even easier if they can have a couple of minutes of time from a skilled educator who can point out differences and similarities, and is experienced in how to properly construct a "compare and contrast" introduction.

Thus, I am a proponent of educators becoming familiar with both systems, painful as it may be for us.

To address Glen's student's situation, it is unquestionable that an accounting student who knows only the Mac is going to be in serious trouble the first couple of weeks on the job. (Even though they can pick up the Mac operation relatively easily compared to MY generation, they will not have had the MS OfficeSuite practice, and therefore they'll be lacking the speed/expertise/comfort-level of their competition for promotions and raises!)

And conversely, a student who knows only Windows may be able to get along on the job quite well and survive admirably career-wise, but may be at a disadvantage on those areas where Mac's excel (no pun intended!), such as video, music, etc. And remember, many elementary schools still are Mac- based, so helping the kids with the homework will one day demand knowledge of the Mac world.

Of course, my stereotyping described above has exceptions. There are those students in today's generation who have trouble figuring out how to open the door to a new car, how to flush a modern toilet, how to turn on a shower in a hotel room, and how to make a call on their new cell phone. But my observation has been that they are more rare than the 85-year- old who can program a ccript in virtual Java. (My dad is one of them!)

"Technology is another name for 'tools'. The more tools you know, and know well, the better you are able to thrive in the modern, technological environment. If your only tool is a hammer, you tend to see all problems as nails. If you have a workshop full of tools and know how to use them, you can turn out miracles."

David Fordham

Richard Campbell reminds us that Mac is not as fully secure as some people like to believe.

FYI:

http://enterprisesecurity.symantec.com/content.cfm?articleid=6266 

Richard J. Campbell
mailto:campbell@rio.edu 

 

I think what's important about this is that Deloitte is the only one of the Big Four that did not sell its consulting division (although those firms that did sell have started up new advisory services divisions).  It would seem that Deloitte is still auditing an information system that it once designed.  However, some other firms are probably doing the same thing even though they sold the consulting divisions that once designed the information systems being audited.

"Delphi Investors Seek Deloitte's Ouster as Auditor," by Jonathan Weil, The Wall Street Journal,  December 3, 2005; Page B13 --- http://online.wsj.com/article/SB113356891041013005.html?mod=todays_us_money_and_investing

A group of large investors has asked the judge presiding over Delphi Corp.'s bankruptcy proceedings to disqualify Big Four accounting firm Deloitte & Touche LLP from continuing to audit the auto-parts maker's financial statements.

Delphi filed for Chapter 11 bankruptcy-court protection in October, just months after disclosing a litany of accounting violations involving hundreds of millions of dollars. The disclosures prompted a series of government investigations that are continuing. Shortly after filing for bankruptcy protection, Delphi asked the court for permission to continue using Deloitte, its longtime outside auditor.

In their request Friday, the Teachers' Retirement System of Oklahoma, the Public Employees' Retirement System of Mississippi and two other large institutional investors asked U.S. Bankruptcy Judge Robert D. Drain to reject that application, arguing that Deloitte faces unmanageable conflicts of interests.

"The more Deloitte were to discover about Delphi's past accounting problems, the more it would implicate itself for having failed to detect them at the time," the funds wrote in their court filing. "In fact, Deloitte has strong incentive to conceal pre-petition accounting and auditing problems, and to minimize its own liability."

Those same investors are the lead plaintiffs in a lawsuit that seeks class-action status accusing Delphi, Deloitte and several other defendants of misleading investors. They also have filed papers before Judge Drain objecting to potentially lucrative pay packages that Delphi has proposed for certain key employees, including senior Delphi executives, while the company reorganizes.

In a statement, Deloitte spokeswoman Deborah Harrington said the accounting firm "does not believe it would be appropriate to publicly comment on a retention application that is currently pending before the federal bankruptcy court. However, any allegations that Deloitte & Touche LLP acted improperly with respect to its prior audit engagements for Delphi are untrue."

A Delphi spokesman declined to comment.

In addition to auditing Delphi's financial statements, Deloitte also designed and implemented Delphi's financial-information systems following the company's 1999 spinoff from General Motors Corp. In 2000, Delphi paid Deloitte $6.6 million for its annual audit and $50.8 million for nonaudit services, including $41.3 million for the information-systems project; it paid Deloitte an additional $12 million related to the project in 2001.

Since then, Delphi's audit fees have risen, while nonaudit fees have declined. For 2004, Delphi paid Deloitte $14 million in audit fees and $1.7 million for other services.

Continued in article

Bob Jensen's threads on Deloitte are at http://www.trinity.edu/rjensen/fraud001.htm#Deloitte

"IASC Foundation Publishes User’s Guide to Financial Instruments Standards," International Accountant, November 11, 3005 --- http://www.aia.org.uk/InternationalAccountant.htm?News/IAfullStory.php?id=50520

The International Accounting Standards Committee (IASC) Foundation has published a user’s guide through the official text of the standards on financial instruments issued by the International Accounting Standards Board (IASB).

This volume has been produced under the IASC Foundation’s education initiative and offers the consolidated and up-to-date text, with extensive cross-references, of IAS 32, IAS 39, IFRS 7 and IFRIC Interpretation 2. The cross-references have been designed to help users navigate the pronouncements included in the text and relate the requirements of the standards and the accompanying material that is published with them. In addition, the text is annotated with relevant agenda decisions of the International Financial Reporting Interpretations Committee.

The IASC Foundation has prepared this volume for those who need to have a detailed knowledge of reporting and accounting for financial instruments in accordance with International Financial Reporting Standards (IFRSs). It will therefore be of particular interest to those who are consolidating their knowledge of the IASB’s standards on financial instruments. Equally, to help those who are applying IFRSs for the first time, the volume contains an overview of IFRS 1 - the standard on first-time adoption of IFRSs - which sets out the exemptions available and exceptions to retrospective application of the standards on financial instruments.

Printed copies of Financial Instruments—Reporting and Accounting: A user’s guide through the official text of IAS 32, IAS 39 and IFRS 7 (ISBN 1-904230-94-6) are available from the IASCF Publications Department, at £38 each including postage.

Contact Details
IASCF Publications Department, 30 Cannon Street, London EC4M 6XH, United Kingdom. Tel: +44 (0)20 7332 2730, Fax: +44 (0)20 7332 2749,
E-mail: publications@iasb.org ,
Web: www.iascfoundation.org .

Also see an announcement at http://www.iasplus.com/index.htm

"IBM Software Cruises Web and Blogs to Capture Noise About Businesses," ADT Magazine. November 10, 2005 --- http://www.adtmag.com/article.asp?id=17478

The proliferation of blogs, news feeds, consumer review sites, newsgroups and articles published daily on the Web has created a phenomenon where public opinion about an organization spreads worldwide, faster than ever before, IBM says. These sources are filled with insight from consumers, experts and competitors that can be analyzed and used by businesses to make better decisions on products, services and business strategies. This creates a tremendous opportunity for organizations to carefully monitor their image and more quickly address business opportunities, threats, quality concerns or changing public perception.

IBM's Public Image Monitoring Solution, designed with Nstein Technologies and Factiva, permits orgs to analyze and understand the scuttlebutt that affects their brands. For example, a consumer goods manufacturer could use this software to track response to new product introductions by examining consumer product reviews and blog discussions about the new product, drill down into information from regions of the world where public sentiment about the product was less than positive, and identify hot topics or trends associated with the product.

Letter to the Editor: I Don't Deserve Tarring With Refco Debts Brush

From The Wall Street Journal Accounting Weekly Review on November 4, 2005

TITLE: Letter to the Editor: I Don't Deserve Tarring With Refco Debts Brush
REPORTER: Victor Niederhoffer
DATE: Nov 02, 2005
PAGE: A15
LINK: http://online.wsj.com/article/SB113090229816986057.html 
TOPICS: Accounting, Bad Debts, Bankruptcy

SUMMARY: This letter was submitted in reaction to an article about Refco that was covered by this Review last week.

QUESTIONS:
1.) What is the tainting that Mr. Niederhoffer associates with the previous WSJ article? To provide your answer, you may refer to the original article, which is presented as a related item.

2.) What loss would Refco have hidden under monitoring �by regulators, clearing houses, and exchange officials� in order to have resulted in the issues leading to Refco�s downfall and bankruptcy?

3.) Does Mr. Niederhoffer say that his firm completely discharged its liabilities to Refco in October 1997? If not, then what would have been the resulting impact on Refco�s financial statements?

Reviewed By: Judy Beckman, University of Rhode Island

--- RELATED ARTICLES ---
TITLE: Refco�s Debts Started with Several Clients
REPORTERS: Deborah Solomon, Peter A. McKay, Jonathan Weil, and Carrick Mollenkamp
PAGE: C1
ISSUE: Oct 21, 2005
LINK: http://online.wsj.com/article/SB112986306329075408.html

I Don't Deserve Tarring With Refco Debts Brush," by Victor Niederhoffer, The Wall Street Journal, November 2, 2005; Page A15 --- http://online.wsj.com/article/SB113090229816986057.html

Your Oct. 21 article "Refco's Debts Started With Several Clients -- Bennett Secretly Intervened to Assume Some Obligations; Return of Victor Niederhoffer" (Money & Investing) reported that some familiar with Refco's accounts stated that the company's troubles with bad debts dated back to the late 1990s and included losses that the firm supposedly incurred as the result of the collapse of my hedge fund in 1997, when Refco was my broker. While I had used Refco for 15 years prior to my firm's collapse, I have had no contact with or obligations to Refco for seven years. However, the use of my name in the headline, and the display of my picture may have given the casual reader the impression that I was a major cause of Refco's collapse.

The events that took place in 1997 were so closely monitored by regulators, clearing houses and exchange officials that it is inconceivable to me that Refco could have hidden a loss. In any case, such a loss would have been microscopic compared with the approximately $2 billion in cash and equity taken out by Refco officials and shareholders last year before the firm's IPO. I turned over what I considered very substantial assets to Refco as part of our mutual releases. Perhaps there were fictitious accounting entries later, but I shouldn't be tarred with this brush.

I have recovered from the devastating blow my firm suffered when stock prices collapsed amid the Asian financial crisis in October 1997, but the "return of Victor Niederhoffer" has nothing to do with Refco. It relates to building up my firm to some 25 outstanding employees, establishing and acting as trading adviser for several highly successful hedge funds, including the Matador Fund, and recovering money at my own expense for clients involved in my 1997 debacle.

Victor Niederhoffer
Chairman Manchester Trading, LLC
Weston, Conn.

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

Can anybody answer perplexing question with interactive Excel spreadsheets in DHTML?

Some years ago, Microsoft added an option in Excel that allows users to save Excel spreadsheets and charts as HTM files as well as XLS files.  The advantage of doing this is that the HTM versions can be read in Web browsers that will run Dynamic HTML --- DHTML.  At first these could only be read in Internet Explorer.  All users had to do was to choose to save as HTM files and then follow the rather simple instructions that pop up.  One thing to note is that to save an interactive chart, first select the chart and than save as an HTM file.  Also note that some things on a spreadsheet (e.g., buttons and arrows) will not appear in the HTM version.  Also macros will not run in the HTM version.

The advantage of the HTM versions was that users could view spreadsheets in browsers without the risk of downloading XLS files contaminated with viruses, particularly those nasty macro viruses.  Also it was possible for users that did not have Excel to run the interactive spreadsheets.  For example if you have a chart created from a table, you can change the data in the table and watch the chart change in the HTM file just like you could do in the XLS file.

For years I have had both some DHTML illustrations on this and a DHTML tutorial video.  My perplexing problem this month was that my old illustrations would no longer run on my computer or any of the Trinity University lab and classroom computers.  However, these illustrations would run on some other computers such as my secretary's computer.  I might note that my secretary and I both have the latest versions of Microsoft Office and Internet Explorer.  Why my older illustrations run on her computer and not on my computer is still a mystery.

Thus my perplexing problem was thus that my DHTML illustrations would run on some computers but not others.  And try as a might, I could not find how choice of options and security shields was causing this problem on computers that would not run these illustrations.

Then one of my students noted that he could not run my illustrations on his computer.  But when he took my original Excel XLS spreadsheets and re-saved them as HTM files they would run.  My illustrations were originally saved on older versions of Excel.  And so I went back to my old Excel file illustrations and re-saved them in my newer version of Excel.  Like magic, the illustrations would now run in my Internet Explorer browser.  Don't ask me why, but it worked.

Try it yourself.

My old illustrations are at http://www.trinity.edu/rjensen/dhtml/excel01OLD.htm
See if these will run in your Web browser.

My re-saved illustrations are at  http://www.trinity.edu/rjensen/dhtml/excel01.htm
See if these will run in your Web browser.

I did change a few things in the new version.  In Illustration 1, I added the line chart.  And I deleted Illustration 4 simply because I did not have time to go into Dreamweaver and re-create that rather complicated layering illustration.

I just thought you would like to know in case you have any older DHTML spreadsheets on your Web server.  You may need to go back into your original Excel XLS files and re-save them as HTM files so they will run on all newer versions of Internet Explorer.

If anybody can explain why my old version will run on some computers and not others, I would sure like to know why!

Financial Accounting Self-Help Tutors

November 3, 2005 message from Peter Cunningham

I am looking for self teach materials which can be made available to students entering university but encountering accounting for the first time.

We have a problem of students entering our business program with widely divergent backgrounds in accounting. Some may have had as many as three full courses at the high school or pre university level (in Quebec we have an intermediate step between high school and university known as CEGEP). Other students have had no exposure at all. We would like to make available to the latter group a self teach, preferably modular type, system which would introduce them to the fundamentals including the mechanics of how the accounting model works. This would then allow us to teach the first accounting course (which is mandatory for all business students) with a common body of basic underlying knowledge and make the course more conceptual and, we hope, more interesting.

We have used introductory texts at both ends of the preparer v user spectrum and have not found a satisfactory solution. We hope this preparation will help. It is possible that if suitable it would be offered on a mandatory or optional basis.

All suggestions would be welcome. They can be sent to me directly at pcunning@ubishops.ca  or sent to the list if it is felt that other readers will benefit from the information.

Thank you.

Peter Cunningham

November 3, 2005 reply from Roger Collins [rcollins@TRU.CA]

Your request reminded me of some self-teach CD-ROM systems developed in the 1990's. Here is an extract from Bob Jensen's Excellent Archive....

////////////////////////////////////////////////////////

In the mid-1990s, some professors generated basic accounting CD-ROM courses. The first of these grew out of an Accounting Education Change Commission grant to Arizona State University. Ralph Smith and Rick Birney developed the Interactive Financial Accounting Lab ToolBook CD-ROM accounting education lab tutorial. Staying in tune with the times, the CD-ROM version is now being converted into Internet software. Fran and Ron Milne at the University of Nevada in Las Vegas developed the Milne Interactive Authorware CD-ROM accounting tutorials that featured many hours of audio to accompany the animated tutorials. The product is called "Personal Accounting Tutor - Elementary Financial Accounting." Ron tells me that the tutorials are now being revised for web delivery on using the Authorware Reader plug-in from Macromedia. He also says that a proprietary audio compression utility from Macromedia reduces wave file space requirements by over 90%. Don Smith at Wilfred Laurier University in Canada developed the Charles Debit CD that was designed to bring students up to speed in the first several weeks of a basic accounting course. Publishing firms developed their own basic accounting CD-ROMs. Irwin Publishing developed the GMAC CD basic accounting tutorial for the Graduate Management Admissions Council. An excellent interactive ToolBook basic accounting CD-ROM is the more recent Financial Accounting Tutor developed by Dan and Rachana Gode at New York University.

/////////////////////////////////////////////////////////////

The link is....

http://www.cs.trinity.edu/~rjensen/000aaa/jensen/290wp.htm 

Does anyone have information on the current status of these systems, or know what became of them?

Roger

November 3, 2005 reply from Bob Jensen

Hi Peter and Roger,

Since I wrote that, some of these tutorial CDs are out of print. Most did not adapt well to the Web, in part because they were written in Authorware or Toolbook's OpenScript, neither of which adapted well to the Web.

Probably the best current source is Financial Accounting Tutor and its offspring by Dan Gode and his wife at NYU --- http://www.dangode.com/

Dan now has an e-Learning center at http://www.almaris.com/fact/fact-overview.htm 
Bob Jensen

November 3, 2005 reply from Richard Campbell [campbell@RIO.EDU]

And there is my product - soon to be replaced by Financial Accounting 2006.

http://www.virtualpublishing.net/fa03pr5/fa03pr5.html 

I am dropping the price on the above to $19.98 shortly.

Richard J. Campbell
mailto:campbell@rio.edu