New Bookmarks
Year 2007 Quarter 3: July 1 - September 30 Additions to
Bob Jensen's Bookmarks
Bob Jensen at
Trinity University
For
earlier editions of New Bookmarks go to
http://www.trinity.edu/rjensen/bookurl.htm
Tidbits Directory ---
http://www.trinity.edu/rjensen/TidbitsDirectory.htm
Click here to search Bob Jensen's web site if you have key words to enter ---
Search Site.
For example if you want to know what Jensen documents have the term "Enron"
enter the phrase Jensen AND Enron. Another search engine that covers Trinity and
other universities is at
http://www.searchedu.com/.
Choose a Date Below for Additions to the Bookmarks File
Bob Jensen's New Bookmarks on September 30, 2007
Bob Jensen at
Trinity University
For earlier editions of Tidbits go to
http://www.trinity.edu/rjensen/TidbitsDirectory.htm
For earlier editions of New Bookmarks go to
http://www.trinity.edu/rjensen/bookurl.htm
Click here to search Bob Jensen's web site if you have key words to enter --- Search Site.
For example if you want to know what Jensen documents have the term "Enron" enter the phrase Jensen AND Enron. Another search engine that covers Trinity and other universities is at
http://www.searchedu.com/.
Bob Jensen's Blogs ---
http://www.trinity.edu/rjensen/JensenBlogs.htm
Current and past editions of my newsletter called New Bookmarks ---
http://www.trinity.edu/rjensen/bookurl.htm
Current and past editions of my newsletter called
Tidbits ---
http://www.trinity.edu/rjensen/TidbitsDirectory.htm
Current and past editions of my newsletter called Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
Bob Jensen's past presentations and lectures
---
http://www.trinity.edu/rjensen/resume.htm#Presentations
Bob Jensen's various threads ---
http://www.trinity.edu/rjensen/threads.htm
(Also scroll down to the table at
http://www.trinity.edu/rjensen/ )
Roles of a ListServ --- http://www.trinity.edu/rjensen/ListServRoles.htm
Click here to search this Website if you have key words to enter --- Search Site.
For example if you want to know what Jensen documents have the term "Enron" enter the phrase Jensen AND Enron. Another search engine that covers Trinity and other universities is at
http://www.searchedu.com/
Bob Jensen's Home Page is at http://www.trinity.edu/rjensen/
CPA Examination --- http://en.wikipedia.org/wiki/Cpa_examination
Accountancy Discussion ListServs:
For an elaboration on the reasons you should join a ListServ (usually for free) go to http://www.trinity.edu/rjensen/ListServRoles.htm AECM (Educators) http://pacioli.loyola.edu/aecm/
AECM is an email Listserv list which provides a forum for discussions of all hardware and software which can be useful in any way for accounting education at the college/university level. Hardware includes all platforms and peripherals. Software includes spreadsheets, practice sets, multimedia authoring and presentation packages, data base programs, tax packages, World Wide Web applications, etcRoles of a ListServ --- http://www.trinity.edu/rjensen/ListServRoles.htm
CPAS-L (Practitioners) http://pacioli.loyola.edu/cpas-l/
CPAS-L provides a forum for discussions of all aspects of the practice of accounting. It provides an unmoderated environment where issues, questions, comments, ideas, etc. related to accounting can be freely discussed. Members are welcome to take an active role by posting to CPAS-L or an inactive role by just monitoring the list. You qualify for a free subscription if you are either a CPA or a professional accountant in public accounting, private industry, government or education. Others will be denied access.Yahoo (Practitioners) http://groups.yahoo.com/group/xyztalk
This forum is for CPAs to discuss the activities of the AICPA. This can be anything from the CPA2BIZ portal to the XYZ initiative or anything else that relates to the AICPA.AccountantsWorld http://accountantsworld.com/forums/default.asp?scope=1
This site hosts various discussion groups on such topics as accounting software, consulting, financial planning, fixed assets, payroll, human resources, profit on the Internet, and taxation.Business Valuation Group BusValGroup-subscribe@topica.com
This discussion group is headed by Randy Schostag [RSchostag@BUSVALGROUP.COM]
Tidbits and Quotations Between September 1 and September 30, 2007
2007
July 2
July 7
July 16
July 23
2007
August 1
August 9
August 16
August 26
2007
September 5
September 10
September 18
September 24
Tidbits Directory for Earlier Months and Years --- http://www.trinity.edu/rjensen/TidbitsDirectory.htm
New Bookmarks Directory for Earlier Months and Years --- http://www.trinity.edu/rjensen/Bookurl.htm
Bob Jensen's Threads --- http://www.trinity.edu/rjensen/Threads.htm
Humor Between September 1 and September 30, 2007 --- http://www.trinity.edu/rjensen/book07q3.htm#Humor093007
Humor Between July 1 and August 31, 2007 --- http://www.trinity.edu/rjensen/book07q3.htm#Humor083107
Links to Documents on Fraud --- http://www.trinity.edu/rjensen/Fraud.htm
Bob Jensen's search helpers are at http://www.trinity.edu/rjensen/searchh.htm
Bob Jensen's Bookmarks --- http://www.trinity.edu/rjensen/bookbob.htm
Bob Jensen's links to free electronic literature, including free online textbooks --- http://www.trinity.edu/rjensen/ElectronicLiterature.htm
Bob Jensen's links to free online video, music, and other audio --- http://www.trinity.edu/rjensen/Music.htm
Bob Jensen's documents on accounting theory are at http://www.trinity.edu/rjensen/theory.htm
Bob Jensen's links to free course materials from major universities --- http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI
Bob Jensen's links to online education and training alternatives around the world --- http://www.trinity.edu/rjensen/Crossborder.htm
Bob Jensen's links to electronic business, including computing and networking security, are at http://www.trinity.edu/rjensen/ecommerce.htm
Bob Jensen's links to education technology and controversies --- http://www.trinity.edu/rjensen/000aaa/0000start.htm
Bob Jensen's home page --- http://www.trinity.edu/rjensen/
Bob Jensen's complete set of Enron Updates are at http://www.trinity.edu/rjensen/FraudEnron.htm#EnronUpdates
Bob Jensen's threads on the Enron scandal are at http://www.trinity.edu/rjensen/FraudEnron.htm
I'm sharing some old (well relatively old) accounting theory quiz and exam material that I added to a folder at http://www.cs.trinity.edu/~rjensen/Calgary/CD/
Bob Jensen's Education Technology PowerPoint Files (in development) and Video Samplings --- http://www.cs.trinity.edu/~rjensen/EdTech/
Question
Where are the next frontiers of installing malicious viruses on your computer?
What video sites are the most likely places to catch these bad viruses?
Answer
Since email users have become more cautious about opening email, the next
frontiers are bound to be popular downloads outside of email. These include
videos and wikis. The most likely place to catch these bad viruses are porn
sites, particularly the many porn sites maintained by Russians and former
Eastern Bloc countries. But there are many other dangerous porn sites as well.
"Online video players could become new vehicle for malicious code," MIT's Technology Review, October 2, 2007 --- http://www.technologyreview.com/Wire/19469/?nlid=578
Online videos aren't just for bloopers and rants -- some might also be conduits for malicious code that can infect your computer.
As anti-spam technology improves, hackers are finding new vehicles to deliver their malicious code. And some could be embedded in online video players, according to a report on Internet threats released Tuesday by the Georgia Tech Information Security Center as it holds its annual summit.
The summit is gathering more than 300 scholars and security experts to discuss emerging threats for 2008 -- and their countermeasures.
Among their biggest foes are the ever-changing vehicles that hackers use to deliver ''malware,'' which can silently install viruses, probe for confidential info or even hijack a computer.
''Just as we see an evolution in messaging, we also see an evolution in threats,'' said Chris Rouland, the chief technology officer for IBM Corp.'s Internet Security Systems unit and a member of the group that helped draft the report. ''As companies have gotten better blocking e-mails, we see people move to more creative techniques.''
With computer users getting wiser to e-mail scams, malicious hackers are looking for sneakier ways to spread the codes. Over the past few years, hackers have moved from sending their spam in text-based messages to more devious means, embedding them in images or disguised as Portable Document Format, or PDF, files.
''The next logical step seems to be the media players,'' Rouland said.
There have only been a few cases of video-related hacking so far.
One worm discovered in November 2006 launches a corrupt Web site without prompting after a user opens a media file in a player. Another program silently installs spyware when a video file is opened. Attackers have also tried to spread fake video links via postings on YouTube.
That reflects the lowered guard many computer users would have on such popular forums.
''People are accustomed to not clicking on messages from banks, but they all want to see videos from YouTube,'' Rouland said.
Another soft spot involves social networking sites, blogs and wikis. These community-focused sites, which are driving the next generation of Web applications, are also becoming one of the juiciest targets for malicious hackers.
Computers surfing the sites silently communicate with a Web application in the background, but hackers sometimes secretly embed malicious code when they edit the open sites, and a Web browser will unknowingly execute the code. These chinks in the armor could let hackers steal private data, hijack Web transactions or spy on users.
Tuesday's forum gathers experts from around the globe to ''try to get ahead of emerging threats rather than having to chase them,'' said Mustaque Ahamad, director of the Georgia Tech center.
They are expected to discuss new countermeasures, including tighter validation standards and programs that analyze malicious code. Ahamad also hopes the summit will be a launching pad of sorts for an informal network of security-minded programmers.
"Online Videos May Be Conduits for Viruses," by Greg Bluestein, The Washington Post, October 2, 2007 --- Click Here
Online videos aren't just for bloopers and rants _ some might also be conduits for malicious code that can infect your computer.As anti-spam technology improves, hackers are finding new vehicles to deliver their malicious code. And some could be embedded in online video players, according to a report on Internet threats released Tuesday by the Georgia Tech Information Security Center as it holds its annual summit
The summit is gathering more than 300 scholars and security experts to discuss emerging threats for 2008 _ and their countermeasures.
Among their biggest foes are the ever-changing vehicles that hackers use to deliver "malware," which can silently install viruses, probe for confidential info or even hijack a computer.
"Just as we see an evolution in messaging, we also see an evolution in threats," said Chris Rouland, the chief technology officer for IBM Corp.'s Internet Security Systems unit and a member of the group that helped draft the report. "As companies have gotten better blocking e-mails, we see people move to more creative techniques."
With computer users getting wiser to e-mail scams, malicious hackers are looking for sneakier ways to spread the codes. Over the past few years, hackers have moved from sending their spam in text-based messages to more devious means, embedding them in images or disguised as Portable Document Format, or PDF, files.
Continued in article
Storm Worm: The Perfect Email Storm
"The Worm That Roared," by Lev Grossman, Time Magazine, September 27, 2007 --- http://www.time.com/time/magazine/article/0,9171,1666279,00.html
During the week of Jan. 15, an innocuous-looking e-mail appeared in thousands of inboxes around the world. Its subject line read, "230 dead as storm batters Europe." The e-mail came with a file attached, bearing a plausible-sounding name like Full Story.exe or Read More.exe. Plenty of people clicked on it. After all, storms really were battering Europe at the time; that week high winds and rain had killed 14 in the U.K. alone. But all great cons have a grain of truth in them somewhere.
The file that arrived with the e-mail was, of course, a computer virus, immediately christened the Storm Worm by the Finnish computer security firm F-Secure, which was among the first to spot it. Since then, the Storm Worm has proved remarkably hard to kill. Nine months later, it's still out there, infecting something like a million computers worldwide. It's not the most damaging virus in history, but it may be the most sophisticated. Whoever created it is to viruses what Michelangelo was to ceilings.
The Storm Worm is a marvel of social engineering. Its subject line changes constantly. Whoever produced it--and its many later variants--has a lively feel for the seductive come-on and a thorough grounding in human nature. It preys on shock ("Saddam Hussein Alive!") and outrage ("A killer at 11, he's free at 21 and ...") and prurience ("Naked teens attack home director") and romance ("You Asked Me Why"). It mutates at a ferocious rate, constantly changing its size and tactics to evade virus filters, and finds evolving ways to exploit other online media like blogs and bulletin boards. Newer versions might contain, instead of a file, a single link to a fake YouTube page, which crashes your browser while quietly slipping the virus into your computer. "I've heard people talk about this like virus 2.0, just like people talk about Web 2.0, because it's so different from the traditional attacks," says Mikko Hypponen, chief research officer of F-Secure. "It's probably the largest collection of infected machines we've ever seen."
Like any good parasite, the Storm Worm doesn't kill its host. In fact, most of the victims--some of whom are undoubtedly reading this article--will never know their machines are infected. It doesn't cripple your computer (and can be removed once identified), but the Storm Worm does give its authors the power to quietly control your computer. What do they do with this power? Mostly they send out spam. Back in the day, computer viruses were a relatively innocent affair, written as pranks by teenagers with too much time on their hands between Star Wars sequels. Now they're written by organized criminals looking to make money from fake offers.
Nobody knows who's behind the Storm Worm. F-Secure suspects a group based in Russia, but there's no way to be sure, and recent Storm Worm subject lines referring to Labor Day and the start of the football season suggest that those involved have an American connection. What is certain is that they are very smart--prodigious innovators engaged in a cat-and-mouse game with security firms that so far they're winning. "I don't think these guys have day jobs," says Hypponen. "They're really active and really closely watching us. I don't see them stopping anytime soon."
It's also clear that they've been pulling their punches. Right now the Storm Worm gang controls a massive amount of computing power, as much as some of the world's largest supercomputers, and all they do with it is send out spam and conduct the occasional denial-of-service attack (bombarding a specific server with traffic until it shuts down). We're lucky: so far they haven't gone in for more lucrative, damaging activities like online gambling, stock scams and stealing passwords and credit-card information. Is it possible that even a worm can have a conscience?
Bob Jensen's threads on computing and networking security are at http://www.trinity.edu/rjensen/ecommerce/000start.htm
Bob Jensen's best advice at this point --- Buy a Mac!
Basic accounting students At BYU have great success learning accounting from special videos --- http://www.accountingcds.com/index.html
Contact Information:
Cameron Earl 801-836-5649
cameronearl@byu.edu
Norm Nemrow 801-422-3029 nemrow@byu.edu
Also see David Cottrell's approach at BYU --- http://www.business.uconn.edu/users/adunbar/AAA-CPE/AAA2003Cottrell.pdf
The "Unknown Professor's Financial Rounds Blog states the following on September 21, 2007 --- http://financialrounds.blogspot.com/
And They Say Accounting Doesn't Make Sense
As a person who's trained primarily in finance, accounting rules sometimes look like they were designed by Monty Python. Here's the latest installment - your company's credit rating drops, so the market value of your liabilities fall. As a result, you show a profit. This is what happened to some Wall Street firms recently. Read the whole story here. IMO, the best line in the article is:
But Moody’s Investors Service said buyers should beware of gains booked when brokers mark down their own debt liabilities. “Moody’s does not consider such gains to be high-quality, core earnings,” it said in a report issued Friday.
Ya think?
This is why we make all our Finance students take four accounting classes before they graduate. That way, they'll see these things often enough that they won't break out laughing.
Question
Why am I not laughing? Is it because I taught accounting for 40 years?
Actually the fact that a lowered credit rating can lead to a realized gain should make sense even to a finance professor. Consider the following scenario:
Now what if I don't sell the bond but adopt the fair value accounting option for financial instruments under FAS 159. I did not realize a cash profit if I still owe $100,000 when the bond eventually matures. But the reason I report an unrealized holding gain follows the same logic as if I bought back the bond today. That's what the "fair value option" under FAS 159 is all about.
If Moody's does not treat unrealized holding gains and losses as high-quality, core earnings, more power to them.
Finance students who've taken four courses in accounting may not laugh because they understand why sometimes credit rating gains are high quality and sometimes low quality will not laugh because they understand why. But they may not understand why their finance professor is laughing.
Bob Jensen's tutorials on fair value accounting are at the following two links:
September 30, 2007 reply from the "Unknown Professor" who writes the Financial Rounds Blog
Bob:
Just in case you missed it, there's a follow up comment on the recent post I made on mark-to-market accounting. Good natured teasing between our respective tribes aside, I figure you're better equipped to handle it than I.
Regards,
UP
p.s. since you've been a fairly regular reader (and have commented and/or linked a few times, you might as well know - my "real" name is XXXXX at college YYYYY,
. The Unknown Professor http://financialrounds.blogspot.com
"Back away slowly from the article with your hands up and your mind open, and with luck nobody gets hurt"Bob:
Touche (and ouch)!
I actually do understand the reasoning - I was merely joking (and playing to the finance crowd who's the main audience).
As for the Moody's comment, I believe it makes sense if they are using "high quality" and "core" to mean earnings that are likely to be persistent. These clearly aren't.
But it does seem like a bit of a perverse result that decresed firm prospects results in income. I understand it, but it still makes me smile.
Having said all that, I'm glad I have accounting folks like you to set me straight.
Unknown Professor
September 26, 2007 reply from Amy Dunbar [Amy.Dunbar@BUSINESS.UCONN.EDU]
The prof who teaches intermediate II at UConn wrote:
When I cover early extinguishment of debt in my class I usually do an example which I set up by first asking, "Why might a firm decide to refinance its debt when interest rates have gone UP?" The example then shows that a firm can buy back its old bonds at the current (low) market price and finance that purchase by issuing new bonds that are identical to the old ones (and thus should be priced identically to the old ones). Ignoring transactions costs and such, the firm is in exactly the same economic position it was before the transaction; the accounting outcome: gain on early extinguishment of debt. So even without the new fair value rules, this scenario can lead to some head-scratching results.
My favorite post on the original WSJ blog site sums it up:
"If a company goes broke will it still record a gain on the debt it can't pay back?"
Amy
September 27, 2007 reply from Bob Jensen
Hi Amy,
Prior to FAS 125, companies like Exxon (I think this ploy was actually invented by Exxon) would defease their relatively low cost debt in times of rising interest rates. This way they captured the gain and avoided the transactions cost of actually buying the debt back.
But if they defeased and then borrowed at higher interest rates it made little economic sense. But it was great for Exxon bonuses to show an added $132 million in earnings even if stockholders were being screwed.
FAS 125 finally put an end to this sham.
You can read the following at http://www.trinity.edu/rjensen/Theory01.htm#DoctoralPrograms
In-Substance Defeasance
In-substance defeasance used to be a ploy to take debt off the balance sheet. It was invented by Exxon in 1982 as a means of capturing the millions in a gain on debt (bonds) that had gone up significantly in value due to rising interest rates. The debt itself was permanently "parked" with an independent trustee as if it had been cancelled by risk free government bonds also placed with the trustee in a manner that the risk free assets would be sufficient to pay off the parked debt at maturity. The defeased (parked) $515 million in debt was taken off of Exxon's balance sheet and the $132 million gain of the debt was booked into current earnings --- http://www.bsu.edu/majb/resource/pdf/vol04num2.pdf
Defeasance was thus looked upon as an alternative to outright extinguishment of debt until the FASB passed FAS 125 that ended the ability of companies to use in-substance defeasance to remove debt from the balance sheet. Prior to FAS 125, defeasance became enormously popular as an OBSF ploy.
September 25, 2007 reply from Paul Williams [Paul_Williams@NCSU.EDU]
Bob, et al:
Remember when we made a big deal about realization? My question is, "In an alleged world of market omniscience, how am I able to sell a bond one day before my credit rating gets lowered? Doesn't this presume some kind of extra-market power (either superior insights or freedom of caprice) on the part of bond raters? (why are they necessary in the first place?)" [Do you hear the chorus of Baaaas?]
Perhaps we accounting folk should be less reluctant to laugh at finance rather than presume its intellectual superiority. As Alan Greenspan (one of Ayn Rand's apostles) opined recently on The Daily Show, "I've been in the economic forecasting business for 50 years and we're no better at it now than we were 50 years ago." Some science that is.
Maybe we should dig out some of the "classics" (E&B, Ijiri, Chambers, Sterling, P&L (Paton and Littleton, not profit and loss) and reread them?
Paul
September 25, 2007 reply from Bob Jensen
Hi Paul,
I can think of many reasons that you would probably describe as caprice leading to abrupt lowering of credit ratings. In fact the selling of bonds or stocks on one day may be in reaction to suspicion that a WSJ reporter named John Emshwiller got wind of some related party transactions --- http://www.trinity.edu/rjensen/FraudEnronQuiz.htm#22
A WSJ reporter was the first to uncover Enron's secret "Related Party Transactions." What reporter was this and what are those transactions that he/she investigated?
Mr. Lay was also asked about his alleged 2001 comment to company colleagues that The Wall Street Journal had a "hate on" for Enron in connection with a series of articles looking at Mr. Fastow and his partnership operation. "I might have used that term," Mr. Lay acknowledged, adding that the Journal was "trying to paint a very negative image of Enron." (As previously reported, the Journal said it stands by the accuracy of its coverage.)
"Lay Defends Family's Role In Selling Shares: Enron Ex-Chairman Says He Tried to Minimize Sales To Meet Margin Calls," by Gary McWilliams and John R. Emshwiller, The Wall Street Journal, May 2, 2006; Page C3 --- http://online.wsj.com/article/SB114649255583240444.html?mod=todays_us_money_and_investing
The lead Wall Street Journal reporter that Enron learned to hate was John Emshwiller along with his sometimes reporter partner Rebecca Smith. See Page 571 in Eichenwald's Conspiracy of Fools
My favorite quote is the "Spike, honey" segment on Page 455 of Eichenwald's Conspiracy of Fools:
In a cramped office in the back of the Los Angeles bureau of The Wall Street Journal, a fifty-one-year-old reporter named John Emshwiller was on the phone with California's attorney general, Bill Lockyer. Emshwiller was working on an article about the state's investigations of power marketers and their lack of success in turning up evidence of wrongdoing. Tethered to his headset, Emshwiller took notes as Lockyer made clear his frustration in the lack of progress in the inquiries. Emshwiller asked if Lockyer believed there would be criminal prosecutions.
"I don't have any doubt that there will be civil lawsuits prosecuted by the state," Lockyer said.
A pause. Lockyer hadn't answered. "There is nothing I would rather do than nail a high executive," he continued.
Silence again. "You know what I'd really like to do?" Lockyer asked.
"What?"
"I'm not sure I should really say this."
Words that have led to breath holding by countless reporters.
"Why not?" Lockyer finally said. "I'd love to personally escort Lay to an eight-by-ten cell that he could share with a tattooed dude who says, 'Hi, my name is Spike, honey.' "
Emshwiller took it all down, almost in disbelief. This was one of those too-good-to-be-true quotes that was automatically guaranteed to be printed in the paper.
Eichenwald states the following on pp. 490-492 in Conspiracy of Fools:
It was section eight, called "Related Party Transactions," that got John Emshwiller's juices flowing. After being assigned to follow the Skilling resignation, Emshwiller had put in a request for an interview, then scrounged up a copy of Enron's most recent SEC filing in search of any nuggets.
What he found startled him. Words about some partnerships run by an unidentified "senior officer." Arcane stuff, maybe, but the numbers were huge. Enron reported more than $240 million in revenues in the first six months of the year from its dealings with them.
One fact struck Emshwiller in particular. This anonymous senior officer, the filing said, had just sold his financial interest in the partnerships. Now, it said, the partnerships were no longer related to Enron.
The senior officer had just sold his interest, Skilling had just resigned. The connection seemed obvious.
Could Enron have actually allowed Jeff Skilling to run partnerships that were doing massive business with the company? Now that, Emshwiller thought, would be a great story.
Emshwiller was back on the phone with Mark Palmer. With no better explanation for Skilling's resignation, he said, the Journal was going to dig through everything it could find. Right now he was focusing on these partnerships. Were those run by Skilling?
"No, that's not Skilling," Palmer replied, almost nonchalantly. "That's Andy Fastow."
A pause. "Who's Andy Fastow?" Emshwiller asked.
The message was slipped to Skilling later that day. A Journal reporter was pushing for an explanation of his departure and now was rooting around, looking for anything he could find. Probably best just to give the paper a call.
Emshwiller was at his desk when the phone rang.
"Hi," a soft voice said. "It's Jeff Skilling."
It was a startling moment. Emshwiller had been on the hunt, and suddenly the quarry just walked in and lay down on the floor, waiting for him to fire. So he did: why was Skilling quitting his job?
"It's all pretty mundane," Skilling replied. He'd worked hard and accomplished a lot but now had the freedom to move on. His voice was distant, almost depressed.
He and been ruminating about it for a while, Skilling went on, but had wanted to stay on at the company until the California situation eased up. Then, he took the conversation in a new direction.
"The stock price has been very disappointing to me," Skilling said. "The stock is less than half of what it was six months ago. I put a lot of pressure on myself. I felt I must not be communicating well enough."
Skilling rambled as Emshwiller took it down. India. California. Expense cuts. The good shape of Enron.
"Had the stock price not done what it did..." He paused. "I don't think I would have felt the pressure to leave if the stock price had stayed up."
What? Had Emshwiller heard that right? Was all this stuff about "personal reasons" out the window? Had Skilling thrown in the towel because of the stock price?
"What was that, Mr. Skilling?" Emshwiller asked.
The employees at Enron owned lots of shares, Skilling said. They were worried, always asking him about the direction of the price. He found it very frustrating.
"Are you saying that you don't think you would have quit if the stock price had stayed up?"
Skilling was silent for several seconds.
"I guess so," he finally mumbled.
Minutes later, Emshwiller burst into his boss's office. "You're not gong to believe what Skilling just told me!"
Yes Spike Honey, a CEO can sell stocks or bonds on one day in anticipation of a fast coming lowering of the company’s credit rating.
What's a CPA? Accountants take their show to YouTube
AccountingWeb, September 2007 ---
http://www.accountingweb.com/cgi-bin/item.cgi?id=103999
Linda Kidwell forwarded this link ---
http://www.youtube.com/watch?v=9I502zLYZXU
David Albrecht forwarded this link (rap) ---
http://www.youtube.com/watch?v=xUcxvwAQ_n4
Bob Jensen's career helpers are at
http://www.trinity.edu/rjensen/Bookbob1.htm#careers
Salary Gains for '07 Accounting Grads --- http://accounting.smartpros.com/x59204.xml
Accounting firms
populate Working Mother top 100 list
Working Mother magazine has released its annual
list of the top 100 firms for working mothers, and this year, three of
the Big Four firms appear in the top 10. Among the top 10 firms are
Ernst & Young, KPMG, and PricewaterhouseCoopers. Deloitte isn't far
behind at xx, and Grant Thornton and RSM McGladrey also appear on the
Top 100 list. Seven areas are measured and scored in order to arrive at
the top 100:
- Workforce profile
- Compensation
- Child care
- Flexibility Time off and leaves
- Family-friendly programs
- Company culture
AccountingWeb,
September 2007 ---
http://www.accountingweb.com/cgi-bin/item.cgi?id=104048
The Working Mother online magazine link is at
http://www.workingmother.com/?service=vpage/106
Bob Jensen's
threads on careers are at
http://www.trinity.edu/rjensen/Bookbob1.htm#careers
Accounting firms dominate Business Week's second annual ranking of the
"Best Places to Launch a Career."
From SmartPros, September 14, 2007 ---
http://accounting.smartpros.com/x59101.xml
Deloitte & Touche is No. 1, followed by PricewaterhouseCoopers and Ernst & Young. The last of the Big Four, KPMG, moved up four spots to No. 11.
Accountants used to be spoofed as bean counters -- dutiful, middle-aged, gray-suited men with considerable analytical expertise but little charisma. This year accountants became sexy, BusinessWeek said in a statement.
Why did the accounting firms do so well? Enormous demand. Across industries, there is a mad scramble to recruit the best and brightest of a new generation, the much-maligned, heavily scrutinized Gen Y. Nowhere is the pressure more intense than in the Big Four. The Sarbanes-Oxley Act has so greatly increased the need for their services that the firms are facing an epic talent shortage.
BusinessWeek's "Best Places to Launch a Career" ranking is based on three extensive surveys: of career services directors at U.S. colleges, the employers they identify as the best for new graduates, and college students themselves.
Bob Jensen's threads on accountancy careers are at http://www.trinity.edu/rjensen/Bookbob1.htm#careers
Long Lines at Accident Scenes: Law Schools Proliferate and Law
Graduates Proliferate
For graduates of elite law schools, prospects have
never been better. Big law firms this year boosted their starting salaries to as
high as $160,000. But the majority of law-school graduates are suffering from a
supply-and-demand imbalance that's suppressing pay and job growth. The result:
Graduates who don't score at the top of their class are struggling to find
well-paying jobs to make payments on law-school debts that can exceed $100,000.
Some are taking temporary contract work, reviewing documents for as little as
$20 an hour, without benefits. And many are blaming their law schools for
failing to warn them about the dark side of the job market.
Amir Efrati, "Hard Case: Job Market Wanes for U.S. Lawyers: Growth of
Legal Sector Lags Broader Economy; Law Schools Proliferate," The New York
Times, September 24, 2007; Page A1 ---
http://online.wsj.com/article/SB119040786780835602.html?mod=todays_us_page_one
Bob Jensen's threads on careers are at http://www.trinity.edu/rjensen/Bookbob1.htm#careers
Question
What are shareholder "earn-out"contracts"?
(Another example of the increasing complexity of classifying debt versus
equity.)
How did eBay make a $1.43 dollar (or more) mistake?
"Skype CEO steps down and parent company: eBay takes $1.43 billion charge," MIT's Technology Review, October 1, 2007 --- http://www.technologyreview.com/Wire/19466/?nlid=575
EBay Inc. announced Monday that the co-founder and chief executive of its Skype division was stepping down, and that the parent company would take $1.43 billion in charges for the Internet phone service division.
Of the charges to be taken in the current quarter, $900 million will be a write-down in the value of Skype, eBay said. That charge, for what accountants call impairment, essentially acknowledges that San Jose-based eBay, one of the world's largest e-commerce companies, drastically overvalued the $2.6 billion Skype acquisition, which was completed in October 2005.
EBay also said Monday it paid certain shareholders $530 million to settle future obligations.
In 2005, eBay wooed Skype investors by offering an ''earn-out agreement'' up to $1.7 billion if Skype hit specific targets -- including a number of active users and a gross profit -- in 2008 and the first half of 2009. The Skype shareholders holding those agreements received the $530 million in an early, one-time payout, eBay spokesman Hani Durzy said.
EBay also announced that Skype CEO Niklas Zennstrom will become non-executive chairman of Skype's board and likely spend more time working on independent projects.
Durzy said the resignation of Zennstrom, a Swedish entrepreneur who started Skype, was not related to the impairment charge or Skype's performance.
''Niklas left of his own volition,'' Durzy said. ''He is an entrepreneur first and foremost, and he wanted to spend more time on some of his new projects that he has been working on.''
Skype, which allows customers to place long-distance calls using their computers, reported second-quarter revenue of $89.13 million, up 102 percent from a year ago. It was the second consecutive quarter of profitability for the newest eBay division.
Zennstrom is likely to work on developing Joost, an Internet TV service he started in 2006 with Skype co-founder Janus Friis, relying on peer-to-peer technology to distribute TV shows and other videos over the Web.
Joost had at least 1 million beta testers in July and will launch at the end of the year, Zennstrom said earlier this summer.
One of the pair's first collaborations was the peer-to-peer file-sharing network KaZaA, which launched in March 2000 and is used primarily to swap MP3 music files over the Internet. Zennstrom also co-founded the peer-to-peer network Altnet and the venture capital firm Atomico.
Continued in article
Bob Jensen's threads on debt versus equity are at http://www.trinity.edu/rjensen/Theory01.htm#FAS150
Bob Jensen's threads on whistleblowers are at
http://www.trinity.edu/rjensen/FraudConclusion.htm#WhistleBlowing
Bob Jensen's threads on revenue reporting fraud (including bill and hold issues)
are at
http://www.trinity.edu/rjensen/ecommerce/eitf01.htm
A whistleblower should really wear a mask, ride a white horse, and have a native American partner to help track the piles of Kemosabi. The William Tell Overture also helps --- http://www.youtube.com/watch?v=qdQomfnCH_0
Loren Steffy is the Chronicle's business columnist. His commentary appears Sundays, Wednesdays and Fridays. Contact him at loren.steffy@chron.com. His blog is at http://blogs.chron.com/lorensteffy/.Support for 'lone ranger'
By LOREN STEFFY
Houston Chronicle, September 25, 2007 ---I'd like to dedicate this column to lone rangers.
That's the term that a Halliburton lawyer used in a legal proceeding this week to describe Anthony Menendez, a former director of technical accounting research and training at the oil-field-services company.
Menendez claims he was forced to resign from Houston-based Halliburton after he accused the company of using improper accounting to inflate earnings and "distort the timing of billions of dollars in revenue," according to his complaint.
Halliburton says the allegations are untrue.
Menendez is seeking protection under the Sarbanes-Oxley law, which was designed to shield corporate whistle-blowers from retribution.
Congress created that provision of the law after lawmakers found that in the corporate scandals of Enron and WorldCom, employees such as former Enron executive Sherron Watkins faced retaliation for raising concerns about harmful corporate practices.
It's often too easy for companies to dismiss such concerns as an annoyance, as the ranting of someone who's lost touch with reality.
Consider how Halliburton attorney Carl Jordan described Menendez before the judge: "He saw everything in black and white, and he thought he was always right, and everyone else was wrong."
It could be that Menendez misinterpreted the accounting details he questioned. It could be that the more people ignored his concerns, the more determined he became, spinning a web of false obsession into a conspiracy of his own imagination.
But shareholders dismiss such concerns at their own peril. It may not be a major accounting scandal. It may not even be material, in the legal sense, to Halliburton's operations. But something set Menendez off.
And it wasn't just him. A colleague testified on his behalf that company accountants questioned in 2005 how Halliburton was booking revenue for oil-field tools that were sitting in warehouses, yet to be delivered to customers.
Halliburton says it listened to Menendez's concerns and investigated them thoroughly. So did its outside auditors and the Securities and Exchange Commission.
Outside auditors, though, don't have a great track record in ferreting out accounting improprieties, and the SEC has proved far better at punishment than pre-emption.
'Critical' role
If the past seven years have taught us anything, it's that concerns such as Menendez's need to be heard. We've seen the painful consequences of corporate America's deaf ear.
"The role of the whistle-blower is critical because it keeps corporations and management in line and accountable to shareholders," said Philip Hilder, a Houston attorney who represents Watkins and who represented Menendez early in the case. "Whistle-blowers are the first line of defense in discovering fraud. Management in corporations ought to embrace them. To the extent that they uncover wrongdoing, the company can correct any potential problems before they go out of control."
What Menendez did wasn't easy. He challenged his superiors and in the process surrendered a job he liked and to which he'd like to return, according to what he told the Chronicle this summer.
Beyond right or wrong
It's never easy to put conscience ahead of livelihood. It's far easier for employees to keep quiet and let someone else worry about the problem.
In some ways, what matters in this case is not whether Menendez is right or wrong, but that he had the guts to speak up.
"Whistle-blowers tend to come forward out of principle," Hilder said. "It takes courage to buck the system."
That's why the Sarbanes-Oxley law was designed to shield whistle-blowers, though many still face retaliation.
"You need to set a scenario up where individuals feel comfortable and protected in providing information that may be detrimental to the entire company if it's not met head-on," Hilder said.
Money well spent
When the Menendez case is over, regardless of the outcome, Halliburton's shareholders will have benefited. Sure, Halliburton has spent some of their money to defend itself against claims that may be, as the company contends, without merit.
But it's money well spent. Investors will gain reassurance that accounting concerns weren't ignored.
It's easy to paint lone wolves as crazy. Sometimes they may even be wrong. But what if they're right?
"Time Names
Whistle-Blowers as Persons of the Year 2002", Reuters,
December 22, 2002 ---
http://www.reuters.com/newsArticle.jhtml?type=topNews&storyID=1948721
January 6, 2002 message form Hossein Nouri
January 6, 2002 reply from Bob Jensen
Sharing Videos of the Week from CCPA Whistleblower Public Forum --- http://www.workingtv.com/whistleblower.html
|
Bill-and-Hold Revenue Recognition Tale
Anthony Menedez phoned me several times indicating that he thinks his tale would
be interesting for accounting students to study. I think it would be an
interesting series of events for a case writer to put into an educational case.
The focus of the case, in my viewpoint, should be on a comparison of the KPMG
article (quoted below) with the actual bill-in-hold transactions at Halliburton
to force students to decide whether KPMG auditors and Halliburton did or
did not violate GAAP on these issues.
A financial press article is also quoted below:
Jonathan Weil,
"Halliburton's Accounting Might Make You Wonder," Bloomberg News, July
21, 2007
The case has two really interesting questions:
June 24, 2007 message from Anthony Menendez [menendez.anthony@gmail.com]
Professor Jensen-
Hello. My name is Tony Menendez. I have enjoyed much of the information you have so generously provided on the web covering accounting issues and financial fraud. I thought you might find my Sarbanes-Oxley whistleblower case interesting. Just in case you have extra time and an interest, I am providing you with my contact information and links to some information concerning my case. I hope you are enjoying retirement but have not given up providing your insight into the ever so important area of accounting and financial fraud.
Sincerely,
Tony (713) 822 3764
Here are a few links to information you can find on the web concerning my case:
http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_weil&sid=am_McfuM6i4o
You can read Menendez's complaint in three parts (I, II, III) on the following website:
http://www.tpmmuckraker.com/archives/003500.php
Question
In accounting, what do the following terms mean and in what context?
bill-and-hold?
Ship-in-Place?
Answer
"Bill-and-Hold Transactions in the Oilfield Services Sector," John C.
Christopher, KPMG LLP ---
http://www.trinity.edu/rjensen/BillandHold.pdf
Determining and defining appropriate revenue recognition has been a primary focus of companies, regulators, standard setters, and auditors in recent years. Improper revenue recognition has been one of the leading causes of financial statement restatements. Perhaps no area of revenue recognition has received as much scrutiny as "bill-and-hold" transactions. Also known as "ship-inplace" transactions, these transactions generally refer to scenarios where revenue is recognized after a seller has substantially completed its obligations under an arrangement, but prior to the buyer, or a common carrier, taking physical possession of the goods.
Background In a recent interview, former SEC Chairman Arthur Levitt referred to recognizing revenue on bill-and-hold transactions as "hocus pocus accounting." He said, "Companies try to boost revenue by manipulating the recognition of revenue. Think about a bottle of wine.You wouldn't pop the cork on that bottle until it was ready. But some companies are doing this with their revenue --- recognizing it before the sale is complete, before the product is delivered to the customer, or at a time when the customer still has options to terminate, void, or delay the sale.
Although the bill-and-hold transaction is not a GAAP violation, unfortunately it has long been associated with incidents of financial fraud. In its October 2002 Report, the General Accounting Office (GAO) said that revenue recognition is the largest single issue involved in restatements. More than half of financial reporting frauds involve the overstatement of revenue, and restatements for revenue recognition have resulted in the largest drops in market capitalization compared with any other type of restatements. There remains an intense scrutiny around a company's revenue recognition principles for these types of transactions, and management and auditors should be unusually skeptical about the appropriateness of recording revenue for these transactions.
Bill-and-hold scenarios frequently arise in the oilfield services sector. It is important to note that the form. of these transactions is neither illegal nor unethical. In fact, most have very good business or economic purposes. For example, there is currently a trend in the oil and gas industry towards developing fields in the deep waters toward the Gulf of Mexico or other more remote locations throughout the world. Development plans for these large deepwater offshore fields. as well as remote onshore fields throughout the world, will commonly have long timelines; therefore, the oilfield service companies have long lead times for delivery of equipment and products. As the development plan gets under way, many of the original timelines and milestones will change along the way as information about the reservoir becomes better. However, many of the products that the oilfield services companies manufacture and deliver are extremely capital intensive and will be manufactured and ready for their fixed delivery dates without regard to any changes in the development plan. These products are generally very large built-tosuit equipment such as wellhead connection equipment and completion products.
There are certain criteria that companies must meet in order to recognize revenue on bill-and-hold transactions. These criteria relate to the risks of ownership. the commitment and request on the part of the buyer, the business purpose of the transaction, the delivery date, and the performance obligations, among others (these criteria are discussed in more detail in the next section). As an example, an oilfield services company may complete the manufacturing of the customer's requested products, have them shipped to a company-owned warehouse, determine a fixed delivery schedule to the customer's well site, obtain a legal acknowledgement from the customer that the risk of loss has been transferred, and have no additional obligations to perform such as installation of the equipment. All of this may take place prior to the particular point in the well development plan that calls for the installation of the product. In this example, the oilfield services company might (although only based on careful analysis of the SEC and FASB guidance related to bill-and-hold transactions) be able to recognize revenue immediately upon completing the manufacturing process and meeting all of the bill-and-hold revenue recognition criteria.
SEC and FASB Guidance on Revenue Recog'nition and Bill-and-Hold Arrangements
EITf- lssue 00.21: Multiple Elements in a bill-and-hold ArrangementCompanies must first apply the separation model described in ElTF lssue 00-21 , Revenue Arrangements with Multiple Deliveries, to determine the number of units of accounting in the bill-and-hold arrangement. Bill-and-hold arrangements in this industry can include both the sale of products and the performance of certain services, such as warehousing for the product if it is shipped to a company-owned warehouse. If the SEC staff's revenue recognition criteria (discussed in the next section) are met for the product element in the bill-and-hold arrangement, revenue may be recognized on the product element when the company has completed the product only if it is a separate unit of accounting, or if there are any services involved in the transaction (e.g., warehousing), and those services are inconsequential or perfunctory to one unit of accounting. The company may need to consider whether the services are a separate unit of accounting, if they are inconsequential or perfunctory, and whether there are other performance obligations yet to be performed in determining the appropriate revenue recognition policy for the entire arrangement.
Inconsequential or Perfunctory Element
According to SAB No. 104, Revenue Recognition, if the-undelivered element is both inconsequential or perfunctory and not essential to the functionality of the delivered element, it would be appropriate to recognize revenue on the arrangement at the time of delivery and accrue the cost of providing the services related to the undelivered element. However, if the undelivered element is neither inconsequential nor perfunctory or is essential to the functionality of the delivered element, the revenue for the delivered element should be deferred and recognized based on the accounting requirements of the undelivered element. The SEC's guidance on the determination of whether an element is inconsequential or perfunctory is related to whether that element is essential to the functionality of the delivered products.
In addition, remaining activities would not be inconsequential or perfunctory if failure to complete the activities would result in the customer receiving a full or partial refund or rejecting, or a right to a refund or to reject the products delivered. The SEC provided the following factors in SAB No.104, which are not all-inclusive, as indicators that a remaining performance obligation is substantive rather than inconsequential or perfunctory:
- The seller does not have a demonstrated history of completing the remaining tasks in a timely manner and reliably estimating their costs.
- The cost or time to perform the remaining obligations for similar contracts historically has varied significantly from one instance to another.
- The skills or equipment required to complete the remaining activity are specialized or are not readily available in the marketplace.
- The cost of completing the obligation, or the fair value of that obligation, is more than insignificant in relation to such items as the contract fee, gross profit, and operating income allocable to the unit of accounting.
- The period before the remaining obligation will be extinguished is lengthy.
- T he timing of payment of a portion of the sales price is coincident with completing performance of the remaining activity.
. . .
SEC Bill-and-Hold Criteria
The SEC has established specific criteria codified in SAB No. 104 that a seller of goods or equipment must meet to recognize revenue for a bill-and-hold transaction, including:
- The risks of ownership must have passed to the buyer.
- The buyer must have a commitment to purchase, preferably in written documentation.
- The buyer, not the seller, must originate the request that the transaction be on a bill-and-hold basis.
- The buyer must have a substantial business purpose for ordering the goods or equipment on a bill-and-hold basis.
- Delivery must be for a fixed date and on a schedule that is reasonable and consistent with the buyer's purpose (this requirement will generally be difficult for an oilfield services company to meet due to the variable nature of the movement of timelines and milestones for oilfield development).
- The seller must not retain any significant specific performance obligations under the agreement such that the earnings process is not complete. The goods or equipment must be segregated from the seller's inventory and may not be subject to being used to fill other orders.
- The goods or equipment must be complete and ready for shipment.
The SEC emphasized that that the above criteria are not a simple checklist. A transaction might meet all of the criteria and still fail the revenue recognition guidelines . . .
Continued in article
Jensen Comment
Tony Menendez, while working for Halliburton, encountered what he considered a
classic violation of GAAP for bill-an-hold transactions in Halliburton's
oilfield operations. He says he first confronted his superiors in the company
and then a KPMG auditor, who purportedly agreed with Tony on this issue. But
Halliburton countered by saying that since "title passed," revenue could be
recognized. The amount in terms of dollars was material in amount.
Since Halliburton did not restate its financial statements, or purportedly, its subsequent accounting for these transactions, Tony then took the added step of blowing the whistle with the SEC. The SEC purportedly turned it back to Halliburton for further internal investigation. Soon thereafter Tony Menendez became an unemployed whistle blower
Bill-and-Hold Revenue Recognition Tale
Anthony Menedez phoned me several times indicating that he thinks his tale would
be interesting for accounting students to study. I think it would be an
interesting series of events for a case writer to put into an educational case.
The focus of the case, in my viewpoint, should be on a comparison of the KPMG
article (quoted above) with the actual bill-in-hold transactions at Halliburton
to force students to decide whether KPMG auditors at Halliburton did or did not
violate GAAP on these issues.
By the way, Mr. Menedez is currently still unemployed and is considering applying for doctoral study in accountancy.
August 8, 2007 message from Anthony Menendez [menendez.anthony@gmail.com]
Please see attached. The very examples described by KPMG as bill-and-hold transactions at a company like Halliburton, were the same transactions, I also believed were bill-and-hold. Interestingly, Halliburton apparantly claims, that these transactions, are not, in fact bill-and-hold and thereby avoiding the bill-and-hold hold criteria which requires that the equipment is ready for its intended use, a fixed delivery date exists for the equipment, and that there are no ongoing obligations on the part of Halliburton ( e.g. installing the equipment and performing the necessary oilfield services, the typical services provided by an "oilfield service" company. Personally, I believe that Halliburton's claim is the most absurb argument I have ever seen and worse yet, I struggle to see how KPMG allows Halliburton to deviate from the very guidance it suggests to companies that are not "Halliburton" should apply. Enjoy.
Best Regards,
Tony
You can read
Menendez's complaint in
three parts (I,
II,
III)
on the following website:
---
http://www.tpmmuckraker.com/archives/003500.php
Bob Jensen's threads
on whistle blowing are at
http://www.trinity.edu/rjensen/FraudConclusion.htm#WhistleBlowing
Bob Jensen's threads on revenue reporting and frauds can be found at http://www.trinity.edu/rjensen/ecommerce/eitf01.htm
Here's an older
example of bill and hold
fraud
Death by Accounting
To
get companies to participate
in a flu vaccine stockpile
the government is dangling
tons of new funding. Cash in
hand is usually a very
strong incentive. But a
Clinton administration SEC
policy prevents the vaccine
makers from recognizing the
revenue until the vaccine is
delivered to the doctors,
countering the very purpose
of a stockpile. The
Department of Health and
Human Services' National
Vaccine Advisory Committee
concluded in early 2005 that
for the stockpile program to
be successful, "the revenue
recognition issue must be
resolved as soon as
possible." It all began in
late 1999, when the SEC
issued "Staff Accounting
Bulletin 101," which it
painted as a modest
clarification "not intended
to change current guidance
in the accounting
literature." But in reality
it was a radical change to
the way companies could book
revenue from "bill and hold"
orders. This change would,
at its least, lead to
hindrances for innovative
new companies. At its worst,
it would discourage
production of lifesaving
products like vaccines.
John Berlau, "Death by
Accounting?" The Wall
Street Journal, October
21, 2005 ---
http://online.wsj.com/article/SB112985642561675193.html?mod=opinion&ojcontent=otep
SEC SAB 101 "Revenue Recognition in Financial Statements" --- http://www.sec.gov/interps/account/sab101.htm
Anthony Menendez, who was Halliburton's director of
technical accounting research and training, has accused the world's
second-largest oilfield-services company of using so- called bill-and-hold
accounting and other undisclosed practices to ``distort the timing of billions
of dollars in revenue.'' In short, Menendez
says this allowed Halliburton to book product sales improperly, before they
occurred.
Jonathan Weil, "Halliburton's Accounting Might Make You Wonder," Bloomberg
News, July 21, 2007 ---
Click Here
The allegations are part of a 54-page complaint Menendez filed against Halliburton with a Labor Department administrative- law judge in Covington, Louisiana, who released the records in response to a Freedom of Information Act request. Menendez, who resigned last year and is seeking unspecified damages, says Halliburton retaliated against him in violation of the Sarbanes- Oxley Act's whistleblower provisions after he reported his concerns to the Securities and Exchange Commission and the company's audit committee.
Halliburton has denied the allegations. A company spokeswoman, Cathy Mann, says Halliburton's audit committee ``directed an independent investigation'' and ``concluded that the allegations were without merit.'' She declined to comment on bill-and-hold issues, and Halliburton's court filings in the case don't provide any details about its accounting practices.
Menendez, a 36-year-old former Ernst & Young LLP auditor, filed his complaint in December, shortly after a Labor Department investigator in Dallas rejected his retaliation claim. Mann says the company expects to prevail at trial.
Cause of Concern
Investors, of course, will care more about the reliability of Halliburton's numbers than whether Menendez wins. And a look at internal Halliburton documents Menendez filed with the court suggests there's reason for concern.
Here's how Menendez, who reported to Halliburton's chief accounting officer, summed up the bill-and-hold issue in his complaint:
``For example, the company recognizes revenue when the goods are parked in company warehouses, rather than delivered to the customer. Typically, these goods are not even assembled and ready for the customer. Furthermore, it is unknown as to when the goods will be ultimately assembled, tested, delivered to the customer and, finally, used by the company to perform the required oilfield services for the customer.''
If true, that would violate generally accepted accounting principles. For companies to recognize revenue before delivery, ``the risks of ownership must have passed to the buyer,'' the SEC's staff wrote in a 2003 accounting bulletin. There also ``must be a fixed schedule for delivery of the goods,'' and the product ``must be complete and ready for shipment,'' among other things.
`Terribly Flawed'
Shortly after joining Halliburton in March 2005, Menendez says he discovered a ``terribly flawed'' flow chart on the company's in-house Web site, called the Bill and Hold Decision Tree. The flow chart, a copy of which Menendez included in his complaint, walks through what to do in a situation where a ``customer has been billed for completed inventory which is being stored at a Halliburton facility.''
First, it asks: Based on the contract terms, ``has title passed to customer?'' If the answer is no -- and here's where it gets strange -- the employee is asked: ``Does transaction meet all of the `bill and hold' criteria for revenue recognition?'' If the answer to that question is yes, the decision tree says to do this: ``Recognize revenue.'' The decision tree didn't specify what the other criteria were.
At Odds
In other words, Halliburton told employees to recognize revenue even though the company still owned the product.
You don't have to be an accountant to see the problem.
``The policy in the chart is clearly at odds with generally accepted accounting principles,'' says Charles Mulford, a Georgia Institute of Technology accounting professor, who reviewed the court records. ``It's very clear cut. It's not gray.''
Bill-and-hold was at the heart of Sunbeam Corp.'s collapse in the late 1990s, and later blowups at Qwest Communications International Inc. and Nortel Networks Corp.
It is possible to use bill-and-hold and comply with the rules. But it's hard. The customer, not the seller, must request such treatment. The customer also must have a compelling reason for doing so. Customers rarely do.
SEC Inquiry
Menendez, who now works as a consultant, also accuses Halliburton of improper accounting for income taxes, off-balance- sheet entities and foreign-currency adjustments. Court records show he first alerted the SEC's enforcement division in November 2005, three months before he complained to Halliburton's audit committee.
In a Jan. 3 court filing, Halliburton said the SEC had closed its inquiry into the company's accounting practices.
Menendez told me, though, that he met with SEC investigators at the agency's Fort Worth, Texas, office as recently as March 28. He also shared a March 14 letter from an enforcement-division attorney there, which shows the travel itinerary the SEC arranged for him to attend that meeting. Mann, the Halliburton spokeswoman, declined to comment on whether the company has been notified of further SEC inquiries into Menendez's allegations.
Halliburton seemed to quell doubts about its books back in August 2004, when it paid $7.5 million to settle a two-year SEC probe. The agency faulted Halliburton's disclosures, but not its accounting. As long as investors trust a company's profits, they generally don't care how the company earns them. If they begin to suspect they shouldn't, though, look out.
Bob Jensen's threads on whistle blowing are at
http://www.trinity.edu/rjensen/FraudConclusion.htm#WhistleBlowing
Bob Jensen's threads on revenue reporting and frauds can be found at http://www.trinity.edu/rjensen/ecommerce/eitf01.htm
SEC SAB 101 "Revenue Recognition in Financial Statements" --- http://www.sec.gov/interps/account/sab101.htm
Here's an older example of bill and hold fraud
Death by Accounting
To get companies to participate in a flu vaccine
stockpile the government is dangling tons of new funding. Cash in hand is
usually a very strong incentive. But a Clinton administration SEC policy
prevents the vaccine makers from recognizing the revenue until the vaccine is
delivered to the doctors, countering the very purpose of a stockpile. The
Department of Health and Human Services' National Vaccine Advisory Committee
concluded in early 2005 that for the stockpile program to be successful, "the
revenue recognition issue must be resolved as soon as possible." It all began in
late 1999, when the SEC issued "Staff Accounting Bulletin 101," which it painted
as a modest clarification "not intended to change current guidance in the
accounting literature." But in reality it was a radical change to the way
companies could book revenue from "bill and hold" orders. This change would, at
its least, lead to hindrances for innovative new companies. At its worst, it
would discourage production of lifesaving products like vaccines.
John Berlau, "Death by Accounting?" The Wall Street Journal, October 21,
2005 ---
http://online.wsj.com/article/SB112985642561675193.html?mod=opinion&ojcontent=otep
Bob Jensen's threads on whistleblowers are at
http://www.trinity.edu/rjensen/FraudConclusion.htm#WhistleBlowing
Bob Jensen's threads on revenue reporting fraud (including bill and hold issues)
are at
http://www.trinity.edu/rjensen/ecommerce/eitf01.htm
A whistleblower should really wear a mask, ride a white horse, and have a native American partner to help track the piles of Kemosabi. The William Tell Overture also helps --- http://www.youtube.com/watch?v=qdQomfnCH_0
Accounting Software Comparisons
Profiles of Software Systems and Tools --- http://www.p2pays.org/ref%5C01%5C00047/00047d.htm
RiverGuide provides in-depth profiles, comparisons, and reviews of accounting software products, and would be a valuable resource for users of your site --- http://www.riverguideinc.com/construction/
Accounting Software Ratings
May 2, 2007 message from Jessica Valdes
I am writing on behalf of CTSGuides.com, which is a site that lists accounting software reviews and ratings. We only list qualified companies that are upstanding and reputable. This will be a good resource to add to your site for accounting companies that are in search of vendors who offer accounting software. I would like to know if you'd be interested in adding our link to your site.
Please review this information and let me know if you are interested in such a relationship with our company. If I have contacted you in the past, my apologies.
Title - Accounting Software Reviews and Ratings
URL - http://www.ctsguides.com/accounting-software.asp
Description - Free portal of reviews and ratings of accounting software to help companies consider options for selecting new software.
Thanks and best regards!
Jessica Valdes
jessica@ctsguides.com
CTSGuides.com
"Top Technologies for Accounting Pros Announced," SmartPros, June 11, 2007 --- http://accounting.smartpros.com/x57964.xml
Bob Jensen's threads on accounting software comparisons are at http://www.trinity.edu/rjensen/Bookbob1.htm#AccountingSoftware
Question
How useful is XBRL for mutual funds?
From The Wall Street Journal Accounting Weekly Review on August 31, 2007
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Language of Love for Mutual Funds: XBRL by Daisy Maxey The Wall Street Journal Aug 28, 2007 Page: C11 Click here to view the full article on WSJ.com --- http://online.wsj.com/article/SB118825363850710278.html?mod=djem_jiewr_ac TOPICS: Accounting, Accounting Information Systems, Financial Statement Analysis, Securities and Exchange Commission SUMMARY: Maxey describes the usefulness of eXtensible Business Reporting Language (XBRL) for comparing mutual funds' reported results. "In April 2005, public companies began voluntarily submitting interactive-data documents as exhibits to reports and other filings with the SEC. The mutual-fund submissions are an extension of that program. " CLASSROOM APPLICATION: Reference in this review to a white paper from the SEC on XBRL and the SEC's involvement with this system allows for discussion of the system's use for all financial statements submitted to the SEC. Obtain access to the white paper at http://www.edgar-online.com/?contactID=55822111 QUESTIONS: SMALL GROUP
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