New Bookmarks
Year 2008 Quarter 2:  April 1 - June 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

June 30, 2008

May 31. 2008

April 30, 2008

 

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    June 30, 2008

     

     

    Bob Jensen's New Bookmarks on June 30, 2008
    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

    Many useful accounting sites (scroll down) --- http://www.iasplus.com/links/links.htm


    I have an academic dilemma that I will share below. I sent a letter to the authors of a Teaching Note (case solution) urging them to withdraw the Teaching Note and correct some mistakes that I described to them in my February 26 letter. . They did not do so, so you can read below about what happened next:

    1. Issues in Accounting Education (IAE) is one of my favorite journals, in part because it is more open to wide ranging research methodologies than all other research publications of the American Accounting Association (AAA)
       

    2. The current February 2008 issue has an excellent printed Teaching Case:

      "Accounting for Derivatives and Hedging Activities: Comparison of Cash Flow versus Fair Value Hedge Accounting" Issues in Accounting Education, Vol. 23, No. 8, February 2008, pp. 103-117 --- http://aaahq.org/pubs.cfm
       

    3. A Teaching Note (case solution) is available AAA members who pay a fee for an electronic subscription to this publication. There are no restrictions on who can be an AAA member and subscribe to IAE. Hence anybody in the world can download the Teaching Note as an electronic subscriber --- Subscribers may go to http://www.atypon-link.com/AAA/doi/pdf/10.2308/tnae.2008.23.1.13
      Also see http://aaahq.org/pubs.cfm
       

    4. I studied this Teaching Note carefully and found, in my opinion, both serious errors and misleading assumptions. I communicated these as an error-correcting working paper to both the authors of the published Teaching Note and to the Editor of IAE. I suggested that my error corrections be appended at the end of the original Teaching Note. This would not be hard to do since the Teaching Note can only be downloaded on the Internet. Unlike the Teaching Case itself, the Teaching Note was not distributed in hard copy.
       

    5. The IAE Editor informed me that my working paper would be appended to the Teaching Note. However, weeks turned into months and nothing happened. When I inquired the IAE Editor informed me that he’d had a change of heart. What was rude is that he never bothered to inform me of this until I inquired why no appendix was added to the Teaching Note.
       
    6. The Editor of IAE  later informed me that he will not append my error corrections to the end of the Teaching Note until I pay a submission fee to have my submission formally refereed. It makes perfect sense that the working paper should be refereed before IAE publishes it as an appendix to the Teaching Note. However, it's ludicrous that, if I want the IAE to correct the IAE's own mistakes, I must pay the IAE to merely consider correcting its own mistakes."
      Submission fees range from $75 to $100 --- https://aaahq.org/AAAforms/journals/iaesubmit.cfm
       

    7. I might add that I'm willing to make referee-suggested corrections to my own errors. However, this is not a mainline publication, and I refuse to spend more time word crafting this error-correcting working paper. One of the most difficult aspects of publishing mainline journal articles is satisfying referees who often have differing viewpoints on how the paper should be word crafted. I've just signed a contract to write a book on derivative financial instruments and hedging activities and do not have the time or inclination to word craft this error-correcting working paper. I think the editor of the IAE feels that my use of the word "errors" will embarrass the Case authors. I did make an effort to only use the word "error" when there was what I consider to be an outright error such as using cash flow hedging journal entries for a hedged item that has no cash flow risk. I refuse to call outright errors differences in assumptions when they are in fact errors. When there were differing assumptions I did not call those "errors."
       

    8. The Editor may one day have a change of heart about making me pay a submission fee to get the IAE to correct its own mistakes and to word craft the paper to take out the word "error" wherever it appears. Otherwise what are serious errors, in my viewpoint, will live on forever in the Teaching Note to what is otherwise a very good Teaching Case. The Case authors could also rewrite their original Teaching Note, but across several months of communications between us they've never proposed doing so to me or the IAE editor. It would take a substantial effort to rewrite the Teaching Note, and there are complications that arise in that some problems in the Case itself are impossible to correct since the Case has already been distributed as hard copy.
       

    9. This could be success arising from troubles turned inside out. In my viewpoint comparing my error-correction working paper with the original Teaching Note has value-added beyond what a perfectly rewritten Teaching Note would make to the Teaching Case. In other words, students and instructors can learn more by studying the errors themselves in the original Teaching Note. This is what I mean by turning troubles inside out to create success. For this reason you should download the current Teaching Note to keep in your own archives just in case it gets laundered later on --- http://aaahq.org/pubs.cfm 
       

    10. I think both teachers and students may be misled by the current Teaching Note that can be downloaded from http://aaahq.org/pubs.cfm
      If you are using this Teaching Note, you may download, for free, my error corrections at http://www.trinity.edu/rjensen/CaseErrors.htm
       

    11. My error-correcting working paper is designed to be used alongside the electronically published Teaching Note. My working paper will not make much sense to readers who do not have both the Teaching Case and the original Teaching Note for comparative purpose. The original Teaching Note has many things that are very good. I did not find errors in everything contained in the Teaching Note.
       

    12. Of course my proposed error-correcting working paper contains only my opinions and could itself have errors that I do not yet know about.
      You be the judge
      at http://www.trinity.edu/rjensen/CaseErrors.htm
      Please let me know if you find errors in my work since my working paper can be easily corrected at this point.

       

    13. Even if the IAE Editor has a change of heart and is willing to have my error-correcting working paper refereed for free, the process could take many months, possibly over a year, before my working paper is appended to the Teaching Note. If you are using this Teaching Case, you probably should take a look at http://www.trinity.edu/rjensen/CaseErrors.htm
      That in fact is my main purpose for writing the above message!

      Postscript 01
      After I circulated this message among some friends, one wrote back and wondered if Science Magazine and the the New England Journal of Medicine charges for correcting their mistakes? We're in deep trouble if that's the case.

      Postscript 02
      My message on this in the last edition, April 30, of New Bookmarks caused the IAE Editor to have a change of heart. My error-correcting working paper has been sent (at no charge to me) out for review. The original Teaching Case authors have had a change of heart and are now willing to substitute their original Teaching Note with a revised version that weaves in my suggestions. However, this process will take many months. Users of the existing Teaching Note are still advised to go to http://www.trinity.edu/rjensen/CaseErrors.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

    Wikipedia has a rather nice summary of accounting software at http://en.wikipedia.org/wiki/Accounting_software

    Bob Jensen’s accounting software bookmarks are at http://www.trinity.edu/rjensen/Bookbob1.htm#AccountingSoftware

    Bob Jensen's accounting history summary --- http://www.trinity.edu/rjensen/Theory01.htm#AccountingHistory

    Bob Jensen's accounting theory summary --- http://www.trinity.edu/rjensen/Theory.htm

    Tom Selling's blog The Accounting Onion (great on theory and practice) --- http://accountingonion.typepad.com/

    XBRL Networking --- http://xbrlnetwork.ning.com/

    From EDGAR Online
    FREE access to the latest ANNUAL REPORTS and PROSPECTUSES from hundreds of publicly traded companies and funds.

    Truth in Accounting or Lack Thereof in the Federal Government (Former Congressman Chocola) --- http://www.youtube.com/watch?v=NWTCnMioaY0 
    Part 2 (unfunded liabilities of $55 trillion plus) --- http://www.youtube.com/watch?v=1Edia5pBJxE
    Part 3 (this is a non-partisan problem being ignored in election promises) --- http://www.youtube.com/watch?v=lG5WFGEIU0E

    Watch the Video of the non-sustainability of the U.S. economy (CBS Sixty Minutes TV Show Video) ---
    http://www.youtube.com/watch?v=OS2fI2p9iVs 
    Also see "US Government Immorality Will Lead to Bankruptcy" in the CBS interview with David Walker --- http://www.youtube.com/watch?v=OS2fI2p9iVs
    Also at Dirty Little Secret About Universal Health Care (David Walker) --- http://www.youtube.com/watch?v=KGpY2hw7ao8

    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, etc

    Roles 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 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

    Fraud Updates is now available at http://www.trinity.edu/rjensen/FraudUpdates.htm

    Links to my other fraud modules can be found at http://www.trinity.edu/rjensen/Fraud.htm

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

    Bob Jensen's new timeline on the worldwide scandals using derivative financial instruments and the evolution of accounting standards for derivatives --- http://www.trinity.edu/rjensen/FraudRotten.htm




    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

    Large International Accounting Firm History --- http://en.wikipedia.org/wiki/Big_Four_auditors

    Global Perspectives on Accounting Education --- http://gpae.bryant.edu/%7Egpae/content.htm

    A Vision of Students Today (Video) --- http://www.youtube.com/watch?v=dGCJ46vyR9o




    Humor Between June 1 and June 30, 2008 --- http://www.trinity.edu/rjensen/book08q2.htm#Humor063008

    Humor Between May 1 and May 31, 2008 --- http://www.trinity.edu/rjensen/book08q2.htm#Humor053108

    Humor Between May 1 and May 31, 2008 --- http://www.trinity.edu/rjensen/book08q2.htm#Humor053108

    Humor Between April 1 and April 30, 2008 --- http://www.trinity.edu/rjensen/book08q2.htm#Humor043008

    Humor Between March 1 and March 31, 2008 --- http://www.trinity.edu/rjensen/book08q1.htm#Humor033108

    Humor Between February 1 and February 29, 2008 --- http://www.trinity.edu/rjensen/book08q1.htm#Humor022908   

    Humor Between January 1 and January 31, 2008 --- http://www.trinity.edu/rjensen/book08q1.htm#Humor013108  

    Tidbits Directory for Earlier Months and Years --- http://www.trinity.edu/rjensen/TidbitsDirectory.htm




    Congratulations to Herb and Lenore Miller

    Denny Beresford informed me that Herb and Lenore Miller will celebrate their 70th anniversary on July 1 in Athens, Georgia where he retired from the University of Georgia quite a few years ago.

    Herb was the co-author on the famous and successful and highly lucrative Finney and Miller textbook series. Lenore was an accountant who added more than her share to those textbooks as well. Herb's interests ranged from playing the clarinet in a dance band to working in the racing pit of AJ Foyt to frequent golf with close friends like James Don Edwards. Herb and Lenore were both excellent bridge players in their younger days before Herb's eyes became weak.

    Herb was a visiting professor at Stanford when I was finishing my PhD. He motivated me to take my first full-time faculty appointment where he was a senior accounting professor --- Michigan State University. Herb and Lenore were instrumental is getting me to forget my skiing and horse raising dreams in favor of digging in to the drudgeries, albeit rewarding drudgeries, of accounting research. I never looked back!

    You can read more details about Herb in his Accounting Hall of Fame page at
    http://fisher.osu.edu/departments/accounting-and-mis/the-accounting-hall-of-fame/membership-in-hall/herbert-elmer-miller/
    Herb was born August 11, 1914, so you go figure. Lenore grew up in Humboldt, Iowa less than 30 miles from where I grew up, although I did not know her until we met years later at Stanford.

    Herb served as President of the American Accounting association 1965-1966 during which The Accounting Review  was published four times with gold covers to celebrate the Golden Anniversary of the AAA. Now Herb and Lenore are only five years away from their own Diamond Anniversary. I wish with all my heart that they will celebrate that event on July 1, 2013.

    There's Love --- http://www.youtube.com/watch?v=m7050D2sVFc


    Action Needed to Avoid Mission Failure
    Having a major governmental accounting-type problem on CPA examinations bolstered this module in most U.S. accounting education programs, but it most likely is tokenism compared to the sink hole forming in our Federal, state, and local governments. Much of our hope for the future depends upon having a more stable, enlightened, dedicated, ethical, and knowledgeable body of civil service workers to keep our naive and often corruptible elected officials from losing this nation.

    The problem is that it really takes no expertise to run for any elected office. We're in a bigger mess when the government civil service is cannot counter the ignorance and ethically-challenged elected leaders.

    "Action Needed to Avoid Mission Failure,' Warns Study," AccountingEducation.com, June 26, 2008 ---
    http://accountingeducation.com/index.cfm?page=newsdetails&id=147252 

    Identifying the new skills and competencies that federal financial managers will need to face 21st century challenges is the focus of a research paper released recently by the AGA (Association of Government Accountants).

    21st Century Financial Managers: A New Mix of Skills and Educational Levels? warns that with 60 percent of the US workforce eligible for retirement over the next 10 years and the commensurate mass retirement of skilled and experienced government financial managers, federal agencies could be left vulnerable to mission failure.

    According to AGA Director of Research Anna Miller, "This report is of particular importance given the magnitude of the anticipated problem. The study highlighted those areas in which we must act if we are to avoid compromising standards of accountability and transparency to taxpayers."

    Continued in article

    The Association of Government Accountants --- http://www.agacgfm.org/homepage.aspx

    The U.S. is now dangling on a debt and accountability cliff on the side of that sink hole, and virtually none of our presidential or congressional candidates for office are willing to face these issues because the voters themselves won't have any part of sacrificing to save our great nation.

    Truth in Accounting or Lack Thereof in the Federal Government (Former Congressman Chocola) --- http://www.youtube.com/watch?v=NWTCnMioaY0 
    Part 2 (unfunded liabilities of $55 trillion plus) --- http://www.youtube.com/watch?v=1Edia5pBJxE
    Part 3 (this is a non-partisan problem being ignored in election promises) --- http://www.youtube.com/watch?v=lG5WFGEIU0E

    Watch the Video of the non-sustainability of the U.S. economy (CBS Sixty Minutes TV Show Video) ---
    http://www.youtube.com/watch?v=OS2fI2p9iVs 
    Also see "US Government Immorality Will Lead to Bankruptcy" in the CBS interview with David Walker --- http://www.youtube.com/watch?v=OS2fI2p9iVs
    Also at Dirty Little Secret (David Walker) --- http://www.youtube.com/watch?v=KGpY2hw7ao8

    At the moment the overwhelming majority of our top accounting graduates do not aspire to civil service.
    Therein lies much of the problem for our future.

    June 27, 2008 reply from Richard C. Sansing [Richard.C.Sansing@TUCK.DARTMOUTH.EDU]

    And now, a rebuttal from the late George Carlin.

    "Now, there's one thing you might have noticed I don't complain about: politicians. Everybody complains about politicians. Everybody says they suck. Well, where do people think these politicians come from? They don't fall out of the sky. They don't pass through a membrane from another reality. They come from American parents and American families, American homes, American schools, American churches, American businesses and American universities, and they are elected by American citizens. This is the best we can do folks. This is what we have to offer. It's what our system produces: Garbage in, garbage out. If you have selfish, ignorant citizens, you're going to get selfish, ignorant leaders. Term limits ain't going to do any good; you're just going to end up with a brand new bunch of selfish, ignorant Americans. So, maybe, maybe, maybe, it's not the politicians who suck. Maybe something else sucks around here... like, the public. Yeah, the public sucks."

    Richard C. Sansing
    Professor of Accounting
    Tuck School of Business at Dartmouth
    100 Tuck Hall Hanover, NH 03755

    Jensen Comment
    You can watch George Carlin saying this on video at http://www.youtube.com/watch?v=SlXoIVLJWCY


     

    Not everything that can be counted, counts. And not everything that counts can be counted.
    Albert Einstein

    Soto’s quotation below was forwarded to me by Denny Beresford. The question was what Soto would like to be if he wasn’t in professional baseball.
    Probably be an accountant. I like to figure out stuff. In accounting, if you miss one number you get the whole thing wrong. You have to be perfect --- I'm a perfectionist.
    Giovani Soto (catcher for the Chicago Cubs when asked what he'd like to be if he wasn't in baseball), as quoted in in an interview with Mary Burns in Sports Illustrated, June 2008
     

    Jensen Comment 1
    If Soto only knew that accountants are second only to economists in terms of inaccuracies. When accountants total up the numbers on a balance sheet the total is always accurate, but the numbers being added up can be off by 1000% or more. Accuracy varies of course. Cash counts are highly accurate. Fixed assets, net of depreciation, are make-pretend within limits. Intangible asset valuations are about as accurate as ground eyesight measurements of floating cloud dimensions on a windy day. Accountants make highly inaccurate estimates of assets, liabilities, and equities. Then accountants change hats and chairs and add these estimates up very accurately and pretend that the total must mean something --- but accountants aren't sure what.

    If Soto wants accuracy perhaps he should become a baseball statistician collecting up subjective estimates of the umpires. In the business world, accountants are the statisticians and the umpires. Therein lies the problem. An umpire decides what's a ball/strike, hit/foul, etc. and then leaves it up to baseball statisticians to book the numbers. In the world of business, accountants decide what are current versus deferred revenues, current versus capitalized costs, and additionally make highly subjective estimates about values of such things as forward contracts and interest rate swaps. After making their inaccurate estimates they then put on another hat, change chairs, and record their own estimates to the nearest penny. They're the business world's umpires and statisticians who simply change hats and chairs and wait for the investors to file lawsuits against them.

    Jensen Comment 2
    There are some well-known accountants and accounting professors who lived in accounting but dreamed of being sports heroes. My best example is Herb Miller who looked like an accountant, spoke like an accountant, and was a very, very good accountant but spent many hours throughout much of his life daydreaming about being a race car driver. Herb lived out his daydreams somewhat by becoming close friends with A.J. Foyt and occasionally being present in Foyt’s pit during actual races. I think Herb’s assigned job was to stay out of the way.

    You can read about A.J. Foyt at http://en.wikipedia.org/wiki/A._J._Foyt

    You can read about Herb Miller at
    http://fisher.osu.edu/departments/accounting-and-mis/the-accounting-hall-of-fame/membership-in-hall/herbert-elmer-miller/


    From the Publisher of the AccountingWeb on June 19, 2008

    Some friends of ours are currently on vacation in Russia, which got me to thinking, "I wonder what it's like to be an accountant in Russia?" I have no idea. It wasn't all that long ago that International Financial Reporting Standards were adopted by the Russian Finance Ministry, so it's probably been a rather challenging profession as of late! If you have any first-hand knowledge of accounting in the Russian Federation, please e-mail me so we can share it with AccountingWEB readers.

    In the meantime, here are some key Russian facts:
    • Population: 142 million
    • Largest city (and capital): Moscow
    • Second largest city:
      St. Petersburg
    • Size: the largest country in the world by more than 2.5 million square miles
    • Ethnic groups:
      Russian 79.8%,
      Tatar 3.8%,
      Ukrainian 2%,
      other 14.4%
    Rob Nance
    Publisher
    AccountingWEB, Inc.

    publisher@accountingweb.com

    Bob Jensen's reply to Rob Nance

    Hi Rob,

    A better question is to ask what accounting became in Russia after the breakup of the Soviet Union --- http://www.worldbank.org/html/prddr/trans/janfeb99/pgs22-25.htm
    The system is highly geared to tax reporting and has a long ways to go relative to IFRS.

    Accounting in the former Soviet Union was pretty much an exercise in tabulating fiction --- http://www.questia.com/PM.qst?a=o&d=6827120

    Accounting was an instrument of the planning and control process that substituted for market-based controls ---
    http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-6281.1974.tb00002.x?cookieSet=1&journalCode=abac

    Russia now has offices of the Big 4 accounting firms and maybe other Western CPA firms as well. One of my former students accepted a transfer to the PwC office in Moscow. It proved to be a fast-track to becoming a partner in PwC. Russian companies are seeking equity investors throughout the world, and to do so they have to add accounting assurances much like the other companies in the global economy seek assurances.

    KPMG has a publication comparing IFRS with Russian GAAP --- http://snipurl.com/russiangaap 
    Also see http://www.kpmg.ru/index.thtml/en/services/assurance/IFRS/IFRSpublications/

    PwC has an IFRS Transition document at http://www.pwc.com/extweb/service.nsf/docid/90828387207B28F78025717B0038B2AD
    Results of a 2006 survey are reported at http://snipurl.com/russiangaapsurvey

    Deloitte links to a Russian translation of IFRS as well as providing information on transitioning to IFRS in Russia --- http://www.iasplus.com/country/russia.htm

    A illustrative Russian set of financial statements can be found at http://www.dixy.ru/en_invest-report/

    Hope this helps!

    Bob Jensen's threads on accounting history, theory, and controversies --- http://www.trinity.edu/rjensen/Theory01.htm

    Bob Jensen's threads on accounting firm scandals and lawsuits --- http://www.trinity.edu/rjensen/Fraud001.htm

    Bob Jensen's homepage with links to a lot of other accounting documents --- http://www.trinity.edu/rjensen/

    SmartPros has an interesting site for students --- http://accounting.smartpros.com/accountingstudents.xml

    AccountingWeb Student Zone --- http://www.accountingweb.com/news/student_zone.html

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


    New IFRS XBRL Taxonomy Released --- http://accounting.smartpros.com/x62326.xml


    Chronology of IFRS standards --- http://www.iasplus.com/restruct/chrono.htm

    Iraq Stock Exchange Registrants Must File Financial Reports Under IFRS Accounting
    We have created a new Jurisdiction Page for Iraq. Under the Iraq securities markets law, all companies listed for trading on the Iraq Stock Exchange are required to publish financial statements that are prepared in accordance with International Financial Reporting Standards. Those statements must be audited in accordance with International Standards on Auditing. Further, the Iraq banking law (administered by the Central Bank of Iraq) requires all banks to publish IFRS financial statements. We have updated our table of Use of IFRSs by Jurisdiction.
    IASPlus blog from Deloitte, June 17, 2008 --- http://www.iasplus.com/index.htm

    Iran has some issues with IFRS convergence but is at least considering the possibility of convergence, unlike Saudi Arabia, Japan, and Iceland that appear to be giving IFRS less consideration --- http://www.iasplus.com/resource/gaap2002.pdf

    Iran has an Institute of Certified Accountants --- http://www.iasplus.com/index.htm
    Professional Accountancy groups in other nations are listed at http://www.iasplus.com/links/links.htm

    Many other useful accounting sites (scroll down) --- http://www.iasplus.com/links/links.htm

    Deloitte also publishes an extensive Global Outlook document, although I've not found updates since 2006 --- http://www.iasplus.com/resource/0511econoutlook2006.pdf
    This is a very, very useful document about global economic opportunities and risks.

    Directories --- http://dir.yahoo.com/Business_and_Economy/Directories/ 

    CIA World FactBook --- https://www.cia.gov/cia/publications/factbook/index.html

    Bob Jensen's links to economic, accounting, and finance statistics --- http://www.trinity.edu/rjensen/Bookbob1.htm#EconStatistics


    Congratulations to San Diego State University's School of Accountancy

    Accounting school receives $10 million donation
    San Diego State University has received a $10 million gift to name the university's nationally recognized school of accountancy the Charles W. Lamden School of Accountancy. The gift, among the largest in university history, was made by Gertrude Lamden in honor of her late husband who was instrumental in launching SDSU's College of Business Administration.


    Organization, Compensation, and Litigation in the Large Public Accounting Firms

    A very good friend sent this message to me:

    Bob,

    See - http://thecaq.org/publicpolicy/treasurydata.htm 

    Some great information about the organization of major accounting firms, their finances (including average partner comp) and litigation.

    Question
    Is the present audit model broken?

    No New Protections to Protect the Big Four International Auditing Firms from Insolvency
    "A New Big Eight: Suggesting a Deal the Big Four Can’t Refuse," by Tom Selling, The Accounting Onion, June 22, 2008 ---
    http://accountingonion.typepad.com/

    Jim Peterson, who blogs on the auditing profession, has written an excellent summary and analysis of the failure of the U.S. Treasury Department's Advisory Committee on the Auditing Profession to recommend a solution to the Big Four’s exposure to liabilities that threaten their solvency.  Jim's blog, Re:Balance, is worth reading simply out of appreciation for Jim’s elegant writing style.  Also, check out his funky bow tie!

    “Did anyone really think that the endless chatter about saving the system of privately-provided audits for large global companies would come to anything? ….

    …those sincerely believing in the importance of large-company assurance are avoiding an election between two unappealing choices: Either put every effort to assure that the Big Four are insulated from the very catastrophic risks that the critics insist they must remain exposed to, or start the process of designing the new audit model that must arise after the collapse of the Big Four under the abdication of the Treasury Committee and its counterparts.”

    I agree with Jim that the current audit model is broken. The notion of independence from management is fatally flawed, and much of what passes for auditing does not create useful information for investors. Ironically, the “services” that merely provide a perfunctory rubber stamp on management’s judgments may create the Big Four's most significant exposures to liability. Walter Schuetze, former SEC Chief Accountant and FASB member, explained this much better than I can in a 2003 speech to the New York State Society of CPAs. The deafening silence in response to his challenge to make audits simpler and more relevant attests to the fact that political will to fight deeply entrenched interests in the current system is virtually non-existent.

    Continued in article

    Andy Bailey's letter to the Department of the Treasury --- http://www.trinity.edu/rjensen/Bailey2008.htm 

    Bob Jensen's threads on professionalism --- http://www.trinity.edu/rjensen/Fraud001.htm#Professionalism

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

    Bob Jensen's threads on scandals in the large firms --- http://www.trinity.edu/rjensen/Fraud001.htm

    A Timeline of Financial Scandals and Accounting Standards Development --- http://www.trinity.edu/rjensen/FraudRotten.htm#DerivativesFrauds


    Big is Sometimes Better When it Comes to Auditing

    "PCAOB Inspections of Smaller CPA Firms: Initial Evidence from Inspection Reports," by Dana R Hermanson, Richard W Houston and John C Rice, Accounting Horizons, June 2007 --- http://www.atypon-link.com/AAA/doi/abs/10.2308/acch.2007.21.2.137

    We examine 316 Public Company Accounting Oversight Board (PCAOB) inspection reports issued to smaller CPA firms (100 or fewer issuer clients) through July 2006. We find that 60 percent of the inspected firms have audit deficiencies. Firms with audit deficiencies are smaller, have a larger number of issuer clients, and are growing more rapidly than firms without deficiencies, suggesting an over-extension into the issuer client market by some firms. Deficiencies are more likely for inspections conducted in 2004 than 2005, and the PCAOB appears to have targeted smaller, riskier, rapidly growing audit firms for its 2004 inspections. In addition, we find some evidence that clients of deficiency firms are smaller, less profitable, and more highly leveraged. We also summarize the most common audit deficiencies and offer implications and directions for future research.


    "Accounting for Second Life," by Richard A. Johnson and Joyce M. Middleton, Journal of Accountancy, June 2008 --- http://www.aicpa.org/pubs/jofa/jun2008/second_life.htm 

    EXECUTIVE SUMMARY

    Second Life is a virtual world with education, public relations, and economic implications. CPA Island is the center of the public accounting profession in Second Life.

    At a minimum, CPA Island presents a creative communication medium to appeal to a new generation. This generation has grown up with high-speed Internet connectivity, instant messaging, and multiplayer online gaming.

    The spirit behind CPA Island goes beyond clearly demonstrating an awareness of the different skill set of this new generation. It embraces and celebrates these skills as important to the future of the accounting profession.

    The economic implications of Second Life are just now unfolding. Suspend disbelief, log on, and experience CPA Island and the other aspects of Second Life for yourself.

    Bob Jensen's threads on Second Life virtual worlds are at http://www.trinity.edu/rjensen/000aaa/thetools.htm#SecondLife


    "Accounting Grads Are Most Employable: Survey," SmartPros, May 27, 2008 --- http://accounting.smartpros.com/x61963.xml

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


    Roger Collins called my attention to this link.

    Where is insider trading more evident and difficult to stop than in the U.S. capital markets --- well England for one
    "Bradford & Bingley: Time the FSA got serious on insider trading," by Martin Waller, London Times, June 6, 2008 --- http://business.timesonline.co.uk/tol/business/columnists/article4076208.ece

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


    Accounting Golden Fleece Quotations (read that bull crap)

    I want to conclude by explaining what I mean by "truly believe." I'm just a politician ... whoops, I mean lawyer ... who really doesn't know much about what all you CFOs have to go through to make your numbers. Frankly, the details of the differences between IFRS and U.S. GAAP don't concern me much. I just threw in "truly" to impress upon you that I am on your side -- kind of like "no kidding," or "I swear." In other words, even though I don’t have a single good answer to any of the questions I have raised today, don’t worry, because we're going through with this anyway. I truly believe that If IFRS is good for you, it's good for the SEC; and it must be good for everyone.
    John White, Director of the SEC’s Division of Corporation Finance, as quoted by Tom Selling in The Accounting Onion, June 9, 2008 --- http://accountingonion.typepad.com/theaccountingonion/2008/06/accounting-convergence-decoding-john-whites-speech.html

    Jensen Comment
    The roaring SEC-FASB (read that Cox-Herz) Train replacing domestic accounting standards such as U.S. and Canadian GAAP is analogous to letting the United Nations govern the world. Both the U.N. and the International Accounting Standards Board have lofty intentions, but multinational politics is a nightmare to behold

    The IASB defines IFRS as a set of International Financial Reporting Standards --- http://www.iasb.org/Home.htm

    Bob Jensen defines IFRS as International Fleecing of Responsible Standards

    International auditing firms are seeking a judgmental (read that softer) set of standards under lobbying pressure from their large multinational clients. Bright lines led to $billions of losses in litigation in the U.S. because a client, with the blessing or incompetence of an auditor, crossed a line such as the old SPE 3% line that was a huge factor in the demise of Andersen and Enron --- http://www.trinity.edu/rjensen/Fraud001.htm 

    I’m presently doing a funded research study comparing FAS 133 with IAS 39. FAS 133 has lots of bright lines and lots of examples, especially DIG examples, of how to account for complicated hedges.  IAS 39 is like driving down a mountain road on a moonless night without any headlights, road signs, or guard rails. With over a thousand variations of financial instrument derivative contracts and thousands of types hedging strategies, IAS 39 lets clients manage earnings most any way they like without detailed rules of the road and bright lines  that give them and their auditors guidance.

    Eventually IFRS will be all fair value accounting on moonless nights. Accountability is going into the ditch or over a cliff --- http://www.trinity.edu/rjensen/theory01.htm#FairValue

    David Albrecht forwarded the following link from the Financial Times:

    "Accounting rule-makers putting markets at risk," by Michael Starkie, Financial Times,.June 12 2008 --- Click Here

    Sir, Whither accounting?

    I write this letter in a personal capacity. My qualifications for expressing these opinions are that I have been chief accountant at BP for the past 14 years and have been for some years chairman of the UK's CBI Financial Reporting Panel and a member of the European Financial Reporting Advisory Group Technical Expert Group.

    Recent years have seen major changes in the topography of accounting standards; acceptance by the European Union (subject to endorsement) of International Financial Reporting Standards and by other countries also, and the decline in the influence of US generally accepted accounting principles as the US capital markets have become relatively less attractive.

    What a wasted opportunity, then, that the current body of IFRS is so unhelpful for the markets when the accounting world was given this historic opportunity to create something that should have been both useful for markets and with the potential to be welcomed globally. I recall a year or two ago that the heads of leading accounting firms said that current international financial reporting was broken. But nothing has been done about this.

    And the future looks even bleaker. The International Accounting Standards Board continues to develop an accounting model about which users of financial information have grave misgivings. Probably the most disturbing example is the use of predominantly mark-to-model exit values in the balance sheet, which cannot be relevant for a market trying to assess the economic performance and position of companies that have the intention of continuing to operate as going concerns. In the interests of brevity I will not list other examples though there are enough voices of protest being raised by those in the financial world to make it apparent that all is far from well.

    How have things come to this pass? I have concluded, albeit with regret, that the fundamental problem is the members of the IASB. Collectively as board members they do not have the experience and wisdom to produce and maintain accounting standards that are useful for the capital markets and the wider economy. And some of the board members are clearly committed to an extreme view of recognition and measurement which will severely damage the operation of markets and ultimately economies. Recent appointments to the board are too little and too late to change the overall thrust.

    Continued in article

    Bob Jensen's threads on controversies in accountancy standard setting are at http://www.trinity.edu/rjensen/theory01.htm#MethodsForSetting


    Accounting Golden Fleece Research

    June 8, 2008 message from David Albrecht [albrecht@PROFALBRECHT.COM]

    I've been thinking quite a bit about the teaching of accounting. In the current environment, I think we have made it more difficult than ever for good teaching to take place. Here are a few 21st century environmental factors, all different in some way (if only in degree) from what we've experienced the past, that I think cause the most difficulty.

    (1) Mass education and lack of budget. (2) Lack of respect for seasons of life. (3) Teaching research versus teaching a world-view. (4) Focus on content more focused than ever.

    (1) Mass education and lack of budget. These issues have been problematic for decades, but seems to be more critical at the present time. State support of higher education has been on the wane for decades. In the 21st century, states are supporting higher education less than ever. Oh, there are a few stories of states pumping in a few extra dollars on a relative basis, it hasn't seemed to be permanent (see Ohio). Public colleges/universities (in which about 80% of America's freshmen start out) have responded by placing intense pressure on keeping up enrollment (or even expanding) so they can stay solvent. When huge enrollment increases don't materialize, they cut the cost of faculty by (1) reducing lines, and (2) relying more on full-time faculty with non-terminal degrees, and (3) relying on ever more temporary adjuncts. Nearly 20 years ago when I got hired at BGSU, its CBA was proud of 20-25 student sections. This coming fall I'm at 50-60 students across the board (actually been there for a few years). 15+ years ago I helped in the evolutionary development of Monopoly as a teaching tool for financial accounting. Now, I have so many students to teach that I'm reluctant to use it.

    How has this made the teaching and learning of accounting more difficult? At a time when we understand much more about teaching and learning and we as professors should doing more with it, too many students and too few colleagues preclude our being able to do much about it.

    (2) Lack of respect for seasons of life. I think we as humans are as inherently valuable in a later season of life as in earlier seasons. Having a high number displaying on my odometer of life, I can say with quite a bit of confidence that I'm no longer as attractive and sexy as I fantasize that I once was. I'm also less athletic than I once was. These factors don't make me less valuable as a person. Where once I was loved by older generations of Albrechts, now I'm loved by younger generations of Albrechts, but I'm still loved. 50-something grandfathers don't do the same thing as 20/30-something parents. I shouldn't be judged by the number of diapers I've changed recently, nor the number of school activities I've ferried my children to. My contributions there are in the past.

    Thanks to new academic policies, I'm much less likely keep receiving institutional love if I lose attractiveness and sexiness in the publication area. I'm pretty sure that I'm wiser in teaching (made finalist for the university teaching award again) and service than ever, but I lack the ability to garner and focus sufficient energy for research projects requiring longer time horizons. I may not be able to teach from my stock of current research findings, but I'm much wiser and better able to teach from my more fully developed world view. But I'm in an older season of academic life where what I do has changed. If refereed publications for an academic is like supporting school activities for a parent, then why should a senior academic be judged according to a younger academic's activity set?

    How does this affect teaching? Just try switching schools based on a teaching record when only publication records matter. At a time when schools could be bidding on my ability to help students learn, they are shunning me for publications. Schools get what they pay for, and they pay for publications and not teaching. Not too long ago I was told that I'd been doing nothing of value. Hmmph, despite being a respected teacher and a respected faculty leader, my activities were valueless. The natural human response is to pack it in. That is what I fear is happening across the country in accounting academia. Lack of respect for later seasons of life has resulted their surgical removal. If senior faculty aren't forced out early, they continue a mere shells of what they once were.

    (3) Teaching research versus teaching a world view. The current AACSB focus on professors being qualified to teach is grounded on their possessing a recent track record of research/publication productivity. This is so AACSB schools can advertise their degrees as value added from a knowledge perspective. Given the accounting discipline's many problems in generating research findings of value, if there was any truth to AACSB advertising, then it would tout GIGO (garbage-in, garbage-out). And do current accounting research findings contribute to wisdom? Only to the extent that outsiders can view it and wisely conclude it is in a sorry state.

    As a younger academic I was more concerned with how to work in the world. Now I'm concerned about how the world works. After spending more than two decades in trying to make sense of it all, I conclude that I understand something about it. As a younger academic, any comments I would have made about how the world works would have been pure poppycock (this word has an interesting entomology). Moreover, world-views are not publishable and would have been as publishable then as it is now (so I never would have been interested in pursuing it). Never-the-less, at the current time I'm more willing and able to enter into discussions on some topics in which a seasoned world view can lend some insight. Does everyone agree with me? Certainly not. However, some write and tell me they do.

    What has this to do with the teaching of accounting and why is teaching/learning now more difficult? Just because a senior academic has few (or none) personal research results from which to teach does not mean that a senior academic has nothing to teach. The focus on teaching research results in not permitting some to teach at all, when other-wise they would still be teaching and presenting a world view. We've thrown the geezers out with the bath water.

    (4) Focus on content more focused than ever. Twenty years into an educational revolution, I think the proponents of the two paradigms are more entrenched than ever. Especially in accounting.

    Explaining why this is a problem requires some length. Ernest Boyer's seminal work, Scholarship Reconsidered, Priorities of the Professoriate, presented what I view as a holistic view of academia. Trashing the traditional teaching-research-service model as three independent silos, Boyer advocates a view with four areas of scholarship: discovery, integration, application, and teaching. The follow-up by Glassick, Huber and Maeroff, Scholarship Assessed: Evaluation of the Professoriate, discusses how to put Boyer's work into practice. I think a currently popular term, engagement, is an unstated but essential ingredient of the two works.

    Barr and Tagg's important work, From Teaching to Learning - A New Paradigm for Undergraduate Education (Change, 1995), firmly a part of the larger Boyer picture, presents how there are really two paradigms in place for undergraduate collegiate education, the traditional content centered (or teacher centered) approach and a newer learning centered ( approach. The essence of the two approaches is that the content centered approach has focus on what students are to know, and the learning centered approach has a focus on what students learn to do with what they know.

    Whether or not 21st century academics (accounting and otherwise) have read and reflected on Boyer, they most certainly are aware of the paradigmic struggles. It has seeped in via osmosis, if nothing else. L. Dee Fink (of Creating Significant Learning Opportunities fame) has publicly wondered why the new approach has not caught on across America. I've told him that I think it is because the aging generation of baby-boom academics has viewed it as criticism of their life-long efforts, and this criticism has cut to the bone. Instead of viewing at least parts of the new paradigm with an open mind, they simply are not about to tarnish their careers as they now approach retirement. They are concerned with legacy. Moreover, moving to the new paradigm takes significant mental and physical effort, in decreasing supply as aging baby-boomers get older.

    Moreover, the AACSB has set teaching qualifications in terms of knowledge. No where does the AACSB say that to be qualified to teach accounting or business must one actually be able to teach in such a way so that students learn.

    I've tried to keep my eyes and ears open. Everywhere I go and everywhere I look I see a wealth of knowledge-oriented, multiple-choice tests. Many of the presentations I see at AAA ELS sessions appear to be bandages for those in the teaching/content paradigm.

    What does all of this have to do with teaching accounting? Given that accounting and auditing are two areas undergoing rapid change, and the current educational environment detracts from our ability to send out students well-equipped to succeed. In addition, at a time when any change should be welcomed, we are less likely to see it.

    David Albrecht
    Bowling Green

    June 8, 2008 reply from Amy Dunbar [Amy.Dunbar@BUSINESS.UCONN.EDU]

    Albrecht wrote:
    L. Dee Fink (of Creating Significant Learning Opportunities fame) has publicly wondered why the new approach has not caught on across America. I've told him that I think it is because the aging generation of baby-boom academics has viewed it as criticism of their life-long efforts, and this criticism has cut to the bone.

    Dunbar:
    I am reading a fascinating book, Mistakes Were Made (but not by me), by Tavris and Aronson. I wonder if I defend my approach to teaching (and a lot of other things) because of self-justification. I think we all deal with cognitive dissonance to some degree by coming up with arguments to support why we are right in what we think or do. The question is where do we draw the line, and how do we know when we should be trying to examine our justifications with an attempt at independence. Self-examination is darn hard.

    I remember Wheeler (Michigan) questioning whether the then existing trend of CPA firms to sell product instead of professional services was damaging the independence of CPAs. He was almost booed out of the room by academics. Some of us may have changed our memories of that incident because it seems ludicrous now, at least to me that we didn’t applaud him. Changing with the times was not the thing to do, but how does one know when we should change? Now we say change the way we teach, and no wonder some of us hang on to old ways of doing things. Coming up with reasons why what we are doing could be wrong creates cognitive dissonance!

    Amy Dunbar

    UConn

     

    June 9, 2008 reply from Dennis Beresford [dberesfo@TERRY.UGA.EDU]

    One of the network affiliate television stations in Atlanta runs a periodic series of exposes in which they disclose how state provided research dollars are being "wasted" on many projects. The examples are usually those that involve travel expenses and other expenditures for scientific studies that appear to be of dubious value - e.g., the sex life of pigs (I made this up but it's a good example of the type of thing they cover). When I see these stories I wonder what the reporters would think about the dollars going to finance much of accounting research - would that result in the same kind of "outrage" among taxpayer/viewers? On the other hand, the topics studied would usually be so obscure that they wouldn't mean a thing to the viewers of the shows.

    Denny Beresford

    June 9, 2008 reply from Bob Jensen

    Hi Denny,

    I think Senator Proxmire probably had some better examples than the "sex life of pigs" since horny pigs might truly be of value to our food supply, especially if pigs' interest in sex wanes. Proxmire's Golden Fleece awards are at http://en.wikipedia.org/wiki/Golden_Fleece_Award

    The problem with some, certainly not all, basic research in academe is that when funded it appears to be a waste of money at the time but may become important much later in life. Mathematical proofs are probably the best example. Some proofs of the past were deemed little more than wasted analytics before their importance was discovered centuries later.

    As timing luck would have it, Sixty Minutes on CBS had a show related to this topic last night (June 8, 2008) justifying Howard Hughes Medical Research Foundation --- http://www.cbsnews.com/stories/2004/07/13/60minutes/main629388.shtml 

    In a surprisingly multi-million dollar way, the multi-billion Howard Hughes Foundation funds basic medical research that cannot get more practically-minded NIH funds or other government grants.

    Of course it is always possible to fleece taxpayers and research funding foundations for research that almost certainly fleeces the public with epsilon chance of ever being relevant to the world. I think Bill Proxmire identified many of those fleecing projects; But then again, maybe not in some instances.

    Basic research is a service to society so steeped in externalities that it truly defies Adam Smith's "Invisible Hand" --- http://en.wikipedia.org/wiki/Adam_Smith 

    My arguments with the takeover of our accounting doctoral programs by accountics professors is not so much that accountics is not worthwhile. My objection is that accountics professors turned these doctoral programs and editorships of some of our leading research journals into their own dysfunctional monopoly on methodology --- http://www.trinity.edu/rjensen/theory01.htm#DoctoralPrograms 

    In other words, it’s the monopoly that's dysfunctional rather than much of the accountics research itself. Having said this, accountics research might have more value if somebody somewhere sometime saw fit to replicate the studies to test for errors in either the data or the models or both.

    Maybe somebody in the 23rd Century will find it of great benefit to, for the first time, replicate an accountics research finding in the 20th Century. This happens in mathematics and science. I'm not so optimistic about accounting research where much of the practical value today comes from normative methods and case studies rather than accountics models with hundreds of missing variables.

    Bob Jensen.

    January 9, 2008 reply from Jagdish Gangolly [gangolly@CSC.ALBANY.EDU]

    Denny, Bob,...,

    Jensen wrote:
    The problem with some, certainly not all, basic research in academe is that when funded it appears to be a waste of money at the time but may become important much later in life. Mathematical proofs are probably the best example. Some proofs of the past were deemed little more than wasted analytics before their importance was discovered centuries later.

    I entirely agree. There is a great need for basic as well as applied research. The results of under-investments in basic research shows up in the long run. I can give two examples:

    Bell Labs used to be the place to be in most branches of science When the financiers conquered the world and the management adopted tunnel-vision, investments in such research plummeted, and we all know the rest of the story.

    Xerox PARC used to be the place to be for any one interested in computing until recently. Mismanagement and tunnel vision led to its demise as a part of Xerox, and we all know the rest of the story.

    I could give more examples.

    Over the last two decades or so, funding in basic research by corporations has dropped and the void has not been filled. Funding by government too has plummeted. Tragically, the universities have not filled the void.

    Two shining examples of support for theoretical research in the corporate sector are Microsoft's Bill Labs, and IBM's Watson Labs.

    In case of both, the importance of basic research for the advancement of applied research is recognized. Should we wonder that IBM leads in patent registrations since the lingering death of Bell Labs many years ago? Recently I was at IBM Watson's Hawthorne Labs in West chester, and saw their "patent wall" -- one of the walls on the first floor where each IBM patent is painted in fine print; and they were almost running out of wall space.

    Jensen wrote:
    My arguments with the takeover of our accounting doctoral programs by accountics professors is not so much that accountics is not worthwhile. My objection is that accountics professors turned these doctoral programs and editorships of some of our leading research journals into their own dysfunctional monopoly on methodology --- http://www.trinity.edu/rjensen/theory01.htm#DoctoralPrograms

    In other words, it's the monopoly that's dysfunctional rather than much of the accountics research itself. Having said this, accountics research might have more value if somebody somewhere sometime saw fit to replicate the studies to test for errors in either the data or the models or both.

    Value of basic research is recognised by the society, though at times the idea may be so profoundly subtle that it takes a long time to recognise the use, or if the technologies needed to harness such theoretical results are not developed.

    I can give examples of theoretical developments in statistics having to do with data visualisation which were developed a long time ago, and the theoretical developments in mathematical programming that needed advancements in computing technologies. The gap was wider in case of the theoretical results in non-Euclidean geometries to find their realisation in data visualisation.

    Accounting is a different story altogether. Most financial accounting research resembles alchemy, theology, or simply voodoo magic. In fact, I think financial accounting is a theory-less discipline devoid of any ACCOUNTING implications (I am being deliberately provocative).

    In accounting academia, we are also a practice-less discipline. We flagrantly ignore practice and in fact denigrate it. I am not being provocative here, just being truthful.

    Jagdish


    "The Revisions to IFRS 3:  Bad Enough to Abandon Faith in IFRS?" by Tom Selling, The Accounting Onion, June 16, 2008 --- http://accountingonion.typepad.com/theaccountingonion/2008/06/ifrs-3-fall-short-of-convergence-again.html

    In my previous post, I described how an SEC honcho, while speaking to the choir at an event sponsored by FEI, espoused his version of faith-based accounting; though he could not provide a single, solid reason to explain why the U.S. should adopt IFRS, he has seen the light and has become a true believer. In contrast, reason-based accounting permits recitation of a vast litany of blasphemies against IFRS to make one a serious, if not committed, agnostic. Today, I write of one of these latest abominations: the latest revision to IFRS 3 on the accounting for business combinations.

    Goodwill and NCI: IASB Fakes Right and Goes Left

    Perhaps the most significant development in the accounting for business combinations is that FAS 141(R) now requires the same basis of measurement for assets acquired and liabilities assumed, regardless of the percentage of a company acquired (so long as control is achieved). Therefore, if control is attained without purchasing 100% of the existing equity interests in the acquiree, non-controlling interests (NCI) must be measured at full fair value.

    As you may be aware from reading my post "What Good Comes from Goodwill Accounting?", I am not a big fan of recognizing 'goodwill' under any circumstance, so I will grant that the justification for the FASB's approach is not airtight. Nevertheless, it was common knowledge that the FASB was given to understand that, by sticking its neck out to make these controversial changes to FAS 141(R), the IASB would follow suit.

    Instead, the IASB reneged on its promise in the worst way imaginable: they voted to allow entities a free choice between the partial and full fair value alternatives to goodwill and NCI measurement. What's more, issuers can make their choice on a transaction-by-transaction basis -- kind of like going to church one week and synagogue the next. Not even the most devoted acolyte can spin this any other way except as a significant step backwards from establishing the IASB as a credible agent of quality financial reporting and investor protection.

    And, it's not just me who is outraged. Read the strongly-worded dissents* of Mary Barth and John Smith, two of the three Americans on the IASB. As to the third American, Jim Leisenring, I guess I shouldn't be surprised that he capitulated to the majority. Leisenring was the most prominent voice in support of FAS 133 (on hedge accounting) when he was on the FASB; a standard whose middle name is inconsistency. Be that as it may, one can only imagine where the IASB will take the interests of U.S. investors when our membership, and hence our influence, on IFRS inevitably wanes.

    Mind These GAAPs, Too

    If the unprincipled and unconstrained choice of accounting treatments for goodwill and NCI aren't enough for you to abandon any faith in a high-quality convergence, consider two more of the numerous departures from U.S. GAAP; these may be even worse.

    First, the devilish game of managing the timing of contingent liabilities still thrives in IFRS. FAS 141(R) now requires that any non-contractual, contingent liability assumed in a business combination must be recognized at fair value, if the probability of occurrence is more likely than not. IFRS allows any contingent liability to be recognized, regardless of likelihood, if it can be reliably measured.

    As I discussed in a previous post on IASB machinations of contingent liability accounting, the ubiquitous criterion of "reliable measurement" is one of those areas of "judgment" in IFRS that help management make their numbers with little chance of being challenged by auditors. Here is how this game will be played in a business combination under IFRS 3(R): if management thinks that goodwill won't be impaired any time soon, they will recognize contingent liabilities to the max. The effect is to create an earnings bank of liability write downs when unlikely events become, as anticipated, resolved without the incurrence of an actual liability. And speaking of inconsistency, IFRS 3(R) provides that all intangible assets are to be recognized, even if their fair values cannot be measured reliably. Where is the "principle" for that one?

    Second, FAS 141(R) requires extensive disclosures that are designed to aid analysts in determining the past and future effect of a business combination on earnings and financial position. For example, FAS 141(R) requires the following disclosures:

    The amount of revenue and earnings of the acquiree since the date of acquisition. Revenue and earnings of the combined entity for the current period as though the acquisition had been consummated as of the beginning of the period Revenue and earnings of the combined entity for the previous period, as if the acquisition had been consummated as of the beginning of the previous period. Inexplicably, IFRS does not require the third item, above. Therefore, inferences as to earnings trends of the combined entity from historical financial statements are defeated.

    The recent activities of the IASB, the high priests of IFRS, confirm that they are most definitely not the august body to which the future of U.S. financial accounting standards should be entrusted. To those who persist in practicing faith-based accounting, put IFRS's accounting for business combinations in your pipe and smoke it.

    --------------------------

    *Unlike statements of the FASB, IFRS publications are not freely available. Just thought you might want to know why I didn't provide a link.

     

     

    Bob Jensen's threads on goodwill accounting are at http://www.trinity.edu/rjensen/theory01.htm#Impairment

    IFRS 3 on Business Combinations

    Contents paragraphs Introduction IN1–IN16 International Financial Reporting Standard 3 Business Combinations Objective 1 Scope 2–13 Identifying a business combination 4–9 Business combinations involving entities under common control 10–13 Method of accounting 14–15 Application of the purchase method 16–65 Identifying the acquirer 17–23 Cost of a business combination 24–35 Adjustments to the cost of a business combination contingent on future events 32–35 Allocating the cost of a business combination to the assets acquired and liabilities and contingent liabilities assumed 36–60 Acquiree's identifiable assets and liabilities 41–44 Acquiree's intangible assets 45–46 Acquiree's contingent liabilities 47–50 Goodwill 51–55 Excess of acquirer's interest in the net fair value of acquiree's identifiable assets, liabilities and contingent liabilities over cost 56–57 Business combination achieved in stages 58–60 Initial accounting determined provisionally 61–65 Adjustments after the initial accounting is complete 63–64 Recognition of deferred tax assets after the initial accounting is complete 65 Disclosure 66–77 Transitional provisions and Effective date 78–85 Previously recognised goodwill 79–80 Previously recognised negative goodwill 81 Previously recognised intangible assets 82 Equity accounted investments 83–84 Limited retrospective application 85 Withdrawal of Other Pronouncements 86–87 Appendices A Defined terms B Application supplement C Amendments to other IFRSs Approval of IFRS 3 by the Board Basis for Conclusions Dissenting opinions on IFRS 3 Illustrative Examples [Extracted from IFRS 3, Business Combinations. © IASC Foundation.]


    Update on the AACSB's Bridge Program for Wannabe Accounting Professors
    I'm sure glad the American Medical Association does not have a bridging program where accounting PhDs can become medical doctors by taking four courses in medicine.

    Students who get doctorates in fields other than accounting can typically get a doctoral degree in less than 9.5 years of full-time college. For example, an economics PhD can realistically spend only 7.5 years in college. He or she can then enter a bridge program to become a business, finance, or even an accounting professor under the AACSB's new Bridge Program, but that program may take two or more years part time. There just does not appear to be a short track into accounting tenure track positions. But the added years may be worth it since accounting faculty salaries are extremely high relative to most other academic disciplines. The high salaries, in part, are do to the enormous shortage of accounting doctoral graduates relative to the number of tenure-track openings in major colleges and universities --- http://www.trinity.edu/rjensen/Theory01.htm#DoctoralPrograms

    Only four United States Universities currently participate in the AACSB's Bridge program and one European business school whose doctoral programs I have doubts about because of truly absurd faculty-to-student ratios in the doctoral program.

    The AACSB's domestic alternatives are as follows http://snipurl.com/aacsbbridge  
    Also see http://snipurl.com/aacsbbridge2

    When I mentioned the Bridge Program last year on the AECM, Virginia Tech responded by saying they were participating but not for accounting bridges.

    The University of Toledo does not offer accounting bridges --- http://www.utoledo.edu/business/aacsbbridge/curriculum.html

    Tulane only lists one full professor of accounting in my Hasselback Directory such that I doubt that Tulane is a major player in an accounting Bridge Program (Tulane may be more viable in management, marketing, and finance).

    The University of Florida does apparently have an accounting bridge --- http://www.cba.ufl.edu/academics/pdbp/
    But this strangely does not appear to be affiliated with the well known Fisher School of Accountancy at the University of Florida.

    From what I can tell, Florida is bridging with only four courses. Can four courses alone turn an economics or history professor into an accounting professor?
    The Bridge Program says yes! I think the Bridge Program has little to do with it, although a person's prior background such as years of professional work as a CPA may make all the difference in the world along with the type of doctoral degree earned outside accounting.

    June 20 message from Saeed Roohani [sroohani@COX.NET]

    AACSB Announces May 2008 Bridge Program Graduates, there are many AACSB certified PQ accounting faculty for hire, see

    visit AACSB's online database

     Saeed Roohani
    Bryant University

    June 20, 2008 reply from Bob Jensen

    There is a surprisingly high proportion of the 78 candidates who want to teach accounting and auditing given than most of the bridge programs like Virginia Tech opted out of teaching accounting but do bridge business and finance studies. However, 20 bridged candidates who want to teach accounting and auditing will not make a big dent in the market where the number of accounting faculty openings exceeds the new doctoral graduate supply (less than 100 graduates) by over 1,000 openings.

    The big question now is whether those bridged candidates can get tenure track positions and make tenure with sufficient research publications in accounting. The leading schools willingly hire adjunct, non-tenure-track, accounting instructors, but they’re pretty snooty when it comes to tenure tracks.

    In my opinion the bridge program is absurd. Can four-courses in a typical bridge program is tantamount to a “90-day Wonder Program” for college graduates to become military officers --- http://en.wiktionary.org/wiki/90-day_wonder

    There were great military officers that emerged from the 90-Day Wonder officers' candidate programs. There will also be great accounting, finance, and business professors that emerge from the AACSB bridging program. However, the programs do not deserve much of the credit, since the criteria for success are the credentials and personal qualities of the persons who entered the program. In accounting there's almost no chance of success unless the candidate was a good accountant before entering the bridge program. There's just too much too accounting that cannot be covered in less than about three years of full-time study in accountancy modules alone. In most states it takes five years of college as an accounting major just to sit for the CPA examination.

    I'm sure glad the American Medical Association does not have a bridging program where accounting PhDs can become medical doctors.

    Bob Jensen

    June 20, 2008 reply from David Albrecht [albrecht@PROFALBRECHT.COM]

    I still do not understand why a practitioner with no experience in teaching (and no real training, despite what the AACSB says), is more qualified to be a teaching faculty member than a long-term professor that is no longer AQ.

    The cases I've seen have been that a practitioner coming in to teach a college classroom bombs much of the time (at least they bomb in the eyes of the students).

    The rationale is that PQ faculty will be better teachers than non-AQ doctoral faculty. I simply don't see how this must be so. Becoming a good teacher takes experience in academe and training. Most doctorally-trained non-AQ faculty at least have had years of academic experience (and admittedly no training), and some are great teachers.

    I think that the B-school quest for credibility is like the emperor with no clothes on.

    David Albrecht

    June 20, 2008 reply from Amy Dunbar [Amy.Dunbar@BUSINESS.UCONN.EDU]

    There are always exceptions, and at UConn we have at least two of them. One of our auditing instructors is a retired PwC partner, and the BAP teaching award went to him. As for being a great colleague, we couldn’t be luckier! He makes great comments in our research workshops. One of our tax instructors is also a retired PwC partner, and he keeps us on our toes when it comes to new tax legislation and WSJ articles. His sense of humor is great, and he handles the tax challenge team for our department, as well as other student activities. Maybe the difference is that we bring the retired partners on as full-time instructors, and they are part of the team. I don’t know our part-time adjuncts so maybe the story is different there.

    Amy Dunbar

    UConn

    June 20, 2008 reply from Anders, Susan [SANDERS@SBU.EDU]

    We owe it to our students to be teaching them current knowledge—especially in an applied field like accounting. With AQ faculty, the assumption is that we will stay current through our research activities. Staying current just from reading a textbook is not acceptable. However, for my school, the AACSB is also expecting some “professional” activities from AQ faculty, which makes sense to me. The AQ faculty in my accounting dept. are engaging in professional activities anyway (for example, Volunteer Income Tax Assistance and Students in Free Enterprise—which are also service activities), in addition to publishing.

    Our PQ faculty are also expected to stay current—with a reverse emphasis from the AQs. Professional activities have more emphasis, but we need some publication activity as well.

    Faculty can be out of date and lousy teachers whether they are AQ or PQ. PhD programs prepare us to engage in research, not necessarily to teach. PQ faculty can learn to teach the same way that we AQs do—trial and error.

    I have noticed major shifts in the “culture” of students every three or four years, so even if I was a good teacher four years ago, I have to modify my approaches to fit the students in front of me today, in addition to staying up with changes in technology, tax law, and accounting pronouncements.

    Hopefully, any new faculty that we hire at my school are committed to being good teachers, whether they are AQ or PQ.

    My colleagues at St. Bonaventure invested both their time and confidence in me to help me become both a good teacher and an active publisher. [Thank you Carol Fischer!!!] As members of academia, we should be reaching out to new (and old) colleagues to provide mentoring in both teaching and research.

    Thank you.

    Susan B. Anders, Ph.D., CPA
    Professor of Accounting
    St. Bonaventure University
    School of Business
    St. Bonaventure, NY 14778
    Office: (716) 375-2063
    Cell: (716) 378-7765
    Fax: (716) 375-2191
    e-mail:
    sanders@sbu.edu 

    June 20, 2008 reply from Dennis Beresford [dberesfo@TERRY.UGA.EDU]

    To pile on just a bit, I'd like to think that my now eleven years at the University of Georgia have been reasonably successful. It is certainly true that I received virtually no training to teach and had to figure it out for myself over the years. In fact, I shudder to think how hard I worked my first MAcc classes as compared to what I now consider a challenging but reasonable workload.

    Being able to share experiences from both the auditing world and standard setting helps bring the issues to life for the students, I believe. In thinking back many years, one of the best accounting classes I had was taught by the partner in charge of the tax department of Price Waterhouse in Los Angeles. Rather than the extremely dry Internal Revenue Code that passed for a textbook at that time, he could tell us about actual applications of the things we were learning. It probably helped that he was also the person who handed out the Academy Awards and was very personable.

    My challenge is to avoid using too much class time to tell war stories. Getting the right balance between the theoretical and the practical is important for me, but I assume it is just as important for all of you PhD trained instructors. And I also think it's important to not rely on experiences that are too old as the world changes and some of those observations about "how the real world works" (based on, for example, two years in public accounting twenty years ago) are simply incorrect today. On the other hand, having the opportunity to serve on three large corporate boards and keeping involved with a number of professional activities on a national basis allows me to share with the students many of the insights that are behind the news in the Wall Street Journal and makes the accounting standards and other things the students are learning more relevant.

    This past semester one of my students complained because he thought we had been spending too much time on fair value accounting and international accounting convergence. He thought those topics had little to do with what he had learned in other classes and probably wouldn't be on the CPA exam. Fortunately, most of the other students understood the benefit of getting in on the ground floor of some of the most important developments in accounting in history.

    My experiences are very unique and I give thanks every day that I've had these opportunities. But I sincerely believe that there are many other retired CPA firm partners and CFOs who would do a great job in the classroom and bring other benefits to an accounting program. I've even had some of my colleagues say that they appreciate it when I attend a research workshop as my comments are both relevant and practical (at least a few of them!).

    By the way, my academic credentials ended with a B.S.

    Denny Beresford

    June 20, 2008 reply from Bob Jensen

    Hi Denny,

    Your reply is wonderfully stated.

    I might add that NASBA’s problems with building more and more IFRS into the CPA examination are not trivial. For nearly a century, the CPA examination has been based upon a lot of bright lines in U.S. GAAP. Bright lines are especially preferred because it’s so much easier to distinguish correct answers from incorrect answers. Much of the infrastructure of our accounting education programs in terms of curricula and teachers is rooted in US GAAP and especially the CPA examination.

    Accounting education programs in the U.S. will have a very difficult time changing infrastructure and most certainly do so at different rates of change. Probably the best way to speed things up will be a quick introduction of IFRS on the CPA examination. But there are tremendous problems in making this transition. For example, something as fundamental as a “derivative financial instrument” that’s become part and parcel to risk management is defined differently in IAS 39 versus FAS 133. If the underlying definitions differ, think of the problems that will arise in changing curricula, textbooks, teaching notes, reading materials, and teachers themselves!

    Another problem will be to change the content of the examination in terms of bright lines. Wrong versus right answers will have to become more conceptualized since IFRS has so few bright lines. Perhaps this is a good thing that will penalize the best memorizers. But it will be harder to design exam questions and most certainly harder to grade them when there are fewer definitive answers to accounting for transactions. A principles-based CPA examination will probably be chaotic in the transitioning period.

    What a great feeling to be retired from teaching at this stage of turmoil. So why am I spending most of my time doing research in IAS 39 versus FAS 133?

    Dahh!

    Bob Jensen

    June 20, 2008 reply from Jagdish Gangolly [gangolly@CSC.ALBANY.EDU]

    Teaching requires tremendous dedication and discipline. On the other hand, a good teacher is one who makes the students think.

    My own experience is that doctorally qualified faculty, because of their reward structure, very often do not show teaching the same dedication they show for "research", whatever it means in the accounting academia.

    My experience is also that those who have never experienced the professional world are often lacking, in spite of their exalted status as PhDs, crucial skills is public speaking, leadership, problem definition and solving, organisation skills and also often reduce the rich professional landscape to a set of rote-learning exercises by regurgitating what is in the books.

    They also, often, do not give students sufficient time in the class to think, and usually act like machines that spew information. This of course precludes the students asking penetrating questions for which the practice-challenged PhD faculty may not have answers. The losers are the poor students.

    On the other hand, my experience, as a faculty member and recently as department chair, has been that the PQ faculty are more often than not good in class, very organised, very dedicated, bring the richness of the profession in the classroom, make the students think, make the students write and take time to read them and help the students,

    It is quite possible that our experience at Albany is accidental, and our ability to get outstanding PQ faculty serendipitous.

    Our PQ faculty are usually partners at small/medium/regional accounting firms, CFOs and senior managers at large corporations, partners at law firms. Most of them are CPAs, many are JDs and LLMs.

    I want to end with three famous quotes from Rabindranath Tagore, a literature Nobel laureate and a poet, on education. He refers to children, but are as applicable to adult education:

    1. "The highest education is that which does not merely give us information but makes our life in harmony with all existence. But we find that this education of sympathy is not only systematically ignored in schools, but it is severely repressed. From our very childhood habits are formed and knowledge is imparted in such a manner that our life is weaned away from nature and our mind and the world are set in opposition from the beginning of our days. Thus the greatest of educations for which we came prepared is neglected, and we are made to lose our world to find a bagful of information instead. We rob the child of his earth to teach him geography, of language to teach him grammar. His hunger is for the Epic, but he is supplied with chronicles of facts and dates...Child-nature protests against such calamity with all its power of suffering, subdued at last into silence by punishment.

    2. The child learns so easily because he has a natural gift, but adults, because they are tyrants, ignore natural gifts and say that children must learn through the same process that they learned by. We insist upon forced mental feeding and our lessons become a form of torture. This is one of man's most cruel and wasteful mistakes.

    3. A mind all logic is like a knife all blade. It makes the hand bleed that uses it.

    Jagdish

    June 20, 2008 reply from Bob Jensen

    Hi Jagdish,

    On the battlefield, probably the most important soldiers are the sergeants who lead in the actual face-to-face operations.

    I have the same feelings about full-time adjuncts and PQ faculty and view them somewhat as our sergeants in the field. Of course there are some good officers in the field as well.

    But sergeants aren't admitted to the officer's clubs and cannot rise to the highest-paying ranks. Is this the same for your adjuncts and PQ faculty?

    When performance rewards, endowed chairs, travel budgets, and leaves of absence are doled out, it's most likely the research faculty who get the best deals unattainable by those with lesser commissions. I was on the faculty of several universities, for example, where sabbatical leaves were based upon research proposals and a research/publication record. A world class teacher with sparse publications need not apply as a rule. I nominated and failed in this regard to get one of my "teaching" sergeants a sabbatical leave at Trinity University. He'd taught full time at Trinity for over 30 years and never had one sabbatical leave. Over the course of 40 years I applied for and got a sabbatical leave on a regular basis even though I think some of my "teaching" sergeants were more deserving. They just did not have their publishing gold bars.

    Very few accounting programs have high-paying endowed chairs that are given to sergeants so to speak. The University of Georgia was given one such chair where a research and publication record is not a criterion. The chair by the way was funded by Herb Miller. This is, however, a rare endowed chair in accounting "education" programs.

    Bob Jensen


    From The Wall Street Journal Accounting Weekly Review on June 20, 2008


    Honda Says Fuel-Cell Cars Face Hurdles
    by Yoshio Takahashi
    The Wall Street Journal

    Jun 17, 2008
    Page: B4
    Click here to view the full article on WSJ.com ---
    http://online.wsj.com/article/SB121364017994578203.html?mod=djem_jiewr_AC
     

    TOPICS: Cost Management, Managerial Accounting, Product strategy

    SUMMARY: Honda Motor. Co. "...obtained the world's first certification for fuel-cell cars in the U.S. in 2002." Its president, Takeo Fukui, "...said prices have to fall further for fuel-cell cars to reach the mass market, even as the Japanese car maker unveiled the latest generation of fuel-cell vehicle."

    CLASSROOM APPLICATION: Management accounting and MBA course instructors may use this article to discuss the impact of fixed costs on pricing and product development. Most interestingly, this article identifies interrelationships between lines of two industries--automobile manufacturing and fueling stations--that can be used to discuss strategic investments.

    QUESTIONS: 
    1. (Introductory) What is the difference between a fuel-cell automobile and hybrid automobiles?

    2. (Introductory) Why is Honda developing these fuel-cell vehicles if it can't yet mass-market them? What factors are limiting the ability to mass market the vehicles?

    3. (Advanced) Why are fixed production costs higher if a car maker cannot mass produce the vehicle? In your answer, define the terms "fixed costs" and "barriers to entry".

    4. (Introductory) What variable production costs, identified in the article, are at issue in this case? What strategies can be undertaken to reduce those costs?

    5. (Advanced) Suppose you are Honda's president. What strategic choices in investment would you make to advance this line of Honda's business?

    6. (Advanced) Refer to your answer to question 4. What types of investments might you make? How might a financing entity be used to help make those strategic investments?
     

    Reviewed By: Judy Beckman, University of Rhode Island

    "Honda Says Fuel-Cell Cars Face Hurdles Prices Have to Fall For Autos to Reach The Mass Market," by Yoshio Takahashi, The Wall Street Journal, June 17, 2008; Page B4 --- http://online.wsj.com/article/SB121364017994578203.html?mod=djem_jiewr_AC

    TOCHIGI, Japan -- Honda Motor Co. President Takeo Fukui said prices have to fall further for fuel-cell cars to reach the mass market, even as the Japanese car maker unveiled the latest generation of fuel-cell vehicle.

    Fuel-cell cars are considered the most promising pollution-free vehicles, as they are powered through a chemical reaction between hydrogen and oxygen, and emit only water as a byproduct.

    But low-emission cars such as gasoline-electric hybrids and diesel vehicles are more popular now. A lack of hydrogen service stations, among other factors, is limiting demand for the cars, and therefore car makers can't mass produce them, keeping production costs high.

    Honda said Monday that it will begin leasing the third generation of a fuel-cell model called FCX Clarity in the U.S. in July. The company plans to lease the new zero-emission car in Japan this autumn.

    Mr. Fukui said the new fuel-cell car costs tens of millions of yen, significantly less than the several hundred million yen it cost to make previous models. The price would need to fall to below 10 million yen, or about $92,000, for fuel-cell cars to be a mass-market product, he said.

    "I think it wouldn't take 10 years" for his company to slash the price of its fuel-cell car to this level, he said.

    To cut the price, the company especially needs to reduce the use of expensive precious metals and address the costliness of the hydrogen fuel tank, he said.

    Honda, Japan's second-biggest car maker by sales volume, aims for combined lease sales of 200 vehicles of the latest fuel-cell model for the U.S. and Japan within three years. The lease fee is $600 a month in the U.S. The company hasn't disclosed the fee in Japan.

    Honda, which obtained the world's first certification for fuel-cell cars in the U.S. in 2002, is a leading maker of such vehicles and has been competing in the development of the advanced car with rivals such as Toyota Motor Corp. and General Motors Corp.

    Bob Jensen's threads on accounting theory are at http://www.trinity.edu/rjensen/Theory01.htm
    Especially note the module on accrual and estimation --- http://www.trinity.edu/rjensen/Theory01.htm#AccrualAccounting


    The Lure of an Executive MBA Program in China

    From The Wall Street Journal Accounting Weekly Review on June 20, 2008

    China Beckons for M.B.A. Trips
    by Samar Srivastava
    The Wall Street Journal

    Jun 17, 2008
    Page: D7
    Click here to view the full article on WSJ.com ---
    http://online.wsj.com/article/SB121364686908778517.html?mod=djem_jiewr_AC
     

    TOPICS: Accounting

    SUMMARY: David Gannaway is a "44-year-old director of forensic accounting at KPMG LLP" who holds an MBA from Fordham University. He says that "the school's offering of a capstone trip to China helped seal his decision" to enter the Executive M.B.A. program there.

    CLASSROOM APPLICATION: Career options for accountants beyond the CPA and domestic borders can be discussed with this article

    QUESTIONS: 
    1. (Introductory) In general, what career options are available to accountants beyond the CPA and beyond domestic borders? List all that you can.

    2. (Advanced) What is a forensic accountant? Why do you think the KPMG LLP director of forensic accounting entered an MBA program?

    3. (Introductory) What is the importance today of international experience? Is it limited only to accountants practicing in large firms?

    4. (Advanced) Summarize, citing one or two themes, students' reasoning for entering into programs with international study available. Are those reasons necessarily the same as the benefits students identify after completing the programs?
     

    Reviewed By: Judy Beckman, University of Rhode Island
     

    "China Beckons for M.B.A. Trips Tours Offer Chance To Make Contacts, Learn Lay of Land," by Samar Srivastava, The Wall Street Journal,  June 17, 2008 ---
    http://online.wsj.com/article/SB121364686908778517.html?mod=djem_jiewr_AC 

    When David Gannaway was looking for an executive M.B.A. program, he wasn't interested only in a school's reputation. The 44-year-old director of forensic accounting at KPMG LLP wanted details on the schools' destination for E.M.B.A. international-study trips.

    International trips have been a staple feature of E.M.B.A. programs -- fast-track M.B.A. programs typically held every other weekend and geared toward managers with several years of experience -- for the past two decades. These trips, which typically span two weeks, are designed to give students a broader understanding of global business.

    Over the years, Argentina, Hungary, Russia and Singapore had dotted the trip lists. Now, E.M.B.A. candidates are increasingly demanding to go to China, as more managers -- and prospective E.M.B.A. students -- say they see themselves doing business there. Some say they are able to use the trips to suggest changes in the ways their companies do business in China.

    Ahead of India

    In 2007, 49% of such trips were to China, according to the Executive MBA Council, an industry association. In distant second place: India, with 11% of study trips outside the U.S.

    The impetus for growth goes to the heart of the challenges of a global economy. Managers and executives regularly complain about the difficulty they have in understanding China. They cite a vastly different culture, a language that doesn't use the Roman alphabet and a different socioeconomic structure from the West's. And, executives say, getting to know China and its business climate is now critical to a career.

    Mr. Gannaway, who graduated last month from Fordham University, says the school's offering of a capstone trip to China helped seal his decision.

    School administrators say they hear that a lot. It "is one of the first questions the students ask," says Jaki Sitterle, managing director of executive programs at New York University's Stern School of Business. Two years ago, when the University of Arizona's Eller College of Management proposed an international trip to South Africa, its administrators were compelled to go to China after students complained.

    Continued in article

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


    EIR Method Controversies

    This is a rather strong position taken by Deloitte (and Webmaster Paul Pacter) on IASPlus on June 17, 2008 --- http://www.iasplus.com/index.htm

    June 17, 2008: We disagree with IFRIC's draft decision on effective interest rate

      In a letter to IFRIC, Deloitte Touche Tohmatsu disagree with the IFRIC's tentative decision not to take onto the IFRIC's agenda a request for an interpretation on the application of the effective interest rate (EIR) method. Click for our Letter to IFRIC (PDF 136k). Here is an excerpt:
    In summary, we believe the tentative agenda decision wording does not provide sufficient clarity and that additional interpretive guidance is needed. We believe there are three important interpretative issues that need to be addressed:
    • (i) how to apply the effective interest rate to debt instruments with a market-based reset;
    • (ii) when should an entity apply AG7 compared to AG8; and
    • (iii) for inflation linked debt, is it possible to analogise with IAS 29 in the case when an entity is not applying that standard.
    The application of the EIR is critical in determining the balance sheet carrying amount and the impact on profit or loss for debt instruments held at amortised cost, as well as the income recognition for those debt instruments classified as available-for-sale. The EIR has widespread application for both vanilla and complex debt instruments, yet the standard is not clear as to how the EIR method applies for instruments with variable cash flows.
    Our past comment letters to IASB, IFRIC, IASC, and SIC are Here.

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


    June 14, 2008 agemda on EITF issues, IASPlus --- http://www.iasplus.com/index.htm

    This EITF Snapshot covers six issues discussed by the EITF at the meeting:
    • Issue 07-5 Determining Whether an Instrument (or an Embedded Feature) Is Indexed to an Entity's Own Stock – consensus reached
    • Issue 08-1 Revenue Recognition for a Single Unit of Accounting – no decision reached
    • Issue 08-2 Lessor Revenue Recognition for Maintenance Services – recommended for removal from the EITF's agenda.
    • Issue 08-3 Accounting by Lessees for Maintenance Deposits Under Lease Arrangements – consensus reached
    • Issue 08-4 Transition Guidance for Conforming Changes to Issue No. 98-5 – consensus reached
    • Issue 08-5 Issuer's Accounting for Liabilities Measured at Fair Value With a Third-Party Guarantee – consensus for exposure

    EITF documents and announcements are available at http://www.fasb.org/eitf/agenda.shtml


    Many accounting educators teach FAS 123(R) stock option valuation using Black-Scholes calculators. These are easy to use, but unfortunately the Black-Scholes Model is not a very good way to value employee stock options.

    Now I've discovered an update article to my threads on FAS 123(R) --- http://www.trinity.edu/rjensen/theory/sfas123/jensen01.htm

    "Valuing Options While Running the Compliance Guantlet, Part I of II" by Edward E. Pratesi,, Two Step Software, March 15, 2008, 2008 --- http://www.twostep.com/assets/documents/papers_articles/Soft_Letter_Compliance_Gauntlet.pdf

     

    Things to Consider When Valuing Options

    "How to “Excel” at Options Valuation," by Charles P. Baril, Luis Betancourt, and John W. Briggs, Journal of Accountancy, December 2005 --- http://www.aicpa.org/pubs/jofa/dec2005/baril.htm
    This is one of the best articles for accounting educators on issues of option valuation!

    Research shows that employees value options at a small fraction of their Black-Scholes value, because of the possibility that they will vest underwater. --- http://www.cfo.com/article.cfm/3014835

    "Toting Up Stock Options," by Frederick Rose, Stanford Business, November 2004, pp. 21 --- http://www.gsb.stanford.edu/news/bmag/sbsm0411/feature_stockoptions.shtml 

    How to value stock options in divorce proceedings --- http://www.optionanimation.com/MarlowHowToValueStockOptionsInDivorce.htm

    How the courts value stock options --- http://www.divorcesource.com/research/edj/employee/96oct109.shtml

    Search for the term options at http://www.financeprofessor.com/summaries/shortsummaries/FinanceProfessor_Corporate_Summaries.html

    "Guidance on fair value measurements under FAS 123(R)," IAS Plus, May 8, 2006 ---
    http://www.iasplus.com/index.htm

    Deloitte & Touche (USA) has updated its book of guidance on FASB Statement No. 123(R) Share-Based Payment: A Roadmap to Applying the Fair Value Guidance to Share-Based Payment Awards (PDF 2220k). This second edition reflects all authoritative guidance on FAS 123(R) issued as of 28 April 2006. It includes over 60 new questions and answers, particularly in the areas of earnings per share, income tax accounting, and liability classification. Our interpretations incorporate the views in SEC Staff Accounting Bulletin Topic 14 "Share-Based Payment" (SAB 107), as well as subsequent clarifications of EITF Topic No. D-98 "Classification and Measurement of Redeemable Securities" (dealing with mezzanine equity treatment). The publication contains other resource materials, including a GAAP accounting and disclosure checklist. Note that while FAS 123 is similar to IFRS 2 Share-based Payment, there are some measurement differences that are Described Here.

    Bob Jensen's threads on employee stock options are at http://www.trinity.edu/rjensen/theory/sfas123/jensen01.htm

    Bob Jensen's threads on fair value accounting are at http://www.trinity.edu/rjensen//theory/00overview/theory01.htm#FairValue

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

     

    "Options and the Deferred Tax Bite: Just when you thought it couldn’t get any more complicated," by Nancy Nichols and Luis Betancourt, Journal of Accountancy, March 2006 --- http://www.aicpa.org/pubs/jofa/mar2006/nichols.htm

     

    Now I've discovered an update article to my threads on FAS 123(R) --- http://www.trinity.edu/rjensen/theory/sfas123/jensen01.htm

    "Valuing Options While Running the Compliance Guantlet, Part I of II" by Edward E. Pratesi,, Two Step Software, March 15, 2008, 2008 --- http://www.twostep.com/assets/documents/papers_articles/Soft_Letter_Compliance_Gauntlet.pdf

     



    Damocles sword waiting to fall:  The next big financial crisis!
    CDS = Credit Default Swap (or is the Credit Default Sword?)

    "Hedge Funds in Swaps Face Peril With Rising Junk Bond Defaults," by David Evans, Bloomberg, May 20, 2008 ---
    http://www.bloomberg.com/apps/news?pid=20601109&sid=aCFGw7GYxY14&refer=home

    Backshall and his clients aren't the only ones spooked by the prospect of a CDS catastrophe. Billionaire investor George Soros says a chain reaction of failures in the swaps market could trigger the next global financial crisis.

    CDSs, which were devised by J.P. Morgan & Co. bankers in the early 1990s to hedge their loan risks, now constitute a sprawling, rapidly growing market that includes contracts protecting $62 trillion in debt.

    The market is unregulated, and there are no public records showing whether sellers have the assets to pay out if a bond defaults. This so-called counterparty risk is a ticking time bomb.

    ``It is a Damocles sword waiting to fall,'' says Soros, 77, whose new book is called ``The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means'' (PublicAffairs).

    ``To allow a market of that size to develop without regulatory supervision is really unacceptable,'' Soros says.

    `Lumpy Exposures'

    The Fed bailout of Bear Stearns on March 17 was motivated, in part, by a desire to keep that sword from falling, says Joseph Mason, a former U.S. Treasury Department economist who's now chair of the banking department at Louisiana State University's E.J. Ourso College of Business.

    The Fed was concerned that banks might not have the money to pay CDS counterparties if there were large debt defaults, Mason says.

    ``The Fed's fear was that they didn't adequately monitor counterparty risk in credit-default swaps -- so they had no idea of where to lend nor where significant lumpy exposures may lie,'' he says.

    Those counterparties include none other than JPMorgan itself, the largest seller and buyer of CDSs known to the Office of the Comptroller of the Currency, or OCC.

    The Fed negotiated the deal to bail out Bear Stearns by allowing JPMorgan to buy it for $10 a share. The Fed pledged $29 billion to JPMorgan to cover any Bear debts.

    `Cast Doubt'

    ``The sudden failure of Bear Stearns likely would have led to a chaotic unwinding of positions in those markets,'' Fed Chairman Ben S. Bernanke told Congress on April 2. ``It could also have cast doubt on the financial positions of some of Bear Stearns's thousands of counterparties.''

    The Fed was worried about the biggest players in the CDS market, Mason says. ``It was a JPMorgan bailout, not a bailout of Bear,'' he says.

    JPMorgan spokesman Brian Marchiony declined to comment for this article.

    Credit-default swaps are derivatives, meaning they're financial contracts that don't contain any actual assets. Their value is based on the worth of underlying loans and bonds. Swaps are similar to insurance policies -- with two key differences.

    Unlike with traditional insurance, no agency monitors the seller of a swap contract to be certain it has the money to cover debt defaults. In addition, swap buyers don't need to actually own the asset they want to protect.

    It's as if many investors could buy insurance on the same multimillion-dollar home they didn't own and then collect on its full value if the house burned down.

    Bigger Than NYSE

    When traders buy swap protection, they're speculating a loan or bond will fail; when they sell swaps, they're betting that a borrower's ability to pay will improve.

    The market, which has doubled in size every year since 2000 and is larger in dollar value than the New York Stock Exchange, is controlled by banks like JPMorgan, which act as dealers for buyers and sellers. Swap prices and trade volume aren't publicly posted, so investors have to rely on bids and offers by banks.

    Most of the traders are banks; hedge funds, which are mostly private pools of capital whose managers participate substantially in the profits from their speculation on whether the price of assets will rise or fall; and insurance companies. Mutual and pension funds also buy and sell the swaps.

    Proponents of CDSs say the devices have been successful because they allow banks to spread the risk of default and enable hedge funds to efficiently speculate on the creditworthiness of companies.

    `Seeing the Logic'

    The market has grown so large so fast because swaps are often based on an index that includes the debt of scores of companies, says Robert Pickel, chief executive officer of the International Swaps and Derivatives Association.

    ``Whether you're a hedge fund, bank or some other user, you're increasingly seeing the logic of using these instruments,'' Pickel says, adding he doesn't worry about counterparty risk because banks carefully monitor the strength of investors. ``There have been a very limited number of disputes. The parties understand these products and know how to use them.''

    Banks are the largest buyers and sellers of CDSs. New York- based JPMorgan trades the most, with swaps betting on future credit quality of $7.9 trillion in debt, according to the OCC. Citigroup Inc., also in New York, is second, with $3.2 trillion in CDSs.

    Goldman Sachs Group Inc. and Morgan Stanley, two New York- based firms whose swap trading isn't tracked by the OCC because they're not commercial banks, are the largest swap counterparties, according to New York-based Fitch Ratings, which doesn't provide dollar amounts.

    Untested Until Now

    The credit-default-swap market has been untested until now because there's been a steady decline in global default rates in high-yield debt since 2002. The default rate in January 2002, when the swap market was valued at $1.5 trillion, was 10.7 percent, according to Moody's Investors Service.

    Since then, defaults globally have dropped to 1.5 percent, as of March. The rating companies say the tide is turning on defaults.

    Fitch Ratings reported in July 2007 that 40 percent of CDS protection sold worldwide is on companies or securities that are rated below investment grade, up from 8 percent in 2002. On May 7, Moody's wrote that as the economy weakened, high-yield-debt defaults by companies worldwide would increase fourfold in one year to 6.1 percent by April 2009.

    The pressure is building. On May 5, for example, Tropicana Entertainment LLC filed for bankruptcy after the casino owner defaulted on $1.32 billion in debt.

    `Complicate the Crisis'

    A surge in corporate defaults may leave swap buyers scrambling, many unsuccessfully, to collect hundreds of billions of dollars from their counterparties, says Satyajit Das, a former Citigroup derivatives trader and author of ``Credit Derivatives: CDOs & Structured Credit Products'' (Wiley Finance, 2005).

    ``This is going to complicate the financial crisis,'' Das says. He expects numerous disputes and lawsuits, as protection buyers battle sellers over the technical definition of default - - this requires proving which bond or loan holders weren't paid -- and the amount of payments due.

    ``It's going to become extremely messy,'' he says. ``I'm really scared this is going to freeze up the financial system.''

    Andrea Cicione, a London-based senior credit strategist at BNP Paribas SA, has researched counterparty risk and says it's only a matter of time before the sword begins falling. He says the crisis will likely start with hedge funds that will be unable to pay banks for contracts tied to at least $35 billion in defaults.

    $150 Billion Loss Estimate

    ``That's a very conservative estimate,'' he says, adding that his study finds that losses resulting from hedge funds that can't pay their counterparties for defaults could exceed $150 billion.

    Hedge funds have sold 31 percent of all CDS protection, according to a February 2007 report by Charlotte, North Carolina-based Bank of America Corp.

    Cicione says banks will try to pre-empt this default disaster by demanding hedge funds put up more collateral for potential losses. That may not work, he says. Many of the funds won't have the cash to meet the banks' requests, he says.

    Sellers of protection aren't required by law to set aside reserves in the CDS market. While banks ask protection sellers to put up some money when making the trade, there are no industry standards, Cicione says.

    JPMorgan, in its annual report released in February, said it held $22 billion of credit swap counterparty risk not protected by collateral as of Dec. 31.

    `A Major Risk'

    ``I think there's a major risk of counterparty default from hedge funds,'' Cicione says. ``It's inconceivable that the Fed or any central bank will bail out the hedge funds. If you have a systemic crisis in the hedge fund industry, then of course their banks will take the hit.''

    The Joint Forum of the Basel Committee on Banking Supervision, an international group of banking, insurance and securities regulators, wrote in April that the trillions of dollars in swaps traded by hedge funds pose a threat to financial markets around the world.

    ``It is difficult to develop a clear picture of which institutions are the ultimate holders of some of the credit risk transferred,'' the report said. ``It can be difficult even to quantify the amount of risk that has been transferred.''

    Counterparty risk can become complicated in a hurry, Das says. In a typical CDS deal, a hedge fund will sell protection to a bank, which will then resell the same protection to another bank, and such dealing will continue, sometimes in a circle, Das says.

    `Daisy Chain Vortex'

    The original purpose of swaps -- to spread a bank's loan risk among a large group of companies -- may be circumvented, he says.

    ``It creates a huge concentration of risk,'' Das says. ``The risk keeps spinning around and around in this daisy chain like a vortex. There are only six to 10 dealers who sit in the middle of all this. I don't think the regulators have the information that they need to work that out.''

    And traders, even the banks that serve as dealers, don't always know exactly what is covered by a credit-default-swap contract. There are numerous types of CDSs, some far more complex than others.

    More than half of all CDSs cover indexes of companies and debt securities, such as asset-backed securities, the Basel committee says. The rest include coverage of a single company's debt or collateralized debt obligations.

    A CDO is an opaque bundle of debt that can be filled with junk bonds, auto loans, credit card liabilities and home mortgages, including subprime debt. Some swaps are made up of even murkier bank inventions -- so-called synthetic CDOs, which are packages of credit-default swaps.

    AIG $9.1 Billion Writedown

    On May 8, American International Group Inc. wrote down $9.1 billion on the value of its CDS holdings. The world's largest insurer by assets sold credit protection on CDOs that declined in value. In 2007, New York-based AIG reported $11.5 billion in writedowns on CDO credit default swaps.

    Michael Greenberger, director of trading and markets at the Commodity Futures Trading Commission from 1997 to 1999, says the Fed is fully aware of the risk banks and the global economy face if CDS holders can't cover their losses.

    ``Oh, absolutely, there's no doubt about it,'' says Greenberger, who's now a professor at the University of Maryland School of Law in Baltimore. He says swaps were very much on the Fed's mind when Bear Stearns started sliding toward bankruptcy.

    ``People who were relying on Bear for their own solvency would've started defaulting,'' he says. ``That would've triggered a series of counterparty failures. It was a house of cards.''

    Risk Nightmare

    It's concerns about that house of cards that have kept Backshall, the California fund adviser, up at night. His worries about a nightmare scenario started in early March. The details of what happened are still fresh in his mind.

    It's Monday, March 10, and the market is rife with rumors that Bear Stearns will run out of cash. Some of Backshall's clients have pulled their accounts from Bear; others are considering leaving the bank. Backshall's clients are exposed to Bear in multiple ways: They keep their cash and other accounts at the firm, and they use the bank as their broker for trades. Backshall advises them to spread their assets among various banks.

    That same day, Bear CEO Alan Schwartz says publicly, ``There is absolutely no truth to the rumors of liquidity problems.''

    Backshall's clients are suspicious. They see other hedge funds pulling their accounts from Bear. In the afternoon after Schwartz's remarks, the cost of protection soars past 600 basis points from 450 before Schwartz's statement.

    CEO Didn't Calm Fears

    Swaps are priced in basis points, or hundredths of a percentage point. At 600 basis points, a trader would pay $6,000 a year to insure $100,000 of Bear Stearns bonds.

    ``I don't think his comments did anything to calm fears,'' Backshall says.

    The next day, March 11, Securities and Exchange Commission Chairman Christopher Cox says his agency is monitoring Bear Stearns and other securities firms.

    ``We have a good deal of comfort about the capital cushions at these firms at the moment,'' he says.

    Cox's comments are overshadowed by rumors that European financial firms had stopped doing fixed-income trades with Bear, Backshall says.

    ``Nobody has a clue what's going on,'' he says. Bear swap costs are gyrating between 540 and 665.

    For most investors, just getting default-swap prices is a chore. Unlike stock prices, which are readily available because they trade on a public exchange, swap prices are hard to find. Traders looking up prices on the Internet or on private trading systems see information that is hours or days old.

    `Terribly Primitive'

    Banks send hedge funds, insurance companies and other institutional investors e-mails throughout the day with bid and offer prices, Backshall says. For many investors, this system is a headache.

    To find the price of a swap on Ford Motor Co. debt, for example, even sophisticated investors might have to search through all of their daily e-mails, he says.

    ``It's terribly primitive,'' Backshall says. ``The only way you and I could get a level of prices is searching for Ford in our inbox. This is no joke.''

    In the past three years, at least two companies have developed software programs that automatically parse an investor's incoming messages, yank out CDS prices and build them into real-time price displays.

    The charts show the highest bids and lowest offering prices for hundreds of swaps. Backshall tracks prices he gets from banks using the new software.

    `It's Very Hard'

    Backshall has been talking with hedge fund managers in New York all week.

    ``We'd quite frankly been warning them and giving them advice on how to hedge,'' he says of the Bear Stearns crisis and banks overall. ``It's very hard to hedge the counterparty risk. These institutions are thinly capitalized in the best of times.''

    The night of Thursday, March 13, Backshall can't sleep. He lies awake worrying about Bear and counterparty risk. The next morning, he arrives at work at 5 a.m., two and a half hours before sunrise.

    Through the window of his ninth-floor corner office, he takes a moment to watch the distant flickers of light in the rolling foothills of Mount Diablo. Across the street, he sees the still-dark Walnut Creek train station, about 30 miles (48 kilometers) east of San Francisco.

    Backshall, wearing jeans and a blue, button-down shirt, sits at his desk, staring at a pair of the 27-inch (68.6- centimeter) monitors that display swap costs. CDS prices jumped by more than 10-fold in just a year. The numbers show rising fear, he says.

    Until early in 2007, the typical price of a credit-default swap tied to the debt of an investment bank like Merrill Lynch & Co., Bear Stearns or Morgan Stanley was 25 basis points.

    `Unknowns Are Out There'

    If a swap buyer wanted to protect $10 million of assets in the event of a company default, the contract would cost about 0.25 percent of $10 million, or $25,000 a year for a five-year protection contract.

    Backshall's screens tell him the cost of buying protection on Bear Stearns debt in the past 24 hours has been moving in a range between 680 and 755 basis points.

    ``The unknowns are out there,'' Backshall says.

    He advises his clients not to buy CDS protection on Bear because the price is too high and the time is wrong. It's too late to buy swaps now, he says.

    At 9:13 Friday morning in New York, JPMorgan announces it will loan money to Bear using funds provided by the Federal Reserve. The JPMorgan statement doesn't say how much it will lend; it says it will ``provide secured funding to Bear Stearns, as necessary.''

    `Significantly Deteriorated'

    Bear CEO Schwartz says his firm's liquidity has ``significantly deteriorated'' during the past 24 hours. Protection quotes drop immediately into the low 500s, as some dealers think a rescue has begun.

    That doesn't last long.

    ``Very quickly, the trading action is swinging violently wider,'' Backshall says. Bear's swap cost jumps to 850 basis points that afternoon, his screen shows. ``When fear gets hold, fundamental analysis goes out the window,'' he says.

    In the calmest of times, making reasoned decisions about swap prices is a challenge. Now, it's impossible. Traders don't have access to any company data more recent than Bear's February annual report. Sharp-eyed investors looking through that filing might have spotted a paragraph that's strangely prescient.

    ``As a result of the global credit crises and the increasingly large numbers of credit defaults, there is a risk that counterparties could fail, shut down, file for bankruptcy or be unable to pay out contracts,'' Bear wrote.

    `Material Adverse Effect'

    ``The failure of a significant number of counterparties or a counterparty that holds a significant amount of credit-default swaps could have a material adverse effect on the broader financial markets,'' the bank wrote.

    Even after JPMorgan's Friday morning announcement, the market is alive with rumors. Backshall's clients tell him they've heard some investment banks have stopped accepting trades with Bear Stearns and some money market funds have reduced their short-term holdings of Bear-issued debt.

    On Sunday, March 16, the Federal Reserve effectively lifts the sellers of Bear Stearns protection out of their misery. JPMorgan agrees to buy Bear for $2 a share.

    While that's devastating news for Bear shareholders -- the stock had traded at $62.30 just a week earlier -- it's the best news imaginable for owners of Bear debt. That's because JPMorgan agreed to cover Bear's liabilities, with the Fed pledging $29 billion to cover Bear's loan obligations.

    Turned to Dust

    For traders who sold protection on Bear's debt, the bailout is a godsend. Faced with the prospect of having to hand over untold millions to their counterparties just three days earlier, they now have to pay out nothing.

    For traders who bought protection swaps just a few days earlier -- when prices were in the 600s to 800s -- the Fed bailout is crushing. Their investments have turned to dust.

    On Monday morning, the cost of default protection on Bear plunges to 280. Backshall sits back in his chair and for the first time in two weeks, he can breathe easier.

    ``No wonder I look so tired all the time,'' he says, finally showing a bit of a smile.

    When it bailed out Bear Stearns, the Federal Reserve effectively deputized JPMorgan to monitor the credit-default- swap market, says Edward Kane, a finance professor at Boston College. Because regulators don't know where the risks lie, they're helpless, Kane says.

    Default swaps shift the risk from a company's credit to the possibility that a counterparty might fail, says Kane, who's a senior fellow at the Federal Deposit Insurance Corporation's Center for financial Research.

    `Off Balance Sheet'

    ``You've really disguised traditional credit risk, pushed it off balance sheet to its counterparties,'' Kane says. ``And this is not visible to the regulators.''

    BNP analyst Cicione says regulators will be hard-pressed to prevent the next potential breakdown in the swaps market.

    ``Apart from JPMorgan, there aren't many other banks out there capable of doing this,'' he says. ``That's what's worrying us. If there were to be more Bear Stearnses, who would step in and give a helping hand? You can't expect the Fed to run a broker, so someone has to take on assets and obligations.''

    Banks have a vested interest in keeping the swaps market opaque, says Das, the former Citigroup banker. As dealers, the banks see a high volume of transactions, giving them an edge over other buyers and sellers.

    ``Dealers get higher profitability through lack of transparency,'' Das says. ``Since customers don't necessarily know where the market is, you can charge them much wider margins.''

    Banks Try to Hedge

    Banks try to balance the protection they've sold with credit-default swaps they purchase from others, either on the same companies or indexes. They can also create synthetic CDOs, which are packages of credit-default swaps the banks sell to investors to get themselves protection.

    The idea for the banks is to make a profit on each trade and avoid taking on the swap's risk.

    ``Dealers are just like bookies,'' Kane says. ``Bookies don't want to bet on games. Bookies just want to balance their books. That's why they're called bookies.''

    The banks played the role of dealers in the CDO market as well, and the breakdown in that market holds lessons for what could go wrong with CDSs. The CDO market zoomed to $500 billion in sales in 2006, up fivefold from 2001.

    Banks found a hungry market for CDOs because they offered returns that were sometimes 2-3 percentage points higher than corporate bonds with the same credit rating.

    CDO Market Dried Up

    By the middle of 2007, mortgage defaults in the U.S. began reaching record highs each month. Banks and other companies realized they were holding hundreds of billions in toxic debt. By August 2007, no one would buy CDOs. That newly devised debt market dried up in a matter of months.

    In the past year, banks have written off $323 billion from debt, mostly from investments they created.

    Now, if corporate defaults increase, as Moody's predicts, another market recently invented by banks -- credit-default swaps -- could come unstuck. Arturo Cifuentes, managing director of R.W. Pressprich & Co., a New York firm that trades derivatives, says he expects a rash of counterparty failures resulting in losses and lawsuits.

    ``There's a high probability that many people who bought swap protection will wind up in court trying to get their payouts,'' he says. ``If things are collapsing left and right, people will use any trick they can.''

    Frank Partnoy, a former derivatives trader and now a securities law professor at the University of San Diego School of Law, says it's high time for the market to let in some sunshine.

    Continued in article

    From The Wall Street Journal Accounting Weekly Review on June 13, 2008

     
    SEC, Justice Scrutinize AIG on Swaps Accounting
    by Amir Efrati and Liam Pleven
    The Wall Street Journal

    Jun 06, 2008
    Page: C1
    Click here to view the full article on WSJ.com ---
    http://online.wsj.com/article/SB121271786552550939.html?mod=djem_jiewr_AC
     

    TOPICS: Advanced Financial Accounting, Auditing, Derivatives, Fair Value Accounting, Internal Controls, Mark-to-Market Accounting

    SUMMARY: The SEC "...is investigating whether insure American International Group Inc. overstated the value of contracts linked to subprime mortgages....At issue is the way the company valued credit default swaps, which are contracts that insure against default of securities, including those backed by subprime mortgages. In February, AIG said its auditor had found a 'material weakness' in its accounting. Largely on swap-related write-downs...AIG has recorded the two largest quarterly losses in its history."

    CLASSROOM APPLICATION: Financial reporting for derivatives is at issue in the article; related auditing issues of material weakness in accounting for these contracts also is covered in the main article and the related one.

    QUESTIONS: 
    1. (Introductory) What are collateralized debt obligations (CDOs)?

    2. (Advanced) What are credit default swaps? How are these contracts related to CDOs?

    3. (Advanced) Summarize steps in establishing fair values of CDOs and credit default swaps.

    4. (Introductory) What is a material weakness in internal control? Does reporting write-downs of such losses as AIG has shown necessarily indicate that a material weakness in internal control over financial reporting has occurred? Support your answer.
     

    Reviewed By: Judy Beckman, University of Rhode Island
     

    RELATED ARTICLES: 
    AIG Posts Record Loss, As Crisis Continues Taking Toll
    by Liam Pleven
    May 09, 2008
    Page: A1
     


    "SEC, Justice Scrutinize AIG on Swaps Accounting," by Amir Efrati and Liam Pleven, The Wall Street Journal,  June 6, 2008; Page C1 ---
    http://online.wsj.com/article/SB121271786552550939.html?mod=djem_jiewr_AC

    The Securities and Exchange Commission is investigating whether insurer American International Group Inc. overstated the value of contracts linked to subprime mortgages, according to people familiar with the matter.

    Criminal prosecutors from the Justice Department in Washington and the department's U.S. attorney's office in Brooklyn, New York, have told the SEC they want information the agency is gathering in its AIG investigation, these people said. That means a criminal investigation could follow.

    In 2006, AIG, the world's largest insurer, paid $1.6 billion to settle an accounting case. Its stock has been battered because of losses linked to the mortgage market. The earlier probe led to the departure of Chief Executive Officer Maurice R. "Hank" Greenberg.

    Officials for AIG, the SEC, the Justice Department and the U.S. attorney's office declined to comment on the new probe. A spokesman for AIG said the company will continue to cooperate in regulatory and governmental reviews on all matters.

    At issue is the way the company valued credit default swaps, which are contracts that insure against default of securities, including those backed by subprime mortgages. In February, AIG said its auditor had found a "material weakness" in its accounting.

    Largely on swap-related write-downs, which topped $20 billion through the first quarter, AIG has recorded the two largest quarterly losses in its history. That has turned up the heat on management, including CEO Martin Sullivan.

    AIG sold credit default swaps to holders of investments called collateralized-debt obligations, or CDOs, backed in part by subprime mortgages. The buyers were protecting their investments in the event of default on the underlying debt. In question is how the CDOs were valued, which drives both the value of the credit default swaps and the amount of collateral AIG must "post," or essentially hand over, to the buyer of the swap to offset the buyer's credit risk.

    AIG posted $9.7 billion in collateral related to its swaps, as of April 30, up from $5.3 billion about two months earlier.

    Law Blog: Difficulties in Valuation 'Best Defense'

    Bob Jensen's timeline of derivative financial instruments scandals and new accounting rules --- http://www.trinity.edu/rjensen/FraudRotten.htm

    Bob Jensen's threads on credit derivatives (scroll down) --- http://www.trinity.edu/rjensen/acct5341/speakers/133glosf.htm#C-Terms


    "De-Departmentalizing the B-School," by James Heggen, Inside Higher Ed, June 2, 2008 --- http://www.insidehighered.com/news/2008/06/02/villanova

    Today, you need to know a little bit of everything, But Villanova University’s undergraduate business school curriculum, starting this fall, is designed on the theory that you don’t need an individual course in everything.

    James Danko, Villanova’s business dean, said the “fundamental root” of the new curriculum is to have a multidisciplinary perspective. Several courses that used to be taught stand alone will be integrated into one course. For example, the introductory courses in finance and in accounting, which used to be two separate courses, will become one. The new course, financial management and reporting, will be six credits and taught by two instructors.

    Walter Tymon, associate professor of management, explained another new course, in business dynamics, will also be taught over two semesters. It was created by a team of professors from accounting, business law, finance, information systems, management and marketing. Faculty members from these areas will each teach a section. The first semester will focus on giving students a “context for studying business.” Questions the course will cover include: “What is business and how does a business create value? Who are the various stakeholders in a business and how do they, and should they, influence decision-making? How has business evolved, and what are the important issues associated with the global business environment, ethics, leadership, teams, communication, motivation, and the structure and culture of companies.”

    The second semester will focus on concepts from “each functional area of business with an emphasis on integration and how each discipline is part of a total system to achieve a business mission.”

    Building on the growing trend of colleges requiring new students to read a common book before they enroll, Villanova is having its new business majors read Pour Your Heart into It: How Starbucks Built a Company One Cup at a Time, over the summer prior to beginning the course. Students will discuss the book in the business dynamics course, and in small groups led by business executives who graduated from Villanova’s Executive M.B.A. program.

    “That’s going to be taught from a broader perspective,” Danko said.

    Also, instead of having separate courses about skills such as communication or technology, Danko said there will be an emphasis in these skills being taught throughout the curriculum.

    The changes came about in attempt to respond to the current business world, Danko said. The current curriculum has not had a significant overhaul since the 1950s and is based on an economic model that is no longer applicable into today’s world, he said.

    Tymon, who was on the faculty committee that looked at curriculum revision, said that one of the factors that led to the change was “the fact that we do have a global economy.” He also mentioned students need to be able to see the “big picture” and the intent behind it, which means they need to have knowledge across the disciplines of business. “Students really need to be able to integrate across functions,” he said.

    Danko said 85 percent of the faculty voted in favor of the proposed changes.

    John J. Fernandes, president and chief executive officer of AACSB International: The Association to Advance Collegiate Schools of Business, said an integrative curriculum like the one Villanova will be using is increasingly common.

    “It’s definitely the wave of the future to build an integrated curriculum,” he said.

    In addition to the new curriculum, there have also been changes in how the faculty and departments have been structured. When Danko became dean three years ago, he proposed a new organization, which included compressing some departments and opening new ones. Operations management was merged with management and strategy. The economics department became economics and statistics. Accounting and management information merged to make accounting and information systems. In addition, Danko said he made “trial departments” called strategic initiative groups. Professors were offered the chance to take a “leave of absence” from their own department to join these groups. Some of these groups have focused on course development while others have focused on research. He said he encouraged the faculty to work in a “multidisciplinary way.” This faculty reorganization became a precursor to the change in curriculum.

    Although most business schools don’t follow this model, Fernandes said he thinks that will change in the future because the traditional model is not sustainable, and more business schools will rethink structures.

    “They’re going to have to, personally I think they should, but they’re going to have to,” he said.

    Johns Hopkins School of Business is going even further than Villanova in its approach to faculty organization. The school, which only opened in 2007, will have no departments, beginning July of this year, said Yash Gupta, the dean. All professors will be encouraged to be part of multidisciplinary centers for research. But Gupta said that departments aren’t needed.

    “Business decisions are integrative,” he said.

    Jensen Comment
    Whatever will become of those "schools of accountancy" that, on paper at least, spun away from their umbrella college of business.

    Like most everything else, much depends upon the curriculum as opposed to structure. For example, in Texas the curriculum just has to have specific and somewhat traditional and definitely rigorous modules in accounting studies if graduates are to be allowed to sit for the CPA examination, and all those modules just cannot be fit into the fifth year of study. I can't imagine that most business undergraduate business programs will forget about the CPA examination constraints on curriculum. Most of the proposed change is in the first year or two and is actually in conformance with the recommendation of the Accounting Education Change Commission.

    The biggest impact may be on the basic accounting textbook market where either the books will have to change or the courses will drop those traditional accounting textbooks. My guess is that publishers will adapt if this trend continues.

    June 2, 2008 reply from David Fordham, James Madison University [fordhadr@JMU.EDU]

    Bob, this isn't a new concept. Almost ten years ago, James Madison University eliminated the five separate business core courses (junior level Marketing, Management, Operations, Finance, and Organizational Behavior, and consolidated them into one single course, team taught, with large section meetings one day a week, and small group meetings with the professors one day a week, all day long, with scheduled group work, group meetings, etc. two days per week. Because of the synergy, it is a twelve-credit course, with one number (COB 300), and stresses integration of the fields into a holistic business environment. Accounting is still a separate sequence (Principles I and II), as are the other freshmen/sophomore prereqs (stats, micro-econ, macro-econ, CIS, B-Law, etc.), but the integrated course is required of all business majors the first semester of their junior year.

    The integrated core course culminates in each student team coming up with a formal business plan for their own hypothetical business. The teams compete by presenting their business plan to a panel of local business leaders, (yes it's a formal presentation) who then award prizes (scholarships) based on completeness, comprehensiveness, thoroughness, etc. This really gives meaning to the term "educational effectiveness".

    This approach has been amazingly successful, and has opened up a new level of achievement for the business capstone (strategy) course taken the last semester of the senior year by all business majors. Plus, because the integrative course requires so much group work, group presentation, etc., we've noticed significant improvement in the accounting majors' skill in working with groups, getting along with people, organizing effective presentations, willingness to assume leadership roles, etc.

    The only downside we see to it is that it postpones our students' experience in junior level accounting coursework from the first semester junior year to the second semester. Thus, our students are interviewing for internships before they've even spent one day in a junior level accounting course. Still, our grads have a good reputation among the firms, and the recruiters don't hesitate to make offers to dozens and dozens of interns.

    This change was made concomitant with a reorg of the B-school to eliminate departments and replace them with "programs" based on degree major. The departmental secretaries were all replaced with "floor work center secretaries", etc., faculty were encouraged to undertake cross-disciplinary efforts, departmental faculty were moved to be distributed across all five floors of the business building, etc. Unlike the integrate course, however, the college reorg has gradually regressed imperceptibly over time, to where today we are back to where we were ten years ago in terms of formal table-of-organization and lines of authority. But the integrated core course concept remains... because it appears to be working quite well.

    David Fordham
    JMU

    June 3, 2008 reply from Paul Williams [Paul_Williams@NCSU.EDU]

    When the College of Management at NC State was created in 1992 there were too few people in each functional area other than accounting and economics that Dick Lewis decided to conduct the ultimate experiment and have a single department containing all of the functional areas, i.e., marketing, finance, human resources, management. Thus, we were a three department college: economics, accounting and business management. The latter department has now fissured into two departments. Academe is organized not by colleges or universities, but by disciplines. Each discipline has its own cutures and structures. Multi- disciplinary courses are one thing; muti-disciplinary departments are a much more difficult animal to tame.

    Paul Williams
    paul_williams@ncsu.edu 

    January 3, 2008 reply from Jagdish Gangolly [gangolly@CSC.ALBANY.EDU]

    Paul,

    I agree. Disciplines organised into departments become territorial and budgetorially (my two cents to lexicography) fixated. I know, since I have been caught between a rock and a hard place in this for years.

    I have held a position in the Department of Accounting & Law for years, and I also hold an appointment as Director of our campus-wide Interdisciplinary PhD Program housed in the Department of Informatics, College of Computing & Information or CCI (university administration wanted no administrative role over an academic program and CCI with an enlightened Dean happened to be the most attractive choice for housing it)

    I have always been amazed at how departments get territorial and budgetarily fixated. Whenever I discuss any matter with a colleague in the School of Business, the first reaction is: what's in it for the school? what's in it for me? On the other hand, when I broach any resource-oriented issue in Informatics -- in which about 15 departments and research centers participate, the attitude is: how can we make this work? what can I do to help? This is rather unusual, since the participation is purely voluntary with no extra-ordinary compensation.

    Inter-disciplinary departments and programs in general have failed (take the best known of all, the Hampshire College experiment in Massachusetts, some of the inter-disciplinary programs at MIT, and so one of the few classic successes is the Committee on Social Thought at the University of Chicago). I think that the fact that we have lasted 20 years is evidence that we have not failed.

    Federal funding agencies as well as the academia crave for inter- disciplinary research, but the departmental structure certainly does not facilitate it. Business schools certainly are excellent places to start, since most research in our schools should be interdisciplinary; business world is not neatly wedged into functional areas. However, I am not sure there are leaders at business schools with gumption to swim against the departmental currents.

    Jagdish


    Enron Recovery Rate Hits 50 Percent
    Enron Creditors Recovery Corp. said Monday that with the latest distributions, creditors of the former Enron Corp. had received 50.3 cents on the dollar and creditors of Enron North America Corp. had gotten back 50 cents on the dollar. Both figures excluded gains, interest and dividends. John J. Ray III, president and chairman of the recovery corporation, said creditors had received "significantly more than originally was anticipated under the plan." The recovery corporation said it made a distribution Monday totaling about $4.17 billion to holders of unsecured and guaranty claims and distributed $1.87 billion on May 13 to newly allowed unsecured and guaranty claims that resulted from a settlement with Citigroup.
    SmartPros, June 3, 2008 --- http://accounting.smartpros.com/x62107.xml

    Bob Jensen's threads on the Enron/Worldcom/Andersen scandal (including a timeline of major events) are at
    http://www.trinity.edu/rjensen/FraudEnron.htm

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


    Question
    Is it really true that "lawyer ethics" is an oxymoron?

    Milberg Loves to Sue CPA Firms and Their Corporate Clients

    "Milberg Settles With Government:  Law Firm Admits It Paid Kickbacks; Fine of $75 Million,"  by Ashby Jones and Nathan Koppel, The Wall Street Journal, June 17, 2008; Page B2 --- http://online.wsj.com/article/SB121364029145878199.html?mod=hps_us_whats_news

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


    Here's another one of those accounting tempered misdeed confessions "without admitting or denying the allegations"
    I wonder if Dennis the Menace got away with these confessions as often as accounting firms and their corporate clients?
    I also wonder how KPMG made Citigroup account for this swap under FAS 133?

    "Citigroup Settles SEC Charges Relating to Argentina Crisis," Barbara Black, Securities Law Prof Blog, June 16, 2008 --- http://lawprofessors.typepad.com/securities/

    The SEC and Citigroup settled charges regarding Citigroup’s accounting relating to the impact of the economic and political crisis in Argentina on the company’s operations during the fourth quarter of 2001. In the latter part of 2001 and continuing into 2002, Argentina experienced a severe economic and political crisis during which, among other things, the Argentine government defaulted on certain of its sovereign debt obligations, devalued its currency, and abandoned the one-to-one ratio between the Argentine peso and the United States dollar.  The actions of the Argentine government during the crisis required Citigroup to make a number of significant accounting decisions for the fourth quarter of 2001. Citigroup was required to account for (1) the impact of the company’s participation in a government-sponsored exchange of Argentine government bonds for loans (the “Bond Swap”); (2) the value of Argentine government bonds held by Citigroup that were not eligible for the Bond Swap (the “Non-Swapped Bonds”); (3) the sale of Banco Bansud S.A. (“Bansud”), the Argentine subsidiary of Banco Nacional de Mexico, S.A. (“Banamex”), which Citigroup had acquired in August 2001; and (4) the impact of government actions that resulted in the conversion of over $1 billion of Citigroup loans from dollars to Argentine pesos.   According to the SEC, Citigroup accounted for each of these items in a manner that did not conform with generally accepted accounting principles (“GAAP”) and overstated its income reported in the company’s earnings press release included in a Form 8-K filed with the Commission on January 18, 2002, and in the company’s annual report on Form 10-K for 2001 filed with the Commission on March 12, 2002.

    Without admitting or denying the allegations, Citigroup consented to the entry of an Order Instituting Cease-and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order Pursuant to Section 21C of the Securities Exchange Act of 1934 (“Order”).

    June 17, 2008 reply from Dennis Beresford [dberesfo@TERRY.UGA.EDU]

    Bob,

    The full text of the SEC's Accounting and Auditing Enforcement Release is available at: http://www.sec.gov/litigation/admin/2008/34-57970.pdf .
    It's an interesting case that is a little more complicated than may be implied by the short report below.

    Denny Beresford

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

    Bob Jensen's threads on KPMG are at http://www.trinity.edu/rjensen/Fraud001.htm#KPMG


    PayPal Auditors?

    Question
    If auditing firms commence to warrant that audited financial statements are prepared according to GAAP, it might be a bit like the following warranty for eBay transactions. I wonder if that day will ever come for financial audit services?
    There is one difference. PayPal and eBay are providing warranties against various kinds of fraud whereas financial auditors only warrant against fraudulent and material departures from GAAP and not other types of financial fraud. But even in the case of departures from GAAP, auditors do not offer to reimburse investors and creditors that are misled by GAAP departures. Injured investors and creditors now have to bring costly lawsuits against auditors and their clients.

    Wow! It's hard to believer PayPal will go this far in protecting eBay customers
    Can PayPal continue to afford this kind of protection?

    On June 20, eBay announced that it will fully reimburse buyers and sellers when transaction problems arise, providing they use eBay’s PayPal payment service. That means eBay will foot the bill when, say, a buyer purchases an item that was misrepresented on the site or not sent. So, if that too-good-to-be-true bargain Gucci bag turns out to be a cheap knockoff, eBay will give the buyer a refund. The additional protections will go into effect this fall. “We’re combining the power of eBay and PayPal to give all buyers and sellers more confidence and trust,” said Lorrie Norrington, eBay’s president of Marketplace Operations in a statement. “Buyers who pay with PayPal on eBay will be covered, with no limits, on most transactions.”
    Catherine Holahan, Business Week, June 19, 2008 --- http://www.businessweek.com/the_thread/techbeat/archives/2008/06/post_7.html?link_position=link3

    Bob Jensen's threads on consumer fraud are at http://www.trinity.edu/rjensen/FraudReporting.htm

    Bob Jensen's threads on audit litigation and professionalism are at http://www.trinity.edu/rjensen/Fraud001.htm


    One of the earliest and probably the most famous accounting and investment scandal was the South Sea Bubble in 1720
    From the Harvard University Business School
    Sunk in Lucre's Sordid Charms: South Sea Bubble Resources in the Kress Collection at Baker Library --- http://www.library.hbs.edu/hc/ssb/

    Bob Jensen's threads on accounting history --- http://www.trinity.edu/rjensen/theory01.htm#AccountingHistory

    Free online textbooks, cases, and tutorials in accounting, finance, economics, and statistics --- http://www.trinity.edu/rjensen/ElectronicLiterature.htm#Textbooks


    Another Illustration of Round Trip Trading Fraud

    Round Trip Trading --- http://www.investopedia.com/terms/r/round-triptrades.asp

    An action that attempts to inflate transaction volumes through the continuous and frequent purchase and sale of a particular security, commodity or asset. Round-trip trading can be used to refer to the practice of a business selling an unused asset to another company while agreeing to buy back the same asset for about the same price (which has been seen in the energy and telecom business). 

    This is a market-manipulation practice used to misrepresent the number of transactions occurring on any given day. Round-trip trading artificially inflates volume and revenues, but in reality adds no profit. Enron was a company that engaged in round-trip trading, and, by doing so, was able to increase revenues (and expenses) without changing its net income.

    From the Securities Law Professor Blog on June 17, 2008 --- http://lawprofessors.typepad.com/securities/

    CMS Energy Officer Settles SEC Charges

    The SEC settled administrative charges against Tamela PallasIts Order finds that Pallas participated in and approved of the decision to do round trip energy trades while she was (a) Senior Vice President of Reliant Energy Services, Inc., a subsidiary of Reliant Energy, Inc. (Reliant), that was a part of Reliant's Wholesale Group and as the Chief Operating Officer and later (b) Chief Executive Officer of CMS Marketing Services & Trading, a subsidiary of CMS Energy Corp. (CMS). The inclusion of those transactions caused Reliant's and CMS's financial statements to present materially misleading pictures of their actual business activity. Although Pallas neither participated in discussions or decisions regarding how to account for the transactions nor participated in drafting earnings releases or Commission filings at either Reliant or CMS, according to the SEC, Pallas should have known that the revenues and expenses associated with the round trip trades would be included in each company's financial statements, including filings made with the Commission. The Order finds that Pallas's conduct with respect to the round trip trades was negligent and, as such, was a cause of the filing of reports, including offering materials, which included revenues and expenses related to round trip trades. Respondent's negligent conduct was also therefore a cause of the related misstatement of the transactions in each company's books, records and accounts.

     

    Another common accounting fraud is round tripping or bogus swapping to inflate revenues --- http://www.trinity.edu/rjensen/ecommerce/eitf01.htm#RoundTripping


    Question
    What famous retailer is known for abusing accounts payable to vendors?

    Hint:
    In this mart, the buyer puts vendors to the “Wal.”

    If textbook vendors were smart, they'd just use Scott Adams for most of their illustrations.
    "Stretching Accounts Payables." Financial Rounds, June 14, 2008 --- http://financialrounds.blogspot.com/
    Also enjoy the Dilbert cartoons!


    Another Backdating Fine

    From The Wall Street Journal Accounting Weekly Review on June 13, 2008

    SEC, Analog Settle Case
    by Kara Scannell and John Hechinger
    The Wall Street Journal

    May 31, 2008
    Page: B5
    Click here to view the full article on WSJ.com
    http://online.wsj.com/article/SB121217424643533359.html?mod=djem_jiewr_AC

     

    TOPICS: Executive Compensation, Financial Accounting, Financial Reporting, SEC, Securities and Exchange Commission, Stock Options

    SUMMARY: Analog Devices, Inc. has agreed to pay $3 million to settle charges that it backdated stock options grants, "...but regulators didn't charge the company with failing to disclose it issued options before announcing good news," a practice known as spring-loading for its design to generate profits on the options for grantees. "The decision likely means the SEC won't charge other companies with spring-loading....Paul Atkins, a Republican, in a July 2006 speech defended the practice as a legitimate and low-cost way for boards to efficiently compensate executives.

    CLASSROOM APPLICATION: Teaching the implications of accounting for stock options is just one aspect of using this case. Students also may debate the pros and cons of many practices in granting stock options.

    QUESTIONS: 
    1. (Introductory) Summarize the accounting and disclosure requirements for stock options. Refer to authoritative accounting literature and include a description of dates associated with stock option grants sufficient to discuss the issues in the article.

    2. (Introductory) What does it mean to "backdate" a stock option award?

    3. (Advanced) When Analog Devices and its Chief Executive Jerald Fishman improperly back dated three stock option grants, "...the SEC said the company failed to subtract the cost of these stock options--as an expense--as required under accounting rules." Why does the practice of backdating result in avoiding expense? Would the practice be acceptable if the accounting for it were to show compensation expense? How should compensation expense be calculate?

    4. (Introductory) What is the practice of spring-loading stock options?

    5. (Advanced) What is the implication of the SEC's decision not to charge Analog Devises with spring-loading its stock options?

    6. (Advanced) Why do you think that Analog Devices did not have to restate its financial results? In your answer, define the situations in which financial restatement must be made and explain how such information must be published.
     

    SMALL GROUP ASSIGNMENT: 
    One SEC Commissioner, Paul Atkins, argues that the practice of spring-loading is legitimate. Others argue that such awards amount to trading on inside information. Hold a debate with support for each of these positions. Be sure to plan to refute some positions attributable to an argument opposing yours. Potential resources include the SEC web site with speeches on this topic. You may find the speech made by Commissioner Atkins in July 2006 and referred to in the WSJ article on the SEC web site at http://www.sec.gov/news/speech/2006/spch070606psa.htm

    Reviewed By: Judy Beckman, University of Rhode Island
     

    Bob Jensen's threads on options backdating scandals are at http://www.trinity.edu/rjensen/theory/sfas123/jensen01.htm

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


    RBI releases guidelines for Off-Balance Sheet Financing (OBSF) exposures

    Draft Guidelines on Prudential Norms for Off-balance Sheet Exposures of Banks – Capital

    Adequacy, Exposure,

    Asset Classification and Provisioning Norms

    At present, paragraphs 2.4.3 and 2.4.4 of the ‘Master Circular on Prudential Norms on Capital Adequacy’, DBOD.No.BP.BC.4/21.01.002/2007-08 dated July 2, 2007, stipulate the applicable credit conversion factors (CCF) for the foreign exchange and interest-rate related contracts under Basel-I framework. Likewise, paragraph 5.15.4 of our circular on ‘Guidelines for Implementation of the New Capital Adequacy Framework’ DBOD.No.BP.BC. 90/20.06.0001/2006-07 dated April 27, 2007, prescribes the CCFs for these contracts under the Basel-II framework. Further, in terms of paragraph 2.3.2 of the ‘Master Circular on Exposure Norms’, DBOD.No.Dir.BC.11/ 13.03.000/2007-08 dated July 2, 2007, the banks have the option of measuring the credit exposure of derivative products either through the ‘Original Exposure Method’ or ‘Current Exposure Method’.

    2. In accordance with the proposal contained in the paragraph 165 (reproduced in Annex 1) of the Annual Policy Statement for the year 2008-09, released on April 29, 2008, it is proposed to effect the following modifications to the existing instructions on the above aspects:

    2.1 Credit Exposure – Method of computing the credit exposure
    For the purpose of exposure norms, banks shall compute their credit exposures, arising on account of the interest rate & foreign exchange derivative transactions and gold, using the ‘Current Exposure Method’, as detailed in Annex 2.

    2.2 Capital Adequacy – Computation of the credit equivalent amount
    For the purpose of capital adequacy also, all banks, both under Basel-I as well as under Basel-II
    framework, shall use the ‘Current Exposure Method’, as detailed in Annex 2, to compute the credit
    equivalent amount of the interest rate & foreign exchange derivative transactions and gold.

    2.3 Provisioning requirements for derivative exposures
    Credit exposures computed as per the ‘current exposure method’, arising on account of the interest rate &
    foreign exchange derivative transactions, and gold, shall also attract provisioning requirement as
    applicable to the loan assets in the ‘standard’ category, of the concerned counterparties. All conditions
    applicable for treatment of the provisions for standard assets would also apply to the aforesaid provisions
    for derivative and gold exposures.

    2.4 Asset Classification of the receivables under the derivatives transactions
    It is reiterated that, in respect of derivative transactions, any amount receivable by the bank, which
    remains unpaid for a period of 90 days from the specified due date for payment, will be classified as nonperforming
    assets as per the ‘Prudential Norms on Income Recognition, Asset Classification and Provisioning pertaining to the Advances Portfolio’, contained in our Master Circular DBOD. No. BP.BC.12/ 21.04.048/2007-08 dated July 2, 2007.

    2.5 Cash settlement of derivatives contracts
    Any restructuring of the derivatives contracts, including the foreign exchange contracts, shall be carried out only on cash settlement basis.

    3. The foregoing modifications will come into effect from the financial year 2008-09. The banks will, however, have the option of complying with the additional capital and provisioning requirements, arising from these modifications, in a phased manner, over a period of four quarters, ending March 31, 2009.

    Continued in article

    Bob Jensen's threads on OBSF are at http://www.trinity.edu/rjensen/Theory01.htm#OBSF2


    XBRL Video

    "'XBRL in Plain English' on YouTube," SmartPros, May 23, 2008 --- http://accounting.smartpros.com/x61948.xml

    YouTube Link --- http://www.youtube.com/watch?v=5F1E-2LkhW8

    June 3, 2008 reply from James Richards [jdrozwa@IINET.NET.AU]

    Hi,

    Charlie Hoffman has another on his blog – http://xbrl.squarespace.com/journal/?currentPage=2 .

    Cheers.

    Jim Richards 

    Some XBRL Blogs and Networks

    Financial Reporting Using XBRL (maintained by Charles Hoffman) --- http://xbrl.squarespace.com/journal/?currentPage=2

    XBRL Canada Blog (maintained by Jerry Trites) --- http://www.zorba.ca/xbrlblog.html

    XBRL Networking --- http://xbrlnetwork.ning.com/

    June 5, 2008 message from Saeed Roohani [sroohani@COX.NET]

    Video of David Blaszkowsky, Director of Interactive Disclosure office at the U.S. Securities and Exchange Commission speaking at XBRL Research Opportunities Forum Volume 2 No 2 May 30, 2008 is now available at WWW.XBRLeducation.com 

    Saeed Roohani

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

    Bob Jensen's older videos on XBRL --- http://www.cs.trinity.edu/~rjensen/video/Tutorials/


    June 4, 2008 message from sunitha palakurthy [sunithaicfai@gmail.com]

    Greetings!        

             

    It gives me immense pleasure to introduce myself as Dr. S Vijayalakshmi, Professor of Finance and Accounting, ICFAI Business School , ICFAI University , India .

     

    The ICFAI (Institute of Charted Financial Analysts of India) University is a non-profit organization, primarily in imparting quality education in the areas of Management and Finance. ICFAI Press, one of the wings of the ICFAI University , is involved in publishing "The Accounting World".

     

     I am the Consulting Editor for "The Accounting World", This Magazine serves as a primary outlet for finance professionals, bankers, academicians, economists, corporate executives and students. This magazine focuses on the areas of

     

    Financial Accounting, Human Resource Accounting, Mergers and Acquisitions Accounting, Creative Accounting, Forensic Accounting, Financial Reporting,

    Technology in Accounting, Auditing, Environmental Accounting, Regulatory Issues in Accounting, Accounting Standards, Corporate Governance, Fraud, Business environment, and other Emerging Issues.

     

    Many academicians and professors from renowned universities, and Indian Institute of Management, Asian Development Bank and many more from Dubai, Australia, Philippines, and Malaysia have chosen this as a platform to disseminate knowledge and information of their articles.

     

    I, therefore invite you to contribute articles for our magazine and share valuable experiences with us. Time is always a constraint; therefore send your articles at the earliest.

     

    With Warm regards

     

    S.Vijayalakshmi

    Consulting Editor—The Accounting World

    Mail id: sedidi@rediffmail.com, sedidi@gmail.com

    sunithaicfai@gmail.com


    Sunitha Palakurthy
    Research Associate -The Accounting World

    The Icfai University Press
    6-3-354/1, 2nd floor
    Stellar sphinx
    road no 1, Banjara Hills
    Panjagutta, Hyderabad
    pin 500082

    Ph: 040 23430448-451
    Fax: 040 23430447


    Mail id: sunithaicfai@yahoo.co.in
                 sedidi@rediffmail.com

     


    The Worldwide Oligopoly of Audit Firms
    Question:  How much have audit fees allegedly increased since auditors put on their SOX?

    "On with the show? The auditing business, concentrated in the hands of just a few companies, is far too cosy to operate with consumers' best interests in mind," by Prim Sikka, The Guardian, June 3, 2008 --- http://commentisfree.guardian.co.uk/prem_sikka_/2008/06/on_with_the_show.html

    Never mind showbusiness, there's no business like the accountancy business. Accountancy firms have a licence to print money because they enjoy access to a state-guaranteed market for auditing. Companies, hospitals, schools, charities, universities, trade unions and housing associations have to submit to an audit, even though the auditor might issue duff reports. Anyone refusing their services faces a prison sentence.

    Major company audits are the most lucrative and that market is dominated by just four global auditing firms. PricewaterhouseCoopers, Deloitte, KPMG and Ernst & Young have global revenues of over $80 billion (£41bn) a year, which is exceeded by the gross domestic product of only 54 nation states. These firms dominate the structures that make accounting and auditing rules.

    Following the Enron and WorldCom debacles and the demise of Arthur Andersen, the auditing market has become further concentrated in those four firms. Many major companies looking for global coverage find that the auditor choice is very restricted.

    In the US, the big four audit 95% of public companies with market capitalisations of over $750m. A US study focusing on 1,300 companies, showed that the fees charged by the big auditing firms have increased by 345% in the five years to 2006. Median total auditor costs rose to $2.7m, from $1.4m in 2001. A major reason for the increase is said to be the (SOX) Sarbanes-Oxley Act (pdf) 2002, which was introduced after audit failures at Enron and WorldCom.

    In the UK, the big four firms audit 97% of FTSE 350 companies. In 2001, the average FTSE 100 company audit fee was £1.89m. By 2006, the figure had increased to £3.7m. The rise in audit fees continues to exceed the rates of inflation. For example, Northern Rock's fees have increased from £1.8m in 2006 to £2.4m in 2007.

    The firms cite the Sarbanes-Oxley Act and international accounting and auditing standards to justify higher fees. They are silent on the fact that their own audits of Enron and WorldCom arguably prompted the Sarbanes-Oxley Act, or that the big four firms finance and dominate the setting of international accounting and auditing standards. These standards rarely say anything about the public accountability of auditing firms. Most firms refuse to reveal their profits.

    The massive hike in audit fees has not given us better audits. Carlyle Capital Corporation collapsed within days of receiving a clean bill of health form its auditors. Bear Stearns was bailed out within a few days of receiving another clean bill of health. In the current financial crisis, all major banks received a clean bill of health even though they engaged in massive off balance sheet accounting and around $1.2tn of toxic debts may have been hidden. But perhaps ineffective auditors suit the corporate barons.

    In market economies, producers of shoddy goods and services are allowed to go to the wall. Governments impose higher standards of care on them to improve quality. But entirely the opposite has happened in the auditing industry. Auditing firms have secured liability concessions (pdf) to shield them from the consequences of own their failures. Charlie McCreevy, the EU commissioner for the internal market and services, an accountant, is keen to give them more. He favours an artificial "cap" on auditor liability. The commissioner has failed to provide any evidence to show that the liability shield provided to producers of poor quality goods and services somehow encourages them to improve the quality of their products.

    Accountancy firms, EU commissioners and regulators routinely preach competition to everyone else, but go soft when it comes to dealing with auditing firms. They could restrict the number of FTSE companies that any auditing firm can audit and thus create for space for medium-sized firms to advance. They could insist that some quoted companies should have joint audits and thus again create space for medium-sized firms. They could insist on compulsory retendering or company audits and rotation of auditors. They could invite new players to the audit market. The Securities Exchange Commission or the Financial Services Authority could take charge of audits of banks and financial institutions. None of these proposals are on the radar of the corporate dominated UK accounting regulator, the Financial Reporting Council. It advocates market led solutions, which raises the question of why the markets have not resolved the problems already, and exerted pressures for better audits.

    As a society, we continue to give auditing firms state-guaranteed markets, monopolies, lucrative fees and liability concessions. None of it has given us, or is likely to give us better audits, company accounts, corporate governance or freedom from frauds and fiddles. Without effective independent regulation, public accountability and demanding liability laws, the industry cannot provide value for money.

    Jensen Comment
    You can access a fairly good summary of the Big Four at http://en.wikipedia.org/wiki/Big_Four_auditors

    Bob Jensen's threads on auditing firm scandals and professionalism are at http://www.trinity.edu/rjensen/Fraud001.htm


    "Indian Universities Create Free Collection of Lecture Videos That Rivals MIT's," by Jeffrey R. Young, Chronicle of Higher Education, May 28, 2008 --- http://chronicle.com/wiredcampus/index.php?id=3038&utm_source=wc&utm_medium=en

    A group of seven technical universities in India have teamed up to create a free YouTube library of engineering courses. There are more than 50 courses online already—with all of the lectures delivered in English.

    The Open Culture blog notes that the collection rivals that of the Massachusetts Institute of Technology, which for years has been creating free collections of its course materials. “Suddenly MIT is not the only tech powerhouse getting into the business of providing free educational resources,” says the blog’s author Dan Colman, director and associate dean of Stanford University’s continuing-studies program. The project is called the National Programme on Technology Enhanced Learning, and it is a joint effort of campuses of the Indian Institute of Technology and the Indian Institute of Science.

    MIT’s collection features far more courses—about 1,800 of them. But many of MIT’s course Web sites provide only written lecture notes, rather than video recordings of lectures.

    So far the most popular lecture in the Indian YouTube collection is one on basic electronics, which has been viewed more than 32,000 times.

    Video available from other universities --- http://www.oculture.com/2008/03/youtubesmartvideos.html

    Bob Jensen's threads on open-sharing courses and videos are at http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI
    (including accounting education videos)

    Bob Jensen's threads on free online tutorials and videos (including accounting) --- http://www.trinity.edu/rjensen/ElectronicLiterature.htm#OnlineBooks

    Bob Jensen's threads on free online tutorials in other various disciplines --- http://www.trinity.edu/rjensen/Bookbob2.htm#tutorials


    Questions About Fair Value (Mark-to-Market) Accounting

    June 21, 2008 message from Gerald Trites [gtrites@ZORBA.CA]

    I have felt that mark to market is the wrong approach since it began. It removes all substance from accounting measurements and introduces volatility and unreliability. Accordingly I was interested to see this quote from Frank McKenna, a highly respected Canadian Businessman and Vice Chair of the Toronto Dominion Bank (Also former Canadian ambassador to the US):

    "There's going to be a very serious look at accounting rules, particularly mark-to-market rules in the United States," Mr. McKenna said. "A lot of people feel that the crisis has been accelerated by mark-to-market accounting, and that when there's no real market - because the market has seized up - using mark-to-market creates a false impression."

    The article is at
    http://www.reportonbusiness.com/servlet/story/RTGAM.20080620.wmckennabanks0620/BNStory/Business/home 

    Jerry

    June 21, 2008 reply from Neal Hannon [nhannon@GMAIL.COM]

    Oh please.  Why is it wrong to tell the financial markets what is the current value of your assets/liabilities?  I understand that this approach is subject to the will of management, but doesn't honesty and transparency count for something in the marketplace?  Business is volatile. Accountants have .. for too long.. facilitated the smoothing of earnings.  It's time to put some honesty into financial reporting.

    Neal

    June 21, 2008 message from Gerald Trites [gtrites@ZORBA.CA]

    Hi Neal,

    There's a big difference between disclosure and measurement. I don't have a big problem with disclosure, provided it is well explained. My big problem is with measurement. Use of "market values" can be misleading when the markets are thin or virtually non-existent. They are unduly affected by short term panic selling, and extraneous events with no real economic substance. If such markets were true indicators of economic value, I would agree with you. However, they often are not.

    Jerry

    June 22, 2008 reply from Jagdish Gangolly [gangolly@CSC.ALBANY.EDU]

    Neal,

    Sure, Neal. I firmly believe that the market should be told what the current "value" (I prefer the term "current replacement cost", since at least in the United States, with the "Theory" of price replacing the theory of value, "value" has as an economic concept has been replaced by "price").

    My objection is only to the contamination of the books by all sorts of "events" and executory transactions that have been de-fictionalised in the financial reports.

    That was the reason I compared disclosure with measurement.

    We have been on this slippery slope towards measurement at the expense of integrity and reliability for a long time, but in my opinion, the watershed event was the pseudo-accounting for inflation under SFAS 33. It did two things: First it showed that academic accountants could push the standards around (I remember Sandy Burton, then the Chief Accountant of the SEC, deriding it as pooh-pooh --in retrospect he probably meant poo-poo -- accounting; he preferred footnote DISCLOSURES regarding current replacement cost (CRC) of Plant and Equipment). I think the compromise was poo poo accounting for the balance sheet/income statement and CRC disclosures in the footnotes. FASB's ridiculous tome bit the dust later, disappointing the "empirical" academic accountants who thereby had been deprived of precious SFAS 33 disclosures.

    Secondly, it showed that economic conditions rather than sound "accounting theory" (which in my opinion is still to be invented), could dictate what the standards would be (SFAS for inflationary times followed by its dumping when inflation abates). This is as close as it gets to "anything-goes" theory of accounting.

    In my humble opinion, disclosures with "safe harbour" provisions to protect the accounting profession (so long as there is due diligence and good faith) is far more meaningful than a ride on the slippery slope to experimentation to satisfy unsupported academic curiosity.

    When I was an undergraduate eons ago, books came close to be regarded sacred and fiddling with them was not the rule. Accounting then had sound basis in law as Ijiri (and the early Paton) would agree. Integrity and reliability were paramount, "decision usefulness" was the icing on the cake.

    Now, half way along the slippery slope, "decision usefulness", what ever it means, thanks to the thoughtless adoption of neo-classical economic ideas, seems paramount; reliability and integrity the icing on a stale cake.

    My hunch is that this remarkable flexibility in defining income may have contributed to the short-sightedness of American corporate management, and its obsession with earnings announcements.

    With Regards,

    Jagdish

    June 22, 2008 reply from Henry Collier [henrycollier@aapt.net.au]

    There have been some recent contributions reflecting on the ‘mark to market’ rules and principles for financial accounting and reporting. While there may be many ‘alternative’ measurement schemes to implement a ‘mark to market’ method, what is or are the alternatives to using some sort of ‘current value’ accounting measurement scheme. Do we insist that the ‘other’ is historical (or as I have described it for years, hysterical) cost accounting? It seems as though our ‘profession’ deliberately goes out of its way to obfuscate measures of risk and volatility in places where measures of these very characteristics are one of the essential requirements of users of F/S. Is conservatism the driving characteristic? Do materiality judgments give the accountant the right to decide what is important to users of F/S? For after all, don’t materiality judgments say to the user of F/S, this transaction doesn’t affect YOUR decision making so I will allow the managers to enter this transaction into the accounting system in any way that they wish?

    We’ve fooled around and fiddled and futzed with alternatives to historical cost virtually forever in accounting measurement and reporting. Writers like MacNeal, Scott, Sweeney, Gilman, and Hatfield, seem to be long forgotten and almost entirely ignored in today’s developments in both accounting practice and development of accounting principles and theory. The work of Beaver, Kennelly and Voss in their October 1968 A/R paper on predictive ability is systematically ignored. All in all we’ve seen more than 70 years of controversy and yet we still rely on the construct of historical cost in our financial statements. We have a resistance to change in our ‘profession’ a relentless pursuit of objective measures that can be verified. Measurement constructs of reliability and conservatism seem to over-ride constructs of representational faithfulness and timeliness and usefulness. One of my ‘pet peeves’ with accounting and accounting education is a failure to question whether financial statements are prepared for the accountants / preparers or for the users. We don’t even bother to consider that users of F/S may have different objectives. Well, maybe we do consider the user, but then dismiss their goals and objectives by saying that we prepare ‘general purpose’ financial statements (whatever those are). However that question is, IMO, subsumed by my previous question.

    While accountants appear to insist on quantitative certainty, the qualitative aspects of accounting and finance appear to be swept under the rug. We take a piecemeal approach to what might be termed ‘current cost accounting’ reveling in our inconsistency about treatment of research and development, ignoring human assets in our valuation schemes, and spending huge amount of time and effort in determining the ‘value’ of speculative derivatives. We attach much importance to the “E” in A – L = E, when E is based on flawed and inconsistent values for both A and L … so much for our mathematic certainty and consistency of measures. Perhaps incorrectly I have always thought that E was what we had left for the owners after we subtracted what we owe from what we own. Simplistic? Yes! … and quite probably too simplistic.

    If we believe that one of the purposes of financial reporting is to assist decision makers in making whatever kinds of decisions they want of need to make about the company, then I believe that we must demonstrate a degree of ‘predictive ability’ in the financial reporting process, and in the resulting financial reports prepared by the firm, independently audited, and readily available to those who wish to use them in whatever decision making process they wish.

    All that said, the old question from the chief senior mechanic to his go-fer … “bring me a spanner” … the go-fer responds, “what kind of spanner you want, chief?” … chief says, “I don’t care, I’m going to use it as a hammer anyway”. I’d suggest that historical cost based financial statements are the universal spanner in the story.

    I’m also of the view that no manager worth his or her salt would use historical cost based financial based information for internal decision making. It seems that what internal managers want for decision making is predictions of the ‘future costs’, predictions of future demands, predictions of future market conditions. Do we expect historical costs to yield this information? I suspect not.

    While managers continue to manipulate earnings and values in order to maximize their earnings of bonuses and perquisites, others who delegate agency power and authority to managers watch as some managers systematically loot the firm. How many more ‘unexpected’ company failures do we need to have? How many more Enrons and Equity Fundings and Compass Airlines and HIH’s and on and on and on do we need to endure before we find solutions to the financial reporting problems.

    Will IFRS resolve the problems? Maybe the adoption of IFRS will shift the power structure. Nevertheless, accounting ‘professionals’ appear to be very resistant to change. I’m stirring the pot again. I continue to ask the questions, from whence come you; and what come ye here to do?

    Groucho Marx might have had it right. Any questions? Any answers? Any rags, any bones, any bottles today?

    Regards from the land down under

    Henry

     

     


    Reply from Bob Jensen on June 22, 2008
    A Lesson in Simplifying Financial Instrument Reporting
    Can a single "fair value" number such as the "fair price" of a used car be a surrogate for all the risks under the hood?

    In a 2008 exposure draft the International Accounting Standards Board (IASB) argues that "fair value is the only measure appropriate for all types of financial instruments" --- http://snipurl.com/ias39simplification
    The argument does not apply to non-financial items that presumably are to be accounted for based upon more traditional generally accepted accounting principles (GAAP).

    The huge problems that I find most disturbing about fair value accounting are as follows:

     

    So where to we go from here
    (in June 2008 when I'm writing these remarks)?

    All financial accountants should pay close attention to the exposure draft "Reducing Complexity in Reporting Financial Instruments" that for a very limited time may be downloaded without charge from the International Accounting Standards Board (IASB) --- http://snipurl.com/ias39simplification  [www_iasb_org] . This exposure draft should be viewed as both an IASB and a FASB document since both standard setting bodies, along with the standard setting bodies of many other nations, are working feverishly to simplify the accounting rules for financial instruments in general and derivative financial instruments in particular. This exposure draft really represents the current leanings of virtually all accounting standard setting bodies.

    Be warned, however, that proposed alternatives for simplifying complexity are really trade-offs in complexity since exit value reporting has many controversies and complexities. Huge and complicated financial risks of contracts are proposed, in the exposure draft, to be broad-brush simplified with "fair value accounting." This is a little like relying on the price of a used car to serve as a single index of all the risks that lie under the hood (the British say bonnet) of the used car. The analogy to a used car is appropriate since in many instances a financial instrument is unique, like a particular used car, and cannot be valued reliably from either active trading markets or extrapolations of past valuations of the item following events that may seriously alter the value of an item.

    Although the above exposure draft is intended to "reduce complexity" with fair value accounting for financial instrument reporting, the exposure draft is very honest in admitting that fair value accounting by itself cannot eliminate many complexities, especially many complexities in hedge accounting.

     

    The bottom line in the IASB's exposure draft is that fair value accounting is no panacea for reducing financial reporting complexity, especially in reducing much of the complexity of hedge accounting using derivative financial instruments.

    The exposure draft then launches into, beginning in Paragraph 2.55, alternatives to simplifying hedge accounting other than to attempting fair value accounting alternatives that hit the wall when hedging with derivative financial instruments.

    With respect to hedge accounting, the IASB in the exposure draft seeks your input regarding the following:

    Questions for respondents

    Question 1
    Do current requirements for reporting financial instruments, derivative instruments and similar items require significant change to  meet the concerns of preparers and their auditors and the needs of users of financial statements? If not, how should the IASB respond  to assertions that the current requirements are too complex?

    Question 2

    (a) Should the IASB consider intermediate approaches (short of the fair value option) to address complexity arising from measurement and hedge accounting? Why or why not? If you believe that the IASB should not make any intermediate changes, please answer questions 5 and 6, and the questions set out in Section 3.

    (b) Do you agree with the criteria set out in paragraph 2.2? If not, what criteria would you use and why?

    Question 3
    Approach 1 is to amend the existing measurement requirements (without the fair value option). How would you suggest existing measurement requirements should be amended? How are your suggestions consistent with the criteria for any proposed intermediate changes as set out in paragraph 2.2?

    Question 4
    Approach 2 is to replace the existing measurement requirements with a fair value measurement principle with some optional exceptions.

    (a) What restrictions would you suggest on the instruments eligible to be measured at something other than fair value? How are your suggestions consistent with the criteria set out in paragraph 2.2?

    (b) How should instruments that are not measured at fair value be measured?

    (c) When should impairment losses be recognised and how should the amount of impairment losses be measured?

    (d) Where should unrealised gains and losses be recognised on instruments measured at fair value? Why? How are your suggestions consistent with the criteria set out in paragraph 2.2? (e) Should reclassifications be permitted? What types of reclassifications should be permitted and how should they be accounted for? How are your suggestions consistent with the criteria set out in paragraph 2.2?

    Question 5
    Approach 3 sets out possible simplifications of hedge accounting.

    (a) Should hedge accounting be eliminated? Why or why not?

    (b) Should fair value hedge accounting be replaced? Approach 3 sets out three possible approaches to replacing fair value hedge accounting.

    (i) Which method(s) should the IASB consider, and why?

    (ii) Are there any other methods not discussed that should be considered by the IASB? If so, what are they and how are they consistent with the criteria set out in paragraph 2.2? If you suggest changing measurement requirements under approach 1 or approach 2, please ensure that your comments are consistent with your suggested approach to changing measurement requirements.

    Question 6
    Section 2 also discusses how the existing hedge accounting models might be simplified. At present, there are several restrictions in the existing hedge accounting models to maintain discipline over when a hedging relationship can qualify for hedge accounting and how the application of the hedge accounting models affects earnings. This section also explains why those restrictions are required. (a) What suggestions would you make to the IASB regarding how the existing hedge accounting models could be simplified? (b) Would your suggestions include restrictions that exist today? If not, why are those restrictions unnecessary? (c) Existing hedge accounting requirements could be simplified if partial hedges were not permitted. Should partial hedges be permitted and, if so, why? Please also explain why you believe the benefits of allowing partial hedges justify the complexity. (d) What other comments or suggestions do you have with regard to how hedge accounting might be simplified while maintaining discipline over when a hedging relationship can qualify for hedge accounting and how the application of the hedge accounting models affects earnings

    Question 7
    Do you have any other intermediate approaches for the IASB to consider other than those set out in Section 2? If so, what are they and why should the IASB consider them?

     

     

    Having noted all the problems with fair value accounting when hedging for derivative financial instruments in Section 2 of the exposure draft, the exposure draft in Section 3 tries to nevertheless make a case that fair value accounting is the best of all the bad alternatives for accounting for financial instruments in general, including derivative financial instruments. No attempt is made to advocate fair value accounting for non-financial instruments such as operating assets where value in use versus exit values present enormous problems for exit (fair value) accounting.

    Section 3 is quite good about mentioning the problems of fair value accounting as well as the reasons the IASB (and the FASB) is leaning in theory and in practice for requiring fair value accounting of all financial instruments be they assets or liabilities or both in the case of some compound instruments.

     

    Questions for respondents

    Question 8
    To reduce today’s measurement-related problems, Section 3 suggests that the long-term solution is to use a single method to measure all types of financial instruments within the scope of a standard for financial instruments. Do you believe that using a single method to measure all types of financial instruments within the scope of a standard for financial instruments is appropriate? Why or why not? If you do not believe that all types of financial instruments should be measured using only one method in the long term, is there another approach to address measurement-related problems in the long term? If so, what is it

    Question 9
    Part A of Section 3 suggests that fair value seems to be the only measurement attribute that is appropriate for all types of financial instruments within the scope of a standard for financial instruments.

    (a) Do you believe that fair value is the only measurement attribute that is appropriate for all types of financial instruments within the scope of a standard for financial instruments?

    (b) If not, what measurement attribute other than fair value is appropriate for all types of financial instruments within the scope of a standard for financial instruments? Why do you think that measurement attribute is appropriate for all types of financial instruments within the scope of a standard for financial instruments? Does that measurement attribute reduce today’s measurement-related complexity and provide users with information that is necessary to assess the cash flow prospects for all types of financial instruments?

    Question 10
    Part B of Section 3 sets out concerns about fair value measurement of financial instruments. Are there any significant concerns about fair value measurement of financial instruments other than those identified in Section 3? If so, what are they and why are they matters for concern?

    Question 11
    Part C of Section 3 identifies four issues that the IASB needs to resolve before proposing fair value measurement as a general requirement for all types of financial instruments within the scope of a standard for financial instruments.

    (a) Are there other issues that you believe the IASB should address before proposing a general fair value measurement requirement for financial instruments? If so, what are they? How should the IASB address them?

    (b) Are there any issues identified in part C of Section 3 that do not have to be resolved before proposing a general fair value measurement requirement? If so, what are they and why do they not need to be resolved before proposing fair value as a general measurement requirement?

    Question 12
    Do you have any other comments for the IASB on how it could improveand simplify the accounting for financial instruments?

     

     

    Jensen Commentary

    Without doubt the most complicated, confusing, and hated accounting standards are those concerning new rules for booking and carrying deivative financial instruments, particularly FAS 133 in the U.S. and IAS 39 internationally along with their even more complicating amendments and implementation guidelines. Companies, with the blessings of international auditing firms, have made many blunders in implementing these particular standards, and these errors have led to more revisions to previously published financial statements than any other standards. Probably the best known revisions are those of Fannie Mae that led to the firing of KPMG as the external auditor, to over a million correcting journal entries, and to millions of dollars spent in finding and correcting FAS 133 implementation errors that took over a year to correct using over 600 accounting and finance specialists. But virtually every other company that uses derivative financial instruments to hedge price, interest rate, and credit risk has encountered numerous and costly troubles trying to get the accounting right under the complex 133/39 standards.

    The FAS 133 and IAS 39 complex standards were necessary to counter a rising tide of derivative instruments frauds and inadvertent deception in financial statements that exploded exponentially with newer types of derivatives speculations and hedging strategies commencing in the 1980s and 1990s. A timeline of the scandals and revisions of accounting standards can be found at http://www.trinity.edu/rjensen/FraudRotten.htm
    For example, interest rate swaps now used for hundreds of trillions of dollars of interest rate risk hedging were not even invented until the 1980s. Prior to 1994, companies did not even have to disclose their forward contracts and interest rate or commodity swaps even when the financial risks of those undisclosed contracts greatly exceeded all the booked liabilities of companies. FAS 133 beginning in Year 2000 required booking nearly all derivatives contracts as assets or liabilities and adjusting the carrying values to fair values at least every three months and on all reporting dates. IAS 39 followed internationally soon afterwards.

    If the preparers of financial statements, along with their auditors, are confused by the newer accounting rules for derivative financial instruments, imagine how hopeless it is for users of financial instruments to evaluate returns and risks after such added complexity appeared in financial statements. In addition to the confusing booked numbers such as hedge accounting accumulations in the Other Comprehensive Income (OCI) account, there are paragraphs full of technical hedging strategy jargon contained in nearly unreadable, albeit required, footnote disclosures that supplement the booked numbers in financial statements.

    Definitions of derivative financial instruments and other related terms can be found a http://www.trinity.edu/rjensen/acct5341/speakers/133glosf.htm
    FAS 133 and its key amending standards FAS 138, 149, 155, and 159 plus implications of 141, 142, 155, 157 and 159 can be downloaded free from http://www.fasb.org/st/index.shtml
    Also note Section 815 of the FASB's new Accounting Standards Codification (ASC) online database --- http://asc.fasb.org/home

    The derivative financial instrument contracts are usually purchased options (market exchanged), written options (market exchanged), futures contracts (market exchanged), forward contracts (privately exchanged) and swaps (portfolios of privately acquired forward contracts). Most derivatives have zero historical cost except for options where a relatively small premium is passed from the option purchaser to the option writer. As speculations, only purchased options have bounded risk limited to the premium paid. Other derivatives can have unbounded risk unless risk is bounded by other items (hedged items) by the hedging process.

    The Concern is How to Get Hedge Accounting (read that relief from earnings volatility caused by unrealized changes in derivatives' fair value)
    The FASB originally intended FAS 133 to be a simple standard in which derivative financial instruments, many of which were previously unbooked and undisclosed, be booked at cost (usually zero except for options) and than adjusted for often wildly fluctuating fair value until the options are settled or otherwise derecognized. The simple intended standard would've simply offset all changes in fair value of derivatives to current earnings. The theoretical and practical problem for derivatives used as hedges is that interim earnings, before derivatives are settled, typically fluctuates for unrealized changes in value that usually wash out when the derivatives are finally settled. Companies, particularly banks, objected wildly to such interim earnings fluctuations when hedges were intended to reduce financial risk. The FASB responded by adding over 1,000 highly technical pages to FAS 133 and its amendments dictating how and when companies could use special "hedge accounting" to essentially reduce or eliminate earnings volatility to the extent that the hedges meet "hedge effectiveness tests."

    Not all economic hedges entered into by management qualify for hedge accounting in cash flow, fair value, or foreign exchange (FX) hedges. Not all qualifying hedges fully qualify for hedge accounting throughout the life of the hedge if hedging ineffectiveness arises. Hedging ineffectiveness may arise at interim points in time for hedges that are assured of being perfect hedges when settled at maturity. This, in particular, confuses management until it is explained those "perfect" hedges can be risky if settled before maturity. For example, a year-long hedging forward contract that locks in a fuel purchase price of $5 per gallon on ten million gallons on December 31 may shift in value wildly between January 1 and December 31, On March 31 the forward contract could be an enormous asset (when spot prices of fuel are soaring) and on June 30 it could become an enormous liability (with drastically plunging spot prices). Those "perfect cash flow hedges" at the December 31 maturity may not be perfect in terms of value and risk changes before maturity. Before Year 2000 and FAS 133, a company might have $100 million in undisclosed forward contract and swap exposures relative to $10 million in booked debt on the balance sheet. This is no longer the case due to FAS 133 and IAS 39.

    Unbooked Purchase Contracts and Loan Obligations are Particularly Problematic
    Companies often hedge firm commitments and forecasted transactions that are not yet booked in ledge accounts. In Accounting 101 and again in Accounting 301 courses, instructors repeatedly explain why executory purchase and sales contracts are not booked. Loan obligations are somewhat similar. For example, a firm commitment on January 1 for Airline A to buy 10 million gallons of fuel from Refiner R is not booked as an asset or liability by Airline A. It is also not booked as deferred revenue (a liability) by Refiner R until the purchase transaction actually transpires. However, both Airline A and Refiner R may enter into a derivative contract, such as a forward contract, to hedge this unbooked firm commitment contract for fair value risk. FAS 133 and IAS 39 require that the hedging contract be booked and carried at fair value even if the hedged item (the purchase/sale) contract is unbooked. Without hedge accounting relief, reported earnings will fluctuate due to value shifts in the booked derivative contract that are not offset by unbooked value shifts in the purchase/sale contract (the hedged item). This is why companies fought so hard to build hedge accounting relief into FAS 133 and IAS 39. Hedge accounting in this fair value risk situation allows changes in derivative contract value to be offset by debits or credits to a special equity account called "Firm Commitment"  rather than current earnings, thereby not corrupting earnings per share with unrealized fluctuations in hedging contract fair values.

    The above purchase/sale contract is a firm commitment since the $5 price per gallon was contracted a year in advance. If the price was instead contracted as the December 31 spot price, the purchase/sale contract no longer has fair value risk, but it does have cash flow risk since neither Refiner R nor Airline A know what will be paid for the 10 million gallons of fuel until December 31. This change in the contract changes it from a "firm commitment" purchase/sale contract to a "forecasted transaction" purchase sale contract. Airline A might hedge such a forecasted transaction even without a written contract to purchase 10 million gallons of fuel from any supplier. Both Airline A and Refiner R may enter into a derivative contract, such as a forward contract, to hedge this unbooked forecasted tranaction contract for cash flow risk. FAS 133 and IAS 39 require that the hedging contract be booked and carried at fair value even if the hedged item (the purchase/sale) contract is unbooked. Without hedge accounting relief, reported earnings will fluctuate due to value shifts in the booked derivative contract that are not offset by unbooked value shifts in the purchase/sale contract (the hedged item). This is why companies fought so hard to build hedge accounting relief into FAS 133 and IAS 39. Hedge accounting in this cash flow risk situation allows changes in derivative contract value to be offset by debits or credits to a special equity account called "Other Comprehensive Income (OCI)" rather than current earnings, thereby not corrupting earnings per share with unrealized fluctuations in hedging contract fair values.

    Loan obligations may be similar to unbooked purchase/sale contracts if they do not net settle. For example, suppose a bank is obligated to loan $1 million at 14% in three months. This firm commitment was signed when the spot rate of interest was 12%. If interest rates soar, the bank is still obligated to make the full loan at 14% unless there is a net settlement clause that allows the bank to instead provide a net settlement in cash in lieu of making the full loan. If the loan obligation has such a net settlement clause it has to be booked as a derivative financial instrument under either FAS 133 or IAS 39. If it does not net settle, then it might remain unbooked if certain other conditions are met.

    Where the FVO Succeeds and Fails to Simplify Hedge Accounting
    Both the FASB and the IASB are looking toward fair value accounting (now called the financial instrument Fair Value Option (FVO) now available in both the U.S. and International GAAP) to make it unnecessary to go through the complexities of qualifying for hedge accounting and continually testing for hedge hedging ineffectiveness that disqualifies some or all the hedge accounting at certain interim points of time. The FVO works pretty well for booked hedged items such as booked investments and booked liabilities for which changes in fair value under the FVO automatically offset changes of value in their hedging derivatives. It is no longer necessary to seek out special hedge accounting if the FVO is applied to such hedged items. Since the FVO is not available for non-financial hedged items such as operating assets (e.g., inventories, vehicles, factory machines, land, and buildings), the FVO only simplifies hedge accounting for hedged items that are booked financial assets or liabilities.

    But unbooked hedged items create greater problems since the FVO cannot be applied to a hedged item that is not even booked, e.g., an unbooked loan obligation. The IASB exposure draft cited above recognizes this problem in the following quotation from the IASB exposure draft:

    22.7
    Cash flow hedge accounting is an exception (with no basis in accounting concepts) that permits management to recognise gains and losses on hedging instruments in earnings in a period other than the one in which they occur. Unlike fair value hedge accounting, the ‘mismatch’ that gives rise to the desire for cash flow hedge accounting is not an accounting anomaly. The economic effect of changes in fair value of the hedging instrument used as a hedge occurs before the hedged cash flows occur or are contracted for or committed to. This is illustrated as follows:

    (a) If the hedged cash flows are anticipated to result from a forecast transaction, there are no assets, liabilities, gains, losses, or cash flows to account for at the time the gains and losses on the hedging instrument occur. There is no conceivable change in financial reporting standards that would result in recognising gains or losses on future cash flows arising from a forecast transaction. (
     

    b) The hedged cash flows could also be payments or receipts on variable rate financial instruments. Variable rate instruments are  designed to protect the holder from changes in the fair value of the instrument (the cash flows of the instrument vary in a way that causes the instrument’s fair value to remain constant or nearly constant). Again, there is no accounting anomaly that can be eliminated by changing a financial reporting standard.

    2.28
    In either case, the hedging entity is deliberately exposing itself to gains and losses on a hedging instrument in order to offset changes in cash flows that have not yet occurred. Therefore, those cash flows cannot affect earnings until they occur (or they may not affect earnings at all if the cash flows relate to an acquisition of an asset)  2.29 For these reasons, the desire for cash flow hedge accounting will not be affected by changing the general measurement requirement for financial instruments.

     

    2.29
    For these reasons, the desire for cash flow hedge accounting will not be affected by changing the general measurement requirement for financial instruments. * IAS 39 also permits some firm commitments to be hedged using cash flow hedge accounting. SFAS 133 does not.

     

     

    Also recall that the FVO only applies to financial assets and liabilities. Even though it will simplify hedge accounting for booked financial items, it does nothing to simplify hedge accounting for booked and unbooked non-financial items. Below is a section of the exposure draft regarding fair value hedging for items that are not permitted to be accounted for at fair value such as custom furniture inventory:

     

    A fair value option

    2.37
    One way of reducing complexity might be to permit fair value hedge accounting for only those assets and liabilities that are not permitted to be measured at fair value using a fair value option. Hence, fair value hedge accounting might still be permitted for particular financial instruments and many non-financial assets and liabilities.

    2.38
    An entity can use a fairvalue option, if available, to address accounting mismatches. A fair value option need not be complex, and the results areeasier to understand.

    2.39
    However, preparers may not view a fair value option as comparable to fair value hedge accounting. This is because the fair value option is less flexible than fair value hedge accounting. For example:

    (a) Fair value hedge accounting can be started and stopped at willprovided that thequalification requirements for hedge accountingare met. However, the fair value option designation is availableonly at initial recognition and isirrevocable.

    (b) Fair value hedge accounting can be applied to specific risks or partsof a hedged item. However, the fair value option must be applied tothe entire asset or liability.

    (c) Hedged items under fair value hedge accounting can be financialinstruments or non-financial items. However, in general, the fair value option can be applied to financial instruments only.

    2.40
    To address these issues, the following changes could be made to the fair value option:

    (a) allowing the fair value option to be applied to more non-financial assets and liabilities.

    (b) allowing the fair value option to be applied to specific risks or parts of the designated item.

    (c) allowing the fair value option to be applied at any date after initial recognition.

    2.41
    However, adding flexibility similar to fair value hedge accounting as described in the previous paragraph could add complexity and defeat the purpose of making a change.

    2.42
    For example, allowing the fair value option to be applied to specific risks or parts of an item may result in problems similar to those associated with partial hedges, as discussed later in this section. 2.43 In addition, allowing the fair value option to be applied at any date after initial recognition would raise another issue—whether dedesignation of an item should also be permitted. If dedesignation is permitted, the fair value option would give the same flexibility to start and stop as fair value hedge accounting does today (but without the restrictions surrounding hedge accounting). Giving such flexibility (but without any restrictions) would not improve comparability or result in more relevant andunderstandable information for financial statement users.

    Recognition outside earnings of gains and losses on hedging instruments (similar to cash flow hedge accounting)

    2.44
    Unlike fair value hedge accounting, cash flow hedge accounting does not result in adjusting the carrying amount of a hedged asset or liability. Instead, gains and losses on the hedging instrument are initially recognised in other comprehensive income and subsequently reclassified into earnings when the hedged cash flows affect earnings.

    2.45
    A similar technique might be used for fair value hedge accounting. Gains and losses on the hedging instrument that arise from an effective hedge would be recognised in other comprehensive income and measurement of the hedged item would not be affected.

    2.46
    That approach would have the following benefits:

    (a) The carrying amount of the hedged item would not be affected.

    (b) The measurement attribute of the hedged item would be the same whether it was hedged or not.

    (c) There would be fewer ongoing effects on earnings. For example, there would be no ongoing effects on earnings because the effective interest rate of a financial asset would not need to be recalculated following the dedesignation of a fair value hedging relationship.

    2.47
    However, gains and losses on the hedging instrument that are initially recognised in other comprehensive income would need to be reclassified to earnings to offset the effect on earnings of the hedged item. For example, the cumulative gains or losses on an interest rate swap designated as hedging a fixed rate bond would be reclassified to earning when the bond was sold or settled, and not throughout the life of the bond. However, the net swap settlements would be recognised in earnings as they accrue.

    2.48
    As noted, using a cash flow hedging technique for fair value exposures has some benefits. However, many of the restrictions that exist today would be needed. That might not result in a significant reduction incomplexity.

    Recognition outside earnings of gains and losses on hedged items

    2.49 This suggestion has the following features:

    (a) All (or at least many) financial instruments would be measured at fair value.

    (b) Gains and losses on derivatives, instruments held for trading and instruments designated in their entirety at initial recognition to be measured at fair value are recognised in earnings. (c) For financial instruments other than those described in (b), entities would be permitted to recognise all unrealised gains and losses or unrealised gains and losses attributable to specified risks in either earnings or other comprehensive income, subject to one exception. The exception is that unrealised gains and losses on interestbearing financial liabilities attributable to changes in the entity’s own credit risk must be recognised in other comprehensive income. An entity could also choose to report a specified percentage of the gains or losses on these financial instruments in earnings and the remainder in other comprehensive income.

    2.50
    The choice described in paragraph 2.49(c) would be made instrument by instrument at inception (when the instrument is acquired, incurred, issued or originated) and would be revocable. If an entity initially chooses to recognise gains and losses on a financial instrument in other comprehensive income and later changes that choice, the cumulative net gain or loss on the instrument would be reclassified to earnings in some systematic way over the remaining life of the instrument. Alternatively, if an entity initially chooses to recognise gains and losses on a financial instrument in earnings and later changes that choice, the fair value of the instrument on the date of the new choice would determine the effective interest rate.

    2.51
    For those instruments described in paragraph 2.49(c) interest on interestbearing instruments would be separately presented using an effective interest rate. Movements in the fair value due to changes in foreign exchange rates of all monetary items described in paragraph 2.49(c) would also be recognised in earnings in accordance with IAS 21
    The Effects of Changes in Foreign Exchange Rates and IAS 39. 2.52 Moreover, if a derivative is used to hedge the changes in fair value of a particular financial instrument, the entity could choose to recognise in earnings future gains and losses on that hedged instrument. The gains and losses on the hedged instrument and the hedging instrument would be offset in earnings in a way that is similar to fair value hedge accounting. Unlike fair value hedge accounting, this approach would not require an effectiveness test at inception or later.

    2.53
    This approach would result in more financial instruments being measured at fair value. In addition, hedged items would generally be measured at fair value instead of being adjusted for some fair value changes but not others.

    2.54
    However, this approach has the following disadvantages:

    (a) It includes few restrictions about the choice of where to recognise gains and losses. If restrictions comparable to existing hedge accounting requirements were added, there would be little or no reduction in complexity

    (b) Recognising part of the gains and losses on a financial instrument in other comprehensive income and part in earnings (and being able to change that choice) would create complexity for users trying to understand the financial statements.

     

     

    The bottom line is that fair value accounting is no panacea for reducing financial reporting complexity, especially in reducing much of the complexity of hedge accounting using derivative financial instruments.

    The exposure draft then launches into, beginning in Paragraph 2.55, alternatives to simplifying hedge accounting other than to attempting fair value accounting alternatives that hit the wall when hedging with derivative financial instruments.

     

    Having noted all the problems with fair value accounting when hedging for derivative financial instruments in Section 2 of the exposure draft, the exposure draft in Section 3 tries to nevertheless make a case that fair value accounting is the best of all the bad alternatives for accounting for financial instruments in general, including derivative financial instruments. No attempt is made to advocate fair value accounting for non-financial instruments such as operating assets where value in use versus exit values present enormous problems for exit (fair value) accounting.

    Section 3 in the IASB's exposure draft is quite good about mentioning the problems of fair value accounting as well as the reasons the IASB (and the FASB) is leaning in theory and in practice for requiring fair value accounting of all financial instruments be they assets or liabilities or both in the case of some compound instruments.

     

    Questions for respondents

    Question 8
    To reduce today’s measurement-related problems, Section 3 suggests that the long-term solution is to use a single method to measure all types of financial instruments within the scope of a standard for financial instruments. Do you believe that using a single method to measure all types of financial instruments within the scope of a standard for financial instruments is appropriate? Why or why not? If you do not believe that all types of financial instruments should be measured using only one method in the long term, is there another approach to address measurement-related problems in the long term? If so, what is it

    Question 9
    Part A of Section 3 suggests that fair value seems to be the only measurement attribute that is appropriate for all types of financial instruments within the scope of a standard for financial instruments.

    (a) Do you believe that fair value is the only measurement attribute that is appropriate for all types of financial instruments within the scope of a standard for financial instruments?

    (b) If not, what measurement attribute other than fair value is appropriate for all types of financial instruments within the scope of a standard for financial instruments? Why do you think that measurement attribute is appropriate for all types of financial instruments within the scope of a standard for financial instruments? Does that measurement attribute reduce today’s measurement-related complexity and provide users with information that is necessary to assess the cash flow prospects for all types of financial instruments?

    Question 10
    Part B of Section 3 sets out concerns about fair value measurement of financial instruments. Are there any significant concerns about fair value measurement of financial instruments other than those identified in Section 3? If so, what are they and why are they matters for concern?

    Question 11
    Part C of Section 3 identifies four issues that the IASB needs to resolve before proposing fair value measurement as a general requirement for all types of financial instruments within the scope of a standard for financial instruments.

    (a) Are there other issues that you believe the IASB should address before proposing a general fair value measurement requirement for financial instruments? If so, what are they? How should the IASB address them?

    (b) Are there any issues identified in part C of Section 3 that do not have to be resolved before proposing a general fair value measurement requirement? If so, what are they and why do they not need to be resolved before proposing fair value as a general measurement requirement?

    Question 12
    Do you have any other comments for the IASB on how it could improveand simplify the accounting for financial instruments?

     

     

    In Section 3 of the exposure draft, the IASB's arguments for fair value accounting are very compelling. I applaud this effort. However, some underlying and unmentioned assumptions disturb me. Implicitly the IASB assumes that "value in use" and exit (fair) value are perfectly correlated for financial instruments. This is admittedly not true for non-financial assets such as farm tractors where the correlation between recently-purchased tractors and value in use has negligible correlation because of kinks between markets for new versus used tractors. The additional problem is that new tractors are fungible commodities whereas used tractors are entirely unique. No two used tractors are exactly alike in terms of quality and expected life. In addition the markets for new versus used tractors are entirely different even for pre-owned tractors that have never been used or were only used for little old farm ladies to get to and from church.

    Now consider the IASB's assumption there's no difference between a customized derivative financial instrument and a similar instrument traded in exchange markets. There is in fact a huge unmentioned problem for financial instruments like customized interest rate swaps for which there is no external market. Interest rate swaps are generally unique, customized, and cannot be sold by parties and counterparties without prohibitive transactions costs. The FASB and the IASB require that they be "marked-to-market" without providing guidance on how to do so without a market. You can read about how such valuation takes place in a complicated manner at http://www.trinity.edu/rjensen/acct5341/speakers/133swapvalue.htm
    But is this supposedly "fair valuation" process really reflective of value in use of interest rate swaps?

    Clearly historical cost (zero) is not relevant for a customized $10 million interest rate swap that XYZ Company acquired in Example 5 of Appendix B in FAS 133 commencing in Paragraph 131. Jensen and Hubbard explain how such a swap is valued by banks using a Bloomberg database of forward exchange transactions --- http://www.cs.trinity.edu/~rjensen/133ex05.htm .
    The illustrative Excel workbook can be downloaded from http://www.cs.trinity.edu/~rjensen/133ex05a.xls

    But is this "fair value" derived from market transactions really the fair value of XYZ's unique and customized interest rate swap? Probably not! It might be better to simply assume that value changes in the swap are perfectly and negatively correlated with value changes in the hedged item which in this example are $10 million in corporate variable rate bonds. But in order to assign a fair value to the interest rate swap an elaborate estimation process is required to derive the swap value estimates shown (but not explained) in Paragraph 137 of FAS 133. It is not clear that these fair values clearly reflect "value in use" of this unique customized swap that most likely cannot be sold or terminated with the swap's counter party without huge transactions penalties. This is an example of a financial instrument whose value in use may be entirely different from its true and totally unknown exit (fair) value.

    The way firms must derive fair values for many financial instruments is truly fanciful for unique financial instruments that are not like any other market traded instruments and cannot be disposed of without enormous transactions costs. In the case of Example 5, the values given by the FASB (and never explained) and flip flop between positive and negative are probably widely divergent from value in use of this swap by XYZ Company.

    The implicit assumption in fair value accounting that value in use is equal to extrapolated market valuations is not usually true in reality. This does not make fair value accounting necessarily worse than other alternatives, but it might unduly complicate hedge accounting. For example, the IASB does not permit the Shortcut Method for hedge effectiveness testing of interest rate swaps that is explained for XYZ Company in Paragraph 132 of FAS 133. The FASB allows the Shortcut Method, but the IASB refuses to allow it, and all sorts of anomalies might arise in hedge effectiveness testing that can be avoided by the Shortcut Method.

     

     

    Advanced Derivatives Accounting Question
    On June 27, 2001 the FASB's Derivatives Implementation Group (DIG) issued Statement FAS 133 Implementation Issue No. G20
    Title: "Cash Flow Hedges: Assessing and Measuring the Effectiveness of a Purchased Option Used in a Cash Flow Hedge Paragraph"
    References FAS 133 Paragraphs 28(b), 30, 63, and 140
    Date cleared by Board: June 27, 2001 Date posted to website: August 10, 2001
    Do you think the IASB exposure draft is in direct conflict with G20, and if so, why?

     

    Bob Jensen's tutorials on accounting for derivative financial instruments and hedging activities are under FAS 133 and IAS 39 are at http://www.trinity.edu/rjensen/caseans/000index.htm

    Bob Jensen's threads on fair value accounting are at http://www.trinity.edu/rjensen/Theory01.htm#FairValue

    Bob Jensen's threads on alternatives to fair value accounting --- http://www.trinity.edu/rjensen/Theory01.htm#UnderlyingBases

     


    Question
    Are these just dirty tricks to keep some generic drugs off the market?

    Pharmaceutical makers go to great lengths to protect their exclusive marketing rights to best-selling brand-name drugs. But a pair of lawsuits and a government antitrust investigation involving a drug made by Abbott Laboratories could help define how far those companies can legally go to fend off copycat rivals.
    Shirley S. Wang

    From The Wall Street Journal Accounting Weekly Review on June 6, 2008

    TriCor Case May Illuminate Patent Limits
    by Shirley S. Wang
    The Wall Street Journal

    Jun 02, 2008
    Page: B1
    Click here to view the full article on WSJ.com ---
    http://online.wsj.com/article/SB121236509655436509.html?mod=djem_jiewr_AC
     

    TOPICS: Financial Accounting, Intangible Assets, Research & Development

    SUMMARY: Aboott Laboratories have been involved in lawsuits and a government antitrust investigation in relation to its 33-year-old cholesterol medication TriCor. This drug generated sales of $1.2 billion in 2007 but the patent on the original product--which was developed in France--has now expired. When Abbott Labs acquired the TriCor licensing rights in the late 1990s, the company patented a new way to make the product. The antitrust suit examines whether Abbot Labs "...violated antitrust laws in its efforts to prevent an Israeli company from successfully selling a generic version of the drug." The bases for the arguments against Abbott Labs are that the company filed "...new patents on questionable improvements to TriCor...[and] engaged in a practice known as 'product switching'--retiring an existing drug and replacing it with a modified version that is marketed 'new and improved,' preventing pharmacists from substituting a generic for the branded drug when they fill prescriptions for it." Though not against the law per se, these practices may have violated antitrust laws if their sole purpose was to extend Abbott's monopoly on sales of the product.

    CLASSROOM APPLICATION: The article clearly illustrates issues in accounting for R&D and intangible assets and is therefore useful in intermediate financial accounting and MBA accounting courses. In addition, an ethical question of the cost impact on medical patients of these patent rights may be included in class discussion of this article.

    QUESTIONS: 
    1. (Introductory) Summarize accounting in the two areas of intangible assets and research and development (R&D) expenditures. How are these two areas related?

    2. (Introductory) Examine Abbott Laboratories' most recent quarterly financial statement filing with the SEC, available at http://www.sec.gov/Archives/edgar/data/1800/000110465908029545/a08-11202_110q.htm  or by clicking on the live link to Abbot Laboratories in the on-line version of the article, then SEC Filings under "Other Resources" in the left-hand column of the web page, selecting the 10-Q filing submitted 2008-05-02 and selecting the html version of the entire document. How large are Abbott Labs intangible assets and research and development expenditures? In your answer, specifically consider how you can best answer this question using some basis for assessment.

    3. (Advanced) Refer to your answer to question 2. How do the accounting practices for intangible assets and R&D expenditures impact the way in which you assess the size of these items relative to Abbott Labs operations?

    4. (Introductory) "Drug companies typically have three to ten years of exclusive patent rights remaining when their products hit the market." Why is this the case? In your answer, specifically state how these business conditions impact the required time period over which the cost of patents may be amortized.

    5. (Advanced) Again examine Abbott Labs 10-Q filing made on May 2, 2008, in particular the footnote disclosure related to intangible assets. Note 11--Goodwill and Intangible Assets. What accounting policy is consistent with the description of patent rights' useful lives discussed in answer to question 4 above?

    6. (Introductory) What steps has Abbott Labs undertaken to extend the life of its patent on TriCor? Are steps like these a business necessity or merely a method of generating excessive profits for pharmaceutical companies? In your answer, specifically consider ethical issues related to profitability, continued R&D for new pharmaceutical products, and the cost to both medical patients and insurance companies of patented, brand-name products versus generic equivalents.
     

    Reviewed By: Judy Beckman, University of Rhode Island
     

    From The Wall Street Journal Accounting Weekly Review on October 14, 2005

    TITLE: In R&D, Brains Beat Spending in Boosting Profit
    REPORTER: Gary McWilliams
    DATE: Oct 11, 2005
    PAGE: A2
    LINK: http://online.wsj.com/article/SB112898917962665021.html 
    TOPICS: Financial Accounting, Financial Analysis, Financial Statement Analysis, Research & Development

    SUMMARY: The article reports on a study by management consultants Booz Allen Hamilton on firms� levels of R&D spending and related performance metrics.

    QUESTIONS:

    1.) How must U.S. firms account for Research and Development expenditures? What is the major reasoning behind the FASB's requirement to treat these costs in this way? In your answer, reference the authoritative accounting literature promulgating this treatment and the FASB's supporting reasoning.

    2.) How does the U.S. treatment differ from the treatment of R&D costs under accounting standards in effect in most countries of the world?

    3.) Describe the study undertake by Booz Allen Hamilton as reported in the article. In your answer, define each of the terms for variables used in the analysis. Why would a management consulting firm undertake such a study?

    4.) What were the major findings of the study? How does this finding support the FASB�s reasoning as described in answer to question 1 above?

    5.) As far as you can glean from the description in the article, what are the potential weaknesses to the study? Do these weaknesses have any bearing on your opinion about the support that the results give to the current R&D accounting requirements in the U.S.? Explain.

    Reviewed By: Judy Beckman, University of Rhode Island

    "In R&D, Brains Beat Spending in Boosting Profit," by Gary McWilliams, The Wall Street Journal, October 11, 2005, Page A2 --- http://online.wsj.com/article/SB112898917962665021.html 

    Booz Allen concluded that once a minimum level of research and development spending is achieved, better oversight and culture were more significant factors in determining financial results. The study calculated the percentage of a company's revenue spent on R&D and compared it with sales growth, gross profit, operating profit, market capitalization and total shareholder result.

    It found "no statistically significant difference" when comparing the financial results of middle-of-the-pack companies with those in the top 10% of their industry, said Barry Jaruzelski, Booz Allen's vice president of Global Technology Practice. The result was the same when viewed within 10 industry groups or across all industries evaluated.

    "It is the culture, the skills and the process more than the absolute amount of money available," he said. "It says tremendous results can be achieved with relatively modest amounts" of spending.

    He points to Toyota Motor Corp., which spent 4.1% of revenue on R&D last year, but consistently has outperformed rivals such as Ford Motor Co., which spent 4.3% of sales on research and development. Toyota's success with hybrid, gasoline-electric cars resulted from better spending, not more spending, Mr. Jaruzelski says.

    The study rankles some. Allan C. Eberhart, a professor of finance at Georgetown University, says the time period examined is too short to catch companies whose results might have benefited from past R&D spending. He co-authored a paper that found "economically significant" increases in R&D spending did benefit operating profits. The paper, which examined R&D spending at 8,000 companies over a 50-year period, found 1% to 2% increased operating profit at companies that increased R&D spending by 5% or more in a single year.

    Mr. Jaruzelski said less isn't always better. The study found that companies that ranked among the bottom 10% of R&D spenders performed worse than average or top spenders. The result suggests there is a base level of research and development needed to remain healthy but that spending above a certain level doesn't confer additional benefits.

    R&D spending was positively associated with one performance measure: gross margins. Median gross margins of the top half of companies measured by R&D to sales spending were 40% higher than those in the bottom half.

     

    Bob Jensen's threads on FAS 2 are at http://www.trinity.edu/rjensen/theory01.htm#FAS02

     


    Free Video Lectures from London's Global University

    June 4, 2008 message from Gerald Trites [gtrites@ZORBA.CA]

    This was an interesting item:

    http://www.timesonline.co.uk/tol/news/uk/education/article4058158.ece 

    Jerry

    Bob Jensen's threads on open sharing of university videos and course materials --- http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI


    "8 Accused of Kickbacks, Fraud at Wall Street Brokerage Firms," SmartPros, May 23, 2008 --- http://accounting.smartpros.com/x61954.xml

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


    FASB Issues FAS 163 "Accounting for Financial Guarantee Insurance Contracts --- http://www.fasb.org/pdf/fas163.pdf

    From the AccountingWeb on May 27, 2008 --- http://www.accountingweb.com/cgi-bin/item.cgi?id=105224

    Last week The Financial Accounting Standards Board (FASB) issued FASB Statement No. 163, Accounting for Financial Guarantee Insurance Contracts. The new standard clarifies how FASB Statement No. 60, Accounting and Reporting by Insurance Enterprises, applies to financial guarantee insurance contracts issued by insurance enterprises, including the recognition and measurement of premium revenue and claim liabilities. It also requires expanded disclosures about financial guarantee insurance contracts. The Statement is effective for financial statements issued for fiscal years beginning after December 15, 2008, and all interim periods within those fiscal years, except for disclosures about the insurance enterprise's risk-management activities. Disclosures about the insurance enterprise's risk-management activities are effective the first period beginning after issuance of the Statement. "By issuing Statement 163, the FASB has taken a major step toward ending inconsistencies in practice that have made it difficult for investors to receive comparable information about an insurance enterprise's claim liabilities," stated FASB Project Manager Mark Trench. "Its issuance is particularly timely in light of recent concerns about the financial health of financial guarantee insurers, and will help bring about much needed transparency and comparability to financial statements."

    The accounting and disclosure requirements of Statement 163 are intended to improve the comparability and quality of information provided to users of financial statements by creating consistency, for example, in the measurement and recognition of claim liabilities. Statement 163 requires that an insurance enterprise recognize a claim liability prior to an event of default (insured event) when there is evidence that credit deterioration has occurred in an insured financial obligation. It also requires disclosure about (a) the risk-management activities used by an insurance enterprise to evaluate credit deterioration in its insured financial obligations and (b) the insurance enterprise's surveillance or watch list.

    Bob Jensen's threads on standard setting are at http://www.trinity.edu/rjensen/Theory01.htm


    More Reasons Why Tom and I Hate Principles-Based Accounting Standards

    "Contingent Liabilities: A Troubling Signpost on the Winding Road to a Single Global Accounting Standard," by Tom Selling, The Accounting Onion, May 26, 2008 --- Click Here

    By the logic of others, which I can’t explain, fuzzy lines in accounting standards have come to be exalted as “principles-based” and bright lines are disparaged as “rules-based.” One of my favorite examples (actually a pet peeve) of this phenomenon is the difference in the accounting for leases between IFRS and U.S. GAAP. The objective of the financial reporting game is to capture as much of the economic benefits of an asset as possible, while keeping the contractual liability for future lease payments off the balance sheet; a win is scored an “operating lease,” and a loss is scored a “capital lease.” As in tennis, If the present value of the minimum lease payments turns out to be even a hair over the 90% line of the leased asset’s fair value, your shot is out and you lose the point.

    The counterpart to FAS 13 in IFRS is IAS 17, a putative principles-based standard. It’s more a less a carbon copy of FAS 13 in its major provisions, except that bright lines are replaced with fuzzy lines: if the present value of the minimum lease payments is a “substantial portion” (whatever that means) of the leased asset’s fair value, you lose operating lease accounting. If FAS 13 is tennis, then IAS 17 is tennis-without-lines. Either way, the accounting game has another twist: the players call the balls landing on their side of the net; and the only job of the umpire—chosen and compensated by each player—is to opine on the reasonableness of their player's call. So, one would confidently expect that the players of tennis-without- lines have a much lower risk of being overruled by their auditors… whoops, I meant umpires.

    Although lease accounting is one example for which GAAP is bright-lined and IFRS is the fuzzy one, the opposite is sometimes the case, with accounting for contingencies under FAS 5 or IAS 37 being a prime exaple. FAS 5 requires recognition of a contingent liability when it is “probable” that a future event will result in the occurrence of a liability. What does “probable” mean? According to FAS 5, it means “likely to occur.” Wow, that sure clears things up. With a recognition threshold as solid as Jell-o nailed to a tree and boilerplate footnote disclosures to keep up appearances, there should be little problem persuading one’s handpicked independent auditor of the “reasonableness” of any in or out call.

    IAS 37 has a similar recognition threshold for a contingent liability (Note: I am adopting U.S. terminology throughout, even though "contingent liabilities" are referred to as "provisions" in IAS 37). But in refreshing contrast to FAS 5, IAS 37 unambiguously nails down the definition of “probable” to be “more likely than not” —i.e., just a hair north of 50%. Naively assuming that companies actually comply with the letter and spirit of IAS 37, then more liabilities should find their way onto the balance sheet under IFRS than GAAP. And, IAS 37 also has more principled rules for measuring a liability, once recognized. But, I won’t get into that here. Just please take my word for it that IAS 37 is to FAS 5 as steak is to chopped liver.

    The Global Accounting Race to the Bottom

    And so we have the IASB’s ineffable ongoing six-year project to make a hairball out of IAS 37. If these two standards, IAS 37 and FAS 5, are to be brought closer together as the ballyhooed Memorandum of Understanding between IASB and FASB should portend, it would make much more sense for the FASB to revise FAS 5 to make it more like IAS 37. After all, convergence isn’t supposed to take forever; even if you don’t think IAS 37 is perfect, there are a lot more serious problems IASB could be working harder on: leases, pensions, revenue recognition, securitizations, related party transactions, just to name a few off the top of my head. But, the stakeholders in IFRS are evidently telling the IASB that they get their jollies from tennis without lines. And, the IASB, dependent on the big boys for funding, is listening real close.

    Basically, the IASB has concluded that all present obligations – not just those that are more likely than not to result in an outflow of assets – should be recognized. It sounds admirably principled and ambitious, but there’s a catch. In place of the bright-line probability threshold in IAS 37, there would be the fuzziest line criteria one could possibly devise: the liability must be capable of “reliable” measurement. We know that "probable" without further guidance must at least lie between 0 and 1, but what amount of measurement error is within range of “reliable”? The answer, it seems, would be left to the whim of the issuer followed by the inevitable wave-your-hands-in-the-air rubber stamp of the auditor.

    It’s not as if the IASB doesn’t have history from which to learn. Where the IASB is trying to go in revising IAS 37, we’ve already been in the U.S. The result was all too often not a pretty sight as unrecognized liabilities suddenly slammed into balance sheets like freight trains. As I discussed in an earlier post, retiree health care liabilities were kept off balance sheets until they were about to break unionized industrial companies. Post-retirement benefits were doled out by earlier generations of management, long departed with their generous termination benefits, in order to persuade obstreperous unions to return to the assembly lines. GM and Ford are now on the verge of settling faustian bargains of their forbearers with huge cash outlays: yet for decades the amount recognized on the balance sheet was precisely nil. The accounting for these liabilities had been conveniently ignored, with only boilerplate disclosures in their stead, out of supposed concern for reliable measurement. Yet, everyone knew that zero as the answer was as far from correct as Detroit is from Tokyo – where, as in most developed countries, health care costs of retirees are the responsibility of government.

    Holding the recognition of a liability hostage to “reliable” measurement is bad accounting. There is just no other way I can put it. If this is the way the IASB is going to spend its time as we are supposed to be moving to a single global standard, then let the race to the bottom begin.

    Bob Jensen's threads on principles-based standards versus rules-based standards --- http://www.trinity.edu/rjensen/Theory01.htm#Principles-Based

    Bob Jensen's threads on lease accounting are at http://www.trinity.edu/rjensen/Theory01.htm#Leases

    Bob Jensen's threads on synthetic leases --- http://www.trinity.edu/rjensen/theory/00overview/speOverview.htm

    Bob Jensen's threads on intangibles and contingencies --- http://www.trinity.edu/rjensen/Theory01.htm#TheoryDisputes


    "FAS 157: The FASB's Prelude and Fugue on Fair Value of Liabilities," by Tom Selling, The Accounting Onion, May 4, 2008 --- http://accountingonion.typepad.com/theaccountingonion/2008/05/fas-157-the-fas.html

    FAS 157 on fair value measurements was supposed to provide comprehensive guidance for determining the fair value of pretty much any asset or liability.  Yet, almost two years after its initial publication, and well after companies have had to apply the standard to certain accounts, CFO.com reports that the FASB is still making up some of its rules on the fly, and having a tough slog to boot.  The problem described in the article has immediate consequences for derivative financial instruments that are classified as liabilities, but it could eventually affect the measurement of many other liability accounts as fair value measurement becomes more broadly applied:

    "At an unusually heated FASB meeting last week [no minutes published on the FASB's website yet], for instance, the members debated how companies should estimate the market value of liabilities when there's no actual market on which to base the estimate.

    During one point in the discussion, which concerned a proposed guidance by FASB's staff on how to mark liabilities to market under 157, chairman Robert Herz seemed, to member Leslie Seidman, to be contemplating an overhaul of the brand-new standard itself. Matters got so confusing that the board ordered its staff to go back and summarize the members' positions so that they could understand what they themselves had said.

    At issue was the question of how to measure the fair value of a liability for "which there is little, if any, market activity," according to 157. The standard defines fair value as "the price that would be received ... to transfer a liability in an orderly transaction between market participants at the measurement date." The question that FASB struggled with was: How do you determine the fair value of a liability that can only be settled, rather than sold?

    ...Often, for instance, when a company borrows money, it can't transfer its obligation to another party without an agreement from the bank. Or a market may not exist for transferring such liabilities."

    It's a mess that the FASB has gotten itself into for two related reasons.  The first is that the problems now being addressed are significant, and they were known long before FAS 157 was let out the door. The second is that FAS 157 is fundamentally flawed in its approach to fair value measurement of liabilities.  The solution, as I am about to describe, seems to me to be surprisingly simple. 

    This particular flaw in FAS 157 (see my previous post on many others) occurs in paragraph 5:

    "Fair value is the price that would be received to sell an asset or paid to transfer a liability [italics supplied] in an orderly transaction between market participants at the measurement date." 

    For every liability there is a counter party that holds an asset, and the economic value of the liability must be equal to the economic value of the asset. These are basic economic principles, which are not acknowledged in FAS 157.    If they were acknowledged, there would be no need for the phrase "or paid to transfer a liability."  That's because the value of any liability -- even one that cannot be transferred --must equal the value of the counter party's asset, which, perforce, can always be transferred.  Even though the evidence directly available to value the liability may be scant, the asset value might even be quoted in the newspaper; the non-transferability restriction on the debtor is just one more valuation parameter from the viewpoint of the creditor. 

    If you need further convincing that the solution to the problem of valuing any liability is to value the counter party's asset, let's consider an even thornier non-transferable liability that the FASB briefly considered and then dropped like a hot potato:  contingent environmental liabilities.  My understanding of federal environmental law is that the cleanup liability of a "potentially responsible party" is joint and several.  No other party can assume the liability, so the only way out from under it is to settle with the government.  Although I am not aware that the government has done this, it is theoretically possible for the government to transfer its contingent receivable to a third party.  Is the contingent receivable difficult to value?  Yes, but certainly no harder than many of the complex, illiquid derivatives that are roiling the global economy.  (And by the way, I recall seeing the issue of the fair value of contingent environmental liabilities posted on the FASB's website during the project phase of FAS 157.  The Board expressed a tentative conclusion, but it soon disappeared mysteriously, and without explanation.  I have searched Board minutes, and have come up with nothing.  If anyone has any further information on this that they would like to share, please contact me!)

    Because my solution to liability valuation is so simple (attention: CIFiR - SEC Advisory Committee on Improvements to Financial Reporting) and obvious, I can't help but fear I have overlooked something.  If that is indeed the case, I hope a reader of this post will take the time to point it out, and I will gladly issue a mea culpa forthwith.  Yet, I derive some measure of comfort (and optimism) by an entry in the minutes of an FASB meeting (11/14/07) where Bob Herz stated that he disagrees with the measurement principles for liabilities in SFAS 157. 

    Who knows, maybe Bob and I are thinking along the same lines?  That gives me hope for the future.  But, I have to express my disappointment that liabilities were not dealt with in a comprehensive way before SFAS 157 was issued. There is much to be said for getting it right the first time.

    Jensen Comment

    Tom wrote the following:

    For every liability there is a counter party that holds an asset, and the economic value of the liability must be equal to the economic value of the asset. These are basic economic principles, which are not acknowledged in FAS 157.    If they were acknowledged, there would be no need for the phrase "or paid to transfer a liability."  That's because the value of any liability -- even one that cannot be transferred --must equal the value of the counter party's asset, which, perforce, can always be transferred.  Even though the evidence directly available to value the liability may be scant, the asset value might even be quoted in the newspaper; the non-transferability restriction on the debtor is just one more valuation parameter from the viewpoint of the creditor. 

    For one party the Pacioli equation A=L+E is tautological since E is the sink hole makes everything balance. But it does it necessarily hold that A(Bank) = L(Homeowner) for 30 years after Bank loaned Homeowner $1 million in cash in a jumbo 30-year mortgage for a home on June 16, 2006. In fact it may well be that A(Bank) = L(Homeowner) did not even hold on the June 16, 2006 since Bank and Homeowner probably had different opportunity costs of capital. Most likely Bank charged for a risk premium and holds the asset (the mortgage note) with values that vary from day-to-day with Homeowner's credit rating and with resale value of the home itself that is the collateral on the loan.

    In conventional mortgages the Bank can transfer the asset (mortgage note) wholesale to another buyer such as Fannie Mae. But Homeowner cannot transfer the liability since most conventional mortgages now have a clause that says the mortgage must be prepaid if Homeowner sells the house. What Fannie will pay Bank for the asset (mortgage note) wholesale varies with market conditions in the wholesale market for mortgages.

    At some point in time Homeowner can go back to Bank and ask to refinance the mortgage (which is tantamount to prepaying the original mortgage), but Homeowner must refinance in the retail market. Bank can deal in both the wholesale and retail markets for mortgages whereas Homeowner is confined to the retail market. The two markets are highly correlated like they are in blue book car markets, but they are not perfectly correlated. Hence I don't think Tom can assume that Bank's transferable asset is equal in value to Homeowner's non-transferrable liability. Homeowner does not have access to all the buyers and sellers in the wholesale market.

    Then there is the other problem that exploded in both the Savings & Loan crisis of the 1980s and the subprime crisis of 2008. In both scandals crooked appraisers overstated the lending value of real estate way beyond realistic selling prices. Suppose Homeowner got the $1 million mortgage on a house that realistically only had a $500,000 value on June 16, 2006 and has sunk to a fair value of only $200,000 on June 16, 2008. How would FAS 157 be applied to a non-transferrable mortgage liability? What is the value of L(Homeowner) on June 16, 2008? Is it necessarily the same as the A(Bank) or A(Fannie) value of the asset held by the current holder of the mortgage investment?

    The fair value of the L(Homeowner) liability to Homeowner is affected by many factors, one of which is the cost of having a lower credit rating simply by turning the property over the Bank. Homeowner may have troubles even getting another loan for several years, and Former Homeowner may have to pay premium rates to get another loan. But the value of the collateral (the house now valued at only $200,000) is far less than the unpaid balance on the loan of nearly $1 million since the( principal amount owing does not decline much in the first two years of a 30-year mortgage). In this instance I don't think Professor Selling can assume that L(Homeowner) = A(Bank) on June 16, 2008. In fact I think the two values are vastly different.

    And Bank (or Fannie Mae) is very sad since what they paid out for homeowners' mortgages is still way in excess of what the combined collateral is really worth in 2008. Fortunately many homeowners are still making payments even though their property is now probably worth less than the discounted cash flows of their remaining mortgage payments.

    The problem with FAS 157 is that it cannot make a silk purse out a sow's ear when valuing assets and liabilities for which markets are non-existent, including surrogate markets. There is also a problem of dynamics of markets. FAS 157 wants reported values of L(Homeowner) and A(Bank) on June 16, 2008. Homeowner may continue to make payments on a $1 million 30-year mortgage for property that is now worth only $200,000 because of transactions costs (including adverse credit ratings) today of walking away from the mortgage and because of hope that this is only a market bleep before the value rises back up in value to more than $1 million in anticipation of soaring inflation.

    There is always the feeling that markets will bounce back. And there are what the mathematicians call non-convexities caused by transactions costs that are real but undeterminable when the cost of lowered credit ratings are factored into transactions costs. For years, accounting theorists criticized economists for unrealistic assumptions of rationality and non-convexities in their models. Economic value was deemed by accountants as unrealistic due to unknown future cash flows, unknown future market conditions at affect prices and interest rates, and unknown future legislative actions and taxes. Now FAS 157 and 159 along with IAS 39 on the international scene wants to turn accountants into economists.

    Valuation is an art rather than a science. Accountants and economists who are teaching free cash flow and residual income valuation models might as well be teaching astrology to FAS 157 implementers. It all boils down to attaching precise-looking number tags to cloud movements that are beyond anybody's control.

    Bob Jensen's threads on fair value accounting are at http://www.trinity.edu/rjensen/Theory01.htm#FairValue


    From The Wall Street Journal Accounting Weekly Review on May 9, 2008

    FASB Signals Stricter Rules For Banks' Loan Vehicles
    by David Reilly
    The Wall Street Journal

    May 02, 2008
    Page: C1
    Click here to view the full article on WSJ.com ---
    http://online.wsj.com/article/SB120969084241961495.html?mod=djem_jiewr_AC
     

    TOPICS: Advanced Financial Accounting, FASB, Financial Accounting, Financial Accounting Standards Board, International Accounting Standards Board, SEC, Securities and Exchange Commission, Securitization

    SUMMARY: The Securities and Exchange Commission has asked the FASB to create rules for banks' securitization vehicles, variable interest entities (VIEs) or special purpose entities (SPEs) by the end of this year. On April 2, 2008, the FASB tentatively voted to do away with the special securitization vehicles and to undertake a joint project with the IASB on derecognition in general. The author writes that the FASB "...didn't signal how banks would have to account for..." SPEs. The actual implication of the FASB's vote would be to do away with the qualifying SPE exemptions from FASB Statement 140 and Interpretation No. 46, Consolidation of Variable Interest Entities--an Interpretation of ARB No. 51.

    CLASSROOM APPLICATION: Advanced Accounting courses at the Master's level. Though some questions in this review are listed as introductory, they are introductory to the issues of accounting for securitization transactions, an advanced topic for any accounting student.

    QUESTIONS: 
    1. (Introductory) What is a "qualifying special purpose entity?" What accounting standards and/or interpretations define this term? Identify the names of the standards and summarize their general requirements.

    2. (Introductory) What did the FASB decide at its April 2, 2008, meeting with regard to qualifying special purpose entities and to derecognizing items from balance sheets in general? In your answer, define the term "derecognition." (Hint: You may access information about FASB meetings and decisions through the Action Alert on their web site. The Action Alert covering Board actions on April 2, 2008, was published on April 10, 2008 and is available at http://www.fasb.org/action/aa041008.shtml

    3. (Advanced) What will happen on banks' consolidated financial statements if the special purposes entities that they set up to own securitized assets can no longer be excluded from the requirements of Statement of Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities--a replacement of FASB Statement No. 125"?

    4. (Advanced) Given your answer to question #3 above, do you agree with the author's statement in the article that, when the FASB voted to eliminate the qualifying SPEs, "it didn't signal how banks would have to account for them"?

    5. (Advanced) In the article, the author notes that FASB Chairman Bob Herz did not indicate that banks would be allowed to make a net presentation of securitized assets and liabilities on their balance sheets. How would that possibility lead to "ballooning" of bank balance sheets? Why might banks particularly want a net basis of presentation for securitized assets?

    6. (Introductory) In introducing this FASB decision, the author states that changing accounting standards in this area "could make borrowing more expensive...but [also could] prevent the abuses that led to billions in losses over the past year." Are accounting standards designed to elicit particular economic responses such as limiting abuses by financial statement preparers or losses such as those experienced after last year's credit market failures? Support your answer.
     

    Reviewed By: Judy Beckman, University of Rhode Island
     

    "FASB Signals Stricter Rules For Banks' Loan Vehicles," by David Reilly,  The Wall Street Journal, May 2, 2008; Page C1 --- http://online.wsj.com/article/SB120969084241961495.html?mod=djem_jiewr_AC

    Possible accounting rule changes spurred by the subprime-mortgage crisis would make it harder and costlier for banks to package and sell off loans. That could make borrowing more expensive for consumers and companies but prevent the abuses that led to billions in losses over the past year.

    The changes come at a time of scrutiny of how financial institutions packaged mortgages and other loans into securities, shifting the risk of bad loans from their own balance sheets to investors. The changes will "be a little bit like taking the punch bowl away," said Robert Herz, chairman of the Financial Accounting Standards Board, which sets U.S. accounting rules.

    Outlining the possible shape of these new rules during an accounting conference Thursday, Mr. Herz indicated that banks might have to keep on their books loans they previously packaged and sold off, or securitized.

    Under current rules banks create securitization vehicles that hold the loans off their balance sheets. The Securities and Exchange Commission earlier this year asked the accounting board to create rules for these vehicles by year's end.

    The FASB last month tentatively voted to do away with the special securitization vehicles, although it didn't signal how banks would have to account for them. In his remarks, Mr. Herz indicated banks will have to use other rules governing off-balance-sheet vehicles. These rules are likely to be tightened as well.

    Any change in the rules surrounding securitization vehicles and other off-balance-sheet entities could have widespread implications for banks. At the end of 2007, J.P. Morgan Chase & Co. and Citigroup Inc. had nearly $1 trillion in assets held off their books in special securitization vehicles. J.P. Morgan generated nearly $3.5 billion in revenue, or about 6% of total 2007 net revenue, from administering special securitization vehicles.

    In a statement, Citigroup said, "We are actively engaged in industrywide discussions on the development of the proposal." J.P. Morgan declined to comment.

    Mr. Herz didn't push the possibility that banks would be allowed to show the combined effect of these vehicles' assets and liabilities on their books. Such a linked presentation could prevent a ballooning of bank balance sheets. He also said banks likely will face stiffer tests overall for what can stay off their books and may have to take into account emergency-funding arrangements they often offer to off-balance-sheet vehicles.

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


    Event Studies:  A Significant Extension of a 1991 Accounting Horizons Paper by Katherine Schipper and a 1993 InternationalJournal of Forecasting study by Larry Brown

    "The Financial Analyst Forecasting Literature: A Taxonomy with Suggestions for Further Research," by Sundaresh Ramnath, Steve Rock, and Phlip B. Shane, SSRN, 2008 --- http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1093405

    This paper develops a taxonomy of research examining the role of financial analysts in capital markets. The paper builds on the perspectives provided by Schipper [Schipper, K. (1991). Analysts' forecasts. Accounting Horizons, 5, 105-131] and Brown [Brown, L. (1993). Earnings forecasting research: Its implications for capital markets research. International Journal of Forecasting, 9, 295-320]. We categorize papers published since 1992, describe the research questions addressed, and suggest avenues for further research in seven broad areas: (1) analysts' decision processes; (2) the nature of analyst expertise and the distributions of earnings forecasts; (3) the information content of analyst research; (4) analyst and market efficiency; (5) analysts' incentives and behavioral biases; (6) the effects of the institutional and regulatory environment (including cross-country comparisons); and (7) research design issues.

    International Journal of Forecasting, Vol. 24, No. 1, 2008 


    "Deloitte Puts IFRS in College Classrooms," SmartPros, May 19, 2008 --- http://accounting.smartpros.com/x61904.xml

    Big Four accounting firm Deloitte & Touche has formed a consortium to accelerate integration of International Financial Reporting Standards (IFRS) into college curricula.

    Through the IFRS University Consortium, Deloitte is contributing resources to Ohio State and Virginia Tech universities to assist the schools in developing IFRS curricula. The contributions to Ohio State and Virginia Tech include drafting course materials such as classroom guides and case studies and providing Deloitte professionals as lecturers. The classroom guides and course materials will be made available to other interested universities.

    The announcement was made at the Deloitte/Federation of Schools of Accountancy (FSA) Faculty Consortium meeting in Chicago, a curriculum development program for accounting educators that is sponsored annually by the Deloitte Foundation, the not-for-profit arm of Deloitte LLP.

    Participating schools can benefit by having input in the direction, goals and resources available from the consortium; participation in periodic webcasts; sharing of best practices used in the classroom; involvement in the development of materials; and access to the support and guidance from Deloitte professionals, as well as to Deloitte IFRS information resources, publications and training sessions.

    There is no cost for institutions to join the Deloitte IFRS University Consortium.

    Continued in article

    Bob Jensen's threads on accounting standards controversies are at http://www.trinity.edu/rjensen/Theory01.htm#MethodsForSetting


    Barbara Black's Blog of the Corporate Law Center --- http://lawprofessors.typepad.com/securities/

    Finance Clippings: A New Finance Blog --- http://financeclippings.blogspot.com/

    From the Financial Rounds Blog on May 1, 2008 --- http://financialrounds.blogspot.com/

    I think it's good practice to mention new blogs of note -- I got some mention by established bloggers early on, and it helped a lot. So, I try pass the favor along and mention new blogs as I come across them - particularly when they're finance or academic in nature.

    In this case, here's one that's both:
    Finance Clippings, run by Richard Warr, a finance professor at North Carolina State University.

    I've read Richard's work (and enjojed it) for years, and have even crossed paths with him at conferences on a number of occasions. He seems to have both the academic chops and personal characteristics necessary to make for a good blog. Based on his first few posts, he seems to be off to a good start, and is focusing on material that he'll use in his classes.

    So welcome to the Blogosphere, Richard.

    Jensen Comment
    This looks like a pretty good blog. Here are some recent modules --- --- http://financeclippings.blogspot.com/

    Thursday, May 1, 2008

    Triple A Failure

    Newmark's door has a great link to a piece by Roger Lowenstein on the role of bond rating agencies in the credit crisis.

    It really is a must read article. In it, the finger is pointed at the bond raters - Moodys, S&P and Fitch for being too close to the banks issuing the mortgage backed debt.

    Although this is a bigger question, I do sometimes wonder exactly what value bond rating agencies provide. Their business model seems to be not entirely dissimilar from that of running a protection racket. Consider the evidence:
    1. You have to pay for the service. If you don't pay, you may not get as good a rating.
    2. They will help you structure the product to get a better rating, but you may have to pay more.
    3. The amount you can sell the bond for depends on the rating.
    4. Bond rating changes usually lag changes in credit quality and thus have little predictive power.
     

    Diane Rehm show on gas prices

     
    I was riding in my car today and I was listening to Diane Rehm on NPR. Her show was about gas tax holidays as are being proposed by McCain and Clinton.

    You can hear it here.

    There was a fair amount of discussion from the panel about how a gas tax holiday was a bad idea - it encourages consumption, it reduces tax revenue for road building (and thus has an offsetting fiscal effect) etc.

    Then Diane asked about the windfall tax that has been proposed. At this point Mark Cooper (director of research for the Consumer Federation of America) said something truly amazing. To paraphrase: he said that the oil companies don't really do anything with the excess profits - they just buy back stock or pay dividends. Then he said, and I quote "If you look at it from an economic point of view, taxing it away is not inefficient because they are not doing anything efficient with it"

    What???? So the government should be able to step in and tax excess profits? This has to be one of the daftest things I have heard in a while. Those profits which are paid out as dividends are being used efficiently. Firms that do not have good investment projects are to be commended for paying out surplus cash to shareholders. Shareholders can then invest in other firms which need cash and have more productive growth opportunities.

    It is one thing to make a policy decision to legislate a wealth transfer from one sector of the economy to another, but it makes no sense to argue that the government should tax more because it can put the money to a more efficient use.
     

    Financial Rounds

     
    Just a quick "Hi" to the readers of the excellent blog financialrounds.blogspot.com. Unknown prof said some nice things about me and my blog here
     

    Tuesday, April 29, 2008

    Lure of City money too strong for young

     
    Sometimes you just have to shake your head and wonder...this article in the Guardian quotes the Bank of England Governor and states that:
     
    The governor of the Bank of England issued a stern rebuke to the City today, saying that too many of Britain's most talented young people are being lured into financial careers by the huge bonuses on offer.


    What???? You'd think that the boss of the Bank of England would have some basic notion of supply and demand in labor (or labour) markets.
     

    Tuesday, April 8, 2008

    What is the world equity risk premium?

    John Campbell of Harvard has a nice paper published in a Canadian Econ Journal that estimates the equity risk premium. His conclusion: the world (and US) equity premium is around 4% currently.

    The article isn't free, but if you are have access to a university library you can probably download it for free.

    Given a 30 year bond rate of about 4.3%, this implies a long term return to stocks in the US of 8.3%. Why does this matter??? Well if you are assuming a 40 year investment horizon (someone who is, say 25 now) and you contribute $1,000 a month, 8.3% return will give you about $3.8M in your portfolio at age 65. But if you were using 11% (the long run historical return on equities) you would be expecting $8.6M. Given that most people are not saving enough, a lower return on stocks is not going to help.
     

    Living Yield Curve

    A student of mine (thanks Craig) sent me this link. Its for a living yield curve. Basically it shows the shape of the yield curve throughout history (or recent history anyway). Very cool.

    Living Yield Curve

    How good are analysts?

    The Investor Insight website has an interesting study that shows that analyst earnings forecasts basically lag the actual forecasts.

    This chart is particularly interesting:
    See May 1, 2008 ---http://financeclippings.blogspot.com/ 

     


    From The Wall Street Journal Weekly Accounting Review on May 2, 2008

    Segment Accounting

    Sara Lee's Coffee Sales Create Buzz
    by Karen Richardson
    The Wall Street Journal

    Apr 24, 2008
    Page: C1
    Click here to view the full article on WSJ.com
     

    TOPICS: Accounting, Business Segmentation, Managerial Accounting, Segment Margins, Segmentation Analysis

    SUMMARY: Sara Lee is taking advantage of the strong euro by pushing its coffee products in Europe. The company's stock is down about 14% this year, but some investors think Sara Lee deserves a second look because of its push abroad.

    CLASSROOM APPLICATION: This is an excellent article showing how an American company has ventured into the global markets to expand and diversify its business. The markets are not recognizing the changes and positive future prospects of the company, although segmentation analysis of shows that Sara Lee has made great gains in its foreign markets and products.

    QUESTIONS: 
    1. (Advanced) How has Sara Lee's expansion benefited the company? Which of its business segments are doing well and which are struggling?

    2. (Advanced) Why do you think that the stock market has not recognized Sara Lee's success in global markets? What indicators show that the market is not impressed?

    3. (Introductory) How has Sara Lee used segment reporting and segment margins to make changes in the business? Have the results been positive or negative?

    4. (Advanced) What are the statistics comparing Sara Lee's various segments? Based on the information offered in the article, what strategic decisions would you implement if you were a top executive at Sara Lee? What is the reasoning behind your recommendations?
     

    Reviewed By: Linda Christiansen, Indiana University Southeast
     


    "Einstein Letter on God Sells for $404,000," by Dennis Overbye, The New York Times, May 17, 2008 --- Click Here


    What are the favorite links of Neal Boritz besides --- http://boortz.com/  ?

    Neal's favorite links:
    Nealz Nuze Archives
    An Optical Illusion
    The Constitution of the U.S.
    The Bill of Rights
    Declaration of Independence
    Who Represents You in D.C.?
    E-Mail your Congressman
    Are you a Libertarian?
    Neal's favorite quotes
    Neal's Commencement Speech
    Neal's Nuze: 9/11




    Forwarded by Auntie Bev

    'I Hope You Dance... '

    This was written by an 83-year-old woman to her friend.

    *The last line says it all. *

    Dear Bertha,

    I'm reading more and dusting less. I'm sitting in the yard and admiring the view without fussing about the weeds in the garden. I'm spending more time with my family and friends and less time working.

    Whenever possible, life should be a pattern of experiences to savor, not to endure. I'm trying to recognize these moments now and cherish them.

    I'm not "saving" anything; we use our good china and crystal for every special event such as losing a pound, getting the sink unstopped, or the first Amaryllis blossom.

    I wear my good blazer to the market. My theory is if I look prosperous, I can shell out $28.49 for one small bag of groceries. I'm not saving my good perfume for special parties, but wearing it for clerks in the hardware store and tellers at the bank.

    "Someday" and "one of these days" are losing their grip on my vocabulary. If it's worth seeing or hearing or doing, I want to see and hear and do it now

    I'm not sure what others would've done had they known they wouldn't be here for the tomorrow that we all take for granted. I think they would have called family members and a few close friends. They might have called a few former friends to apologize and mend fences for past squabbles. I like to think they would have gone out for a Chinese dinner or for whatever their favorite food was.

    I'm guessing; I'll never know.

    It's those little things left undone that would make me angry if I knew my hours were limited. Angry because I hadn't written certain letters that I intended to write one of these days. Angry and sorry that I didn't tell my husband and parents often enough how much I truly love them. I'm trying very hard not to put off, hold back, or save anything that would add laughter and luster to our lives. And every morning when I open my eyes, tell myself that it is special.

    Every day, every minute, every breath truly is a gift from God.

    If you received this, it is because someone cares for you. If you're too busy to take the few minutes that it takes right now to forward this, would it be the first time you didn't do the little thing that would make a difference in your relationships? I can tell you it certainly won't be the last.

    Take a few minutes to send this to a few people you care about, just to let them know that you're thinking of them.

    "People say true friends must always hold hands, but true friends don't need to hold hands because they know the other hand will always be there." Life may not be the party we hoped for, but while we are here we might as well dance.




    Humor Updates


    Dennis Swanberg  (Bengy and the Zipper) --- http://www.youtube.com/watch?v=qWH-VToohro 


    Maxine's Five Boyfriends --- http://goldengirls03.org/Maxine_BoyFriends.htm

    Maxine on "Driver Safety" "I can't use the cell phone in the car. I have to keep my hands free for making gestures.".......

    Maxine on "Lawn Care" "The key to a nice-looking lawn is a good mower. I recommend one who is muscular and shirtle ss."

    Maxine on "The Perfect Man" "All I'm looking for is a guy who'll do what I want, when I want, for as long as I want, and then go away. Or wait nearby, like a Dust Buster, charged up and ready when needed."

    Maxine on "Technology Revolution" "My idea of rebooting is kicking somebody in the butt twice."

    Maxine on "Aging" "Take every birthday with a grain of salt. This works much better if the salt accompanies a Margarita."


     

    The Washington Post's Mensa Invitational once again asked readers to
     take any word from the dictionary, alter it by adding, subtracting, or
     changing one letter, and supply a new definition.
     
     Here are this year's winners.  Read them carefully.  Each is an
     artificial word with only one letter altered to form a real
     word. 

     1. Intaxication:
    Euphoria at getting a tax refund, which lasts until you realize it was your money to start with.
     
     2. Reintarnation:
    Coming back to life as a hillbilly.
     
     3. Bozone (n.):
    The substance surrounding stupid people that stops
    bright ideas from penetrating.  The bozone layer, unfortunately, shows  little sign of breaking down in the near future.
     
     4. Cashtration (n.):
    The act of buying a house, which renders the subject financially impotent for an indefinite period.
     
     5. Giraffiti:
    Vandalism spray-painted very, very high.
     
     6. Sarchasm:
    The gulf between the author of sarcastic wit and the person who doesn't get it.
     
     7. Inoculatte :
    To take coffee intravenously when you are running late.
     
     8. Hipatitis:
    Terminal coolness.
     
     9. Osteopornosis:
    A degenerate disease.  (This one got extra credit.)
     
     10. Karmageddon:
    It's like, when everybody is sending off all these
    really bad vibes, right?  And then, like, the Earth explodes and it's, like, a serious bummer.
     
     11. Decafalon (n.):
    The gruelling event of getting through the day
    consuming only things that are good for you.
     
     12. Glibido:
    All talk and no action.
     
     13. Dopeler effect:
    The tendency of stupid ideas to seem smarter when
    they come at you rapidly.
     
     14. Arachnoleptic fit (n.):
    The frantic dance performed just after
    you've accidentally walked through a spider web.
     
     15. Beelzebug (n.):
    Satan in the form of a mosquito, that gets into your
    bedroom at three in the morning and cannot be cast out.
     
     16. Caterpallor (n.):
    The color you turn after finding half a worm in
    the fruit you're eating.
     
     And the #1 pick:
     
     17. Ignoranus:
    A person who's both stupid and an asshole.
     

    Forwarded by Barb Hessel

    Chocolate Dreams
    http://www.foxnews.com/story/0,2933,356583,00.html 

    This is the stuff that children's dreams are made of.


    How to be a Good Wife --- http://www.snopes.com/language/document/goodwife.asp


    Forwarded by an "old" friend

    LOST IN THE DARNDEST PLACES:

    An elderly Floridian called 911 on her cell phone to report that her car has been broken into. She is hysterical as she explains her situation to the dispatcher: "They've stolen the stereo, the steering wheel, the brake pedal and even the accelerator!" she cried.

    The dispatcher said, "Stay calm. An officer is on the way."

    A few minutes later, the officer radios in. "Disregard." He says. "She got in the back-seat by mistake."
    ________________________________________________________________________

    FAMILY

    Three sisters, ages 92, 94 and 96, live in a house together. One night the 96-year-old draws a bath. She puts her foot in and pauses. She yells to the other sisters, "Was I getting in or out of the bath?"
    The 94-year-old yells back, "I don't know. I'll come up and see." She starts up the stairs and pauses "Was I going up the stairs or down?"
    The 92-year-old is sitting at the kitchen table having tea listening to her sisters. She shakes her head and says, "I sure hope I never get that forgetful, knock on wood ." She then yells, "I'll come up and help both of you as soon as I see who's at the door"
    ________________________________________________________________________

    "I CAN HEAR JUST FINE!"

    Three retirees, each with a hearing loss, were playing golf one fine March day. One remarked to the other, "Windy, isn't it?"

    "No," the second man replied, "it's Thursday."

    And the third man chimed in, "So am I. Let's have a beer."
    _______________________________________________________________________

    LITTLE LADY:

    A little old lady was running up and down the halls in a nursing home. As she walked, she would flip up the hem of her nightgown and say "Supersex." She walked up to an elderly man in a wheelchair. Flipping her gown at him, she said, "Supersex."

    He sat silently for a moment or two and finally answered, "I'll take the soup."
    _______________________________________________________________________

    OLD FRIENDS:

    Now this one is just too Precious...!

    Two elderly ladies had been friends for many decades. Over the years, they had shared all kinds of activities and adventures. Lately, their activities had been limited to meeting a few times a week to play cards. One day, they were playing cards when one looked at the other and said, "Now don't get mad at me .. I know we've been friends for a long time, but I just can't think of your name! I've thought and thought, but I can't remember it. Please tell me what your name is."

    Her friend glared at her. For at least three minutes she just stared and glared at her. Finally she said, "How soon do you need to know?"
    _______________________________________________________________________

    SENIOR DRIVING

    As a senior citizen was driving down the freeway, his car phone rang. Answering, he heard his wife's voice urgently warning him, "Herman, I just heard on the news that there's a car going the wrong way on Interstate 77. Please be careful!"

    "Heck," said Herman, "It's not just one car. It's hundreds of them!"
    _______________________________________________________________________

    DRIVING

    Two elderly women were out driving in a large car - both could barely see over the dashboard. As they were cruising along, they came to an intersection. The stoplight was red, but they just went on through. The woman in the passenger seat thought to herself "I must be losing it. I could have sworn we just went through a red light." After a few more minutes, they came to another intersection and the light was red again. Again, they went right through. The woman in the passenger seat was almost sure that the light had been red but was really concerned that she was losing it. She was getting nervous. At the next intersection, sure enough, the light was red and they went on through. So, she turned to the other woman and said, "Mildred, did you know that we just ran through three red lights in a row? You could have killed us both! "
    Mildred turned to her and said, "Oh, crap, am I driving ?"

     


    Forwarded by Eileen

    WE BLINKED AND WE GOT OLD

    By Bob Altman

    When I was a child, I always said I would know when I was old. It would be when my boyhood hero Roy Rogers died. Roy outlived Trigger and died in 1998, the year I retired from the government. Surprise! I didn't feel as old as anticipated. Then I moved to Florida and in a blink, we got old. What has happened to us? Six years ago, we lived in Maryland , were working full time, and had one doctor, an internist, a dentist and a nutritionist. Ellen also had a gynecologist who she saw once a year for the traditional boob smashing test and a shmear. I always thought that was a bagel and cream cheese test but I've since learned it's a smear, not a shmear.

    I saw my internist twice a year, my dentist when I was dragged to my appointment either by my wife or by severe pain. Admittedly, I was a phobic dental patient. I needed nitrous oxide to get my teeth cleaned! My dentist would come down to the parking lot with a portable tank of nitrous to uncurl my fingers from the steering wheel. Enough about that; it's too embarrassing.

    We found an internist and a dentist. Then the parade of 'ists' began. My feet started to hurt so I went to a podiatrist. After several corn scrapings and toe surgery, my feet still hurt. Next, having some pain in my knees, I saw an orthopedist, who gave me a shot in one knee. Not being able to walk for days, I called the doc's office and his nurse said I would feel just fine on the 5th day after the shot. On the fifth day I woke up; the pain in my knee was gone! This guy is good. Too bad he isn't my dentist.

    For about 10 years, I've had some nerve damage in my left leg. Therefore, when my drop foot made me trip all the time and I had trouble remembering things, I sought the aid of a neurologist. She told me my memory losses were normal, and I didn't have early onset Alzheimer's or dementia. I am just getting older. I will just keep on tripping and then forgetting about it.

    Ok, where am I? If you haven't caught on yet, I'm working my way up my body. Ah, yes one of my favorite docs: my urologist! A little bleeding and my urologist promptly scheduled a cystascope, a really fun test. They had to peel me off the ceiling so I could go home. I guess if any doc should have a sense of humor, it would be a urologist. Who becomes a urologist? A masochist who likes sticking his finger in unnatural places! My greatest fear in going to the urologist is that I might enjoy the rectal exam. One good thing is that I get free samples of Viagra and Cialis. I haven't rolled out of bed in weeks!

    Rodell thought we needed a check up by a dermatologist just to be on the safe side of being in the sun. As the doc waltzed into our exam room at 4:30 p.m., he announced that he was so happy because we were his first patients that day without any skin cancer. Whoopie! Give us a year or two!

    Next up is the gastroenterologist. A couple colonoscopies just proved what everyone has always said.I'm a perfect ass-..!

    A couple of years ago I thought I had bronchitis but it was really a congenital heart problem. My new best friend, my cardiologist, pulled me through that one with flying colors. I just have to get used to seeing him on a regular basis. He looks like he's 15 years old! Having Doogie Howser as your cardiologist would give anyone some concern. Next up is the otolaryngologyist for a runny nose. Gee, I can't wait for that exam! I also have an ophthalmologist who removed an early growing cataract.

    One of the usual practices of Florida docs is that they always have you come back for follow-up visits, even when there is no need for it. Plus, they refer you for additional treatment all the time. My dentist just sent me to an oral surgeon and periodontist. My internist didn't like my blood test results and sent me to a hematologist. Luckily, the high red blood count was the result of not having a spleen. Who would've thought that not having a spleen would be good news?

    What happened to us? These are supposed to be the 'golden years' which really means we should invest in gold so we can pay for insurance and all the doctors, and eventually assisted living. Maybe we should just invest in a couple of good psychiatrists who will just give enough 'happy pills' so we can deal with this horrible aging process. That would keep the list of 'ists' going.

    Oops, I left one doc out. I may have hemorrhoids so I guess I'll be seeing a proctologist soon. I think he's my urologist's evil twin brother! Either a proctologist or a rubber band salesman --- same thing. And do you want to really feel old? Ali McGraw just turned 70!


    Forwarded by Niki

    DEAR ABBY ADMITTED SHE WAS AT A LOSS TO ANSWER THE FOLLOWING:

    Dear Abby, A couple of women moved in across the hall from me. One is a middle-aged gym teacher and the other is a social worker in her mid twenties. These two women go everywhere together and I've never seen a man go into or leav e their apartment. Do you think they could be Lebanese ?

    Dear Abby, What can I do about all the Sex, Nudity, Fowl Language, and Violence On My VCR?

    Dear Abby, I have a man I can't trust. He cheats so much, I'm not even sure the baby I'm carrying is his.

    Dear Abby, I am a twenty-three year old liberated woman who has been on the pill for two years. It's getting expensive and I think my boyfriend should share half the cost, but I don't know him well enough to discuss money with him.

    Dear Abby, I've suspected that my husband has been fooling around, and when confronted with the evidence, he denied everything and said it would never happen again.

    Dear Abby, Our son writes that he is taking Judo. Why would a boy who was raised in a good Christian home turn against his own ?

    Dear Abby, I joined the Navy to see the world. I've seen it. Now how do I get out ?

    Dear Abby, My forty year old son has been paying a psychiatrist $50.00 an hour every week for two and a half years. He must be crazy.

    Dear Abby, I was married to Bill for three months and I didn't know he drank until one night he came home sober.

    Dear Abby, My mother is mean and short tempered I think she is going through mental pause.

    Dear Abby, You told some woman whose husband had lost all interest in sex to send him to a doctor. Well, my husband lost all interest in sex and he is a doctor. Now what do I do ?

    Remember: these people walk among us, they breed, and they can vote, which probably explains the current situation in Washington, DC.


    10 Potential Second Careers for Bill Gates --- http://www.pcworld.com/article/id,147036/article.html?tk=nl_wbxnws


    Forwarded by Niki

    Viva la difference

    SUNDAY CLOTHES

    A little boy was walking down a dirt road after church one Sunday afternoon when he came to a crossroads where he met a little girl coming from the other direction.

    'Hello,' said the little boy

    'Hi,' replied the little girl.

    'Where are you going?' asked the little boy.

    'I've been to church this morning and I'm on my way home,' answered the little girl.

    'I'm also on my way home from church. Which church do you go to?' asked the little boy.

    'I go to the Lutheran church back down the road,' replied the little girl. 'What about you? '

    'I go to the Catholic church back at the top of the hill,' replied the little boy.

    They discover that they are both going the same way so they decided that they'd walk together.

    They came to a low spot in the road where spring rains had partially flooded the road, so there was no way that they could get across to the other side without getting wet.

    'If I get my new Sunday dress wet, my Mom's going to skin me alive,' said the little girl.

    'My Mom'll tan my hide, too, if I get my new Sunday suit wet,' replied the little boy.

    'I tell you what I think I'll do,' said the little girl. 'I'm gonna pull off all my clothes and hold them over my head and wade across.'

    'That's a good idea,'replied the little boy. 'I'm going to do the same thing with my suit.'

    So they both undressed and waded across to the other side without getting their clothes wet. They were standing there in the sun waiting to drip dry before putting their clothes back on, when the little boy finally remarked .

    'You know, I never realized before just how much difference there really is between a Lutheran and a Catholic!!!


    Forwarded by Paula

    A 1st grade school teacher had twenty-six students in her class.  She presented each child in her classroom the 1st half of a well-known proverb and asked them to come up with the remainder of the proverb.  It's hard to believe these were actually done by first graders. Their insight may surprise you.  While reading, keep in mind that these are first-graders, 6-year-olds, because the last one is a classic!

    01.

    Don't change horses

    until they stop running.

    02.

    Strike while the

    bug is close.

    03.

    It's always darkest before

    Daylight Saving Time.

    04.

    Never underestimate the power of

    termites.

    05.

    You can lead a horse to water but

    How?

    06.

    Don't bite the hand that

    looks dirty.

    07.

    No news is

    impossible

    08.

    A miss is as good as a

    Mr.

    09

    You can't teach an old dog new

    Math

    10.

    If you lie down with dogs, you'll

    stink in the morning.

    11.

    Love all, trust

    Me.

    12.

    The pen is mightier than the

    pigs.

    13.

    An idle mind is

    the best way to relax.

    14.

    Where there's smoke there's

    pollution.

    15.

    Happy the bride who

    gets all the presents.

    16.

    A penny saved is

    not much.

    17.

    Two's company, three's

    the Musketeers.

    18.

    Don't put off till tomorrow what

    you put on to go to bed.

    19.

    Laugh and the whole world laughs with you, cry and

    You have to blow your nose.

    20.

    There are none so blind as

    Stevie Wonder.

    21.

    Children should be seen and not

    spanked or grounded.

    22.

    If at first you don't succeed

    get new batteries.

    23.

    You get out of something only what you


    See in the picture on the box

    24.

    When the blind lead the blind 

    get out of the way.

    25.

    A bird in the hand

    is going to poop on you. 

    And the WINNER and last one! 

    26.

    Better late than

    Pregnant

     


    Forwarded by a good neighbor

    The buzzword of this election is 'CHANGE'.

            Candidates toss it around without saying what they want to
            change to.

            Years ago, there was an old tale in the Marine Corps about
            a  lieutenant who inspected his Marines and told the 'Gunny' that
            they smelled bad. The lieutenant suggested that they change their
            underwear. The Gunny responded, 'Aye,aye, sir, I'll see to it
            immediately' .
            He went into the tent and said, 'The lieutenant
            thinks you guys smell bad, and wants you to change your underwear.
            Smith, you change with Jones, McCarthy, you change with Witkowskie,
            Brown, you  change with Schultz. Get to it'.

            The moral: A candidate may promise change in Washington but don't
            count on things smelling any better.

            *Fight organized crime!........Don't re-elect anyone!*

     


    Forwarded by Paula

    Warning - When I Am an Old Woman I Shall Wear Purple
    By Jenny Joseph

    When I am an old woman, I shall wear purple with a red hat that doesn't go,
    and doesn't suit me.

    And I shall spend my pension on brandy and summer gloves
    and satin candles,
    and say we've no money for butter.

    I shall sit down on the pavement when I am tired and gobble up samples in shops
    and press alarm bells
    and run my stick along the public railings
    and make up for the sobriety of my youth.

    I shall go out in my slippers in the rain
    and pick the flowers in other people's gardens
    and learn to spit.

    You can wear terrible shirts and grow fatter
    and eat three pounds of sausages at a go or only bread and pickles for a week
    and hoard pens and pencils and beer nuts and things in boxes.

    But now we must have clothes that keep us dry
    and pay our rent and not swear in the street
    and set a good example for the children.

    We must have friends to dinner and read the papers.

    But maybe I ought to practice a little now?

    So people who know me are not too shocked and surprised

    When suddenly I am old, and start to wear purple


    Forwarded by Dick Haar

    Gentle thoughts for today.

    When I'm feeling down, I like to whistle. It makes the neighbor's dog run to the end of his chain and gag himself.

    A penny saved is a government oversight.

    The older you get, the tougher it is to lose weight, because by then your body and your fat have gotten to be really good friends.

    The easiest way to find something lost around the house is to buy a replacement.

    Did you ever notice: The Roman Numerals for forty (40) are " XL."

    If you think there is good in everybody, you haven't met everybody. 

    The sole purpose of a child's middle name is so he can tell when he's really in trouble.

    There's always a lot to be thankful for if you take time to look for it. For example I am sitting here thinking how nice it is that wrinkles don't hurt.

    Did you ever notice: When you put the 2 words "The" and "IRS" together it spells "Theirs?"

    Aging: Eventually you will reach a point when you stop lying about your age and start bragging about it.

    The older we get, the fewer things seem worth waiting in line for.

    One of the many things no one tells you about aging is that it is such a nice change from being young.

    First you forget names, then you forget faces. Then you forget to pull up your zipper. It's worse when you forget to pull it down.

    Long ago when men cursed and beat the ground with sticks, it was called witchcraft. Today, it's called golf.

    Lord, Keep your arm around my shoulder and your hand over my mouth...AMEN. .!!


    Forwarded by Niki

    I Don't Do Windows --- http://www.frontiernet.net/~shelby304/specials/dontdowindows/nowindows.htm


    Forwarded by Niki

    Thoughts for Today--

    Birds of a feather flock together and crap on your car.

    When I'm feeling down, I like to whistle. It makes the neighbor's dog run to the end of his chain and gag himself.

    A penny saved is a government oversight.

    The real art of conversation is not only to say the right thing at the right time, but also to leave unsaid the wrong thing at th e tempting moment.

    The older you get, the tougher it is to lose weight, because by then your body and your fat have gotten to be really good friends.

    The easiest way to find something lost around the house is to buy a replacement.

    He who hesitates is probably right.

    Did you ever notice: The Roman Numerals for forty (40) are " XL."

    If you think there is good in everybody, you haven't met everybody.

    I f you can smile when things go wrong, you have someone in mind to blame.

    The sole purpose of a child's middle name is so he can tell when he's really in trouble.

    There's always a lot to be thankful for if you take time to look for it. For example, I am sitting here thinking how nice it is that wrinkles don't hurt.

    Did you ever notice: When you put the 2 words "The" and "IRS" together it spells "Theirs."

    Aging: Eventually you will reach a point when you stop lying about your age and start bragging about it.

    The older we get, the fewer things seem worth waiting in line for.

    Some people try to turn back their odometers. Not me, I want people to know "why" I look this way. I've traveled a long way and some of the roads weren't paved.

    When you are dissatisfied and would like to go back to youth, think of Algebra.

    You know you are getting old when everything either dries up or leaks.

    One of the many things no one tells you about aging is that it is such a nice change from being young.

    Ah, being young is beautiful, but being old is comfortable.

    First you forget names, then you forget faces. Then you forget to pull up your zipper.

    It's worse when you forget to pull it down.


    Forwarded by Auntie Bev

    GREAT TRUTHS THAT LITTLE CHILDREN HAVE LEARNED:
    1) No matter how hard you try, you can't baptize cats.
    2) When your Mom is mad at your Dad, don't let her brush your hair.
    3) If your sister hits you, don't hit her back. They always catch the second person.
    4) Never ask your 3-year old brother to hold a tomato.
    5) You can't trust dogs to watch your food.
    6) Don't sneeze when someone is cutting your hair.
    7) Never hold a Dust-Buster and a cat at the same time.
    8) You can't hide a piece of broccoli in a glass of milk.
    9) Don't wear polka-dot underwear under white shorts.
    10) The best place to be when you're sad is Grandpa's lap.

    GREAT TRUTHS THAT ADULTS HAVE LEARNED:
    1) Raising teenagers is like nailing Jell-O to a tree.
    2) Wrinkles don't hurt.
    3) Families are like fudge...mostly sweet, with a few nuts.
    4) Today's mighty oak is just yesterday's nut that held its ground.
    5) Laughing is good exercise. It's like jogging on the inside.
    6) Middle age is when you choose your cereal for the fiber, not the toy.

    GREAT TRUTHS ABOUT GROWING OLD
    1) Growing up is mandatory; growing old is optional.
    2) Forget the health food. I need all the preservatives I can get.
    3) When you fall down, you wonder what else you can do while you're down there.
    4) You're getting old when you get the same sensation from a rocking chair that you once got from a roller coaster.
    5) It's frustrating when you know all the answers but nobody bothers to ask you the questions.
    6) Time may be a great healer, but it's a lousy beautician.
    7) Wisdom comes with age, but sometimes age comes alone.

    THE FOUR STAGES OF LIFE:

    1) You believe in Santa Claus.
    2) You don't believe in Santa Claus.
    3) You are Santa Claus.
    4) You look like Santa Claus.

    SUCCESS:

    At age 4 success is . not peeing in your pants.
    At age 12 success is . having friends. At age 16 success is . having a drivers license.
    At age 35 success is . having money.
    At age 50 success is . . . having money. A
    t age 70 success is . . . having a drivers license.
    At age 75 success is . having friends.
    At age 80 success is . not peeing in your pants.


    Forwarded by Paula

    Customer:
       'I've been ringing 0800 2100 for two days and can't get through to
    enquiries
    , can you help?'.
    Operator:     'Where did you get that number from, sir?'.
    Customer:     'It was on the door to the Travel Centre'.
    Operator:     'Sir, they are our opening hours'.

     -----------------------------------------------------------------------------------------------------------------
    Samsung
    Electronics

    Caller:          'Can you give me the telephone
    number
    for Jack?'
    Operator:     'I'm sorry, sir, I don't understand who you are talking about'.
    Caller:   'On page 1, section 5, of the user guide it clearly states that I need to
    unplug the fax machine from the AC  wall socket and telephone Jack before
    cleaning. Now, can you give me the number for Jack?'
    Operator:   'I think you mean the telephone point on the wall'.

       ----------------------------------------------------------------------
    RAC
    Motoring Services

    Caller:
     Does your European Breakdown Policy cover me when I am travelling in
    Australia ?'
    Operator:  'Doesn't the product name give you a clue?'
     

     ----------------------------------------------------------------------
    Caller
    (enquiring about legal requirements while travelling in France ):
    'If I register my car in France, do I have to change the steering wheel to the other side of the car?'

    ----------------------------------------------------------------------
    Directory
    Enquiries

    Caller:  'I'd like the number of the Argoed Fish Bar in Cardiff please'.
    Operator:    
    'I'm sorry, there's no listing. Is the spelling correct?'
    Caller: 'Well, it used to be called the Bargoed Fish Bar but the 'B' fell off'.


    ----------------------------------------------------------------------
    Then there was the caller who asked for a knitwear company in Woven.
    Operator:
          'Woven? Are you sure?'
    Caller:    
           'Yes. That's what it says on the label; Woven in
    Scotland
    ----------------------------------------------------------------------


    On another occasion, a man making heavy breathing sounds from a phone box
    told
    a worried operator:
     
    'I haven't got a pen, so I'm steaming up the window

    to write the number on'
    ----------------------------------------------------------------------
    Tech
    Support:
        'I need you to right-click on the Open Desktop'.
    Customer:   'OK'.
    Tech Support:  'Did you get a pop-up menu?'.
    Customer:    'No'.
    Tech Support:  'OK. Right-Click again. Do you see a pop-up menu?'
    Customer:   'No'.
    Tech Support: 'OK, sir. Can you tell me what you have done up until this point?'.
    Customer:  'Sure. You told me to write 'click' and I wrote 'click''.

    ----------------------------------------------------------------------
    Tech
    Support:          'OK. In the bottom left hand side of
    the
    screen, can you see the 'OK' button displayed?'
    Customer:     'Wow. How can you see my screen from there?'
     
     ----------------------------------------------------------------------
     Caller:
    'I deleted a file from my PC last week and I have just realised that I
    need
    it. If I turn my system clock back two weeks will I have my file back
    again
    ?'.

     ----------------------------------------------------------------------
      There's always one. This has got to be one of the funniest things in a long time. I
    think
    this guy should have been promoted, not fired. This is a true story from
    the
    Word Perfect Helpline, which was transcribed from a recording monitoring the
    customer care department. Needless to say the Help Desk employee was fired;
    however
    , he/she is currently suing the Word Perfect organization for
    'Termination without Cause'.

     

    Actual dialogue of a former WordPerfect
    Customer
    Support employee. (Now I know why they record these conversations!):

    Operator:  'Ridge Hall, computer assistance; may I help you?'
    Caller:  'Yes, well, I'm having trouble with WordPerfect.'
    Operator:   'What sort of trouble??'
    Caller:    'Well, I was just typing along, and all of a sudden the words went away.'
    Operator:    'Went away?'
    Caller:   'They disappeared.'
    Operator:   'Hmm So what does your screen look like now?'
    Caller:   'Nothing.'
    Operator:   'Nothing??'
    Caller: 'It's blank; it won't accept anything when I type.'
    Operator:  'Are you still in WordPerfect, or did you get out??'
    Caller:   'How do I tell?'
    Operator:   'Can you see the C: prompt on the screen??'
    Caller:   'What's a sea-prompt?'
    Operator:  'Never mind, can you move your cursor around the screen?'
    Caller:  'There isn't any cursor: I told you, it won't accept anything I type.'
    Operator:    'Does your monitor have a power indicator??'
    Caller:  'What's a monitor?'
    Operator:         'It's the thing with the screen on it that looks like a TV.

    Does it have a little light that tells you when it's on??'
    Caller:     'I don't know.'
    Operator:   'Well, then look on the back of the monitor and find

    where the power cord goes into it. Can you see that??'
    Caller:    'Yes, I think so.'
    Operator:         'Great. Follow the cord to the plug, and tell me if it's plugged into the wall.
    Caller:    'Yes, it is.'
    Operator:   'When you were behind the monitor, did you notice that there were two
    cables
    plugged into the back of it, not just one??'
    Caller:   'No.'
    Operator
    :   'Well, there are. I need you to look back there again and find the
    other
    cable.'
    Caller:  'Okay, here it is.'
    Operator: 'Follow it for me, and tell me if it's plugged securely into the back of your computer.'
    Caller:     'I can't reach.'
    Operator:   'Uh huh. Well, can you see if it is??'
    Caller:   'No.'
    Operator:   'Even if you maybe put your knee on something and lean way over??'

    Caller:   'Oh, it's not because I don't have the right angle - it's because it's dark.'
    Operator:   'Dark??'
    Caller:      'Yes - the office light is off, and the only light I have is coming in from the
    window
    .
    Operator: 'Well, turn on the office light then.'
    Caller:   'I can't.'
    Operator:  'No? Why not??'
    Caller:   'Because there's a power failure.'
    Operator:  'A power......... A power failure? Aha, Okay, we've got it licked now.
              Do you still have the boxes and manuals and packing stuff your computer came in??'
    Caller:    'Well, yes, I keep them in the closet.'
    Operator:   'Good. Go get them, and unplug your system and pack it up just like it was when you got
    it
    . Then take it back to the store you bought it from.'

    Caller:   'Really? Is it that bad?'
    Operator:    'Yes, I'm afraid it is.'
    Caller:   'Well, all right then, I suppose. What do I tell them??'

    Operator:   'Tell them you're too f***ing stupid to own a computer! 
     
     

     


    Forwarded by Paula

    An old, blind cowboy wanders into an all-girl biker bar by mistake. He finds his way to a bar stool and orders some coffee.

    After sitting there for a while, he yells to the waiter: "Hey, you wanna hear a blonde joke?" The bar immediately falls absolutely silent.

    In a very deep, husky voice, the woman next to him says, “Before you tell that joke, Cowboy, I think it is only fair, given that you are blind, that you should know five things:

    1. The bartender is a blonde girl with a baseball bat.

    2. The bouncer is a blonde girl.

    3. I'm a 6-foot tall, 175-pound blonde woman with a black belt in karate.

    4. The woman sitting next to me is blonde and a professional weightlifter.

    5. The lady to your right is blonde and a professional wrestler.

    "Now, think about it seriously, Mister. Do you still wanna tell that joke?"

    The blind cowboy thinks for a second, shakes his head, and mutters: "No, not if I'm gonna have to explain it five times."

     


    Forwarded by Lynn

    LIFE IN THE 1500's-

    The next time you are washing your hands and complain because the water temperature isn't just how you like it, think about how things used to be. Here are some facts about the1500s:

    Most people got married in June because they took their yearly bath in May, and still smelled pretty good by June. However, they were starting to smell, so brides carried a bouquet of flowers to hide the body odor. Hence the custom today of carrying a bouquet when getting married.

    Baths consisted of a big tub filled with hot water. The man of the house had the privilege of the nice clean water, then all the other sons and men, then the women and finally the children. Last of all the babies. By then the water was so dirty you could actually lose someone in it. Hence the saying, Don't throw the baby out with the Bath water.

    Houses had thatched roofs-thick straw-piled high, with no wood underneath. It was the only place for animals to get warm, so all the cats and other small animals (mice, bugs) lived in the roof When it rained it became slippery and sometimes the animals would slip and fall off the roof. Hence the saying . It's raining cats and dogs.

    There was nothing to stop things from falling into the house.. This posed a real problem in the bedroom where bugs and other droppings could mess up your nice clean bed. Hence, a bed with big posts and a sheet hung over the top afforded some protection. That's how canopy beds came into existence.

    The floor was dirt. Only the wealthy had something other than dirt. Hence the saying, Dirt poor. The wealthy had slate floors that would get slippery in the winter when wet, so they spread thresh (straw) on floor to help keep their footing. As the winter wore on, they added more thresh until, when you opened the door, it would all start slipping outside. A piece of wood was placed in the entranceway. Hence the saying a thresh hold.

    (Getting quite an education, aren't you?)

    In those old days, they cooked in the kitchen with a big kettle that always hung over the fire. Every day they lit the fire and added things to the pot. They ate mostly vegetables and did not get much meat. They would eat the stew for dinner, leaving leftovers in the pot to get cold overnight and then start over the next day. Sometimes stew had food in it that had been there for quite a while. Hence the rhyme, Peas porridge hot, peas porridge cold, peas porridge in the pot nine days old. ((My father's favorite poem. Anu))

    Sometimes they could obtain pork, which made them feel quite special. When visitors came over, they would hang up their bacon to show off. It was a sign of wealth that a man could, bring home the bacon. They would cut off a little to share with guests and would all sit around and chew the fat.

    Those with money had plates made of pewter. Food with high acid content caused some of the lead to leach onto the food, causing lead poisoning death. This happened most often with tomatoes, so for the next 400 years or so, tomatoes were considered poisonous.

    Bread was divided according to status. Workers got the burnt bottom of the loaf, the family got the middle, and guests got the top, or the upper crust.

    Lead cups were used to drink ale or whisky. The combination would sometimes knock the imbibers out for a couple of days. Someone walking along the road would take them for dead and prepare them for burial. They were laid out on the kitchen table for a couple of days and the family would gather around and eat and drink and wait and see if they would wake up. Hence the custom of holding a wake.

    England is old and small and the local folks started running out of places to bury people. So they would dig up coffins and would take the bones to a bone-house, and reuse the grave. When reopening these coffins, 1 out of 25 coffins were found to have scratch marks on the inside and they realized they had been burying people alive. So they would tie a string on the wrist of the corpse, lead it through the coffin and up through the ground and tie it to a bell. Someone would have to sit out in the graveyard all night (the graveyard shift) to listen for the bell; thus, someone could be, saved by the bell or was considered a ...dead ringer.

     


    Forwarded by Auntie Bev

    Subject: Questions for Age 60 +
         Questions and Answers from an AARP Forum
      
    >  Q: Where can men over the age of 60 find younger, sexy women who are interested in them?
    >  A: Try a bookstore--- ----under fiction.
    >  
    >  Q: What can a man do while his wife is going through menopause?
    >  A: Keep busy. If you're handy with tools, you can finish the basement. When you are done you will > have a place to live.
    >  
    >  Q: Someone has told me that menopause is mentioned in the Bible. Is that true? Where can it be found?
    >  A: Yes. Matthew 14:92: "And Mary rode Joseph's ass all the way to Egypt ."
    >  
    >  Q: How can you increase the heart rate of your 60+year old husband?
    >  A: Tell him you're pregnant.
    >  
    >  Q: How can you avoid that terrible curse of the elderly----- wrinkles?
    >  A: Take off your glasses  
    >  
    >  Q: Seriously! What can I do for these crow's feet and all those wrinkles on my face?
    >  A: Go braless. It will usually pull them out.
    >  
    >  Q: Why should 60+ year old people use valet parking? 
    >  A: Valets don't forget where they park your car. 
    >  
    >  Q: Is it common for 60+ year olds to have problems with short term memory storage?
    >  A: Storing memory is not a problem, retrieving it is a problem.
    >  
    >  Q: As people age, do they sleep more soundly?
    >  A: Yes, but usually in the afternoon.
    >  
    >  Q: Where should 60+ year olds look for eye g lasses ?
    >  A: On their foreheads.
    >  
    >  
    Q: What is the most common remark made by 60+ year olds when they enter antique stores?
    >  A: "Gosh, I remember these."

     


    Forwarded by Gene and Joan

    I was having trouble with my computer. So I called Eric, the 11 year old next door, whose bedroom looks like Mission Control and asked him to come over. Eric clicked a couple of buttons and solved the problem.

    As he was walking away, I called after him, 'So, what was wrong? He replied, 'It was an ID ten T error.'

    I didn't want to appear stupid, but nonetheless inquired, 'An, ID ten T error? What's that? In case I need to fix it again.'

    Eric grinned.... 'Haven't you ever heard of an ID ten T error before?'

    'No,' I replied. 'Write it down,' he said, 'and I think you'll figure it out.'

    So I wrote down: I D 1 0 T

    I used to like Eric


    Forwarded by Dick Haar

    INSTALLING A HUSBAND


    Dear Tech Support, 

    Last year I upgraded from 
    Boyfriend 5.0 to Husband 1.0 and noticed a distinct slowdown in overall system performance, particularly in the flower and jewelry applications, which operated flawlessly under Boyfriend 5.0.

    In addition, 
    Husband 1.0 uninstalled many other valuable programs, such as 
    ·
            Romance 9.5 and 
    ·
            Personal Attention 6.5, and then installed undesirable programs such as 

    ·        NBA 5.0, 
    ·
            NFL 3.0  and 
    ·       Golf Clubs 4.1.

    Conversation 8.0
     no longer runs, and Housecleaning 2.6 simply crashes the system.

    ·        Please note that I have tried running Nagging 5.3 to fix these problems, but to no avail. 

    What can I do? 

    Signed, 

    Desperate.

     

    DEAR DESPERATE, 

    Fir st, keep in mind, 
    ·
            Boyfriend 5.0 is an Entertainment Package, while 
    ·
            Husband 1.0 is an operating system. 

    Please enter command: ithoughtyoulovedme.html, try to download Tears 6.2, and do not forget to install the  Guilt 3.0 update. 
    ·
            If those applications work as designed, Husband 1.0 should then automatically run the applications Jewelry 2.0 and Flowers 3.5. 

    However, remember, overuse of the above application can cause Husband 1.0 to default to  Grumpy Silence 2.5, Happy Hour 7.0, or Beer 6.1. 
    ·
            Please note that Beer 6. 1 is a very bad program that will download the Farting and Snoring Loudly Beta. 

    Whatever you do, 
    DO NOT under any circumstances install Mother-In-Law 1.0 (it runs a virus in the background that will eventually seize control of all your system resources.) 

    In addition, please do not attempt to reinstall the 
    Boyfriend 5.0-program. This is an unsupported application and will crash Husband 1.0.

    In summary, 
    Husband 1.0
     is a great program, but it does have limited memory and cannot learn new applications quickly. You might consider buying additional software to improve memory and performance. We recommend 
    ·
            Cooking 3.0 and 
    ·        Hot Lingerie 7.7. 

    Good Luck!

     


    Forwarded by Paula

    Take the quiz and see how you score as a true 'Oldies Fan'. Write down

    your answers and check them with the answers below.

    1. When did 'Little Suzie' finally wake up?

    a) The movie's over, it's 2 o'clock

    b) The movie's over, it's 3 o'clock

    c) The movie's over, it's 4 o'clock

    2. 'Rock Around The Clock' was used in what movie?

    a) Rebel Without A Cause

    b) Blackboard Jungle

    c) The Wild Ones

    3. What's missing from a Rock & Roll standpoint? Earth_____

    a) Angel

    b) Mother

    c) Worm

    4. 'I found my thrill...' where?

    a) Kansas City

    b) Heartbreak Hotel

    c) Blueberry Hill

    5. 'Please turn on your magic beam, _____ _____ bring me a dream'

    a) Mr. Sandman

    b) Earth Angel

    c) Dream Lover

    6. For which label did Elvis Presley first record?

    a) Atlantic

    b) RCA

    c) Sun

    7. He asked, 'Why's everybody always pickin' on me? ' Who was he?

    a) Bad Bad Leroy Brown

    b) Charlie Brown

    c) Buster Brown

    8. Bobby Darin's 'Mack The Knife', the one with the knife, was named:

    a) MacHeath

    b) MacCloud

    c) MacNamara

    9. Name the song with 'A-wop bop a-loo bop a-lop bam boom'?

    a) Good Golly Miss Molly

    b) Be-Bop-A-Lula

    c) Tutti Fruitti

    10. Who is generally given credit for originating the term 'Rock And

    Roll'?

    a) Dick Clark

    b) Wolfman Jack

    c) Alan Freed

    11. In 1957, he left the music business to become a preacher.

    a) Little Richard

    b) Frankie Lymon

    c) Tony Orlando

    12. Paul Anka's 'Puppy Love' is written to what star?

    a) Brenda Lee

    b) Connie Francis

    c) Annette Funicello

    13. The Everly Brothers are...

    a) Pete and Dick

    b) Don and Phil

    c) Bob and Bill

    14. The Big Bopper's real name was:

    a) Jiles P. Richardson

    b) Roy Harold Scherer Jr.

    c) Marion Michael Morrison

    15. In 1959, Berry Gordy Jr. started a small record company called...

    a) Decca

    b) Cameo

    c) Motown

    16. Edd Brynes had a hit with 'Kookie, Kookie, Lend Me Your Comb.

    'What TV show was he on?

    a) 77 Sunset Strip

    b) Hawaiian Eye

    c) Surfside Six

    17. In 1960 Bobby Darin married:

    a) Carol Lynley

    b) Sandra Dee

    c) Natalie Wood

    18. They were a one hit wonder with 'Book Of Love.'

    a) The Penguins

    b) The Monotones

    c) The Moonglows

    19. The Everly Brothers sang a song called 'Till I ____________you.

    a) Loved you

    b) Kissed you

    c) Met you

    20. Chuck Berry sang 'Oh ________________ why can't you be true?'

    a) Suzie Q

    b) Peggy Sue

    c) Maybelline

    21. Wooly _______

    a) Mammouth

    b) Bully

    c) Pully

    22. 'I'm like a one-eyed cat ...

    a) can't go into town no more.

    b) sleepin' on a cold hard floor.

    c) peepin' in a seafood store.

    23) 'Sometimes I wonder what I'm gonna do ..

    a) cause there ain't no answer for a life without booze.

    b) cause there ain't no cure for the summertime blues.

    c) cause my car's gassed up and I'm ready to cruise.

    24) 'They often call me Speedo, but my real name is ...'

    a) Mr. Earl.

    b) Jackie Pearl.

    c) Milton Berle.

    25) 'You're my Fanny and nobody else's ...'

    a) girl.

    b) butt.

    c) love.

    26) 'I want you to play with my ...'

    a) heart.

    b) dreams.

    c) ding a ling.

    27) 'Be Bop A Lula ...

    a) she's got the rabies.

    b) she's my baby.

    c) she loves me, maybe.

    28. 'Fine Love, Fine Kissing, ...

    a) right here.

    b) fifty cents.

    c) just for you.

    29) 'He wore black denim trousers and ...

    a) a pink carnation.

    b) pink leotards.

    c) motorcycle boots.

    30) 'I got a gal named ...'

    a) Jenny Zamboni.

    b) Gerri Mahoney

    c) Boney Maroney.

    Answers below:

    Scroll Down so you aren't tempted to cheat (as if cheating

    were needed here).

    1 c) The movie's over, it's 4 o'clock

    2. b) Blackboard Jungle

    3. a) Angel

    4. c) Blueberry Hill

    5. a) Mr. Sandman

    6. c) Sun

    7. b) Charlie Brown

    8. a) Mac Heath

    9. c) Tutti Fruitti

    10. c) Alan Freed

    11. a) Little Richard

    12. c) Annette Funicello

    13. b) Don and Phil

    14. a) Jiles P. Richardson

    15. c) Motown

    16. a) 77 Sunset Strip

    17. b) Sandra Dee

    18. b) The Monotones

    19. b) Kissed

    20. c) Maybelline

    21. b) Bully

    22. c) peepin' in a seafood store.

    23. b) cause there ain't no cure for the summertime blues.

    24. a) Mr. Earl.

    25. b) butt.

    26. c) ding a ling.

    27. b) she's my baby.

    28. a) right here.

    29. c) motorcycle boots

    30. c) Boney Maroney.

    Put the number you had correct in the heading and forward to everyone

    of us lucky to be teenagers in the Doo Wop era......including the person who

    sent it to you......

     


    Canadian Billboards

     

    Humor Between June 1 and June 30, 2008 --- http://www.trinity.edu/rjensen/book08q2.htm#Humor063008

    Humor Between May 1 and May 31, 2008 --- http://www.trinity.edu/rjensen/book08q2.htm#Humor053108

    Humor Between May 1 and May 31, 2008 --- http://www.trinity.edu/rjensen/book08q2.htm#Humor053108

    Humor Between April 1 and April 30, 2008 --- http://www.trinity.edu/rjensen/book08q2.htm#Humor043008

    Humor Between March 1 and March 31, 2008 --- http://www.trinity.edu/rjensen/book08q1.htm#Humor033108

    Humor Between February 1 and February 29, 2008 --- http://www.trinity.edu/rjensen/book08q1.htm#Humor022908   

    Humor Between January 1 and January 31, 2008 --- http://www.trinity.edu/rjensen/book08q1.htm#Humor013108  

    Tidbits Directory for Earlier Months and Years --- http://www.trinity.edu/rjensen/TidbitsDirectory.htm

     




  • And that's the way it was on June 30, 2008 with a little help from my friends.

     

    Fraud Updates --- http://www.trinity.edu/rjensen/FraudUpdates.htm

     

    Facts about the earth in real time --- http://www.worldometers.info/ 

    Jesse's Wonderful Music for Romantics (You have to scroll down to the titles) --- http://www.jessiesweb.com/

    International Accounting News (including the U.S.)

    AccountingEducation.com and Double Entries --- http://www.accountingeducation.com/
            Upcoming international accounting conferences --- http://www.accountingeducation.com/events/index.cfm
            Thousands of journal abstracts --- http://www.accountingeducation.com/journals/index.cfm
    Deloitte's International Accounting News --- http://www.iasplus.com/index.htm
    Association of International Accountants --- http://www.aia.org.uk/ 

    Wikipedia has a rather nice summary of accounting software at http://en.wikipedia.org/wiki/Accounting_software
    Bob Jensen’s accounting software bookmarks are at http://www.trinity.edu/rjensen/Bookbob1.htm#AccountingSoftware

    Bob Jensen's accounting history summary --- http://www.trinity.edu/rjensen/Theory01.htm#AccountingHistory

    Bob Jensen's accounting theory summary --- http://www.trinity.edu/rjensen/Theory.htm

    Tom Selling's blog The Accounting Onion (great on theory and practice) --- http://accountingonion.typepad.com/

     

    Free Harvard Classics --- http://www.bartleby.com/hc/
    Free Education and Research Videos from Harvard University --- http://athome.harvard.edu/archive/archive.asp

     

    I highly recommend TheFinanceProfessor (an absolutely fabulous and totally free newsletter from a very smart finance professor, Jim Mahar from St. Bonaventure University) --- http://www.financeprofessor.com/ 

     

    Bob Jensen's bookmarks for accounting newsletters are at http://www.trinity.edu/rjensen/bookbob1.htm#News 

    News Headlines for Accounting from TheCycles.com --- http://www.thecycles.com/business/accounting 
    An unbelievable number of other news headlines categories in TheCycles.com are at http://www.thecycles.com/ 

     

    Many useful accounting sites (scroll down) --- http://www.iasplus.com/links/links.htm

     

    Jack Anderson's Accounting Information Finder --- http://www.umsl.edu/~anderson/accsites.htm

     

    Gerald Trite's great set of links --- http://www.zorba.ca/bookmark.htm 

     

    The Finance Professor --- http://www.financeprofessor.com/about/aboutFP.html 

     

    Walt Mossberg's many answers to questions in technology --- http://ptech.wsj.com/

     

    How stuff works --- http://www.howstuffworks.com/ 

     

    Household and Other Heloise-Style Hints --- http://www.trinity.edu/rjensen/bookbob3.htm#Hints 

     

    Bob Jensen's video helpers for MS Excel, MS Access, and other helper videos are at http://www.cs.trinity.edu/~rjensen/video/ 
    Accompanying documentation can be found at http://www.trinity.edu/rjensen/default1.htm and http://www.trinity.edu/rjensen/HelpersVideos.htm 

     

    Click on www.syllabus.com/radio/index.asp for a complete list of interviews with established leaders, creative thinkers and education technology experts in higher education from around the country.

     

    Professor Robert E. Jensen (Bob) http://www.trinity.edu/rjensen
    190 Sunset Hill Road
    Sugar Hill, NH 03586
    Phone:  603-823-8482 
    Email:  rjensen@trinity.edu  

     

     

     

     

     

     

     

    May 31, 2008

     

     

     

     

    Bob Jensen's New Bookmarks on May 31, 2008
    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
     


    I have an academic dilemma that I will share below. I sent a letter to the authors of a Teaching Note (case solution) urging them to withdraw the Teaching Note and correct some mistakes that I described to them in my February 26 letter. . They did not do so, so you can read below about what happened next:

    1. Issues in Accounting Education (IAE) is one of my favorite journals, in part because it is more open to wide ranging research methodologies than all other research publications of the American Accounting Association (AAA)
       

    2. The current February 2008 issue has an excellent printed Teaching Case:

      "Accounting for Derivatives and Hedging Activities: Comparison of Cash Flow versus Fair Value Hedge Accounting" Issues in Accounting Education, Vol. 23, No. 8, February 2008, pp. 103-117 --- http://aaahq.org/pubs.cfm
       

    3. A Teaching Note (case solution) is available AAA members who pay a fee for an electronic subscription to this publication. There are no restrictions on who can be an AAA member and subscribe to IAE. Hence anybody in the world can download the Teaching Note as an electronic subscriber --- http://aaahq.org/pubs.cfm
       

    4. I studied this Teaching Note carefully and found, in my opinion, both serious errors and misleading assumptions. I communicated these as an error-correcting working paper to both the authors of the published Teaching Note and to the Editor of IAE. I suggested that my error corrections be appended at the end of the original Teaching Note. This would not be hard to do since the Teaching Note can only be downloaded on the Internet. Unlike the Teaching Case itself, the Teaching Note was not distributed in hard copy.
       

    5. The IAE Editor informed me that my working paper would be appended to the Teaching Note. However, weeks turned into months and nothing happened. When I inquired the IAE Editor informed me that he’d had a change of heart. What was rude is that he never bothered to inform me of this until I inquired why no appendix was added to the Teaching Note.
       
    6. The Editor of IAE  later informed me that he will not append my error corrections to the end of the Teaching Note until I pay a submission fee to have my submission formally refereed. It makes perfect sense that the working paper should be refereed before IAE publishes it as an appendix to the Teaching Note. However, it's ludicrous that, if I want the IAE to correct the IAE's own mistakes, I must pay the IAE to merely consider correcting its own mistakes."
      Submission fees range from $75 to $100 --- https://aaahq.org/AAAforms/journals/iaesubmit.cfm
       

    7. I might add that I'm willing to make referee-suggested corrections to my own errors. However, this is not a mainline publication, and I refuse to spend more time word crafting this error-correcting working paper. One of the most difficult aspects of publishing mainline journal articles is satisfying referees who often have differing viewpoints on how the paper should be word crafted. I've just signed a contract to write a book on derivative financial instruments and hedging activities and do not have the time or inclination to word craft this error-correcting working paper. I think the editor of the IAE feels that my use of the word "errors" will embarrass the Case authors. I did make an effort to only use the word "error" when there was what I consider to be an outright error such as using cash flow hedging journal entries for a hedged item that has no cash flow risk. I refuse to call outright errors differences in assumptions when they are in fact errors. When there were differing assumptions I did not call those "errors."
       

    8. The Editor may one day have a change of heart about making me pay a submission fee to get the IAE to correct its own mistakes and to word craft the paper to take out the word "error" wherever it appears. Otherwise what are serious errors, in my viewpoint, will live on forever in the Teaching Note to what is otherwise a very good Teaching Case. The Case authors could also rewrite their original Teaching Note, but across several months of communications between us they've never proposed doing so to me or the IAE editor. It would take a substantial effort to rewrite the Teaching Note, and there are complications that arise in that some problems in the Case itself are impossible to correct since the Case has already been distributed as hard copy.
       

    9. This could be success arising from troubles turned inside out. In my viewpoint comparing my error-correction working paper with the original Teaching Note has value-added beyond what a perfectly rewritten Teaching Note would make to the Teaching Case. In other words, students and instructors can learn more by studying the errors themselves in the original Teaching Note. This is what I mean by turning troubles inside out to create success. For this reason you should download the current Teaching Note to keep in your own archives just in case it gets laundered later on --- http://aaahq.org/pubs.cfm 
       

    10. I think both teachers and students may be misled by the current Teaching Note that can be downloaded from http://aaahq.org/pubs.cfm
      If you are using this Teaching Note, you may download, for free, my error corrections at http://www.trinity.edu/rjensen/CaseErrors.htm
       

    11. My error-correcting working paper is designed to be used alongside the electronically published Teaching Note. My working paper will not make much sense to readers who do not have both the Teaching Case and the original Teaching Note for comparative purpose. The original Teaching Note has many things that are very good. I did not find errors in everything contained in the Teaching Note.
       

    12. Of course my proposed error-correcting working paper contains only my opinions and could itself have errors that I do not yet know about.
      You be the judge
      at http://www.trinity.edu/rjensen/CaseErrors.htm
      Please let me know if you find errors in my work since my working paper can be easily corrected at this point.

       

    13. Even if the IAE Editor has a change of heart and is willing to have my error-correcting working paper refereed for free, the process could take many months, possibly over a year, before my working paper is appended to the Teaching Note. If you are using this Teaching Case, you probably should take a look at http://www.trinity.edu/rjensen/CaseErrors.htm
      That in fact is my main purpose for writing the above message!

      Postscript 01
      After I circulated this message among some friends, one wrote back and wondered if Science Magazine and the the New England Journal of Medicine charges for correcting their mistakes? We're in deep trouble if that's the case.

      Postscript 02
      My message on this in the last edition, April 30, of New Bookmarks caused the IAE Editor to have a change of heart. My error-correcting working paper has been sent (at no charge to me) out for review. The original Teaching Case authors have had a change of heart and are now willing to substitute their original Teaching Note with a revised version that weaves in my suggestions. However, this process will take many months. Users of the existing Teaching Note are still advised to go to http://www.trinity.edu/rjensen/CaseErrors.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

    Wikipedia has a rather nice summary of accounting software at http://en.wikipedia.org/wiki/Accounting_software

    Bob Jensen’s accounting software bookmarks are at http://www.trinity.edu/rjensen/Bookbob1.htm#AccountingSoftware

    Bob Jensen's accounting history summary --- http://www.trinity.edu/rjensen/Theory01.htm#AccountingHistory

    Bob Jensen's accounting theory summary --- http://www.trinity.edu/rjensen/Theory.htm

    Tom Selling's blog The Accounting Onion (great on theory and practice) --- http://accountingonion.typepad.com/

    XBRL Networking --- http://xbrlnetwork.ning.com/

    From EDGAR Online
    FREE access to the latest ANNUAL REPORTS and PROSPECTUSES from hundreds of publicly traded companies and funds.

    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, etc

    Roles 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 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

    Fraud Updates is now available at http://www.trinity.edu/rjensen/FraudUpdates.htm

    Links to my other fraud modules can be found at http://www.trinity.edu/rjensen/Fraud.htm

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

    Bob Jensen's new timeline on the worldwide scandals using derivative financial instruments and the evolution of accounting standards for derivatives --- http://www.trinity.edu/rjensen/FraudRotten.htm

    Humor Between May 1 and May, 2008 --- http://www.trinity.edu/rjensen/book08q2.htm#Humor053108

    Humor Between April 1 and April 30, 2008 --- http://www.trinity.edu/rjensen/book08q2.htm#Humor043008

    Humor Between March 1 and March 31, 2008 --- http://www.trinity.edu/rjensen/book08q1.htm#Humor033108

    Humor Between February 1 and February 29, 2008 --- http://www.trinity.edu/rjensen/book08q1.htm#Humor022908   

    Humor Between January 1 and January 31, 2008 --- http://www.trinity.edu/rjensen/book08q1.htm#Humor013108  

     




    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

    Large International Accounting Firm History --- http://en.wikipedia.org/wiki/Big_Four_auditors

    Global Perspectives on Accounting Education --- http://gpae.bryant.edu/%7Egpae/content.htm

    A Vision of Students Today (Video) --- http://www.youtube.com/watch?v=dGCJ46vyR9o




    If everything is under control, you're going too slow.
    Mario Andretti as quoted in a recent email message from Mike Groomer

    Don’t ever mistake activity for achievement.
    John Wooden as quoted in a recent email message from Mike Groomer


    Bob Jensen's new timeline on the worldwide scandals using derivative financial instruments and the evolution of accounting standards for derivatives --- http://www.trinity.edu/rjensen/FraudRotten.htm


    As it happens, the more time you spend working with real students in a real classroom, the less likely you are to be considered an [education] expert.
    Peter Berger as quoted at http://irascibleprofessor.com/comments-05-13-08.htm

    Question
    Why are there so few, if any, left like Coach Gazowski?

    "Accounting Degrees Up 19 Percent: AICPA Report," SmartPros, May 6, 2008 --- http://accounting.smartpros.com/x61772.xml

    The American Institute of CPAs announced that more than 64,000 students graduated with bachelor's and master's degrees in accounting in the 2006-07 school year, a 19 percent increase since the 2003-04 school year, when the AICPA last surveyed this data.

    At the same time, over 203,000 students enrolled in accounting programs at both the undergraduate and graduate levels. This also represents a 19 percent increase since 2004, according to the AICPA study, 2008 Trends in the Supply of Accounting Graduates and the Demand for Public Accounting Recruits. The gender ratio of graduates is fairly close at 52 percent female and 48 percent male.

    "The years in the aftermath of Sarbanes-Oxley have spotlighted the critical role the accounting profession plays in our capital market system," said Denny Reigle, AICPA director – academic and career development. "One fortunate result of SOX was greater interest in accounting on the part of students, as this report attests."

    The demands of Sarbanes-Oxley legislation likewise have led to substantial hiring increases by public accounting firms, the primary employers of new graduates. The AICPA report reveals that hiring by firms in 2006-07 shot up 83 percent over the previous three years. Sixty-seven percent of the firms that responded to the survey anticipate continued growth in hiring.

    This is the largest number of graduates in the 36 years the AICPA has been tracking this data.

    Jensen Comment
    What I find most interesting is that, while celebrating the post-SOX surge in the number of accounting graduates, we're reminded that we still produced more accountants when the Dow index was under $2,000, the AACSB was strict on standards, the largest CPA firms were mostly national instead of international, and the office space required for the largest CPA firms in any city was less than 10% of what it is today. A much higher proportion of our graduates in those days ended up working for smaller CPA firms or business firms. Four decades ago client-firm executives were less inclined to seek out creative accounting to pad their stock options since their pay was reasonable and not so contractually tied to earnings numbers.

    Historical cost ala Payton and Littleton ruled the accounting world with underlying concepts such as the matching principle. Audit trails did not disappear inside computers or the Cayman Islands.  Substantive tests reined supreme in auditing.

    Judging from the adverse PCAOB oversight reports of audits in the past couple years, I think the auditing firms were more professional four decades ago and were less inclined to cut corners due to budget overruns and staff shortages. This is only my subjective opinion based upon my very limited career as a real-world auditor with flying fingers on a 10-key adding machine. We actually trudged down to Pueblo, Colorado to count pistons on Sundays and waded through the muck in Montford's feed lots in Greeley in order to estimate the amount of piled up manure inventory.

    Students today have never seen one of those typewriter-sized calculators with the moving bar that ratcheted back and forth sort of on its own after being given a calculation to perform.

    Four decades ago the CPA exam was narrow and deep compared with shallow and wide today when we have so many more complicated standards that are barely touched on the CPA exam. I think the first-time passage rate has remained pretty stable (15%-25%) over the years such that somebody must be controlling the faucet.

    We had one woman in the Denver office of Ernst & Ernst who did tax returns in the back office amidst a cloud of cigarette smoke. Emma was rarely, if ever, allowed to see a client. Those were not the good old days in many respects. Even though we produced more accounting graduates in four decades ago, they were mostly white males. Women graduates were supposed to be K-12 teachers and nurses rather than doctors, lawyers, CEOs, CFOs, and accountants. Hispanics and blacks rarely had opportunities to attend college. Many of our attitudes about fairness and opportunity have changed for the good. But many of our attitudes about compensation, life style, families, divorce, drugs, plagiarism/cheating, and work have changed for the bad.

    A C-grade was actually considered the median grade in college four decades ago --- http://www.trinity.edu/rjensen/HigherEdControversies.htm#GradeInflation
    Accounting graduates did not have to have all A or B+ grades to be interviewed for jobs.

    Our teachers were not denied tenure because they were scholars rather than researchers. Even if they were tough as nails and piled the work over our heads in courses, they could still get tenure, respect, and pay raises. Most of the professors I look back on with admiration, in retrospect, would be un-tenurable today because they devoted too much time to their craft and scared the bejeebers out of us. I can just imagine the cursing words that would be written about them if we had RATE-MY-PROFESSOR in those days --- http://www.trinity.edu/rjensen/HigherEdControversies.htm#RateMyProfessor
    But then again maybe the cursing words would not have flowed because I think we had more respect for our teachers in those days.

    Randy Pausch said it very well when he wrote about his tough old football coach, Coach Graham, in Chapter Seven of The Last Lecture (Hyperion Books, 2008, IABN 978-1-4013-2325-7).

    . . . one of the assistant coaches came over to reassure me. "Coach Graham rode you pretty hard , didn't he?" he said.

    I could barely muster a "yeah."

    "That's a good thing," the assistant told me. "When you're screwing up and nobody says anything to you anymore, that means they've given up on you."

    . . .

    There's a lot of talk these days about giving children self-esteem. It's not something you can give;  it's something they have to build. Coach Graham worked in a no-coddling zone. Self-esteem? He knew there was really only one way to teach kids how to develop it:  You give them something they can't do, they work hard until they find they can do it, and your just keep repeating the process.

    When Coach Graham first got hold of me, I was this wimpy kid with no skills, no physical strength, and no conditioning. But he made me realize that if I work hard enough, there will be things I can do tomorrow that I can't do today. Even now, having just turned forty-seven, I can give you a three point stance that any NFL lineman would be proud of.

    I realize that, these days, a guy like Coach Graham might get thrown out of a youth sports league. He'd be too tough. Parents would complain.

    I remember one game when our team was playing terribly. At halftime, in our rush for water, we almost knocked over the water bucket. Coach Graham was livid:  "Jeez! That's the most I've seen you boys move since this game started!" We were eleven years old, just standing there, afraid he'd pick us up one by one and break us with his bare hands. "Water?" he barked. "You boys want water?" He lifted the bucket and dumped all the water on the ground.

    . . .

    It saddens me that many kids today are so coddled. I think back to how I felt during that halftime rant. Yes, I was thirsty. But more than that, I felt humiliated. We had all let down Coach Graham, and he let us know it in a way we'd never forget. He was right.

    . . .

    I haven't seen Coach Graham since I was a teen, but he just keeps showing up in my head, forcing me to work harder whenever I feel like quitting, forcing me to be better. He gave me a feedback loop for life.

    Bob Jensen's football coach would've viewed Coach Graham as a wimp. My Algona High School coach's name was "The" Coach Tony Gazowski. Tony grew up Polish and tough in the shadows of the steel mills in Pittsburgh. He became an "All-Big-Ten" defensive end at the University of Iowa and never did catch on that later in life he was a football coach and not a Marine drill instructor (he was also a former Marine sergeant). Coach Gazowski did for me what Coach Graham did for Randy, but Coach Gazowski sometimes went a bit too far in urging us to play a bit rougher than the rules allowed if we thought we could get away with it. This might be a good thing to do on a wartime battlefield, but it's not something I recommend in athletics and most other aspects of life.

    May 13, 2008 reply from XXXXX

    Another good read Bob, Thanks for commingling my favorite 2 subjects.

    My son Bryan is off to YYYYY on August 13 to play college football, major in physics and minor in accounting. Just in case he wants to come work with me!

    Football got him a scholarship. His coach gave him character. Coach Mike Columbo, voted “Coach of the Year” for the State of NJ last fall.

    And yes there were wimpy parents who tried to get him thrown out of coaching, but the entire team showed up at the Board of Ed meeting and said NO! Coach stayed and the rest is history.

    Love it!

    XXXXX, CPA

    May 13, 2008 reply from Suzann D Medicus

    Liked the coaching article in particular

    My son graduated from High School with 12 Varsity Letters for Cross country, Indoor and Outdoor Track

    Was never the fastest runner, always just worked hard.

    Coach recognized him at the end of the fourth year for being the School's first 12 letter athlete but, because he wasn't "a superstar" the Athletic director ignored him.

    Sometimes the hardest working kids are the ones who keep plugging away and plugging away. Hopefully good coaches notice them. Bad coaches only look for their glory.

    Sue

    Suzann D Medicus CPA
    Chief Executive Officer
    SDM Consulting Group Inc
    dba Liberty Tax 3418
    offices in Catonsville, Arbutus and Ellicott City
    Corporate headquarters in Clarksville

    May 14, 2008 reply from Anita Hope [ANITA.HOPE@TCCD.EDU]

    Isn't it interesting that "Hard Work" no longer equals "Success" even if one achieves 12 letters. It seems like industry works the same way. So, why work hard any more?

    Anita Hope, CPA, MBA
    Associate Professor,
    Accounting Business Department
    Tarrant County College-Northeast
    828 Harwood Road Hurst, TX 76054

    May 14, 2008 reply from Bob Jensen

    Hi Anita,

    There was a famous quote on my high school (Algona High School in Iowa) gymnasium wall that gave reasons to work until our knuckles bleed or we're gasping for our last breath. Somewhere somebody's keeping score --- a parent, child, former student, friend, colleague, client, spouse, complete stranger, or God.

    I'm almost certain, Anita, that this is the way you live given the hardships of your chosen career.

    And it counted the most to the person who kept the closest score on her son --- his mother Suzann Medicus. She matters more to him than any athletic director or any coach.

    I've had more respect for most of my secretaries in life than for most of my higher-paid professorial colleagues because of the way my secretaries truly "played the game."

    Better yet think of what you might say when called upon to give your "Last Lecture" like Randy felt compelled to give his last lecture --- http://www.trinity.edu/rjensen/tidbits/2008/tidbits080415.htm
    Randy kept score on himself with high marks and low marks. He did not, however, regret how he played the game.

    For when the Great Scorer comes
    To write against your name.
    He marks -- not that you won or lost --
    But how you played the game
    .
    Grantland Rice --- http://en.wikipedia.org/wiki/Grantland_Rice 

    That quotation on the wall of a gymnasium never leaves my mind.

    Bob Jensen

    You can read more about Randy and find the link to the video of his "Last Lecture" and commentaries that followed at
    http://www.trinity.edu/rjensen/tidbits/2008/tidbits080415.htm

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


    Congratulations to Susan Martin --- http://www.emich.edu/multimedia/prez0508/

    Former accounting professor takes helm as president of Eastern Michigan University
    The EMU Board of Regents has voted unanimously to name Dr. Susan Martin as the next president of Eastern Michigan University. Martin, 57, is the first woman to be president of EMU and the 22nd president in the history of the University.

    AccountingWeb, May 14, 2008 --- http://www.accountingweb.com/item/105148


    EUROPA: Key facts and figures about Europe and the Europeans --- http://europa.eu/abc/keyfigures/index_en.htm

    Bob Jensen's economic/social statistics bookmarks --- http://www.trinity.edu/rjensen/Bookbob1.htm#EconStatistics

    Bob Jensen's links to social science tutorials --- http://www.trinity.edu/rjensen/Bookbob2.htm#Social


    Free Economics Tutorials

    Small Business Administration: Free Online Courses (video) ---  http://www.sba.gov/services/training/onlinecourses/index.html

    Understanding Economics --- http://www.henrygeorge.org/

    Mathematics for Economics: Enhancing Teaching and Learning (with video interactive questions page) --- http://www.metalproject.co.uk/

    Economics Network of the Higher Education Academy --- http://www.economicsnetwork.ac.uk/

    Carnegie Council for Ethics in International Affairs (some multimedia) ---  http://www.cceia.org/

    Other tutorials are listed at http://www.trinity.edu/rjensen/Bookbob2.htm

    Also see http://www.trinity.edu/rjensen/ElectronicLiterature.htm


    "Online Accounting Tools Still Come Up Short," Rob Pegararo, The Washington Post, May 22, 2008. Page D03 --- Click Here

    Few types of desktop software should be readier for replacement by the Web than personal finance.

    The concept behind these programs is sound: Track your income and expenses through automatic downloads from banks, credit card issuers and other financial institutions to show where your money's coming and going, and how much of it you're likely to have later on.

    But the market long ago calcified into a duopoly of programs, Intuit's Quicken and Microsoft's Money. As they've piled on the features, their usability has suffered. Many users, fearing an ordeal of bookkeeping, avoid them entirely. Those who have bought either program have been forced to ante up for new versions, at $15 to $90 each, when "sunset" policies cut older releases off from account-data downloads.

    It might seem that a simpler, cheaper alternative to these programs would have emerged on the Web, now that online shopping and bill payment have made people comfortable with managing money online. But the big Web companies have yet to craft such a thing.

    Fortunately, the absence of a shiny new Web application from Google or Yahoo doesn't mean the absence of hope for online alternatives to Quicken and Money. It may just mean you'll have to wait longer to find one that suits you.

    The most visible Web competitor so far has been the free Mint ( http://mint.com). Since its launch last fall, this Silicon Valley start-up has drawn 266,000 users, though founder Aaron Patzer did not say how many visit the site regularly.

    Quicken or Money vets may find Mint insultingly simplistic. It only links to banks, credit cards and investments and ignores most people's biggest debts (mortgages and car loans) and assets (homes and vehicles), making net-worth estimates impossible.

    Using Mint requires you to trust the site to safeguard your bank usernames and passwords, which you must save there before adding any accounts. You can't enter transactions by hand or upload Quicken or Money files. And you can't reconcile transactions against a monthly statement.

    But within those limits, Mint provides soothingly simple money-management tools.

    When tested with a bank account, two credit cards and three mutual funds, Mint automatically fetched the latest data, converted most gibberish in these accounts' downloads into real names and filed most entries in the right category. For example, a credit card charge to "WHOLEFDS ARL 10042 0ARLINGTON" became "Whole Foods," listed under "groceries."

    It was even smart enough to split fees on ATM withdrawals into separate expenses.

    Mint then broke down patterns of income and expenses into easy-to-read pie charts.

    Mint aims to make money by suggesting better financial services, then collecting commissions. But its advice to drop an American Express card for a Chase Visa ignored the AmEx card's cash rebate.

    Two other sites have begun grabbing users as well. The free Wesabe ( http://wesabe.com), an older Silicon Valley start-up, acts like a money-minded social network.

    It makes the collective wisdom of its users part of its source code, comparing your spending and earning with the averaged habits of more than 100,000 other "Wesabeans." It also relies on their accumulated input to refine and sort statement entries and offer tips about better deals near you.

    But Wesabe may need more users (at least near Washington) to do those jobs well. Most downloaded transactions came through in their original, cryptic bankspeak, and some tips showed a Bay Area bias.

    This site's free-form system of tagging, in which you can slap multiple categories onto a single transaction, also yielded duplicate entries in its spending summaries.

    Wesabe (which plans to underwrite its free service with a fee-based "pro" option) is even more limited than Mint. It couldn't connect to a Bank of America Visa credit card account, and it doesn't do investments or home or car loans.

    In Wesabe's favor, it offers free Mac and Windows uploader programs that keep your account logins on your computer and offers multiple ways to get your data off the site. It even posts a toll-free number that you can call to reach its chief executive each afternoon.

    Wesabe may appeal most to extroverts with specific financial goals who can easily set targets and solicit fellow users' advice in its forums.

    One of the newest Web-based personal finance tools comes from Intuit, which in January launched the $2.99-a-month Quicken Online ( http://quickenonline.com). Although this site isn't as slick or quick as Mint or Wesabe, it supports investments and mortgages, not just banks and credit cards.

    Unlike Mint and Wesabe, it also lets you add coming transactions -- no risk of forgetting the check you wrote to your contractor-- and set bill-payment reminders.

    Some basic features, such as transaction breakdowns and the ability to upload Quicken files or download data from the site, still aren't there. But its simplicity makes the gridlocked complexity of desktop Quicken look painfully obsolete.

    These sites and other competitors promise tantalizing upgrades. For example, Mint says it will soon add mortgages, with estimates of home values from Zillow.com or another assessment source.

    With such improvements, some smart borrowing (picture Mint's interface plus Wesabe's social smarts) and a solid record of security, Web personal-finance software could become an alternative along the lines of Web e-mail. Some people might never accept such a thing, but others wouldn't think of using anything else

    Jensen Comment
    Pegararo failed to research online complete Webledger systems such as Net Suite and other important sites that will not only perform accounting functions, manage inventories, manage receivables, perform financial analyses, and do all sorts of sophisticated financial analyses. These Webledger systems will also store accounting records so they can be accessed all over the world and allow users to avoid paying for expensive hardware/software technical support, backup systems, and consultants --- http://www.trinity.edu/rjensen/Webledger.htm

    Pegararo also fails to mention many of the personal finance Web options and small business accounting options:

    http://www.trinity.edu/rjensen/Bookbob1.htm#InvestmentHelpers

    http://www.trinity.edu/rjensen/Bookbob1.htm#AccountingSoftware

    http://www.trinity.edu/rjensen/Bookbob1.htm#SmallBusiness

    Pegararo might not have found the Web options coming up short if he'd done more research for the above article.


    "Student Laptop Orchestra Performs at Carnegie Hall," Chronicle of Higher Education, May 15, 2008 ---
    http://chronicle.com/wiredcampus/index.php?id=3005&utm_source=wc&utm_medium=en

    Princeton University’s Princeton Laptop Orchestra—a.k.a. PLOrk—recently debuted at New York’s famed Carnegie Hall.

    Eight students in the orchestra, an ensemble of blooping, beeping, and synthesizing “computer-based musical meta-instruments,” joined the American Composers Orchestra. The performance was part of the Playing it UNsafe program, a laboratory for new types of orchestral music.

    PLOrk was recently awarded a $238,000 grant from the John D. and Catherine T. MacArthur Foundation.

    Check out a video of their rehearsal:

    Bob Jensen's threads on music tutorials are at http://www.trinity.edu/rjensen/Bookbob2.htm#050421Music


    "Web Surfing in the Classroom: Sound Familiar?" by Catherine Rampell, Chronicle of Higher Education, May 15, 2008 --- http://chronicle.com/wiredcampus/index.php?id=3004&utm_source=wc&utm_medium=en

    Over at the New York Times’s Freakonomics blog, Yale Law School professor Ian Ayres praises the University of Chicago Law School’s decision to eliminate Internet access in some classrooms. But more importantly, he recounts an amusing sketch from the Yale’s “Law Revue” skit night, which is worth sharing in full:

    One of the skits had a group of students sitting at desks, facing the audience, listening to a professor drone on.

    All of the students were looking at laptops except for one, who had a deck of cards and was playing solitaire. The professor was outraged and demanded that the student explain why she was playing cards. When she answered “My laptop is broken,” I remember there was simultaneously a roar of laughter from the student body and a gasp from the professors around me. In this one moment, we learned that something new was happening in class.

    Bob Jensen's threads on the downfall of lecturing are at http://www.trinity.edu/rjensen/assess.htm#DownfallOfLecturing

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


    "Students Fail — and Professor Loses Job:  Who is to blame when students fail? If many students fail — a majority even — does that demonstrate faculty incompetence, or could it point to a problem with standards?" by Scott Jaschik, Inside Higher Ed, May 14, 2008 ---
    http://www.insidehighered.com/news/2008/05/14/aird

    These are the questions at the center of a dispute that cost Steven D. Aird his job teaching biology at Norfolk State University. Today is his last day of work, but on his way out, he has started to tell his story — one that he suggests points to large educational problems at the university and in society. The university isn’t talking publicly about his case, but because Aird has released numerous documents prepared by the university about his performance — including the key negative tenure decisions by administrators — it is clear that he was denied tenure for one reason: failing too many students. The university documents portray Aird as unwilling to compromise to pass more students.

    A subtext of the discussion is that Norfolk State is a historically black university with a mission that includes educating many students from disadvantaged backgrounds. The university suggests that Aird — who is white — has failed to embrace the mission of educating those who aren’t well prepared. But Aird — who had backing from his department and has some very loyal students as well — maintains that the university is hurting the very students it says it wants to help. Aird believes most of his students could succeed, but have no incentive to work as hard as they need to when the administration makes clear they can pass regardless.

    “Show me how lowering the bar has ever helped anyone,” Aird said in an interview. Continuing the metaphor, he said that officials at Norfolk State have the attitude of “a track coach who tells the team ‘I really want to win this season but I really like you guys, so you can decide whether to come to practice and when.’ ” Such a team wouldn’t win, Aird said, and a university based on such a principle would not be helping its students.

    Sharon R. Hoggard, a spokeswoman for Norfolk State, said that she could not comment at all on Aird’s case. But she did say this, generally, on the issues raised by Aird: “Something is wrong when you cannot impart your knowledge onto students. We are a university of opportunity, so we take students who are underprepared, but we have a history of whipping them into shape. That’s our niche.”

    The question raised by Aird and his defenders is whether Norfolk State is succeeding and whether policies about who passes and who fails have an impact. According to U.S. Education Department data, only 12 percent of Norfolk State students graduate in four years, and only 30 percent graduate in six years.

    Aird points to a Catch-22 that he said hinders professors’ ability to help students. Because so many students come from disadvantaged backgrounds and never received a good high school education, they are already behind, he said, and attendance is essential. Norfolk State would appear to endorse this point of view, and official university policy states that a student who doesn’t attend at least 80 percent of class sessions may be failed.

    The problem, Aird said, is that very few Norfolk State students meet even that standard. In the classes for which he was criticized by the dean for his grading — classes in which he awarded D’s or F’s to about 90 percent of students — Aird has attendance records indicating that the average student attended class only 66 percent of the time. Based on such a figure, he said, “the expected mean grade would have been an F,” and yet he was denied tenure for giving such grades.

    Other professors at Norfolk State, generally requesting anonymity, confirmed that following the 80 percent attendance rule would result frequently in failing a substantial share — in many cases a majority — of their students. Professors said attendance rates are considerably lower than at many institutions — although most institutions serve students with better preparation.

    One reason that this does not happen (outside Aird’s classes) is that many professors at Norfolk State say that there is a clear expectation from administrators — in particular from Dean Sandra J. DeLoatch, the dean whose recommendation turned the tide against Aird’s tenure bid — that 70 percent of students should pass.

    Aird said that figure was repeatedly made clear to him and he resisted it. Others back his claim privately. For the record, Joseph C. Hall, a chemistry professor at president of the Faculty Senate, said that DeLoatch “encouraged” professors to pass at least 70 percent of students in each course, regardless of performance. Hall said that there is never a direct order given, but that one isn’t really needed.

    “When you are in a meeting and an administrator says our goal is to try to get above 70 percent, then that indirectly says that’s what you are going to try to do,” he said. (Hoggard, the university spokeswoman, said that it was untrue that there was any quota for passing students.)

    Hall agreed that both attendance and preparation are problems for many students at Norfolk State. He said that he generally fails between 20 and 35 percent of students, and has not been criticized by his dean. But Hall has tenure and the highest failure rate he can remember in one of his classes was 45 percent.

    Continued in article

    Grade inflation is a problem at virtually every U.S. college and university ---
    http://www.trinity.edu/rjensen/HigherEdControversies.htm#GradeInflation


    "When Coaching and Testing Collide," by Lee S. Shulman, Carnegie Perspectives," May 2008 ---
    http://www.carnegiefoundation.org/perspectives/sub.asp?key=245&subkey=2598 

    It's a scene we have watched dozens of times in the movies. A young man or woman of modest talent tries out for the baseball or football or basketball team under the tutelage of a gruff, demanding coach who expresses initial doubts about the likelihood that the kid will prove himself or herself worthy of a spot on the team. The coach is tough and persistent, setting high standards and then mercilessly driving all his charges to meet them. In the climactic scene at the season's end, the good guys or gals are losing by several baskets, or runs, or a touchdown—depending on the sport. "Send me in, coach," pleads our young hero/ine, which coach reluctantly does. The kid scores the winning points, and the team wins. The coach turns out to have a heart of gold, and the reasons for his seeming cruelty become apparent.

    What exactly is it that the coach provides the aspirant? Let me propose five processes associated with both the coach and mentor roles: 1) technique, learned through endless drill; 2) strategy, that allows the person who is coached to become capable of a conception of the work that will turn out to be pivotal in their eventual victory; 3) motivation, which produces a "Rocky-like" level of commitment that will help them exceed their own and others' expectations; 4) vision, where players come together in a new vision of the process and their capabilities for success; and 5) identity, whereby the protagonist not only wins, but is transformed, with an internalized new sense of self.

    In sports there is always a clear line between the coaching situation and the performance context. When the final jump shot is made from the three-point line by the basketball player, the coach can't jump onto the court and give the ball the extra momentum or spin it might need. I prefer to call such typical relationships between a coach/mentor and player/protégé examples of unmediated mentoring. No separate product comes in the middle between the coaching and the performing that renders the relative contributions of the coach and the coached inherently ambiguous because the entire performance is visible and is itself the basis for evaluating success or failure.

    There is, however, an entire genre of mediated mentoring. The performance is not directly observed and has yielded a product which is the focal point of competition and evaluation. Thus in the case of mediated performances, the respective roles of coach and performer are inherently invisible. Although the five processes are in place and just as transformative, there is inherently no way to discern how much of the work was done independently by the candidate, by peers or by advisors.

    Whenever mentoring is mediated by a product whose actual authoring processes are not directly observable, as is the case with literature, objects of architectural or mechanical design, scholarly publications, doctoral dissertations, and even paintings, assessment of individual competence is problematic. But are these problems of educational measurement or a new set of realities regarding the conditions of expert performance? Stanford education professor Sam Wineburg and others point out that the crux of the problem may not be measurement error but rather the inherently social and interactive character of the performances whose competence is assessed. Writing is and should be critiqued and edited, as should painting, the designs for buildings and the research performed in scientific laboratories. To avoid mentoring merely to ensure the legitimacy of individual test scores might even be judged a form of malpractice! So we are faced with an essential tension between the inherently social character of most forms of complex human performance and the psychometric imperative to estimate a "true score" for ability or any other personal trait using the individual as the unit of analysis.

    In an education setting, the distinction between the scores that a student earns on any test-like event—multiple choice test, essay exam, portfolio or senior sermon in a seminary—and their underlying "true" capability is a reflection of the distinction, borrowed perhaps from the field of linguistics, between competence and performance. Psychometrics rests on the claim that the observed performance is a valid indicator if it tracks the underlying competence faithfully. But what if mentored or coached performances actually track underlying competence more validly than measurement of students working alone? What if the composition written by a student in the presence of his editing team is a better indicator of his future writing competence than having him write alone?

    That is what sits at the heart of the puzzle.

    My proposal for "getting over" this essential tension is three-fold: making changes in the processes of assessment, making explicit the parameters of mentoring, and developing a clear code of ethical principles for both assessment and mentoring. At the heart of these proposals is the principle of transparency. Everything possible must be done to ensure that the roles of mentors, peers and students be transparently clear in any mediated mentoring activity. There should be ways of reporting on the character of coaching for test performance that make the efforts of the coach entirely transparent to assessment.

    I have often written that collaboration is a marriage of insufficiencies; that students can work together in ways that scaffold and support each others' learning, and in ways that support each others' knowledge. Now I call for a marriage of sufficiencies to overcome the essential tensions between individual work and collaborative performance, coaching support and independent assessment, the mentor as an agent of zealous advocacy and the mentor as a steward of the commons.

    As Dewey observed, we will not solve this problem, we will get over it. It is built in to the psychometric paradox: Our measurement models are psychometric but our assessment needs are often sociometric, requiring the measurement of socially scaffolded and joint productions.

    Carnegie Perspectives --- http://www.carnegiefoundation.org/perspectives/

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


    Question
    What is the AlphaSmart Dana?
    Why might you fall in love with Dana?
    Or maybe not?

    "The Workhorse," by Scott McLeMee, Inside Higher Ed, May 14, 2008 --- http://www.insidehighered.com/views/2008/05/14/mclemee

    Laptop computers have revolutionized the art of procrastination. Combining the power of word processing with the convenience of wireless access to the universe of material available online, they make it easier than ever to shift from serious concentration to glassy-gazed spacing out. It takes “just a second,” after all, to “look something up.” Those bland phrases connote a world of barely concealed guilt (as when an urban consumer chooses to buy something that “fell off the truck”). One minute you decide to check the wording of a quotation from Montaigne, and before you know it, you are on YouTube. It happens.

    The solution, of course, is self-discipline – in roughly the sense that a cure for poverty is to get a lot of money. Saying this hardly qualifies as good advice. An elementary quality of self-discipline is the capacity to minimize the chances of distraction. And for that, it can help to go (relatively) low-tech. One of the best secret weapons in the battle against psychic entropy is the AlphaSmart Dana, an ideal device for anyone who wants to keep at hand a digital notebook that is just a notebook. No frills, no bells and whistles, no distractions: nothing, in fact, but a tool for turning thoughts into sentences.

    The Dana is not really an alternative to having a regular computer. There are lots of things it can’t do. But it’s helpful for bolstering concentration in a crunch, as well as the perfect keyboard for anyone who needs to take notes during a meeting, lecture, or conference. So reports my spouse, who uses her Dana primarily for such occasions. (The only downside might be that people keep asking to take a look at it: the design is sufficiently distinct from the normal laptop to be conspicuous.)

    The Dana is the latest version of a product originally meant for use in elementary school classrooms – a cheap, bare-bones, and durable machine consisting of just a keyboard and a small screen. The changes introduced over the past few years suggest that, somewhere along the way, the manufacturer discovered it had an adult market.But the virtues of that earlier model are all preserved in the more recent incarnation.

    First, I’ll describe the generic features of the AlphaSmart, found in both the kids’ version and the Dana. Then, we’ll consider the changes introduced into the more recent design making it especially useful for adults. Casual observation suggests that we grownup AlphaSmart users are, so far, rather few in number. But we make up for our numbers by a certain fanatical devotion — in spite of a few imperfections, which I’ll note along the way.

    The AlphaSmart, whatever the model, is lightweight (about two pounds) and made chiefly of plastic; yet it surprisingly rugged. It runs on a rechargeable battery. According to the manufacturer, it can run for up to 25 hours of use on a single charge. I haven’t kept track and cannot say if that figure is accurate. But certainly it hasn’t been necessary to charge the battery more than once every week or two. Compare that to the usual experience with laptops, which demand rejuicing every few hours, at least.

    If you leave it sitting idle for more than a few minutes, the AlphaSmart turns itself off automatically. But there is no need to keep hitting “save” frantically. Actually, it doesn’t even have a “save” command. Instead, the AlphaSmart just stores whatever you type as you go. Turning the power back on, you go right back to the draft as you left it.

    There is a set of buttons along the top of the keyboard marked F1 through F8. Each one opens a document. In other words, you can create no more than eight documents at a time, each the equivalent of about twelve single-spaced pages. You can send documents to a printer via a plug in the machine – or, perhaps more sensibly, you can download them to another computer using a chord. Unfortunately you have to send them one at a time, and the process is rather slow, at least by contemporary standards of instantaneous massive data transferal. (With the Dana model, it is possible to “beam” documents via an infrared transmitter, but I haven’t used that feature.)

    A few years ago I bought the AlphaSmart 3000 (the basic model, designed for elementary school use) and found its minimalism and its long battery life quite appealing, at least for a few weeks. Then its deficiencies started to show. The screen was quite small; you could see only three or four short lines of text at a time. And the action on the keyboard was not ideal. You really had to punch each letter to be sure it connected. No doubt this was not a problem for the kids originally intended as its users. But a quicker and lighter touch would sometimes leave me unable to read my own work, as if some sentences were in an Eastern European language.

    Both problems have been solved with the Dana model. The keyboard is far more sensitive (no more passages of inadvertent Bulgarianism) and the screen is much larger, holding between six and nine lines of text, depending on the point size of the type you are using.

    You can select the latter – along with options for italics, bold text, margin justification, and so forth – via menus on screen. They respond either to keyboard commands or the touch of a little stylus that comes with the machine. (You keep it at hand in a groove along he right side of the Dana.) This model also offers some of the other familiar features of a word processor: spell-checking and a thesaurus, plus the ability to get the word count for a given document.

    All of which marks a great improvement over the earlier version. The main problem that the Dana shares with the elementary-school model is that the screen is not brightly lit. No doubt that helps with the battery life. But in my experience, the lack of sharp contrast makes staring at the text rather hard on the eyes, after a while. In practice, it turns out to be an ideal “workhorse” machine for taking notes and pounding out rough drafts, which can then be reworked on another computer.

    The Dana retails for $350 from the manufacturer, but you can find one online for a fraction of that price. (The two machines in our household cost around $100 each.) Two slots on the back allow you to insert secure data (SD) cards, which increase the memory considerably. SD cards are sold separately, costing between $20 and $60 each depending on their capacity. I have not yet tried one out, but am sorely tempted – not for the added memory so much as greater ease in moving documents from the AlphaSmart to another machine.

    Just for the record, it bears mentioning that AlphaSmart has also introduced a version of the Dana with wireless internet access built in. But I want nothing to do with it, for that defeats the whole point. Such embellishments are the Devil’s handiwork.

    Bob Jensen's threads on gadgets (Dana is more than a gadget) are at http://www.trinity.edu/rjensen/Bookbob4.htm#Technology


    Question
    What is most like a zoo animal on a college campus?

    The University of Colorado at Boulder, a campus where political attitudes lean to the left, is looking for a conservative scholar. The Wall Street Journal reported on a fund raising drive to endow a chair in conservative thought. The move is attracting criticism not only from some liberals on campus but from David Horowitz, who has led a national campaign charging that many colleges lack ideological diversity on their faculties. While Horowitz praised Colorado for focusing on the issue of ideological diversity, he said he feared that this approach would lead the professor selected to be seen as an unusual token, like “an animal in the zoo.”
    Inside Higher Ed, May 13, 2008 --- http://www.insidehighered.com/news/2008/05/13/qt

    "The Ivory Tower Leans Left, but Why?" by Naomi Schaffer Riley, The Wall Street Journal, February 29, 2008; Page W11 --- http://online.wsj.com/article/SB120425031647901841.html?mod=Letters
    An excerpt appears at http://www.trinity.edu/rjensen/HigherEdControversies.htm#LiberalBias


    "The Bachelor’s Degree Is Obsolete?" by  Peter Agoos, Inside Higher Ed, May 13, 2008 --- http://www.insidehighered.com/views/2008/05/13/sloane

    "America's Most Overrated Product: the Bachelor's Degree," by Marty Nemko, Chronicle of Higher Education, May 2, 2008 --- http://chronicle.com/free/v54/i34/34b01701.htm

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


    "Consumer Protection," The Becker-Posner Blog, May 22, 2008 --- http://www.becker-posner-blog.com/
    A good article worth reading!!!


    The FASB's Accounting Standard Codification Online Database (FASCOD) --- http://asc.fasb.org/home

    I have been using FASCOD regularly, especially Section 815 on accounting for derivative financial instruments and hedging. I find this quite easy to use and appreciate the cross referencing to other standards. It would help in some instances to also reference to the printed standards.

    Although there are narrowed-down glossaries for some of the sections like Section 815 (10)(S20), there is also a wonderful "Master Glossary" at http://asc.fasb.org/glossary&nav_type=left_nav#null

    When you are into a section's outline, especially note the "Collapse" and "Expand" hot words that let you expand or collapse the outline for a desired level of detail and links to illustrations. Some of the illustrations are new in Section 815. Also there are links to SEC standards and interpretations that have been added to the database.

    I did encounter a problem trying to print FASCOD quotations. For some reason, FASCOD pastes as hidden text. I could read it in a MS Word document but not in Print Preview or in printed hard copy. In MS Word I went to Tools, Options, View and clicked on Hidden Text. That did not solve my problem --- not being able to print FASCOD quotations. Then I went to Tools, Options, Print and clicked on Hidden Text. That made my FASCOD quotations appear in both Print Preview and hard copy.

    FASB member Tom Linsmeier has been in charge of the FASCOD development. Tom indicates that his team was unaware of the above hidden text problem that some users are having. He says that his team is now looking into why the hidden text printing problem arose in the first place. It may well be that the above problem for some of us will disappear in the future.

    Now if we only had such an IASCOD database for international standards. In fairness, the IASB standards, interpretations, exposure drafts, and a glossary can be downloaded into your computer and updated for an annual fee. This database has useful cross referencing and database search features. In many ways it is quite well done. However, it does not slice and dice content into better codification schema.

    The IASB has some political correctness issues when it appears to be copying United States GAAP and/or technology. Hopefully the IASB will look at the economics involved in developing FASCOD over four years with over 200 professionals and millions of dollars and decide that the codification schema used by the FASB is suitable, with some tweaking, for the international standards. Of course the actual IASCOD content will be international GAAP rather than U.S. GAAP. It will still be a huge expense to slice and dice international GAAP for purposes of IASCOD. It will also entail a change in delivery. IASCOD will be served up online, whereas the current IASB database of standards, interpretations, exposure drafts, etc. must be downloaded into each user's computer for a fee initially and for annual updates.

    The current IASB database can be downloaded from http://www.iasb.org/Home.htm
    I find that it is best to leave its red-circle icon as a Startup icon on my computer screen (it could be just a bit smaller). Then it 's very easy to click the database on and off. In some ways the downloaded IASB database is programmed quite cleverly, especially the way it does database search. I give five stars for its search engine.

    I hope that the IASB will invest in more illustrations if and when it develops IASCOD. One of the severe weaknesses of the IASB standards is that they cannot compare with the FASB standards in terms of abundant and useful illustrations. This is especially helpful for those of us in education and training. For example, when teaching IAS 39 having very few illustrations, I often run to FAS 133 and its amendments and DIGs for some illustrations. Now I can turn to Section 815 of FASCOD for added illustrations.

    A drawback of the current Section 815 FASCOD content is that it does not yet have sliced and diced content of all the Derivative Implementation Group (DIG) pronouncements. Hopefully the DIG's will be added soon to FASCOD. Over 300 pages of  DIG pronouncements can be downloaded from  http://www.fasb.org/derivatives/allissuesp2.pdf 

    Bob Jensen

    "Framing the Future: A first look at FASB’s GAAP codification, by Bruce Pounder, Journal of Accountancy, May 2008 --- http://www.aicpa.org/pubs/jofa/may2008/fasb_gaap.htm 

    In less than a year, FASB’s Accounting Standards Codification will affect the day-to-day work of nearly every CPA who practices, teaches or researches accounting in accordance with U.S. GAAP.

    By April 2009, FASB is expected to make the codification the single source of authoritative GAAP, overriding all existing literature. In other words, the codification content—not the original pronouncements from which the content was derived—will be GAAP. And the online codification research system—not books, loose-leaf services or CDs—will be the primary way that accountants access GAAP.

    For many historical reasons, GAAP has become a minimally organized collection of many kinds of accounting pronouncements issued by various standard setters over many decades, as well as “widely recognized and prevalent” industry practices that are not the product of any formal standard-setting process. The present components of GAAP vary greatly in format, structure, completeness, authority and accessibility. As a result, practicing CPAs and financial statement preparers who attempt to apply GAAP often find themselves confused and frustrated. Likewise, accounting students frequently struggle to learn GAAP.

    If a standard setter were to develop a body of accounting standards from scratch today, those standards presumably would not resemble the challenging jumble that GAAP has become. Rather than start from scratch, FASB has done the next best thing in an attempt to make GAAP more understandable and user-friendly—FASB has sought to simplify the structure of GAAP by codifying it.

    In January, FASB released the Accounting Standards Codification for public review and verification. The codification is not merely a new entrant into the market for products and services designed to help CPAs understand and apply GAAP. Rather, the codification completely changes the way that GAAP will be documented, updated, referenced and accessed. It organizes in an entirely new way thousands of existing authoritative financial accounting and reporting standards and delivers the content via an Internet based research system that helps users search and access the material.

    One often–overlooked aspect of the codification is that it will eliminate or flatten the GAAP hierarchy. In other words, there will be no more House of GAAP—no tiered structure with varying levels of authority on each floor. Under the codification, there’s no distinction—all standards are uniformly authoritative.

    FASB expects that the codification will help mitigate the risk of noncompliance with accounting standards, provide real time updates as standards change and reduce the amount of time and effort required to research accounting issues.

    A MAJOR RESTRUCTURING The primary goal of the codification project is not to change GAAP’s content, but rather to organize it in a more useful way. The codification will contain all current, authoritative accounting standards for nongovernmental entities that have been issued by U.S. standard setters, including FASB, FASB’s Emerging Issues Task Force (EITF), and the AICPA Accounting Standards Executive Committee (AcSEC). Certain SEC guidance also is included.

    The codification has, for the most part, left standards unchanged. Appendix A of the Notice to Constituents, an overview document on the codification Web site, highlights areas in which FASB is recommending changes to standards to resolve conflicts in GAAP.

    As used above, the word “authoritative” refers to GAAP from levels A through D in the current GAAP hierarchy. Undocumented industry practices and documented but-nonauthoritative guidance have been excluded from the codification. Because there are some exceptions regarding what is included in the codification, users are advised to consult FASB’s Notice to Constituents.

    The project effectively disassembled each existing authoritative pronouncement and reassembled the pieces, organizing them into approximately 90 topics. Contents in each topic are further organized first by subtopic, then section and finally paragraph. The paragraph level is the only level that contains substantive content; all higher levels in the topical structure exist merely to organize the paragraph-level content.

    Continued in article

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


    Question
    Is transfer pricing still the main tax dodge inside developing nations?

    "Not paying their dues Global companies are evading tax in the developing world. The money lost could go towards alleviating poverty and saving lives," by Prem Sikka, The Guardian, May 12, 2008 --- http://commentisfree.guardian.co.uk/prem_sikka_/2008/05/not_paying_their_dues.html

    The tax avoidance industry is the mafia of our times. It makes huge profits for itself and its clients, but inflicts hardship, misery, squalor and early death on many innocent people.

    A new report by Christian Aid, Death and Taxes, highlights the human consequences of the tax-dodging industry. Developing countries are estimated to lose $160bn of tax revenues a year from tax evasion, mainly by giant multinational corporations. This is more than one-and-a-half times the combined aid budget of the rich world. Add tax avoidance perpetrated through complex structures, tax holidays, low royalty rates for mineral extraction and a variety of tax avoidance schemes and a figure of $500bn a year is sucked out of developing countries. Imagine what this money could do to improve the quality of life for millions of people.

    The $160bn of illegal activity alone could provide decent healthcare and save lives in developing countries. Around 1,000 children under the age of five die each day from poverty and disease. This massive tax evasion condemns 350,000 children a year to an early death. Christian Aid estimates that tax evasion will have been responsible for the early death of some 5.6 million children between 2000 and 2015, equivalent to the entire population of Denmark.

    . . .

    Developing countries have been systematically stripped (pdf) of their wealth and taxes. China has found that almost 90% of foreign-funded enterprises are making money under the table. Some of their businesses involve smuggling. But, most commonly, they use transfer pricing to dodge tax payments. Authorities say that tax evasion through transfer pricing accounts for 60% of total tax evasion by multinational companies. Due to lack of tax revenues many developing countries can't develop the infrastructure to catch the evaders.

    Why aren't there more laws to protect against these tax evasion schemes --- http://www.trinity.edu/rjensen/FraudRotten.htm#Lawmakers


    "FASB Issues GAAP Hierarchy," SmartPros, May 12, 2008 --- http://lyris.smartpros.com/t/985109/6637240/5059/0/

     The Financial Accounting Standards Board on Friday issued FASB Statement No. 162, The Hierarchy of Generally Accepted Accounting Principles.

    The new standard is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles for nongovernmental entities.

    Prior to the issuance of Statement 162, GAAP hierarchy was defined in the American Institute of Certified Public Accountants Statement on Auditing Standards (SAS) No. 69, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.

    SAS 69 has been criticized because it is directed to the auditor rather than the entity. Statement 162 addresses these issues by establishing that the GAAP hierarchy should be directed to entities because it is the entity (not its auditor) that is responsible for selecting accounting principles for financial statements that are presented in conformity with GAAP.

    Statement 162 is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board Auditing amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. It is only effective for nongovernmental entities; therefore, the GAAP hierarchy will remain in SAS 69 for state and local governmental entities and federal governmental entities.

    Bob Jensen's threads on accounting standards are at http://www.trinity.edu/rjensen/Theory01.htm


    The SEC's Module on Stock Options Compensation and Options Backdating Scandals --- http://www.sec.gov/spotlight/optionsbackdating.htm

    "S.E.C. Fines Marvell $10 Million," The New York Times, May 9, 2008 --- Click Here

    The Marvell Technology Group, a maker of semiconductors, agreed on Thursday to pay a $10 million civil fine to settle regulators’ accusations of improper backdating of stock options.

    The Securities and Exchange Commission announced the settlement with the Silicon Valley company, which it said failed to publicly disclose the employee stock option awards as expenses and backdated the options to dates with lower stock prices. Marvell neither admitted nor denied wrongdoing but did agree to refrain from future violations of the securities laws.

    The backdating scheme allowed the company to overstate its profit by $362 million from fiscal years 2000 through 2006, the S.E.C. said in its civil lawsuit.

    Continued in article

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

    Bob Jensen's threads on accounting for stock options are at http://www.trinity.edu/rjensen/theory/sfas123/jensen01.htm


    "Six defendants found guilty in Chicago tax fraud trial," AccountingWeb, May 21, 2008 --- http://www.accountingweb.com/cgi-bin/item.cgi?id=105195

    Six defendants were convicted Monday after participating in a nationwide tax scheme that enabled 650 wealthy taxpayers to cheat the government out of $60 million. Michael Vallone of Orland Park, IL, Edward Bartoli of Clearwater, FL, Robert Hopper of Gadsden, AL, Timothy Dunn of Chesterton, IN, William Cover of Naperville, IL, and Michael Dowd of Glenview, IL were convicted of tax-fraud conspiracy and other charges after the 11-week trial in U.S. District Court in Chicago.

    According to the Chicago Sun Times, from 1994 to 2003, the six defendants organized, promoted, and sold domestic and foreign/offshore trusts to clients, primarily self-employed individuals, with the effect of diverting income into sham domestic and foreign trusts through a now-defunct company on behalf of clients, hiding hundreds of millions of dollars of income from the government.

    The IRS uncovered the operation after engaging in an undercover investigation code-named "Operation Trust Me." More than 30 convictions are still pending in the case with defendants in Florida, Illinois, New York, Ohio, and West Virginia.

    The six defendants in the Chicago trial were found guilty of one count each of tax fraud conspiracy, i.e. conspiracy to defraud the United States by impeding the IRs in the collection of tax revenue and conspiracy to aid and assist the preparation and filing of false tax returns on behalf of clients, in addition to being found guilty of other charges. In addition, all six defendants were found guilty of tax fraud regarding their own personal income tax returns.

    Sentencing is expected to occur in August or September.

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


    Northwestern University announced Thursday that it has rescinded an invitation to Rev. Jeremiah Wright, formerly the pastor to Sen. Barack Obama, to receive an honorary doctorate at this year’s commencement ceremonies. Henry Bienen, president at Northwestern, wrote to Wright, saying: “In light of the controversy surrounding statements made by you that have recently been publicized, the celebratory character of Northwestern’s commencement would be affected by our conferring of this honorary degree. Thus I am withdrawing the offer of an honorary degree previously extended to you.”  The decision by Northwestern follows a controversy last week in which some students said that they were dismayed that law school graduates would be addressed this year by Jerry Springer, the talk show host. Northwestern is defending that choice.
    Inside Higher Ed, May 2, 2008 --- http://www.insidehighered.com/news/2008/05/02/qt
    Jensen Comment
    Jerry has lots of shocking material for an unconventional commencement address. I certainly hope that Jerry Springer is not also given an honorary doctorate. Here's a sampling of his accomplishments (probably staged) on television. I can't believe Northwestern would pick Springer. Truth is stranger than fiction. Even Wright would've been a a more tasteful choice.


    Denny Beresford forwarded the following link:

    "Peer Review in the Balance," by Gregory D. Curfman, M.D. et al., New England Journal of Medicine, May 22, 2008 --- http://content.nejm.org/cgi/content/short/358/21/2276??eaf

    For many years, the editors of the Journal have relied on peer review to ensure the scientific quality of the articles that we publish. Of the thousands of manuscripts submitted to the Journal each year, we publish about 1 in 20. To aid us in selecting those manuscripts, we seek advice from thousands of peer reviewers. Confidential peer review is a key component of our manuscript selection process.

    We were therefore concerned when in May 2007 lawyers for the pharmaceutical company Pfizer served us with a subpoena demanding that the Journal produce peer-review and other editorial documents on all manuscripts . . . [Full Text of this Article]

    Jensen Comment

    Peer review as we know it, with two or three anonymous referees and a journal editor, is becoming increasingly dangerous. Whether it's global warming in science or research methodology in accounting, the biases of editors and referees are becoming more and more worrisome to me. Peer review has become so ingrained in academe that it's almost heresy to raise doubts. But I have doubts about the subjective biases and lack of accountability in the peer review process.

    In science peer review bias is not so dangerous for published articles, because there's a history in science journals to publish commentaries and replication outcomes of researchers other than the original authors of the article. In accounting the leading academic journals will not publish replications and rarely publish commentaries submitted after an article is published. This exposes new knowledge to the biases and limitations of two or three referees who control the admission gates without doing independent verification research --- http://www.trinity.edu/rjensen/Theory01.htm#Replication

    The problem in general with "confidential peer review" is that reviewers are not held personally accountable for some very important decisions regarding knowledge provided to the world. Whenever I've published a research paper, I've found extreme variation in the quality of the reviewers' efforts and write-ups. Often there are obvious biases as well. I saw this even more so when I was assigned by Accounting Review Editor Steve Zeff to evaluate papers that had extremely different reviewer decisions. I concluded that in many instances peer review is either a random process or a politically-loaded process. I think what bothered me the most is the tendency of some reviewers and editors, often respected experts, to summarily reject a submission in one or two sentences.

    The process of making unrefereed working papers available on the Internet (e.g., via SSRN) is a good idea in spite of making it almost impossible for the authors of submitted papers to journals to remain unknown to assigned reviewers since most of those reviewers will have seen the working papers. Working papers on the Internet allow most everybody in the world to comment on the working papers prior to submission to a journal. This enables thousands or more "experts" to critique the research prior to having it be submitted to a journal.

    In some cases, writings that are published in an absurdly-priced journal or book for a first time exposure, without being previously available on the Internet, have greatly limited the exposure of the research for commentaries and replication. Since many college librarians now refuse to buy or subscribe to some of the prestigious "rip-off" journals and books, it also makes it difficult to conveniently and legally expose that the papers of those journals to students --- http://www.trinity.edu/rjensen/FraudReporting.htm#ScholarlyJournals

    All contributions to new knowledge need to be evaluated by experts. The question is whether the evaluations of those experts should also be shared. In the case of contributions published on the Internet, the evaluations of experts can also be made available to the world. In the case of peer review, those evaluations are almost never made public. It's the lack of availability of reviewer comments in the peer review process, coupled with the corresponding lack of accountability of the reviewer decisions, that bother me in this new knowledge generating process.

    Bob Jensen

    May 23, 2008 reply from Paul Williams [Paul_Williams@NCSU.EDU]

    Bob,

    The ethics of accounting research aren't sufficient for anyone to do replications. I serve on the executive committee of the faculty senate and our chair is a chemist. Another member is a biologist. At each meeting, both of them take (copious) notes in a lab journal -- a habit ingrained in most laboratory scientists. The lab journal is a requirement of the hard sciences. Its purpose is to provide a complete recipe for reproducing the experiment so that replications can be done. Most accounting research in the U.S. is "laboratory" research (I was informed recently by an associate editor of TAR that the journal was only for "empirical" research). How many accounting researchers maintain a lab journal in which they record every step, assumption, truncation, etc. they made in arriving at the results? I'll bet none of them do and if they do they will not make that journal available to anyone. The reliability of all "empirical" results produced in accounting over the past 30 years are suspect. For the true believers they are proof, whether replicated or not. For the skeptic there is no reason to believe any of it.

    Paul Williams
    paul_williams@ncsu.edu  (919)515-4436

    May 23, 2008 reply from Amy Dunbar [Amy.Dunbar@BUSINESS.UCONN.EDU]

    The lab journal is the stata program (SAS or whatever) that shows each step. The researchers I know make comments to explain each step. If you don't do that, it's hard to respond to reviewer comments because memories are faulty. One of the best examples of comments that I have seen was a program from Sonja Olhoft-Rego at the University of Iowa. I asked her for her program that supported one of her journal papers, and she was gracious enough to send the program. Anyone could follow what she did. Her program illustrates a "best practice" in accounting research.

    Amy Dunbar
    UConn

    May 23, 2008 reply from J. S. Gangolly [gangolly@CSC.ALBANY.EDU]

    Bob and Paul,

    In my opinion, Lack of replications and the absence of discipline in research(lab notes, etc) are only the tip of the iceberg of problems.

    There are at least three FUNDAMENTAL problems in empirical accounting research.

    1. Disconnect between theory formulation and theory verification/ validation. In the natural/physical sciences, there exists a close connection between theory building and theory verification. I have in the past given examples of collaborations between theoretical physics and experimental physics.

    The skills and backgrounds required for the two are quite different, and it is the communication of results betweewn the two that ensures that the field advances.

    In empirical accounting research, on the other hand, there is virtually no communication between the theory building folks (analytical) and the theory verification folks (number crunchers) with the result the "theories" tested are little more than compendiums of anecdotes. These "empirical" accounting researchers should pay heed to the statement by one of the 20th century's greatest biologist J.B.S. Haldane that in science, an ounce of algebra is worth a ton of verbal argument.

    The great astronomer Sir Arthur Eddington once exhorted physicists not to trust data unless it is confirmed by theory. There are also statements by Einstein that the choice of data looked at is itself determined by the theory believed (tell that to the referees of accounting journals who wax eloquent about selection bias).

    2. In science one tries to shoot down the prevailing dogma (a la Thomas Kuhn) by locating anomalies. In "empirical" accounting research, on the other hand, the powers that be ingratiate by mutual admiration rather than anomaly detection.

    Replication (with appropriate experimental design and controls)is just one way of locating anomalies. The other way is to test the robustness of the results by alternative statistical testing. For example, if one's theory suggests clustering, one would try divisive and aglomerative clustering, check the results of k-means or other partitioning methods. If they all point in the same direction, then the results can be assumed to be robust. Alignment of the results with prevailing dogma is another way to detect problems of wrong theory, wrong empirical tests,...

    3. Disconnect between theory and practice. Most "empirical" accounting research, in my opinion, is really a sheep in a wolf's clothing (finance or economics research masquerading as accounting). In the sciences, interdisciplinary research is respected, but is subject to rigorous (and vigorous) debates, as in radiation bio-physics, genetic engineering, neuro-psychology,... In accounting, so-called "empirical" research has NO validation from the parent disciplines.

    Such work also has no validation from practice. It is as though we accounting researchers concoct snake oil and believe/profess it to have miraculous powers even though the medical establishment considers it irrelevant or a hoax.

    4. In the sciences, sunshine has always been considered the best anti-septic (remember the Utah cold-fusion experiments). In accounting, it is as though cold-fusion is a reality and accepted dogma merely because some linear regressions show it to be so.

    5. "Empirical" accountants are never tired of saying that they study associative and not causal relationships. Yet, a few minutes with such people would convince you that what they say imply causal relationships. They have taken on faith the early Bertrand Russell's admonition that the word causality should be banished from a scientist's vocabulary. Unfortunately for them, physicists abandoned theological committment to positivism close to a century ago.

    The tragedy is, there are statistical methods to study causal relationships, and even psychologists use them routinely. We "empirical" accounting researchers are, on the other hand, live in a dreamland.

    5. I do not think it makes much sense to draw parallels between accounting and the lab sciences. In the latter, experiments can be designed in a way that maintains the integrity of the conclusions. In accounting, on the other hand, it is not possible. Accounting is essentially an interpretive art, a branch of what the German philosophers are fond of calling the human sciences. I can do no better than quote an early Bertrand Russell, a staunch positivist, who wondered why the mice studied by the American scientists were restless and frisky while those studied by the German scientists were contemplative and serious (I do not have the cite handy, and the adjectives he used were probably different, but you get the point).

    Jagdish

    May 23, 2008 reply from Dennis Beresford [dberesfo@TERRY.UGA.EDU]

    I have absolutely no credentials to comment intelligently on this discussion, but I still want to say how much I agree with Jagdish's final point below. Most of the research I see involves the author trying to show the correlation between two things. One is often stock prices that can be observed directly and the other is something that can't be observed, such as "discretionary accruals." So the author develops some proxy for the unobservable factor and then determines that there either is or isn't such a correlation. The conclusion is supported by complicated formulas and lots of numbers but it appears to me that the assumption that the choice of proxy for the unobservable factor is appropriate makes the whole exercise questionable. In at least some of these cases, I have enough real world experience to feel reasonably sure that the proxy is completely invalid.

    When I read the semi-annual report of research projects at our university, most of the projects reported are in the scientific field. For example, a study might observe that feeding chickens something in particular makes them grow fatter, faster. That seems like a pretty observable and easy to replicate experiment. But very little of what I've seen in the way of accounting research in my 11 years as a faculty member is as clear as the chicken example.

    I recall reading an excellent paper by Bob Holthausen and one other person several years ago that questioned the reliability of much of the current accounting research for much the same reason as I expressed above - in a much more eloquent manner. But that paper was quickly attacked by many of the established researchers and seemed to die away.

    Just a few thoughts before the holiday.

    Denny Beresford

    May 26, 2008 reply from Paul Williams [Paul_Williams@NCSU.EDU]

    Denny,
    Don't be so modest. You have more than sufficient credentials. At the early JAR conferences when practice folks were still invited, they tended to ask the more difficult questions. Soon, they were simply disinvited. The problem with all of this research is the problem of meaning. What does it mean? This proxies for that -- oh, is that so? When you have 15+ variables in a linear model, all of which are inadequate or worse "proxies" for some notion that may exist only in the imagination of the researcher, when the model is constructed it is rather difficult to know just what does it mean. Of course when you have a theory ready at hand, it becomes the narrative structure from which you craft your story, whether that story is true of not. The problem with accounting research is that it is now largely an answer in search of a problem, rather than the other way around. Virtually no accounting research (or finance and economics research, for that matter) passes the grandmother test. There is a lot less to this research than meets the eye. To Jagdish: There is a premise that underlies your comments that may be faulty and that is that human affairs are such that they may be understood in the same manner as nature is understood by the natural sciences. There are no gross concepts in play and that human affairs amenable to multiple interpretations. It may be the case with human affairs that a few words are worth a ton of algebra. For example, Kenneth Arrow provides us with a Bank of Sweden Prize treatise that my grandmother stated succinctly as, "You can't please everybody." I suspect that Denny, as chair of FASB, didn't need Arrow to convince him of the truth of that proposition.

    Paul Williams paul_williams@ncsu.edu 
    (919)515-4436

    May 26, 2008 reply from J. S. Gangolly [gangolly@CSC.ALBANY.EDU]

    I agree. I would put a lot more faith in Denny's intuitions than in a bunch of regression results mechanically generated by "empirical" accounting research without adult supervision from econometricians.

    In academic accounting research, we have failed to exploit those intuitions of those who bring home bacon by doing accounting, and not of those navel gazing..

    I think it is this modesty by those in the profession that is misinterpreted by accounting academics as weakness. I wish those in the profession would hold our (academics') feet to the fire so that we are held responsible and accountable.

    To Jagdish:
    There is a premise that underlies your comments that may be faulty and that is that human affairs are such that they may be understood in the same manner as nature is understood by the natural sciences. There are no gross concepts in play and that human affairs amenable to multiple interpretations. It may be the case with human affairs that a few words are worth a ton of algebra. For example, Kenneth Arrow provides us with a Bank of Sweden Prize treatise that my grandmother stated succinctly as, "You can't please everybody." I suspect that Denny, as chair of FASB, didn't need Arrow to convince him of the truth of that proposition.

    In my earlier message, I did not mean to imply absence of free will. Even in the natural sciences, especially in quantum mechanics, it sneaks in in the form of uncertainty. The natural scientists exploit this through probability models. In "empirical" accounting research it is buried in all the unnatural and bizarre assumptions underlying the sophomoric statistical "models" that we concoct for the pleasure of the exhalted journal editors/referees.

    (Those interested in the natural scientists' approach might like to browse the brilliant classic written by the physicist E.T. Jaynes; it was published posthumously.

    Probability Theory: The Logic of Science E. T. Jaynes and G. Larry Bretthorst Cambridge University Press (June 9, 2003) )

    If the phenomena we study are in some sense probabilistic, empirical work needs enormous data even if ther number of variables in the model is very small. In most accounting research that I have seen, the size of data is laughably, pathetically small. No statistician worth the salt would ever endorse the kind of statistical work in "empirical" accounting research.

    I would like to make another comment on the dismal state of education of "empirical" accounting researchers. Last year we had a parade of financial accounting faculty candidates visiting us for positions in our department, all of them from respectable schools working under "respectable" dissertation supervisors. I'll give the example of one candidate (I have many more stories). He was running single equation regression model. I invited a friend of mine, a Chaired professor of Econometrics and editor of a well respected Econometrics journal to attend the presentation. He observed that since the candidate's independent variable was a conditional probability, single equation model was underspecified. At first, the candidate did not understand what the econometrician was talking about. And then when he understood the problem (the candidate was bright, just poorly served by his university and his advisor), his shocking response was that every body in "empirical" accounting research does what he did, and that it was "accepted" practice!

    One more reason why I get the shivers when I hear the term "best practice" not supported by good theory. Sir Arthur Eddington is truly my hero!

    Jagdish S. Gangolly,
    Associate Professor
    ( j.gangolly@albany.edu )
    Department of Accounting & Law,
    School of Business PhD Program in Information Science,
    Department of Informatics College of Computing & Information
    State University of New York at Albany, Albany, NY 12222.
    Phone: (518) 442-4949
    URL:
    http://www.albany.edu/acc/gangolly

    May 26, 2008 reply from Paul Williams [Paul_Williams@NCSU.EDU]

    The Grandmother test is attributable to Robyn Dawes. Ian Shapiro (The Flight from Reality in the Human Sciences) has a chapter devoted to rational choice theory and what a disaster it has been for his field, political science. Shapiro evokes the grandmother test as follows (quoted from page 52):

    "But seldom does one encounter applications of rational choice theory that are at once arresting and sustainable. It is customary for proponents of rational choice theory to meet this charge by shifting the burden of persuasion (my comment: for those of us who have been around the accounting academy a while this will sound familiar). They will defy the critic to show that rational behavior plays no role whatsoever in politics or, in the case of particular anomalies, to establish that no conceivable rational choice logic could account for the phenomenon in question. Neither rejoinder suffices to vindicate rational choice theory. Alternatively, defenders of rational choice theory lay claim to intuitions that are widely shared by non-rational choice theorists, reminding us that behaviors like voting become less frequent as they become less costly. The idea that human behavior is to some degree price elastic, although important and empirically sustainable, nonetheless runs afoul of what Robyn Dawes calls the Grandmother Test: "Is the sustainable proposition one of which Robyn's grandmother is unaware?" As we noted in Pathologies, virtually all students of politics, past and present, harbor causal intuitions consistent with rational choice theory. The question is whether the advent of rational choice scholarship has added to the existing stock of knowledge."

    Thus my example of Arrow's impossiblility Theorem. You can't please everybody. Well, duh. Nobel prizes have been awarded for demonstrating that people save money so they won't starve in their old age. Well, duh again. When one considers the non-common sense understandings that the natural sciences have provided (curved space, non uniform time, etc) relative to economics, which has produced no similar insights. The empirical regularities that exist in our lives that are part of the common background that your grandmother knows, she would still know with the same degree of insight had economics never provided its insights

    Added Later
    The Invisible Hand is a metaphor Adam Smith set no great store by and was based on eighteenth century understandings of natural science. (Gary Wills relates in Inventing America how the students in his classes that have studied Smith always remark on his imagery of a clockwork universe -- the imagery of his day ala Newton). If times are good for rabbits, they muliply which in turn provides good times for foxes, etc. so that nature is in an equilibrium -- never too many rabbits, never too many foxes. 21st century natural science paints a rather different picture of this notion of balance (we are all familiar with chaos threory and the notion of positive and negative feedback loops -- what makes the prospect of global warming ominous if indeed human activity is contributing to it). Certainly with human interventions over the last 250 years, we alone are a major disrupting force in the whole biosphere. As George Stiglitz article in the Guardian a few years back succinctly put it: "There are no invisible hands." The hands are there and not too difficult to see. As Keith Robson says every "market" is different because of the variable power that institutions that make that "market" have. There are market forces, but they don't work in the benign way of the invisible hand. The modern limited liability corporation insures that is the case. When I took economics as a freshman (many, many years ago) I was informed there is no adequate theory of oligopoly. Still isn't, yet everything we need and want (food, clothing, shelter, medicine, cars, software, etc, bloody etc.) comes to us via oligopolistic forces. Smith was a moral philosopher and was quite fastidious about disclaiming he was saying anything other than in context (anyone who has spent any time at all in Scotland quickly comes to understand the Scots affinity for France and animous toward England). He was a political/moralist/economist railing against Merchantilism (ironically in his day the equivalent of oligopolistic power). When he spoke about his baker making bread available every day without direction other than his own interests, Smith did not have, e.g., Flowers Industries in mind. In the Theory of Moral Sentiments he dealt with moral sense - the glue that held society together and prevented the baker from being too avaricious; he had to share a pew with his neighbors in the local Presbyterian church. Eighteenth century Scots were governed more by the kirk than the invisible hand. It is, after all, An Inquiry into the Nature and Causes of the Wealth of Nations. The nation, the cultural unit, was what traded. Smith was preoccupied with the wealth of a people, not any particularly person. Nations don't trade any more so much as mutli-national corporations who are beings with no loyalties, no conscience, no commitments to any principles other than shareholder value. Thus, the recent work in economics that raises serious questions about the universal value of free trade. If you visit his grave in Edinburgh and stand very still you can hear him spinning. In another irony his grave stone backs up against the rear wall of a building containing a museum devoted to the history of labour in Scotland and the misery his invisible hand caused in the nineteenth century (the invisible hand gave lots of folks the finger).

    Paul

    May 26, 2008 reply from Amy Dunbar [Amy.Dunbar@BUSINESS.UCONN.EDU]

    Jagdish, could you give me an example of an issue where a conditional probability is an independent variable? Are you talking about selection models where you first estimate the likelihood of making a choice, like entering into a lease vs buying, and then using that likelihood as an independent variable?

    >>He observed that since the candidate's independent variable was a conditional probability, single equation model was underspecified.

    Amy Dunbar
    UConn

    May 27, 2008 reply from Jagdish Gangolly [gangolly@CSC.ALBANY.EDU]

    Amy,

    I had committed an error in my original posting. I meant dependent variable when I said independent variable.

    Suppose you are trying to study the relationship between some independent variables x_1, x_2,...x_p on a dependent variable z. Suppose you define z to be the probability of y given that q is true. If you formulate this as a linear regression, the model is not fully specified since q is left dangling, since q is not necessarily always true. It is even possible that z too is some how dependent on some xes. You need two equations to fully specify the model.

    Regards,

    Jagdish

     


    Flawed Peer Review Process

    Faulty Towers:  Most Science Studies Appear to Be Tainted By Sloppy Analysis and Superficial Peer Reviews
    Dr. Ioannidis is an epidemiologist who studies research methods at the University of Ioannina School of Medicine in Greece and Tufts University in Medford, Mass. In a series of influential analytical reports, he has documented how, in thousands of peer-reviewed research papers published every year, there may be so much less than meets the eye. These flawed findings, for the most part, stem not from fraud or formal misconduct, but from more mundane misbehavior: miscalculation, poor study design or self-serving data analysis. "There is an increasing concern that in modern research, false findings may be the majority or even the vast majority of published research claims," Dr. Ioannidis said. "A new claim about a research finding is more likely to be false than true." The hotter the field of research the more likely its published findings should be viewed skeptically, he determined.
    Robert Lee Hotz, The Wall Street Journal, September 24, 2007 --- http://online.wsj.com/article/SB118972683557627104.html
     


    "European Science Foundation Report Examines Peer Review Issues," University of Illinois Issues in Scholarly Communication blog, April 24, 2007 --- http://www.library.uiuc.edu/blog/scholcomm/

    The European Science Foundation (ESF), France, has published a report which reveals some concern on the shortcomings of peer review and outlines some possible measures to cope with them. The report, Peer review: its present and future states, draws on ideas from an international conference held in Prague in October 2006.

    Scientists are questioning whether peer review, the internationally accepted form of scientific critique, is able to meet the challenges posed by the rapid changes in the research landscape. The ESF report showcases a number of options that could lead to greater openness in innovative research. A central theme of the report is that the current peer review system might not adequately assess the most pioneering research proposals, as they may be viewed as too risky. The conference called for new approaches, enabling the assessment of innovative research to be embedded in the peer review system. Participants agreed that the increasing importance of competitive research funding has also added on the pressure on referees and on research funding agencies.

    All contributors to the conference report agreed that peer review is an essential part of research and that no other credible mechanism exists to replace it.

    Rethinking Tenure, Dissertations, and Scholarship in Humanities --- http://www.trinity.edu/rjensen/HigherEdControversies.htm#MLA


    A New Model for Peer Review in Which Reviewer Comments are Shared With the World
    Peer Reviewers Comments are Open for All to See in New Biology Journal

    From the University of Illinois Issues in Scholarly Communication Blog, February 15, 2006 --- http://www.library.uiuc.edu/blog/scholcomm/

    BioMed Central has launched Biology Direct, a new online open access journal with a novel system of peer review. The journal will operate completely open peer review, with named peer reviewers' reports published alongside each article. The author's rebuttals to the reviewers comments are also published. The journal also takes the innovative step of requiring that the author approach Biology Direct Editorial Board members directly to obtain their agreement to review the manuscript or to nominate alternative reviewers. [Largely taken from a BioMed Central press report.]

    Biology Direct launches with publications in the fields of Systems Biology, Computational Biology, and Evolutionary Biology, with an Immunology section to follow soon. The journal considers original research articles, hypotheses, and reviews and will eventually cover the full spectrum of biology.

    Biology Direct is led by Editors-in-Chief David J Lipman, Director of the National Center Biotechnology Information (NCBI), a division of the National Library of Medicine (NLM) at NIH, USA; Eugene V Koonin, Senior Investigator at NCBI; and Laura Landweber, Associate Professor at Princeton University, Princeton, NJ, USA.

    For more information about the journal or about how to submit a manuscript to the journal, visit the Biology Direct website ---
    http://www.biology-direct.com/

    July 28, 2006 reply from Alexander Robin A [alexande.robi@UWLAX.EDU]

    Two quotes from a couple of Bob Jensen's recent posts:

    "Of course we knew students are obsessed with grades." (from the RateMyProfessors thread)

    "The problem is that universities have explicit or implicit rankings of "journal quality" that is largely dictated by research faculty in those universities. These rankings are crucial to promotion, tenure, and performance evaluation decisions." (from the TAR thread)

    These two issues are related. First, students are obsessed with grades because universities, employers and just about everyone else involved are obsessed with grades. One can also say that faculty are obsessed with publications because so are those who decide their fates. In these two areas of academia, the measurement has become more important than the thing it was supposed to measure.

    For the student, ideally the learning is the most important outcome of a class and the grade is supposed to reflect how successful the learning was. But the learning does not directly and tangibly affect the student - the grade does. In my teaching experience students, administrators and employers saw the grade as being the key outcome of a class, not the learning.

    Research publication is supposed to result from a desire to communicate the results of research activity that the researcher is very interested in. But, especially in business schools, this has been turned on its head and the publication is most important and the research is secondary - it's just a means to the publication, which is necessary for tenure, etc.

    It's really a pathetic situation in which the ideals of learning and discovery are largely perverted. Had I fully understood the magnitude of the problem, I would have never gone for a PhD or gotten into teaching. As to what to do about it, I really don't know. The problems are so deeply entrenched in academic culture. Finally I just gave up and retired early hoping to do something useful for the rest of my productive life.

    Robin Alexander

    Bob Jensen's threads on peer review are at http://www.trinity.edu/rjensen/HigherEdControversies.htm#PeerReview


    From Smart Stops on the Web, Journal of Accountancy, May 2008 --- http://www.aicpa.org/pubs/jofa/may2008/smart_stops.htm

    EMPLOYEE BENEFITS

    BUILDING HR KNOWLEDGE
    www.hrtools.com

    Choose the “Insight” tab at this HR portal to access blogs and articles from seasoned HR professionals, including Jennifer Blanchard’s “Generation Y” column. As a new feature, content is organized by broad category, such as benefits and compensation, staffing or legal compliance, then more narrowly defined by multiple topic tags (there are hundreds). The “Resource Center” tab—especially developed for small and medium businesses—also offers eTools, checklists, Q&As and analysis of state employment laws.

    COMMUNITY CHEST
    www.irs.gov/retirement

    Since its first appearance in this column, the IRS’s site for everyone with a stake in retirement plans has introduced three newsletters: Retirement News for Employers, Employee Plans News, for retirement-plan practitioners, and Timing is Everything, a periodic one-page flier with tips for employees on such topics as saving and contributing to plans. The site also provides handy guides, such as the “401(k) Fix-It Guide,” and a “Correcting Plan Errors” page that can help identify potential mistakes and offer solutions or ways to avoid future problems.

    FOR TOP–NOTCH PLAN AUDITS
    http://ebpaqc.aicpa.org

    This site is a one-stop shop for firms that audit employee benefit plans. Click the “Resources” tab to access information on the Department of Labor’s Pension Audit Quality Enforcement Program and the audit requirement for employee benefit plans, plus a checklist for plan sponsors and stakeholders entering the proposal and auditor evaluation process. There is also a comprehensive analysis of how the risk assessment standards (SAS nos. 104–111) affect employee benefit plan audits. Members of the center may also access the “Employee Benefit Plan Marketing Toolkit” and sign up for periodic e-mail updates.

     

    GENERAL INTEREST

    FOR THOSE IN THE HOT SEAT
    www.dandodiary.com

    The D&O Diary is a blog on directors’ and officers’ liability, authored by Insurance Journal columnist Kevin LaCroix, a partner and attorney at OakBridge Insurance Services focusing on management liability. The posts feature his analysis on subjects such as insurance, corporate accountability, risk management and Sarbanes-Oxley, as well as coverage of hot topics such as subprime litigation, executive compensation and corporate governance. A section of links leads to other legal, insurance and accounting blogs.

    GET AN UPDATE ON BACKDATING
    www.sec.gov/spotlight/optionsbackdating.htm

    Have questions on stock options backdating? You’re likely to find answers—and more—at this site. The SEC compiled its catalog of enforcement actions, commission speeches, testimony and letters. With the documents listed in reverse chronological order, the site offers quick access to the latest regulatory developments related to backdating. There is also testimony from the SEC’s Divisions of Enforcement and Corporation Finance, and listings of additional non-SEC documents on the topic, including criminal complaints and indictments from the U.S. Attorney’s Office.

    LISTEN AND LEARN
    www.deloitte.com/dtt/leadership/0,1045,sid%253D107508,00.html

    This site from Deloitte Insights hosts weekly audio podcasts on business news. The programs—organized by subject or most recent posting—cover globalization, accounting, tax, finance, technology, risk management and governance. The podcasts, such as “Develop, Deploy, Connect: Harnessing the Power of Generation Y” and “Be the Board You Want to Be: Putting IT on the Front Burner,” feature experts from the Deloitte Touche Tohmatsu member firms. You can subscribe to receive the podcasts automatically from a variety of sources—including RSS feed or e-mail—or you can listen to more than 60 in the archives.

    TOP GRADE SECURITIES SITE
    http://lawprofessors.typepad.com/securities

    Find securities information straight from the professor’s mouth. Barbara Black, professor of law and director of the Corporate Law Center at the University of Cincinnati College of Law, pens this site, part of the growing Law Professor Blogs Network. It highlights the day’s regulatory action, law review articles, judicial opinions related to securities and investing, fraud and financial reporting. Use topical archive links such as “SEC Action” and “State Securities Law” or use the weekly archive to browse posts dating back to January 2007.


    If Charlie Parker was a gunslinger

    Part of a May 5, 2008 message from sociology professor Mike Kearl who maintains a fantastic Website at http://www.trinity.edu/mkearl/

    You've never mentioned the "If Charlie Parker was a gunslinger" blog ( http://tsutpen.blogspot.com/ ) and I just wanted to make sure that it's in your radar. Right up your alley!


    Some Clever Ideas Written by David Fordham at James Madison University
    Password Advice --- Click Here


    WORD PROBLEMS FOR FUTURE HEDGE- FUND MANAGERS --- http://www.mcsweeneys.net/2008/5/7woodiwiss.html
    This link was provided in the Financial Clippings blog on May 7, 2008


    No Word Yet from the Harvard Business School
    The Harvard Business Review is probably grinding its teeth.

    From Inside Higher Ed, May 8, 2008 --- http://www.insidehighered.com/news/2008/05/08/qt

    The law faculty at Harvard University on Wednesday announced plans to create an open access repository of all work that the professors publish. Faculty members will also be able to publish the works on their own Web sites and disseminate the works broadly for purposes other than profit. The law school’s move follows a similar policy adopted in February by the arts and sciences faculty at Harvard.

    Bob Jensen's threads on open access are at http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI


    Utah State OpenCourseWare ---  http://ocw.usu.edu/

    Jensen Comment
    There's no accounting or business open sharing courses as of yet, but economics is among those courses shared.

    Bob Jensen's threads on open access are at http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI 


    From PBS Television
    Frontline: Growing Up Online
    (Video) --- http://www.pbs.org/wgbh/pages/frontline/kidsonline/

    Forwarded by Vidya,

    From the National Science Foundation
    The Birth and Rise of the Internet --- http://www.nsf.gov/news/special_reports/nsf-net/?govDel=USNSF_51

    Bob Jensen's Timeline of OLAP, GML, SGML, HTML, XML, RDF, and XBRL --- http://www.trinity.edu/rjensen/XBRLandOLAP.htm

     http://www.trinity.edu/rjensen/XBRLandOLAP.htm

    STATIC WEB TIMELINE
    Hypertext ---> PC ---> GUI,Mouse ---> GML,SGML --->Internet --->Hypermedia --->HTML, HTTP, WWW --->
    DYNAMIC WEB TIMELINE                 
    CGI,Java,JavaScript,DHTML,ActiveX,ASP ---> XML/SMIL --->RDF and OWL ---> OLAP ---> XBRL -
    SEMANTIC WEB

    http://www.w3.org/DesignIssues/Semantic.html  and http://logicerror.com/semanticWeb-long

    EXTENSIVE COMPUTING TIMELINE
    http://www.accad.ohio-state.edu/~waynec/history/timeline.html 

     

    THE FUTURE OF SEARCH (or so says IBM) --- The Future of Search (or so says IBM) --- http://www.trinity.edu/rjensen/searchh.htm#FutureOfSearch

    Also see Richard Jensen's (History, U of Illinois-Chicago) Scholars' Guide to WWW


    SEC Proposes New Way (XBRL) for Investors to Get Financial Information on Companies ---
    http://www.sec.gov/news/press/2008/2008-85.htm

    Chairman Cox Discusses Interactive Data: Windows Media Player (26 MB) QuickTime (28 MB) Washington, D.C., May 14, 2008 —
    The Securities and Exchange Commission today voted unanimously to formally propose using new technology to get important information to investors faster, more reliably, and at a lower cost.

    At the center of the SEC proposal is "interactive data" — computer "tags" similar in function to bar codes used to identify groceries and shipped packages. The interactive data tags uniquely identify individual items in a company's financial statement so they can be easily searched on the Internet, downloaded into spreadsheets, reorganized in databases, and put to any number of other comparative and analytical uses by investors, analysts, and journalists.

    The proposed rule would require all U.S. companies to provide financial information using interactive data beginning next year for the largest companies, and within three years for all public companies.

    Continued in news release

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


    From the Scout Report on May 9, 2008

    Advanced WindowsCare Personal 2.7.2  --- http://www.iobit.com/advancedwindowscareper.html?Str=download 

    Threats to personal computers everywhere are on the rise, and Advanced WindowsCare Personal 2.7.2 provides a bit of sweet relief from such matters. The program removes spyware and adware, fixes registry errors, and also cleans up temporary files. Additionally, the program contains a brief help file for consultation by users. This version is compatible with computers running Windows 2000, XP, and Vista.


    Zabaidoo 1.1.804.25  --- http://www.zabidoo.com/pc.jsp 

    Zabidoo is a jack-of-all-trades type web navigator application. It allows users to scan through various website to find bargains, keep tabs on their RSS feeds, and also organize important links and email accounts. The homepage for the application offers an interactive demonstration of how it works, along with information about its other features. This version is compatible with computers running Windows XP or Vista.


    Princeton University Press has recalled all copies of one of its spring titles after discovering more than 90 spelling and grammar errors in the 245-page work. The book, Cop in the Hood: My Year Policing Baltimore’s Eastern District, by Peter Moskos, was published on Thursday in an initial press run of 4,000 copies.
    Jennifer Howard, "Princeton U. Press Recalls Typo-Filled Book and Says It Will Reprint," Chronicle of Higher Education, May , 2008 --- http://chronicle.com/news/article/4427/princeton-u-press-recalls-typo-filled-book-and-says-it-will-reprint


    Business ranks at the bottom in terms of having 23% of the responding students having only 1-5 hours of homework per week!
    This in part might explain why varsity athletes choose business as a major in college.

    "Homework by Major," by Mark Bauerlein, Chronicle of Higher Education, May 5, 2008 --- http://chronicle.com/review/brainstorm/index.php?id=422

    Stephen’s post last week about reading complained that students don’t want any more homework, and their disposition certainly shows up in the surveys. In the 2006 National Survey of Student Engagement almost one in five college seniors devoted five hours or less per week to “Preparing for class,” and 26 percent stood at six to ten hours per week. College professors say that achievement requires around 25 hours per week of homework, but only 11 percent reached that mark.

    The 2007 NSSE numbers break responses down by major, and the homework levels for seniors are worth comparing. Here are numbers for 15 hours or less.

    Arts and Humanities majors came in at 16 percent doing 1-5 hours of homework per week, 25 percent at 6-10 hours, and 20 percent at 11-15 hours.

    Biological Sciences: 12 percent do 1-5 hours, 22 percent do 6-10, and 20 percent do 11-15 hours.

    Business: 23 percent at 1-5, 30 percent at 6-10, and 19 percent at 11-15 hours.

    Education: 16 percent at 1-5, 27 percent at 6-10, and 21 percent at 11-15 hours.

    Engineering: 10 percent at 1-5, 19 percent at 6-10, and 17 percent at 11-15 hours.

    Physical Science: 12 percent at 1-5 hours, 21 percent at 6-10, and 18 percent at 11-15 hours.

    Social Science: 20 percent at 1-5 hours, 28 percent at 6-10, and 20 percent at 11-15 hours.

    Grade Inflation and Dysfunctional Teaching Evaluations (the biggest scandal in higher education) ---
    |http://www.trinity.edu/rjensen/HigherEdControversies.htm

    Jensen Comment
    Part of the problem in business schools and many other professional schools within a university is that they have many more majors than most humanities and science departments. As a result their upper division course sections are relatively large, often over 50 students even in advanced sections. Large sections make it much more difficult to assign and grade homework, especially term papers. A typical business professor may be teaching three sections of classes that add up to way over 100 students each semester. Try reading 143 term papers that are turned in in the last three weeks of a semester. Try grading 143 accounting problem answers turned in each week of the semester. The problems are easier to grade, but it's terribly tedious to pour over 143 per week.


    Audacity Free Audio Recorder and Editor --- http://audacity.sourceforge.net/

    Free Audio Dub 1.4.1.2 --- http://www.dvdvideosoft.com/products/dvd/Free-Audio-Dub.htm 

    The fastest way to edit audio files!

    Free Audio Dub is the free audio editing software that lets you delete unwanted parts from audio files without re-encoding.

    And "without re-encoding" means without loosing original quality!!! This is a lossless conversion, which is very fast.

    Supports many audio formats: MP3, WAV, AAC, AC3, M4A, MP2, OGG, WMA .

    Jing Free Video Capture (video) --- http://video.techsmith.com/jing/latest/demo/introvideo/index.html
    Jing Download --- http://www.techsmith.com/download/default.asp

    A-Z Free Video Converter 6.81 --- http://www.cnn-video.com/download.html 

    A-Z Free Video Converter allows users to convert a wide range of file formats (such as WMV, MPEG, and DIVX) to the popular MOV formats (especially good for Quicktime players). The converter can be helpful for a range of media projects, including classroom presentations and the like. This particular version is compatible with computers running Windows 95 and newer.

    You can also make these conversions in Camtasia Producer, but this software is not free like the A-Z Video Converter software.
    You can read about Camtasia at http://www.trinity.edu/rjensen/HelpersVideos.htm

    Bob Jensen's technology bookmarks --- http://www.trinity.edu/rjensen/Bookbob4.htm

    Technology --- http://www.trinity.edu/rjensen/Bookbob4.htm#Technology

    Streaming Media --- http://www.trinity.edu/rjensen/000aaa/thetools.htm#StreamingMedia


    May 4, 2008 message from Richard Campbell [campbell@RIO.EDU]

    I have placed a (Camtasia) video online on omnisio.com, which allows comments to be placed OVER the video.

    http://www.omnisio.com/v/49zPDUbdjhG/the-basic-accounting-equation 

    This is a video that I have on youtube and just linked it to Omnisio.

    Jensen Comment
    There are some other cool things to do with video at http://www.omnisio.com/


    Warning:
    The title of the article below is misleading. The author is talking about shorter "courses" rather than shorter "classes."

    "Can Shorter Classes (Courses) Mean More Learning? At last, a scientific rationale for shortening classes (courses)," by Paula Wasley, Chronicle of Higher Education, May 23, 2008 --- http://chronicle.com/news/article/4535/can-shorter-classes-mean-more-learning?utm_source=at&utm_medium=en

    A recent study by researchers at the University of Texas at Austin found that students rate shorter, intensive courses — in which a semester’s worth of material is taught at an accelerated rate — as more effective than traditional 15-week courses.

    The students’ perceptions, gleaned from end-of-term evaluations of 130 conventional- and intensive-length courses on the Austin campus, support the findings of previous research, which showed that students learn as much in accelerated courses as in the full-length versions — and sometimes more.

    According to a news release issued by the university, the study’s authors speculate that students who meet in daily class sessions may have better rapport with their professors and therefore may be more engaged with the subject matter.

    “In any event, these preliminary findings regarding student satisfaction and intensive courses would suggest that universities may want to look at offering a greater number of summer courses,” said John V. Kucsera, a doctoral candidate in educational psychology and one of the authors of the study, which is not yet posted online. “It might also be beneficial to encourage students to take summer courses — right now, only a small percentage of students elect to do so.”

    Jensen Comment
    We've had evidence for years when comparing accelerated summer session courses with fall and spring semester courses. We also have evidence of this when comparing universities still on quarter systems (e.g., Michigan State University and Stanford) with universities on semester or trimester plans. I'm not certain formal studies have been conducted, but having taught in both systems, I much preferred the semester system to a quarter system. Too much time is wasted in quarterly courses starting up and winding down courses vis-a-vis semester courses. There are of course many advantages of quarterly plans, particularly the ability to have more varied courses in a curriculum.

    Of course the above University of Texas study is not the same as comparing quarterly versus semester plans. This was more like comparing accelerated summer semesters with traditional 15-week semesters. It also relied more on student perceptions rather than faculty perceptions. My daughter went to UT as an undergraduate in biology and experienced enormous class sizes nearly all of her courses. Grades were assessed almost entirely upon examinations. Perhaps the UT study mentioned above did not factor in the problem of accelerated courses when homework and term papers must be written and graded --- as is often the case in courses having small numbers of students, especially less than 15 students as was often the case at Trinity University.

    Most certainly I do not think students or faculty would like students to carry five accelerated courses simultaneously when term papers are required in those courses in addition to homework and examinations.

    I think students would prefer to take fewer courses simultaneously, which is why students at many universities repeatedly propose a four-course load system as opposed to a traditional five-course load system. For example, students might have four contact hours/credits in each of four classes each semester. Faculty objections arise typically for reasons of curriculum breadth and faculty turf. Four course loads in semester plans sometimes limit the exposure to variety in the general curriculum that is supposed to cover such things as English composition, foreign languages, art, literature, music, American history, world history, government, social sciences, physical sciences, mathematics, computer science, etc. Acceleration of semester courses might ease this problem but only at the expense of adding more course requirements and costs to the curriculum, which most students would not support.


    "Great, My Professor," by JJ Hermes, Chronicle of Higher Education, May 22, 2008 ---
    http://chronicle.com/wiredcampus/article/3027/great-my-professor?utm_source=at&utm_medium=en

    Partly because he was fed up with childish comments on Web sites where students rate their professors, a business-school professor at Temple University has created an online forum for students who want to sound off. So as not to mislead students, the site’s title suggests its intent: “Thank You Professor.”

    “There are so many vehicles for students to express their opinion,” says the site’s creator, Samuel D. Hodge Jr., chairman of the business school’s legal-studies department. “But there’s nothing really at the school where the professor can get a letter directly from the student.”

    When the site went live on May 1, Mr. Hodge says, he expected about a dozen comments in the first week. Instead, more than 200 flooded in. He converts each note into a letter to the faculty member being praised, then makes sure the business school’s dean gets a copy.

    Mr. Hodge moderates the comments, but so far there haven’t been any negative posts on the site, he says.

    For example, the four “thank you notes” left on the site so far for Rob B. Drennan Jr., an associate professor of risk, insurance, and health-care management, have been uniformly laudatory (three were signed, and one was anonymous). “I truly enjoyed his class,” wrote one student, Tom Coia. “Difficult and challenging, but isn’t that what we want from school?” Contrast that to an anonymous comment concerning Mr. Drennan that a student left last spring on RateMyProfessors.com: “BOOOOO!!!!!”

    Mr. Hodge, incidentally, has appeared on an MTV Web site of faculty members who “strike back” against comments on RateMyProfessors.com. He says Ohio State University is the only other institution he knows of that gives students a way to thank their professors on the Web.

    Temple may extend the site to the whole university, he says: “It’s such positive reinforcement."

    Bob Jensen's threads on teaching evaluations are at http://www.trinity.edu/rjensen/HigherEdControversies.htm#RateMyProfessor

    Also see http://www.trinity.edu/rjensen/assess.htm#RateMyProfessor


    "SketchCast: a New Blogging and Teaching Tool," Chronicle of Higher Education, May 14, 2008 --- Click Here

    Want to preserve that lesson you did at the blackboard today in class and share it with students online? Try SketchCast, a free blogging tool that allows users to record a digital drawing (and contemporaneous audio), and then embed the animated video onto a Web site. It’s essentially an easy form of animation.

    Watch the video demo --- http://chronicle.com/wiredcampus/index.php?id=2998&utm_source=wc&utm_medium=en

    Comment from Charles

    What a nice tool to capture and share ideas informally! I have been trying to capture tools and concepts for opening up collaborative learning on my blog www.collaborativenetworkedlearning.blogspot.com 

    — Charles May 14, 08:50 PM #

    Bob Jensen's threads on new tools for educators are at http://www.trinity.edu/rjensen/000aaa/thetools.htm#NewTools


    "The Rise in the Price of Oil," The Becker-Posner Blog, May 11, 2008 --- http://www.becker-posner-blog.com/


    May 2, 2008 message from Carolyn Kotlas [kotlas@email.unc.edu]

    REPORT ON E-LEARNING RETURNS ON INVESTMENT

    "Within the academic community there remains a sizable proportion of sceptics who question the value of some of the tools and approaches and perhaps an even greater proportion who are unaware of the full range of technological enhancements in current use. Amongst senior managers there is a concern that it is often difficult to quantify the returns achieved on the investment in such technologies. . . . JISC infoNet, the Association for Learning Technology (ALT) and The Higher Education Academy were presented with the challenge of trying to make some kind of sense of the diversity of current e-learning practice across the sector and to seek out evidence that technology-enhanced learning is delivering tangible benefits for learners, teachers and institutions."

    The summary of the project is presented in the recently-published report, "Exploring Tangible Benefits of e-Learning: Does Investment Yield Interest?" Some benefits were hard to measure and quantify, and the case studies were limited to only sixteen institutions. However, according to the study, there appears to be "clear evidence" of many good returns on investment in e-learning. These include improved student pass rates, improved student retention, and benefits for learners with special needs.

    A copy of the report is available at

    http://www.jiscinfonet.ac.uk/publications/camel-tangible-benefits.pdf

    A two-page briefing paper is available at http://www.jisc.ac.uk/media/documents/publications/bptangiblebenefitsv1.pdf

    JISC infoNet, a service of the Joint Information Systems Committee, "aims to be the UK's leading advisory service for managers in the post-compulsory education sector promoting the effective strategic planning, implementation and management of information and learning technology." For more information, go to http://www.jiscinfonet.ac.uk/

    Association for Learning Technology (ALT), formed in 1993, is "the leading UK body bringing together practitioners, researchers, and policy makers in learning technology." For more information, go to http://www.alt.ac.uk/

    The mission of The Higher Education Academy, owned by two UK higher education organizations (Universities UK and GuildHE), is to "help institutions, discipline groups, and all staff to provide the best possible learning experience for their students." For more information, go to http://www.heacademy.ac.uk/

    Bob Jensen's threads on asynchronous learning are at http://www.trinity.edu/rjensen/255wp.htm
    Also see http://www.trinity.edu/rjensen/265wp.htm

    Assessment Issues --- http://www.trinity.edu/rjensen/assess.htm

    Threads on Costs and Instructor Compensation (somewhat outdated) --- http://www.trinity.edu/rjensen/distcost.htm

    .................................................................

    INFORMATION SEARCHING BEHAVIOR OF "GOOGLE GENERATION" STUDENTS

    The British Library and the Joint Information Systems Committee (JISC) commissioned a study "to identify how the specialist researchers of the future, currently in their school or pre-school years (the 'Google generation'), are likely to access and interact with digital resources in five to ten years' time." How this group uses the Internet for information and research has implications for both instructors and librarians. Some of the group's characteristics revealed in the study conclude that:

    --they "have a poor understanding of their information needs and thus

    find it difficult to develop effective search strategies"

    -- they "have unsophisticated mental maps of what the internet is,

    often failing to appreciate that it is a collection of

    networked resources from different providers"

    -- they "find it difficult to assess the relevance of the materials

    presented and often print off pages with no more than a

    perfunctory glance at them"

    A number of popular myths about the Google generation were explored, with the researchers concluding that many popularly-held beliefs about the generation are, in fact, not substantiated by the research.

    The study's report "Information Behaviour of the Researcher of the Future" (January 2008) is available at http://www.jisc.ac.uk/media/documents/programmes/reppres/gg_final_keynote_11012008.pdf

    The Joint Information Systems Committee (JISC) is a strategic advisory committee working on behalf of the funding bodies for further and higher education in England, Scotland, Wales, and Northern Ireland. For more information on JISC, see http://www.jisc.ac.uk/

    ......................................................................

    PUBLISHING POLICIES FOR FACULTY AUTHORS AND OPEN ACCESS

    "[O]n February 12, 2008, the Faculty of Arts and Sciences (FAS) at Harvard University took a landmark step. The faculty voted to adopt a policy requiring that faculty authors send an electronic copy of their scholarly articles to the university's digital repository and that faculty authors automatically grant copyright permission to the university to archive and to distribute these articles unless a faculty member has waived the policy for a particular article. Essentially, the faculty voted to make open access to the results of their published journal articles the default policy for the Faculty of Arts and Sciences of Harvard University."

    The SPARC/Science Commons White Paper "Open Doors and Open Minds: What Faculty Authors Can Do to Ensure Open Access to Their Work Through Their Institution" (April 2008) describes Harvard's policy and provides a plan of action for other institutions contemplating similar policies to extend access to faculty publications. The paper is available at http://www.arl.org/sparc/bm~doc/opendoors_v1.pdf

    SPARC, the Scholarly Publishing and Academic Resources Coalition, is "an international alliance of academic and research libraries working to correct imbalances in the scholarly publishing system. Developed by the Association of Research Libraries, SPARC has become a catalyst for change. Its pragmatic focus is to stimulate the emergence of new scholarly communication models that expand the dissemination of scholarly research and reduce financial pressures on libraries." For more information, contact: SPARC, 21 Dupont Circle, NW, Suite 800, Washington, DC 20036 USA; tel: 202-296-2296; fax 202-872-0884; email:

    sparc@arl.org; Web: http://www.arl.org/sparc/

    Bob Jensen's threads on open sharing are at http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI

    .................................................................

    USING LEISURE DEVICES IN THE LEARNING ENVIRONMENT

    "[T]he blurring of leisure and learning has corroded the respect that is necessary to commence a scholarly journey."

    In "Learning to Leisure? Failure, Flame, Blame, Shame, Homophobia and Other Everyday Practices in Online Education" (JOURNAL OF LITERACY AND TECHNOLOGY, vol. 9, no. 1, April 2008, pp. 36-61), Juliet Eve and Tara Brabazon "map a singular teaching hypothesis: when using platforms most frequently positioned in leisure-based environments, such as the iPod, text messaging, and discussion fora, there are institutional and ideological blockages to creating a successful learning experience and scholarly environment." From their in-class experimentation and the work of other researchers, they observed that the "user-generated content 'movement' -- including Flickr, wikimedia, blogs, podcasting, MySpace, Facebook and YouTube -- has provided a channel and venue for the emotive excesses of grievance, hostility and insolence against teachers, students and education." The paper is available at http://www.literacyandtechnology.org/volume9/jlt_v9_1_eve_brabazon.pdf

    The Journal of Literacy and Technology [ISSN: 1535-0975] is an online peer-reviewed international academic journal "exploring the complex relationship between literacy and technology in educational, workplace, public, and individual spheres." For more information, contact The Journal of Literacy & Technology, Florida Atlantic University, School of Communication and Multimedia Studies, 777 Glades Road, Boca Raton, FL 33431 USA; tel: 561-297-2623; fax: 561-297-2615; Web:

    http://www.literacyandtechnology.org/

    ......................................................................

    RECOMMENDED READING

    "Recommended Reading" lists items that have been recommended to me or that Infobits readers have found particularly interesting and/or useful, including books, articles, and websites published by Infobits subscribers. Send your recommendations to carolyn_kotlas@unc.edu for possible inclusion in this column.

    Shakespeare's Global Globe

    http://www.orbismundi.org/

    Shakespeare's Global Globe, conceived by Michael Witmore an associate professor of English at Carnegie Mellon University, is "a web resource that provides an instantaneous visualization of all self-reporting readers of Shakespeare on the planet, viewable by region, genre and play. Upon arrival at the site, visitors are asked to indicate which Shakespeare play they are currently reading and where they are on the planet. The site then locates that reader and play at a particular point on the globe, which remains illuminated for two weeks. Site visitors can also explore what other readers of Shakespeare are doing in different cities, regions or continents using a range of display options."

    Bob Jensen's education technology threads are linked at http://www.trinity.edu/rjensen/000aaa/0000start.htm


    Question
    What can Excel4U do for pivot table users?

    "Edit Excel PivoltTables With Add-In," SmartPros, May 9, 2008 ---

    Excel4U.Net Solutions announced Pivot4U, an add-in for Microsoft Excel that lets the user edit pivot tables.

    A pivot table is a data summarization tool that, among other functions, can automatically sort, count, and total the data stored in one table or spreadsheet and create a second table displaying the summarized data.

    One weakness of Microsoft Excel comes from the missing option to enter or change the data directly in the data area of a pivot table. The pivot table is linked to the source data, and what you see in the cells of the table are read-only amounts. 

    Pivot4U Add-in makes a pivot table editable. Once Pivot4U Add-in is installed, a click on the "add-ins" tab of Excel followed by the selection of Pivot4U makes the pivot table editable. Then set the cursor on any cell in the pivot table and change the value in the cell. When the value is changed, all totals are recalculated automatically.

    Pivot4U Add-in 1.2 requires Microsoft Office 2007 and .NET Framework 2.0. The product is available immediately as a free evaluation version from www.excel4u.net. The evaluation version can be tried for 14 days before making the purchase of $79.99.

    Excel goes pop: Guess the songs that appear in spreadsheet charts
    Microsoft's Excel spreadsheet has provided a platform for the web's latest sensation - graphical charts that summarize the concepts set out in pop song lyrics.


    Excel charts tutorial: How to manipulate the pop charts
    The tech team put their heads together and came up with this response to the recent net phenomenon where abstract graphs and diagrams are used to illustrate pop lyrics such as "Never Gonna Give You Up." This tutorial applies some of the more obscure charting options for your data.


    New tool available to edit Excel pivot tables
    Excel4U.Net Solutions is offering a way to eliminate one of the frustrations of using Microsoft Excel - the inability to make changes directly in the data area of a pivot table.


    Lotus Symphony Office Suite available for free from IBM
    Internet users may now access IBM's Lotus Symphony Office Suite for free from IBM's Web site. The program, which permits the user to create documents, spreadsheets and presentations from software stored on IBM's servers, is available for both Microsoft Windows and Linux operating systems, with support for the Apple Mac OS platform planned for the future.


    It's for real: Microsoft offers software at 91 percent discount
    Listen up college students! Or the parents of college students! Or anyone who knows a college student! Microsoft's The Ultimate Steal promotion, which AccountingWEB reported on last month, has been extended through May 16, giving eligible students a few more days to snap up Office Ultimate 2007 software at an unbelievable 91 percent discount - only $59.95 instead of the full retail cost of $679.

     

    Bob Jensen's video tutorials on pivot tables (that do not cover Excel4U) can be found among the video tutorials at http://www.cs.trinity.edu/~rjensen/video/acct5342/

    Especially note the video tutorials for Microsoft financial statement analysis using pivot tables. These tutorials are listed at http://www.cs.trinity.edu/~rjensen/video/acct5342/


    Ducks and geese are foolish things, and must be looked after, but girls can take care of themselves.
    Washington Irving

    "Girls Rule, Boys Drool," by Susanne Shaphren, The Irascible Professor, May 20, 2008 --- http://irascibleprofessor.com/comments-05-20-08.htm

    A recent New York Times article by Alan Finder spotlighted the need for a new breed of tutor.  Combining the traditional skills of those who help students improve their grades in specific subjects with the new age methods of personal counselors and life coaches, these scholarly magicians earn up to $100 per hour by helping boys bridge the widening educational gap separating them from their more successful female counterparts.

     

    The author detailed a typical session where the tutor emptied her eighth grade client's backpack and asked the fourteen-year-old to sort the stack of papers.  More like a toddler on Christmas morning than a student mere months away from starting high school, the boy was amazed by the treasures he discovered ... a class schedule he'd misplaced and the form he was supposed to turn in the next day to let officials know exactly how he wanted his name to appear on his diploma when he graduated.

     

    Poor Johnny.  Over the decades, experts told us he couldn't read and had difficulty writing too.  Mastering the mysteries of basic addition, subtraction, multiplication, and division were problematic as well.  Now, it seems he can't even manage to perform simple tasks like keeping track of important papers and turning in his assignments!

     

    "Giving Disorganized Boys the Tools for Success" points out that girls, who are described as having better organizational skills and a superior ability to multitask, outperform boys in high school and college.  The author suggests there is an ongoing debate among educators as to whether or not this constitutes a crisis situation worthy of major changes in how schools should teach boys.

     

    Some of the proposed solutions to the problem include: shifting to single-sex schools, providing more male role models, and implementing new teaching techniques geared to the specific needs of boys.

     

    As I read the first few paragraphs, I made the mistake of assuming this was a recent phenomenon in the academic world.  It soon became abundantly clear that wasn't the case at all.  One of the experts quoted in the article has been helping boys develop organizational skills for seventeen years ... ever since she discovered her son (a seventh grader) hadn't been turning in his homework assignments because nobody had invited him to do so!

     

    While it would be ever so tempting to simply agree that females are naturally more intelligent and more organized, I'm forced to stumble around in a vain attempt to find the appropriate ladylike expletive deleted to describe my gut reaction to the author's flawed hypothesis.

     

    The truth is that it's absolutely appalling that a student of ANY gender could progress beyond the primary grades without a parent or a teacher noticing the red flag failure to develop the fundamental skills of keeping track of homework assignments, completing them, and turning them in at the appropriate times.

    Continued in article


    Link forwarded by Bob Blystone

    "What Kids are Reading," Renaissance Learning --- http://www.renlearn.com/whatkidsarereading/ReadingHabits.pdf


    31,000 scientists vs. Al Gore --- http://wnd.com/index.php?fa=PAGE.view&pageId=64734
     


    "Co-Founder of Second Life Says Academics Are Biggest Trailblazers in Virtual Worlds," by Jeffrey R. Young, Chronicle of Higher Education, May 8, 2008 --- http://chronicle.com/wiredcampus/index.php?id=2983&utm_source=wc&utm_medium=en

    Cory Ondrejka, the co-founder of the virtual world Second Life who is now a visiting professor at the Annenberg School for Communication at the University of Southern California, said in a speech today that virtual worlds are here to stay, and that professors are among the most active pioneers.

    “In my view the academy has been blazing the trail of adoption of virtual worlds far more than gamers or industry,” said Mr. Ondrejka, who spoke at a conference at Case Western Reserve University called Collaboration Technology and Engaging the Campus 2008.

    Naturally, the event was broadcast within Second Life, in Case Western’s campus in the virtual world. I attended the conference virtually, and was able to ask Mr. Ondrejka what the biggest challenge for Second Life was in being able to be more than just a passing fad in higher education.

    “The challenges with Second Life is it has significant technical challenges for use,” he said, noting that it takes powerful computers and fast network connections for Second Life to function properly. “You can’t assume that your students are going to be able to run Second Life within the school’s network infrastructure.”

    He argued that some form of 3-D virtual environment will catch on, though he admitted that it might not be Second Life that wins the race. The reason that the idea is powerful, he said, is that studies show that humans respond to a visual Internet, and that they express greater trust for the people they communicate with when they see a virtual representation of the person. “Learning in a place in 3-D affects us differently than text,” he said.

    Mr. Ondrejka said that when professors first build a virtual campus, they usually try to exactly replicate a classroom in Second Life, with desks, chairs, and walls. But then they realize that the world allows different kinds of movement and communication than the real world. “You realize that in a world where you can fly, classrooms aren’t really that useful,” he said. So professors have built new kinds of classrooms online with no roofs. “Suddenly you see this explosion of classroom forms that matches what they’re trying to teach,” he added.

    Continued in article

    Bob Jensen's threads on Second Life Virtual Worlds are at http://www.trinity.edu/rjensen/000aaa/thetools.htm#SecondLife


    May 8, 2008 message from The Carnegie Foundation

    A New Agenda for Higher Education

    To prepare students to respond to the world with informed and responsible judgments about the role they will play within it, a new model of undergraduate teaching is needed. A New Agenda for Higher Education (Jossey-Bass, 2008), by Carnegie Senior Scholar William M. Sullivan and Consulting Scholar Matthew S. Rosin, offers a conception of educational purpose focused on the interdependence of liberal education and professional training. More than just positing a theory of a better integrated undergraduate education, the book highlights practices to educate students for lives of significance and responsibility.

    Learn More »

    What would your college do with an added $200 million?
    First I want to congratulate Claremont McKenna College for receiving such a huge gift.

    Second I want to congratulate them on how they intend to spend it in this era where so many students opt for professional program majors rather than liberal arts.
    Claremont McKenna College on Thursday announced a $200 million gift, from a trustee and alumnus, Robert Day. One purpose of the funds will be to create new academic programs in which students can combine liberal arts education with an education in business and finance — either during their undergraduate program or through a one-year master of finance program immediately after an undergraduate program is completed. The new options are meant to be an alternative to a traditional M.B.A.
    Inside Higher Ed, S
    eptember 28, 2007 --- http://www.insidehighered.com/news/2007/09/28/qt

    Bob Jensen's threads on free mathematics and statistics tutorials are at http://www.trinity.edu/rjensen/Bookbob2.htm#050421Mathematics

    Where the Highest Ranked Colleges Don't Excel --- http://www.trinity.edu/rjensen/HigherEdControversies.htm#DoNotExcel

    Our Under Achieving Colleges Bok's Dark View of the Sad State of Learning in Higher Education --- http://www.trinity.edu/rjensen/HigherEdControversies.htm#Bok


    "The Outlandish Farm Subsidies," The Becker-Posner Blog, May 4, 2008 --- http://www.becker-posner-blog.com/


    Question
    Why did FTI Consulting switch auditors in 2006?

    Answer
    Either a reason or an excuse was provided by Ernst & Young when dropping this go-go client

    "FTI Switches from Ernst to KPMG," April 26, 2006 --- http://www.big4.com/AlumniBlogs/April2006/FTI-Switches-from-Ernst-to-KPMG.htm

    Here’s an interesting development of how auditor independence issues can impact firm-client relationships.

    FTI Consulting (NYSE: FCN), a premier provider of problem-solving consulting and technology services to major corporations, financial institutions and law firms, recently announced that it had switched from Ernst and Young to KPMG as its public auditor for 2006.

    The reason: Ernst wants to hire FTI as a consulting vendor, and believes that its independence could be impaired if E&Y continues to be the auditor for FTI. So both firms reach an agreement that FTI should no longer have E&Y as an auditor after Q1-2006. According to FTI, there have been no disagreements with or adverse opinions expressed by E&Y for 2004 and 2005. FTI then switches to KPMG as an independent auditor.

    If we read this correctly, E&Y loses FTI’s audit fees and has to pay FTI’s consulting fees, so it is getting impacted financially on two fronts. We take it that they must have really wanted FTI’s services to go these lengths.

    In terms of background…..FTI Consulting was founded by Daniel W. Luczak and Joseph R. Reynolds in 1982. It was formerly known as Forensic Technologies International Corporation and subsequently changed its name to FTI Consulting, Inc. The company is based in Baltimore, Maryland.

     

    From The Wall Street Journal Weekly Accounting Review on May 2, 2008

    Is FTI Consulting As Good as It Looks?
    by Karen Richardson
    The Wall Street Journal

    Apr 28, 2008
    Page: C1
    Click here to view the full article on WSJ.com ---
    http://online.wsj.com/article/SB120934061032248377.html?mod=djem_jiewr_AC
     

    TOPICS: Accounting, Earn-Outs, Financial Accounting, Financial Statement Presentation, Financial Statements, Forgivable Loans

    SUMMARY: FTI Consulting looks like a great place to make money, judging by its financials. But for investors, looks can be deceiving. The company is structuring some transactions in creative ways that result in a favorable appearance on the financial statements.

    CLASSROOM APPLICATION: This article shows students how transactions that are presented on the financial statements in a way that is not technically wrong can still misrepresent the condition of the company to the users of the financial statements.

    QUESTIONS: 
    1. (Advanced) What are "earn-outs?" How does FTI utilize earn-outs? Why does the firm choose to use earn-outs?

    2. (Advanced) How does FTI represent the earn-outs on its financial statements? Is FTI's accounting treatment considered proper under GAAP? How could the users of the financial statements misunderstand this transaction as it is presented on the financial statements?

    3. (Advanced) What does one financial manager suggest must be done to the FTI financial statements to get a true picture of the earn-out transactions? Do you agree with his assessment? Why or why not?

    4. (Introductory) Do you think that FTI is structuring the earn-outs to make its financial statements look favorable? Why or why not? What are the long-term consequences of presenting the earn-outs in this manner?

    5. (Introductory) Could FTI present the earn-outs as compensation expense? Would that be a violation of GAAP?

    6. (Advanced) Why does FTI give forgivable loans? Who is benefited? How are forgivable loans presented on FTI financial statements? What are the effects of forgivable loans on the financial statements?

    7. (Advanced) What are the ethical implications of FTI using these presentations of earn-outs and forgivable loans to compensate its employees?
     

    SMALL GROUP ASSIGNMENT: 
    Search online sources for FTI Consulting financial statements and other financial information. Can you find information on the earn-outs? How are the forgivable loans expressed in the financial statements? Are either of these transactions presented in the notes to the financial statements? How could investors discover the facts of these transactions if they had not read the Wall Street Journal article?

    Reviewed By: Linda Christiansen, Indiana University Southeast
     

    "Is FTI Consulting As Good as It Looks?" by Karen Richardson, The Wall Street Journal, April 28, 2008; Page C1 --- http://online.wsj.com/article/SB120934061032248377.html?mod=djem_jiewr_AC

    Judging by its financials, FTI Consulting Inc. looks like a great place to make money. For investors, looks can be deceiving.

    FTI, which provides legal, financial and public-relations services, handsomely pays the hundreds of professionals it has been adding to its ranks through a series of acquisitions. In the first quarter, FTI bought eight companies and added 445 employees in 49 days.

    But FTI's method of paying for its new companies and rewarding its new executives largely avoids any negative effect on earnings. As a result, its operating income looks bigger, fueling its share-price rise and winning praise from analysts and investors. Meanwhile, its sizable and growing compensation-type payouts and loans go largely unnoticed by investors.

    FTI's shares rose 11 cents to $67.69 in trading Friday on the New York Stock Exchange. That put them up 9.8% for the year and more than double where they were at the start of 2007.

    FTI, which has a market value of $3.3 billion, is trading at 27 times estimated 2008 earnings, or a 50% premium on average to its peers, such as the smaller Huron Consulting Group Inc., according to Thomson Reuters. Only one analyst rates it a "sell." Others rave about earnings growth and how the sagging economy will benefit FTI's restructuring practice, which made up 26% of the company's revenue of $1 billion last year.

    FTI, which will report its first-quarter earnings next month, declined to comment.

    Like other companies that count people as their main asset, FTI uses "earn-outs" to pay many executives who come with its acquisitions. Under this model, an acquirer gives its new company an upfront payment and then gives the company's owners or executives additional payments over the next few years based on performance targets.

    While there isn't anything technically wrong with these additional payments, they make expenses look smaller and earnings appear larger than they otherwise would because the earn-outs aren't treated as compensation expense, which is subtracted from earnings.

    Instead, they appear as contingent payments on the cash-flow statement and intangible assets on the balance sheet, neither of which drive investor sentiment as much as the earnings numbers on the income statement.

    "I think of earn-outs as a mechanism for inflating operating income," says Michael Winter, a portfolio manager at hedge-fund Otter Creek Management, which manages about $160 million in assets and doesn't own FTI shares. "For a true quality-of-earnings figure, an investor needs to add those amounts back to earnings as compensation expense."

    Earn-outs aren't small change for a company that has made so many acquisitions and that reported pretax income last year of $150 million. In the first quarter, FTI paid nearly $43 million in earn-outs for earlier acquisitions, and it has said it expects to pay $49 million in earn-outs over the next few years for its latest deals.

    Some analysts regard earn-outs as a necessary evil. "It is important to be cognizant of the financial and accounting ramifications of earn-outs, but they're an important way for professionals-based companies to make sure interests are aligned," says Timothy McHugh, an analyst for William Blair & Co. who has a "buy" rating on FTI stock.

    Another practice employed by FTI, doling out "forgivable" loans, is far less common in corporate America. In 2006, it launched an incentive compensation program that involved granting $30 million in cash payments "in the form of unsecured general recourse forgivable" loans, to senior managing directors and other employees. Last year FTI paid out $35 million in forgivable loans to about 57 senior managing directors and others. "The amount of forgivable loans we make could be significant," FTI said in a recent Securities and Exchange Commission filing.

    FTI typically amortizes the cost of these loans over five years, meaning a fraction of them have an impact on income in the current periods. The total costs aren't reflected until FTI fully forgives the loans. While they are a great incentive to employees, their effect on earnings is delayed.

    "It seems that they really go out of their way to compensate people very well and avoid affecting the income statement," says Donn Vickrey, head of research firm Gradient Analytics. Mr. Vickrey is an earnings-quality analyst who doesn't formally cover FTI. "It gives them a whole lot of room to make their earnings number every quarter."

    Jensen Comment
    Yet another example of why I'm in favor of bright lines.
    "Mr. Vickrey is an earnings-quality analyst who doesn't formally cover FTI. "It gives them a whole lot of room to make their earnings number every quarter."

    Should "principles-based" standards replace more detailed requirements for complex financial contracts such as structured financing contracts and financial instruments derivatives contracts?
    http://www.trinity.edu/rjensen/Theory01.htm#Principles-Based


    Replacement (Current) Cost Accounting Versus Historical Cost Accounting

    "Windfall Profits for Dummies," The Wall Street Journal, May 3, 2008; Page A10 ---
    http://online.wsj.com/article/SB120977019142563957.html?mod=djemEditorialPage

    This is one strange debate the candidates are having on energy policy. With gas prices close to $4 a gallon, Hillary Clinton and John McCain say they'll bring relief with a moratorium on the 18.4-cent federal gas tax. Barack Obama opposes that but prefers a 1970s-style windfall profits tax (as does Mrs. Clinton).

    Mr. Obama is right to oppose the gas-tax gimmick, but his idea is even worse. Neither proposal addresses the problem of energy supply, especially the lack of domestic oil and gas thanks to decades of Congressional restrictions on U.S. production. Mr. Obama supports most of those "no drilling" rules, but that hasn't stopped him from denouncing high gas prices on the campaign trail. He is running TV ads in North Carolina that show him walking through a gas station and declaring that he'll slap a tax on the $40 billion in "excess profits" of Exxon Mobil.

    The idea is catching on. Last week Pennsylvania Congressman Paul Kanjorski introduced a windfall profits tax as part of what he called the "Consumer Reasonable Energy Price Protection Act of 2008." So now we have Congress threatening to help itself to business profits even though Washington already takes 35% right off the top with the corporate income tax.

    You may also be wondering how a higher tax on energy will lower gas prices. Normally, when you tax something, you get less of it, but Mr. Obama seems to think he can repeal the laws of economics. We tried this windfall profits scheme in 1980. It backfired. The Congressional Research Service found in a 1990 analysis that the tax reduced domestic oil production by 3% to 6% and increased oil imports from OPEC by 8% to 16%. Mr. Obama nonetheless pledges to lessen our dependence on foreign oil, which he says "costs America $800 million a day." Someone should tell him that oil imports would soar if his tax plan becomes law. The biggest beneficiaries would be OPEC oil ministers.

    There's another policy contradiction here. Exxon is now under attack for buying back $2 billion of its own stock rather than adding to the more than $21 billion it is likely to invest in energy research and exploration this year. But hold on. If oil companies believe their earnings from exploring for new oil will be expropriated by government – and an excise tax on profits is pure expropriation – they will surely invest less, not more. A profits tax is a sure formula to keep the future price of gas higher.

    Exxon's profits are soaring with the recent oil price spike, but the energy industry's earnings aren't as outsized as the politicians seem to think. Thomson Financial calculates that profits from the oil and natural gas industry over the past year were 8.3% of investment, while the all-industry average is 7.8%. And this was a boom year for oil. An analysis by the Cato Institute's Jerry Taylor finds that between 1970 and 2003 (which includes peak and valley years for earnings) the oil and gas business was "less profitable than the rest of the U.S. economy." These are hardly robber barons.

    This tiff over gas and oil taxes only highlights the intellectual policy confusion – or perhaps we should say cynicism – of our politicians. They want lower prices but don't want more production to increase supply. They want oil "independence" but they've declared off limits most of the big sources of domestic oil that could replace foreign imports. They want Americans to use less oil to reduce greenhouse gases but they protest higher oil prices that reduce demand. They want more oil company investment but they want to confiscate the profits from that investment. And these folks want to be President?

    Late this week, a group of Senate Republicans led by Pete Domenici of New Mexico introduced the "American Energy Production Act of 2008" to expand oil production off the U.S. coasts and in Alaska. It has the potential to increase domestic production enough to keep America running for five years with no foreign imports. With the world price of oil at $116 a barrel, if not now, when? No word yet if Senators Clinton and Obama will take time off from denouncing oil profits to vote for that.

    How Will a Windfall Profits Tax Increase Supply?
    by Frank J. Stalzer and David P. McElvain
    The Wall Street Journal

    May 08, 2008
    Page: A14
    Click here to view the full article on WSJ.com ---
    http://online.wsj.com/article/SB120977019142563957.html?mod=djemEditorialPage
     

    TOPICS: Advanced Financial Accounting, Financial Accounting, Oil and Gas Accounting, Tax Laws, Taxation

    SUMMARY: The second of these two letters to the editor is written by a 70 year old reader who has worked in the oil and gas industry for all of his life. Both letters discuss the Obama-proposed windfall profits tax, but the latter also refers to the fact that historical cost-based financial statements show higher income statement profits than would statements prepared under replacement cost accounting.

    CLASSROOM APPLICATION: The article may be used to addressed the current political debates of the presidential candidates' proposed policies in either a taxation or an advanced financial accounting class.

    QUESTIONS: 
    1. (Introductory) What are "windfall profits?" What is a "windfall profits tax?"

    2. (Introductory) Why might a windfall profits tax appeal to voters who are unsophisticated in their understanding of its potential economic impact?

    3. (Advanced) What is "replacement cost accounting?" In your answer, compare this measurement method to our current historical cost method.

    4. (Advanced) Why might historical cost accounting be particularly problematic in the oil and gas industry as opposed to, say, a traditional manufacturing industry?

    5. (Advanced) What is the argument put forth by Mr. McElvain that historical-cost basis financial statements are contributing to the potential implementation of a windfall profits tax?

    6. (Advanced) "Major oil companies need to administer their businesses on the basis of true replacement costs, not historical accounting costs." Is that possible even if the business must use historical cost accounting in published financial statements?
     

    Reviewed By: Judy Beckman, University of Rhode Island
     

    RELATED ARTICLES: 
    Windfall Profits for Dummies
    by N/A
    May 03, 2008
    Page: A10
     

    "Exxon Mobil's Don Humphreys Defends Big Oil and Its Role in the Global Economy," University of Pennsylvania's Knowledge@whatrton, May 14, 2008 --- http://knowledge.wharton.upenn.edu/article.cfm;jsessionid=a830d168198748b52572?articleid=1962        

    Bob Jensen's threads on the Underlying Bases of Balance Sheet Valuation --- http://www.trinity.edu/rjensen/Theory01.htm#UnderlyingBases


    From The Wall Street Journal Accounting Weekly Review on May 16, 2008

    MBIA's Book-Value View
    by David Reilly
    The Wall Street Journal

    May 13, 2008
    Page: C12
    Click here to view the full article on WSJ.com ---
    http://online.wsj.com/article/SB121065046561187725.html?mod=djem_jiewr_ac
     

    TOPICS: Accounting, Banking, Fair Value Accounting, Financial Accounting, Financial Analysis, Financial Reporting, Financial Statement Analysis, GAAP, Generally accepted accounting principles, Mark-to-Market, Market-Value Approach

    SUMMARY: Mr. Reilly advises that investors "should stick to figures the company compiles according to generally accepted accounting principles" in analyzing MBIA's financial position, particularly its $8.70 per share book value. MBIA management provides an alternative book value measure that ignores items with which it disagrees about the treatment under generally accepted accounting principles, particularly mark-to-market requirements.

    CLASSROOM APPLICATION: Financial accounting, financial statement analysis, and accounting theory courses all may use this article to discuss the bias inherent in choosing alternative measures to GAAP.

    QUESTIONS: 
    1. (Introductory) Define the terms book value and book value per share. Why do these measures, based on financial statements, differ from market value per share?

    2. (Advanced) What is mark-to-market accounting? In general, for what MBIA balance sheet items do you think the company must employ this measurement method?

    3. (Introductory) " Some investors may...think mark-to-market accounting is overestimating losses at MBIA and other financial firms." How does overstating losses lead to concerns with accurately assessing book value and book value per share? What arguments support the assessment that losses may be overestimated?

    4. (Advanced) How is MBIA management trying to divert attention from book value per share according to generally accepted accounting principles to a measure it says 'provides an economic basis for investors to reach their own conclusions about the fair value of the company'? What qualitative characteristics of accounting information may be violated in the measures chosen by management?
     

    Reviewed By: Judy Beckman, University of Rhode Island
     

    "MBIA's Book-Value View:  Bond Insurer Dons Rosier Glasses; Dot-Bomb Move?" by David Reilly, The Wall Street Journal, May 13, 2008; Page C12 --- http://online.wsj.com/article/SB121065046561187725.html?mod=djem_jiewr_ac

    Back in the dot-bomb days, companies liked to guide investors to rosy variations of their stated profit. These profit figures eventually became known as EBBS, or "earnings before bad stuff."

    Bond insurer MBIA Inc. is taking a page from that playbook. In its first-quarter earnings release Monday, MBIA said investors shouldn't look to its stated book value -- the measure of a company's net worth based on assets minus liabilities. Instead it prefers a metric it calls "analytic adjusted book value" that "provides an economic basis for investors to reach their own conclusions about the fair value of the company."

    A better name for this measure might have been SEEMM, or "shareholders equity excluding mortgage mess." At its core, this means avoiding marking assets to market -- that is, adjusting their value down to what they would sell for today. So MBIA's variation on book value excludes things like the $3.5 billion mark-to-market loss on derivatives that drove its $2.4 billion net loss in the first quarter. Rather, it includes management's expectations of losses, plus gains from future expected premium payments.

    This method leads to book value per share of about $42. By excluding only the mark-to-market losses, it shows an adjusted book value of $24 a share.

    That looks a lot better than MBIA's stated book value of $8.70 at the end of March, and its share price Monday of $9.85, up 42 cents, or 4.5%, in 4 p.m. New York Stock Exchange composite trading.

    Investors shouldn't forget the lessons of the Internet-stock bubble; they should stick to figures the company compiles according to generally accepted accounting principles. On the basis of that $8.70-a-share figure, the stock, even at its current level, isn't a bargain.

    MBIA Chief Financial Officer C. Edward Chaplin countered that the firm believes accounting rules don't provide a true view of long-term value. Items valued using market prices are in many cases "distorting the book value of the company as opposed to providing additional useful information to investors," he said.

    The company is in better position following the $2.6 billion in capital it has raised in recent months. That has led ratings firms to maintain its triple-A ratings and calmed investor fears that MBIA could go under.

    Some investors may be tempted to side with the company because they, too, think mark-to-market accounting is overestimating losses at MBIA and other financial firms. And the company's book value likely has improved since the end of March, given improvements in the debt markets.

    MBIA still has a lot of problems. One big one is the $18 billion in home-equity loans and second-lien mortgages to which it has exposure. This is one of the hardest-hit, and worsening, areas of the mortgage markets. Some 55% of these loans were originated by Countrywide Financial Corp., whose lending practices are under investigation by federal authorities.

    Another worry is the $40 billion in securities it insures that are backed by commercial mortgages. These haven't gone sour, but as the economy weakens, many analysts expect them to.

    MBIA Chief Executive Jay Brown said on a conference call he believed the company's various loss estimates were realistic. "We sell a promise," he said, referring to the company's pledge to make good on losses it insures against. So investors "are rightly focused on our ability to fulfill that promise."

    They should also be focused on reported numbers, not made-up ones that conjure memories of the market's last bubble.

    HSBC Cheers Investors, but Pitfalls Remain

    Monday's earnings numbers make HSBC Holdings PLC look tempting. Its write-downs were below consensus and growth is coming from Asia and the Middle East. But after the recent 20% rally in the stock, the good news is largely priced in and the bank's warning of a further slowdown in 2009 in the U.S. isn't.

    More worrisome is investors, who bid up HSBC shares 3.1% Monday, seem to believe that the bank has seen the worst of write-downs in the U.S. That is hard to believe since the U.S.-based HSBC Finance unit is deeply entrenched in states like California, Florida and Arizona, where house prices are continuing to decline. More than 40% of HSBC Finance consumer lending's real-estate portfolio is concentrated in states where delinquency is expected to keep rising.

    At the end of March, its portfolio of adjustable-rate mortgages stood at $17.1 billion. About $2 billion of those will have their first interest rates reset in 2008 and double that will reset in 2009. HSBC Finance's portfolio of "stated income loans" -- loans given out without verifying borrower's income -- is $7.2 billion.

    HSBC appears less optimistic than its investors. It is one of the first global banks to put out a serious warning of potential 2009 pain. If the warning comes true, the United Kingdom bank is preparing its investors for hurt and investors should pay heed

    Bob Jensen's threads on fair value accounting are at http://www.trinity.edu/rjensen/Theory01.htm#FairValue

    Bob Jensen's threads on alternative valuations --- http://www.trinity.edu/rjensen/Theory01.htm#UnderlyingBases


    Question
    How did fair value accounting turn a $215 million loss into a $195 million gain for the Radian Group?

    Answer
    Because the bonds it insured had been falling in value for a while, the swaps' values had been increasing, leading to charges in previous quarters. In the first quarter, a big chunk of that was reversed. That turned a loss into profit. In theory, the logic of the new accounting approach holds up. But that doesn't change the fact that for investors, the real-world outcome is perverse.

    From The Wall Street Journal Accounting Weekly Review on May 23, 2008

    When a Loss Is a Gain
    by David Reilly
    The Wall Street Journal

    May 19, 2008
    Page: C12
    Click here to view the full article on WSJ.com
    http://online.wsj.com/article/SB121116684762202957.html?mod=djem_jiewr_AC
     

    TOPICS: Accounting, Financial Accounting, Mark-to-Market Accounting

    SUMMARY: Radian Group managed to post net profit of $195 million, despite a rough first quarter. The profit was a controversial byproduct of a new accounting rule that caused the company to report gains of about $2 billion on some of its liabilities.

    CLASSROOM APPLICATION: This situation clearly shows the ironic results possible as a result of the new mark-to-market accounting rule. Use this article for a good critical thinking exercise analyzing the issues resulting from this rule.

    QUESTIONS: 
    1. (Advanced) How did Radian manage to post a net profit of $195 million when it had a loss of $215 million?

    2. (Introductory) What is the basic accounting rule when a firm experiences a reduction in the value of a liability? What is the reasoning behind this basic rule?

    3. (Introductory) What is mark-to-market accounting? Why was this new rule instituted? What is the value of the rule?

    4. (Advanced) The article states that Radian "clearly flagged" the impact of its application of the new rule. What does that mean? Is this required? What would happen if a company did not clearly flag the impact?

    5. (Advanced) What is the ironic result of this new rule? Do you think that this result was anticipated when the rule was drafted? Why or why not? How does this affect investors?

    6. (Advanced) What could happen if Radian's financial health improves in the future?
     

    Reviewed By: Linda Christiansen, Indiana University Southeast
     

    "When a Loss Is a Gain:  New Rule Helped Radian Turn Woes Into a Net Profit," by David Reilly, The Wall Street Journal, May 19, 2008; Page C12  --- http://online.wsj.com/article/SB121116684762202957.html?mod=djem_jiewr_AC

    Like other companies that insure bonds and mortgages, Radian Group Inc. had a rough first quarter. What a surprise then that it managed to post net profit of $195 million.

    How that happened holds a cautionary tale for investors. Radian was in the black because its hobbled financial condition caused it to report gains of about $2 billion on some of its liabilities.

    The profit was a controversial byproduct of a new accounting rule involving mark-to-market accounting. Without the benefit of this quirk, Radian's loss would have been about $215 million.

    One of the basic rules of accounting says that a reduction in the value of a liability leads to a gain that usually boosts profit. Under the new rule, companies have to take into account the market's view of their own financial health when considering the market value of some liabilities. In this case, a company's poor health can lead to a reduction in the liability's value.

    Radian hasn't done anything wrong. It properly applied the new rule and clearly flagged its impact when it reported earnings last week. Others might not be so forthright, meaning investors will have to be even more sharp-eyed as the credit crisis plays itself out.

    The irony is that by marking these particular assets to market as the new rule requires, the weaker a company gets, the stronger it may look.

    "The most bizarre aspect of this is that if I'm going bankrupt, the market's diminishing perception of my credit-worthiness fuels my profits," said Damon Silvers, associate general counsel at the AFL-CIO and a longtime critic of market-value accounting.

    Another twist: If perceptions of Radian's financial health increase in coming quarters, the company could reverse the gain. That could lead it to take losses on some of its assets.

    Radian Chief Financial Officer C. Robert Quint doesn't take issue with the overall notion of market-value accounting. But he said aspects of it, such as these gains, can be troubling. "For investors to really understand what's going on behind the numbers is proving more and more difficult," he said.

    Other companies, notably big banks and brokers, have in recent months seen similar gains from declines in the value of their own debt, which also leads to a reduction of liabilities and a boost in profit. But the impact is more pronounced at Radian and other insurers because the gains are coming instead from their core insurance business, at least when it involves derivatives. Radian and others also saw an outsized impact because their first-time adoption of the rule led to a big, all-at-once adjustment.

    Here is how it plays out. Say a company holds a bond and insures against the bond's default by buying a credit-default swap from an insurer. If the bond falls 10%, the value of the swap would increase, say, by the same amount. The bond is considered riskier, so insurance on the bond is more valuable.

    In the past, a bondholder would have booked offsetting gains and losses as the bond fell in value and the insurance rose in value. But the new accounting rule on measuring market values says companies also have to consider how much something would fetch if sold today.

    If the market has doubts about the financial health of the insurer that issued the credit-default swap, that swap might not fetch the full 10% premium. While the bond it insures is riskier, the insurer that issued it is riskier, too. Maybe it could be sold for only a 5% gain. In that case, the initial 10% moves in both the bond and swap wouldn't cancel each other out and the bondholder would record a loss of 5%.

    For the insurer issuing the swap, though, this works in reverse. When bonds that Radian insured fell in value, the increase in the value of the swap, or liability, would be taken as a charge. The new rule added a wrinkle -- they could no longer assume that the only driver of the swap's value was the bond it insured. Instead, the insurers had to figure in the impact of their own perceived credit-worthiness and how that would affect the swap's value in a sale.

    Radian's perceived credit-worthiness plummeted in the first quarter as billions of dollars of mortgages it insured fell in value. With Radian's credit-worthiness in question, the value of the credit-default swaps it issued fell in value. That led to a big decline in the value it ascribed to swaps.

    Because the bonds it insured had been falling in value for a while, the swaps' values had been increasing, leading to charges in previous quarters. In the first quarter, a big chunk of that was reversed. That turned a loss into profit.

    In theory, the logic of the new accounting approach holds up. But that doesn't change the fact that for investors, the real-world outcome is perverse.

    Bob Jensen's threads on interest rate swap valuations are at http://www.trinity.edu/rjensen/acct5341/speakers/133swapvalue.htm

    Bob Jensen's threads on FAS 133 and IAS 39 are at http://www.trinity.edu/rjensen/caseans/000index.htm

    Bob Jensen's threads on fair value accounting are at http://www.trinity.edu/rjensen/Theory01.htm#FairValue


    Question
    What is the meaning of the new buzz acronym EBITDAGSAC?

    "EBITDAGSAC: A Guide to Cash Generation for Bankers," Long or Short Capital, April 28, 2008 ---
    http://longorshortcapital.com/ebitdagsac-a-guide-to-cash-generation-for-bankers.htm 


    "The Role of Fair Value Accounting in the Subprime Mortgage Meltdown," Journal of Accountancy, May 2008 --- http://www.aicpa.org/pubs/jofa/may2008/in_my_opinion.htm

    As the credit markets froze and stocks gyrated, investors and pundits naturally looked for someone, or some thing, to blame. Fair value accounting quickly emerged as an oft-cited problem. But is fair value really a cause of the crisis, or is it just a scapegoat? And might it have prevented an even worse calamity? On the following pages, the JofA presents three views on the debate.

     "Both Sides Make Good Points," by Michael R. Young

    How often do we get to have a raging national debate on an accounting standard? Well, we’re in one now.

    And while the standard at issue—FASB Statement no. 157, Fair Value Measurements—is fairly new, the underlying substance of the debate goes back for decades: Is it best to record assets at their cost or at their fair (meaning market) value? It is an issue that goes to the very heart of accountancy and stirs passions like few others in financial reporting. There are probably two reasons for this. First, each side of the debate has excellent points to make. Second, each side genuinely believes what it is saying.

    So let’s step back, take a deep breath, and think about the issue with all of the objectivity we can muster. The good news is that the events of the last several months involving subprime-related financial instruments give us an opportunity to evaluate the extent to which fair value accounting has, or has not, served the financial community. Indeed, some might point out that the experience has been all too vivid.

    WHAT HAPPENED We’re all familiar with what happened. This past summer, two Bear Stearns funds ran into problems, and the result was increasing financial community uncertainty about the value of mortgage backed financial instruments, particularly collateralized debt obligations (CDOs). As investors tried to delve into the details of the value of CDO assets and the reliability of their cash flows, the extraordinary complexity of the instruments provided a significant impediment to insight into the underlying financial data.

    As a result, the markets seized. In other words, everyone got so nervous that active trading in many instruments all but stopped.

    The practical significance of the market seizure was all too apparent to both owners of the instruments and newspaper readers. What was largely missed behind the scenes, though, was the accounting significance under Statement no. 157, which puts in place a “fair value hierarchy” that prioritizes the inputs to valuation techniques according to their objectivity and observability (see also “Refining Fair Value Measurement,” JofA, Nov. 07, page 30). At the top of the hierarchy are “Level 1 inputs” which generally involve quoted prices in active markets. At the bottom are “Level 3 inputs” in which no active markets exist.

    The accounting significance of the market seizure for subprime financial instruments was that the approach to valuation for many instruments almost overnight dropped from Level 1 to Level 3. The problem was that, because many CDOs to that point had been valued based on Level 1, established models for valuing the instruments at Level 3 were not in place. Just as all this was happening, moreover, another well-intended aspect of our financial reporting system kicked in: the desire to report fast-breaking financial developments to investors quickly.

    To those unfamiliar with the underlying accounting literature, the result must have looked like something between pandemonium and chaos. They watched as some of the most prestigious financial organizations in the world announced dramatic write downs, followed by equally dramatic write downs thereafter. Stock market volatility returned with a vengeance. Financial institutions needed to raise more capital. And many investors watched with horror as the value of both their homes and stock portfolios seemed to move in parallel in the wrong direction.

    To some, this was all evidence that fair value accounting is a folly. Making that argument with particular conviction were those who had no intention of selling the newly plummeting financial instruments to begin with. Even those intending to sell suspected that the write-downs were being overdone and that the resulting volatility was serving no one. According to one managing director at a risk research firm, “All this volatility we now have in reporting and disclosure, it’s just absolute madness.”

    IS FAIR VALUE GOOD OR BAD? So what do we make of fair value accounting based on the subprime experience?

    Foremost is that some of the challenges in the application of fair value accounting are just as difficult as some of its opponents said they would be. True, when subprime instruments were trading in active, observable markets, valuation did not pose much of a problem. But that changed all too suddenly when active markets disappeared and valuation shifted to Level 3. At that point, valuation models needed to be deployed which might potentially be influenced by such things as the future of housing prices, the future of interest rates, and how homeowners could be expected to react to such things.

    The difficulties were exacerbated, moreover, by the suddenness with which active markets disappeared and the resulting need to put in place models just as pressure was building to get up-to-date information to investors. It is hardly surprising, therefore, that in some instances asset values had to be revised as models were being refined and adjusted.

    Imperfect as the valuations may have been, though, the real-world consequences of the resulting volatility were all too concrete. Some of the world’s largest financial institutions, seemingly rock solid just a short time before, found themselves needing to raise new capital. In the aftermath of subprime instrument write-downs, one of the most prestigious institutions even found itself facing a level of uncertainty that resulted in what was characterized as a “run on the bank.”

    So the subprime experience with fair value accounting has given the naysayers some genuine experiences with which to make their case.

    Still, the subprime experience also demonstrates that there are two legitimate sides to this debate. For the difficulties in financial markets were not purely the consequences of an accounting system. They were, more fundamentally, the economic consequences of a market in which a bubble had burst.

    And advocates of fair value can point to one aspect of fair value accounting—and Statement no. 157 in particular—that is pretty much undeniable. It has given outside investors real-time insight into market gyrations of the sort that, under old accounting regimes, only insiders could see. True, trying to deal with those gyrations can be difficult and the consequences are not always desirable. But that is just another way of saying that ignorance is bliss.

    For fair value advocates, that may be their best argument of all. Whatever its faults, fair value accounting and Statement no. 157 have brought to the surface the reality of the difficulties surrounding subprime-related financial instruments. Is the fair value system perfect? No. Is there room for improvement? Inevitably. But those favoring fair value accounting may have one ultimate point to make. In bringing transparency to the aftermath of the housing bubble, it may be that, for all its imperfections, the accounting system has largely worked.

    --------------------------------------------------------------------------------

    Michael R. Young is a partner in the New York based law firm Willkie Farr & Gallagher LLP, where he specializes in accounting irregularities and securities litigation. He served as a member of the Financial Accounting Standards Advisory Council to FASB during the development of FASB Statement no. 157. His e-mail address is myoung@willkie.com.

    --------------------------------------------------------------------------------

    "The Capital Markets’ Needs Will Be Served: Fair value accounting limits bubbles rather than creates them," by Paul B.W. Miller

    With regard to the relationship between financial accounting and the subprime-lending crisis, I observe that the capital markets’ needs will be served, one way or another.

    Grasping this imperative leads to new outlooks and behaviors for the better of all. In contrast to conventional dogma, capital markets cannot be managed through accounting policy choices and political pressure on standard setters. Yes, events show that markets can be duped, but not for long and not very well, and with inevitable disastrous consequences.

    With regard to the crisis, attempts to place blame on accounting standards are not valid. Rather, other factors created it, primarily actors in the complex intermediation chain, including:

    Borrowers who sought credit beyond their reach.

    Borrowers who sought credit beyond their reach.

    Investment bankers who earned fees for bundling and selling vaporous bonds without adequately disclosing risk.

    Institutional investors who sought high returns without understanding the risk and real value.

    In addition, housing markets collapsed, eliminating the backstop provided by collateral. Thus, claims that accounting standards fomented or worsened this crisis lack credibility.

    The following paragraphs explain why fair value accounting promotes capital market efficiency.

    THE GOAL OF FINANCIAL REPORTING The goal of financial reporting, and all who act within it, is to facilitate convergence of securities’ market prices on their intrinsic values. When that happens, securities prices and capital costs appropriately reflect real risks and returns. This efficiency mutually benefits everyone: society, investors, managers and accountants.

    Any other goals, such as inexpensive reporting, projecting positive images, and reducing auditors’ risk of recrimination, are misdirected. Because the markets’ demand for useful information will be satisfied, one way or another, it makes sense to reorient management strategy and accounting policy to provide that satisfaction.

    THE PERSCRIPTION The key to converging market and intrinsic values is understanding that more information, not less, is better. It does no good, and indeed does harm, to leave markets guessing. Reports must be informative and truthful, even if they’re not flattering.

    To this end, all must grasp that financial information is favorable if it unveils truth more completely and faithfully instead of presenting an illusory better appearance. Covering up bad news isn’t possible, especially over the long run, and discovered duplicity brings catastrophe.

    SUPPLY AND DEMAND To reap full benefits, management and accountants must meet the markets’ needs. Instead, past attention was paid primarily to the needs of managers and accountants and what they wanted to supply with little regard to the markets’ demands. But progress always follows when demand is addressed. Toward this end, managers must look beyond preparation costs and consider the higher capital costs created when reports aren’t informative.

    Above all, they must forgo misbegotten efforts to coax capital markets to overprice securities, especially by withholding truth from them. Instead, it’s time to build bridges to these markets, just as managers have accomplished with customers, employees and suppliers.

    THE CONTENT In this paradigm, the preferable information concerns fair values of assets and liabilities. Historical numbers are of no interest because they lack reliability for assessing future cash flows. That is, information’s reliability doesn’t come as much from its verifiability (evidenced by checks and invoices) as from its dependability for rational decision making. Although a cost is verifiable, it is unreliable because it is a sample of one that at best reflects past conditions. Useful information reveals what is now true, not what used to be.

    It’s not just me: Sophisticated users have said this, over and over again. For example, on March 17, Georgene Palacky of the CFA Institute issued a press release, saying, “Fair value is the most transparent method of measuring financial instruments, such as derivatives, and is widely favored by investors.” This expressed demand should help managers understand that failing to provide value-based information forces markets to manufacture their own estimates. In turn, the markets defensively guess low for assets and high for liabilities. Rather than stable and higher securities prices, disregarding demand for truthful and useful information produces more volatile and lower prices that don’t converge on intrinsic values.

    However it arises, a vacuum of useful public information is always filled by speculative private information, with an overall increase in uncertainty, cost, risk, volatility and capital costs. These outcomes are good for no one.

    THE STRATEGY Managers bring two things to capital markets: (1) prospective cash flows and (2) information. Their work isn’t done if they don’t produce quality in both. It does no good to present rosy pictures of inferior cash flow potential because the truth will eventually be known. And it does no good to have great potential if the financial reports obscure it.

    Thus, managers need to unveil the truth about their situation, which is far different from designing reports to prop up false images. Even if well-intentioned, such efforts always fail, usually sooner rather than later.

    It’s especially fruitless to mold standards to generate this propaganda because readers don’t believe the results. Capital markets choose whether to rely on GAAP financial statements, so it makes no sense to report anything that lacks usefulness. For the present situation, then, not reporting best estimates of fair value frustrates capital markets, creates more risk, diminishes demand for a company’s securities and drives prices even lower.

    THE ROLE FOR ACCOUNTING REPORTING Because this crisis wasn’t created by poor accounting, it won’t be relieved by worse accounting. Rather, the blame lies with inattention to CDOs’ risks and returns. It was bad management that led to losses, not bad standards.

    In fact, value-based reporting did exactly what it was supposed to by unveiling risk and its consequences. It is pointless to condemn FASB for forcing these messages to be sent. Rather, we should all shut up, pay attention, and take steps to prevent other disasters.

    That involves telling the truth, cleanly and clearly. It needs to be delivered quickly and completely, withholding nothing. Further, managers should not wait for a bureaucratic standard-setting process to tell them what truth to reveal, any more than carmakers should build their products to minimum compliance with government safety, mileage and pollution standards.

    I cannot see how defenders of the status quo can rebut this point from Palacky’s press release: “…only when fair value is widely practiced will investors be able to accurately evaluate and price risk.”

    THE FUTURE Nothing can prevent speculative bubbles. However, the sunshine of truth, freely offered by management with timeliness, will certainly diminish their frequency and impact.

    Any argument that restricting the flow of useful public information will solve the problem is totally dysfunctional. The markets’ demand for value-based information will be served, whether through public or private sources. It might as well be public.

    --------------------------------------------------------------------------------

    Paul B.W. Miller, CPA, Ph.D., a professor of accounting at the University of Colorado, served on both FASB’s staff and the staff of the SEC’s ­Office of the Chief Accountant. He is also a member of the JofA’s Editorial Advisory Board. His e-mail address is pmiller@uccs.edu.

    --------------------------------------------------------------------------------

    "The Need for Reliability in Accounting:   Why historical cost is more reliable than fair value," by Eugene H. Flegm

    In 1976, FASB issued three documents for discussion: Tentative Conclusions on Objectives of Financial Statements of Business Enterprises; Scope and Implications of the Conceptual Framework Project; and Conceptual Framework for Financial Accounting and Reporting: Elements of Financial Statements and Their Measurement. These documents started a revolution in financial reporting that continues today.

    As the director of accounting, then assistant comptroller-chief ­accountant, and finally as auditor general for General Motors Corp., I have been involved in the resistance to this revolution since it began.

    Briefly, the proposed conceptual framework would shift the determination of income from the income statement and its emphasis on the matching of costs with related revenues to the determination of income by measuring the “well offness” from period to period by measuring changes on the two balance sheets on a fair value basis from the beginning and the ending of the period. The argument was made that these data are more relevant than the historic cost in use and not as subjective as the concept of identifying costs with related revenues. In addition, those in favor of the change claimed that the fair value data was more relevant than the historic cost data and thus more valuable to the possible lenders and investors, ignoring the needs of the actual managers and, in the case of private companies, the owners.

    RELEVANCY REQUIRES RELIABILITY It seems to me that the recent meltdown in the finance industry as well as the Enron experience would have made it clear that to be relevant the data must be reliable.

    Enron took advantage of the mark-to-market rule to create income by just writing up such assets as Mariner Energy Inc. (see SEC Litigation Release no. 18403).

    Charles R. Morris writes in his recently released book, The Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash, that “Securitization fostered irresponsible lending, by seeming to relieve lenders of credit risk, and at the same time, helped propagate shaky credits throughout the global financial system.”

    There is much talk of the need for “transparency,” and it now appears we have completely obscured a company’s exposure to loss! We still do not know the extent of the meltdown!

    ASSIGNING BLAME We are still trying to assign blame—Morris identifies former Federal Reserve Chairman Alan Greenspan’s easy money policies—and certainly the regulators allowed the finance industry to get out of control. However, FASB and its fascination with “values” and mark to market must be a part of the problem.

    Holman W. Jenkins Jr. began his editorial, “Mark to Meltdown,” (Wall Street Journal, p. A17, March 5, 2008) by stating, “No task is more thankless than to write about accounting for a family newspaper, yet it must be shared with the public that ‘mark to market,’ an accounting and regulatory innovation of the early 1990s, has proved another of Washington’s fabulous failures.”

    Merrill Lynch reported a $15 billion loss on mortgages for 2007. Citicorp had about $12 billion in losses, and Bear Stearns failed. These huge losses came from mortgages that had been written up to some fictitious value based on credit ratings during the preceding years! In addition there is some doubt that those loss estimates might be too conservative and at some point in the future a portion of them may be reversed.

    THE BASIC PURPOSE OF ACCOUNTING Anyone who has ever run an accounting operation knows that the basic purpose of accounting is to provide reliable, transaction-based data by which one can control the assets and liabilities and measure performance of both the overall company and its individual employees.

    A forecast of an income statement each month as well as an analysis of the actual results compared to the previous month’s forecast are a key factor in controlling a company’s operations. The balance sheet will often be used by the treasury department to analyze cash flows and the need for financing. I do not know of a company that compares the values of the beginning and ending balance sheets to determine the success of its operations.

    How did we reach the current state of affairs where the standard setters no longer consider the stewardship needs of the manager but focus instead on the potential investor or creditor and potential values rather than transactional results?

    The problem developed because of the conflict between economics, accounting and finance—and the education of accountants. All three fields are vital to running a company but each has its place. In what some of us perceive to be an exercise of hubris, FASB has attempted to serve the needs of all three fields at the expense of manager or owner needs for control and performance measurements.

    HOW WE GOT HERE The debate over the need for any standards began with the 1929 market crash and the subsequent formation of the SEC. Initially, Congress intended that the chief accountant of the SEC would establish the necessary standards. However, Carmen Blough, the first SEC chief accountant, wanted the American Institute of Accountants (a predecessor to the AICPA) to do this. In 1937 he succeeded in convincing the SEC to do just that. The AICPA did this through an ad hoc committee for 22 years but finally established a more formal committee, the Accounting Principles Board, which functioned until it was deemed inadequate and FASB was formed in 1973.

    FASB’s first order of business was to establish a formal “constitution” as outlined by the report of the Trueblood Committee (Objectives of Financial Statements, AICPA, October 1973). With the influence of several academics on that committee, the thrust of the “constitution” was to move to a balance sheet view of income versus the income view which had arisen in the 1930s. Although the ultimate goal was never clarified, it was obvious to some, most notably Robert K. Mautz, who had served as a professor of accounting at the University of Illinois and partner in the accounting firm Ernst & Ernst (a predecessor to Ernst & Young) and finally a member of the Public Oversight Board and the Accounting Hall of Fame. Mautz realized then that the goal was fair value accounting and traveled the nation preaching that a revolution was being proposed. Several companies, notably General Motors and Shell Oil, led the opposition that continues to this day.

    The most recent statement on the matter was FASB’s 2006 publication of a preliminary views (PV) document called Conceptual Framework for Financial Reporting: Objective of Financial Reporting and Qualitative Characteristics of Decision-Useful Financial Reporting Information. It is clear that FASB has abandoned the real daily users who apply traditional accounting to manage their businesses. The PV document refers to investors and creditors only. It mentions the need for comparability and consistency but does not attempt to explain how this would be possible under fair value accounting since each manager would be required to make his or her own value judgments, which, of course, would not be comparable to any other company’s evaluations.

    The only reference to the management of a company states that “…management has the ability to obtain whatever information it needs.” That is true, but under the PV proposal management would have to maintain a third set of books to keep track of valuations. (The two traditional sets would be the operating set based on actual costs and sales, which would need to be continued to allow management or owners to judge actual performance of the company and personnel, while the other set is that used for federal income tax filings.)

    Since there are about 19 million private companies that do not file with the SEC versus the 17,000 public companies that do, private companies are in a quandary. The majority of them file audited financial statements with banks and creditors based on historical costs and for the most part current GAAP. They are already running into trouble with several FASB standards that introduce fair value into GAAP. What GAAP do they use?

    Judging by the crash of the financial system and the tens of billions of dollars in losses booked by investment banks this year, the answer seems clear: Return to establishing standards that are based on costs and transactions, that inhibit rather than encourage manipulation of earnings (such as mark to market, FASB Statements no. 133 and 157 to name a few), and that result in data as reliable as it can be under an accrual accounting system.

    The analysts and other investors and creditors will have to do their own estimates of a company’s future success. However, the success of any company will depend on the quality of its products and services and the skill of its management, not on a guess at the “value” of its assets. Writing up assets was a bad practice in the 1920s and as bad a practice in recent years.

    --------------------------------------------------------------------------------

    Eugene H. Flegm, CPA, CFE, (now retired) served for more than 30 years as an accounting executive for General Motors Corp. He is a frequent contributor to various accounting publications. His e-mail address is ehflegm@earthlink.net.

    --------------------------------------------------------------------------------

    Jensen Comment
    There are many factors that interacted in causing the subprime scandals of 2008. But the one key factor that could have prevented both the Savings & Loan scandals in the 1980s and the Subprime Mortgage scandals of 2008 is professionalism in the real estate appraising industry. In both of these immense scandals real estate appraisers repeatedly provided fair value estimates above and beyond anything that could be considered a realistic fair value. There's genuine moral hazard in the relationships between real estate appraisal firms and real estate brokerage firms who desperately want buyers to get financing needed to close the deals. Banks also want desperately to close the deals so they can sell the mortgages to mortgage buyers like Fannie Mae and Freddie Mac quasi-government corporations designed to buy up mortgages from banks.

    These huge scandals provide evidence of the unreliability and nonstationarity of fair value estimates. The freight train that's hauling in fair value standards to replace existing standards in the FASB and the IASB is fraught with peril. There are, of course, many instances where fair value is the only reasonable choice such as in derivative financial instruments where historical cost is usually zero or some miniscule premium paid relative to the huge risks involved. There are other instances such as with leases and pensions having contractual future cash flows where fair value estimation is reasonably accurate. But more often than not fair value estimates are little more than pie in the sky.

    As earnings numbers are increasingly impacted by unrealized adjustments for fair values, many of which wash out to a zero cumulative effect over time, the more firms are contracting based upon earnings before unrealized fair value adjustments. Labor unions are increasingly concerned that companies can manage earnings by such simple devices as implementation of hedge accounting effectiveness testing. Companies like Southwest Airlines exclude these unrealized fair value changes in earnings from compensation contracts with employees in order to ease the fears of employees.

    This is the driving force behind the FASB's bold initiative to eliminate bottom line reporting.
    Five General Categories of Aggregation
    "The Sums of All Parts: Redesigning Financials:  As part of radical changes to the income statement, balance sheet, and cash flow statement, FASB signs off on a series of new subtotals to be contained in each," byMarie Leone, CFO Magazine, November 14, 2007 --- http://www.trinity.edu/rjensen/Theory01.htm#ChangesOnTheWay

    "Profit as We Know It Could Be Lost With New Accounting Statements," by David Reilly, The Wall Street Journal, May 12, 2007; Page A1 --- http://www.trinity.edu/rjensen/Theory01.htm#ChangesOnTheWay

    "A New Vision for Accounting: Robert Herz and FASB are preparing a radical new format for financial, CFO Magazine, by Alix Stuart, February 2008, pp. 49-53 --- http://www.trinity.edu/rjensen/Theory01.htm#ChangesOnTheWay

    Bob Jensen's threads on fair value accounting are at http://www.trinity.edu/rjensen/Theory01.htm#FairValue

    Bob Jensen's threads on alternative valuations --- http://www.trinity.edu/rjensen/Theory01.htm#UnderlyingBases





    According to Esquire, these are the Best 10 Mothers of All Time --- http://www.esquire.com/the-side/feature/best-mothers-ever

    Your mom is probably Number 11.


    Forwarded by a former boss whom I admire and respect.

    INTELLIGENCE BRIEFING FOR CEOs
    By HERBERT  MEYER

    This is pretty long, but take the time to read it - in two sittings, if
    you must.  I am not sure when it was presented but it is  pretty scary
    stuff.  On one hand, I do hope the world won't be as  difficult a place
    for my kids and grand kids as this predicts, but on the  other hand, in
    some ways I guess I am relieved and thankful that I took this  ride
    through life at the time that I did.  Now go chew on the  following:

    This is a paper presented several weeks ago by Herb  Meyer at a Davos,
    Switzerland meeting which was attended by most of  the CEOs from all
    the major international corporations -- a very good  summary of
    today's key trends and a perspective one seldom sees.  Herbert E.
    Meyer served during the Reagan Administration as Special  Assistant to
    the Director of Central Intelligence and Vice Chairman of  the CIA's
    National Intelligence Council. In these positions, he  managed
    production of the U.S. National Intelligence Estimates and  other top-
    secret projections for the President and his national security  advisers.

    Meyer is widely credited with being the first senior  U.S.Government
    official to forecast the Soviet Union's collapse, for  which he later
    was awarded the U.S.National Intelligence Distinguished  Service
    Medal, the intelligence community's highest  honor.

    Formerly an associate editor of FORTUNE, he is also the author  of
    several books.

    -

    WHAT IN THE WORLD IS GOING ON?
    A  GLOBAL INTELLIGENCE BRIEFING FOR CEOs
    By HERBERT MEYER


    FOUR  MAJOR TRANSFORMATIONS

    Currently, there are four major transformations that are shaping
    political, economic and world events. These  transformations have
    profound implications for American business  leaders and owners, our
    culture and on our way of life.

    1.  The War in Iraq

    There are three major monotheistic religions in the  world:
    Christianity, Judaism and Islam. In the 16th century, Judaism  and
    Christianity reconciled with the modern world. The rabbis,  priests
    and scholars found a way to settle up and pave the way  forward.
    Religion remained at the center of life, church and state  became
    separate. Rule of law, idea of economic liberty, individual  rights,
    human Rights-all these are defining point of modern  Western
    civilization. These concepts started with the Greeks but  didn't take
    off until the 15th and 16th century when Judaism and  Christianity
    found a way to reconcile with the modern world. When that  happened,
    it unleashed the scientific revolution and the greatest  outpouring of
    art, literature and music the world has ever known.  Islam, which
    developed in the 7th century, counts millions of Moslems  around the
    world who are normal people. However, there is a radical  streak
    within Islam. When the radicals are in charge, Islam attacks  Western
    civilization. Islam first attacked Western civilization in the  7th
    century, and later in the 16th and 17th centuries. By 1683,  the
    Moslems (Turks from the Ottoman Empire) were literally at the  gates
    of Vienna. It was in Vienna that the climatic battle between  Islam
    and Western civilization took place. The West won and went  forward.
    Islam lost and went backward. Interestingly, the date of that  battle
    was September 11. Since them, Islam has not found a way to  reconcile
    with the modern world.

    Today, terrorism is the third  attack on Western civilization by
    radical Islam. To deal with  terrorism, the U.S. is doing two things.
    First, units of our armed  forces are in 30 countries around the world
    hunting down terrorist  groups and dealing with them. This gets very
    little publicity. Second  we are taking military action in Afghanistan
    and Iraq.

    These  actions are covered relentlessly by the media. People can argue
    about  whether the war in Iraq is right or wrong. However, the
    underlying  strategy behind the war is to use our military to remove
    the radicals  from power and give the moderates a chance. Our hope is
    that, over  time, the moderates will find a way to bring Islam forward
    into the  21st century. That's what our involvement in Iraq and
    Afghanistan is  all about.

    The lesson of 9/11 is that we live in a world where a small  number of
    people can kill a large number of people very quickly. They  can use
    airplanes, bombs, anthrax, chemical weapons or dirty bombs.  Even with
    a first-rate intelligence service (which the U.S. does not  have), you
    can't stop every attack. That means our tolerance for  political
    horseplay has dropped to zero. No longer will we play games  with
    terrorists or weapons of mass destruction.

    Most of the  instability and horseplay is coming from the Middle East.

    That's why we  have thought that if we could knock out the radicals
    and give the  moderates a chance to hold power, they might find a way
    to reconcile  Islam with the modern world. So when looking at
    Afghanistan or Iraq,  it's important to look for any signs that they
    are  modernizing.

    For example, women being brought into the work force and  colleges in
    Afghanistan is good. The Iraqis stumbling toward a  constitution is good.

    People can argue about what the U.S. is doing and  how we're doing it,
    but anything that suggests Islam is finding its way forward is good.


    2. The Emergence of China

    In the last 20  years, China has moved 250 million people from the
    farms and villages  into the cities. Their plan is to move another 300
    million in the next  20 years. When you put that many people into the
    cities, you have to  find work for them. That's why China is addicted
    to manufacturing;  they have to put all the relocated people to work.
    When we decide to  manufacture something in the U.S., it's based on
    market needs and the  opportunity to make a profit. In China, they
    make the decision because  they want the jobs, which is a very
    different  calculation.

    While China is addicted to manufacturing, Americans are  addicted to
    low prices. As a result, a unique kind of economic  codependency has
    developed between the two countries. If we ever stop  buying from
    China, they will explode politically. If China stops selling to us,
    our economy will take a huge hit because prices will  jump. We are
    subsidizing their economic development; they are  subsidizing our
    economic growth.

    Because of their huge growth  in manufacturing, China is hungry for
    raw materials, which drives  prices up worldwide. China is also
    thirsty for oil, which is one  reason oil is now at $100 a barrel. By
    2020, China will produce more cars than the U.S. China is also buying
    its way into the oil  infrastructure around the world. They are doing
    it in the open market  and paying fair market prices, but millions of
    barrels of oil that would have gone to the U.S. are now going to
    China. China's quest to assure it has the oil it needs to fuel its
    economy is a major factor  in world politics and economics.

    We have our Navy fleets protecting the  sea lines, specifically the
    ability to get the tankers through. It  won't be long before the
    Chinese have an aircraft carrier sitting in the Persian Gulf as well.
    The question is, will their aircraft carrier  be pointing in the same
    direction as ours or against us?


    3.  Shifting Demographics of Western Civilization

    Most countries in the  Western world have stopped breeding. For a
    civilization obsessed with  sex, this is remarkable. Maintaining a
    steady population requires a  birth rate of 2.1 In Western Europe, the
    birth rate currently stands  at 1.5, or 30 percent below replacement.
    In 30 years there will be 70 to 80 million fewer Europeans than there
    are today. The current birth  rate in Germany is 1.3. Italy and Spain
    are even lower at 1.2. At that  rate, the working age population
    declines by 30 percent in 20 years,  which has a huge impact on the
    economy. When you don't have young workers to replace the older ones,
    you have to import them.

    The  European countries are currently importing Moslems. Today, the
    Moslems  comprise 10 percent of France and Germany, and the percentage
    is  rising rapidly because they have higher birthrates. However, the
    Moslem populations are not being integrated into the cultures of
    their host countries, which is a political catastrophe. One reason
    Germany and France don't support the Iraq war is they fear their
    Moslem populations will explode on them. By 2020, more than half of
    all births in the Netherlands will be non-European.

    The huge design  flaw in the postmodern secular state is that you need
    a traditional  religious society birth rate to sustain it. The
    Europeans simply don't  wish to have children, so they are dying. In
    Japan, the birthrate is  1.3. As a result, Japan will lose up to 60
    million people over the  next 30 years. Because Japan has a very
    different society than Europe,  they refuse to import workers.
    Instead, they are just shutting down.  Japan has already closed 2,000
    schools, and is closing them down at  the rate of 300 per year. Japan
    is also aging very rapidly. By 2020,  one out of every five Japanese
    will be at least 70 years old. Nobody  has any idea about how to run
    an economy with those  demographics.

    Europe and Japan, which comprise two of the world's major  economic
    engines, aren't merely in recession, they're shutting down.  This will
    have a huge impact on the world economy, and it is already  beginning
    to happen. Why are the birthrates so low? There is a  direct
    correlation between abandonment of traditional religious society and
    a drop in birth rate, and Christianity in Europe is  becoming irrelevant.

    The second reason is economic. When the birth rate drops below
    replacement, the population ages. With fewer working  people to
    support more retired people, it puts a crushing tax burden  on the
    smaller group of working age people. As a result, young people  delay
    marriage and having a family. Once this trend starts, the  downward
    spiral only gets worse. These countries have abandoned all  the
    traditions they formerly held in regard to having families and
    raising children.

    The U.S. birth rate is 2.0, just below replacement. We have an
    increase in population because of immigration.  When broken down by
    ethnicity, the Anglo birth rate is 1.6 (same as  France) while the
    Hispanic birth rate is 2.7. In the U.S., the baby  boomers are
    starting to retire in massive numbers. This will push the  elder
    dependency ratio from 19 to 38 over the next 10 to 15 years.  This is
    not as bad as Europe, but still represents the same kind of  trend.

    Western civilization seems to have forgotten what every  primitive
    society understands-you need kids to have a healthy society.  Children
    are huge consumers. Then they grow up to become taxpayers.  That's how
    a society works, but the postmodern secular state seems to  have
    forgotten that. If U.S. birth rates of the past 20 to 30 years  had
    been the same as post-World War II, there would be no Social  Security
    or Medicare problems.

    The world's most effective birth  control device is money. As society
    creates a middle class and women  move into the workforce, birth rates
    drop. Having large families is incompatible with middle class living.

    The quickest way to drop the birth  rate is through rapid economic
    development. After World War II, the  U.S. instituted a $600 tax
    credit per child. The idea was to enable  mom and dad to have four
    children without being troubled by taxes.  This led to a baby boom of
    22 million kids, which was a huge consumer  market. That turned into a
    huge tax base. However, to match that  incentive in today's dollars
    would cost $12,000 per  child.

    China and India do not have declining populations. However, in  both
    countries, there is a preference for boys over girls, and we now  have
    the technology to know which is which before they are born. In  China
    and India, families are aborting the girls. As a result, in each  of
    these countries there are 70 million boys growing up who will  never
    find wives. When left alone, nature produces 103 boys for every  100
    girls. In some provinces, however, the ratio is 128 boys to every  100
    girls.

    The birth rate in Russia is so low that by 2050  their population will
    be smaller than that of Yemen. Russia has one-sixth of the earth's
    land surface and much of its oil. You can't  control that much area
    with such a small population. Immediately to  the south, you have
    China with 70 million unmarried men who are a real  potential
    nightmare scenario for Russia.


    4. Restructuring  of American Business

    The fourth major transformation involves a  fundamental restructuring
    of American business. Today's business  environment is very complex
    and competitive. To succeed, you have to  be the best, which means
    having the highest quality and lowest cost.  Whatever your price
    point, you must have the best quality and lowest  price. To be the
    best, you have to concentrate on one thing. You can't  be all things
    to all people and be the best.

    A generation ago,  IBM used to make every part of their computer. Now
    Intel makes the  chips, Microsoft makes the software, and someone else
    makes the  modems, hard drives, monitors, etc. IBM even out sources
    their call  center. Because IBM has all these companies supplying
    goods and  services cheaper and better than they could do it
    themselves, they can  make a better computer at a lower cost. This is
    called a fracturing of  business. When one company can make a better
    product by relying on  others to perform functions the business used
    to do itself, it creates  a complex pyramid of companies that serve
    and support each  other.

    This fracturing of American business is now in its second  generation.

    The companies who supply IBM are now doing the same thing  -
    outsourcing many of their core services and production process. As  a
    result, they can make cheaper, better products. Over time,  this
    pyramid continues to get bigger and bigger. Just when you think  it
    can't fracture again, it does.

    Even very small businesses  can have a large pyramid of corporate
    entities that perform many of  its important functions. One aspect of
    this trend is that companies  end up with fewer employees and more
    independent contractors. This  trend has also created two new words in
    business, integrator and  complementor. At the top of the pyramid, IBM
    is the integrator. As you  go down the pyramid, Microsoft, Intel and
    the other companies that  support IBM are the complementors. However,
    each of the complementors is itself an integrator for the
    complementors underneath  it.

    This has several implications, the first of which is that we are  now
    getting false readings on the economy. People who used to be
    employees are now independent contractors launching their own
    businesses. There are many people working whose work is not listed as
    a job. As a result, the economy is perking along better than the
    numbers are telling us.

    Outsourcing also confused the numbers.  Suppose a company like General
    Motors decides to outsource all its  employee cafeteria functions to
    Marriott (which it did). It lays-off  hundreds of cafeteria workers,
    who then get hired right back by  Marriott. The only thing that has
    changed is that these people work  for Marriott rather than GM. Yet,
    the media headlines will scream that  America has lost more
    manufacturing jobs. All that really happened is  that these workers
    are now reclassified as service workers. So the old  way of counting
    jobs contributes to false economic readings. As yet,  we haven't
    figured out how to make the numbers catch up with the  changing
    realities of the business world.

    Another implication  of this massive restructuring is that because
    companies are getting  rid of units and people that used to work for
    them, the entity is  smaller. As the companies get smaller and more
    efficient, revenues are  going down but profits are going up. As a
    result, the old notion that  revenues are up and we're doing great
    isn't always the case anymore.  Companies are getting smaller but are
    becoming more efficient and  profitable in the process.


    IMPLICATIONS OF THE FOUR  TRANSFORMATIONS

    1. The War in Iraq

    In some ways, the war is  going very well. Afghanistan and Iraq have
    the beginnings of a modern  government, which is a huge step forward.
    The Saudis are starting to  talk about some good things, while Egypt
    and Lebanon are beginning to  move in a good direction. A series of
    revolutions have taken place in  countries like Ukraine and Georgia.

    There will be more of these revolutions for an interesting reason. In
    every revolution, there  comes a point where the dictator turns to the
    general and says, Fire into the crowd. If the general fires into the
    crowd, it stops the  revolution. If the general says No, the
    revolution continues.  Increasingly, the generals are saying No
    because their kids are in the  crowd.

    Thanks to TV and the Internet, the average 18-year old outside  the
    U.S. is very savvy about what is going on in the world, especially  in
    terms of popular culture. There is a huge global consciousness,  and
    young people around the world want to be a part of it. It is
    increasingly apparent to them that the miserable government where
    they live is the only thing standing in their way. More and more, it
    is the well-educated kids, the children of the generals and the
    elite, who are leading the revolutions.

    At the same time, not all is  well with the war. The level of violence
    in Iraq is much worse and  doesn't appear to be improving. It's
    possible that we're asking too  much of Islam all at one time. We're
    trying to jolt them from the 7th  century to the 21st century all at
    once, which may be further than  they can go. They might make it and
    they might not.

    Nobody  knows for sure. The point is, we don't know how the war will
    turn out.  Anyone who says they know is just guessing. The real place
    to watch is  Iran. If they actually obtain nuclear weapons it will be
    a terrible  situation. There are two ways to deal with it. The first
    is a military  strike, which will be very difficult. The Iranians have
    dispersed  their nuclear development facilities and put them
    underground. The  U.S. has nuclear weapons that can go under the earth
    and take out  those facilities, but we don't want to do that.

    The other way is to  separate the radical mullahs from the government,
    which is the most  likely course of action. Seventy percent of the
    Iranian population is  under 30. They are Moslem but not Arab. They
    are mostly pro-Western.  Many experts think the U.S. should have dealt
    with Iran before going  to war with Iraq. The problem isn't so much
    the weapons, it's the  people who control them. If Iran has a moderate
    government, the  weapons become less of a concern.

    We don't know if we will win the war in  Iraq. We could lose or win.
    What we're looking for is any indicator  that Islam is moving into the
    21st century and  stabilizing.

    2. China

    It may be that pushing 500 million  people from farms and villages
    into cities is too much too soon.  Although it gets almost no
    publicity, China is experiencing hundreds  of demonstrations around
    the country, which is unprecedented. These  are not students in
    Tiananmen Square. These are average citizens who  are angry with the
    government for building chemical plants and  polluting the water they
    drink and the air they breathe.

    The  Chinese are a smart and industrious people. They may be able to
    pull  it off and become a very successful economic and military
    superpower.  If so, we will have to learn to live with it. If they
    want to share  the responsibility of keeping the world's oil lanes
    open, that's a  good thing. They currently have eight new nuclear
    electric power  generators under way and 45 on the books to build.
    Soon, they will  leave the U.S. way behind in their ability to
    generate nuclear  power.

    What can go wrong with China? For one, you can't move 550  million
    people into the cities without major problems. Two, China  really
    wants Taiwan, not so much for economic reasons, they just want  it.
    The Chinese know that their system of communism can't survive  much
    longer in the 21st century. The last thing they want to do  before
    they morph into some sort of more capitalistic government is to  take
    over Taiwan.

    We may wake up one morning and find they have  launched an attack on
    Taiwan. If so, it will be a mess, both  economically and militarily.
    The U.S. has committed to the military  defense of Taiwan. If China
    attacks Taiwan, will we really go to war against them? If the Chinese
    generals believe the answer is no, they  may attack. If we don't
    defend Taiwan, every treaty the U.S. has will  be worthless.
    Hopefully, China won't do anything stupid.


    3.  Demographics

    Europe and Japan are dying because their populations are  aging and
    shrinking. These trends can be reversed if the young people  start
    breeding. However, the birth rates in these areas are so low it  will
    take two generations to turn things around. No economic model  exists
    that permits 50 years to turn things around. Some countries  are
    beginning to offer incentives for people to have bigger families.  For
    example, Italy is offering tax breaks for having children.  However,
    it's a lifestyle issue versus a tiny amount of money.  Europeans
    aren't willing to give up their comfortable lifestyles in  order to
    have more children.

    In general, everyone in Europe  just wants it to last a while longer.

    Europeans have a real talent for  living. They don't want to work very
    hard. The average European worker  gets 400 more hours of vacation
    time per year than Americans. They  don't want to work and they don't
    want to make any of the changes  needed to revive their economies.

    The summer after 9/11, France lost 15,000 people in a heat wave. In
    August, the country basically shuts  down when everyone goes on vacation.

    That year, a severe heat wave struck  and 15,000 elderly people living
    in nursing homes and hospitals died.  Their children didn't even leave
    the beaches to come back and take  care of the bodies. Institutions
    had to scramble to find enough  refrigeration units to hold the bodies
    until people came to claim  them. This loss of life was five times
    bigger than 9/11 in America,  yet it didn't trigger any change in
    French society.

    When birth  rates are so low, it creates a tremendous tax burden on
    the young.  Under those circumstances, keeping mom and dad alive is
    not an  attractive option. That's why euthanasia is becoming so
    popular in  most European countries. The only country that doesn't
    permit (and  even encourage) euthanasia is Germany, because of all the
    baggage from  World War II.

    The European economy is beginning to fracture. Countries  like Italy
    are starting to talk about pulling out of the European Union because
    it is killing them. When things get bad economically in  Europe, they
    tend to get very nasty politically. The canary in the  mine is anti-
    Semitism.

    When it goes up, it means trouble is  coming. Current levels of anti-
    Semitism are higher than ever.

    Germany won't launch another war, but Europe will likely get
    shabbier, more dangerous and less pleasant to live in. Japan has a
    birth rate of 1.3 and has no intention of bringing in immigrants. By
    2020, one out of every five Japanese will be 70 years old. Property
    values in Japan have dropped every year for the past 14 years. The
    country is simply shutting down. In the U.S. we also have an aging
    population. Boomers are starting to retire at a massive rate. These
    retirements will have several major impacts:

    Possible massive sell  off of large four-bedroom houses and a movement
    to condos.

    An  enormous drain on the treasury. Boomers vote, and they want their
    benefits, even if it means putting a crushing tax burden on their
    kids to get them. Social Security will be a huge problem. As this
    generation ages, it will start to drain the system. We are the only
    country in the world where there are no age limits on medical
    procedures. An enormous drain on the health care system. This will
    also increase the tax burden on the young, which will cause them to
    delay marriage and having families, which will drive down the birth
    rate even further.

    Although scary, these demographics also present  enormous
    opportunities for products and services tailored to aging
    populations. There will be tremendous demand for caring for  older
    people, especially those who don't need nursing homes but need  some
    level of care. Some people will have a business where they take care
    of three or four people in their homes. The demand for that type of
    service and for products to physically care for aging people will  be
    huge.

    Make sure the demographics of your business are attuned to where the
    action is. For example, you don't want to be a  baby food company in
    Europe or Japan. Demographics are much underrated  as an indicator of
    where the opportunities are. Businesses need  customers. Go where the
    customers are.


    4. Restructuring of  American Business

    The restructuring of American business means we are  coming to the end
    of the age of the employer and employee. With all  this fracturing of
    businesses into different and smaller units,  employers can't
    guarantee jobs anymore because they don't know what  their companies
    will look like next year. Everyone is on their way to  becoming an
    independent contractor.

    The new workforce contract will be: Show up at the office five
    days a week and do what I want  you to do, but you handle your own
    insurance, benefits, health care  and everything else. Husbands and
    wives are becoming economic units.  They take different jobs and work
    different shifts depending on where  they are in their careers and
    families. They make tradeoffs to put  together a compensation package
    to take care of the  family.

    This used to happen only with highly educated professionals with  high
    incomes. Now it is happening at the level of the factory floor  worker.

    Couples at all levels are designing their compensation packages  based
    on their individual needs. The only way this can work is if
    everything is portable and flexible, which requires a huge shift in
    the American economy.

    The U.S. is in the process of building  the world's first 21st century
    model economy. The only other countries doing this are U.K. and
    Australia. The model is fast, flexible, highly  productive and
    unstable in that it is always fracturing and re-fracturing. This will
    increase the economic gap between the U.S. and everybody else,
    especially Europe and Japan.

    At the same  time, the military gap is increasing. Other than China,
    we are the  only country that is continuing to put money into their
    military.  Plus, we are the only military getting on-the-ground
    military experience through our war in Iraq. We know which high-tech
    weapons are working and which ones aren't. There is almost no one who
    can take us on economically or militarily.

    There has never been a superpower in this position before. On the one
    hand, this makes the U.S. a magnet  for bright and ambitious people.
    It also makes us a target. We are  becoming one of the last holdouts
    of the traditional Judeo-Christian  culture. There is no better place
    in the world to be in business and  raise children. The U.S. is by far
    the best place to have an idea,  form a business and put it into the
    marketplace.

    We take it for granted, but it isn't as available in other countries
    of the world.  Ultimately, it's an issue of culture. The only people
    who can hurt us are ourselves, by losing our culture. If we give up
    our Judeo-Christian culture, we become just like the Europeans.

    The culture war is the whole ballgame. If we lose it, there isn't
    another America  to pull us out.

     


    Forwarded by Niki

    MOTHER This is a truly BEAUTIFUL piece. Please Read this at a slow pace, digesting every word and in Leisure...do not hurry... This is a treasure...

    For those lucky to still be blessed with your Mom, This is beautiful. For those of us who aren't, this is Even more beautiful. For those who are moms, you'll love this.

    The young mother set her foot on the path of life. 'Is This the long way?' she asked. And the guide said: 'Yes, and the way is hard. And you will be old before you reach the end of it... But The end will be better than the beginning.'

    But the young mother was happy, and she would not Believe that anything could be better than these years. So she Played with her children, and gathered flowers for Them along the way, and bathed them in the clear streams; and The sun shone on them, and the young Mother cried, 'Nothing will ever be lovelier than this.'

    Then the night came, and the storm, and the path was Dark, and the children shook with fear and cold, and the mother Drew them close and covered them with her mantle, and the children said, 'Mother, we are not afraid, for you are near, and no harm can come.'

    And the morning came, and there was a hill ahead, and The children climbed and grew weary, and the mother was weary. But at all times she said to the children,' A little patience and we are there.' So the children climbed, and when they reached the top They said, 'Mother, we would not have done it without you.'

    And the mother, when she lay down at night looked up At the stars and said, 'This is a better day than the last, for my Children have learned fortitude in the face of hardness. Yesterday I gave them courage. Today, I've given them strength.'

    And the next day came strange clouds which darkened The earth, clouds of war and hate and evil, and the children groped And stumbled, and the mother said: 'Look up. Lift your eyes to the light. ' And the children looked and saw above the clouds An everlasting glory, and it guided them beyond the Darkness. And that night the Mother said, 'This is the best day of all, for I have shown my children God.'

    And the days went on, and the weeks and the months and The years, and the mother grew old and she was little and bent. But her children were tall and strong, and walked with Courage. And when the way was rough, they lifted her, For she was as light as a feather; and at last they came to a hill, And beyond they could see a shining road and golden gates flung wide. And Mother said, 'I have reached the end of my journey. And now I know the end Is better than the beginning, for my children can Walk alone, and their children after them.'

    And the children said, 'You will always walk with us, Mother, even when you have gone through the gates.' And they stood and watched her as she went on alone, and the gates Closed after her. And they said: 'We cannot see her But she is with us still. A Mother like ours is more than a memory. She Is a living presence.......'

    Your Mother is always with you... She's the whisper Of the leaves as you walk down the street; she's the smell of bleach In your freshly laundered socks; she's the cool n your brow when you're not well. Your Mother lives Inside your laughter. And she's crystallized in every tear drop. She's the place you came from, your first home; and she's the map you follow with every step you take. She's your first love And your first heartbreak, and nothing on earth can Separate you.

    Not time, not space... Not even death!

     




    Humor Updates

    Forwarded by Paula

    For Catholics Only

    This information is for Catholics only. It must not be divulged to non-Catholics. The less they know about our rituals and code words, the better off they are.

    AMEN: The only part of a prayer that everyone knows.

    BULLETIN: Your receipt for attending Mass.

    CHOIR: A group of people whose singing allows the rest of the Parish to lip-sync.

    HOLY WATER: A liquid whose chemical formula is H2OLY.

    HYMN: A song of praise usually sung in a key three octaves higher than that of the congregation's range.

    RECESSIONAL HYMN: The last song at Mass often sung a little more quietly, since most of the people have already left.

    INCENSE: Holy Smoke!

    JESUITS: An order of priests known for their ability to find colleges with good basketball teams.

    JONAH: The original "Jaws" story.

    JUSTICE: When kids have kids of their own.

    KYRIE ELEISON: The only Greek words that most Catholics can recognize besides gyros and baklava. (for you non-Catholics it means Lord Have Mercy)

    MAGI: The most famous trio to attend a baby shower.

    MANGER: Where Mary gave birth to Jesus, because Joseph wasn't covered by an HMO. (The Bible's way of showing us that holiday travel has always been rough.)

    PEW: A medieval torture device still found in Catholic churches.

    PROCESSION: The ceremonial formation at the beginning of Mass consisting of altar servers, the celebrant, and late parishioners looking for seats.

    RECESSIONAL: The ceremonial procession at the conclusion of Mass led by parishioners trying to beat the crowd to the parking lot.

    RELICS: People who have been going to Mass for so long, they actually know when to sit, kneel, and stand.

    TEN COMMANDMENTS: The most important Top Ten list not given by David Letterman.

    USHERS: The only people in the parish who don't know the seating capacity of a pew.


    Forwarded by Niki

    Box Donation

    A married Irishman went into the confessional and said to his priest, "I almost had an affair with another woman."

    The priest said, "What do you mean, almost?"

    The Irishman said, "Well, we got undressed and rubbed together, but then I stopped."

    The priest said, "Rubbing together is the same as putting it in. You're not to see that woman again. For your penance, say five Hail Mary's and put $50 in the poor box."

    The Irishman left the confessional, said his prayers, and then walked over to the poor box. He paused for a moment and then started to leave.

    The priest, who was watching, quickly ran over to him saying, "I saw that. You didn't put any money in the poor box!"

    The Irishman replied, "Yeah, but I rubbed the $50 on the box, and according to you, that's the same as putting it in!"

    ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

    Lemon Squeeze

    There once was a religious young woman who went to Confession. Upon entering the confessional, she said, "Forgive me, Father, for I have sinned."

    The priest said, "Confess your sins and be forgiven."

    The young woman said, "Last night my boyfriend made mad, passionate love to me seven times."

    The priest thought long and hard and then said, "Squeeze seven lemons into a glass and then drink the juice."

    The young woman asked, "Will this cleanse me of my sins?"

    The priest said, "No, but it will wipe that smile off of your face."

    ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

    Catholic Dog

    Muldoon lived alone in the Irish countryside with only a pet dog for company. One day the dog died, and Muldoon went to the parish priest and asked, "Father, my dog is dead. Could ya' be saying' a mass for the poor creature?"

    Father Patrick replied, "I'm afraid not; we cannot have services for an animal in the church. But there are some Baptists down the lane, and there's no tellin' what they believe. Maybe they'll do something for the creature."

    Muldoon said, "I'll go right away Father. Do ya' think $5,000 is enough to donate to them for the service?"

    Father Patrick exclaimed, "Sweet Mary, Mother of Jesus! Why didn't ya tell me the dog was Catholic?

    ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

    Donation

    Father O'Malley answers the phone. "Hello, is this Father O'Malley?"

    "It is!"

    "This is the IRS. Can you help us?"

    "I can!"

    "Do you know a Ted Houlihan?"

    "I do!"

    "Is he a member of your congregation?"

    "He is!"

    "Did he donate $10,000 to the church?"

    "He will."

    ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

    Confession

    An elderly man walks into a confessional. The following conversation ensues:

    Man: "I am 92 years old, have a wonderful wife of 70 years, many children, grandchildren, and great grandchildren. Yesterday, I picked up two college girls, hitchhiking. We went to a motel, where I had sex with each of them three times."

    Priest: "Are you sorry for your sins?"

    Man: "What sins?"

    Priest: "What kind of a Catholic are you?"

    Man: "I'm Jewish."

    Priest: "Why are you telling me all this?"

    Man: "I'm 92 years old ... I'm telling everybody!"

    ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

    Brothel Trip

    An elderly man goes into a brothel and tells the madam he would like a young girl for the night. Surprised, she looks at the ancient man and asks how old he is.

    "I'm 90 years old," he says.

    "90!" replies the woman. "Don't you realize you've had it?"

    "Oh, sorry," says the old man. "How much do I owe you?"

    ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

    Senility

    An elderly man went to his doctor and said, " Doc, I think I'm getting senile. Several times lately, I have forgotten to zip up."

    "That's not senility," replied the doctor. "Senility is when you forget to zip down."

    ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

    Pest Control

    A woman was having a passionate affair with an inspector from a pest-control company. One afternoon they were carrying on in the bedroom together when her husband arrived home unexpectedly.

    "Quick," said the woman to the lover, "into the closet!" and she pushed him in the closet, stark naked.

    The husband, however, became suspicious and after a search of the bedroom discovered the man in the closet.

    "Who are you?" he asked him.

    "I'm an inspector from Bugs-B-Gone," said the exterminator.

    "What are you doing in there?" the husband asked.

    "I'm investigating a complaint about an infestation of moths," the man replied.

    "And where are your clothes?" asked the husband.

    The man looked down at himself and said, "Those little bastards!"


    Forwarded by Paula

    Three women: one engaged, one married, and one a mistress, are chatting about their relationships and decided to amaze their men.

    That night all three will wear black leather bras, stiletto heels and a mask over their eyes.

    After a few days they meet up for lunch.

    The engaged woman: The other night when my boyfriend came over he found me with a black leather bodice, tall stilettos and a mask. He saw me and said, 'You are the woman of my life. I love you.' Then we made love all night long.

    The mistress: Me too! The other night I met my lover at his office and I was wearing the leather bodice, heels, mask over my eyes and a raincoat. When I opened the raincoat he didn't say a word, but we had wild sex all night.

    The married woman: I sent the kids to stay at my mother's house for the night. When my husband came home I was wearing the leather bodice, black stockings, stilettos and a mask over my eyes. As soon as he came in the door and saw me he said, 'What's for dinner, Batman?'


    Forwarded by Eileen

    Why did the chicken cross the road?

    BARACK OBAMA: The chicken crossed the road because it was time for a CHANGE! The chicken wanted CHANGE!

    JOHN MC CAIN: My friends, that chicken crossed the road because he recognized the need to engage in cooperation and dialogue with all the chickens on the other side of the road.

    HILLARY CLINTON: When I was First Lady, I personally helped that little chicken to cross the road. This experience makes me uniquely qualified to ensure -- right from Day One! -- that every chicken in this country gets the chance it deserves to cross the road. But then, this really isn't about me.......

    DR. PHIL: The problem we have here is that this chicken won't realize that he must first deal with the problem on 'THIS' side of the road before it goes after the problem on the 'OTHER SIDE' of the road. What we need to do is help him realize how stupid he's acting by not taking on his 'CURRENT' problems before adding 'NEW' problems.

    OPRAH: Well, I understand that the chicken is having problems, which is why he wants to cross this road so bad. So instead of having the chicken learn from his mistakes and take falls, which is a part of life, I'm going to give this chicken a car so that he can just drive across the road and not live his life like the rest of the chickens.

    GEORGE W. BUSH: We don't really care why the chicken crossed the road. We just want to know if the chicken is on our side of the road, or not. The chicken is either against us, or for us. There is no middle ground here.

    COLIN POWELL: Now to the left of the screen, you can clearly see the satellite image of the chicken crossing the road...

    ANDERSON COOPER - CNN: We have reason to believe there is a chicken, but we have not yet been allowed to have access to the other side of the road.

    JOHN KERRY: Although I voted to let the chicken cross the road, I am now against it! It was the wrong road to cross, and I was misled about the chicken's intentions. I am not for it now, and will remain against it.

    NANCY GRACE: That chicken crossed the road because he's GUILTY! You can see it in his eyes and the way he walks.

    PAT BUCHANAN: To steal the job of a decent, hardworking American.

    MARTHA STEWART: No one called me to warn me which way that chicken was going. I had a standing order at the Farmer's Market to sell my eggs when the price dropped to a certain level. No little bird gave me any insider information.

    DR SEUSS: Did the chicken cross the road? Did he cross it with a toad? Yes, the chicken crossed the road, but why it crossed I've not been told.

    ERNEST HEMINGWAY: To die in the rain. Alone.

    JERRY FALWELL: Because the chicken was gay! Can't you people see the plain truth?' That's why they call it the 'other side.' Yes, my friends, that chicken is gay. And if you eat that chicken, you will become gay too. I say we boycott all chickens until we sort out this abomination that the liberal media white washes with seemingly harmless phrases like 'the other side. That chicken should not be crossing the road. It's as plain and as simple as that.

    GRANDPA: In my day we didn't ask why the chicken crossed the road. Somebody told us the chicken crossed the road, and that was good enough.

    BARBARA WALTERS: Isn't that interesting? In a few moments, we will be listening to the chicken tell, for the first time, the heart warming story of how it experienced a serious case of molting, and went on to accomplish its life long dream of crossing the road.

    ARISTOTLE: It is the nature of chickens to cross the road.

    JOHN LENNON: Imagine all the chickens in the world crossing roads together, in peace.

    BILL GATES: I have just released eChicken2009, which will not only cross roads, but will lay eggs, file your important documents, and balance your check book. Internet Explorer is an integral part of the Chicken. This new platform is much more stable and will never cra...#@&&^(C% ......... reboot.

    ALBERT EINSTEIN: Did the chicken really cross the road, or did the road move beneath the chicken?

    BILL CLINTON: I did not cross the road with THAT chicken. What is your definition of chicken?

    AL GORE: I invented the chicken!

    COLONEL SANDERS: Did I miss one?

    DICK CHENEY: Where's my gun?

    AL SHARPTON: Why are all the chickens white? We need some black chickens.


    Forwarded by Auntie Bev (who lives in Florida)

    Promotional for Florida Retirement


    Where to live after Retirement
     
     
     
    You can live in
    Phoenix , Arizona where.....
     
     
    1. You are willing to park 3 blocks away because you found shade.
     
     
    2. You've experienced condensation on your butt from the hot water in the toilet bowl.
     
     
    3. You can drive for 4 hours in one direction and never leave town.  

     

    4. You have over 100 recipes for Mexican food
     
     

    5. You know that 'dry heat' is comparable to what hits you in the face when you open your oven door.
     
     

    6 The 4 seasons are: tolerable, hot, really hot, and ARE YOU KIDDING ME??!!
     
     
     
     

    You can Live in
    California where..
     
     

    1. You make over $250,000 and you still can't afford to buy a house.
     
     

    2. The fastest part of your commute is going down your driveway.
     
     

    3. You know how to eat an artichoke.
     
     

    4. You drive your rented Mercedes to your neighborhood block party.
     
     

    5. When someone asks you how far something is, you tell them how
    long it will take
    to get there rather than how many miles away it is.
     

    6. The 4 seasons are: Fire, Flood, Mud, and Drought

     
     
     

    You can Live in
    New York City where...
     
     

    1. You say 'the city' and expect everyone to know you mean Manhattan .
     
     

    2. You can get into a four-hour argument about how to get from Columbus Circle to

    Battery Park, but can't find Wisconsin on a map.  
     

    3.
    You think Central Park is 'nature,'  
     

    4. You believe that being able to swear at people in their own language makes you multilingual.
     
     

    5. You've worn out a car horn.
     
     ;

    6. You think eye contact is an act of aggression.
     
     
     
     

    You can Live in
    Minnesota where...
     
     

    1. You only have four spices: salt, pepper, ketchup, and Tabasco
     
     

    2. Halloween costumes fit over parkas.
     
     

    3. You have more than one recipe for moose.
     
     

    4. Sexy lingerie is anything flannel with less than eight buttons.
     
     

    5. The four seasons are: winter, still winter, almost winter, and construction.

     
     
     

     You can Live in the Deep South where...
     

    1. You can rent a movie and buy bait in the same store.
     

     

    2. 'y'all' is singular and 'all y'all' is plural.
     
     

    3. 'He needed killin'' is a valid defense.
     
     

    4.
    Everyone has 2 first names: Billy Bob , Jimmy Bob, Mary Sue,

    Betty Jean, MARY BETH, etc.  
     
     
     

    You can live in
    Colorado where..

     

    1. You carry your $3 ,000 mountain
    bike atop your $500 car.
     
     

    2. You tell your husband to pick up Granola on his way home and

    he stops at the day care center.  
     

    3. A pass does not involve a football or dating.
     
     

    4. The top of your head is bald, but you still have a pony tail.
     
     
     
     

    You can live in the
    Midwest where...

     

    1. You've never met any celebrities, but the mayor knows your name
     
     

    2. Your idea of a traffic jam is ten cars waiting to pass a tractor.
     
     

    3. You have had to switch from 'heat' to 'A/C' on the same day.
     
     

    4. You end sentences with a preposition: 'Where's my coat at?'
     
     

    5. When asked how your trip was to any exotic place, you say, 'It was different!'

    6. You add an r when you say "Warshington."  
     
     
     

     AND You can live in Florida where..
     

    1. Where everything is wonderful.

     

    Yeah, right.

     


    Forwarded by Denny Beresford

    Jesus and Satan were having an on-going argument about who was better on the computer. They had been going at it for days, and frankly God was tired of hearing all the bickering.

    Finally fed up, God said, "THAT'S IT! I have had enough. I am going to set up a test that will run for two hours, and from those results, I will judge who does the better job."

    So Satan and Jesus sat down at the keyboards and typed away.

    They moused.

    They faxed.

    They e-mailed.

    They e-mailed with attachments.

    They downloaded.

    They did spreadsheets!

    They wrote reports.

    They created labels and cards.

    They created charts and graphs.

    They did some genealogy reports

    They did every job known to man.

    Jesus worked with heavenly efficiency and Satan was faster than hell.

    Then, ten minutes before their time was up, lightning suddenly flashed across the sky, thunder rolled, rain poured, and, of course, the power went off..

    Satan stared at his blank screen and screamed every curse word known in the underworld.

    Jesus just sighed.

    Finally the electricity came back on, and each of them restarted their computers. Satan started searching frantically, screaming:

    "It's gone! It's all GONE! "I lost everything when the power went out!"

    Meanwhile, Jesus quietly started printing out all of his files from the past two hours of work..

    Satan observed this and became irate.

    "Wait!" he screamed. "That's not fair! He cheated! How come he has all his work and I don't have any?"

    God just shrugged and said,

    JESUS SAVES...

    (Groan)


    Forwarded by Maria

    AMAZINGLY SIMPLE HOME REMEDIES

    1. Avoid cutting yourself when slicing vegetables by getting someone else to hold them while you chop.

    2. Avoid arguments with the Mrs. about lifting the toilet seat by using the shower.

    3. For high blood pressure sufferers: simply cut yourself and bleed for a few minutes, thus reducing the pressure in your veins. Remember to use a timer.

    4. A mouse trap, placed on top of your alarm clock, will prevent you from rolling over and going back to sleep after you hit the snooze button.

    5. If you have a bad cough, take a large dose of laxatives, then you will be afraid to cough.

    6. You only need two tools in life - WD-40 and Duct Tape. If it doesn't move and should, use the WD-40. If it shouldn't move and does, use the duct tape.


    Forwarded by Gene and Joan,

    How to Use Your IRS Rebate Check...

    As you may have heard, each of us will be getting a tax rebate check to stimulate the economy.

    If we spend that money at Wal-Mart, all the money will go to China . If we spend it on gasoline it will go to theArabs.

    If we purchase a computer it will go to Taiwan.

    If we purchase fruits and vegetables it will go to South America .

    If we purchase an economical car it will go to Japan.

    If we purchase useless stuff it will go to India and none of it will help the American economy.

    We need to keep that money here in America .

    The only way to keep that money here at home is to spend it at Yard Sales, since those are the only businesses left owned by Americans!!


     

  •  

    Humor Between May 1 and May, 2008 --- http://www.trinity.edu/rjensen/book08q2.htm#Humor053108

    Humor Between April 1 and April 30, 2008 --- http://www.trinity.edu/rjensen/book08q2.htm#Humor043008

    Humor Between March 1 and March 31, 2008 --- http://www.trinity.edu/rjensen/book08q1.htm#Humor033108

    Humor Between February 1 and February 29, 2008 --- http://www.trinity.edu/rjensen/book08q1.htm#Humor022908   

    Humor Between January 1 and January 31, 2008 --- http://www.trinity.edu/rjensen/book08q1.htm#Humor013108  

    Tidbits Directory for Earlier Months and Years --- http://www.trinity.edu/rjensen/TidbitsDirectory.htm




    And that's the way it was on May 31, 2008 with a little help from my friends.

     

    Fraud Updates --- http://www.trinity.edu/rjensen/FraudUpdates.htm

     

    Facts about the earth in real time --- http://www.worldometers.info/ 

    Jesse's Wonderful Music for Romantics (You have to scroll down to the titles) --- http://www.jessiesweb.com/

    International Accounting News (including the U.S.)

    AccountingEducation.com and Double Entries --- http://www.accountingeducation.com/
            Upcoming international accounting conferences --- http://www.accountingeducation.com/events/index.cfm
            Thousands of journal abstracts --- http://www.accountingeducation.com/journals/index.cfm
    Deloitte's International Accounting News --- http://www.iasplus.com/index.htm
    Association of International Accountants --- http://www.aia.org.uk/ 

    Wikipedia has a rather nice summary of accounting software at http://en.wikipedia.org/wiki/Accounting_software
    Bob Jensen’s accounting software bookmarks are at http://www.trinity.edu/rjensen/Bookbob1.htm#AccountingSoftware

    Bob Jensen's accounting history summary --- http://www.trinity.edu/rjensen/Theory01.htm#AccountingHistory

    Bob Jensen's accounting theory summary --- http://www.trinity.edu/rjensen/Theory.htm

    Tom Selling's blog The Accounting Onion (great on theory and practice) --- http://accountingonion.typepad.com/

     

    Free Harvard Classics --- http://www.bartleby.com/hc/
    Free Education and Research Videos from Harvard University --- http://athome.harvard.edu/archive/archive.asp

     

    I highly recommend TheFinanceProfessor (an absolutely fabulous and totally free newsletter from a very smart finance professor, Jim Mahar from St. Bonaventure University) --- http://www.financeprofessor.com/ 

     

    Bob Jensen's bookmarks for accounting newsletters are at http://www.trinity.edu/rjensen/bookbob1.htm#News 

    News Headlines for Accounting from TheCycles.com --- http://www.thecycles.com/business/accounting 
    An unbelievable number of other news headlines categories in TheCycles.com are at http://www.thecycles.com/ 

     

    Jack Anderson's Accounting Information Finder --- http://www.umsl.edu/~anderson/accsites.htm

     

    Gerald Trite's great set of links --- http://www.zorba.ca/bookmark.htm 

     

    The Finance Professor --- http://www.financeprofessor.com/about/aboutFP.html 

     

    Walt Mossberg's many answers to questions in technology --- http://ptech.wsj.com/

     

    How stuff works --- http://www.howstuffworks.com/ 

     

    Household and Other Heloise-Style Hints --- http://www.trinity.edu/rjensen/bookbob3.htm#Hints 

     

    Bob Jensen's video helpers for MS Excel, MS Access, and other helper videos are at http://www.cs.trinity.edu/~rjensen/video/ 
    Accompanying documentation can be found at http://www.trinity.edu/rjensen/default1.htm and http://www.trinity.edu/rjensen/HelpersVideos.htm 

     

    Click on www.syllabus.com/radio/index.asp for a complete list of interviews with established leaders, creative thinkers and education technology experts in higher education from around the country.

     

    Professor Robert E. Jensen (Bob) http://www.trinity.edu/rjensen
    190 Sunset Hill Road
    Sugar Hill, NH 03586
    Phone:  603-823-8482 
    Email:  rjensen@trinity.edu  

     

     

     

     

     

     

     

    April 30, 2008

     

     

    Bob Jensen's New Bookmarks on April 30, 2008
    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
     


    I have an academic dilemma that I will share below. I sent a letter to the authors of a Teaching Note (case solution) urging them to withdraw the Teaching Note and correct some mistakes that I described to them in my February 26 letter. . They did not do so, so you can read below about what happened next:

    1. Issues in Accounting Education (IAE) is one of my favorite journals, in part because it is more open to wide ranging research methodologies than all other research publications of the American Accounting Association (AAA)
       

    2. The current February 2008 issue has an excellent printed Teaching Case:

      "Accounting for Derivatives and Hedging Activities: Comparison of Cash Flow versus Fair Value Hedge Accounting" Issues in Accounting Education, Vol. 23, No. 8, February 2008, pp. 103-117 --- http://aaahq.org/pubs.cfm
       

    3. A Teaching Note (case solution) is available AAA members who pay a fee for an electronic subscription to this publication. There are no restrictions on who can be an AAA member and subscribe to IAE. Hence anybody in the world can download the Teaching Note as an electronic subscriber --- http://aaahq.org/pubs.cfm
       

    4. I studied this Teaching Note carefully and found, in my opinion, both serious errors and misleading assumptions. I communicated these as an error-correcting working paper to both the authors of the published Teaching Note and to the Editor of IAE. I suggested that my error corrections be appended at the end of the original Teaching Note. This would not be hard to do since the Teaching Note can only be downloaded on the Internet. Unlike the Teaching Case itself, the Teaching Note was not distributed in hard copy.
       

    5. The IAE Editor informed me that my working paper would be appended to the Teaching Note. However, weeks turned into months and nothing happened. When I inquired the IAE Editor informed me that he’d had a change of heart. What was rude is that he never bothered to inform me of this until I inquired why no appendix was added to the Teaching Note.
       
    6. The Editor of IAE  later informed me that he will not append my error corrections to the end of the Teaching Note until I pay a submission fee to have my submission formally refereed. It makes perfect sense that the working paper should be refereed before IAE publishes it as an appendix to the Teaching Note. However, it's ludicrous that, if I want the IAE to correct the IAE's own mistakes, I must pay the IAE to merely consider correcting its own mistakes."
      Submission fees range from $75 to $100 --- https://aaahq.org/AAAforms/journals/iaesubmit.cfm
       

    7. I might add that I'm willing to make referee-suggested corrections to my own errors. However, this is not a mainline publication, and I refuse to spend more time word crafting this error-correcting working paper. One of the most difficult aspects of publishing mainline journal articles is satisfying referees who often have differing viewpoints on how the paper should be word crafted. I've just signed a contract to write a book on derivative financial instruments and hedging activities and do not have the time or inclination to word craft this error-correcting working paper. I think the editor of the IAE feels that my use of the word "errors" will embarrass the Case authors. I did make an effort to only use the word "error" when there was what I consider to be an outright error such as using cash flow hedging journal entries for a hedged item that has no cash flow risk. I refuse to call outright errors differences in assumptions when they are in fact errors. When there were differing assumptions I did not call those "errors."
       

    8. The Editor may one day have a change of heart about making me pay a submission fee to get the IAE to correct its own mistakes and to word craft the paper to take out the word "error" wherever it appears. Otherwise what are serious errors, in my viewpoint, will live on forever in the Teaching Note to what is otherwise a very good Teaching Case. The Case authors could also rewrite their original Teaching Note, but across several months of communications between us they've never proposed doing so to me or the IAE editor. It would take a substantial effort to rewrite the Teaching Note, and there are complications that arise in that some problems in the Case itself are impossible to correct since the Case has already been distributed as hard copy.
       

    9. This could be success arising from troubles turned inside out. In my viewpoint comparing my error-correction working paper with the original Teaching Note has value-added beyond what a perfectly rewritten Teaching Note would make to the Teaching Case. In other words, students and instructors can learn more by studying the errors themselves in the original Teaching Note. This is what I mean by turning troubles inside out to create success. For this reason you should download the current Teaching Note to keep in your own archives just in case it gets laundered later on --- http://aaahq.org/pubs.cfm 
       

    10. I think both teachers and students may be misled by the current Teaching Note that can be downloaded from http://aaahq.org/pubs.cfm
      If you are using this Teaching Note, you may download, for free, my error corrections at http://www.trinity.edu/rjensen/CaseErrors.htm
       

    11. My error-correcting working paper is designed to be used alongside the electronically published Teaching Note. My working paper will not make much sense to readers who do not have both the Teaching Case and the original Teaching Note for comparative purpose. The original Teaching Note has many things that are very good. I did not find errors in everything contained in the Teaching Note.
       

    12. Of course my proposed error-correcting working paper contains only my opinions and could itself have errors that I do not yet know about.
      You be the judge
      at http://www.trinity.edu/rjensen/CaseErrors.htm
      Please let me know if you find errors in my work since my working paper can be easily corrected at this point.

       

    13. Even if the IAE Editor has a change of heart and is willing to have my error-correcting working paper refereed for free, the process could take many months, possibly over a year, before my working paper is appended to the Teaching Note. If you are using this Teaching Case, you probably should take a look at http://www.trinity.edu/rjensen/CaseErrors.htm
      That in fact is my main purpose for writing the above message!

      Postscript 01
      After I circulated this message among some friends, one wrote back and wondered if Science Magazine and the the New England Journal of Medicine charges for correcting their mistakes? We're in deep trouble if that's the case.


    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

    Wikipedia has a rather nice summary of accounting software at http://en.wikipedia.org/wiki/Accounting_software

    Bob Jensen’s accounting software bookmarks are at http://www.trinity.edu/rjensen/Bookbob1.htm#AccountingSoftware

    Bob Jensen's accounting history summary --- http://www.trinity.edu/rjensen/Theory01.htm#AccountingHistory

    Bob Jensen's accounting theory summary --- http://www.trinity.edu/rjensen/Theory.htm

    Tom Selling's blog The Accounting Onion (great on theory and practice) --- http://accountingonion.typepad.com/

    XBRL Networking --- http://xbrlnetwork.ning.com/

    From EDGAR Online
    FREE access to the latest ANNUAL REPORTS and PROSPECTUSES from hundreds of publicly traded companies and funds.

    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, etc

    Roles 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 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

    Fraud Updates is now available at http://www.trinity.edu/rjensen/FraudUpdates.htm

    Links to my other fraud modules can be found at http://www.trinity.edu/rjensen/Fraud.htm

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

    Bob Jensen's new timeline on the worldwide scandals using derivative financial instruments and the evolution of accounting standards for derivatives --- http://www.trinity.edu/rjensen/FraudRotten.htm

    Update on Humor --- http://www.trinity.edu/rjensen/book08q2.htm#Humor043008




    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

    Large International Accounting Firm History --- http://en.wikipedia.org/wiki/Big_Four_auditors

    Global Perspectives on Accounting Education --- http://gpae.bryant.edu/%7Egpae/content.htm




    Bob Jensen's new timeline on the worldwide scandals using derivative financial instruments and the evolution of accounting standards for derivatives --- http://www.trinity.edu/rjensen/FraudRotten.htm


    Student Rap Video on FAS 159 --- http://www.youtube.com/watch?v=hBoZTM8_cVw&feature=related
    This link was forwarded by Denny Beresford, I think with his tongue in his cheek. Denny knows that I consider FAS 159 to be rediculous.

    Bob Jensen's threads on fair value accounting are at http://www.trinity.edu/rjensen/Theory01.htm#FairValue


    Free online textbooks and tutorials (including video tutorials) in accounting, economics, statistics, and other disciplines --- http://www.trinity.edu/rjensen/ElectronicLiterature.htm#Textbooks

    Newly Added:

    Bob Jensen's new timeline on the worldwide scandals using derivative financial instruments and the evolution of accounting standards for derivatives --- http://www.trinity.edu/rjensen/FraudRotten.htm

    Free Accounting Video (YouTube) Tutorials
    May 27, 2008 message from Crosson, Susan
    [susan.crosson@SFCC.EDU]

    I have done both Financial and Managerial Accounting videos for my students and posted them on YouTube. They are free to anyone. In fact, they have been viewed by over 70,000 folks worldwide.

    Here are the easy links organized by topic and chapter:

    Financial:        
    http://inst.sfcc.edu/~SCrosson/Fall 2007/Flip Videos Fall 2007/FA Videos.htm

    Managerial:      http://inst.sfcc.edu/~SCrosson/Fall%202007/YouTube.htm 

    or go to YouTube.com directly and input my account SusanCrosson or http://www.youtube.com/SusanCrosson 

    If you have any other questions, glad to answer...
    Susan Crosson

    Quamut's Free Basic Accounting Tutorial --- http://www.quamut.com/quamut/accounting_basics

    MIT's Sloan School of Management Open Sharing Course Materials (including some accounting courses) ---
    http://ocw.mit.edu/OcwWeb/Sloan-School-of-Management/index.htm

    Other free online accounting textbooks and tutorials ---  http://www.trinity.edu/rjensen/ElectronicLiterature.htm#Textbooks


    From Texas A&M University
    Accounting History Outline --- http://acct.tamu.edu/giroux/history.html

    Accounting History Timeline --- http://acct.tamu.edu/giroux/timeline.html


    The Roaring Freight Train Bringing in International Accounting Standards to Put the FASB and SEC U.S. Accounting Standards Out of Business
    (Including Video)

    Accountancy standard setting video links forwarded by Jeff Jacobs [jeffjacobs@smartpros.com]

    Bob Herz on the complexity of accounting standards        http://www.youtube.com/watch?v=7LYmAY5dUS4
    Colleen Cunningham on the momentum toward IFRS        http://www.youtube.com/watch?v=BFAzrMK1YXY
     

    April 27, 2008 message from David Raggay [draggay@TSTT.NET.TT]

    From Double Entries:
    Contributor: Andrew Priest
    Source: http://www.pwc.com /

    PricewaterhouseCoopers U.S. Chairman and Senior Partner Dennis Nally called for a shift in accounting standards away from U.S. GAAP to International Financial Reporting Standards (IFRS) in a speech at the Union League Club in New York recently. In his speech, Mr. Nally urged members of the Financial Executive Institute to embrace the rapid and often disruptive changes brought about by globalization as an opportunity to address systemic problems that impact America's long term competitiveness. He argued that global economic and cultural integration coupled with the rapid growth of emerging economies will demand more engagement and cooperation from the United States, citing the transition of accounting standards as a prime example.

    "If we continue in the way we've always done things, the core foundation of IFRS will be eroded. The result will be that the U.S. will find itself out of step with the changes that the rest of the world is undertaking in financial reporting," said Mr. Nally. "American businesses, regulators and policy makers must behave differently over the next ten years, as we participate in ever-increasing discussions about the convergence of standards, rules, and principles."

    Continued in article………

    David

    April 28, 2008 reply from Bob Jensen

    Hi David,

    In fairness the SEC and the FASB to my knowledge have never opposed harmonization of accounting standards. The problem prior to 1980s when the IASC evolved into the IASB was that adoption of international standards was a voluntary thing such that the IASC avoided controversial issues like standards on off-balance-sheet financing and undisclosed derivative financial instruments such as forward contracts and swaps. The SEC actually threw out a challenge to the IASB to tackle the tough issues such as issuance of IAS 39 (ultimately).

    The IASB finally got serious about standards and, although some tough issues still need to be addressed, the FASB and IASB standards have converged to a large extent. Accordingly other nations such as Canada and the U.S. are now moving toward adoption of IASB standards. I just hope the IASB does not become paralyzed in politics like the United Nations is paralyzed with so much political bickering across over 100-plus nations. We’ve seen some problems such as when European nations “carved out” parts of IAS 39 due to lobbying pressure from European banks. I just hope national carve outs die out in future implementations of international accounting standards.

    Much of the history of pressures from IOSCO and the SEC that prompted the IASB to tackle more controversial issues appears in a transcribed message by Paul Pacter some years ago --- http://www.trinity.edu/rjensen/acct5341/speakers/pacter.htm
    This is an excellent piece of work for students of accounting history. 

    I’ve written a new timeline about derivatives instruments scandals and the evolution of accounting standards at http://www.trinity.edu/rjensen/FraudRotten.htm#DerivativesFrauds

     Bob Jensen

    April 28, 2008 reply from David Raggay [draggay@TSTT.NET.TT]

    Hi Prof,

    I’m aware of the development of the IASB’s standards and the convergence project.

    I read a couple of posts on this forum suggesting (if I read them correctly) that principles-based standards won’t work in the US.

    Based on what I read of the SEC’s pronouncements, however, and discussing the issue with an American, with whom I sit on the IASB’s SME accounting Working Group, I get the impression that the move is not only inevitable, but that there is a lobby from business interests in that direction.

    David

    April 28, 2008 reply from Bob Jensen

    Hi David,

    Actually the IASB’s standards, especially IAS 39, have some pretty bright lines such that we cannot assume that all IAS and IFRS standards are entirely principles-based even if the IASB is a bit ahead of the FASB on the ideal of principles-based standards. The EU bankers sought “carve outs” of bright lines in IAS 39.

    I don’t think I ever used the term “won’t work,” because everything must be analyzed in context. Even though the big international accounting firms are gung ho for doing away with bright lines, I think investors will hurt if many bright lines are removed. For example, many clients, especially large clients, threaten to change auditors if the auditors do not “play ball” on some controversial items such as test results for effectiveness of derivative hedging contracts. Even IAS 39 has a bright line standard for the dollar offset method by setting the limits at 80% -125% in the IAS 39 standard itself.

    If the IAS 39 80%-125% bright line is removed in favor of principles based judgments on the part of the auditor, clients will begin pressuring auditors to go along with effectiveness tests that are only 50% effective using dollar offset or only have an R-Square of .50 instead of the standard minimum .80.

    My point is that removal of bright lines leads to greater inconsistency in auditor judgment and financial reporting.

    I am definitely not in favor of principles based standards that seek to eliminate virtually all bright lines. This will increase client pressure on auditors, and it is evident in recent history that auditors often cave in to client pressure --- http://www.trinity.edu/rjensen/Fraud001.htm 

    The NUMBER ONE problem of principles-based standards is that they will lead to greater inconsistency of financial reporting between companies, even companies audited by the same auditing firm --- http://www.trinity.edu/rjensen/Theory01.htm#Principles-Based 

    Some auditors like principles-base standards because if auditors goof by allowing clients to go outside the bright lines this can lead to costly litigation without being able to simply say “we used our professional judgment on the audit.” You can’t make such judgments when crossing bright lines. A great example of this is the reason why KPMG lost one of the largest clients in the world --- Fannie Mae. KPMG purportedly went along with allowing Fannie Mae to have macro hedge accounting relief on mortgage portfolios that were not homogeneous. FAS 133 has a “bright line” that says hedge accounting is not allowed on heterogeneous portfolios --- hence KPMG could not defend itself with a “professional judgment” defense. Hence KPMG lost the audit, and Fannie Mae spent over $1 million restating its financial statements.

    Bob Jensen

    April 28, 2008 reply from David Raggay [draggay@TSTT.NET.TT]

    Prof,

    I agree that IFRS are not totally principles-based. On a continuum, they lean to being more so than US GAAP.

    I take your point about the lack of consistency but is total homogeneity really desirable? If they auditors truly apply professional judgement and do their stuff well, then the accounts should be “:free from material error”.

    Another argument is that where there are rules (bright lines), there will be bright accountants finding ways to break them –case in point: capital vs operating leases. Under US GAAP, as I understand it, if the present value of the MLP is 89.2% of the fair value, we have an operating lease. Under IFRS, we look at substance over form so that the figure could be 70% for example and if we judge that substantially all of the risks and rewards of ownership reside with the lessee, we have a capital (finance) lease.

    Added Later

    We have traffic police because people don't apply the principles of good driving: They speed, drive drunk etc, etc.

    Part of internal audit is to focus on compliance with policies and procedures.....not necessarily rules.

    David

    April 30, 2008 reply from Bob Jensen

    Hi David,

    You miss my point entirely David. It's easier to prosecute/punish rogue police men and police women if the courts or employers can point to gross bright line violations such as going twice the posted speed limit when not in hot pursuit. It's much harder to prosecute on the basis of violating a vague principle of "driving safe when not in hot pursuit."

    And the same can be said for auditors who cross the bright lines while auditing --- http://www.trinity.edu/rjensen/Fraud001.htm  

    Almost every year since SOX was implemented, the PCAOB has accused the largest international accounting firms of bright line violations (usually bright line violations of not collecting any evidence where explicitly required to do so without allowing judgmental choice to not collect evidence) while auditing a particular item like inventory. Mostly the PCAOB issued warnings to collect evidence in the future, although Deloitte recently paid a $1 million fine to the PCAOB. Deloitte did so using Tom Selling's grrrrr plea "without admitting guilt."

    There are bad cops and bad auditors crossing the bright lines. Cops do so because they get arrogant and do not report each other. Auditors cross the lines to save time and money. Sometimes both types of line crossers would like to paint over the bright lines or road signs that got them caught.

    You're a very principled auditor David. Not all of auditors are so high minded when costs of an audit are mounting well beyond budget and staffing shortages are becoming acute. Without bright lines the police and auditors will get away with most anything short of murder. It might be that auditors can get away with that since murder has not been written into the auditing bright lines.

    April 30, 2008 reply from Linda A Kidwell [lkidwell@UWYO.EDU]

    Anyone following this string really ought to read the FASB response to the SEC regarding acceptance of IFRS. The link is here: http://www.fasb.org/FASB_FAF_Response_SEC_Releases_msw.pdf 

    I found it a pretty stunning read, even as one in the camp of international convergence and principles-based accounting. The FASB endorses a move to one set of rules, and they list a set of preconditions for that move. One of them is this: ". . .international agreement is needed to use IFRS as issued by the IASB. Currently, many jurisdictions review and endorse each IASB standard after it is issued. Such mechanisms can produce local variants of IFRS, which is inconsistent with the goal of a single set of international standards." They are basically saying that the discussion needs to be part of setting the standard, but once the standard is set, the national tinkering needs to stop. This would make the idea of "generally accepted interpretations" in the internet somewhat tricky, wouldn't it?

    As to the metric system, the economic benefit of the switch was insufficient to make it worthwhile. This question is in a while different economic league.

    And on a personal note, I like that the move to convergence has made it easier to justify going to the annual conference of the European Accounting Association. If you've never been, they are always in fabulous cities with gracious hosts and grand social events, like the AAA can't begin to manage with its numbers!

    Linda Kidwell


    Here’s another example of why I’m dubious of principles-based standards in accounting and auditing. Nothing should've prevented KPMG from being more professional on this huge audit. KPMG still amazes me on how it wins awards for everything from employee relations to minority student support but falls down on the services for which it gets paid by selling illegal tax shelters (over a half billion in fines and legal fees ), performing sloppy audits (e.g., being fired from the enormous Fannie Mae audit), and now this. There’s a whole lot of good stuff and bad stuff referenced at http://www.trinity.edu/rjensen/Fraud001.htm

    In an interview Wednesday, Mr. Missal said KPMG "didn't have the healthy skepticism that you would expect from your outside independent auditors." One of the accounting errors Mr. Missal identified involved a decision not to account for a "growing backlog" of troubled loans New Century was obligated to repurchase. Senior New Century executives knew as far back as 2004 that the subprime-mortgage boom was doomed to go bust, Mr. Missal said. But he said its accounting practices allowed those dangers to be disguised.
    See below

    "KPMG Aided New Century Missteps, Report Says," by Peg Brickley and Amir Efrati, The Wall Street Journal, March 27, 2008; Page A6 --- http://online.wsj.com/article/SB120658573750067861.html?mod=todays_us_page_one

    A court-appointed investigator looking into the collapse of New Century Financial Corp. said in a report that its auditor, KPMG LLP, devised some of the improper accounting strategies that allowed the company to hide its financial problems for years.

    The investigator, Michael J. Missal, said the company might be able to recover money for its creditors by suing KPMG for professional negligence and negligent misrepresentation. He also recommended the company sue several of its former top executives to recover millions of dollars in bonuses and other compensation paid to them.

    KPMG "contributed to certain of these accounting and financial reporting deficiencies by enabling them to persist and, in some instances, precipitating the company's departure from applicable accounting standards," Mr. Missal said in a 550-page report filed with the U.S. Bankruptcy Court in Wilmington, Del., and released Wednesday.

    Dan Ginsburg, a spokesman for KPMG, said, "We strongly disagree with the report's conclusion concerning KPMG. We believe that an objective review of the facts and circumstances will affirm our position."

    The Justice Department, as part of its investigation into New Century's collapse, is looking at individuals at KPMG who audited the company, according to people familiar with the case. But these individuals are not currently a target of the investigation, according to a person familiar with the matter. The Justice Department inquiry is being handled out of the Santa Ana office of the U.S. attorney for California's central district, based in Los Angeles. A spokesman for KPMG declined to comment.

    A spokesperson for New Century said in a statement: "The Company is pleased that the Examiner's report is finally completed and that we can take the next steps of confirming the plan of liquidation, therefore substantially concluding the bankruptcy process."

    In his report, Mr. Missal said that in one instance, a KPMG partner who led the New Century audit team castigated a subordinate who had questioned one of the company's accounting practices as it prepared to file its 2005 annual report with the Securities and Exchange Commission.

    According to Mr. Missal, the KPMG partner told the subordinate in an email: "I am very disappointed we are still discussing this. As far as I am concerned, we are done. The client thinks we are done. All we are going to do is p- everybody off."

    New Century, based in Irvine, Calif., was once one of the country's biggest providers of mortgages to people with poor credit histories. In 2006, it originated nearly $60 billion in subprime mortgages. It collapsed in April 2007 after its accounting problems came to light, accelerating the meltdown in the subprime-mortgage market. That meltdown precipitated the biggest credit crunch in at least a decade.

    In his report, Mr. Missal said New Century had "a brazen obsession with increasing loan originations, without due regard to the risks associated with that business strategy." Its loan-production department, he said, was "the dominant force in the company," which trained mortgage brokers in sessions it referred to as "CloseMore University."

    The company had low standards for originating loans, Mr. Missal said. "The predominant standard for loan quality was whether the loans New Century originated could be initially sold or securitized in the secondary market," he said. "The increasingly risky nature of New Century's loan originations created a ticking time bomb that detonated in 2007."

    New Century owes its creditors more than $1 billion, but it has said in court papers that they are likely to recover no more than 17 cents of every dollar they are owed. Because the company has few assets left, much of that funding is likely to come from lawsuits against parties responsible for the company's collapse.

    In an interview Wednesday, Mr. Missal said KPMG "didn't have the healthy skepticism that you would expect from your outside independent auditors." One of the accounting errors Mr. Missal identified involved a decision not to account for a "growing backlog" of troubled loans New Century was obligated to repurchase.

    Senior New Century executives knew as far back as 2004 that the subprime-mortgage boom was doomed to go bust, Mr. Missal said. But he said its accounting practices allowed those dangers to be disguised.

    An independent report commissioned by the Justice Department concluded that the "improper and imprudent practices" of now-bankrupt subprime lender New Century Financial were condoned and enabled by the company's independent auditor, KPMG.
    Zac Bissonnette, "KPMG engulfed in subprime accounting scandal," Blogging Stocks, March 27, 2008 http://bstocksdev.weblogsinc.com/2008/03/27/kpmg-engulfed-in-subprime-accounting-scandal/

    "Inquiry Assails Accounting Firm (KPMG) in Lender’s Fall," by Vikas Bajaj, The New York Times, March 27, 2008 --- http://www.nytimes.com/2008/03/27/business/27account.html?_r=2&hp&oref=&oref=slogin

    A sweeping five-month inve