New Bookmarks
Year 2008 Quarter 3:  July 1 - September 30 Additions to Bob Jensen's Bookmarks
Bob Jensen at Trinity University

For earlier editions of New Bookmarks go to 
Tidbits Directory --- 

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

Choose a Date Below for Additions to the Bookmarks File

September 30, 2008

August 31, 2008




  • September 30, 2008




    Bob Jensen's New Bookmarks on September 30, 2008
    Bob Jensen at Trinity University 

    For earlier editions of Fraud Updates go to
    For earlier editions of Tidbits go to
    For earlier editions of New Bookmarks go to 

    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

    Bob Jensen's Blogs ---
    Current and past editions of my newsletter called New Bookmarks ---
    Current and past editions of my newsletter called Tidbits ---
    Current and past editions of my newsletter called Fraud Updates ---

    Many useful accounting sites (scroll down) ---

    Peter, Paul, and Barney: An Essay on 2008 U.S. Government Bailouts of Private Companies ---


    The Accounting Profession Needs an Accounting Court More Than Ever
    My reactions to the Treasury Department’s 2008 Report on the Accounting Profession


    A NYT reporter asked me to comment on the Treasury Department’s final report on the accounting/auditing profession ---

    I only spent 15 minutes on this and am not especially proud of anything I do off the cuff and extemporaneously. But since reporters only quote about one percent or less of what you give them, perhaps more of what I said may be of value to some readers.

    Robert (Bob) Jensen
    Emeritus Accounting Professor From Trinity University
    190 Sunset Hill Road
    Sugar Hill, NH 03586

    From: Jensen, Robert
    Sent: Friday, September 26, 2008 4:07 PM
    To: '
    Cc: Jensen, Robert
    Subject: RE: treasury report on auditing


    Hi XXXXX,

    I made brief responses directly onto the summary you sent to me. My main point is for you to look into the Accounting Court idea.
    Especially note

    Please forgive me for only devoting 15 minutes to this effort. I’m very, very busy at the moment.

    One of my best friends and former professor and former Deputy Chief Accountant at the SEC submitted a long input letter. He allowed me to serve it up at my Website ---
    Although I don’t agree with him on some issues, you perhaps should seek Andy Bailey’s input on this as well ---
    Andy’s input is much more complete than my few comments in this email message.

    Hope this helps!


    Robert (Bob) Jensen
    Emeritus Accounting Professor From Trinity University
    190 Sunset Hill Road
    Sugar Hill, NH 03586

    American Accounting Association members should visit the AAA Commons today ---


    September 26, 2008

    Fact Sheet: Final Report of the Advisory Committee on the Auditing Profession

    The U.S. Treasury Department's Advisory Committee on the Auditing Profession adopted a Final Report containing more than 30 recommendations to improve the sustainability of the public company auditing profession.  The report is separated into three sections by principal areas of focus.

    Human Capital recommendations focused on improving accounting education and strengthening human capital, including:

    • Implementation of accounting education curricula and content that continuously evolves to reflect current market developments to help prepare new entrants to the profession.
      This is motherhood and apple pie, but keep in mind that the financial accounting part of the curriculum is 95% driven by the CPA examination. To change the curriculum all NASBA has to do is change the CPA Exam, which I will now have to do since all FASB standards will be trashed in favor of IFRS standards because Chris Cox abused his authority as Chair of the SEC ---
    • Improvement of the representation and retention of minorities in the auditing profession through mentoring programs and recruiting at community colleges.
      Some progress is being made in the effort to get more minority professors and role models, but the CPA examination is a tough, tough hurdle for entry into the public accounting profession ---
      Also see
      Great progress is being made for women since 60% of the new hires are women ---
    • Ensuring an adequate supply of qualified accounting faculty through public and private sector funding to meet future demands and help prepare students to execute high quality audits.
      This is an enormous failure because virtually all doctoral programs wanted to become mathematics programs more than accounting programs ---
    • Development and maintenance of demographic data on the accounting profession so that the profession can understand the human capital situation and its impact on the profession's future and sustainability.
      The AICPA keeps a pretty good database for this.
    • Study of the future of education for the accounting profession, including the potential for graduate schools of accounting, to determine the best way to educate students to deal with the challenging financial reporting and auditing environment.
      The AICPA is so concerned about the shortage of auditing and tax professors that it just now created a fund to provide five years of full ride funding to each of 30 doctoral students who will commit to auditing and tax specialties
      Requests for applications and additional information may be obtained online from the AICPA Foundation at or by calling 919-402-4524

    Firm Structure and Finances recommendations focused on enhancing auditing firm governance, transparency, responsibility, communications, and audit quality, including:

    • Creation of a national center at the Public Company Accounting Oversight Board to provide a forum for auditing firms and other market participants to share their fraud detection experiences in order to improve audit quality.
      Probably a good idea, but I doubt that firms will devote a whole lot of hours making this a success.
    • Granting accountants licensed in one state with reciprocity to practice in other states to foster a more efficient operation of the capital markets given the multi-state operations of many public companies and multi-state practices of many auditing firms.
      This has some real problems. For example, most but not all states now require five-years (150 semester credits) to sit for the CPA examination, but there are some states that only require four years. Should students will four-year degrees become licensed in states that have tougher standards? Also there’s a huge problem with varying experience requirements among states. And there are societal problems. Florida does not want all the semi-retired CPAs from NY to set up shop in Florida.
    • Exploration of the feasibility of appointing independent members with full voting power to firm boards and/or advisory boards to improve the governance and transparency of auditing firms.
      Probably a good idea, but there are problems with confidentiality of client information.
    •  Enhancement of disclosure requirements regarding public company auditor changes will improve transparency and enhance investor confidence.
      There has been progress here with SEC rules, but more could be accomplished. It’s hard to separate reasons from excuses.
    • Enhancements to make the auditor's standard reporting model more useful to investors by including more relevant information, such as key accounting estimates and judgments.
      The estimation process is so complex, that “more relevant information” might only add trees in front of somebody already lost in the forest.
    • Mandating the engagement partner's signature on the auditor's report to improve accountability among auditing firms.
      A good idea, but not as important as rotating the engagement partner more frequently, including bringing in new engagement partners from other offices.
    •  Requirement for larger auditing firms to produce a public annual report with relevant firm information and file on a confidential basis with the PCAOB audited financial statements to improve transparency at auditing firms.
      Yes, yes, yes.

    The Concentration and Competition recommendations focused on ways to increase audit market competition and auditor choice, including:

    • Having the PCAOB monitor potential sources of catastrophic risk at auditing firms to prevent reduced auditor choice and significant market disruptions.
      At the moment really large clients like Bank of America can create a catastrophe by dropping their auditing firm. The audit model is basically broken since audit firms are chosen by and paid by executives of firms that they audit. I’m not saying that government auditors would be an improvement, because we all know that industries pretty much get control of the government agencies that regulate them. But there should be some type of “accounting court” for resolving auditor-client conflicts in confidentiality. This was first proposed in a big way by a managing partner of Arthur Andersen named Leonard Spacek ---
      Especially note ---
    • Creation of a mechanism for the preservation and rehabilitation of troubled larger public company auditing firms to prevent reduced auditor choice and significant market disruptions.
      Especially note ---
    •  Development and publication of key indicators of audit quality and effectiveness to promote competition and choice in the industry based on audit quality.
      The PCAOB is doing a pretty good job in this department. For example it has found deficiencies in some of the audits of public accounting firms of all sizes, including the recent PCAOB fine of $1 million for Deloitte ---
    •  Promotion of the understanding of and compliance with auditor independence requirements to enhance investor confidence in the quality of audit processes and audits.
      Academics have been clamoring about this for years, but it’s almost impossible to make significant progress beyond the litigation threat. At the moment, the risk of being sued in the U.S. is probably the biggest factor keeping auditing firms professional and honest, but there are many failures ---
      It should be noted that most of the litigation of CPA firms centers on mistakes, incompetence, and cost-saving practices that were not a good idea such as substituting substantive testing with analytical reviews. There have been some, but very few, outright frauds and collusions of auditors in frauds.
    • Adoption of annual shareholder ratification of public company auditors by all public companies to enhance the audit committee's oversight to ensure that the auditor is suitable for the company's size and financial reporting needs.
      Shareholder ratifications are a pile of crap since most of the shares are held by enormous funds (pension funds, mutual funds, etc.). The ideal that Main Street will thereby have a huge input into the choice of an auditor is nonsense. Most individuals don’t know one auditor from another. And for huge clients there are only about six choices anyway.
    • Enhancement of collaboration and coordination between the PCAOB and its foreign counterparts so that investors can be confident that auditing firms of all sizes are contributing effectively to audit quality.
      Sounds great but this is motherhood and apple pie that’s difficult to implement effectively in practice. Mostly it sounds good on paper.


    Closing Comment
    What’s really needed is an Accounting Court much like operates in The Netherlands, although it will be much more difficult to operate in the U.S. because of the much greater size of the U.S. I still like Spacek’s basic idea of an Accounting Court.
    Especially note ---


    The main advantage of an Accounting Court is that auditors could get more backing from experts when confronting clients on some sticky issues, and clients would have a more difficult time bullying their auditors.




    Bob Jensen's past presentations and lectures ---   

    Bob Jensen's various threads ---
           (Also scroll down to the table at )

    Roles of a ListServ ---

    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

    Bob Jensen's Home Page is at

    CPA Examination ---
    Free CPA Examination Review Course ---
    AccountingWeb Student Zone --- 

    Wikipedia has a rather nice summary of accounting software at

    Bob Jensen’s accounting software bookmarks are at

    Bob Jensen's accounting history summary ---

    Bob Jensen's accounting theory summary ---

    Tom Selling's blog The Accounting Onion (great on theory and practice) ---

    Most of the posts I looked at for XBRL are quoted and linked at:

    XBRL and IDEA
    Probably the most important XBRL and IDEA links at the moment are as follows:

    IDEA (destined to replace EDGAR) ---

    XBRL Home --- is XBRL International. is the U.S. jurisdiction.

    Financial Reporting Using XBRL (maintained by Charles Hoffman) ---

    XBRL Canada Blog (maintained by Jerry Trites) ---

    XBRL Networking ---

    Hitachi interactive data blog on XBRL --- 

    TryXBRL ---

    Bryant University Resource Center ---

    Rivet XBRL Markup Software (Proprietary) ---

      UB Matrix Enterprise Applications Suite (Proprietary) ---

    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) --- 
    Part 2 (unfunded liabilities of $55 trillion plus) ---
    Part 3 (this is a non-partisan problem being ignored in election promises) ---

    Watch the Video of the non-sustainability of the U.S. economy (CBS Sixty Minutes TV Show Video) --- 
    Also see "US Government Immorality Will Lead to Bankruptcy" in the CBS interview with David Walker ---
    Also at Dirty Little Secret About Universal Health Care (David Walker) ---

    Accountancy Discussion ListServs:

    For an elaboration on the reasons you should join a ListServ (usually for free) go to
    AECM (Educators) 
    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 ---

    CPAS-L (Practitioners) 
    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)
    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.
    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 
    This discussion group is headed by Randy Schostag [RSchostag@BUSVALGROUP.COM

    Tidbits Directory for Earlier Months and Years ---

    New Bookmarks Directory for Earlier Months and Years ---

    Fraud Updates is now available at

    Links to my other fraud modules can be found at

    Bob Jensen's Threads ---

    Bob Jensen's new timeline on the worldwide scandals using derivative financial instruments and the evolution of accounting standards for derivatives ---

    Links to Documents on Fraud ---

    Bob Jensen's search helpers are at

    Bob Jensen's Bookmarks ---

    Bob Jensen's links to free electronic literature, including free online textbooks ---

    Bob Jensen's links to free online video, music, and other audio ---

    Bob Jensen's documents on accounting theory are at 

    Bob Jensen's links to free course materials from major universities ---

    Bob Jensen's links to online education and training alternatives around the world ---

    Bob Jensen's links to electronic business, including computing and networking security, are at

    Bob Jensen's links to education technology and controversies ---

    Bob Jensen's home page ---

    Bob Jensen's complete set of Enron Updates are at

    Bob Jensen's threads on the Enron scandal are at

    Large International Accounting Firm History ---

    Global Perspectives on Accounting Education ---

    A Vision of Students Today (Video) ---

    Peter, Paul, and Barney: An Essay on 2008 U.S. Government Bailouts of Private Companies ---

    Humor Between September 1 and September 30, 2008 ---

    Humor Between July 1 and August 31, 2008 --- 

    Humor Between June 1 and June 30, 2008 ---

    Humor Between May 1 and May 31, 2008 ---

    Humor Between April 1 and April 30, 2008 ---

    Humor Between March 1 and March 31, 2008 ---

    Humor Between February 1 and February 29, 2008 ---   

    Humor Between January 1 and January 31, 2008 ---  

    Tidbits Directory for Earlier Months and Years ---

    Peter, Paul, and Barney: An Essay on 2008 U.S. Government Bailouts of Private Companies ---

    "Housing bill summary includes many tax provisions," AccountingWeb, August 2008 ---

    Grant Thornton provides an update on the housing bill that was signed recently by President Bush with over $15 billion in tax incentives and several important revenue offsets. The bill's tax provisions are aimed at both businesses and individuals and will have a significant impact on a large number of taxpayers. The changes will affect real estate investment trusts (REITs), provide incentives for first-time homebuyers, change tax rules for housing bonds and credits, allow some taxpayers to accelerate AMT and R&D credits, and, beginning in 2010, impose new payment card reporting requirements. A detailed description of the bill's tax provisions follows.

    Individual tax provisions

    1. Homebuyer credit The bill creates a temporary refundable tax credit for "first-time" homebuyers of 10 percent of the purchase price of a principal residence up to $7,500 to be paid back in the same manner as an interest free loan.

    Any taxpayer who has not had ownership in a principal residence within three years of a home purchase will qualify for the credit, but the property cannot be purchased from a related person. The credit is available for property bought on or after April 9, 2008, and before July 1, 2009. If the home is purchased in 2009 before July 1, the credit can still be applied to 2008 taxes at the election of the taxpayer.

    The credit must be paid back over the next 15 years in equal installments, beginning with the second year following the year of purchase. The credit phases out for taxpayers with adjusted gross income over $75,000 ($150,000 for joint returns). If the property is sold before the credit has been paid back, the remaining balance will be due in the tax year the property is sold, unless the property is sold at a loss.

    2. Property tax deduction The bill will temporarily allow property owners who do not itemize their deductions to claim a standard property deduction of up to $500 for individuals and $1,000 for joint filers. The deduction is available only in taxable years beginning in 2008. Earlier versions of this provision has barred the deduction for taxpayers in local jurisdictions that raised property tax rates in 2008, but no such limitation was included in the final bill.

    Tax provisions affecting businesses

    • Election to accelerate R&D and AMT credits The legislation provides businesses an election to "cash out" some of their older AMT and research credit carryovers in lieu of claiming bonus depreciation on property placed in service during the last nine months of 2008. The amount that can be "cashed out" through a refundable credit is equal to the lesser of:
    • 20 percent of the additional depreciation that would result from applying the bonus depreciation rules to otherwise bonus-eligible property acquired (or costs incurred in the case of self-constructed property) during the last nine months of 2008;
    • 6 percent of the taxpayer's accumulated minimum tax and research credit carryovers that are attributable to taxable years beginning before 2006; or $30 million.

    The election is available for the taxpayer's first taxable year that ends after March 31, 2008. Taxpayers making the election must use the straight line method with respect to property that would otherwise be eligible for bonus depreciation.

    Continued in article


    Blan McBride's Journal of Backroom Accounting

    W. Blan McBride earned a PhD in accounting years ago from the University of Illinois and was inspired earlier to study accounting history by Professor Flowers at the University of Alabama even though Blan's academic background is in engineering. Blan was on the accounting faculty at Florida State University and was instrumental in luring me (Bob Jensen) down to Tallahassee in 1978. However, shortly thereafter Blan left FSU and made millions via consulting, including such things as re-designing a flawed bullet proof vests for the U.S. Army. He made additional millions executing successful turnarounds of failing businesses.

    Blan is the author or co-author of several books listed at


    Throughout all of his consulting and CEO activities over the past few decades, however, Blan maintained his hobby of studying accounting history, especially accounting history in the ancient world. He enjoyed featuring accounting history when lecturing in such places as Rotary Club luncheons. Blan can be very entertaining to say the least. He can also be dead serious when you think he's still joking. For example, he showed me how the Spaniard killing of Inca accountants (what Blan calls wiping out the Inca hard drive) was instrumental in the destruction of the Inca Empire.


    Recently he posed the following question to me (I didn't have a clue):

    P.S.     Here’s your accounting history mystery for today:

     The Inca empire stretched 2500 miles down the coast of South America and into the Andes mountains in the interior.  Francisco Pizzaro landed in 1532 with fewer than 70 men and within fewer than 6 months had conquered the empire and begun shipping gold home. 

     Question:  How did he do it and what part did accounting play in this story?

     Hint: Who kept the records?


    Blan and I began recently to correspond with respect to accounting history. I helped inspire him to commence writing accounting history papers once again, and he completed a working paper as the first paper in his proposed new “Journal of Backroom Accounting History.” He sent me a rough draft of the first commentary intended for his journal. The title is as follows:


    Financial Planning and Internal Control Procedures

    Employed in Early American Whorehouses

     Journal of Backroom Accounting

    Volume 1, Issue 1



    I encourage members of the American Accounting Association to submit comments on Blan's short "Red Light" commentary to the AAA Commons ---
    Click on the menu item "Roles" and then click on "Teaching." Scroll down to the "Journal of Backroom Accounting," Volume 1, 2008.

    You can also communicate directly with Blan via email at
    I don't recommend getting him on the telephone, because you will never get him off. Blan's a talker!
    If you meet him face-to-face, I recommend wearing high-topped boots, but I do love him dearly.
    He makes me laugh and laugh and laugh.

    Once again his "whorehouse" link is


    Additional Accounting History Links

    Bob Jensen's home page is at

    As shown at

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

    Sadly we have a Chair of the SEC who is willing to abuse his powers in favor of
    large international accounting firms without giving other stakeholders a voice in the debate!


    My threads on this entire issue are at

    From The Wall Street Journal Accounting Review on August 29, 2008

    SEC Moves to Pull Plug on U.S. Accounting Standards
    by Kara Scannell and Joanna Slater
    The Wall Street Journal

    Aug 28, 2008
    Page: A1
    Click here to view the full article on ---

    TOPICS: Accounting, FASB, Financial Accounting, Financial Accounting Standards Board, GAAP, Generally accepted accounting principles, SEC, Securities and Exchange Commission

    SUMMARY: On Wednesday, the Securities and Exchange Commission (SEC) held a roundtable, which began a process that could ultimately lead all publicly listed American companies to follow IFRS instead of U.S. GAAP as promulgated by the Financial Accounting Standards Board (FASB). The process is planned in two steps: "The SEC's proposal would allow some large multinational companies to report earnings according to international accounting beginning in 2010. The agency also laid out a road map by which all U.S. companies would switch to IFRS beginning in 2014."

    CLASSROOM APPLICATION: Any financial reporting class in undergraduate or graduate accounting or general business administration programs may use this article to discuss globalize financial reporting and investment market trends.

    1. (Introductory) Summarize the proposed change in financial reporting standards discussed in an SEC roundtable on Wednesday, August 27.

    2. (Introductory) Who is criticizing the proposed process for change to IFRS by U.S. companies? What are the concerns?

    3. (Advanced) "The U.S. accounting system is based on detailed rules, while the international system expects companies to follow broad principles." Give one example of a bright-line rule in U.S. accounting standards that is set out in terms of broad principles under IFRS.

    4. (Advanced) Refer to your answer to question 3 above. As a professional accountant, do you think that you would tend to provide more flexibility under the U.S. or international accounting standards to clients wanting to consider alternative treatments in their financial statements? Support your answer.

    5. (Advanced) The SEC is considering the funding source for standards setter IASB, as part of its requirements for moving to IFRS as the basis of accounting for U.S. companies. What was the recent change in the source of funding for U.S. standards setter FASB? Why does this issue impact acceptability of the accounting standards themselves?

    Reviewed By: Judy Beckman, University of Rhode Island

    "SEC Moves to Pull Plug On U.S. Accounting Standards," by Kara Scannell and Joanna Slater, The Wall Street Journal, August 28, 2008; Page A1 ---

    The Securities and Exchange Commission signaled the demise of U.S. accounting standards, kicking off a process Wednesday that could ultimately require all publicly listed American companies to follow an international model instead.

    Introduced in two steps, the shift could eventually cut costs for companies and smooth cross-border investing. At the same time, investors worry it will create confusion, especially during the transition. Other critics worry that the international system offers too much wiggle room for companies, compared with the more precise rules enshrined in U.S. standards.

    The SEC's proposal would allow some large multinational companies to report earnings according to international accounting beginning in 2010. The SEC estimates at least 110 U.S. companies would qualify based on their market capitalization, among other factors. The agency also laid out a road map by which all U.S. companies would switch to International Financial Reporting Standards, or IFRS, beginning in 2014, at the expense of U.S. Generally Accepted Accounting Principles, the guiding light of accountants for decades.

    The proposals will be open for public comment for 60 days and could be finalized later this year.

    U.S. corporations gave the news a qualified welcome. Margaret Smyth, controller at aerospace and building-services conglomerate United Technologies Corp., said the possibility of having one set of books around the world, though still years away, would result in "tremendous savings." In the short term, Ms. Smyth said the shift would be expensive and added that "there are some issues that still need to be worked out," particularly in the realm of tax accounting.

    The SEC says the change will help the U.S. to compete globally because many other nations use the international standards or plan to do so. Larger companies, especially those with overseas subsidiaries, have urged the SEC to move in this direction. They hope a single accounting standard will enable U.S. investors to more easily compare a retailer in the U.S. with one in France, for example.

    SEC Chairman Christopher Cox noted that 100 countries around the globe use IFRS and two-thirds of U.S. investors currently own securities of foreign companies.

    "The increasing world-wide acceptance and U.S. investors' increasing ownership of foreign companies make it plain that if we do nothing and simply let these trends develop, comparability and transparency will decrease for U.S. investors and issuers," he said.

    The proposal marks the capstone of Mr. Cox's push as chairman to lower global barriers for U.S. investors. It also stems from a concern, voiced more loudly before the credit crunch took hold, that Wall Street was losing business to overseas competitors. In particular, some say the New York Stock Exchange and other U.S. exchanges have been a less attractive place for global companies to list their shares because of the distinct U.S. accounting standards.

    Mr. Cox will likely step down following the November presidential election and the next administration could have different priorities. But several observers say it's likely the shift to IFRS will still occur.

    Skeptics, even those who agree with the concept of a common accounting language, called the SEC's approach wrongheaded. Barbara Roper, director of investor protection at the Consumer Federation of America, said allowing certain U.S. companies to switch ahead of others would "shift the burden of the translation between the two accounting languages onto investors."

    When companies can choose which standard to use, "there's every reason to believe...they'll choose the language that paints their financials in the rosiest light," she added.

    The U.S. accounting system, which is ingrained in textbooks, business schools and company treasuries, is based on detailed rules, while the international system expects companies to follow broad principles. In practice, the systems differ on smaller matters, such as the timing of when a company should note any change in the value of an investment.

    Under U.S. GAAP, for example, research and development costs are generally treated as expenses when they occur. Under the international standards, once a project gets to the development stage the costs are spread out over time. GAAP also provides specific instructions for industries such as oil and insurance. IFRS doesn't.

    Higher Earnings

    Jack Ciesielski, an accountant and publisher of the Analyst's Accounting Observer, says accounting under IFRS tends to lead to higher earnings. He examined filings from 137 foreign companies whose shares traded in the U.S. in 2006. That was the final year that U.S. regulators required these companies to translate their books into GAAP from IFRS. Mr. Ciesielski says 63% of the companies reported higher earnings under the international standard, and the median increase was 11.1%.

    A move to international standards "will likely inflate the earnings of U.S. companies and mislead investors," said Gregory Pai of Paradigm Asset Management in White Plains, N.Y. On the plus side, he noted, the convergence should eventually allow multinationals to save on their accounting bills.

    The SEC's road map requires the two bodies that oversee U.S. and international accounting rules to narrow the differences.

    Arnold Hanish, chief accounting officer of Eli Lilly & Co., said he wouldn't recommend that the drug maker adopt the international standards earlier, assuming it was eligible to do so.

    "We wouldn't be ready," he said, since the company estimates it will take two and a half years to make the shift, which he called "a massive effort." A major issue that remains to be resolved, he said, relates to how inventories will be treated for tax purposes.

    Big U.S. accounting firms support the push to a single world-wide rule book, and say the transition will take years. D.J. Gannon, a partner with Deloitte & Touche LLP in Washington, figures most U.S. companies aren't ready yet to switch to international accounting, and probably need five to seven years to prepare. "Education and training is a big issue," Mr. Gannon said.

    Independent Source

    The International Accounting Standards Board, the London-based body that sets the international standards, is currently funded by companies and auditing firms, while its U.S. counterpart, the Financial Accounting Standards Board, is essentially funded with a tax on companies. The SEC says finding a stable and independent source of funding for the IASB, founded in 2001, is one of the conditions it has set for going ahead with the switch. The SEC and other regulators have agreed to create a monitoring body to fund and oversee IASB.

    Under that structure, the SEC, which has sole oversight over the U.S. board, would be one of seven regulators overseeing the international board. Some companies, such as Microsoft Corp., say the SEC should recognize that its role would be "different and less direct" as a result. These companies urge the SEC to be cautious in writing its own guidance and interpretations of international rules. Otherwise, they say, several national interpretations of the same global rules may develop, defeating the purpose of a single standard.

    The SEC has been discussing a shift to a single accounting standard for years. While some in the U.S. resisted eliminating GAAP quickly, believing the divergence with the international standard was too great, efforts accelerated as markets became more global and Europe unified around IFRS. Last year, the SEC permitted foreign companies to file U.S. financial statements using the international rules.

    The SEC intends in 2011 to check progress on its conditions, such as independent funding for the international standards board. If it is satisfied, it would recommend starting the shift to the international standards for all U.S.-listed companies in 2014. SEC Commissioner Elisse Walter, a Democrat, called the plan momentous, but said the U.S. should vote for the switch in 2011 "if and only if" the conditions are met.

    Bob Jensen's threads on accounting standards controversies are at

    IFRS tends to be diverging from the quality of financial reporting

    Related party disclosures are just one more example of where IFRS tends to be diverging from the quality of financial reporting that results in the relatively low cost of capital we currently enjoy in the United States. China is a highly distinct economy and any attempt to craft disclosure rules that respond to the peculiar needs of its economy and society are likely to clash with what is best for U.S. investors. (So much for the idea that one single set of accounting standards can work well the world over!) As the second-largest economy in the world, China is already demonstrating its willingness to use its economic clout to shape IFRS to his own needs, which as I have stated, would not just deprive investors of relevant and reliable information, but could further increase the risk of loss due to fraud.
    "IAS 24: Related Party Disclosures Are Too Transparent to Suit China," by Tom Selling, The Accounting Onion, September 10, 2008 ---

    Bob Jensen's threads on accounting standard setting controversies are at

    "The Rush to International Accounting," by Floyd Norris, The New York Times, September 11, 2008 ---

    Charles D. Niemeier, the former chief accountant of the S.E.C.’s enforcement division and a member of the Public Company Accounting Board since its creation, is on his way off the board, as I noted previously.

    His term ends in October. He can serve until a new member is named by the S.E.C., but you can bet that will be soon.

    Yesterday, he came out swinging at the S.E.C.’s rush to adopt international accounting standards and abandon America’s Generally Accepted Accounting Principles.

    Marie Leone reports on

    Recent efforts to move the United States toward adoption of international accounting standards is a politically motivated effort that will hurt the standing of the United States in the world’s capital markets, a prominent accounting regulator said today.

    A precipitous move away from U.S. Generally Accepted Accounting Principles will undermine the U.S. regulatory system, and thereby “put in jeopardy the thing that gives the U.S. a competitive advantage,” said Charles Niemeier, a member and former acting chair of the Public Company Accounting Oversight Board. “All research shows that the U.S. is unique in its regulation. No [country] is as effective . . . . We have the lowest cost of capital in the world. Do we really want to give that up?”

    It has been amazing to see how Christopher Cox, the chairman of the S.E.C. has tried to make the move to international standards a sure thing before a new president can name a new chairman.

    International rules are generally good, in my opinion, and the board that writes them is dedicated to high quality standards despite political pressure in Europe to not offend powerful companies and to make the board subordinate to politicians. Supporters of tough accounting standards hope that U.S. adoption of them would enable the S.E.C. to serve as a counterweight to those political pressures.

    But what we don’t know is how uniformly the rules, known as International Financial Reporting Standards, or I.F.R.S., will be applied. If they are not applied consistently, then it is fiction to think the move to international rules will make it easier to compare companies.

    From the article:

    Moreover, “we don’t even have to speculate [about comparability],” said Niemeier, “all we have to do is look at Europe.” He cited a French study of I.F.R.S. use in the European Union that concluded that each country was practicing “nostalgic accounting,” that is, individual flavors of I.F.R.S. that resembled their original country’s GAAP.

    If, or when, everyone uses I.F.R.S., there will be no one regulator to enforce the rules, a role the S.E.C. plays in U.S. GAAP. The evidence that European regulators can’t, or won’t, require comparability in Europe ought to be addressed by the S.E.C. before it completes the abandonment of U.S. GAAP.

    But don’t hold your breath for that to happen. David Albrecht, an accounting professor at Bowling Green University who is no fan of I.F.R.S. comments in his blog:

    What does this mean? Cox clearly has the power here, possessing the full weight of presidential backing. He is using the S.E.C. to pitch U.S. GAAP in the garbage can. I doubt that anything can be done at this time to derail him and his efforts. Niemeier has been ousted from his position of influence. Yesterday’s remarks will change nothing. I think this to be unfortunate. Only a tidal wave of public opinion can stop the lemming march toward the precipice of I.F.R.S. adoption. There will no such tidal wave. The technicality of accounting rules is simply too arcane for the American public to care about.

    September 11, 2008 reply from Tom Selling [tom.selling@GROVESITE.COM]

    Here is a link to the Reuters story. I don’t think it can be read to be supportive of IFRS convergence, and seems similar to the story that appeared in 

    By the way, the next regulator who might come out against IFRS is SEC commissioner Elisse B. Walter—a democrat, of course. You can read her cautionary speech here: 

    For anyone who cares, I will be writing and posting my “top ten reasons why IFRS adoption in the U.S. is a lousy idea” to The Accounting Onion ( ) in a few days… I just gotta write it first.

    Tom Selling

    September 11, 2008 message from Kathryn Hansen [kathryn.hansen@VERIZON.NET]

    IFRS on the CPA Examination
    I've included the URL for the Exposure draft for those of you who are interested in reading the specifics. 

    The specific reference to IFRS says "The proposed CSOs (content specific outline) for FAR include within Area I topics related to the conceptual framework, standard-setting processes and regulatory filing requirements for financial statements. Included within these topics will be questions related to International Financial Reporting Standards. If IFRS becomes generally accepted in the USA, it would be come eligible for expanded testing within Area I of the FAR section as well as testing in Area II and Area III within the FAR section. "

    Area I concerns conceptual framework, standards, standard setting and regulatory requirements Area II concerns financial statements accounts: recognition measurement, valuation, calculation and presentation and disclosure Area III concerns unique transactions, events and disclosures: recognition, measurement, valuation, calculation, presentation and disclosures.

    This language appears to suggest that if IFRS are accepted then this will be tested. In a quick review, there doesn't seem to be any info on dates for transition.

    I didn't see anything specifically addressing if both GAAP and IFRS would be tested.


    Bob Jensen's threads on accounting standard setting controversies are at


    The FASB had some troubles passing new standards with seven board members.
    How do you think the IASB will function efficiently with 16 members?

    From IASPlus on September 19, 2008 ---

    Deloitte has submitted a Letter of Comment (PDF 176k) on the IASCF Discussion Document Review of the IASC Foundation Constitution: Public Accountability and the Composition of the IASB: Proposals for Change. Below are excerpts from our letter. Past comment letters are Here.


    We believe that in a number of areas the need for urgent action has meant that the Trustees may not have developed fully the detailed operations of the revised structure, or at least have not articulated these clearly in the proposals. Consequently, they are potentially ambiguous.

    Monitoring group:
    We support the creation of a monitoring group as a way of creating a direct link between the IASC Foundation and very senior levels of official institutions with a legitimate interest in accounting standard-setting and transparency in financial reporting. However, the role of the monitoring group should be more clearly defined than it is in the discussion document.

    IASB size and composition:
    With respect to the proposals affecting the IASB directly,
    we are not inclined to support increasing the size of the IASB from 14 to 16 members, but are willing to support such an increase to accommodate more part-time members. We do not believe that the Trustees have presented a convincing case to increase the size of the IASB and are concerned that the current size of 14 members is at the extreme upper end of operational efficiency. Nor do we support the introduction of any geographical formulation, quotas or other such limits.


    Jensen Comment
    It may not be long until IASB member nations clamor for 192 board members. Welcome to the United Nations of Accounting Standard Setters (UNASS).

    Will they get diplomatic immunity for crimes committed (notably shoplifting and parking violations) in London?
    Will the new tall UNASS building be near the Tower of London?


    "Top Ten Reasons Why U.S. Adoption of IFRS is a Terrible Idea," by Tom Selling, The Accounting Onion, September 10, 2008 ---

    Board Member Niemeier and Enforcement Director Modesti Speak at NYSSCPA/FAE Conference ---

    "Technology Implications of IFRS adoption for U.S. Companies:  More than a technical accounting change," Deloitte White Paper, August 2008 ---

    What is similar between IFRS and "A Call for a Warning System on Artificial Joints?"

    The Accounting Onion, August 18, 2008 ---

    Bob Jensen's threads on accounting standard setting controversies are at

    Here's an Example of Devious Contract Writing on Wall Street
    Remember those abusive tax shelters of all the Big Four accounting firms, especially the shelters for which KPMG paid a $456 million fine? ---

    Another KPMG defendant pleads guilty of selling KPMG's bogus tax shelters
    One of the five remaining defendants in the government's high-profile tax-shelter case against former KPMG LLP employees is expected to plead guilty ahead of a criminal trial set to begin in October, according to a person familiar with the situation. The defendant, David Amir Makov, is expected to enter his guilty plea in federal court in Manhattan this week, this person said. It is unclear how Mr. Makov's guilty plea will affect the trial for the remaining four defendants. Mr. Makov's plea deal with federal prosecutors was reported yesterday by the New York Times. A spokeswoman for the U.S. attorney in the Southern District of New York, which is overseeing the case, declined to comment. An attorney for Mr. Makov couldn't be reached. Mr. Makov would be the second person to plead guilty in the case. He is one of two people who didn't work at KPMG, but his guilty plea should give the government's case a boost. Federal prosecutors indicted 19 individuals on tax-fraud charges in 2005 for their roles in the sale and marketing of bogus shelters . . . KPMG admitted to criminal wrongdoing but avoided indictment that could have put the tax giant out of business. Instead, the firm reached a deferred-prosecution agreement that included a $456 million penalty. Last week, the federal court in Manhattan received $150,000 from Mr. Makov as part of a bail modification agreement that allows him to travel to Israel. 
    Paul Davies, "KPMG Defendant to Plead Guilty," The Wall Street Journal, August 21, 2007; Page A11 --- Click Here

    From The Wall Street Journal Weekly Accounting Review on September 19, 2008

    Street Firms Accused of Tax Scheme
    by Jesse Drucker
    The Wall Street Journal

    Sep 11, 2008
    Online Exclusive
    Click here to view the full article on



    TOPICS: Accounting, Corporate Taxation, Hedge Funds, IRS, Tax Evasion, Taxation, Treasury Department, Withholding

    SUMMARY: Some Wall Street firms marketed allegedly abusive deals that helped foreign hedge-fund investors avoid U.S. taxes, a probe found.

    CLASSROOM APPLICATION: With all of the publicity surrounding some of the country's biggest investment banks and brokerage houses these days, our students might be interested to read that those firms developed some fairly sophisticated tax evasion schemes to benefit foreign hedge-fund investors. In this article, the schemes are explained, and a discussion of the law and evidence is included.

    1. (Advanced) How were the big investment banks and brokerage firms violating tax law? What type of taxes were they avoiding?

    2. (Advanced) Please explain the details of the example of the scheme detailed in the article. What did the emails indicate? What did the attorneys advise in regard to the plan?

    3. (Advanced) What are the specifics of the law involved? What are the estimated losses for the government? Why do you think the firms proceeded with the plans?

    4. (Advanced) What is the current news about many of these firms? How do you think the information in this particular article relates to the bigger problems the firms are now having?

    5. (Advanced) What evidence does the government have against these businesses? Is the evidence light or substantial? What about this evidence surprises you most?

    6. (Introductory) What are the responses from the firms? Do you think that the firms have a strong or weak defensive position?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    "Street Firms Accused of Tax Scheme," by Jesse Drucker, The Wall Street Journal, September 11, 2008 ---

    Some of the country's biggest investment banks and brokerage firms -- including Morgan Stanley, Lehman Brothers Holdings Inc., Citigroup Inc. and Merrill Lynch & Co. -- marketed allegedly abusive transactions that helped foreign hedge-fund investors avoid billions of dollars in U.S. taxes over the past decade, according to a report by Senate investigators.

    The yearlong probe, which relied in part on internal bank documents and emails, concludes that Wall Street firms actively competed with one another in dreaming up complex transactions that allowed hedge funds to avoid withholding taxes imposed on dividends paid by U.S. companies.

    Some of the internal emails show that bank officials and hedge-fund managers were concerned the deals might run afoul of the Internal Revenue Service. (See the text of the report.)

    The report is scheduled to be released Thursday at a hearing in Washington by the Senate Permanent Subcommittee on Investigations, which is examining what it says is $100 billion a year lost to offshore tax abuses.

    The report is critical not only of banks and hedge funds, but also of the IRS and the Treasury Department for what the committee calls a failure to enforce the tax law governing this area.

    Foreign investors, such as offshore hedge funds, are liable for a tax on the dividends they receive from U.S. investments, generally at a rate of 30%.

    However, Senate investigators found that the investment banks commonly entered into arrangements to give the hedge funds the economic value of dividends, without actually triggering a withholding tax on dividend payments.

    In one common transaction, an offshore hedge fund would sell its stock to a U.S. investment bank just before a dividend was to be paid, and simultaneously enter into a swap arrangement with that bank to retain the economics of stock ownership.

    The investment bank would pay the hedge fund a "dividend equivalent," but didn't withhold any taxes because the hedge fund technically didn't own the shares. A few days later, the hedge fund would repurchase the stock from the investment bank.

    A series of emails reviewed by Senate investigators suggest that some banks and their clients had concerns about how the IRS would view the transactions. In one email, a Lehman official said: "Personally, I would not prepare anything and leave a trail." A Lehman spokesman declined to comment.

    One potential hedge-fund client of Merrill told the firm that the outside law firm it had consulted expressed concerns, particularly when the deals were used repeatedly. According to the attorney, "repeated use, coincidentally around dividend payment time, would provide a strong case for the IRS to assert tax evasion. So yes, looking at it in a vacuum, it works, it is the repeated 'overuse', e.g. pigs trying to be hogs, that proves problematic."

    The report says a $32 billion special dividend by Microsoft Corp. in 2004 spurred many of the big banks to sell products that would allow their hedge-fund clients to avoid paying the associated taxes.

    Merrill stopped doing some of the deals after the committee began its investigation, according to an internal bank email cited in the report.

    "We believe we acted in good faith when we advised our clients, and believe we acted appropriately under existing tax law," said a Merrill spokesman.

    Citigroup voluntarily approached the IRS and paid $24 million in withholding taxes after an internal audit, investigators found. The report questions why the bank didn't pay taxes on other deals as well. A Citigroup spokesman said its "tax treatment of the transactions at issue is proper under applicable tax law."

    Data from Morgan Stanley indicate that over one seven-year period, the transactions helped clients avoid taxes of more than $300 million, according to the report. A Morgan Stanley spokeswoman said: "We believe that Morgan Stanley's trading at issue fully complied and continues to comply with all relevant tax laws and regulations."

    Investigators cited an internal analysis prepared by hedge fund Maverick Capital Management estimating that such deals helped it avoid $95 million in taxes over an eight-year period. A Maverick spokeswoman didn't respond to requests for comment.

    The Senate committee has conducted several investigations into abusive tax deals. The "IRS has been looking at this for years," said Sen. Carl Levin (D., Mich.), the committee's chairman. "The time for looking is over."

    An IRS spokesman said the agency has "a number of open investigations under way involving the kinds of issues that were identified in the report."

    Bob Jensen's fraud updates are at

    Bob Jensen's Rotten to the Core threads are at

    "(Tax) Abusive Insurance and Retirement Plans : Single–employer section 419 welfare benefit plans are the latest incarnation in insurance deductions the IRS deems abusive," by Lance Wallach, Journal of Accountancy, October 2006 ---



    Some of the listed transactions CPA tax practitioners are most likely to encounter are employee benefit insurance plans that the IRS has deemed abusive. Many of these plans have been sold by promoters in conjunction with life insurance companies.

    As long ago as 1984, with the addition of IRC §§ 419 and 419A, Congress and the IRS took aim at unduly accelerated deductions and other perceived abuses. More recently, with guidance and a ruling issued in fall 2007, the Service declared as abusive certain trust arrangements involving cash-value life insurance and providing post-retirement medical and life insurance benefits.

    The new "more likely than not" penalty standard for tax preparers under IRC § 6694 raises the stakes for CPAs whose clients may have maintained or participated in such a plan. Failure to disclose a listed transaction carries particularly severe potential penalties.

    Lance Wallach, CLU, ChFC, CIMC, is the author of the AICPA’s The Team Approach to Tax, Financial and Estate Planning. He can be reached at or on the Web at, or 516-938-5007. The information in this article is not intended as accounting, legal, financial or any other type of advice for any specific individual or other entity. You should consult an appropriate professional for such advice.


    Bob Jensen's taxation helpers are at

    Early History of Mathematics and Accounting in China
    The best general source for ancient Chinese mathematics is Joseph Needham's Science and Civilisation in China, vol. 3. In this volume you will learn, for example, that the Chinese proved the Pythagorean Theorem at the very latest by the Later Han dynasty (25-221 CE). The proof comes from an ancient text called The Arithmetical Classic of the Gnomon and the Circular Paths of Heaven. The book has been translated by Christopher Cullen in his Astronomy and Mathematics in Ancient China: The Zhou Bi Suan Jing. Needham also discusses the abacus, or suanpan ("calculating plate").
    Steve Field, Professor of Chinese, Trinity University, September 24, 2008
    Jensen Comment
    Later Han Dynasty ---
    Pythagorean Theorem Theorem ---
    Pythagorean Theorem (Gougu Theorem in China) History ---
    Suanpan ---
    This makes me respect Wikipedia even more!


    Skills and knowledge should be required as part of the pre-certification education of CPAs
    Prompted by New York’s forthcoming adoption of the 150-hour requirement to sit for the CPA exam, the NYSSCPA’s Quality Enhancement Policy Committee drafted a white paper to encourage discussion on what skills and knowledge should be required as part of the pre-certification education of CPAs. This white paper, which was approved by the Society’s Board of Directors, is presented here, along with additional commentary from the NYSSCPA’s Higher Education Committee.
    Quality Enhancement Policy Committee Sharon Sabba Fierstein, Chair, August 2008 ---

    Mary-Jo Kranacher, Editorial, CPA Journal, August 2008 ---

    Specific requirements for becoming a CPA, and the rights and obligations of a licensed CPA, are set forth in the laws and regulations of 54 United States jurisdictions ---

    NASBA Tools ---
    NASBA Resources (Includes documents and audio files on knowledge requirements) ---

    Free and Fee CPA Review Courses ---

    Bob Jensen's threads on accountancy careers ---

    "Pre-Med Education Must Be Compatible with Liberal Arts Ideals," by Timothy R. Austin, Inside Higher Ed, July 31, 2008 ---

    Also see

    FBI Corporate Fraud Chart in August 2008 ---

    From Smart Stops of the Web, Journal of accountancy, October 2008 ---


    Search no further than the AICPA’s offering of antifraud and forensic accounting resources. Click “Tools and Aids” to download Managing the Business Risk of Fraud: A Practical Guide, which outlines principles for establishing effective fraud risk management. The paper was released jointly by the AICPA, the Association of Certified Fraud Examiners and The Institute of Internal Auditors (see “Highlights,” page 16). The site also offers fraud detection and prevention tips, including an “Indicia of Fraud” checklist and case studies. There’s also information on the newly created Certified in Financial Forensics (CFF) credential (see “News Digest,” Aug. 08, page 30) and upcoming Web seminars.

    Think of the most outrageous business fraud scheme you’ve ever heard of— you’re likely to find it, plus hundreds of other white-collar crime cases—at this site from the FBI. Look under “Don’t Be Cheated” for a fraud awareness test or click on “Know Your Frauds” for access to the FBI’s analysis of common fraud schemes, including the prime bank note scheme, telemarketing fraud and up-and-coming Internet scams. CPAs and financial professionals can access details on options backdating, securities scams and investment fraud under “Interesting Cases” or learn about the FBI’s major programs involving corporate, hedge fund and bankruptcy fraud.

    Jim Kaplan, a government auditor and author of The Auditor’s Guide to Internet Resources, 2nd Edition, hosts this Internet portal for auditors, which provides fraud policies, procedures, codes of ethics and articles on a range of topics, including internal auditing, fraud risk mitigation and preventing embezzlement. The site also features a newsfeed, piping in daily fraud news from around the world..

    Bob Jensen's threads on fraud are at

    "Fair Value Adoption --- An Update," Deloitte White Paper, August 2008 ---

    A Bull Crap Teaching Case from an article by the former head of the FDIC ---

    The Controversy Over Fair Value (Mark-to-Market) Financial Reporting ---

    Absurd claims are being made that the 2008 U.S. economic meltdown might have been avoided without fair value accounting
    But then maybe it's not so clear cut for fair value accounting in the real world:  Fair Value Theory vs. Fair Value Fraud

    In the current environment, I am an ardent supporter of those who would resist calls to suspend fair value accounting rules. But, when I was at the SEC, I had a front-row seat on what was perhaps one of the most brazen abuses of fair value accounting in history. I was reminded of it by Joseph Stiglitz's recent commentary on, in which he characterized the mortgage securitization craze as just another pyramid scheme. Keep that in mind as I tell you the story of Stephen Hoffenberg's $400 million fraud.
    Tom Selling, "The Anti-Fair Value Lobby Has a Point (Even if They Don't Know It)" The Accounting Onion, September 22, 2008 ---

    But, how could fair value accounting be the device by which one scheme was kept alive, yet could have prevented another? Like the Hoffenberg case, there is no question that the two main ingredients of the current fraud were lack of transparency into what was going on, and accounting tricks to give the illusion that all was well. The difference is that in the case of our present extreme unction, it was the ability to hide actual losses (as opposed to create fictitious gains) by not using fair value accounting for junk assets. The answer for the apparent paradox lies in a significant flaw in 'fair value' accounting.


    And another big difference between Towers and the current crisis is that Hoffenberg got 20 years. Today's CEOs are smart enough to take their money and run.

    Peter, Paul, and Barney: An Essay on 2008 U.S. Government Bailouts of Private Companies ---

    September 23, 2008 message from Patricia Walters [patricia@DISCLOSUREANALYTICS.COM]

    Those who oppose fair values are unlikely to give up any time soon.

    At team at Goldman Sachs had a newsletter on this issue which says in part:

    "Opponents of fair value accounting argue that as asset prices decline, particularly for illiquid securities, the strict imposition of mark to market accounting accentuates the balance sheet problems of financial institutions. By reporting book losses associated with illiquid securities, banks are forced to reduce leverage to maintain their appropriate, and usually BIS-mandated, capital ratios.

    This in turn, say opponents of fair value accounting, accelerates the vicious circle.There are two major problems with this view:

    First, it is not very credible for financial institutions to argue that marking to market is inappropriate only during downturns. Why were these views not aired during the bull market in asset prices from 2004 to 2007?

    Second, if (as implied and argued) the underlying assets are worth more than institutions are being ‘forced’ to value them at, presumably there will be an increase in the number of value-driven buyers of these undervalued assets. Moreover, financial institutions will see mark to market gains when and if the assets appreciate."

    If anyone wants a copy of the entire document, email me off list.

    KPMG has also just come out with a briefing sheet on a proposal from the IASB: This IFRS Briefing Sheet summarises the Draft Document Measuring and disclosing the fair value of financial instruments in markets that are no longer active, which was posted on the International Accounting Standards Board’s Website on 6 September 2008. The Draft Document represents a summary of discussions of the IASB’s Expert Advisory Panel.

    Here's the link: 



    Earnings Management Via Hidden Reserves in Banks
    The upgrading of valuation methods, in particular with respect to the valuation of illiquid assets. Work is being led by the Basle Committee and the International Accounting Standards Board (IASB), who have established a panel on fair valuation. Advice is expected by the end of the third quarter of 2008. The IASB is also working on off-balance sheet items with the key question being: when should an entity be brought onto another entity's balance sheet? The input received in these meetings will help the IASB in shaping its forthcoming proposals on reviewing consolidation rules under IFRS. Deliverables are expected in 2009. Proper due process must be carried out. I believe we need to look hard at issues such as dynamic provisioning – and how to account for prudential reserves built up by banks to buffer for bad times. It should not have escaped people's attention that banks in Spain were better placed to withstand the turmoil because they had not yet adopted the relevant IFRS Standard. There is a lesson there that needs to be drawn .... On accounting, SEC Chairman Cox has unveiled a roadmap where US companies would switch from US GAAP to IFRS by 2014. Unthinkable only two years ago! A dramatic signal indeed. Following the EU's lead, the US is indicating it also wants to choose global standards. One set, in sight, at last. And of course we need to strengthen the governance of the IASB. That is why we are working hard with some of our major counterparts to install new, strengthened oversight mechanisms.
    Charlie McCreevy, European Commissioner for Internal Market, Speech, September 10, 2008 ---

    New IRS analysis shows only half of Schedule C income is reported

    New data based on analysis of the Internal Revenue Service's (IRS) National Research Program Individual Reporting Compliance Study of 2001, on which the agency's estimate of the "Tax Gap" is based, show that only one-half of Schedule C income and only 88 percent of capital gains are reported, David Cay Johnston, writing for Tax Notes says. Johnston obtained the data ahead of IRS publication. The new data compares "Reported" adjusted gross income (AGI), with "True" AGI levels. The researchers arrived at "true" AGI, according to Johnston, by auditing "specific items (as opposed to the old TCMP or audit from hell audits which made you prove every line. They then applied these findings on differences between reported and true income using standard statistical methodologies."
    "New IRS analysis shows only half of Schedule C income is reported," AccountingWeb, August 2008 ---

    "Accounting for the auditors: As huge corporations tumble, what of the auditing firms paid millions to provide them with clean,"
    by Prem Sikka, The Guardian, September 18, 2008

    In the current financial turmoil, companies are falling like ninepins. Lehman Brothers is in administration. Northern Rock, Fannie Mae and Freddie Mac have been bailed out and the list of vulnerable banks is growing. Bear Stearns and Merrill Lynch have been sold at knockdown prices and HBOS has merged with Lloyds TSB. Governments are pouring vast amounts of money to bail out financial institutions. Amidst the mayhem, we need to ask questions about the role of auditors, who have been paid millions of pounds to give opinions on company financial statements. Yet companies are sinking within weeks of getting a clean bill of health.

    Ever since the 1998 collapse of Long Term Capital Management (LTCM) and its rescue by the US Federal Reserve, it has been acknowledged that derivatives are very difficult to value. In this case Nobel prize winners in economics could not work out the value of such financial instruments. Derivatives are central to the demise of Lehman. Its annual accounts mention derivatives contracts with a face value of $738bn and fair value of $36.8bn.

    Lehman Brothers, incorporated in the tax haven of Delaware, was audited by the New York office of Ernst & Young. On January 28 2008, the firm gave a clean bill of health to Lehman accounts for the year to November 30 2007. The auditor's report (page 75 of the accounts) says, "Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances". Lehman Brothers filed quarterly accounts with the SEC for the period of May 31 2008 and on July 10 2008 and these (see page 52) too received a clean bill of health. Despite the deepening financial crisis, auditors did not express any reservations about the value of the derivatives or any scenarios under which company may be unable to honour its obligations. Just two months later, Lehman collapsed.

    During 2007, Ernst & Young collected fees (see page 43) of $31,307,000 from Lehman Brothers, compared to $29,451,000 for 2006. The fees for 2005 and 2004 were $25,324,000 and $24,748,000 respectively. Over the last four years, Ernst & Young collected over $110m in fees, of which nearly $14m is for advice on tax and other consultancy services.

    The scale of fees raises questions about auditor independence. By providing other services auditors begin to perform quasi management functions and cannot objectively evaluate the outcome of the transactions they themselves have helped to create. The fee of $110m for the New York office of Ernst & Young is likely to be significant in influencing the financial rewards of local partners and managers. The fee dependency exerts pressure on auditors to acquiesce with management. Such concerns were raised during the demise of WorldCom, Maxwell, Enron and more recently in the insolvency examiner's report on the collapse of New Century.

    Audit opinions are akin to financial mirages. In recent weeks, within a short period of receiving clean bills of health Bear Stearns, Carlyle Capital Corporation and Thornburg Mortgage hit the financial buffers, closely followed by Lehman Brothers.

    Time and time again it has been shown that the basic audit model is faulty. Private sector auditors cannot be independent of the companies that they audit. This fundamental faultline has not been addressed by the post Enron reforms. In addition, the ex-post financial audits are too late and cannot alert financial regulators of problems. The financial regulators have a wider remit and are also concerned with the financial health of the whole system. These shortcomings were recognised after the 1929 stock market crash. The draft legislation that created the SEC in the 1930s contained a provision making the SEC the auditor for public companies, but under pressure from corporate interests, legislation was diluted.

    It is time to go back to the future and ensure that audits of major companies, at least banks and financial institutions, are carried out directly by the regulators. These audits should be on a real-time basis. Audits by regulators have the advantage of independence and can address regulatory issues. Accounting firms and companies used to softer audits will no doubt fight tooth-and-nail to retain their privileges, but we can't continue to indulge accounting firms and pay billions to rescue banks.

    Bob Jensen's threads on auditor independence and professionalism are at

    "Pressure gauge," The Economist, August 21, 2008 ---

    IN THE weeks before Bear Stearns, a Wall Street bank, collapsed in March, nervous investors scanned not just its share price for a measure of its health, but the price of its credit-default swaps (CDSs), too. These once-obscure instruments, now widely enough followed that they have even earned a mention on an American TV crime series, clearly indicated that the firm’s days were numbered. The five-year CDS spread had more than doubled to 740 basis points (bps), meaning it cost $740,000 to insure $10m of its debt. The higher the spread, the greater the expectation of default.

    Once again, CDS spreads on Wall Street banks are pushing higher, having fallen in March after the Federal Reserve extended emergency lending facilities to them. Reportedly one firm, Morgan Stanley, is monitoring its own CDS spreads to assess the market’s perception of its corporate health; if they rise too high, it intends to cut back its lending. Whether the CDS market is accurately assessing the creditworthiness of Lehman Brothers, trading on August 20th at 376 bps, double the level in early May, will be the next test of its worth.

    There are some who doubt whether the CDS market is a reliable barometer of financial health. Though its gross value has ballooned in size from $4 trillion in 2003 to over $62 trillion, many of the contracts written on individual companies are thinly traded, lack transparency, and are prone to wild swings.

    Recent spikes in CDS spreads on the three largest Icelandic banks are a case in point. In July spreads on Kaupthing and Glitnir rose to levels 35% higher than those observed for Bear Stearns in the days before it was bought out, according to Fitch Solutions, part of the Fitch rating and risk group. But the panic subsided after they released second-quarter earnings. Insiders say CDSs are increasingly used for speculation as well as hedging, which creates distracting “noise” particularly when the markets are as fearful as they have been recently.

    On the other hand, although CDS spreads may overshoot, they do not generally stay wrong for long. Moody’s, another rating agency, says that market-implied ratings, such as those provided by CDS spreads, tally loosely with credit ratings 80% of the time. What is more, CDS spreads frequently anticipate ratings changes. Fitch Solutions reckons that the CDS market has anticipated over half of all observed ratings activities on CDS-traded entities as much as three months in advance. Though the magnitude of the moves may at times be unrealistic, the direction is usually at least as good a distress signal as the stock market.

    Damocles sword waiting to fall
    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 ---


    "Credit Derivatives Get Spotlight," by Henny Sender, The Wall Street Journal, July 28, 2005; Page C3 ---,,SB112249648941697806,00.html?mod=todays_us_money_and_investing

    A group of finance veterans released its report on financial-markets risk yesterday, highlighting the mixed blessing of credit derivatives, financial instruments that barely existed the last time the markets seized up almost seven years ago.

    "The design of these products allows risk to be divided and dispersed among counterparties in new ways, often with embedded leverage," the report of the Counterparty Risk Management Policy Group II states, adding that "transparency as to where and in what form risks are being distributed may be lost as risks are fragmented and dispersed more widely."

    Credit-default swaps are at the heart of the credit-derivatives market. They allow players to buy insurance that compensates them in the case of debt defaults. The market enables parties to hedge against company or even country debt, but the market's opacity makes it difficult for regulators and market participants to sort out who is involved in various trades.

    The report also notes that credit derivatives can potentially complicate restructurings of the debt of ailing companies and countries. "To the extent primary creditors use the credit-default swap market to dispose of their credit exposure, restructuring in the future may be much more difficult," the report says.

    Already, there have been cases where some banks have been accused of triggering defaults after they had already hedged their risk through the credit-derivatives markets. In other cases, when the cost of credit-default protection on a company has risen, market participants have taken that as a harbinger of more troubles to come, making it harder for a company to get financing, and thereby forcing it into a sale or a restructuring.

    Continued in article

    Bob Jensen's threads on Credit Derivative and Credit Risk Swap ---
    Scroll down to "Credit Derivative and Credit Risk Swap."

    Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161
    FASB, September 12, 2008 ---

    Debt Versus Equity: Dense Fog on the Mezzanine Level
    Deloitte has submitted a Letter of Comment (PDF 277k) on the IASB's Discussion Paper: Financial Instruments with Characteristics of Equity. We strongly support development of a standard addressing how to distinguish between liabilities and equity. We do not support any of the three approaches outlined in the Discussion Paper, but we believe that the basic ownership approach is a suitable starting point. Below is an excerpt from our letter. Past comment letters are Here.
    IASPlus, September 5, 2008 ---

    What is debt? What is equity? What is a Trup?
    Banks are going to create huge problems for accountants with newer hybrid instruments

    From Jim Mahar's Blog on February 6, 2005 ---

    The Financial Times has a very cool article on financial engineering and the development of securities that combine debt and equity-like features. / Home UK - Banks hope to cash in on rush into hybrid securities: "Securities that straddle the debt and equity worlds are not new. They combine features of debt such as regular interest-like payments and equity-like characteristics such as long or perpetual maturities and the ability to defer payments."

    "About a decade ago, regulated financial institutions started issuing so-called trust preferred securities, or Trups, which are functionally similar to preferred stock but can be structured to achieve extra benefits such as tax deductibility for the issuing company. Other hybrid structures have also been tried.

    But bankers were still searching for what several called the “holy grail” – an instrument that looked like debt to its issuer, the tax man and investors, but like equity to credit rating agencies and regulators.

    That goal came closer a year ago when Moody’s, the credit rating agency, changed its previously conservative policies, opening the door for it to treat structures with some debt-like features more like equity."

    The link to the Financial Times article ---


    Where were the auditors when reviewing bad debt allowances?

    The were hiding behind the same reasons to be used again and again when fair value accounting is required by the IASB and the FASB.

    From The Wall Street Journal Accounting Weekly Review on September 12, 2008 ---

    No End Yet to the Capital Punishment
    by Peter Eavis
    The Wall Street Journal

    Sep 08, 2008
    Page: C10
    Click here to view the full article on ---

    TOPICS: Accounting, Allowance For Doubtful Accounts, Bad Debts, Banking, Financial Analysis, Financial Statement Analysis, Loan Loss Allowance, Reserves

    SUMMARY: "The chief problem at Fannie and Freddie -- an inadequate capital cushion against losses -- also bedevils large banks in the U.S. and Europe more than 12 months into the credit crunch. The broader strains now facing the markets are not as easily relieved by central banks or governments as the company specific crises at Fannie and Freddie or Bear Stearns earlier this year. Of course, central banks could cut interest rates in the face of this threat. The trouble is banks are being extra cautious, justifiably, about lending as the economy slows. And while banks are reluctant to lend, many are having problems borrowing to fund themselves. That is because the market's assessment of their creditworthiness is darkening."

    CLASSROOM APPLICATION: Couching the continued problems in credit markets in terms of adequacy of loan loss reserves can help students in accounting classes better understand the credit market issues--and put a real world example to the academic learning about the importance of the accrual for bad debts. The article therefore is useful in any financial or MBA accounting course covering bad debts and the impact of the accounting for loan losses on capital accounts. Questions also discuss a related article on the topic of Fannie Mae, Freddie Mac, and banks' preferred stock.

    1. (Introductory) Describe the recent events undertaken by the U.S. government in relation to the Federal National Mortgage Association (nickname Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac). You may use the related articles to do so. In your answer, describe the roles of these entities in facilitating mortgage lending and home ownership across the U.S.

    2. (Introductory) The article states "the chief problem at Fannie and Freddie is an inadequate capital cushion against losses." Whether they are business accounts receivable for a company or mortgage loan receivables on a bank or mortgage entity's balance sheet, how do we establish an allowance for losses on receivables? How does this procedure help to properly present a receivable balance on the balance sheet and an uncollectable accounts expense on the income statement?

    3. (Introductory) What is the impact of recording an allowance for doubtful accounts on an entity's capital or stockholders' equity?

    4. (Advanced) What is the purpose of requirements for banks, Fannie Mae and Freddie Mac to maintain a "cushion" of capital? How is that "cushion" eroded when loan losses prove greater than previously anticipated?

    5. (Advanced) How is it possible that Fannie Mae and Freddie Mac have inadequate allowances for doubtful mortgage loans?

    6. (Advanced) Why is it likely that inadequate allowances for losses on loan and accounts receivable are established in times of significant change in the product market generating the receivables? Did such a change occur in mortgage loan markets?

    7. (Introductory) One of the related articles discusses the implications of the government takeover and its suspension of dividends on the value of Fannie Mae and Freddie Mac preferred stock. How does preferred stock differ from common stock? How are these types of ownership interests similar in cases of failure of the entity issuing them?

    8. (Advanced) Why do debtholders fare better than common and preferred shareholders in this case of government takeover or any case of corporate failure?

    9. (Advanced) Why might investors "view preferred stock as debt by another name"?

    Reviewed By: Judy Beckman, University of Rhode Island

    No Longer Preferred: A Lesson From Paulson
    by David Reilly and Peter Eavis
    Sep 08, 2008
    Page: C10

    Mounting Woes Left Officials with Little Room to Maneuver
    by Deborah Solomon, Sudeep Reddy and Susanne Craig
    Sep 08, 2008
    Page: A1

    U.S. Seizes Mortgage Giants
    by James R. Hagerty, Ruth Simon and Damina Palette
    Sep 08, 2008
    Page: A1

    "No End Yet to the Capital Punishment," by Peter Eavis and David Reilly, The Wall Street Journal, September 8, 2008; Page C10    

    Investors may be tempted to see the government's takeover of Fannie Mae and Freddie Mac as the kind of cathartic action that marks a decisive turning point for the U.S. banking system and the wider stock market.

    But the chief problem at Fannie and Freddie -- an inadequate capital cushion against losses -- also bedevils large banks in the U.S and Europe more than 12 months into the credit crunch.

    While the capital shortage may not be as dire as at Fannie and Freddie, private banks can't count on a government rescue. Some will fail. Others will have to issue massive amounts of capital to shore up their shaky balance sheets.

    Make no mistake, the government's move to shore up Fannie and Freddie will likely give markets a short-term boost, especially if investors believe this can help underpin house prices in the U.S. But this move by the Treasury comes just as a new, more general threat looms: On top of U.S. economic problems, underlined by Friday's jump in the unemployment rate, the rest of the world is slowing.

    The broader strains now facing the markets are not as easily relieved by central banks or governments as the company specific crises at Fannie and Freddie or Bear Stearns earlier this year.

    Of course, central banks could cut interest rates in the face of this threat. Even the Federal Reserve has some room to cut the Fed Funds rate from 2%. That may be one reason bank stocks rallied Friday in the U.S. despite the dismal unemployment figure.

    Rate cuts would theoretically allow banks to harvest easy profits by borrowing more cheaply and lending to high-quality borrowers at attractive rates. The trouble is, banks are being extra cautious, justifiably, about lending as the economy slows.

    The shakeout of the past year has done almost nothing to improve the average U.S. household balance sheet. So while a government commitment to buy mortgage-backed securities, also announced Sunday, may cause mortgage rates to fall, banks may not want to lend at lower rates because they don't feel they're being compensated for the risks in this uncertain economy.

    And while banks are reluctant to lend, many are having problems borrowing to fund themselves. That is because the market's assessment of their creditworthiness is darkening.

    A closely followed yardstick that measures the gap between interbank lending rates and the expected federal-funds rate has widened beyond July's distressed levels. When this gap widens, banks are perceived to be riskier.

    Also, the cost of insuring against default by large banks is rising.

    The takeover of Fannie and Freddie could even worsen that sentiment, as investors grow even more cynical of regulatory measures of capital.

    For months, Fannie, Freddie, their regulator and other government officials have assured investors that measures of regulatory capital showed the mortgage firms weren't financially hobbled.

    The government's takeover shows this wasn't the case. Given that, investors are going to want concrete actions from banks, not continued pronouncements that losses on mortgage-related securities are only temporary and will one day bounce back.

    That will translate into highly dilutive issues of common stock, which will be necessary if banks are to raise capital to the levels required to reassure anxious funding sources.

    And that is why bank investors who place too much hope in the bailout of Fannie and Freddie could get burned.

    Bob Jensen's threads on independence and professionalism in auditing are at


    Say What?
    Editorial in the ... no ... can't be ... well maybe ... yes ... YES!
    ... The New York Times, September 8, 2008 ---

    The Bailout’s Big Lessons

    As an act of crisis management, the government takeover of Fannie Mae and Freddie Mac, the mortgage-finance giants, was a reasonable and reassuring move. It ensures the flow of mortgage credit and is likely to reduce mortgage rates, which are important steps toward the eventual recovery of the ailing United States housing market.

    And it does so while putting taxpayers first for future dividends or money that may be earned when the firms are reprivatized, holding out hope that the bailout costs may someday be recouped. Beyond the immediate crisis, however, the takeover raises disturbing issues that may get lost in the tumult of the moment.

    ¶ The need for an explicit bailout underlines the economic vulnerabilities of the United States. In July, Congress gave Treasury Secretary Henry Paulson unlimited authority to pay the debts of Fannie and Freddie and to shore up their capital, if need be. Yet investors the world over continued to doubt the companies’ viability, shunning their securities or demanding unusually high interest rates on loans. In effect, investors deemed the government’s commitment to Fannie and Freddie as either insufficient or not credible — an extraordinary vote of no confidence that, in the end, led to the bailout.

    ¶ There is no single reason for the lack of confidence. But investors have good cause to be concerned about the deep indebtedness of the United States, about the nation’s apparent political unwillingness to restore its fiscal health and about the ability of the government to responsibly make good on its commitments. A pledge of the full faith and credit of the United States still means something. That’s why the markets responded favorably to the takeover. But investors’ refusal to accept a promise to act is another sign of the need to reverse the fiscal mismanagement of the Bush years.

    ¶ The United States must acknowledge that its deep indebtedness is especially dangerous in times of economic crisis. The level and stability of American interest rates and of the dollar are now dependent on the willingness of foreign central banks and other overseas investors to continue lending to the United States. The bailout became inevitable when central banks in Asia and Russia began to curtail their purchases of the companies’ debt, pushing up mortgage rates and deepening the economic downturn.

    ¶ The bailout is new evidence of the need for better regulation of the American financial system. As the housing bubble inflated, the Bush administration often claimed that America’s unfettered markets were the envy of the world. But, in fact, they have sowed mistrust.

    ¶ The cost of the bailout needs to be carefully monitored. Fannie and Freddie own or back nearly $800 billion of generally junky mortgages, and some of those will inevitably go bad. So it is reasonable to assume that the cost could easily near $100 billion. There may be ways to make back some of that money later, but for a long time, the bailout will divert resources from other needs.

    Senators John McCain and Barack Obama have both voiced support for the bailout, which shows good judgment. But what the next president will need to worry about, and both candidates need to talk about, is the depth of the country’s economic problems. It will take discipline and sacrifice to address them.

    Peter, Paul, and Barney: An Essay on 2008 U.S. Government Bailouts of Private Companies ---

    "How Good Are Commercial Corporate Governance Ratings?" by Bill Snyder, Stanford Graduate School of Business News,  June 2008 ---

    A study by Stanford law and business faculty members casts strong doubt upon the value and validity of the ratings of governance advisory firms that compile indexes to evaluate the effectiveness of a publicly held company’s governance practices.

    Enron, Worldcom, Global Crossing, Sunbeam. The list of major corporations that appeared rock solid—only to founder amid scandal and revelations of accounting manipulation—has grown, and with it so has shareholder concern. In response, a niche industry of corporate watchdog firms has arisen—and prospered.

    Governance advisory firms compile indexes that evaluate the effectiveness of a publicly held company’s governance practices. And they claim to be able to predict future performance by performing a detailed analysis encompassing many variables culled from public sources.

    Institutional Shareholder Services, or ISS, the best known of the advisory companies, was sold for a reported $45 million in 2001. Five years later, ISS was sold again; this time for $553 million to the RiskMetrics Group. The enormous appreciation in value underscores the importance placed by the investing public on ratings and advisories issued by ISS and its major competitors, including Audit Integrity, Governance Metrics International (GMI), and The Corporate Library (TCL).

    But a study by faculty at the Rock Center for Corporate Governance at Stanford questions the value of the ratings of all four firms. “Everyone would agree that corporate governance is a good thing. But can you measure it without even talking to the companies being rated?” asked David Larcker, codirector of the Rock Center and the Business School’s James Irvin Miller Professor of Accounting and one of the authors. “There’s an industry out there that claims you can. But for the most part, we found only a tenuous link between the ratings and future performance of the companies.”

    The study was extensive, examining more than 15,000 ratings of 6,827 separate firms from late 2005 to early 2007. (Many of the corporations are rated by more than one of the governance companies.) It looked for correlations among the ratings and five basic performance metrics: restatements of financial results, shareholder lawsuits, return on assets, a measure of stock valuation known as the Q Ratio, and Alpha—a measure of an investment’s stock price performance on a risk-adjusted basis.

    In the case of ISS, the results were particularly shocking. There was no significant correlation between its Corporate Governance Quotient (or CGQ) ratings and any of the five metrics. Audit Integrity fared better, showing “a significant, but generally substantively weak” correlation between its ratings and four of the five metrics (the Q ratio was the exception.) The other two governance firms fell in between, with GMI and TCL each showing correlation with two metrics. But in all three cases, the correlations were very small “and did not appear to be useful,” said Larcker.

    There have been many academic attempts to develop a rating that would reflect the overall quality of a firm’s governance, as well as numerous studies examining the relation between various corporate governance choices and corporate performance. But the Stanford study appears to be the first objective analysis of the predictive value of the work of the corporate governance firms.

    The Rock Center for Corporate Governance is a joint effort of the schools of business and law. The research was conducted jointly by Robert Daines, the Pritzker Professor of Law and Business, who holds a courtesy appointment at the Business School; Ian Gow, a doctoral student at the Business School; and Larcker. It is the first in a series of multidisciplinary studies to be conducted by the Rock Center and the Corporate Governance Research Program.

    The current study also examined the proxy recommendations to shareholders issued by ISS, the most influential of the four firms. The recommendations delivered by ISS are intended to guide shareholders as they vote on corporate policy, equity compensation plans, and the makeup of their company’s board of directors. The researchers initially assumed that the ISS proxy recommendations to shareholders also reflect their ratings of the corporations.

    But the study found there was essentially no relation between its governance ratings and its recommendations. “This is a rather odd result given that [ISS’s ratings index] is claimed to be a measure of governance quality, but ISS does not seem to use their own measure when developing voting recommendations for shareholders,” the study says. Even so, the shareholder recommendations are influential; able to swing 20 to 30 percent of the vote on a contested matter, says Larcker.

    There’s another inconsistency in the work of the four rating firms. They each look at the same pool of publicly available data from the Securities and Exchange Commission and other sources, but use different criteria and methodology to compile their ratings.

    ISS says it formulates its ratings index by conducting “4,000-plus statistical tests to examine the links between governance variables and 16 measures of risk and performance.” GMI collects data on several hundred governance mechanisms ranging from compensation to takeover defenses and board membership. Audit Integrity’s AGR rating is based on 200 accounting and governance metrics and 3,500 variables while The Corporate Library does not rely on a quantitative analysis, instead reviewing a number of specific areas, such as takeover defenses and board-level accounting issues.

    Despite the differences in methodology, one would expect that the bottom line of all four ratings—a call on whether a given corporation is following good governance practices—should be similar. That’s not the case. The study found that there’s surprisingly little correlation among the indexes the rating firms compile. “These results suggest that either the ratings are measuring very different corporate governance constructs and/or there is a high degree of measurement error (i.e., the scores are not reliable) in the rating processes across firms,” the researchers wrote.

    The study is likely to be controversial. Ratings and proxy recommendations pertaining to major companies and controversial issues such as mergers are watched closely by the financial press and generally are seen as quite credible. Indeed, board members of rated firms spend significant amounts of time discussing the ratings and attempt to bring governance practices in line with the standards of the watchdogs, says Larcker.

    But given the results of the Stanford study, the time and money spent by public companies on improving governance ratings does not appear to result in significant value for shareholders.

    "Deloitte Launches Corporate Governance Web Site," SmartPros, June 12, 2007 --- 

    Deloitte & Touche USA LLP has launched a corporate governance Web site.

    Accessible at , the Center for Corporate Governance Web site is a publicly available resource that offers regularly updated governance information for boards of directors, C-suite executives, investors, attorneys and others interested in governance.

    The site has four main content sections: audit committees, board governance, compensation committee, and Deloitte periodicals.

    "The Web site provides a 'one-stop shop' for boards and committee members to find governance thought-ware which includes perspectives from various experts on the latest governance topics and best practices as well as tools and resources to assist them in fulfilling their responsibilities as board members," said Steve Wagner, managing partner for the Center for Corporate Governance.

    Bob Jensen's threads on governance are at

    From the Harvard Law School

    Accounting Quiz Archives

    August 21, 2008 message from Rob Nance []

    Submitting 10-question accounting quizzes is great exposure for your accounting program. Check out the archives: 

    If you would like to submit a quiz, reply to this message and I will send you the Excel template.


    Coming later this year: information on a scholarship program for your accounting students. AccountingWEB will be bestowing a load of money on three U.S. accounting students.


    The AccountingWeb student zone (including humor) is at

    Bob Jensen's threads on teaching/learning aids are at

    Dimming of the Bright Lines:  FAS 133 Déjà Vu

    FAS 133 on accounting for derivative financial instruments and hedging activities is unarguably the most complicated accounting standard ever produced on the face of the earth. It is the only standard that required a long-term implementation group to help companies and auditors implement the standard. But, in fairness, it is complicated mostly because of the variety of complex derivatives contracts invented in practice, including new contracts being invented every day. FAS 133 was produced due to the immense derivatives derivatives scandals that commenced in the 1980s ---

    The FASB is considering amending FAS 133 after a string of such amendments as FAS 137, 138, 140, 149, 155, and countless Derivative Implementation Group (DIG) pronouncements ---

    Exposure Draft No. 1590-100 is at
    The bottom line is that the proposed amendments simplify implementation of such things as hedging ineffectiveness tests and benchmark hedging of interest rate risk.

    You can read the comment letters at

    In particular, you might note Ira Kawaller's comments at

    Simply preserving the capacity to hedge benchmark interest rate changes, however, is not sufficient – at least for fair value hedges. The elimination of the shortcut treatment is also troublesome. The shortcut treatment obviates any concern having to do with effectiveness and simply adjusts the carrying value of the hedged item in such a way as to foster the all-in interest expenses or revenues to conform to the economic objectives of the hedge – i.e., a result that is entirely consistent with the goal of swapping from fixed to floating interest rates. Without shortcut, firms have tied themselves in knots trying to demonstrate something to be true that isn’t – that the swap’s result could be expected to offset the fair value change of the debt do to the risk being hedged. Never have; never will. By eliminating the shortcut option, the proposed amendment really exacerbates an unworkable situation.

    There really is an easy fix for this problem. In the classical application of interest rate swaps, when entities use swaps to convert fixed rate debt to floating, their objective relates to prospective cash flows. They care nothing about offsetting fair values. As a consequence, the problem would be solved if the FASB permitted all interest rate hedges that relate to future cash flows – whether fixed or floating -- to be accounted for as cash flow hedges, with (effective) gains or losses being recognized in OCI and later reclassified to earnings.

    At present, this course of action is not allowed because a prerequisite for cash flow hedging is that the forecasted cash flow designated as the hedged item must be uncertain. That requirement, however, could be (and should be) eliminated. If the economic objective of the hedge is to alter future cash flows, entities should be able to say so and apply an accounting treatment consistent with this view. That would be cash flow hedging. Fair value hedging should be limited to those applications when the economic objective is to compensate for changes in fair value of the hedged item -- for real! With the requirement to apply fair value hedges to all circumstances when fixed rate instruments serve as the hedge item, FAS 133 has taken the round peg and crammed it into a square hole.

    Impacts on Risk Management Practice

    The seeming allowance to designate benchmark interest rate changes as the risk being hedged for a company’s own debt when hedged from inception is not nearly as generous as it might seem. Obviously, if nothing changes, the companies that rely on thisallowance will largely feel like the amendment didn’t change anything. But stuff happens. For instance, the company might find it advantageous to restructure its debt. Doing so, however, would likely force the company to forego designating the benchmark rate as the risk being hedged.4 I believe this restriction will likely cause managers to ignore available market efficiencies in order to preserve their original accounting treatment. In the aggregate, this effect could be quite costly.

    The need for flexibility is equally relevant in connection with the consideration of terminating hedges. The proposed amendment allows firms either to exit from a derivative or to de-designate the hedge relationship leaving the derivative in place provided an offsetting derivative is initiated coincidently with the de-designation. (Does this second derivative have to be a perfect mirror image of the first? The proposal doesn’t specify.) However, if the second approach is taken (which would likely be an attractive course of action if the original contract were a large liability, thereby requiring a large cash payment to exit), the new rules would preclude using the original derivative in any subsequent hedging relationship if hedging were again deemed to be desirable. It’s the same economics to terminate a derivative or to cover it. I believe the accounting should respect this equivalence. Again, these new rules would likely bias economic decisions to the detriment of market efficiency.

    Software / Programming Implications

    One other significant change under the amendment has to do with the process of determining the split between other comprehensive income (OCI) and earnings for hedge results that have some aren’t perfect. It’s convenient to address this issue with reference to a hypothetical derivative – i.e., a derivative that delivers exactly the gain or loss required to offset the risk being hedged. Currently, the process is asymmetric. That is, ineffective results impact earnings only if the actual derivative’s gain or loss is larger that the hypothetical derivative’s gain or loss. Under the new approach, ineffectiveness will impact earnings in both directions. Put another way, the OCI allocation will be

    determined solely on the basis of the hypothetical’s result, and the earnings impact will

    reflect any difference between actual results and hypothetical results, regardless of which is the larger.

    Whether this adjustment is an improvement or not is subject to debate. Arguments can be made for both approaches. In any case, a change will necessitate reprogramming spread sheets and/or FAS 133 accounting software, across the board. Significant costs; questionable benefits.

    Continued in comment letter

    PwC questions (and I agree) the "reasonably effective" ambiguity for hedge ineffectiveness testing ---

    "Reasonably Effective"
    Threshold Although we agree with the Board that the establishment of a quantitative threshold or bright-line is inappropriate for determining hedge effectiveness, we are concerned with the introduction of the "reasonably effective" threshold. The Exposure Draft does not define this term, nor provide much guidance on how it should be applied. In addition, paragraph A9 of the Exposure Draft notes that the determination of "reasonably effective" would depend on facts and circumstances and may be different depending on the objective, such as whether the fair value option is available for the hedged item. However, it is unclear why the effectiveness of a hedging relationship should be higher or lower depending on the availability of the fair value option. We are also concerned that in the absence of a better understanding of the Board's intent, practice will inevitably try to establish a bright line for assessing hedge effectiveness. As an alternative to establishing a threshold that might be misinterpreted as a new bright line, we believe the Board should provide a discussion of the factors to be considered in determining whether there is an adequate economic relationship between the hedged item and the hedging instrument that achieves the risk management strategy.

    Jensen Comments
    I tend to be a bright line proponent. Doing away with bright lines in FAS 133 may create more problems than its worth, especially with respect to comparing how any two companies treat identical transactions and events.

    Bob Jensen's tutorials on FAS 133 and IAS 39 accounting are at

    Housing bill summary includes many tax provisions
    The provisions of the recent housing bill are aimed at both businesses and individuals and will have a significant impact on a large number of taxpayers. The changes will affect real estate investment trusts (REITs), provide incentives for first-time homebuyers, change tax rules for housing bonds and credits, allow some taxpayers to accelerate AMT and R&D credits, and, beginning in 2010, impose new payment card reporting requirements.
    AccountingWeb, August 2008 ---

    From The Wall Street Journal Accounting Weekly Review on August 22, 2008

    FASB Seeks to Inform Investors, Not Whack Companies
    by Robert H. Herz
    The Wall Street Journal

    Aug 18, 2008
    Page: A14
    Click here to view the full article on

    TOPICS: Contingent Liabilities, Disclosure, Disclosure Requirements, FASB, Financial Accounting Standards Board

    SUMMARY: The FASB has proposed a change to disclosures associated with contingent liabilities, including litigation liabilities, with a document entitled "Disclosure of Certain Loss Contingencies-an amendment of FASB Statements No. 5 and 141" and a comment period that ended August 8, 2008. This proposed Statement would replace and enhance the disclosure requirements in FASB Statement No. 5, Accounting for Contingencies, for all outstanding contingencies, both those recognized on the balance sheet and those contingencies that would be recognized as liabilities if the criteria for recognition in paragraph 8 of Statement 5 were met; it as well applies to contingent liabilities from business combinations. The proposal would "...(a) expand the population of loss contingencies that are required to be disclosed, (b) require disclosure of specific quantitative and qualitative information about those loss contingencies, (c) require a tabular reconciliation of recognized loss contingencies to enhance financial statement transparency, and (d) provide an exemption from disclosing certain required information if disclosing that information would be prejudicial to an entity's position in a dispute." In the proposal, the FASB states that the project was taken on because "investors and other users of financial information have expressed concerns that disclosures about loss contingencies under the existing guidance ... do not provide adequate information to assist users of financial statements in assessing the likelihood, timing, and amount of future cash flows associated with loss contingencies." Clearly, the WSJ Opinion page editors disagree with this assessment (see the related article) and FASB Chairman Bob Herz responds to their Op-Ed piece.

    CLASSROOM APPLICATION: The article is useful for teaching both the requirements for reporting loss contingencies and the FASB's due process for new financial reporting standards, including addressing international convergence efforts.

    1. (Introductory) Describe the FASB's extensive due process procedures. What document did the FASB issue? At what stage of discussion is this proposed financial reporting change?

    2. (Advanced) The WSJ Opinion page editors clearly dislike the proposed accounting and reporting requirements for loss contingencies. They cite the fact that "...FASB has been getting an earful. Senior litigators from 13 companies...have signed a letter to FASB Chairman Robert Herz, objecting to the plan." Do you find it surprising that a preponderance of those who write comment letters to the FASB argue against any particular proposal? Support your answer.

    3. (Introductory) What are the current accounting and disclosure requirements for loss contingencies? How will the FASB's proposal change those requirements? Put your answer into your own words. You may access the FASB document on its web site at

    4. (Advanced) In the related article, the WSJ Opinion page editors pose the question, "...Why mess with the current system?...Lawyers, accountants and corporations are all reasonably comfortable with the way things are." Do you agree with that assessment? Support your answer.

    5. (Advanced) In his response, FASB Chairman Herz states that "the [FASB] is not proposing that companies change their current accounting for the cost of ongoing litigation...[and that] the proposal would not require any estimates of fair value..." To what statements is Mr. Herz responding? How might the WSJ Editors have determined that the notion of "fair value" for a lawsuit is part of the new requirements?

    Reviewed By: Judy Beckman, University of Rhode Island

    FASB's Lawyer Bonanza
    Aug 07, 2008
    Page: A12


    "FASB Seeks to Inform Investors, Not Whack Companies," by Robert Herz, The Wall Street Journal, August 18, 2008; Page A14 ---

    I write in response to your editorial, "FASB's Lawyer Bonanza" (Review & Outlook, Aug. 7). The Financial Accounting Standards Board is not proposing that companies change their current accounting for the cost of ongoing litigation. Rather, our proposal would require additional disclosure in the footnotes to the financial statements. It is a proposal, not a "demand," and is subject to our normal extensive public due process.

    Under the proposal, the amount that would be required to be disclosed is the claim amount, or, if there is no claim amount, the company's best estimate of its maximum exposure to loss. The Board attempted to insure the proposal would not require a company to "[show] its hand to plaintiffs' attorneys" as the editorial says. For example, the proposal allows companies to aggregate claim amounts, so that the plaintiffs attorneys would not be able to identify specific cases. We have also proposed an exemption for certain disclosure situations that would be clearly prejudicial to the company.

    Moreover, the proposed disclosures would not require any estimates of fair value -- nor does the proposal involve any new fair value requirements. The words "fair value" are not even contained in the proposed statement.

    It is because of the strong and extensive input we've received from investors who want greater transparency relating to a wide range of contingencies -- including litigation -- that we are proposing these expanded disclosures. The new disclosures are aimed at providing information earlier to existing and potential investors in order to give them a greater understanding of the risks companies are facing. We believe that information would improve their ability to make informed investment decisions.

    Robert H. Herz
    Chairman Financial Accounting Standards Board
    Norwalk, Conn

    Bob Jensen's threads on contingencies can be found at

    August 22, 2008 reply from Dennis Beresford [dberesfo@TERRY.UGA.EDU]


    An interesting assignment for a MAcc level class would be to assign the students to read a sample of the 230+ comment letters and then provide their reasoning as to what changes, if any, the FASB should make to the exposure draft. There are many excellent letters, both pro and con, on this exposure draft.



    From the AccountingWeb on July 15, 2008

    The Zone of Insolvency: How Nonprofits Avoid Hidden Liabilities & Build Financial Strength
    by Ron Mattocks

    Would you know if your nonprofit is in the Zone of Insolvency and understand the related legal responsibilities and liabilities of operating in financial distress? Approximately one-third of nonprofits—more than 450,000 organizations—function perpetually in the Zone of Insolvency, i.e., in financial distress, and approximately seven percent are completely insolvent. What is the impact of hundreds of millions of dollars given to charitable organizations that operate in perpetual financial distress? Do board members have an inherent obligation to keep nonprofit organizations in operation regardless of their financial condition, or their mission effectiveness?

    What is the new concept of phronesis in the context of accounting research?

    "Case Study Research in Accounting," by David Cooper and Wane Morgan, Accounting Horizons, Volume 22, No. 2, June 2008, pp. 159-178 ---

    We describe case study research and explain its value for developing theory and informing practice. While recognizing the complementary nature of many research methods, we stress the benefits of case studies for understanding situations of uncertainty, instability, uniqueness, and value conflict. We introduce the concept of phronesis—the analysis of what actions are practical and rational in a specific context— and indicate the value of case studies for developing, and reflecting on, professional knowledge. Examples of case study research in managerial accounting, auditing, and financial accounting illustrate the strengths of case studies for theory development and their potential for generating new knowledge. We conclude by disputing common misconceptions about case study research and suggesting how barriers to case study research may be overcome, which we believe is an important step in making accounting research more relevant.

    Jensen Comment

    In 1986 Steve Zeff was President of the AAA. I had the honor of being appointed by Steve as Program Director for the 1986 AAA annual meetings in Times Square in NYC. I persuaded Bob Kaplan and Joel Demski to share a plenary session in debate of the hijacking of the leading academic accounting research journals by the Accountics/Positivist Establishment (although since the early 1900s the term "accountics" was no longer used in accounting in favor of the term "analytics").

    Bob Kaplan's 1986 presentation lamented the fact that researchers using the case method could no longer get their research published in TAR or other leading accounting research journals. He also lamented that innovations generally had their seminal roots in discoveries of practitioners rather than researchers publishing in the leading academic accounting research journals. Whereas practitioners once took a keen interest in academic accounting research, this interest waned to almost nothing.

    Joel Demski's presentation defended mathematical model building and analysis as the cornerstone of accounting as a a pure "academic discipline." I would not describe Joel as an evangelist of positivism relative to the extremes of Watts and Zimmerman. Joel typically has had less to say about positivism than he has about mathematical model building and economic information theory applied to accountancy. In this regard I would describe Joel as an ardent defender of accountics. Joel admitted in 1986 that it was very difficult to pinpoint discoveries in academe that were noteworthy in the practicing profession. However, he claimed that this was not a leading purpose of academic accounting research.

    Joel Demski steers us away from the clinical side of the accountancy profession by saying we should avoid that pesky “vocational virus.” (See below).

    The (Random House) dictionary defines "academic" as "pertaining to areas of study that are not primarily vocational or applied , as the humanities or pure mathematics." Clearly, the short answer to the question is no, accounting is not an academic discipline.
    Joel Demski, "Is Accounting an Academic Discipline?" Accounting Horizons, June 2007, pp. 153-157

    I wrote the following on December 1, 2004 at

    Faculty interest in a professor’s “academic” research may be greater for a number of reasons. Academic research fits into a methodology that other professors like to hear about and critique. Since academic accounting and finance journals are methodology driven, there is potential benefit from being inspired to conduct a follow up study using the same or similar methods. In contrast, practitioners are more apt to look at relevant (big) problems for which there are no research methods accepted by the top journals.

    Accounting Research Farmers Are More Interested in Their Tractors Than in Their Harvests

    For a long time I’ve argued that top accounting research journals are just not interested in the relevance of their findings (except in the areas of tax and AIS). If the journals were primarily interested in the findings themselves, they would abandon their policies about not publishing replications of published research findings. If accounting researchers were more interested in relevance, they would conduct more replication studies. In countless instances in our top accounting research journals, the findings themselves just aren’t interesting enough to replicate. This is something that I attacked at

    At one point back in the 1980s there was a chance for accounting programs that were becoming “Schools of Accountancy” to become more like law schools and to have their elite professors become more closely aligned with the legal profession. Law schools and top law journals are less concerned about science than they are about case methodology driven by the practice of law. But the elite professors of accounting who already had vested interest in scientific methodology (e.g., positivism) and analytical modeling beat down case methodology. I once heard Bob Kaplan say to an audience that no elite accounting research journal would publish his case research. Science methodologies work great in the natural sciences. They are problematic in the psychology and sociology. They are even more problematic in the professions of accounting, law, journalism/communications, and political “science.”

    We often criticize practitioners for ignoring academic research Maybe they are just being smart. I chuckle when I see our heroes in the mathematical theories of economics and finance winning prizes for knocking down theories that were granted earlier prizes (including Nobel prices). The Beta model was the basis for thousands of academic studies, and now the Beta model is a fallen icon. Fama got prizes for showing that capital markets were efficient and then more prizes for showing they were not so “efficient.” In the meantime, investment bankers, stock traders, and mutual funds were just ripping off investors. For a long time, elite accounting researchers could find no “empirical evidence” of widespread earnings management. All they had to do was look up from the computers where their heads were buried.

    Few, if any, of the elite “academic” researchers were investigating the dire corruption of the markets themselves that rendered many of the published empirical findings useless.

    Academic researchers worship at the feet of Penman and do not even recognize the name of Frank Partnoy or Jim Copeland.

    Bob Jensen


    Apparently Cooper and Morgan in 2008 are trying to infect us with the pesky vocational virus as well as lending value to research with sample sizes of one that Zimmerman and other positivists would not accept as legitimate accounting research from Kaplan or anybody else.

    The case study approach does not prescribe what theories should inform the study or which methods should be used for gathering and analyzing data. Based on the problem and research questions being addressed, a variety of methods may be used, including analysis of archival materials, observation, interviews, and quantitative techniques. Case studies focus on bounded and particular organizations, events, or phenomena, and scrutinize the activities and experiences of those involved, as well as the context in which these activities and experiences occur Stake 2000.

    The case study research approach is useful where the researcher is investigating:

    • complex and dynamic phenomena where many variables including variables that are not quantifiable are involved;

    • actual practices, including the details of significant activities that may be ordinary, unusual, or infrequent e.g., changes in accounting regulation; and

    • phenomena in which the context is crucial because the context affects the phenomena being studied and where the phenomena may also interact with and influence its context.

    (Yin, 1989) notes that case studies are suited to answer “how” and “why” questions. Furthermore, well-done case study research answers how and why so compellingly and vividly that readers understand and remember the findings the study reveals. Practitioners find “how” questions to be particularly important—for example, case studies are valuable in describing the details of how new accounting and auditing innovations are actually done. Providing details helps convert private knowledge for example, the detailed procedures and calculations that are otherwise hidden in the reports or minds of innovators into publicly available knowledge. Unlike the “action research” some espouse (Kaplan ,1998), a theory-oriented case study requires explicitness in the theory underlying the case analysis, and in the contribution to theory development or testing.

    Case studies also address “why” questions, illustrating why something was done or came to be, or when and why something works. (Schön, 1983), 50 argues that case studies are valuable to the “entire process of reflection-in-action, which is central to the ‘art’ by which practitioners sometimes deal well with situations of uncertainty, instability, uniqueness and value conflict.” Such case research considers the values, interests, and operations of power involved—who gained, who lost, and why. While researchers may disagree about what should be done, a good case will stimulate reflection and learning about the actions of all involved, including the researcher. Action or constructivist researchers often use cases to describe examples of an accounting intervention, but they too often neglect the theoretical lessons to be learned (Jönsson and Lukka,  2007).

    Although any research approach can focus on how or why, non-case approaches typically emphasize different questions. Statistical analyses using large data sets1 have a comparative advantage in answering “how much” questions, such as the average size of CEO compensation or the average difference in compensation for companies with, for example, high versus low ROA. Experiments may be particularly helpful in answering “what” questions such as what type of response individuals might have to a proposed accounting measure or disclosure. Case studies, archival research, and experiments are complementary research approaches. To illustrate the complementary nature of different approaches, consider that as part of an accounting firm’s efforts to improve its audits, it may:

    • statistically analyze data on the properties of specific accounts;

    • conduct pilot studies experiments before deploying new audit procedures; and

    • study the best-practice cases of audits, considering how the client, audit staff, regulators, and partners might vary in their assessments of what is best.

    The quality of the accounting firm’s overall analysis and decisions is improved by using all approaches to acquiring and assessing knowledge. Whether used on their own or in conjunction with other research approaches, case studies can contribute insights to practitioners and researchers.

    Continued in article

    Bob Jensen's threads on accounting research controversies are at

    Also see

    The Timeline of Derivative Financial Instruments Fraud ---

    The Timeline of the Recent History of Fannie Mae Scandals 2002-2008 ---
    "Fannie Mayhem: A History," The Wall Street Journal, July 14, 2008

    Where can you find one of the best definitions of hedge funds and summaries of alternative hedge fund strategies?

    Where else than Wikipedia ---

    Bob Jensen's rather puny set of threads in comparison is under the H-terms at

    From Jim Mahar's blog on September 5, 2008 ---

    Investments Are Faltering in Chrysler and GMAC -
    "...for Cerberus, named after the mythological three-headed dog who guards the gates of hell, the news keeps getting worse.

    On Wednesday, Chrysler, which owns the Jeep and Dodge brands, said its sales in the United States fell by a third in August ....The same day, GMAC, in which Cerberus holds a 51 percent stake, said it was trying to stanch the bleeding from a business that was supposed to be immune to the ups and downs of the car industry: home mortgage lending. GMAC and its home loan unit, Residential Capital, announced that they would dismiss 5,000 employees, or 60 percent of the unit’s staff, and close all 200 of its retail mortgage branches....

    A Cerberus spokesman said in a statement on Wednesday that it remained confident in its management of Chrysler and GMAC. “No one is pleased with current market conditions,” he said. “However, Cerberus is a patient investor and not a market timer, and we take a long-term view of our investments. Our funds are structured accordingly.”

    Class discussion questions: Some ideas for a class discussion.

    1. What does this say about the limitations of diversification? Notice how even though Cerberus seemed diversified, bets that were at first glance uncorrelated (mortgages and car sales) both turned against them at the same time.

    2. What does it say about long term vs short-term investment strategies. For instance the article states :

    "Over the years, Cerberus excelled by gaining control of companies in bankruptcy and nursing them back to financial health....Top executives at Cerberus have said they are determined to fix the company and that their $7.4 billion investment will pay off."

    What risks does a firm incur when holding onto an investment that turns bad? What is the risk of selling now? (i.e. losing out on return if they turn it around). Can you think of anything from own life that was like that?

    3. Upper level class? try this. What does this type of strategy suggest about returns to private equity funds? How is this related to the "survivorship" bias problem?



    From Smart Stops on the Web, Journal of Accountancy, July 2008
    This new site from Inc. magazine offers information on technological devices and trends of all stripes. Read articles on hardware, software, e-business, managing technology, networking, security, and telecom and wireless. “Expert Corner” features posts by guests in areas such as content management, and “Technology Blog” provides news and views on topics ranging from America’s broadband efforts to notebook Blu-ray DVD players to cell phones. Plus, business leaders share firsthand experiences in Q&A format in the “Tech Talk” section.

    Bob Jensen's small business helpers are at

    "Sloppier Spreadsheets: How Bad Can They Get?", August 20, 2008 ---
    Thanks to Glen Gray for forwarding this link.

    The Numerati: IBM's Mathematical Models of Employees
    The 21st Century Extension of the Taylor/Gilbreth Time and Motion Studies
    Watch the Video Interview and Read the Text

    "Book Excerpt: The Numerati by Stephen Baker By building mathematical models of its own employees, IBM aims to improve productivity and automate management," by Stephen Baker, Business Week, August 28, 2008 ---

    Also see

    This book new is only $17 in hardcover at Amazon. There are also audio and CD versions.

    Jensen Comment
    Whereas Time and Motion studies focused on engineering standards for factory-like jobs, The Numerati focuses on mathematical matchings of people with jobs well beyond factory-like settings. For example, one purpose is to help put together task groups who most likely will work efficiently and effectively. There are many, many implications of these mathematical models for managerial accounting.

    Matchmaker ---

    "Proposed Statement on Disclosure of Certain Loss Contingencies, an amendment of FASB Statements No. 5 and 141(R)," by Linda Cavanaugh, AccountingWeb, July 1, 2008 ---

    This proposed Statement is being issued due to concerns expressed by financial statement users that current disclosures on loss contingencies are not adequate. The concern is partly over quantitative disclosures and the “overuse” of the “not estimatable” criteria. Investors stated “they prefer to have a highly uncertain estimate supplemented with a qualitative description than no quantification of a potential loss as commonly occurs in existing practice (paragraph A16). This proposed Statement would expand the current disclosures and will result in a larger pool of contingencies being disclosed.

    Paragraph 3 of the proposed Statement states that it is applicable for all loss contingencies that are within the scope of FAS 5 or FAS 141(R), except for the following:

    1.Asset impairments

    2.Guarantees within the scope of FIN 45 “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”

    3.Unpaid claim costs or reinsurance contracts within the scope of FASB Statements 60, 97, 113, 120 or 163

    4. Insurance-related assessments within the scope of SOP 97-3 “Accounting by Insurance and Other Enterprises for Insurance-Related Assessments”

    5.Employment-related costs including pensions and other post employment benefits, except for withdrawal from a multi-employer plan

    Under paragraph 5 a loss contingency does not have to be disclosed if:

    1.An entity has made an assessment and determined that the likelihood of a loss is remote. 2.An unasserted claim or assessment in which there has been no manifestation by a potential claimant of an awareness of a possible claim or assessment unless: a. It is probable that a claim will be asserted b. The likelihood of a loss, if the claim were to be asserted, is more than remote.

    However, under paragraph 6, even if the likelihood of a loss is remote, the loss contingency should still be disclosed if it is expected to be resolved within one year from the date of the financial statements or if the loss would have such a severe impact on the entity that it would cause a significant financial disruptive effect on the normal functioning of the entity.

    Per paragraph 7, the following items are to be disclosed for loss contingencies that fall under the above paragraphs. The disclosures may be aggregated by the nature of the loss contingency (i.e. product liability).

    1. The amount of the claim or assessment against the entity or if there is no claim or assessment amount, the entity’s best estimate of the maximum exposure to the loss. An entity may also disclose (but is not required) its best estimate of the possible loss or range of loss if the amount of the claim or the estimated maximum exposure is not representative of the entity’s actual exposure. These amounts should include any amount already recognized in the financial statement and exclude potential recoveries.

    2. A description of the contingency, how it arose, its legal or contractual basis, its current status, the anticipated timing of its resolution, factors that are likely to affect the ultimate outcome and their potential effect on the outcome, the most likely outcome, significant assumptions concerning the estimate of amounts disclosed and in assessing the most likely outcome.

    3. Any relevant insurance or indemnification arrangements that could lead to a recovery of some or all of the possible loss.

    Per paragraphs 8 and 9, for loss contingencies recognized in the financial statements a tabular reconciliation of the beginning and ending balances must be disclosed.

    "IASB and FASB Publish First Major Exposure Draft Standard," AccountingWeb, July 11, 2005 ---

    The International Accounting Standards Board (IASB), based in London, and the US Financial Accounting Standards Board (FASB) have announced publication of an Exposure Draft containing joint proposals to improve and align accounting for business combinations. The proposed standard would replace IASB’s International Financial Reporting Standard (IFRS) 3, Business Combinations and the FASB’s Statement 141, Business Combinations.

    Sir David Tweedie, IASB Chairman and Bob Herz, FASB Chairman, emphasized the value of a single standard to users and preparers of financial statements of companies around the world as it improves comparability of financial information. "Development of a single standard demonstrates the ability of the IASB and the FASB to work together,” Tweedie continued.

    Continued in article

    But then the IASB let us down in 2008 on IFRS 3(R) ---

    Here are a few of things to learn about IFRS 3(R)
    Quotations taken from IASPlus ---

    Goodwill and noncontrolling interest (Jensen:  Take credit for what isn't yours)
    An option is added to IFRS 3 to permit an entity to recognise 100% of the goodwill of the acquired entity, not just the acquiring entity's portion of the goodwill, with the increased amount of goodwill also increasing the noncontrolling interest [new term for 'minority interest'] in the net assets of the acquired entity. This is known as the 'full goodwill method'. Such noncontrolling interest is reported as part of consolidated equity. The 'full goodwill' option may be elected on a transaction-by-transaction basis. Example: P pays 800 to purchase 80% of the shares of S. Fair value of 100% of S's identifiable net assets is 600. If P elects to measure noncontrolling interests as their proportionate interest in the net assets of S of 120 (20% x 600), the consolidated financial statements show goodwill of 320 (800 +120 - 600). If P elects to measure noncontrolling interests at fair value and determines that fair value to be 185, then goodwill of 385 is recognised (800 + 185 - 600). The fair value of the 20% noncontrolling interest in S will not necessarily be proportionate to the price paid by P for its 80%, primarily due to control premium or discount as explained in paragraph B45 of IFRS 3.

    Intangible assets (Jensen: Measure it even if it can't be measured)
    Must always be recognised and measured. There is no 'reliable measurement' exception.

    Acquisition costs. (Jensen:  Just when you thought you might skip over IAS 39 like you did FAS 133)
    Costs of issuing debt or equity instruments are accounted for under IAS 39. All other costs associated with the acquisition must be expensed, including reimbursements to the acquiree for bearing some of the acquisition costs. Examples of costs to be expensed include finder's fees; advisory, legal, accounting, valuation, and other professional or consulting fees; and general administrative costs, including the costs of maintaining an internal acquisitions department.

    "Technology Implications of IFRS adoption for U.S. Companies:  More than a technical accounting change," Deloitte White Paper, August 2008 --- 

    Bob Jensen's threads on accounting standard setting controversies ---

    September 7, 2008 question from Brenda Mallouk [brendamallouk@YAHOO.CA]

    What impact will IFRS have on management accounting?

    September 8, 2008 answer from Bob Jensen

    Hi Brenda,

    There are really two levels to your question.

    1. What impact will IFRS-US have upon the practice of management accounting?

    In companies, IFRS-US will have an enormous impact since the management accounting system is responsible for both external and internal reporting. Staff accountants will have to be re-trained, software (especially database entries and queries) rewritten, managers re-trained to understand the impacts of the new standards, etc.

    "Technology Implications of IFRS adoption for U.S. Companies: More than a technical accounting change," Deloitte White Paper, August 2008 --- 


    2. What impact will IFRS-US have upon the management accounting courses in the curriculum?

    Since most of the changes will impact the financial accounting courses, the bulk of the curriculum changes will not greatly impact on our traditional managerial and cost accounting courses. There will, however, be some impact. Most notably managerial accounting courses are going to have to deal with fair value accounting under new rules of the IASB and the FASB --- 
    Valuation, especially discounted cash flows, are typically covered in managerial accounting courses.

    Fair value accounting now includes such things as fair valuation of interest rate swaps. In the past such valuations were not part of managerial accounting courses --- 
    This of course could be added to intermediate accounting instead of managerial accounting.

    Since revenue accounting in part and parcel to such things as cost-profit-volume analysis, managerial and cost accounting courses will have to be revised for such international standards such as IAS 11 and 17. At the same time it might be useful to revise these courses for things listed at 

    All references to FASB standards in managerial and cost accounting textbooks (such as percentage-of-completion cases in cost accounting), cases, case solutions, assignment material, and test banks will have to be revised to the extent that the referenced FASB citations will have to be changed to their IASB counterparts. This will require a tremendous effort on the part of both textbook authors and faculty who teach from files of their own teaching materials.

    There are a lot of important helpers for revising intermediate accounting courses and test banks at the AAA Commons --- 
    Click on the menu item Emerging and then IFRS.

    At the Commons I have not yet seen anything devoted to the impact of IFRS on managerial accounting.

    Bob Jensen's threads on accounting standard setting controversies --- 


    "IMA Looks to Redefine 'Management Accounting'," SmartPros, August 13, 2008 ---

    The Institute of Management Accountants is seeking input from its members on a proposed new definition of the term "management accounting."

    In the August 2008 issue of Strategic Finance magazine, IMA published a draft "statement of management accounting" proposing a new definition "to more accurately reflect what management accountants do and aspire to become."

    The proposed new definition is:

    Management accounting is a professional discipline that has an integral role in formulating and implementing the organization's strategy. Management accountants are part of the management team, working within the organization at many levels: from top-level management to support-level accounting and finance professionals. Management accountants apply their knowledge and experience in accounting and financial reporting, budgeting, decision support, risk and performance management, internal control, and cost management.

    IMA said that the field of management accounting has evolved considerably since the first and current definition was published in 1981.

    "For more than a decade, IMA has supported and participated in research that calls for a change in point of view, shifting from a transaction and compliance orientation to becoming a strategic business partner," IMA states on its Web site.

    Comments and suggestions are due Sept. 10. For more information:

    Bob Jensen's threads on accountancy careers are at

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


    It is tragic that IMA still doesn't get it. I would say, they have not "evolved" but have devolved (in the sense of "obsolete", "archaic", or "delegated") their traditional role in society to threaten their own existence.

    Haven't these folks ever heard of Fisher's separation theorem, the hallmark of modern Finance? Probably they haven't, for otherwise they would not keep harping back on sneaking finance into the equation simply because it is fashionable.

    Now they want to usurp strategy too!

    If they had stuck with the traditional aims of management accounting in the provision of information for the improvement of operational efficiency and effectiveness, the field would be a lot more attractive. Instead, they abdicated this tradition, in favour of anything that looks sexy. Today, the engineering professions do a lot more relevant management accounting than the management accountants do.

    In my opinion, IMA would serve its membership far better if they go back to their tradition and try to work with the profession of internal auditors. There is a hint of this in the fourth paragraph from the bottom. However, I am not sure if it is said in all seriousness or simply because the topics catalogued there (risk and performance management, internal control) are topical today. It would make a lot more sense to merge IMA into IIA.


    August 19, 2008 reply from Patricia Doherty [pdoherty@BU.EDU]

    Am I the only one who is a bit disappointed in this new definition? I AM a management accountant - did it, and now I teach it. This definition doesn't really say anything. I can just see handing it to a student who asks what they can do outside of public accounting with an accounting degree. They look at it ... whaaa? ... wellllll ... what would I really be doing? Doesn't just about every job you apply for tell you you are going to be "part of the team?" Am I being a curmudgeon?


    August 20, 2008 reply from Neal Hannon [nhannon@GMAIL.COM]

    Before we leave the topic of a definition for management accounting, I did not hear anything constructive to replace the words offered by the IMA. If you were given a blank sheet, how would you define management accounting?


    August 20, 2008 reply from Bob Jensen

    Hi Neal,

    Actually, the Wikipedia module is not so bad --- 

    Bob Jensen

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


    What ever I say here should be taken with a ton of salt, since I have not published in the management accounting area since 1985 or so, and even then the publications, other than one in JAR (1981), were mostly in Operations Research journals. However, I have worked in the industry doing management accounting type work.

    Some definitions (from Wikipedia) include:

    1. IMA:

    Management accounting is a professional discipline that has an integral role in formulating and implementing the organization's strategy. Management accountants are part of the management team, working within the organization at many levels: from top-level management to support-level accounting and finance professionals. Management accountants apply their knowledge and experience in accounting and financial reporting, budgeting, decision support, risk and performance management, internal control, and cost accounting.

    2. CIMA:

    "the process of identification, measurement, accumulation, analysis, preparation, interpretation and communication of information used by management to plan, evaluate and control within an entity and to assure appropriate use of and accountability for its resources. Management accounting also comprises the preparation of financial reports for non management groups such as shareholders, creditors, regulatory agencies and tax authorities"

    3. AICPA:

    management accounting practice extends to the following three areas:

    * Strategic Management—Advancing the role of the management accountant as a strategic partner in the organization. * Performance Management—Developing the practice of business decision-making and managing the performance of the organization. * Risk Management—Contributing to frameworks and practices for identifying, measuring, managing and reporting risks to the achievement of the objectives of the organization.

    4. ICMA:

    "A management accountant applies his or her professional knowledge and skill in the preparation and presentation of financial and other decision oriented information in such a way as to assist management in the formulation of policies and in the planning and control of the operation of the undertaking.

    The main ingredients in the above definitions seem to be:

    1. Decision orientation 2. Planning, evaluation, control, performance management of operations 3. appropriate use and accountability of resources 4. identify, measure, manage, report risks to achievement of objectives

    With the above in mind, I would say

    Management accounting studies operations of an enterprise with the purpose of aiding the management in the decisions related to the planning, evaluation and control of efficient and effective utilisation of resources in a dynamic and uncertain environment. _________________________________________________________________

    I would very much like to hear your comments.

    Jagdish Gangolly ( )
    Department of Accounting & Law, School of Business Department of Informatics, College of Computing & Information State University of New York at Albany 1400 Washington Avenue, Albany NY 12222 Phone: 518-442-4949

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

    Thank you for your reply.  I, too have worked for many years in the management accounting field.  I have also served on the board of the IMA, so what I say also should be taken with a grain of salt. 
    The difficulty in crafting a definition begins with the US centric bias towards auditing and external financial reporting.  Management accountants outnumber financial accountants and auditors by literally millions, and yet the few seem to call the shots for the many.  (The underlying assumption in my statement above is that everyone in the accounting profession that is not described by external financial reporting or auditing are management accountants.)  The IMA's definition attempts to collect the "all accountants not evolved in external financial reporting or auditing" and put a positive professional spin on it.  With that said, I like your definition as a stating place and would suggest the following:


    The management accounting is the profession that monitors, reports and creates the forward looking and historical activity of an enterprise for the purpose of aiding, shaping and developing the key enterprise decisions relating to the planning, control and evaluation along with the strategic utilization of scarce resources in a dynamic and uncertain environment. In other words, the management accountant is the eyes and ears of the enterprise, collecting transforming, data into decision actionable information that is key to all efficient and effectively run organizations.


    From The Wall Street Journal Accounting Weekly Review on September 19, 2008

    IRS Wants Free E-Filing
    by Sarah Lueck
    The Wall Street Journal

    Sep 15, 2008
    Online Exclusive
    Click here to view the full article on --- ?mod=djem_jiewr_AC

    TOPICS: Accounting, E-Filing, Taxation

    SUMMARY: The IRS is seeking a way to let all taxpayers file their online forms at no extra charge. Many taxpayers use tax software and could e-file, but continue to submit paper copies to avoid the additional fees. Because electronic return submissions are more accurate and economical for the government, the IRS is negotiating with tax-software companies to provide e-filing at no additional cost.

    CLASSROOM APPLICATION: This article shows the business side of the government. The IRS has realized that electronic submission will help both the taxpayer and save the government processing costs. It is an interesting side of the IRS and tax administration that we do not often see.

    1. (Advanced) What was the goal for taxpayer e-filing that was set by Congress? What could be some reasons it was not met? What is the current level?

    2. (Introductory) Who must pay for e-filing? Why do some taxpayers have to pay for e-filing, while others do not? What are the fees?

    3. (Advanced) What are the advantages of e-filing for each of the various parties involved?

    4. (Advanced) Why do you think the IRS has not yet developed free online or disk software for the electronic return preparation for all taxpayers? Would this be a good idea? Why or why not? Who would be against the government offering this opportunity to taxpayers?

    Reviewed By: Linda Christiansen, Indiana University Southeast


    Bob Jensen's tax helpers are at


    Humor Between September 1 and September 30, 2008 ---

    Humor Between July 1 and August 31, 2008 ---

    Humor Between June 1 and June 30, 2008 ---

    Humor Between May 1 and May 31, 2008 ---

    Humor Between May 1 and May 31, 2008 ---

    Humor Between April 1 and April 30, 2008 ---

    Humor Between March 1 and March 31, 2008 ---

    Humor Between February 1 and February 29, 2008 ---   

    Humor Between January 1 and January 31, 2008 ---  

    Tidbits Directory for Earlier Months and Years ---






    Humor Between September 1 and September 30, 2008

    Jensen Comment
    I might introduce the next tidbit from the Carpers by noting that a very dear and smart professor friend at Trinity University had a pet rabbit. His children called his attention to the "tumors" that seemed to be growing under the rabbit's belly. The family took the poor thing to the veterinarian who chuckled and pointed out that the tumors were in reality parts of all non-neutered male rabbits

    Forwarded by the Carpers

    Lizard Birth

    If you have raised kids (or been one), and gone through the pet syndrome, including toilet flush burials for dead goldfish, the story below will have you laughing out LOUD!

    Overview: I had to take my son's lizard to the vet.

    Here's what happened: Just after dinner one night, my son came up to tell me there was 'something wrong' with one of the two lizards he holds prisoner in his room.

    'He's just lying there looking sick,' he told me. 'I'm serious, Dad. Can you help?'

    I put my best lizard-healer expression on my face and followed him into his bedroom. One of the little lizards was indeed lying on his back, looking stressed. I immediately knew what to do.

    'Honey,' I called, 'come look at the lizard!'

    'Oh, my gosh!' my wife exclaimed. 'She's having babies.'

    'What?' my son demanded. 'But their names are Bert and Ernie, Mom !'

    I was equally outraged.

    'Hey, how can that be? I thought we said we didn't want them to reproduce,' I said accusingly to my wife.

    'Well, what do you want me to do, post a sign in their cage?' she inquired (I think she actually said this sarcastically!)

    'No, but you were supposed to get two boys!' I reminded her, (in my most loving, calm, sweet voice, while gritting my teeth).

    'Yeah, Bert and Ernie!' my son agreed.

    'Well, it's just a little hard to tell on some guys, you know,' she informed me (Again with the sarcasm!).

    By now the rest of the family had gathered to see what was going on. I shrugged, deciding to make the best of it.

    'Kids, this is going to be a wondrous experience,' I announced. 'We're about to witness the miracle of birth.'

    'Oh, gross!' they shrieked

    'Well, isn't THAT just great? What are we going to do with a litter of tiny little lizard babies?' my wife wanted to know.

    We peered at the patient. After much struggling, what looked like a tiny foot would appear briefly, vanishing a scant second later.

    'We don't appear to be making much progress,' I noted. 'It's breech,' my wife whispered, horrified.

    'Do something, Dad!' my son urged.

    'Okay, okay.' Squeamishly, I reached in and grabbed the foot when it next appeared, giving it a gentle tug. It disappeared. I tried several more times with the same results.

    'Should I call 911?' my eldest daughter wanted to know.

    'Maybe they could talk us through the trauma.' (You see a pattern here with the females in my house?)

    'Let's get Ernie to the vet,' I said grimly. We drove to the vet with my son holding the cage in his lap.

    'Breathe, Ernie, breathe,' he urged.

    'I don't think lizards do Lamaze,' his mother noted to him. (Women can be so cruel to their own young. I mean what she does to me is one thing, but this boy is of her womb, for Heavens sake.).

    The vet took Ernie back to the examining room and peered at the little animal through a magnifying glass.

    'What do you think, Doc, a C-section?' I suggested scientifically.

    'Oh, very interesting,' he murmured. 'Mr. and Mrs. Cameron, may I speak to you privately for a moment?'

    I gulped, nodding for my son to step outside.

    'Is Ernie going to be okay?' my wife asked.

    'Oh, perfectly,' the vet assured us. 'This lizard is not in labor. In fact, that isn't EVER going to happen. . Ernie is a boy. You see, Ernie is a young male; and occasionally, as they come into maturity, like most male species, they um . . um . . . masturbate. Just the way he did, lying on his back.' He blushed, glancing at my wife.

    We were silent, absorbing this.

    'So, Ernie's just just . . . excited,' my wife offered.

    'Exactly,' the vet replied , relieved that we understood.

    More silence. Then my vicious, cruel wife started to giggle. And giggle. And then even laugh loudly.

    'What's so funny?' I demanded, knowing, but not believing that the woman I married would commit the upcoming affront to my flawless manliness.

    Tears were now running down her face. 'It's just that . . I'm picturing you pulling on its . . . its. . . teeny little ' She gasped for more air to bellow in laughter once more.

    'That's enough,' I warned. We thanked the vet and hurriedly bundled the lizard and our son back into the car.. He was glad everything was going to be okay.

    'I know Ernie's really thankful for what you did, Dad,' he told me.

    'Oh, you have NO idea,' my wife agreed, collapsing with laughter.

    Two lizards: $140.

    One cage: $50.

    Trip to the vet: $30.

    Memory of your husband pulling on a lizard's winkie: Priceless!

    Moral of the story: Pay attention in biology class.

    Lizards lay eggs!


    Forwarded by Auntie Bev

    Are you lonely?
    Do you have trouble making decisions?
    Do you hate working alone?

    Then call a meeting!
    You can spout the latest Internet jokes.
    You can watch people doodle.
    You can feel more important.
    You can form subcommittees to do your work.
    You can make meaningless recommendations.
    And you can do all this on company time.

    Do a good job here!
    It's like wetting your pants in a dark suit.
    You get a warm feeling and nobody notices.

    Notice:  This Department requires no physical fitness program.
    Everyone gets enough exercise:

    You really should check your e-mail more often.
    You were fired three weeks ago!

    New job incentive program:
    Work or get fired.

    Forwarded by Maureen

    A busload of politicians were driving down a country road when all of a sudden, the bus ran off the road and crashed into a tree in an old farmer's field. The old farmer, after seeing what had happened, went over to investigate. He then proceeded to dig a hole to bury the politicians.

    A few days later the local sheriff came out, saw the crashed bus, and asked the old farmer where all the politicians had gone. The old farmer said he had buried them. The sheriff asked the old farmer, 'Were they all dead?'

    The old farmer replied, 'Well, some of them said they weren't, but you know how them bastards lie.'

    Forwarded by Paula along with a picture of Judge Judy

    Judge to prostitute, 'So when did you realize you were raped?'

    Prostitute, wiping away tears: 'When the check bounced.'

    Political Insults: From Clever to Crude
    The crude insults are more likely to reflect (read that to be more revealing) on the insulter more than the insultee

    "In Praise of Political Insults," by Joseph Tartakovsky, The Wall Street Journal, July 2, 2008; Page A13 ---

    The great American political insult is older than the nation itself. Ben Franklin, writing in 1771 before the States were even United, lamented "Libeling and Personal Abuse, which is of late Years become so disgraceful to our Country." Not even George Washington was spared: Tom Paine raged about his "treachery" and "pusillanimity."

    By the time of the third U.S. administration, Thomas Jefferson had seen enough of the democratic officeholder's fate to perceive that "it will rarely fall to the lot of imperfect man to retire from this station with the reputation and the favor which bring him into it." So it has passed.

    But insults, unlike imperfect man, are not created equal. In March, Samantha Power, a scholar-activist then on the Barack Obama campaign, called Hillary Clinton a "monster." "You just look at her and think, 'Ergh,'" she elaborated. It is encouraging that she was thrown from the campaign, but her insult was only a disgrace because of its insipidity.

    It is an old parlor game to gripe that our political wit fails the coruscating standard of a Benjamin Disraeli or a Winston Churchill. But what, after all, makes for an effective political insult?

    The answer is style. Too coarse, and the abuser sounds malicious. Too unimaginative, and the words evaporate en route. Too petty, and the insulter is harmed more than the insultee. Too distant from truth, and it just won't stick. Bill Moyers's jibe that "hyperbole was to Lyndon Johnson what oxygen is to life" is an attempt at wit; the real thing is Bill Buckley's remark that LBJ was a man of his last word. Is Jimmy Carter the worst president the U.S. ever had, or, as William Safire put it, the "best U.S. president the Soviet Union ever had"? Gore Vidal calling Ronald Reagan a "triumph of the embalmer's art" seems itself the triumph of a curdled soul; but even Reagan could laugh when Gerald Ford quipped, "No, Reagan doesn't dye his hair. He's just prematurely orange."

    It is one thing for our semiliterate intellectuals to sneer at the current president's locution, and another to remark, as H.L. Mencken did of Warren Harding, that his speech "reminds me of a string of wet sponges . . . It is rumble and bumble. It is flap and doodle. It is balder and dash." Compare this to Sen. Harry Reid's feeble attempt at scathing wit against President George W. Bush in 2005: "I think this guy is a loser."

    Benjamin Franklin Bache, writing in the 1790s, probably our most abusive era, called John Adams a "ruffian deserving of the curses of mankind," which isn't bad. But that's a mere zephyr compared to the storms of James Callender, who called the second president a "hideous hermaphroditical character which has neither the force and firmness of a man, nor the gentleness and sensibility of a woman."

    The political insult is not insinuation, a whisper campaign, or a planted story. It is direct verbal attack, a public performance before a voting audience. Its purpose is to stain character, which, in the great personality contests that are elections, is a candidate's most precious asset. Nothing does this better than ridicule.

    The flamboyant Sen. John Randolph (1773-1833) was an early master. His famed sallies, like good poetry, present unforgettable images: "He is a man of splendid abilities but utterly corrupt," he said of Secretary of State Edward Livingston. "Like a rotten mackerel by moonlight, he shines and stinks." "Never was ability so much below mediocrity so well rewarded," he said of one political appointee. "No, not even when Caligula's horse was made consul." Randolph had a flamboyant 20th-century counterpart in Norman Mailer, who is supposed to have said, "Gerald Ford was unknown throughout America. Now he's unknown throughout the world."

    We can cheer the fact that these days, newspapers, TV networks, politicians and parties that traffic in scurrility imperil only their own reputations. The spirit of benevolence is upon us: Sens. John McCain and Barack Obama, speaking by phone on June 4, agreed nobly to uphold "civil discussion."

    But civility has a way of creeping into daintiness. If our candidates lose their willingness to spar, their sense of combative humor, will the contest grow more polite, or just less honest? The well-turned insult is a necessary and salutary force in politics, a spicy seasoning in an old, force-fed dish. It's a check on pomposity, proof of democratic vitality, a relief from endless electioneering, and a show of intelligence and moderation. The dull and the bigoted are rarely witty.

    During a campaign, Henry Adams reminded us, the air is full of speeches and vice versa. Nothing deflates like a happy insult.

    We, in Ireland, can't figure out why you in the U. S . are even bothering to hold an election. On one side, you have a bitch who is a lawyer, married to a lawyer, running against a lawyer who is married to a bitch who is a lawyer. On the other side, you have a war hero married to a good looking woman who owns a beer distributorship.
    Anonymous quote from Ireland forwarded by Auntie Bev
    Now we know which candidate will have the best foreign relations with Ireland!

    Quotations forwarded by Nancy Mills

    When Insults Had Class

    There was a time when words were used beautifully. These glorious insults are from an era when cleverness with words was still valued, before a great portion of the English language was boiled down to four-letter words!


    The exchange between Churchill and Lady Astor:
    She said, "If you were my husband, I'd give you poison,"
    And he said, "If you were my wife, I'd take it."

    Gladstone, a member of Parliament, to Benjamin Disraeli:
    "Sir, you will either die on the gallows or of some unspeakable disease."
    "That depends, sir," said Disraeli, "On whether I embrace your policies or your mistress."

    "He had delusions of adequacy." - Walter Kerr

    "He has all the virtues I dislike and none of the vices I admire." - Winston Churchill

    "A modest little person, with much to be modest about." - Winston Churchill

    "I have never killed a man, but I have read many obituaries with great pleasure." - Clarence Darrow

    "He has never been known to use a word that might send a reader to the dictionary." - William Faulkner (about Ernest Hemingway).

    "Poor Faulkner. Does he really think big emotions come from big words?" - Ernest Hemingway (about William Faulkner)

    "Thank you for sending me a copy of your book; I'll waste no time reading it." - Moses Hadas

    "He can compress the most words into the smallest idea of any man I know." - Abraham Lincoln

    "I didn't attend the funeral, but I sent a nice letter saying I approved of it." - Mark Twain

    "He has no enemies, but is intensely disliked by his friends." - Oscar Wilde

    "I am enclosing two tickets to the first night of my new play; bring a friend.... if you have one." - George Bernard Shaw to Winston Churchill
    "Cannot possibly attend first night, will attend second... if there is one." - Winston Churchill, in response.

    "I feel so miserable without you; it's almost like having you here." - Stephen Bishop

    He is a self-made man and worships his creator." - John Bright

    "I've just learned about his illness. Let's hope it's nothing trivial." - Irvin S. Cobb

    "He is not only dull himself, he is the cause of dullness in others." - Samuel Johnson

    "He is simply a shiver looking for a spine to run up." - Paul Keating

    "There's nothing wrong with you that reincarnation won't cure." comedian Jack E. Leonard

    "He has the attention span of a lightning bolt." - Robert Redford

    "They never open their mouths without subtracting from the sum of human knowledge." - Thomas Brackett Reed

    "In order to avoid being called a flirt, she always yielded easily." - Charles, Count Talleyrand

    "He loves nature in spite of what it did to him." - Forrest Tucker

    "Why do you sit there looking like an envelope without any address on it?" - Mark Twain

    "His mother should have thrown him away and kept the stork. - Mae West

    "Some cause happiness wherever they go; others, whenever they go."- Oscar Wilde

    "He uses statistics as a drunken man uses lamp-posts... for support rather than illumination." - Andrew Lang (1844-1912)

    "He has Van Gogh's ear for music." - Billy Wilder

    "I've had a perfectly wonderful evening. But this wasn't it." - Groucho Marx

    Jagdish Gangolly recommends Honourable Insults, by Greg Knight, Robson Books, 1990 --- 

    This is a repeat that is even more relevant today.
    Congressional Recess Explained ---

    Forwarded by Gene and Joan

    GOTTA LOVE LITTLE BOYS Two young boys walked into a pharmacy one day, picked out a box of tampons and proceeded to the checkout counter. The man at the counter asked the older boy, 'Son, how old are you?' Eight,' the boy replied. The man continued, 'Do you know what these are used for?' The boy replied, 'Not exactly, but they aren't for me. They're for him. He's my brother. He's four. We saw on TV that if you use these you would be able to swim and ride a bike. Right now, he can't do either one.'

    Forwarded by Maureen

    One day a farmer's donkey fell down into a well. The animal cried piteously for hours as the farmer tried to figure out what to do.

    Finally, he decided the animal was old, and the well needed to be covered up anyway; it just wasn't worth it to retrieve the donkey.

    He invited all his neighbors to come over and help him. They all grabbed a shovel and began to shovel dirt into the well. At first, the donkey realized what was happening and cried horribly. Then, to everyone's amazement he quieted down.

    A few shovel loads later, the farmer finally looked down the well. He was ast onished at what he saw. With each shovel of dirt that hit his back, the donkey wa s doing somethin g amazing. He would shake it off and take a step up.

    As the farmer's neighbors continued to shovel dirt on top of the animal, he would shake it off and take a step up.

    Pretty soon, everyone was amazed as the donkey stepped up over the edge of the well and happily trotted off!

    Life is going to shovel dirt on you, all kinds of dirt. The trick to getting out of the well is to shake it off and take a step up. Each of our troubles is a steppingstone. We can get out of the deepest wells just by not stopping, never giving up! Shake it off and take a step up.

    Forwarded by Paula

    A man boarded a plane with 6 kids. After they got settled in their

    Seats a woman sitting across the aisle from him leaned over to him and

    asked, "Are all of those kids yours?"

    He replied, "No. I work for a condom company. These are customer complaints.

    Forwarded by Auntie Bev

    Classified Advertisements in Florida

    Sexy, fashion-conscious blue-haired beauty, 80's, slim, 5'4' (used to be 5'6'), searching for sharp-looking, sharp-dressing companion. Matching white shoes and belt a plus.

    Recent widow who has just buried fourth husband, and am looking for someone to round out a six-unit plot. Dizziness, fainting, shortness of breath not a problem.

    I am into solitude, long walks, sunrises, the ocean, yoga and meditation. If you are the silent type, let's get together, take our hearing aids out and enjoy quiet times.

    WINNING SMILE: Active grandmother with original teeth seeking a dedicated flosser to share rare steaks, corn on the cob and caramel candy .

    I still like to rock, still like to cruise in my Camaro on Saturday nights and still like to play the guitar. If you were a groovy chick, or are now a groovy hen, let's get together and listen to my eight-track tapes.

    I can usually remember Monday through Thursday. If you can remember Friday, Saturday and Sunday, let's put our two heads together.

    Male, 1932, high mileage, good condition, some hair, many new parts including hip, knee, cornea, valves. Isn't in running condition, but walks well.

    Maureen's Letter to Bertha

    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. A nd 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

    Forwarded by Maureen

    Two men were talking. "So, how's your sex life?"

    "Oh, nothing special. I'm having Social Security sex."

    "Social Security sex?"

    "Yeah, you know; I get a little each month, but not enough to live on!"



    A wife went in to see a therapist and said, "I've got a big problem, doctor. Every time we're in bed and my husband climaxes, he lets out this ear splitting yell."

    "My dear," the shrink said, "that's completely natural. I don't see what the problem is."

    "The problem is," she complained, "it wakes me up!"



    Tired of a listless sex life, the man came right out and asked his wife during a recent lovemaking session, "How come you never tell me when you have an orgasm?"

    She glanced at him casually and replied, "You're never home!"



    A man was in a terrible accident, and his "manhood" was mangled and torn from his body. His doctor assured him that modern medicine could give him back his manhood, but that his insurance wouldn't cover the surgery since it was considered cosmetic. The doctor said the cost would be $3,500 for "small, $6,500 for "medium, $14,000 for "large."

    The man was sure he would want a medium or large, but the doctor urged him to talk it over with his wife before he made any decision. The man called his wife on the phone and explained their options. The doctor came back into the room, and found the man looking dejected.

    "Well, what have the two of you decided?" asked the doctor.

    The man answered, "She'd rather remodel the kitchen."

    Forwarded by Paula, 

    Y'all won’t believe this! This restaurant is in Arizona and is called "The Heart Attack Grill!" I am serious!!!

    They feature food that is deliberately BAD for you and rate their burgers by how many heart bypasses it will bring on! They fry their french fries in pure lard. They also sell cigarettes, JOLT cola, and other bad-for-you stuff. You will NOT believe the burgers--complete with lots of bacon and cheese.

    The waitresses are dressed in skimpy nurses’ outfits. If a guy's heart wasn't already in trouble from the food, the sexy ladies will probably finish him off.

    Forwarded by Paula

    When they arrived at the doctors, they explained to the doctor about the problems they were having with their memory. After checking the couple out, the doctor told them that they were physically okay but might want to start writing things down and make notes to help them remember things. The couple thanked the doctor and left.

    Later that night while watching TV, the man got up from his chair and his wife asked, "Where are you going?"

    He replied, "To the kitchen."

    She asked, "Will you get me a bowl of ice cream?"

    He replied, "Sure."

    She then asked him, "Don't you think you should write it down so you can remember it?"

    He said, "No, I can remember that."

    She then said, "Well I would also like some strawberries on top. You had better write that down because I know you'll forget that."

    He said, "I can remember that, you want a bowl of ice cream with strawberries."

    She replied, "Well I also would like whipped cream on top. I know you will forget that so you better write it down."

    With irritation in his voice, he said, "I don't need to write that down! I can remember that." He then fumes into the kitchen.

    After about 20 minutes he returned from the kitchen and handed her a plate of bacon and eggs. She stared at the plate for a moment and said angrily:

    "I TOLD you to write it down! You forgot my toast!"

    Forwarded by Maureen

    Dear Abby,

    I am a crack dealer in Beaumont, Texas, who has recently been diagnosed as a carrier of HIV virus. My parents live in Fort Worth. One of my sisters lives in Pflugerville and is married to a transvestite. My father and mother have recently been arrested for growing and selling marijuana and are both heroin addicts. They are financially dependent on my other two sisters, who are prostitutes in Dallas and also both heroin adicts.

    I have two brothers: one is currently serving a life sentence at Huntsville for the murder of a teenage girl in 1994. My other brother is currently in jail awaiting charges of sexual misconduct with his three children. I have recently become engaged to marry a former full-time prostitute who lives in Austin. She is currently a part time 'working girl'.

    All things considered, my problem is this. I love my fiancé and look forward to bringing her into the family. I certainly want to be totally open and honest with her.

    Should I tell her about my cousin who supports Obama for President?

    Worried About My Reputation

    Forwarded by Dick Haar

    Knowing my genius for investing, here are some financial terms with which you should be familiar......
    BULL MARKET -- A random market movement causing an investor to mistake himself for a financial genius.
    BEAR MARKET -- A 6 to 18-month period when the kids get no allowance, the wife gets no jewelry, and the husband gets no sex.
    MOMENTUM INVESTING -- The fine art of buying high and selling low.
    VALUE INVESTING -- The art of buying low and selling lower.
    P/E RATIO -- The percentage of investors wetting their pants as the market keeps crashing.
    BROKER -- What my broker has made me.
    STANDARD & POOR -- Your life in a nutshell.
    STOCK ANALYST -- Idiot who just downgraded your stock.
    STOCK SPLIT -- When your ex-wife and her lawyer split your assets equally between themselves.
    FINANCIAL PLANNER -- A guy who actually remembers his wallet when he runs to the 7-11 for toilet paper and cigarettes.
    MARKET CORRECTION -- The day after you buy stocks.
    CASH FLOW -- The movement your money makes as it disappears down the toilet.
    YAHOO -- What you yell after selling it to some poor sucker for $240 per share.
    WINDOWS 2000 -- What you jump out of when you're the sucker that bought Yahoo at $240 per share.
    INSTITUTIONAL INVESTOR -- Past year investor who's now locked up in a nuthouse.
    PROFIT -- Religious guy who talks to God.

    Forwarded by Team Carper

    An elderly couple was driving across the country, and the woman was driving. She gets pulled over by the highway patrol. The officer approaches the driver’s window and says, “Ma’am, did you know you were speeding?” The woman turns to her husband and asks, “What did he say?” The old man yells, “HE SAYS YOU WERE SPEEDING!”

    The patrolman says, “May I see your license?” The woman turns to her husband and asks, “What did he say?” The old many again yells, “HE WANTS TO SEE YOUR LICENSE!” The woman gives the patrolman her license.

    The patrolman looks at her license and says, “I see that you are from Kansas. I spent some time there once, met a woman there and had the worst sex I have ever had!” The old woman again turns to her husband and says, “What did he say?” This time the husband yells, “HE THINKS HE KNOWS YOU!”

    Forwarded by Team Carper

     Subject:  Where to live after you retire

         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 multi-lingual.
         5. You've worn out a car horn.
         6. You think eye contact is an act of aggression.

         You can Live in Maine 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

         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

     AND You can live in Florida where..

     1. You eat dinner at 3:15 in the afternoon.
     2. All purchases include a coupon of some kind -- even houses and cars.
     3. Everyone can recommend an excellent dermatologist.
     4. Road construction never ends anywhere in the state.
     5. Cars in front of you are often driven by headless people

    Forwarded by Auntie Bev
    Installing a Husband (old but still cute)

    Dear Tech Support


    Last year I upgraded from Boyfriend 5.0 to Husband 1.0 and noticed a distinct slow down 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 


    ·        NASCAR 6.0, 

    ·        NFL 5.1  and 

    ·        Golf Clubs 4.1.


    Conversation 8.0 no longer runs, and Housecleaning 2.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




    First, keep in mind, 

    ·        Boyfriend 5.0 is an Entertainment Package, while 

    ·        H usband 1.0 is an operating system. 


    Please enter command: ithoughtyoulovedme.html and try to download Tears 6.2  and do not forget to install the  Guilt 3.0 update. 

    ·        If that application works 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 2.5Happy 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.  These are unsupported applications 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 pe rformance. We recommend 

    ·        Cooking 3.0 and 

    ·        Hot Lingerie 7.7. 

    Old Blonde Jokes Forwarded by Paula


    ......she thought a quarterback was a refund.

    ......she thought General Motors was in the army.

    ......she thought Meow Mix was a CD for cats. the bottom of an application, where it says "sign here", she wrote" Sagittarius."


    ......she took a ruler to bed to see how long she slept. .

    ......she sent a fax with a stamp on it.

    ......she thought TuPac Shakur was a Jewish holiday.

    ......under "education" on a job application, she put "Hooked on Phonics."


    ......she tripped over a cordless phone. .

    .....she spent 20 minutes looking at the orange juice because it said "concentrate."

    ......she told me to meet her at the corner of "walk" and "don't walk

    ......she asked for a price check at the Everything For A Dollar Store.

    ......she tried to put M&M's in alphabetical order.


    ......she studied for a blood test.

    ......she sold her car for gas money.

     .....when she went to the airport and saw a sign that read "Airport Left", she turned around and went home.


     ......when she heard that 90% of all crimes occurred around home, she moved.

    ......she thinks Taco Bell is the Mexican phone company.

    ......she thought if she spoke her mind, she'd be speechless.

     ......she thought that she could not use her AM radio in the evening.

    and finally, SHE WAS SOOOOOO BLONDE...

    .....she had a shirt that said TGIF, which she thought stood for 'Tits Go In Front'

    So…you’ve seen them before? Well, laugh some more!

    A.) Two blondes with hammers, Ann and Susie were doing some carpenter work on a Habitat for Humanity house. Ann, who was nailing down house siding, would reach into her nail pouch, pull out a nail, and either toss it over her shoulder or nail it in.

    Susie, figuring this was worth looking into, asked, 'Why are you throwing those nails away?'

    Ann explained, 'When I pull a nail out of my pouch, about half of them have the head on the wrong end, and I throw them away.'

    Susie got very upset and yelled, 'You moron! Those nails aren't defective! They're for the other side of the house.


    B.) A blonde was driving home after a game, and got caught in a really bad hailstorm. Her car was covered with dents, so the next day she took it to a repair shop.

    The mechanic saw that she was a blonde, so he decided to have some fun. He told her to go home and blow into the tailpipe really hard, and all the dents would pop out.

    So the blonde went home, got down on her hands and knees, and started blowing into the tailpipe. Nothing happened. So she blew a little harder, and still nothing happened.

    Her blonde roommate saw her, and asked, 'What are you doing?'

    The first blonde told her how the repairman had instructed her to blow into the tail pipe in order to get all the dents to pop out.

    The roommate rolled her eyes and said, 'Uh, like, hello! You need to roll up the windows first.'


    C.) Did you hear about the two blondes who almost froze to death in a drive-in movie? They had gone to see 'Closed for the Winter'.


    D.) A blonde was shopping at Target, and came across a shiny silver thermos. She was fascinated by it, so she picked it up and took it to the clerk to ask what it was.

    The clerk said, 'That's a thermos ... It keeps hot things hot, and cold things cold.'

    'Wow, said the blonde, 'that's amazing . I'm going to buy it!'

    So she bought the thermos and took it to work the next day. Her boss saw it on her desk. 'What's that?' he asked.

    'Why, that's a thermos ... It keeps hot things hot and cold things cold,' she replied.

    Her boss inquired, 'What do you have in it?' The blonde replied, 'Two popsicles and some coffee.'


    E.) A blonde goes into work one morning crying her eyes out. Her boss asks sympathetically, 'What's the matter?'

    The blonde replies, 'Early this morning I got a phone call saying that my mother passed away.'

    The boss, feeling sorry for her, says, 'Why don't you go home? Take the day off to relax and rest.'

    'Thanks, but I'd be better off here. I need to keep my mind off it, and I have the best chance of doing that here.'

    The boss agrees and the blonde works as usual. A couple of hours pass, and the boss decides to check on the blonde. He looks out from his office, and sees the blonde crying hysterically.

    'Are you okay?' he asks.

    'No,' exclaims the blonde, 'I just received a horrible call from my sister. Her mother died, too!'


    Forwarded by Maureen

    The Irish Millionaire
     Mick, from Dublin, appeared on 'Who Wants To Be A Millionaire' and towards the end of the program had already won 500,000 pounds.
     You've done very well so far,' said, Chris Tarrant, the show's presenter, 'but for a million pounds you've only got one lifeline left - phone a friend.
     Everything is riding on this question......will you go for it?'
    'Sure,' said Mick. 'I'll have a go!' 'Which of the following birds does NOT build its own nest?'

     A: Sparrow
     B: Thrush
     C: Magpie
     D: Cuckoo

    I haven't got a clue,' said Mick, 'so I'll use me last lifeline and phone me friend Paddy back home in Dublin'. Mick called up his mate, and told him the circumstances and repeated the question to him.
    'Fookin hell, Mick!' cried Paddy. 'Dat's's a cuckoo.'

    'Are you sure?'
    'I'm fookin sure.' Mick hung up the phone and told Chris, 'I'll go wit Cuckoo as me answer.'
    'Is that your final answer?' asked Chris
    'Dat it is, Sir.'
    There was a long - long pause, and then the presenter screamed, 'Cuckoo is the correct answer! Mick, you've won 1 million pounds!'
    The next night, Mick invited Paddy to their local pub to buy him a drink.

    'Tell me, Paddy? How in Heaven's name did you know it was da Cuckoo that doesn't  build its own nest?
     'Because he lives in a Fookin clock!'


    A few days ago I was having some work done at my local garage. A blonde came in and asked for a seven-hundred-ten.

    We all looked at each other and another customer asked, 'What is a seven-hundred-ten?' She replied, 'You know, the little piece in the middle of the engine, I have lost it and need a new one..'

    She replied that she did not know exactly what it was, but this piece had always been there.

    The mechanic gave her a piece of paper and a pen and asked her to draw what the piece looked like.

    She drew a circle and in the middle of it wrote 710. He then took her over to another car which had its hood up and asked 'is there a 710 on this car?'

    She pointed and said, 'Of course, its right there.'

    If you're not sure what a 710 isClick Here <


    Humor Between July 1 and August 31, 2008 ---

    Humor Between June 1 and June 30, 2008 ---

    Humor Between June 1 and June 30, 2008 ---

    Humor Between May 1 and May 31, 2008 ---

    Humor Between May 1 and May 31, 2008 ---

    Humor Between April 1 and April 30, 2008 ---

    Humor Between March 1 and March 31, 2008 ---

    Humor Between February 1 and February 29, 2008 ---   

    Humor Between January 1 and January 31, 2008 ---  

    Tidbits Directory for Earlier Months and Years ---


    And that's the way it was on September 30, 2008 with a little help from my friends.


    Bob Jensen's Threads ---

    International Accounting News (including the U.S.) and Double Entries ---
            Upcoming international accounting conferences ---
            Thousands of journal abstracts ---

    Deloitte's International Accounting News ---

    Association of International Accountants --- 

    Wikipedia has a rather nice summary of accounting software at
    Bob Jensen’s accounting software bookmarks are at

    Bob Jensen's accounting history summary ---

    Bob Jensen's accounting theory summary ---


    AccountingWeb ---
    AccountingWeb Student Zone ---


    SmartPros ---


    I highly recommend TheFinanceProfessor (an absolutely fabulous and totally free newsletter from a very smart finance professor, Jim Mahar from St. Bonaventure University) --- 


    Financial Rounds (from the Unknown Professor) ---


    Bob Jensen's bookmarks for accounting newsletters are at 

    News Headlines for Accounting from --- 
    An unbelievable number of other news headlines categories in are at 


    Tom Selling's blog The Accounting Onion (great on theory and practice) ---


    Jack Anderson's Accounting Information Finder ---


    Gerald Trite's great set of links --- 


    The Finance Professor --- 


    Walt Mossberg's many answers to questions in technology ---


    How stuff works --- 


    Household and Other Heloise-Style Hints --- 


    Bob Jensen's video helpers for MS Excel, MS Access, and other helper videos are at 
    Accompanying documentation can be found at and 


    Click on 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)
    190 Sunset Hill Road
    Sugar Hill, NH 03586
    Phone:  603-823-8482 


    Free Online Textbooks, Videos, and Tutorials ---
    Free Tutorials in Various Disciplines ---
    Edutainment and Learning Games ---
    Open Sharing Courses ---



    I highly recommend TheFinanceProfessor (an absolutely fabulous and totally free newsletter from a very smart finance professor, Jim Mahar from St. Bonaventure University) --- 


    Bob Jensen's bookmarks for accounting newsletters are at 

    News Headlines for Accounting from --- 
    An unbelievable number of other news headlines categories in are at 


    Many useful accounting sites (scroll down) ---


    Jack Anderson's Accounting Information Finder ---


    Gerald Trite's great set of links --- 


    The Finance Professor --- 


    Walt Mossberg's many answers to questions in technology ---


    How stuff works --- 


    Household and Other Heloise-Style Hints --- 


    Bob Jensen's video helpers for MS Excel, MS Access, and other helper videos are at 
    Accompanying documentation can be found at and 


    Click on 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)
    190 Sunset Hill Road
    Sugar Hill, NH 03586
    Phone:  603-823-8482 









    August 31, 2008



    Bob Jensen's New Bookmarks on August 31, 2008
    Bob Jensen at Trinity University 

    For earlier editions of Tidbits go to
    For earlier editions of New Bookmarks go to 

    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

    Bob Jensen's Blogs ---
    Current and past editions of my newsletter called New Bookmarks ---
    Current and past editions of my newsletter called Tidbits ---
    Current and past editions of my newsletter called Fraud Updates ---

    Many useful accounting sites (scroll down) ---

    Bob Jensen's past presentations and lectures ---   

    Bob Jensen's various threads ---
           (Also scroll down to the table at )

    Roles of a ListServ ---

    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

    Bob Jensen's Home Page is at

    CPA Examination ---
    Free CPA Examination Review Course ---
    AccountingWeb Student Zone --- 

    Wikipedia has a rather nice summary of accounting software at

    Bob Jensen’s accounting software bookmarks are at

    Bob Jensen's accounting history summary ---

    Bob Jensen's accounting theory summary ---

    Tom Selling's blog The Accounting Onion (great on theory and practice) ---

    XBRL and IDEA
    Probably the most important XBRL and IDEA links at the moment are as follows:

    IDEA (destined to replace EDGAR) ---

    XBRL Home --- is XBRL International. is the U.S. jurisdiction.

    Financial Reporting Using XBRL (maintained by Charles Hoffman) ---

    XBRL Canada Blog (maintained by Jerry Trites) ---

    XBRL Networking ---

    Hitachi interactive data blog on XBRL --- 

    TryXBRL ---

    Bryant University Resource Center ---

    Rivet XBRL Markup Software (Proprietary) ---

      UB Matrix Enterprise Applications Suite (Proprietary) ---

    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) --- 
    Part 2 (unfunded liabilities of $55 trillion plus) ---
    Part 3 (this is a non-partisan problem being ignored in election promises) ---

    Watch the Video of the non-sustainability of the U.S. economy (CBS Sixty Minutes TV Show Video) --- 
    Also see "US Government Immorality Will Lead to Bankruptcy" in the CBS interview with David Walker ---
    Also at Dirty Little Secret About Universal Health Care (David Walker) ---

    Accountancy Discussion ListServs:

    For an elaboration on the reasons you should join a ListServ (usually for free) go to
    AECM (Educators) 
    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 ---

    CPAS-L (Practitioners) 
    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)
    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.
    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 
    This discussion group is headed by Randy Schostag [RSchostag@BUSVALGROUP.COM

    Tidbits Directory for Earlier Months and Years ---

    New Bookmarks Directory for Earlier Months and Years ---

    Fraud Updates is now available at

    Links to my other fraud modules can be found at

    Bob Jensen's Threads ---

    Bob Jensen's new timeline on the worldwide scandals using derivative financial instruments and the evolution of accounting standards for derivatives ---

    Links to Documents on Fraud ---

    Bob Jensen's search helpers are at

    Bob Jensen's Bookmarks ---

    Bob Jensen's links to free electronic literature, including free online textbooks ---

    Bob Jensen's links to free online video, music, and other audio ---

    Bob Jensen's documents on accounting theory are at 

    Bob Jensen's links to free course materials from major universities ---

    Bob Jensen's links to online education and training alternatives around the world ---

    Bob Jensen's links to electronic business, including computing and networking security, are at

    Bob Jensen's links to education technology and controversies ---

    Bob Jensen's home page ---

    Bob Jensen's complete set of Enron Updates are at

    Bob Jensen's threads on the Enron scandal are at

    Large International Accounting Firm History ---

    Global Perspectives on Accounting Education ---

    A Vision of Students Today (Video) ---

    Humor Between July 1 and August 31, 2008 ---

    Humor Between June 1 and June 30, 2008 ---

    Humor Between May 1 and May 31, 2008 ---

    Humor Between May 1 and May 31, 2008 ---

    Humor Between April 1 and April 30, 2008 ---

    Humor Between March 1 and March 31, 2008 ---

    Humor Between February 1 and February 29, 2008 ---   

    Humor Between January 1 and January 31, 2008 ---  

    Tidbits Directory for Earlier Months and Years ---

    Notable Quotations About IFRS
    Won't it be fun to change from FASB standards to IASB standards in all of our intermediate and advanced accounting courses?
    Grin and bear it --- come on, you can do it! Teach more about faith and less about facts! All your old multiple choice test banks will be obsolete. Sigh!

    The IFRS system is generally considered more flexible, and giving companies the choice could spell the end of GAAP, experts believe.
    Marcy Gordon, Yahoo News, August 25, 2008 ---

    We sincerely apologize for these roundabout descriptions of accounting for securitizations under IAS 39, but we are convinced that it is not susceptible to any form of straightforward translation.
    Marty Rosenblatt, Jim Johnson & Jim Mountain, "Securitization Accounting The Ins and Outs (And Some Do’s and Don’ts) of FASB 140, FIN 46R, IAS 39 and More . . .," Deloitte, Seventh Edition, July 2005 ---
    Jensen Comment
    Note that the authors are not referring to "translation" from a foreign language, or are they?
    Also note that aside from the international IAS 39 module, the above document was written after QSPEs were giveth in FAS 140 and before QSPEs were  taketh away in FAS 140(R). In other words this Deloitte document was written before revision of FAS 140, but then who cares since IAS 39 will soon take over in a "roundabout way."

    Also see

    Notable Quotations About Accounting Firm Research Studies

    Second, there's a big agency problem inherent with the report. E&Y did this report for the PE industry. Since they get a significant amount of fees from doing transactions advisory work (due diligence, forensic accounting, etc...), they have a vested interest in keeping their client companies (i.e. the PE firms) happy. So, there are some biases that could be present in the report (What, the accounting firm could be biased, I'm shocked. Shocked, I say!).
    "Do PE Firms Manage Portfolio Firms, or Just Manipulate Balance Sheets?" Financial Rounds Blog --- July 14, 2008 ---

    There is an old expression "it's close enough for government work." Lets say a speaker says "it's close enough for accounting work." What word describes the relationship between those two phrases? In other words, the audience knows the original phrase and they know the speaker, in a sense, is modifying the phase to make a point.
    Glen Gray

    Notable Quotations About the SEC's New Proposals for Oil & Gas Accounting

    I think I can always tell when the fix is in. First, big lies are woven into a large dose of truth, so they won't look to be as big as they are. There are certainly many things in the SEC's proposal to recommend it, especially along the lines of expanding the types of reserves that would be disclosed, and updating important definitions. Second, when the justification for a proposal makes no sense, there can be no debate; you can't tell the emperor he's naked. The lesson of the Cox's SEC is to never forget about the big special interests that write big checks to the big politicians that made him emperor for a day.
    Tom Selling, "SEC on Oil and Gas Disclosures: Current Prices Aren't 'Meaningful'?" The Accounting Onion, July 25, 2008 ---

    Bob Jensen's threads on fair value accounting are at

    Negative Emotions and Gender, Occupation, and Facial Expressions

    July 9, 2008 message from Victor Ricciardi [victor.ricciardi@YAHOO.COM]

    I thought this group would enjoy reading my current working paper on negative emotion, gender, and money management. The paper is entitled "The Financial Psychology of Worry and Women." I believe this topic area demonstrates how financial matters have detrimental influences on women's health issues. I was wondering if this behavioral experience exists in the accounting profession, in other words, what is the role of negative emotion and gender within the field of accounting; any viewpoints or comments on this issue?

    The abstract of the paper is available at: 

    Also, if you scroll down the webpage you can download a PDF file of the paper.

    Victor Ricciardi, Assistant Professor of Finance, Kentucky State University

    SSRN Coordinator: Behavioral & Experimental Research The Social Science Research Network at 

    Electronic copies of my papers are available from my author page at the SSRN Electronic Library at:

    Editor, SSRN Behavioral & Experimental Finance Journal:

    July 9, 2008 reply from Bob Jensen

    Hi Victor,

    Here’s a rather interesting study of emotions and stress on physical variables, including facial expressions. The study is quite interesting, although gender differences are not featured in this study.

    Subjects studied included 40 tax accountants --- 

    Another very professional study of interest might be  [www_sciencedirect_com]

    Thank you for sharing your work with us.

    Bob Jensen

    More on How White Collar Crime Pays Even When You Get Caught

    "The Milberg Double Cross," The Wall Street Journal, July 14, 2008; Page A16 ---

    The Justice Department recently took a bow in its legal victory over the law firm of Milberg Weiss. But now it seems Justice may itself have been conned by the notorious firm and its felonious former lead partner, Melvyn Weiss.

    It was only last month that Milberg agreed to pay $75 million as part of a nonprosecution agreement over Justice's charges that it had run a 30-year kickback scheme. Not 30 days, or months. Thirty years. The firm got off easy, not least because it finally cut ties with the partners (including Weiss) it blamed for the scheme. Yet according to papers filed in New York State court, even as Milberg was pinning the blame on these criminals and telling Justice it had thrown them overboard, the law firm's remaining partners were agreeing to pay millions to Weiss going forward. Apparently crime does pay.

    Continued in article

    Jensen Comment

    If I'm not mistaken, before we knew Melvyn Weiss was going to become a convicted felon, he was a very sanctimonious featured plenary session speaker a few years ago at an American Accounting Association annual meeting. I no longer have the video (I gave it and my other videos to the accounting history archives at the University of Mississippi.) My recollection is that Mr. Weiss lambasted CPA firms for wanting limited liability.

    July 14, 2008 reply from Glen Gray [glen.gray@CSUN.EDU]

    Michael Milken has always been my role model (hero?). Yes, he was fined $500 million and, yes, he did spend time (less than 2 years) at Club Fed, and, yes, he did have to give up his toupee, but he was worth $1 billion before he paid his fine and went to Club Fed. Now, he is an institution--and according to his web site, he is "widely respected and influential." According to Wikipedia, he "is a prominent American financier, felon and philanthropist." His current worth is $2.1 billion!

    Bob Jensen's threads on how white collar crime pays even if you get caught are at



    "We must break the prism of corporate interests," by Prem Sikka, The Guardian, July 24, 2008 ---

    BNA Accounting Policy & Practice Series ---

    In Spite of the Economic Downturn, There's a Shortage of Accounting and Finance Employees
    A shortage of experienced accounting and finance professionals continues to affect employers around the world, according to a report by Robert Half. For the second consecutive year, more than half (56 percent) of the finance and human resources managers surveyed worldwide reported difficulty finding skilled job candidates. The report also found that retention concerns have risen significantly in the last year.

    SmartPros, July 14, 2008 ---

    Update on the 70th Wedding Anniversary of Herb and Lenore

    Below is a clipping from the Athens Banner-Herald that was forwarded to me by Denny Beresford. Many of you are too young to have known about Herb Miller. But some of you are friends of both Herb and Lenore. And many of you, like me, passed the CPA Examination back in the 1950s, 1960s, and 1970s because you were schooled the Finney and Miller highly successful basic and intermediate textbooks. The accounting textbook market was not as fragmented in those days as it is today such that almost all colleges at some point adopted FM textbooks. No textbook in the world came even close to the FM intermediate accounting textbook.

    Although Professor Finney started the FM series, the continued success of this series that helped make Herb and Lenore multimillionaires was mostly due to the solo efforts of Herb and Lenore (she was also an accountant). It was a lot of work keeping this series up to date back in the days when successful textbooks were not nearly the publisher-factory products that they are today. Many nights the Millers were awakened in the wee hours of the morning by students somewhere in the world panicked over forthcoming examinations and climbing the walls because they just could understand a textbook illustration or problem at the end of a chapter. Herb in his laid back manner would calm these students down and then reason things out with them on the telephone in a Socratic manner at any time of day. Even when I was a new mathematically-inclined hotshot assistant professor, Herb could humble me with a Socratic question about accounting. I mean why should an accountics assistant professor have to know something about a new accounting standard?

    Herb was the ultimate in politeness, and Lenore was the ultimate in outgoing friendliness. They humbled me many a time at the bridge table. I remember bidding seven no-trump one time and going down by one trick. I asked Herb why he doubled. He shook his head from side to side and said it was unimaginative since he had two aces and would be the first to lead.

    I’ve already mentioned in the June 30 edition of New Bookmarks that in early life Herb played the clarinet in a traveling dance band and in later life was sometimes in the racing pit of AJ Foyt. It’s still hard to picture him in either of these roles since Herb really was more an accounting stereotype. He was a pillar of the American Accounting Association for many years and was President of the AAA during the AAA’s Golden Anniversary.

    You can read more about Herb in his Accounting Hall of Fame module ---


    Herb was born August 11, 1914 which means he will soon be 94 years old. Lenore is 39. She really was a trophy wife even though, in truth, she is nearly as old as Herb. It’s hard to be 39 and celebrate your 70th wedding anniversary.


    From: Dennis Beresford []
    Sent: Tuesday, July 08, 2008 12:24 PM
    To: Jensen, Robert
    Subject: Re: [Fwd: Re: FYI]



    I've copied the story below and hope you can read this.


    Lenore and Herbert E. Miller didn't want a big fuss. They didn't want their daughter to spend too much money. And they sure didn't want to travel far from their Athens home. (They really didn't want their names in the paper, either.)

    But 70 years together is a big deal. And their only child Barbara Clemmons is proud. Plus, celebrating the couples' milestone anniversaries in special ways is their family tradition.

    In 1988, Clemmons and her husband, Charlie, gifted her parents a special display of 50 Liberty Gold pieces minted in 1938. In 1998, she and Charlie met the couple in Seattle so they could eat dinner in the revolving restaurant at the Space Needle and look down on Fourth of July fireworks.

    This year, the Millers were toasted during a small reception at the Athens Country Club, where they enjoyed snacks, champagne and cake.

    "For 70, we had to do something. I think it's totally remarkable," Clemmons said, but not surprising. "Growing up, I don't think I ever heard them raise their voices to each other. The only time that I remember there was any real stress was when I got married, the first time."

    One visit to the altar was enough for the Millers when they joined hands July 1, 1938, at the Little Brown Church in the Vail in Nashua, Iowa. They met as senior accounting students at the University of Iowa.

    "My dad was interested in asking her out. He would see her walking down the street and walk (around) the block quickly, so he could walk in the opposite direction (and) talk to her," Clemmons said.

    More "reverse psychology" followed, Lenore told her daughter.

    "He told her that kissing a girl was like kissing a fence post," Clemmons said.

    Her mom took it as a challenge. Soon enough they were engaged.

    "She was 24 when they got married, because my dad would not marry her until he was out of college and had a job," Clemmons said. "That was the Depression. I remember them saying they had $38 dollars in the bank."

    Her dad went on to teach at Simpson College, the University of Minnesota and the University of Michigan as well as Michigan State University. Their daughter learned through her parents' focus on education and business sense.

    "I was once terribly afraid to bring home from high school a B- because it was almost a C," said Clemmons, who holds a master's degree in history and seminary degree from Harvard. "In graduate school, C equals failure. That was the standard that was percolating."

    The Millers moved to Athens in 1975, where he made his mark at the University of Georgia. Herbert Miller became the first director of the J.M. Tull School of Accounting at the University of Georgia's Terry College of Business. The Miller Chair of Financial Accounting was established in his honor.

    Today, they still drive and live in the same home they've shared for many years.

    "They were very good at raising an independent person, since they were both kind of independent people. (They are) very close to each other. They are a whole unit themselves," Clemmons said. "They're just the same as they've always been."

    Which is why Clemmons could not let their 70th go without special mention of the Millers in Athens. Being proud about their longevity together is worth being in trouble with mom and dad, she said.

    Besides, Clemmons still goes by the rule they used to apply to her as a young girl.

    "'We trust you to do the right thing,'" she said.

    Erin Rossiter is a staff writer for the Athens Banner-Herald and can be reached at

    Published in the Athens Banner-Herald on 070508
    Click here to return to story:

    "Texas CPA Society wins national award for student Web site," AccountingWeb, August 2008 ---

    Texas Society of CPAs (TSCPA) was awarded a 2008 Gold Circle Award from the American Society of Association Executives (ASAE) & The Center for Association Leadership. The award recognizes innovative ideas and achievement in association communication campaigns. TSCPA was given the Gold Circle Award in the micro-web site category, for its interactive student site Destination CPA.

    Selected from a record 373 entries representing 248 organizations, 19 associations were recently honored with a 2008 Gold Circle Award. Recipients were chosen for demonstrating excellence in communications in the categories of print publishing, writing, electronic publishing, media relations and emerging communication vehicles.

    Destination CPA maps out the route to becoming a certified public accountant for both high school and college students. Teachers are also welcome to come along for a ride, where they can find links to classroom resources like lesson plans, career videos and more.

    About TSCPA

    TSCPA is a nonprofit, voluntary, professional organization representing Texas CPAs. The society has 20 local chapters statewide and has 28,000 members, one of the largest in-state memberships of any state CPA society in the United States.

    About ASAE & The Center for Association Leadership

    ASAE & The Center for Association Leadership foster a learning community of association professionals, industry partners, outside thought leaders, and others.

    The American Society of Association Executives is an individual membership organization of more than 22,000 association executives and industry partners representing more than 11,000 organizations. Its members manage trade associations, individual membership societies, and voluntary organizations across the United States and in 50 countries around the globe.

    The Center for Association Leadership is a provider of learning, knowledge, and future-oriented research for the association profession. The Center delivers learning experiences, performance-enhancing resources, opportunities for peer-to-peer collaboration, and strategic tools and data designed to advance the association profession.

    ASAE Services Inc. - ASAE's wholly owned subsidiary - is a source of business products and services for the association community.

    Bob Jensen's threads on accountancy careers are at

    Outside Reading Suggestions for Accounting Students

    July 15, 2008 --- Dennis Beresford [dberesfo@TERRY.UGA.EDU]

    I strongly suggest you consider asking the students to read, "Extraordinary Circumstances: The Journey of a Corporate Whistleblower," by Cynthia Cooper. It is interesting and very relevant to any business student and can be read in just a few hours.

    For a much more challenging assignment, you might consider for future semesters, "The Snowball: Warren Buffett and the Business of Life," by Alice Schroeder, a former E&Y senior manager, former FASB project manager, and leading financial analyst on Wall Street. It will be published on September 29 and will be the definitive work on America's leading investor of the past fifty years or so.

    Denny Beresford

    July 16, 2008 reply from Bob Jensen

    I do not want to detract for Denny's recommendation, because that book does demonstrate the importance of internal controls, ethics, and internal auditing.

    But if you looking for another book, you might consider Nancy Begranoff's book review:

    "Interestingly, the book begins with a Statement of Values reprinted
    from Enron's 1998 annual report. It also describes the Code of Ethics
    at Enron and how Lay often touted the integrity of the company's
    leaders. Amazing."

    Book Reviews by Nancy Bagranoff

    Vol. 18, No. 2
    Fall 2004
    pp. 127-131

    BETHANY MCLEAN AND PETER ELKIND, The Smartest Guys in the Room (New York, NY: Penguin Group, 2003).

    Many books describe the Enron scandal. This book's special niche is twofold. First, it focuses on the cast of characters responsible--these are the smartest guys, or perhaps the greediest guys, on the planet. Second, the authors provide a detailed explanation of the finance and accounting issues behind the company's downfall. They can do so because McLean, in addition to her reporting skill, was also a Goldman Sachs analyst who was among the first to question Enron's business model and practices (see McLean's [March 5, 2001, pages 122-125] Fortune article: "Is Enron Overpriced?").

    The scandal cast is large, so large that the book includes a guide to people and their jobs. The cast includes insiders, accountants at Arthur Andersen, and the lawyers, bankers, and analysts at affiliated firms. Ken Lay is the charismatic leader who set the tone at the top--the culture of greed. Jeffrey Skilling is the brilliant Harvard M.B.A. who was an intellectual purist and gambler. These qualities may have helped him to overlook the reality behind his ideas and take enormous risks. The accountants in the story include Andy Fastow, the CFO who plea-bargained for a reduced sentence in return for ratting out the rest of the group; Rick Causey, the Chief Accounting Officer; and David Duncan, Enron's engagement partner at Arthur Andersen, best known for being a "yes man" to Enron management. Every reader will have a favorite villain. Mine is Andy Fastow, who the book portrays as the guy who came up with the schemes to juggle the numbers, while robbing the company like a common thief.

    The Smartest Guys in the Room details Fastow's creative accounting "Structured financing" is the term used to describe the inventive measures Fastow's team used to find Enron's too-good-to-be-true growth. One of the tools employed was a by-product of "securitization" (i.e., bundling a bunch of loans and getting investors to purchase them--like factoring accounts receivable) that allowed independent entities to purchase one or more securitized assets. The independent entity set up to do this is the now infamous special purpose entity (SPE). Enron became enamored with SPEs. Fastow set up SPEs to bear risk and improve Enron's financial picture by supplying cash flows and earnings. SPEs are not necessarily illegal and Enron's creative accounting began as just a stretch of the rules. But Enron needed capital to continue its growth. This pressured the financial team to increase cash flow and earnings. Additionally, Fastow started thinking he should grab more profits for himself. Some of his early SPEs were named after Star Wars characters (JEDI and Chewco, for example), but later entities that Fastow himself controlled were named for his family. For example, the LJM funds are an acronym representing Fastow's wife and children's first names. The chutzpah of some of Fastow's deals is breathtaking. Accountants will love reading about them and wondering how anyone who took Accounting 101 could fail to see through them.

    Jeffrey Skilling brought his consulting experience in the financial services industry to Enron where he introduced the concept of trading natural gas contracts, thereby creating a complex and hard-to-understand business model. He insisted that Enron value its energy trade transactions using mark-to-market accounting. The Smartest Guys in the Room explains that Skilling wanted this accounting method to be used at Enron so badly that it was "make or break" to get him to join the company. Perhaps his motives were pure and he genuinely thought this was the best accounting method for these transactions. He's been indicted, so the courts will decide. Regardless of his intent, we now know the dangers of applying mark-to-market to difficult-to-value assets, such as energy contracts. The book returns to the concept of mark-to-market many times in describing Enron's escalating financial woes. It illustrates accounting method abuse, offering instructors rich fodder for classroom debates over principles- versus rules-based standards and conventional versus riskier accounting methods.

    This book articulates Enron's undoing of Arthur Andersen. In Andersen's culture, auditors saw themselves as enablers rather than as protectors of the public interest. Andersen's auditors did, of course, question the financials and much of Andy Fastow's creative accounting. The trouble is that they bent under management pressure and continued to issue clean opinions. Even worse, anyone within the firm who objected, such as Carl Bass from Andersen's Professional Standards Group, was ignored or removed from the Enron account. Exacerbating Andersen's lack of independence was the fact that many of the Enron's accountants were former Andersen employees. For example, Rick Causey and David Duncan were close friends who began their careers together at Andersen. The book explains, "The problem, of course, wasn't merely that Duncan was going to the Masters with Causey; it was that he saw things the way the client wanted him to see them and gave his assent to Enron accounting treatments that bore little relationship to economic reality" (p. 147). Of course, the accountants were not the only ones who stood by and let Enron happen. McLean and Elkind appropriately take the lawyers, bankers, and analysts to task, too.

    The Enron story is likely to appear in accounting classrooms for years, much as Equity Funding's scandal did throughout the 1970s and beyond. Enron's downfall contains many useful lessons and this book may be the best at detailing them for accounting and auditing students. It is also a great morality play with important ethical lapses and lessons. Interestingly, the book begins with a Statement of Values reprinted from Enron's 1998 annual report. It also describes the Code of Ethics at Enron and how Lay often touted the integrity of the company's leaders. Amazing.

    Accounting Information Systems faculty might use the book to spark debates among students about how IT controls or continuous auditing might have helped to protect investors. They can also discuss how much Andersen's reliance on consulting revenues might have helped them to turn a blind eye. No matter how a faculty member uses it, faculty and students will enjoy a good read.

    Old Dominion University


    July 16, 2008 message from Ruth Bender [r.bender@CRANFIELD.AC.UK]

    Not about accounting, but a great business book is Sydney Finkelstein:

    Why Smart Executives Fail: And What You Can Learn from Their Mistakes  

    I really enjoyed it, and recommended it to my students as a good read. (And I know it’s easy to review, because I wrote a review of it when it first came out.)

    And another which is a good read, albeit a bit repetitive after a while, is Warren Buffet’s collected essays: 

    (Although you always have to be careful that you’re buying the words of the man himself, and not one of the many people who ‘translate’ his ideas.)

    Ruth Bender
    Cranfield School of Management

    July 16, 2008 message from Brady, Joseph [bradyj@LERNER.UDEL.EDU]

    I recommend “More than a numbers game – a brief history of accounting”, by Thomas A. King. Mr. King traces the development of our accounting standards, from the railroad accounting era through Enron. King describes the major accounting controversies in each era. The reader gains an understanding of the differing points of view – academic, management, enforcement, public accountants, internal accountants. King writes clearly and is a good story teller, so the pace of the book is fast.

    I used the book in a senior level accounting systems course last semester, covering all 15 chapters in 3 weeks. It would be possible to go somewhat faster by jettisoning some chapters, without loss of continuity. I am sure that all my 80 students learned from the book, and most said they enjoyed learning some of the profession’s history. I liked it because it allowed me to challenge students to think about what the nature of our reporting system and of that system’s limitations. In their four years, our students learn a lot of techniques and rules; the book puts these into context and I liked the book for that reason, too.

    Mr. King began his career in public accounting. He is now Treasurer of Progressive Insurance.

    Joe Brady
    Accounting & MIS
    Lerner College of Business & Economics
    University of Delaware

    July 16, 2008 reply from David Albrecht [albrecht@PROFALBRECHT.COM]

    My favorite business fiction author is Christopher Reich.  He has three books that deal with business:
        Devil's Banker (I've read this a few times, and I always find it fascinating)
        Numbered Account (I've not read it, but have ordered it)
        The First Billion (I've not read it, but have ordered it)

    Oh, tax accounting and IRS agent.
         A brilliant cult favorite:  The Zero Effect, with Bill Pullman starring as the legendary Darryl Zero. 
         He impulsively adopts the guise of a CPA, and then is asked about the Corrodium deduction.

         Then, there is Will Ferrell's rendition of a tax auditor in Stranger Than Fiction.

    July 18, 2008 reply from Barbara W. Scofield, University of Dallas [scofield@GSM.UDALLAS.EDU]

    I have used "Paul Bunyan" because of the Accounting Hero Johnny Inkslinger, who appears in many of the tales. This is obviously a fun and fast read for students, but the satire is sharp and insightful. I have a working paper I've presented at a conference on how to use it in systems classes and identifies the best bits of the book. I can send out the paper to anyone interested.

    Also, I am currently using modified "Great Book" approach in my Accounting Theory class. At the University of Dallas, students learn history, philosophy etc. from reading the primary sources themselves instead of reading about history, philosophy. So applying that to accounting, the class reads the Conceptual Framework, Internal Control, Integrated Framework and Balance Scorecard. My criterion was to select accounting materials that have had an impact in the long term and outside of accounting.

    Barbara W. Scofield
    Associate Professor of Accounting
    University of Dallas


    How do McCain and Obama differ in terms of tax proposals?

    It would seem that our two presidential candidates are simply rearranging the deck chairs with their current tax proposals that do virtually nothing for funding their most expensive benefit programs. Neither candidate has a plan for seriously reducing our $55 trillion deficit! In fact they rarely, if ever, mention the deficit.

    From The Wall Street Journal Accounting Weekly Review on June 27, 2008

    Your Tax Bill: How McCain, Obama Differ
    by Tom Herman
    The Wall Street Journal

    Jun 18, 2008
    Page: D1
    Click here to view the full article on ---  

    TOPICS: Capital Gains, Income Tax, Individual Taxation, Tax Planning, Taxation

    SUMMARY: As the presidential campaign heats up, investment and tax advisers are warning upper-income clients to prepare for higher capital-gains taxes no matter who gets elected. Here is a look at Obama and McCain's still-evolving tax plans.

    CLASSROOM APPLICATION: This article shows how tax planning is so dependent on the unknown and unpredictable aspects of politics regarding tax law. The writer of this article offers information about how the presidential and congressional elections could impact taxpayers in the areas of income taxation, capital gains tax, and estate tax.

    1. (Advanced) How has Sen. Obama indicated he would change the income tax laws? What has Sen. McCain said his position is on changes to the income tax laws? How are these positions similar, if they are? How are they different?

    2. (Advanced) What are the candidates views on capital gains taxes? Which position would investors favor? How should the candidates' views affect planning decisions of investors?

    3. (Advanced) What are the positions of the candidates on social security taxes? What planning, if any, could be done in this area?

    4. (Advanced) Why would municipal bonds become more or less interesting, depending on the outcome of the elections?

    5. (Advanced) One investor notes the old adage that you should not make investment moves based solely on tax reasons. Why is that? What impact should the tax effects have in the decision-making process?

    6. (Advanced) What are the positions of the candidates on the estate tax? What is the current estate tax law? What kinds of planning could be formulated as a result of the current law and proposed changes?

    7. (Introductory) As a future tax advisor, what have you learned from this article? How would you approach tax planning, given the politics involved?

    8. (Advanced) As a current or future investor, what have you learned from this article?

    Reviewed By: Linda Christiansen, Indiana University Southeast


    "Your Tax Bill: How McCain, Obama Differ Capital-Gains Rates Are Likely To Rise, No Matter Who Wins; Far Apart on Estate Taxes." by Tom Herman, The Wall Street Journal, June 18, 2008; Page D1 ---

    Get ready for higher capital-gains taxes.

    As the presidential campaign heats up, investment and tax advisers are issuing that warning to upper-income clients. Underpinning this view is Sen. Barack Obama's early lead in the polls, as well as speculation that Democrats will increase their majority in Congress.

    Today's capital-gains tax rates "are probably the lowest we'll see" for decades to come, says Nadine Gordon Lee, president of Prosper Advisors LLC, a wealth-management firm in Armonk, N.Y.

    So should you be rushing to sell your investment winners now to take advantage of today's historically low tax rates? While some investors say they are considering it, very few say they are doing anything different right now. Election Day still is more than four months away, an eternity in American politics -- and even if lawmakers do enact higher taxes next year, nobody knows how much higher they will be or what the effective dates will be. Moreover, investors seem far more worried about the economy and the slumping stock market than about tax rates.

    "There's no question in my mind the next president will raise the capital-gains rate. It's just a question of when," says David Anderson, a retired banker living in Darien, Conn. But Mr. Anderson sees "no rush" to sell investments immediately, especially in view of the stock market's sinking spell this year. He also notes the adage that you shouldn't make investment moves solely for tax reasons and says there still appears to be "plenty of time" to take action before any capital-gains tax-rate changes become effective.

    Sen. Obama is calling for higher taxes on families making more than $250,000 a year. That includes increased taxes not only on ordinary income such as salary but also on capital gains and most corporate dividends. The Illinois senator also is calling for higher Social Security taxes on many upper-income workers.

    Sen. John McCain has staked out a strong antitax stance. That includes extending President Bush's income-tax cuts and enacting new breaks, such as raising the exemption for dependents.

    Here is a look at the still-evolving plans of Sens. Obama and McCain, as well as thoughts from financial advisers and tax lawyers on what, if anything, to consider doing this year.

    Income taxes. Sen. Obama is calling for higher taxes on the wealthiest Americans but lower taxes on lower- and middle-income households. "It's time for folks like me who make over $250,000 to pay our fair share," Sen. Obama said in a speech last week. "If you are a family making less than $250,000, my plan will not raise your taxes -- not your income taxes, not your payroll taxes, not your capital-gains taxes, not any of your taxes. In fact, chances are you will get a tax cut."

    For example, the Illinois senator wants to raise the top ordinary income-tax rate, now 35%, to 39.6%. For 2008, the top federal rate of 35% in most cases applies to taxable income of more than $357,700. (The 2009 income threshold won't be announced until later this year.)

    The Obama plan also includes imposing higher Social Security taxes on workers making over $250,000. However, the senator hasn't given precise details, such as how much more those people would pay. Under current law, the maximum amount of earnings subject to the Social Security tax for 2008 is $102,000.

    In contrast, Sen. McCain wants to make permanent the current federal income-tax rates. He also opposes Sen. Obama's plan to lift the earnings cap on the Social Security payroll tax. Such a move would be bad news for the economy, says Douglas Holtz-Eakin, senior policy adviser to Sen. McCain and a former Congressional Budget Office director.

    If the Obama plan becomes law, investment advisers agree that among the biggest winners could be tax-exempt municipal bonds, which are issued by state and local governments. Tax-exempt bonds typically benefit when ordinary income-tax rates rise. But be careful before you jump into the muni market: Even though these bonds typically are known as tax-exempts, some pay interest subject to the alternative minimum tax, which ensnared about four million investors last year. If that includes you, be sure to check with your broker whether the bonds you're considering are "AMT bonds."

    One New Jersey investor says she recently purchased her first muni bond -- $5,000 of hospital bonds. She says part of the reason was her expectation of higher tax rates in 2009.

    Even though investment advisers say most clients aren't doing anything different, some should be thinking about making changes. "For an investor with a low-basis, large concentration in a publicly traded company, a family business or some other illiquid asset, taking steps to diversify in 2008, before a potential capital-gains rate increase, could result in significant tax savings," says Dan Schrauth, wealth adviser with JPMorgan Private Bank in San Francisco. Many clients are taking "a serious look" at the potential for higher capital-gains rates as a relevant factor in determining when to diversify out of a concentrated position, he says.

    But Michael Holland, who heads a New York-based investment firm bearing his name, says: "I don't hear anyone talking about doing anything" right now in anticipation of higher capital-gains taxes. "If we had a huge run-up [in stock prices] between now and December, I think you'd then begin to hear" talk about selling this year, he says. "I don't hear any of that right now."

    Investment income. Under current law, the top long-term capital-gains rate on stocks, bonds, mutual-fund shares and other securities typically is 15%. ("Long term" means investments held more than one year.) If you make a profit by selling stocks or other securities you've owned for a year or less, that's considered a "short-term" gain and is subject to tax as ordinary income.

    Sen. Obama wants to raise the long-term capital-gains rate for families making more than $250,000 to around 20% or somewhat higher -- but not above the 28% level it reached during the Reagan presidency, an Obama economic adviser says. The same rate would apply to most dividend income for these investors.

    Sen. McCain wants to keep the current structure of tax rates on capital gains and dividends. But many wealth advisers believe that if he won the presidency, he would be forced to compromise with the Democrats in control of Congress and eventually would agree to a capital-gains rate increase.

    Capital-gains rates are likely to "go up by more -- and possibly earlier" if Sen. Obama wins, says Thomas D. Gallagher of International Strategy and Investment Group. But rates "still probably go up under McCain," he says, noting that the 15% rate is set to rise automatically after 2010 if Congress takes no action.

    Bob Willens, president of a tax-advisory firm in New York bearing his name, agrees the capital-gains rate is going up next year. "It's something you need to resign yourself to," he warns. But he says there's no reason to rush to sell today, since lawmakers aren't likely to make tax-rate increases retroactive to the start of next year. He sees the effective date more likely as sometime around mid-2009.

    Estate taxes. Neither candidate wants to kill the estate tax permanently, as President Bush has proposed. Instead, both favor a compromise, but Sen. McCain's plan would be far more beneficial for wealthy heirs than the Obama plan.

    Under current law, the federal estate-tax exemption this year is $2 million, and the top rate is 45%. (Transfers from one spouse to the other typically are tax-free.) Next year, that exclusion is set to rise to $3.5 million, with the rate remaining at 45%. In 2010, the federal estate tax is scheduled to disappear completely, only to return again in 2011 with an exclusion of $1 million.

    Sen. McCain proposes raising the exclusion to $5 million and cutting the tax rate to 15%. Sen. Obama proposes a $3.5 million exclusion while keeping the top rate at 45%. In either case, the basic strategy is the same: If you're wealthy and care about how much your heirs get, make sure to keep breathing at least through the end of this year to take advantage of 2009's higher exclusion.

    Jensen Comment
    Both candidates are in favor of greatly extending health care to over 40 million uninsured. Whether this is funded by direct taxes or by mandates to employers, this will be an added form of tax in the broad sense. For example, local schools that must provide additional  insurance benefits to part-time workers will burden local taxpayers. Similarly a restaurant must greatly increase menu prices to pay for part-time worker medical coverage.. An even bigger problem is the unemployed that have no employer to pick up the tab. Another is the partly employed. A person working 25 hours per week on each of two jobs is still considered a part-time worker and probably receives no health care benefits at the present time. A an added problem arises with the fully employed workers for very small businesses and small town government agencies that will likely fold if forced to pay health care benefits. An enormous arises with job applicants with serious preconditions in health that are terribly expensive to a health care insurance plan such as job applicants with AIDS, seriously ill children, drug dependencies, need of organ transplants, etc. Still another compounding problem arises with the explosion in demand for health care workers at all levels who will be needed to provide for over 40 million previously uninsured. Taxpayers one way or another will have to pick up the tab for educating and training these workers. Still another problem is that taxpayers will have to build many new hospitals and medical clinics. In other words the costs keep piling up for any type of universal health care, and these costs will likely be unmentioned burdens in the political campaigns of 2008. And then we begin to think about the costs of fighting global warming and environmental protection all of the candidates are pushing without serious programs for funding these expenditures.

    It would seem that our two presidential candidates are simply rearranging the deck chairs with their current tax proposals.

    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) --- 
    Part 2 (unfunded liabilities of $55 trillion plus) ---
    Part 3 (this is a non-partisan problem being ignored in election promises) ---

    Watch the Video of the non-sustainability of the U.S. economy (CBS Sixty Minutes TV Show Video) --- 
    Also see "US Government Immorality Will Lead to Bankruptcy" in the CBS interview with David Walker ---
    Also at Dirty Little Secret (David Walker) ---

    Despite the rhetoric, that's not just on "rich" individuals. It's also on a lot of small businesses and two-earner middle-aged middle-class couples in their peak earnings years in high cost-of-living areas. (Obama's large increase in energy taxes, not documented here, would disproportionately harm low-income Americans. And, while he says he will not raise taxes on the middle class, he'll need many more tax hikes to pay for his big increase in spending.) . . . Now trade. In the primaries, Sen. Obama was famously protectionist, claiming he would rip up and renegotiate the North American Free Trade Agreement (Nafta). Since its passage (for which former President Bill Clinton ran a brave anchor leg, given opposition to trade liberalization in his party), Nafta has risen to almost mythological proportions as a metaphor for the alleged harm done by trade, globalization and the pace of technological change. Yet since Nafta was passed (relative to the comparable period before passage), U.S. manufacturing output grew more rapidly and reached an all-time high last year; the average unemployment rate declined as employment grew 24%; real hourly compensation in the business sector grew twice as fast as before; agricultural exports destined for Canada and Mexico have grown substantially and trade among the three nations has tripled; Mexican wages have risen each year since the peso crisis of 1994; and the two binational Nafta environmental institutions have provided nearly $1 billion for 135 environmental infrastructure projects along the U.S.-Mexico border. History teaches us that high taxes and protectionism are not conducive to a thriving economy, the extreme case being the higher taxes and tariffs that deepened the Great Depression. While such a policy mix would be a real change, as philosophers remind us, change is not always progress.
    Michael J. Boskin (Stanford University Economics Professor)," Obamanomics Is a Recipe for Recession," The Wall Street Journal, July 29, 2008 ---

    Bob Jensen's threads on entitlements are at

    Earlier this week, the California State Automobile Association, an affiliate of the national AAA, announced it is closing all three of its call centers in the state at a loss of 900 jobs. Spokeswoman Cynthia Harris was quite blunt about the reason: "It costs more to do business in California than other states." Her group will now will be answering calls from California motorists from new centers in lower-cost Arizona and Oklahoma. . . . The state's Democrats not only insist on higher taxes, but are blocking a proposal from Gov. Schwarzenegger to limit future spending increases to the growth of the state's population and inflation in an attempt to cushion the impact of future economic downturns. "I think that we have to be very, very careful about tying the hands of future governors and future legislatures," says Democratic Assemblyman Dave Jones. Apparently, he and his colleagues prefer tying the hands of California businesses so they feel compelled to flee the state.
    John Fund, The Wall Street Journal, July 20, 2008 ---

    Bush's Laffer Matter:  Tax Cuts Increase Tax Revenues
    Washington is teeing up "the rich" for a big tax hike next year, as a way to make them "pay their fair share." Well, the latest IRS data have arrived on who paid what share of income taxes in 2006, and it's going to be hard for the rich to pay any more than they already do. The data show that the 2003 Bush tax cuts caused what may be the biggest increase in tax payments by the rich in American history. The nearby chart shows that the top 1% of taxpayers, those who earn above $388,806, paid 40% of all income taxes in 2006, the highest share in at least 40 years. The top 10% in income, those earning more than $108,904, paid 71%. Barack Obama says he's going to cut taxes for those at the bottom, but that's also going to be a challenge because Americans with an income below the median paid a record low 2.9% of all income taxes, while the top 50% paid 97.1%. Perhaps he thinks half the country should pay all the taxes to support the other half. Aha, we are told: The rich paid more taxes because they made a greater share of the money. That is true. The top 1% earned 22% of all reported income. But they also paid a share of taxes not far from double their share of income. In other words, the tax code is already steeply progressive. We also know from income mobility data that a very large percentage in the top 1% are "new rich," not inheritors of fortunes. There is rapid turnover in the ranks of the highest income earners, so much so that people who started in the top 1% of income in the 1980s and 1990s suffered the largest declines in earnings of any income group over the subsequent decade, according to Treasury Department studies of actual tax returns. It's hard to stay king of the hill in America for long.
    "Their Fair Share," The Wall Street Journal, July 21, 2008; Page A12 ---

    No Laffer Matter:  Leftists to Test Obama's Tax Plan in California
    Will raising taxes to new highs bring in more or less revenue? We hope Nancy Pelosi is watching!
    "California as No. 1," The Wall Street Journal, July 17, 2008; Page A14 ---

    New York City has long been the highest tax jurisdiction in the United States, but California politicians are proposing to steal that brass tiara. California faces a $15 billion budget deficit and Democrats who rule the state Legislature have proposed closing the gap with a $9.7 billion tax hike on business and "the rich." There's a movie that describes this idea: Clueless.

    The plan would raise the top marginal income tax rate to 12% from 10.3%; that would be the highest in the nation and twice the national average. This plan would also repeal indexing for inflation, which is a sneaky way for politicians to push middle-income Californians into higher tax brackets every year, especially when prices are rising as they are now. The corporate income tax rate would also rise to 9.3% from 8.4%. So in the face of one of the worst real-estate recessions in the state's history, the politicians want to raise taxes on businesses that are still making money.

    This latest tax gambit was unveiled, ironically enough, within days of two very large California employers announcing they are saying, in the famous words of Governor Arnold Schwarzenegger, "hasta la vista, baby" to the state. First, the AAA auto club declared it will close its call centers in California, meaning that 900 jobs will move to other states. "It costs more to do business in California," said a AAA press release, in the understatement of the year.

    Then last week Toyota announced it is canceling plans to build its new Prius hybrid at its plant in the San Francisco Bay area because of the high tax and regulatory costs. Adding to the humiliation is that Toyota will now take this investment and about 1,000 jobs to a more progressive and pro-business state: Mississippi.

    There is already a reverse gold rush going on in California and the evidence points powerfully toward high tax rates as a culprit. Census Bureau data show that, from 1996-2005, 1.3 million more Americans left than came to California. And the people who are leaving are disproportionately those with higher incomes: the very targets the Democrats want to tax more.

    The liberal fairy tale is that the rich "don't pay their fair share." The reality is that there's no state in the country more dependent on six- and seven-figure earners to pay its bills. Those with incomes of more than $100,000 pay 83% of the state's income taxes, and the richest 6,000 of the 38 million Californians pay $9 billion in taxes. Every time a rich person like Tiger Woods departs, the state fiscal problem deepens.

    The Democratic tax plan will give rich people a further incentive to flee at the very time the real-estate market is in collapse. New housing data reveals that the average California home price fell by 28% from June 2007 to June 2008, almost double the decline of any other state. The politicians in Nevada, the state with the third worst real-estate market, are hoping California raises taxes, because this could be a fast way to revive the Reno and Las Vegas housing markets.

    What the politicians in California refuse to address is their own overspending. State outlays were up 44% over the past five years, meaning that California is spending at a faster pace than even Congress. Minority Republicans in the Legislature say the solution is a hard expenditure cap – like 46 other states have. Yet even in the face of the giant deficit, Mr. Schwarzenegger and the Democrats want to pass a new $9 billion water bond, a $14 billion state-run health insurance program, and the most expensive climate-change program in the country.

    It may be that California Democrats are trying this now as a kind of trial run for Barack Obama next year. The Illinois Senator also believes he can solve the federal government's fiscal imbalance by imposing higher tax rates on small business employers and the wealthiest Americans. If they can get away with it in Sacramento, look for a national reprise next year.

    Jensen Comment
    California presently has the highest state income taxes. Before these new increases in the California income tax go into effect,  there are presently three "states" with higher per capita total taxes --- Minnesota, New Jersey, and Washington DC. See the tax scores state-by-state at 
    (Scroll down to find the tables)
    Having said this, California is the state having the lowest unemployment compensation tax, and this appeals to business firms that are labor intensive. States to avoid in this regard are Utah, Minnesota, North Dakota (believe it or not), and Iowa.
    Sadly with the rise in income tax rates California will have the highest overall taxes among our 50 states plus Washington DC.
    Isn't it fun to be NUMBER 1?

    The folks in California pay 63.9 cents a gallon in state and federal fuel taxes, the most in the nation. That’s just the base, though. Motorists there also pay an additional 6-percent state sales tax, with some paying another 1.25-percent county sales tax plus applicable local sales taxes. Same in Illinois, where Chicago motorists pay 12.75 cents per gallon on top of the 57.9 cents per gallon in state and federal taxes. Some Illinois motorists also pay a 6.25-percent sales tax.

    Toyota Shifts Gears To Build Prius in U.S.
    The Wall Street Journal
    by Norihiko Shirouzu and Kate Linebaugh
    Jul 11, 2008
    Page: B1
    Click here to view the full article on

    TOPICS: Cost Accounting, Cost Management, Managerial Accounting

    SUMMARY: "Toyota Motor Corp. is starting to show a milder form of the symptoms plaguing Detroit's Big three: excess manufacturing capacity, fleets of unsold trucks and a surplus of American workers. However, Toyota's woes are modest in comparison. It is still making money in North America, gaining market share in the U.S., has an array of popular small cars to offset lower truck sales and is the leader in hybrids." Toyota announced that it will close two U.S. truck plants temporarily and start assembling its Prius hybrid in Mississippi. The 4,400 workers affected by the plan won't be laid off. Instead, they will continue to report to work for training in quality, safety, and productivity.

    CLASSROOM APPLICATION: Management accounting issues related to capital investment and relevant costs for decision-making are discussed in this article. Once financial reporting question on the impact of unanticipated plant closings on quarterly reporting also is included.

    1. (Introductory) In the article, the author notes that "earlier this decade, in a bid to boost its U.S. profits and market share, Toyota launched a big push into full-size pickup trucks and sports-utility vehicles. Now, with soaring gasoline prices hurting sales of those vehicles, Toyota is stuck with more production capacity in the U.S. than it needs." Describe how the capital budgeting decisions that lead to this production capacity problem were made. What factors went into the decision? What analytical tools were used?

    2. (Advanced) How is a required rate of return used in the decision-making process described above? Is it possible that Toyota met that required rate of return but still faces the issues now described in the article? How do income taxes influence these capital budgeting decisions and techniques?

    3. (Advanced) What are the relevant costs for Toyota's decision-making to close certain plants and shift production processes to different locations? List all that you can think of and state your reasoning from information given in the article.

    4. (Advanced) What costs that are described in the article are irrelevant to Toyota's decision-making regarding future production strategies in U.S. plants?

    5. (Advanced) Consider the impact of Toyota's temporarily idle production facilities on quarterly reporting, under U.S. or international financial reporting standards, or semi-annual reporting for the second-half of the year ended March 31, 2009, under Japanese reporting. What will be the impact on these interim reports? Do you think that disclosures of the impact of these production decisions will be required? Support your answer.

    Reviewed By: Judy Beckman, University of Rhode Island

    Jensen Questions
    Name some drawbacks of locating a new plant in either California or Mississippi?
    What are some other factors to consider?

    Partial Answer
    Both states are notoriously dominated by the Plaintiffs Bar (read that astoundingly weak in controlling punitive damage diversions to attorneys).
    There are of course many other considerations such as shipping costs for components such as engines to a factory and shipping costs of the cars to the markets. One of the biggest markets for hybrid cars is the enormous market in California. It’s a long ways from Mississippi to California.

    Europe Has an Economics Lesson for Obama (apparently nobody is listening in California)
    But the Europe Mr. Obama will visit is quite different from the one Americans often hear about. Over the last decade, much of Europe has very quietly embraced market-based reforms that either draw inspiration from American successes or -- on issues like retirement security -- are even more market-oriented than many U.S. Republicans support. What's more, these changes have been adopted and implemented by parties left and right. This Europe is a shining example of exactly the sort of postpartisan government action that the Obama campaign says it is about. The cutting of corporate income- tax rates is an excellent example of European market-friendly bipartisanship. Germany's right-left coalition of Christian and Social Democrats implemented a large rate cut earlier this year, reducing the top marginal corporate rate to about 30% from 39%. Spain's Socialist and Britain's Labor governments have followed suit, reducing their countries' top corporate rates. These traditionally left-of-center parties understand that in a globalized economy, wealth and investment are mobile, flowing to those countries that provide hospitable investment climates. As part of a European Union where center-right governments in Greece, Denmark, Ireland and Eastern Europe have dramatically reduced corporate tax rates, they understand that they cannot help workers if they drive away the capital that employs and pays them.
    Henry Olsen, The Wall Street Journal, July 19, 2008 ---

  • Question
    How does an accounting education program achieve a top reputation?

    August 10, 2008 message from David Albrecht [albrecht@PROFALBRECHT.COM]

    Curiosity may be getting the best of me. I've been wondering just how a school (e.g., NorthSouthEaseWest State) could develop a reputed top program in accounting, say at the bachelor or master level. Possible strategies could be (1) best research faculty (like getting the best accountics trained Ph.D. grads), (2) best teaching faculty (professors who are recognized as "best" (3) recruiting best students that either enter the university or abound in HS, (4) best educational experience so that graduates can do or know the most, (5) desirability of employability from employer perspective.

    Is there any evidence to support the idea that a collegiate program (e.g., NorthSouthEastWest State University) could put itself on the map by becoming a top accounting program? If there isn't any evidence, is there the hypothetical possibility that one could do it?

    Or is the entire issue too multi-faceted to come up with a simple answer?

    David Albrecht
    Bowling Green

    August 11, 2008 reply from Bob Jensen

    Hi David,
    Note that I'm still in California and will not be responding to messages until late this week.
    One way of identifying the top accountics research universities is to note column 3 of Table 3 from 


    TABLE 3

    Most Frequent Appearing Institutions in The Accounting Review: 1926-2005



                        Period: 1926-2005



                        Period: 1966-1985



                        Period: 1986-2005























































    U. Washington




















    UC Berkeley




    Penn State








    U. Washington








    U. Washington




    Michigan State




    Michigan State








































    Southern California












    Notre Dame




    Penn State








    Michigan State








    Carnegie Mellon
























    Oklahoma State
































    Ohio State








    North Carolina
















    Carnegie Mellon




    Arizona State








    Southern California




    UC Berkeley
















    Arizona State








    Virginia Tech












    North Carolina




    UC Berkeley








    Tel Aviv








    North Carolina












    Washington U.








    Washington U.












    Florida State




    Arizona State




    Ohio State




    Ohio State








    South California




    Hong Kong












    Texas A&M








    SUNY Albany








    Total All Authors




    Total All Authors




    Total All Authors





    Some of these universities do not have undergraduate accounting programs and accordingly are not major suppliers of auditors and tax accountants in public accounting firms. MBA graduates who do not have the equivalent of an undergraduate accounting major generally cannot sit for the CPA examination in most states. Other universities listed in Column 3 above have undergraduate accounting programs, do a great job in the classroom, attract top students, and are major suppliers of recruits into public accounting firms. These are top teaching as well as top research universities in an accountics sense.


    To answer your question we must now ask what other universities are highly ranked by public accounting firms that do not rank so highly in accountics research. In particular, we would like to see rankings of universities who do not have accounting/business doctoral programs. Unfortunately, I don't think accounting firms will share their private rankings with the public. Hence any such rankings must be speculative and anecdotal. Some are very popular regionally and nationally. Examples include Stetson University in Florida, Claremont MeKenna in California, Pacific Lutheran in Washington State, the University of Denver, Baylor in Texas, Villanova, Brigham Young in Utah, Boston University, and many other programs that are recruiting hot spots. There are also some larger state universities that are not on the map in terms of publishing in top accountics research journals that, nevertheless, are quite popular with recruiters such as the University of Maine, University of Massacusetts, University of Delaware, North Florida, Central Florida, West Florida, University of Virginia, and many others.


    Interestingly, when we look at the annual listings of accountants admitted in the partnership of most any large public accounting firm, we discover that this is most certainly not a club of top accountics research universities. A large proportion of the new and existing partners come from colleges that rarely, if ever, get hits in TAR, JAR, or JAE. The Ivy Club seems to matter more in industry and Wall Street where graduation from "elite" universities seems to matter more than it does in public accounting.
    And now I have to go play with eight lovely grandchildren here in Yuba City, CA. We do not get to visit with them often enough.
    Bob Jensen


    August 11, 2008 reply from Glen L Gray [glen.gray@CSUN.EDU]

    Here is an article on accounting that appeared today in the Los Angeles Times.

    "Numbers add up for accounting majors",0,917553.story 

    I found the article interesting on two counts. First, how a "staff writer" views the profession. And second, the main subject of the article is Will Snyder, a lecturer who has been voted twice as "Best in State," which in my mind continues the argument of good teachers vs. good researchers.

    Glen L. Gray, PhD, CPA Accounting & Information Systems, COBAE California State University, Northridge 18111 Nordhoff ST Northridge, CA 91330-8372 818.677.3948 818.677.2461 (messages)

    The weather is balmy, the local beaches are inviting, and so, naturally, San Diego State students are thinking about . . . accounting.

    Yes, accounting. It's become one of the hot courses on campus.

    Enrollment is up, one of the accounting lecturers has twice been named professor of the year, and several dozen students spent their summer mornings in a class poring over a 3-inch-thick tome titled "Federal Taxation."

    The class is Accounting 321: Integrative Accounting Topics, chockablock with discussions of interest, dividends, municipal bonds and the perils and joys of partnerships. Informally, it's known as accounting boot camp. There were no spare seats.

    Part of the answer to accounting's new popularity may be the inherent romance of business. Then there's this fact: Even in a downish economy, accounting students are finding jobs -- jobs that just might be the first step toward running their own companies, or getting that corner office in an established business.


    FOR THE RECORD: The headline on an earlier version of this article incorrectly said that Will Snyder's class is called Accounting 231. He teaches Accounting 321, as the text of the story says.

    "People think it's boring, but it's not," said Chris Tartre, 19, of Poway. "It tells you how business actually works. When you deal with numbers, it's either right or it's wrong."

    The boom in accounting at San Diego State is part of a national trend. Enrollment in accounting classes is up 19% since 2004, according to a survey by the American Institute of Certified Public Accountants. The increase in interest has left some campuses unable to accommodate all comers. In fact, the survey found that 13% of campuses had to turn away students who wanted to study accounting because of a lack of adequate classroom space or teachers.

    Among other factors leading to the rise, the institute notes, is the Sarbanes-Oxley legislation, which requires businesses to make more stringent financial disclosures. Last year, 64,221 students graduated with bachelor's or master's degrees in accounting, the most since the institute began its annual survey in 1970.

    Anyone who thinks that an accounting class has to be a notch below a trip to the dentist's office has not met lecturer Will Snyder. In Accounting 321, he radiates excitement for getting the debits and credits straight, for only paying the tax you really owe.

    "I think it's important to share the passion," said Snyder, adding that the green eyeshade view of the accountant is old-fashioned.

    "The beans still need counting, but counting is not enough. You have to be a global thinker, an economist, somebody with judgment and ethics," he said.

    Snyder warns his students that tinkering with numbers, particularly when shareholders and the Internal Revenue Service are watching, is strictly forbidden. Profit and loss are sacred, he said.

    "It should be the same at the beginning of the year as at the end of the previous year," Snyder told them. "Creative accounting may come up with something else -- but we don't want to go there."

    Snyder is a USC accounting graduate and was on the faculty there from 1992 to 1994. He's been at San Diego State since 1989 and this year was named "Best of State" in a student-run poll for the second year in a row.

    The accounting program received a boost this year with a $10-million bequest from Gertrude Lamden, widow of Charles W. Lamden, the first dean of the College of Business Administration. The money will be used for faculty stipends, travel, research and special projects.

    The program will be renamed the Charles W. Lamden School of Accountancy, pending approval next month by the California State University trustees. The change will be the first time that a school at San Diego State has been renamed as part of a bequest.

    The San Diego State accounting program has not achieved the acclaim of programs at better-known institutions. In the world of accounting, the University of Texas at Austin is king, with its undergraduate, graduate and doctoral programs ranked as the best in the country by the Public Accounting Report.

    After Austin, among undergraduate programs, comes Brigham Young University, the University of Illinois, Notre Dame and USC.

    Still, San Diego State grads have a good record in passing the notoriously difficult test to become a certified public accountant. Some have achieved gold medal status as the best in their testing class.

    And they may enjoy a kind of advantage when they go job-hunting that doesn't show up in rankings. The school's alums are sprinkled in a variety of high-level jobs.

    Among them is David Down, managing director of the San Diego office of KPMG, one of the nation's largest accounting firms. He's a 1976 accounting graduate of San Diego State. He likes the enthusiasm of graduates of his alma mater.

    "They're very passionate about the accounting profession, the academic side and the practical side," he said.

    Although the number of accounting majors is growing -- from 70 to 133 in four years -- it's still a small portion of the 6,000 students in the business school at the bluff-top campus.

    "It's a lot of reading, but once you get the concepts down, there's a lot of logic in it," said Eric Butler, 22, a junior.

    Accounting 321 requires 30 hours of homework a week.

    Anyone can take an accounting class, but students have to wait until their junior year and have a 2.9 grade-point average to become accounting majors.

    Some will decide later to transfer to something less rigorous -- which is OK with the faculty. "If it were easy," Snyder said, "everybody would be doing it."

    August 11, 2008 reply from David Albrecht [albrecht@PROFALBRECHT.COM]

    If I remember correctly, there are 3,000 4-year schools in the US.  With no basis for making this claim, I'm going to guess that at least half permit some sort of concentration in accounting.

    Let's say that one of the AACSB college-accredited schools (or even accounting-accredited), probably what is some times called a regional state or private school, wants to get competitive and make a name for itself.  I'm pretty sure the way not to do it is to focus on research.  As you say, too much competition for the top Ph.D. graduates.  I think that a non-elite school can throw a lot of money and get a start research faculty, but to buy an entire department would be prohibitively expensive.

    I'm pretty sure that the school would focus on some other metric related to either teaching/learning or employability.  I don't know if the two are related, but I hope they are.

    Is it possible for some "mid-major" to elevate its reputation and become another BYU or Northern Illinois?  Doesn't everyone like recognition?

    David Albrecht

    August 14, 2008 reply from Bob Jensen

    Hi David,

    Becoming a” BYU or Northern Illinois” in terms of reputation with accounting firms is a complex process that is almost certain not to happen overnight except, possibly, when a prestigious university begins a really first-rate accounting undergraduate program. For example, if Stanford or Princeton or Harvard adopted an undergraduate accountancy program it would probably be an instant success in terms of recruitment of graduating accounting majors. The main reason is quality of students admitted to the university. Some universities are great largely because they have prestigious reputations to attract the cream-of-the-crop applicants for their undergraduate programs.

    If a university does not mess up top incoming students, these students will also become top outgoing students due to talent and motivation that they had to begin with when entering the university. Of course a small percentage of top students stumble along the way --- sometimes because they are exceptionally immature in spite of having everything else going for them.

    I think that public accounting firms lean toward colleges that are exceptionally successful with CPA Examination passage rates. Success here is multivariate in terms of student quality, teaching quality, and curriculum. Interestingly, successful passage rates are not especially dependent upon having CPA Examination Review courses. For example, the University of Virginia does very well on the CPA Examination without teaching toward that examination. In fact, when the year of Intermediate Accounting shifted from a traditional textbook/lecture course to the BAM learn-on-your-own pedagogy, Virginia’s CPA Examination passage rate jumped upward significantly ---
    Keep in mind that to begin with, the University of Virginia tends to admit high-level students relative to most other universities in Virginia. The point here, however, is that with those good students learning on their own in intermediate accounting, they’re memory of things learned improved vis-à-vis the textbook/lecture pedagogy. The problem with BAM is that it tends to burn out faculty trying desperately not to give out answers.

    However, if a college is successful in having only its top few accounting graduates hired by the Big Four, it’s not likely that any change in curriculum or hiring of a few top teachers in accounting will change in terms of having half or more of the graduating class picked off by the Big Four. The only way to really change that percentage of hires is to dramatically change the quality of the graduating class, especially if that quality upgrade includes more minority students of highest quality. Years ago a small college tried to upgrade its reputation by hiring (at a huge salary) away the top CPA Review professor at the University of Illinois. Without a significant upgrade in students as well, the effort failed to seriously increase the Big Four hiring rate.

    Unfortunately, the competition for more top incoming accounting majors is intense both inside and outside the college such that it is a long road to increasing the reputation of the accounting program in terms of accounting graduates.

    Another factor, especially in terms of fund raising and reputation, is the number of graduates admitted to the partnerships of the largest accounting firms. Universities like Texas, Illinois, Florida, USC, Ohio State, Michigan, Iowa, Indiana, etc. are more likely to get endowed chairs, named professorships, and matching funds due to larger numbers of Big Four partner alumni. This most certainly cannot be achieved without a very long history of graduating top accounting majors.

    Bob Jensen

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    Financial Executives International (FEI) free television ---

    Free online textbooks, cases, and tutorials in accounting, finance, economics, and statistics ---
    Scroll down to Accounting

    AccountingWeb Student Zone ---

    Free CPA Review Course ---

    July 22, 2008 message from Dan Stone, Univ. of Kentucky [dstone@UKY.EDU]

    Regarding the free CPA Review Course --- 

    1. Should I recommend this site as a CPA prep resource for students? What are the time &/or financial costs to students?

    2. What's their business model?


    Dan S.

    July 22, 2008 reply from Bob Jensen

    Hi Dan,

    Answer to Question 2
    This appears to be pretty much a public service site run by three old guys interested in helping people study for the CPA exam --- 
    My hat is off to them if there is no hidden agenda. If there is a hidden agenda, I can't find it.

    It's possible that one or more of them might be engaged privately or by a firm to conduct workshops on CPA Exam Review, but the site does not advertise this nor does it even mention that any of the three old guys are interested in conducting this added custom service for a fee.

    Answer to Question 1
    The Becker Course is expensive, live (with lots of video onsite), and great for kicking butts of students prone to procrastinating --- who tend to find excuses for delaying studying on their own.

    The above free CPA Exam review site seems to be great for students who are organized with their study time and self-motivated (read that driven).

    To be honest, the free CPA review site is all that I would've needed because all I did was devote five hours religiously each week for about five months of my senior year in college to studying old CPA exam questions and answers. Back in 1960 in Colorado we could take the exam before we graduated in the undergraduate program.

    I passed the exam the first time that way, but I worked with a good friend (call him Don) in the Ernst and Ernst office who had to take the CPA exam four times to pass all the parts. I worked part-time for E&E whereas he worked full time. He also had a wife and two young babies. I was a ski bum on weekends but studied by tail off five days a week for my courses, my CPA Exam review, and my E&E job in the afternoons.

    I think Don did not pass the CPA exam because he always found reasons or excuses to procrastinate studying for the exam. No Becker kick-butt course was available in those days!

    I went on to Stanford and became a low-paid accounting professor. Don stayed with E&E and eventually became the high paid managing partner of the Denver Office. Go figure. The CPA exam is just one stepping stone to success.

    Of course, I've never regretted taking the road less traveled in those days. It was a great life being on the faculty of four universities over 40 years. Spending five years full time getting a PhD was enlightening and agonizing since it was an accounting PhD with no accounting courses. It might've had some accounting courses if I wasn't already a CPA and an MBA when I moved to Palo Alto. I became one of the early accountics research professors at the beginning of the perfect storm ---
    In retrospect it was much easier to publish accountics research than accounting research without equations.

    Bob Jensen


    Financial Executives International (FEI) free television ---

    Personal Finance Helpers (more than ever, the public is worried about personal investment and savings)
    From Smart Stops on the Web, Journal of Accountancy, July 2008

    This Smart Stop’s author puts together a “Blueprint for Financial Prosperity,” working and blogging through the complexities of personal finance. Articles include “Speed Up or Shift Up: Thinking About Your Income Path” and “Do You Have an Opportunity Fund?” Also find tax and investing coverage, plus reviews of financial planning and wealth management books. Every month, the author plays “Devil’s Advocate,” where he examines the other side of “mainstream” or “common sense” personal finance ideas. Recent “Advocate” posts include “Don’t Budget to the Penny” and “Don’t Just Buy Index Funds.”

    The Carnival of Personal Finance touts itself as “a traveling weekly showcase of the best blog articles on the topic.” The carnival is hosted by a different guest blogger each week. In every edition, you’ll find links to the guest editor’s picks of the week, typically highlighting five to 10 posts from various sources, which feature expert advice on professional sites or regular-Joe experiences on personal sites. You can submit your own post for consideration, view the schedule of upcoming hosts or just browse the wealth of archived articles.

    The AICPA maintains a financial literacy site at

    Bob Jensen's personal finance helpers are at



    "Last Ditch" Effort (before Bush leaves office) by SEC Chairman to Force IFRS on the US as a Concession to Industry and Large Accounting Firms
    The sad think is that the FASB (under Bob Herz) and the SEC (under Christopher Cox) applaud the move to UN-style accounting rule making

    James D. Cox, a securities law expert at Duke Law School who returned this week from teaching corporate law in Europe, said the shift to international rules amounted to “outsourcing safety standards.” “We would not for a moment tolerate having American auto safety standards set by China or India,” he said. “Why should we do it for financial safety standards? There has to be some accountability.”
    See below

    Charles Wankel (St Johns University) called my attention to this important article

    "Accounting Plan Would Allow Use of Foreign Rules," by Stephen Labaton, The New York Times, July 5, 2008 ---

    Federal officials say they are preparing to propose a series of regulatory changes to enhance American competitiveness overseas, attract foreign investment and give American investors a broader selection of foreign stocks.

    But critics say the changes appear to be a last-ditch push by appointees of President Bush to dilute securities rules passed after the collapse of Enron and other large companies — measures that were meant to forestall accounting gimmicks and corrupt practices that led to those corporate failures.

    Legal experts, some regulators and Democratic lawmakers are concerned that the changes would put American investors at the mercy of overseas regulators who enforce weaker rules and may treat investment losses as a low priority.

    Foreign regulators are beyond the reach of Congress, which oversees American securities regulation through confirmation proceedings, enforcement hearings and approval of the Securities and Exchange Commission’s budget.

    The commission is preparing a timetable that will permit American companies to shift to the international rules, which are set by a foreign organization and give companies greater latitude in reporting earnings. Companies that have used both domestic and overseas rules have, on average, been able to report revenues and earnings that were 6 percent to 8 percent higher under the international standards, according to accounting experts.

    Though foreign accounting standards are stronger in some ways than American accounting principles, they are weaker in some important areas. They enable companies, for example, to provide fewer details about mortgage-backed securities, derivatives and other financial instruments at the center of today’s housing crisis and that have troubled many Wall Street firms, including Bear Stearns.

    The shift to international standards could also wind up eliminating the conflict-of-interest rules, adopted after the collapse of Arthur Andersen and Enron, that have limited auditors from performing both accounting work and consulting for the same client.

    James D. Cox, a securities law expert at Duke Law School who returned this week from teaching corporate law in Europe, said the shift to international rules amounted to “outsourcing safety standards.”

    “We would not for a moment tolerate having American auto safety standards set by China or India,” he said. “Why should we do it for financial safety standards? There has to be some accountability.”

    The S.E.C. also plans to announce details of a pilot program that would enable foreign brokers to deal directly with American investors, while continuing to be largely regulated by the foreign country. The first country in the program will be Australia, although officials hope to eventually include other countries. In a third move, the Public Company Accounting Oversight Board, which works under the supervision of the S.E.C., is preparing a rule that would allow it to defer to foreign regulators for inspections of some of the 800 foreign auditors of overseas companies that sell stock in the United States.

    The oversight board was created by the Sarbanes-Oxley law of 2002 in response to the accounting scandals at Enron and other large companies. The law requires the board to inspect regularly all accounting firms that certify the financial results of companies whose shares are sold in the United States.

    Officials say the proposed changes reflect the decades-long push toward global markets. They say the changes are necessary to attract capital from abroad and will protect Americans as they increasingly look to invest overseas. In the decade ending last November, American holdings of foreign stock increased to $4.3 trillion from $1.2 trillion.

    “You are seeing a world now where everything is mobile,” Ethiopis Tafara, director of international affairs at the S.E.C., said in an interview. “You have securities issuers that are mobile. Broker dealers can provide services from anywhere. Exchanges are mobile, and electronic trading platforms don’t need a physical location. You have capital that is mobile, it travels almost anywhere around the world.”

    “When you have everything that is mobile, the way we think about our mandate — investor protection and enforcement — has to take this into account,” Mr. Tafara said.

    Mr. Tafara said that the mutual recognition agreement with Australia would continue to protect American investors because the S.E.C. would continue to have the authority to prosecute foreign companies under antifraud provisions of the law for what he called “lying, stealing and cheating.” The S.E.C. would continue to investigate accusations of illegal insider trading, for example, an area where the commission has been more vigorous than many foreign jurisdictions.

    But the S.E.C. would not enforce many investor-protection laws involving issues ranging from the quiet period before a stock offering to market manipulation, financial disclosures and abusive trading tactics. Nor would foreign officials apply a panoply of American securities rules that are unique in that they are intended to protect minority shareholders. Instead, the commission would rely on its Australian counterpart to enforce its securities regulations, which often involve different standards.

    In a speech earlier this year, Christopher Cox, the agency’s chairman, said that working on the transition to international accounting standards and reaching enforcement agreements with foreign countries like the Australians were two of the most important items on his agenda as his term comes to a close.

    Continued in article

    Bob Jensen's criticisms of this outsourcing effort can be found at

    The AICPA maintains a helper site for guidance on the replacement of FASB/SEC standards with IASB international standards ---
    Also see
    And see


    Lessor (Nope) Versus Lessee (Yup) Accounting Rules

    From WebCPA, July 31, 2008 ---

    The Financial Accounting Standards Board has decided to defer the development of a new accounting model for lessors, saying the project will now only address lessee accounting.

    FASB also agreed with taking an overall approach to generally apply the finance lease model in International Accounting Standard 17, "Leases," adapted where necessary for all leases.

    The move is the latest in a long-running project for the board in setting standards for lease accounting. As FASB moves toward convergence of U.S. generally accepted accounting principles with International Financial Reporting Standards, it is also trying to make sure any new standards it approves match up as much as possible with the international ones.

    In the new lessee standards, FASB has decided to include options to extend or terminate the lease in the measurement of the right-of-use asset and the lease obligation based on the best estimate of the expected lease term. The board also agreed that contractual factors, non-contractual factors and business factors should be considered when determining the lease term.

    The board decided to require lessees to include contingent rentals in the measurement of the right-of-use asset and the lease obligation based on their best estimate of expected lease payments.

    FASB also decided that both the right-of-use asset and the lease obligation should be initially measured at the present value of the best estimate of expected lease payments for all leases. The board decided to require the best estimate of expected lease payments to be discounted using the lessee's secured incremental borrowing rate.

    FASB members discussed the subsequent measurement of both the right-of-use asset and the lease obligation, but the board was not able to reach a decision. The board also discussed whether there should be criteria to distinguish between leases that are in-substance purchases and leases that are a right to use an asset, but it was not able to reach a decision on that matter either.

    Leases: A Scheme for Hiding Debt That Won't Go Away ---

    The AICPA maintains a helper site for guidance on the replacement of FASB/SEC standards with IASB international standards ---

    The American Accounting Association Commons contains, for AAA members, documents supplied by accounting firms to help accounting educators make the transition from domestic accounting standards to international accounting standards ---

    Also see
    And see

    Paul Pacter's IASB Update Presentation in Anaheim on August 4, 2008

    Slides:  (PDF 141k) Resource list :  (PDF 49k)

    What is similar between IFRS and "A Call for a Warning System on Artificial Joints?"

    The Accounting Onion, August 18, 2008 ---

    Updates:  Deloitte's Initiative for advancement and retention of female professionals
    From Smart Stops on the Web, Journal of Accountancy, July 2008

    Deloitte’s Women’s Initiative (WIN) Blog, part of the firm’s program for advancement and retention for female employees, is an “ongoing community conversation about life, work, and everything in between.” Recent posts are listed down the right side of the home page, and cover topics such as work/life balance, the generation gap, mentors, office politics and life lessons. An active group of readers—who include both men and women—give feedback, commiserate or just share their related experiences in the comments below each blurb. You can also subscribe to the RSS feed to keep up with the latest posts.

    Women Partners in the Big 4 Accounting Firms
    For the tenth consecutive year, Deloitte & Touche USA LLP tops the Big Four accounting firms in percentage of women partners, principals and directors, according to Public Accounting Report's 2006 Survey of Women in Public Accounting. The survey revealed that Deloitte's percentage of women partners, principals and directors is currently 19.3 percent, surpassing that of KPMG (16.8 percent), Pricewaterhouse Coopers (15.8 percent) and Ernst & Young (13.5 percent). Deloitte has held this lead every year since the inception of the survey in 1997, according to Jonathan Hamilton, editor, Public Accounting Report.
    SmartPros, December 26, 2006 ---

    Women now make up more than 60 percent of all accountants and auditors in the United States, according to the Clarion-Ledger. That is an estimated 843,000 women in the accounting and auditing work force.
    AccountingWeb, "Number of Female Accountants Increasing," June 2, 2006 ---

    Jensen Comment
    Nearly 20 years ago, Deloitte embarked on a "Women's Initiative" to help female employees break the glass ceiling ---,1042,sid=2261,00.htm

    Bob Jensen's threads on accounting careers are at

    "A Moral Obligation to Retire?" Inside Higher Ed, July 21, 2008 ---

    What's behind the trend for professors to stay full time on the job well beyond age 65?

    "The Graying of College Faculties," The Becker-Posner Blog, July 6, 2008 ---

    Jensen Comment
    This includes many geezers who have pretty nice retirement funding that would enable them to retire comfortably. Personally, I think I made the correct decision to not stay in the teaching harness when retirement age arrived on my calendar. Trinity University was terrific, but I was perhaps beginning to teach and generally live too much on automatic pilot.

    We purchased a retirement a retirement home in the mountains in 2003. but I continued to teach until May 2006
    On the road again
    Goin' places that I've never been
    Seein' things that I may never see again,
    And I can't wait to get on the road again.

    Willie Nelson
    CBS Records
    I like the road of any kind, 
    for they intrigue me still.
    I wonder what's around the bend,
    or just beyond the hill.

    Rachel Harnett (Age 95), 
    Tucumcary Literary Review
    , Los Angeles

    When I ask some of my retired professor friends why they retired, a common thread has been that the work ethic of many students has declined relative to their grade expectations (demands) and bickering for higher grades ---

    But the bottom line reason for some of the professors hanging on until Age 75 and higher is frequently a younger spouse who is not yet eligible for Medicare benefits. This is especially the case for professors who, somewhere along the way, obtained trophy wives/husbands who are considerably younger. Now these old professors are staying in the saddle mainly to keep the family medical plan of the university active for their spouses. In the old days, colleges could wheel and deal to encourage timely or even early retirement. This has become very expensive in terms of having to negotiate funding for many years of spousal medical coverage.

    Fortunately this was not an issue in my case since my soul mate is a lovely old biscuit and already had Medicare benefits when I retired. I have a friend (not in accounting) who is still teaching at Age 88 because his young spouse still has children who've not even reached middle school. I should send him pictures of me on a world cruise if I had the time to take a world cruise.

    Most of my time is still taken up with research, study, consulting, and writing. Sigh! I like my work and find most leisure activities boring.


    What proportion of American Accounting Association (AAA) members are within five years of the traditional age 65 retirement year? Most will probably go a bit beyond age 65 for reasons mentioned below. Some will retire at the minimum Medicare age of 62 because they really want out of teaching so bad that they will take a monthly retirement benefit hit.

    The proportion of AAA members that are 60 or older is so high that it makes sense for the AAA to merge with AARP.

    After the messaging about retirement, I received five private messages from faculty who are at retirement age, want to retire, and feel they cannot retire due to pending inflation worries (none mentioned trophy spouses in need of medical insurance).

    In some ways this makes sense if they'd carefully read "The Lotus Eater" short story written by Somerset Maugham in 1945 ---
    It's a very well-written piece about an accountant who retires on the equivalent of a finite-term annuity and then outlives his retirement income and savings. There are now lifetime retirement annuities but inflation can grind them to peanuts each month.

    Patricia at BU made a good point about maximizing social security when she stated that she must continue to teach, in her young-thing age bracket, until 70 to maximize her social security benefits. The government almost dictated that workers not retire at age 65 by making them take a sizable hit if they retire at the traditional retirement age of 65. This change in policy really clobbered colleges who would prefer to have a new and younger dynamic faculty (read that faculty who've not just given up learning FAS 133).

    Another factor to consider is that, if Pat retires before that new magical age of 70 for her, there may be some income tax drawbacks if she works part time in retirement (because she did not wait until she turned 70).

    The taxability of earnings after retirement is among the many things you can ask about at the AAA meetings in Anaheim this year. Note the message below from Tracey highlights that a session on retirement planning has been added in Anaheim this year. 


    Tracey writes:


    Recent demographic studies of the accounting professorate show that nearly half of AAA members are within five years of retirement; and junior faculty, busy establishing new careers, often spend little time thinking about retirement. Responding to members' interests, this year retirement specialists from TIAA-CREF will offer members of both groups opportunities to learn more about retirement planning. Family members/partners are welcome to attend these sessions as well. Both session are on Wednesday (August 6) at 2:00, one entitled "Retirement Planning for Faculty 55 and Over",  and a session for early career faculty designated as "Retirement Planning for Those Under 55." These sessions will both be held in large rooms to accommodate the expected overflow crowds.  While hosted by representatives from TIAA-CREF, you don't have to be a participant in TIAA-CREF to benefit from the sessions."

    July 18, 2008 reply from Roger Debreceny [roger@DEBRECENY.COM]


     American Accounting Association Membership Trends:





















































































    10 Year change







    Proportions in 1998







    Proportions in 2007

















    This table (with the three summary rows I added) shows the 2007 report of AAA KPIs at .. there are some interesting patterns here. The number of practitioners has gone down by more than 40%. This has been a matter of concern for me for many years. The AAA should be the natural place a well trained, thoughtful accountant should go to for a professional experience that is different than that provided by the AICPA, IIA, ISACA etc. Yet we seem to be able to attract only 600 professional members – a statistical blip. I have spoken to several professionals who are involved with the AAA and  even they seem to think that attracting professionals is a lost cause. I don’t agree and I don’t think we should accept this number. Other similar organizations such as the AEA and ACM have a much higher proportion than we do.

    New journals such as the Auditing sections new journal (which is already providing much fodder for my classes and my own professional improvement) is the way forward as is a much more targeted approach to marketing to professionals. I think that the AAA Annual Meeting is without parallel in terms of receiving an update on current events .. especially  if one went only to the panels and keynotes. And at a price that is just a fraction of equivalent events for professional organizations. This is something we should be marketing strongly.

    The second interesting issue is the increase in proportion of associate members. This category is (I imagine) mostly students. The category has increased by more than 80% and nearly doubled its share to 14%. But I imagine that this hides considerable churn and losses. If it were not the case, the number of academic and practitioner members would have increased. What are we doing to actively convert Associate into Academic and Practitioner classes, I wonder?



    July 18, 2008 reply from Bob Jensen

    Thanks for the updates Tracey and Roger!

    Not to detract from Tracey’s current optimism, the membership in the AAA has been on a steady decline for the past four decades (Craig Polhemus vs. Joel Demski)---
    The professionalism of Tracey and her staff have contributed greatly to preventing a membership disaster in recent years.

    In my viewpoint, AAA membership decline is principally caused by the Perfect Storm that hit doctoral programs over the past five decades ---

    We lost over 90% of our practitioner AAA members in the past five decades from a high point where there were more practitioner members in the AAA than academic members. Practitioners that remain today are mostly PR and recruiting specialists from the large firms. I don’t think you will find them sitting in our concurrent sessions at the annual meetings of the AAA. At the same time, however, the large firms have greatly increased their financial support of the AAA and, even more importantly, the private support of our accountancy programs in colleges and universities throughout the world. As far as the AAA is concerned, however, the increased financial support from practitioner donations to the AAA is offset somewhat by the loss of the dues being paid by almost 6,000 practitioners who abandoned the AAA ship.


    FIGURE 2

    Non-Academic Authorship in TAR



    What is really sad is the decline in academic members at a time when accounting professors were becoming the highest paid professors on nearly every college campus that has an accounting education program. The reason quite simply is the decline in enrollments in accounting doctoral programs as they became solely focused on producing accountics social scientists ---


    FIGURE 3

    Numbers of Doctoral Degrees from 2000-2004


    But the saddest statistic is the longer run decline in the number of accounting doctoral program graduates in the United States. In 1988 there were over 200 graduates from U.S. doctoral programs in accounting. In two decades this is down by over 50%.

    Doesn’t anybody else see a correlation between the decline in practitioner membership in the AAA with the decline in accounting doctoral program graduation rates? The overwhelming majority of applicants in history have been drawn from the practicing world of accountants, particularly practitioners from CPA firms. There is a tremendous and growing pool of applicants who have been working as practitioners from 1-5 years. Many would love to become accounting professors but are totally turned off by our social science accounting doctoral programs. They love accounting and hate accountics! They also hate to spend five years of their lives earning a PhD in accounting.

    Our accounting doctoral programs were hijacked by mathematicians, economists, and psychologists in search of higher pay in accounting departments.

     Bob Jensen




    Jensen Question
    If Bob Jensen were doing a highly technical session on FAS 133/157 in Anaheim at 2:00 p.m. on August 6, would he draw a bigger crowd than the Retirement Planning session?

    Please don't answer that! But the average age of my three people in the audience would be much, much younger than the overflow crowds at the retirement planning session. The reason is that the older registrants at the AAA annual meetings might recommend the FAS 133 session for their grandchildren who are about to finish up doctoral programs in accounting.

    Bob Jensen's threads on higher education controversies ---

    July 12, 2008 reply from Bill McCarthy [mccarthy@BUS.MSU.EDU]

    Thanks Bob,

     I found this blog entry interesting, even though some of its analysis (in my opinion) seems overly contrived "economic think" that flies in the face of common experience and even common sense, especially in accounting academics today.

    I really do not understand how the "graying of the professoriate" affects non-accounting faculties, because I have been only an accounting systems professor for 30+ years.  However, their idea that the most innovative teachers are always the youngest teachers seems debatable to me for accounting faculties.  Young scholars in accounting seem much more homogeneous (myopic?) as a group to me than accounting faculties considered more generally.  Their training is accountics-based in most instances (as this AECM list often notes), and their incentives to be creative in the classroom seem minimal compared to other professors who make teaching a priority.  Assistant professors in accounting do produce much more research on a count-and-weigh basis for obvious reasons, but genuine innovation is not always measured thus (despite what many doctoral level accounting faculty think).  There certainly are innovative young accounting scholars, but not to the extent that Posner/Becker hint.  The doctoral-training straightjacket they have to escape to become that way is much more real and much more confining than it was 30 years ago. 

    When I received my Ph.D. in accounting, none of the accounting faculty (at UMass-Amherst) seemed alarmed that I spent so much of my doctoral study time in the computer science labs and library, and most of the schools I interviewed for my first job seem so delighted with such training that they were ready to hand over the tailoring of their AIS courses to me as a brand new assistant professor.  Both of these circumstances would be rare indeed today. Curriculum and course innovation by new people was encouraged then; now such work is viewed as service loads to be contracted away for initial jobs.  Now, young AIS people must be accountics-qualified first and foremost, and AIS ideas are not allowed to become their "professorial essence" (at least until they survive the initial tenure race, at which point their AIS innovation initiative might be minimal).  This seems to be a formula for generating mediocre AIS teaching.  My heroes were people like Ted Codd, Roger Schank, and John Sowa; their heroes have become (in spirit if not in fact) the editorial board members of JAR.  

    I believe very strongly that it is possible to be innovative and fresh in one's teaching and research even if one is not young.   I try to do it by hanging around with people outside the business school faculty (practitioners, computer scientists, and most recently, philosophers) and by staying away from accountics research seminars.  New experiences often generate new ideas in ways that keep teaching genuinely vibrant.  However, I also believe that “new” isn’t always better for the students.  I have a cache of  “classic” classes that work so well every single time I use them that it sometimes takes me a couple of hours to come down from the experience.  Students remember these for months and even years, so I know my learning objectives are met.  Mixing old and new ideas in a repetitively taught course makes preparation constant, but it produces the best results.  I think this is what experienced teachers do the best.   

    To a certain extent, it is my belief that the box we put young AIS people in is the same confining structure that we apply to all new scholars in accounting.  A person like Paul Williams would never appear today as a new hire unless he or she were parachuted in from a European doctoral program where diversity in methods and domains is much more accepted (or from one of the very few US schools that remain eclectic).  I just spent two weeks in meetings and cafes with young informatics scholars from Belgium and Austria, and their research programs for information systems in business and accounting were very ambitious but practical, genuinely innovative, and technically informed in a manner that I simply cannot envision occurring in US accounting.  I believe that their teaching will follow that form. So maybe Becker and Posner do have it right in general about the inverse relationship between age and educational innovation for universities; it's just that US accounting academia is a glaring counterexample.


    So, for all of us non-traditional faculty in accounting, I think the trend for professors trained "in the old days" to stay on longer is a positive one, for both the experienced teaching it affords students and for the diversity of thought that it sustains in what appears to be an increasing monolithic field.  I just turned 62, but I plan to stay at least 10 more years. My four classes are probably 80%, 75%, 60%, and 25% stable, but none of them fits the “old yellowed notes with turned page corners” stereotype that people seem to have of teachers that age.   I have no intention of retreating and leaving accounting education in the hands of accountics and conservative newcomers.   . 

    Bill McCarthy
    Michigan State


    July 13, 2005 reply from Bob Jensen

    Well said Bill!

    And will the last American Accounting Association member please turn out the lights in Sarasota.

    The production of doctoral graduates in accounting is still only around 100 per year in accounting. There are going to be some huge problems in academe and in the American Accounting Association over the next 10 years. Half the present membership in the AAA is within five years of retirement according to the Executive Director of the AAA. There are around 6,000 current members. Go figure! In five years there could be 3,000 fewer members being replaced by less than 500 new members. Membership in the AAA has been on the decline for years from a time when there were well over 10,000 members --- 

    Of course not all 3,000 AAA members who could retire in five years will retire so soon because of the newer Social Security regulations extending the minimum age beyond age 65 for maximum benefits. But there will also be retirements at age 62 for some who are hanging on only to reach the minimum age for Medicare benefits.

    The only way we're going to get more doctoral graduates in accounting is to face up to the reality that accounting research can and should extend beyond the limitations of social science quantitative method research. At the present virtually all North American doctoral programs require accounting graduates to be social scientists, particularly in the realm of econometrics or psychometrics. This is a turn off for young practicing accountants who contemplate returning for a PhD in accounting and are turned off by all the mathematics prerequisites. Also most doctoral programs in accounting now take five full-time years beyond the masters degree. Economics takes three years --- 

    Bob Jensen

    July 17, 2008 reply from

    Hello Bob and AECM Colleagues,
    I must share a different perspective than Bob on the issue of AAA member numbers - if you check the Key Indicators report referenced below (updated for 2007) you'll see that while the AAA experienced a decline in membership for a number of years, since 2004 we are experiencing a small but steady increase, which appears to be continuing as we currently have about 150 more registrations for the Annual Meeting than at this point last year (which was our 3rd record-breaking attendance in a row). Having said, your comments including Bill's are well taken as important issues -- and interesting data on related topics can be found in our report on faculty trends from this spring at . We have a follow up research project in the works on non-tenure-track faculty in accounting to gather more data about the role they are playing (along with faculty who aren't retiring) in what's happening in accounting programs. Our researcher David Leslie will make a presentation at the Annual Meeting on both projects (Monday at 2:00 pm).

    Many of you are involved in both the projects that are building membership for the AAA and in teaching well-prepared new accounting practitioners - many thanks for all you do -- and looking forward to seeing many of you in Anaheim.

    Tracey Tracey Sutherland
    AAA Executive Director 2007
    AAA Key Indicators

    July 17, 2008 reply from Bob Jensen

    Thanks for the update Tracey.

    I do have an agenda. My major concern is that accountics economists have almost destroyed the attractiveness of accountancy doctoral programs to accountants who might otherwise apply to such programs. Hence I use a few scare tactics to stimulate broader thinking among universities seeking to add diversity to out research methods and doctoral program requirements ---

    Actually Dan Stone's hypothesis that sex improves public speaking might be extrapolated that sex might improve doctoral programs.

    I seriously do not predict the demise of the AAA and would be the first to come to the AAA's defense for what it does for us. When I was on the Executive Committee we were very concerned about the sharp drop off in practitioners. Now we must be somewhat concerned about the bubble of retirement-age professors over the next 10 years.

    And we must be concerned about airline and fuel prices for future meetings since colleges may not adjust travel budgets to cover the rises in costs.

    I'm certainly glad that registrations are up and not down this year. The AAA Annual Meetings have always been a highlight of my year and will be again this year. I mean most of my friends at these meetings over the years are now in the retirement bubble seeking Viagra thrills. But research has shown that when hotels schedule accounting meetings the hookers schedule their vacations.

    Keep up the faith and your good work!

    July 12, 2008 reply from Dennis Beresford [dberesfo@TERRY.UGA.EDU]


    In addition to teaching SFAS 133, I wonder how many accounting professors are dealing with SFAS 140 (securitizations) and Interpretation 46R (consolidation of variable interest entities)? I suspect both are way too detailed and complicated to be covered in typical accounting classes. Yet the FASB's current project on this threatens to add trillions (yes, trillions) of dollars of liabilities and assets to the balance sheets of financial services companies. And, by the way, the possible impact of that happening is alleged to be the major cause of this week's market crisis for Fannie Mae and Freddie Mac. This real world example of how accounting impacts the economy is truly fascinating. I only hope the economy survives for us to discuss it in class in the coming semester.

    Denny Beresford

    July 13, 2008 reply from Bob Jensen

    Hi Denny,

    A new problem is that some of our existing financial accounting faculty are reasoning that it’s a waste of time to study the tough new FASB standards and interpretations that will soon be history when the U.N. (oops read that the principles-based IASB) standards replace the complex and bright-lined FASB standards.

    During the transition period (when both FASB and IFRS standards are accepted) accounting faculty have even more freedom to cherry pick the hard stuff out of their course syllabi. Textbook publishers may well do the same thing to avoid textbooks from doubling in size.

    Tom Selling is right. If IFRS 3(R) is any indication, we should not look forward to the IASB (read that "politically correct" IASB) taking over our financial reporting standards.

    I'm glad I'm not young anymore --- 

    Bob Jensen

    July 14, 2008 reply from glen.gray@CSUN.EDU

    I don't want to sound too negative, but aren't we past the tipping point in being able to expand accounting research topics for PhD candidates? At some point the doctoral student will have to pull together a dissertation committee. That may be very difficult if their research interest is outside the current mainstream. They might find professors to be on their committee out of courtesy or guilt (or arm twisting), but how helpful and encouraging are they going to be?

    In other words, lets say the existing accounting faculty agreed tomorrow that we need to expand accounting research choices, do we have an infrastructure to support that decision?

    Glen L. Gray, PhD, CPA Accounting & Information Systems, COBAE California State University, Northridge 18111 Nordhoff ST Northridge, CA 91330-8372 818.677.3948 818.677.2461 (messages) 

    July 14, 2008 reply from Roger Debreceny [roger@DEBRECENY.COM]

    Glen may very well be right. But I wonder if the AAA has a role to play in this process. It is enlightening to Google "PhD Accounting Programs." No meta site comes up at all.

    For very little cost the AAA could provide a site on PhD programs that pointed potential students to a variety of research interests and paths of enquiry. This might broaden the demand and supply.

    My concern is just how much unused supervisory capacity there is, rather than a lack of capacity. I can think of several colleagues who are not currently supervising PhDs .. or perhaps have not been allowed to, which is even more of a concern.


    July 14, 2008 reply from Richard C. Sansing [Richard.C.Sansing@TUCK.DARTMOUTH.EDU]

    The ATA provides accounting doctoral program information at

    July 14, 2008 reply from Bob Jensen

    Hi Richard and Roger,

    The AACSB database provides quite a bit more information (than the ATA doctoral program database) about accredited schools in business and accounting (including data about the doctoral programs in the U.S. and outside the U.S.) --- 

    The way to find the information is as follows:

    1. Find a college or university of interest at 

    2. Click on the Red asterisk (the purple asterisk is only a link to the school itself)

    3. Click on "View Demographics"

    4. Look for doctoral program information (if any).

    There's similar link to Accredited Accounting Programs ---  But some universities having quality doctoral programs in accountancy do not have accounting accreditation on top of AACSB business program accreditation. For example, such is the case with Yale University.

    One way to improve the ATA database would be to weed out the inactive programs (such as Vanderbilt) and/or provide information on the trends in graduation rates each year and/or list the graduates by name.

    I agree that it would be a great service if the AACSB and/or the AAA provided a more useful database to query for such things as history of the doctoral program, year-to-year graduation rates since inception of the doctoral program, prerequisites such as in mathematics and accounting, scholarship funding available, assistantship funding available, and information about where each graduate took the first post-doctoral job.

    It would also be useful to be able to query the database for research methods specializations. For example, it would then be easier to find that Case Western has an option for getting a doctorate in accounting history or that the University of Central Florida has an option for getting a doctorate with more accounting stress and less accountics/social science requirements. SUNY at Albany also has some non-traditional options. At the moment, of course, there may only be three doctoral programs in North America that do not require accountics and social science research methods.

    Still another useful feature would be to be able to quickly find which doctoral programs have joint-discipline options such as accounting-Law, AIS-Computer Science, Accounting-Philosophy, etc. I don't know of any such joint accounting doctoral programs, but at Yale University there is a joint doctoral program in finance and law.

    It would also be useful to list each doctoral graduate by name so that we could then go the Hasselback Directory to try to find where those graduates are employed at the present (if they're still in academe).

    The printed copy of the Hasselback Directory (Prentice-Hall) has a page, just before the college listings begin alphabetically, that summarizes the graduation rates in doctoral programs for the history of each U.S. accountancy doctoral program. This is very useful, but be forewarned that there are some errors. Two errors I detected are the graduation rates in the doctoral program at Penn State University and the failure to even list Yale University, which as you, Richard, once pointed out to me has a doctoral program in accountancy. I'm not criticizing Jim here, because errors are inevitable in most any database and Jim invites every user of his Directory to send in corrections --- 

    By the way, when most of us want to locate Jim's online directory, we most likely go to Google and type in "Hasselback Directory." Unfortunately, the first thing that pops up is a 1999 version. I wish the above link would pop up first.

    A don't think any of the online versions of the Hasselback Directory have the doctoral program summary page that's in the printed version from Prentice-Hall.

    Bob Jensen


  • The Fairy Tale of 'True and Fair View' and a Modest Proposal for Real 'Core Principles',

    The elusiveness of a meaning for 'true and fair' in an accounting context stems from a lack of meaning for that quintessentially British phrase in a capital markets context. Financial reporting is about producing information: is it possible that truth telling could not result in fair reporting? Answer: no way. Therefore, 'and fair' adds nothing whatsoever; and besides, everyone learns in Accounting 101 that accrual accounting and 'truth' don't mix anyway. The point is that cunning Tweedie, like Soc Gen and its auditors, can construe 'true and fair' to mean anything and at any time. Just like the emperor in the cautionary fairy tale, IFRS wears no clothes; his royal highness and subjects are deceived by the Tweedie tailor (pun intended) to disbelieve their eyes, and to behave as if IFRS is adorned with some noble British bromide.
    Tom Selling, "The Fairy Tale of 'True and Fair View' and a Modest Proposal for Real 'Core Principles'," The Accounting Onion, July 10, 2008 ---

    Bob Jensen's threads on accounting standard setting are at

    From The Wall Street Journal Weekly Accounting Review on August 15, 2008

    Corporate Tax Reporting Draws GAO Scrutiny
    by Jesse Drucker
    The Wall Street Journal

    Aug 13, 2008
    Page: A2
    Click here to view the full article on

    TOPICS: Advanced Financial Accounting, Financial Accounting, Income Tax, Income Taxes, Tax Avoidance, Tax Havens, Taxation

    SUMMARY: In a recent report filed in response to a request by two senators, Carl Levin of Michigan and Byron Dorgan of North Dakota, the Government Accountability Office (GAO) found that " least 23% of large U.S. corporations don't pay federal income taxes in any given year." Large corporations are defined as companies generating at least $50 million in sales or with $250 million in total assets. But smaller firms also frequently report no income tax liability: "in a given year at least 60% of all U.S. corporations studied ... reported no federal income-tax liability during the period...1998 to 2005. In the study, the GAO analyzed samples of Internal Revenue Service data covering both publicly traded and closely held corporations, including U.S.-based and foreign corporations operating in the U.S."

    CLASSROOM APPLICATION: The article may be used to introduce book/tax differences, and items generating the differences such as net operating losses, in either a financial accounting or a corporate income tax class.

    1. (Introductory) Research "...has looked at the gap between the earnings that companies report to their shareholders and the smaller profits they report to the Internal Revenue Service." What causes these differences? Where can investigators find out about the nature of these differences?

    2. (Introductory) Summarize the major findings of the GAO study in your own words. Do the results surprise you? Specifically explain why.

    3. (Advanced) What was the original question asked by Senators Carl Levin of Michigan and Byron Dorgan of North Dakota? Be sure to clearly define the items these senators asked about. Did the study investigate the specific topic of their concern?

    4. (Advanced) What did the GAO find regarding the use of net operating losses and tax credits in driving the reported amounts showing no tax liabilities owed? Why this result unexpected? In your answer, define each of these tax reporting items. Explain when you expect each of these items to show on a tax return in terms of economic cycles.

    Reviewed By: Judy Beckman, University of Rhode Island


    KPMG Going to Court in New Jersey for Alleged  professional malpractice and negligence

    "KPMG Ordered to Stand Trial in Fraud Law," SmartPros, July 28, 2008 ---

    Big Four auditing firm KPMG LLP has been ordered by a New Jersey Superior Court judge to stand trial in an accounting fraud lawsuit involving Cast Art Industries, according to a statement issued Friday by law firm Eagan O'Malley & Avenatti, which represents Cast Art.

    Cast Art sued KPMG in 2003 for professional malpractice and negligence for allegedly failing to detect a pervasive financial fraud at Papel Giftware, Inc. prior to Cast Art acquiring Papel in December 2000 for nearly $50 million.

    In a written opinion, Judge Heidi Willis Currier found sufficient evidence for a jury trial to proceed against KPMG, Papel's auditor.

    In one email uncovered during the lawsuit, a member of Papel's management described how the company had "raped and pillaged to an extreme" in order to meet its forecasts. A KPMG partner later acknowledged, in a memorandum he sent to others at KPMG, that Papel's management could not be trusted.

    The lawsuit alleges that KPMG knew Papel's management could not be trusted yet repeatedly represented to Cast Art and others that Papel's financial statements were accurate and no fraud had occurred.

    "Wall Street, Main Street, investors, and the public at large depend on auditing firms to be truthful and accurate when reporting on the financial condition of company," stated Michael Avenatti, a lawyer for Cast Art. "In this case, like in too many others, KPMG cut every possible corner and fell woefully short."

    Cast Art claims that for three years prior to its acquisition of Papel, KPMG repeatedly affirmed that Papel's financial statements were accurate when in reality the company's management had engaged in a number of fraudulent schemes designed to inflate the value of the company to potential buyers. Cast Art alleges that Papel's management booked tens of thousands of fraudulent transactions on the company's books and records by, among other things, purposely shipping product to phony customers and double and triple shipping the same product to the same customer.

    Cast Art plans to seek close to $50 million at trial. Opening statements are expected to begin in the trial on Sept. 15, 2008.

    Bob Jensen's threads on KPMG are at

    KPMG Hit Once Again for Negligence (this time in the United Kingdom)

    "The UK's economic elites cannot effectively regulate themselves: The disciplining of major accounting firms is still little more than a cynical public relations exercise," by Prim Sikka, The Guardian, July 4, 2008 ---

    Governments talk of heavy fines and incarceration for antisocial behaviour for normal people, but it is entirely different for economic elites, as exemplified by major accountancy firms. Despite recurring audit failures, they get their own courts, puny fines and little or no public accountability. Appeals professionalism and private disciplinary arrangements disarm journalists and critics and mask the usual predatory moneymaking business.

    Last week, seven years after the collapse of Independent Insurance Group, the UK accountancy profession frightened KPMG with a fine of £495,000 over its audit failures. The partner in charge of the audits was fined £5,000 and the firm had to pay disciplinary hearings costs of £1.15m. The audit failures played a part in helping the company to report a loss of £105m into a profit of £22m. In October 2007, two Independent directors were jailed for seven years.

    The puny fines will hardly worry KPMG or its partners. The firm boasts worldwide income of nearly $20bn (£10bn) and about £1.6bn of this is from its UK operations. Its partners are charged out at an hourly rate of £600. Last year, its 559 UK partners enjoyed profits of £806,000 each and also shared a Christmas bonus of £100m.

    The seven-year delay is not unusual. The professional structures took eight years to levy a fine on Coopers & Lybrand (now part of PricewaterhouseCoopers) for audit shortcomings that might have prevented the late Robert Maxwell from looting his companies and employee's pension funds. The frauds came to light after his suicide in 1991. A UK government investigation did not report until 2001. In 1999, a professional disciplinary hearing placed most of the blame for audit failures on an audit partner who died in the intervening years. The firm was fined £1.2m for its audit failures and ordered to pay costs of £2.2m. Taken together this amounted to £6,000 per partner. Coopers had collected over £25m in fees from Maxwell. In 1999, PricewaterhouseCoopers had UK income of £1.8bn.

    The fraud-ridden Bank of Credit and Commerce International (BCCI) was closed down in July 1991. Nearly 1.4 million depositors lost some part of their $8bn savings, though some UK savers were bailed out by the taxpayer funded depositor protection scheme. The UK government failed to appoint an independent inquiry to investigate the role of auditors, but a US Senate report published in 1992, raised numerous questions about the conduct of auditors. Eventually, in 2006, without commenting on any of the findings of the US Senate, a disciplinary panel of the UK accountancy profession found some faults with the audits conducted by the UK arm of Price Waterhouse (now part of PricewaterhouseCoopers). The firm was fined £150,000 and ordered to pay hearing costs of £825,000. At that time the firm had UK income of around £2bn.

    The above is a small sample of what passes for self-regulation in the UK accountancy profession. The sinking ship of self-regulation has now been refloated, albeit with a few deckchairs rearranged. The government has delegated the investigation of major audit failures to the Financial Reporting council (FRC), a statutory regulator dominated by corporate and accounting elites. In August 2005, it announced an investigation into the audits of MG Rover conducted by Deloitte & Touche. So far no report has materialised.

    The usual excuse is that the accountancy regulators can't do anything until all litigation is resolved. Such an excuse did not stop the US government from investigating auditors of Enron or WorldCom. There is hardly any evidence to show that the UK fines are effective or have resulted in any improvement in audit quality. Despite recurring failures, no partner from any major UK auditing firm has ever been banned from practising and no major firm has ever been suspended from selling audits. Most stakeholder lawsuits against auditors are barred after six years, and the much-delayed disciplinary findings are of little use to them. In any case, generally auditors only owe a "duty of care" to the company as a legal person and not to any individual shareholder, creditor or other stakeholder who may have suffered loss as a result of auditor negligence.

    The above cases do not suggest that auditors directly participated in any of the irregular activities. Nevertheless, the disciplining of major accounting firms remains a cynical public impression management exercise. The victims of poor audits can submit evidence to disciplinary panels, but cannot appeal against its findings, or feather-duster fines. In contrast, the firms and their partners can. There is no way of knowing how any evidence gathered by the disciplinary panels is weighted or filtered. None of it is available for public scrutiny. The fines levied swell the coffers of the regulators and their sponsors and are not used to compensate the victims of audit failures. Neither the professional bodies nor any disciplinary structure owes a "duty of care" to any individual affected by their policies. It is time the economic elites were subjected to the legal processes that apply to normal people.

    Bob Jensen's threads on KPMG are at

    From the Financial Rounds Blog on July 5, 2008 ---

    "Cash Flow Is King: Cognitive Errors by Investors" by Todd Houge (of U of Iowa) and Tim Loughran of Notre Dame. Here's the abstract:

    When investors fixate on current earnings, they commit a cognitive error and fail to fully value the information contained in accruals and cash flows. Extending the accrual anomaly documented by Sloan [1996], we identify significant excess returns from a cash flow-based trading strategy. The market consistently underestimates the transitory nature of accruals and the long-term persistence of cash flows. We find that the accrual anomaly derives from the poor performance of high accrual firms, which are more likely to manage earnings. Combining the accrual and cash flow information also reveals that investors misvalue the quality of earnings. Contrary to Fama [1998], these anomalies are robust to the three-factor model with equally or value-weighted portfolio returns.

    Houge and Loughran find that markets undervalue firms with high operating cash flows to asset ratios and overvalue those with low cash flow/asset ratios. Somewhat surprisingly, Cash Flow/Assets is negatively correlated with Book/Market ratios (i.e. a firm with low CF/Assets is likely to also be a high Book/Market firm), so this is not just another way of capturing the value anomaly. They also find that the negative returns for high accrual firms are mostly evident among firms with the highest accruals.

    But the really interesting finding in the paper has to do with earnings quality. The high cash flows/low earnings combination (basically, low accruals) indicates high earnings quality, while low cash flows and high earnings (high accruals) proxies for low earnings quality. When they compare returns to high cash flow/low earnings firms to those with low cash flows and high earnings, the high CF/low earnings firms outperform their opposite numbers by almost 16% per year on a risk adjusted basis. Not too shabby.

    The paper was published in the Journal of Psychology and Financial Markets in 2000, but you can get an ungated version at

    Freddie and Fannie would probably go under except for one thing: 
    Congress assured them that they would not fail and now taxpayers will receive the tab
    Accounting rules are blamed for some of the troubles, but this is like killing the messenger for bringing bad news!

    "Loan-Agency Woes Swell From a Trickle to a Torrent," by Charles Duhigg, The New York Times, July 11, 2008 ---

    Fannie Mae and Freddie Mac are so big — they own or guarantee roughly half of the nation’s $12 trillion mortgage market — that the thought that they might falter once seemed unimaginable. But now a trickle of worries about the companies, which has been slowly building for years, has suddenly become a torrent.

    Virtually every home mortgage lender, from giants like Citigroup to the smallest local banks, relies on Fannie Mae and Freddie Mac to grease the wheels of the mortgage market. Virtually every Wall Street bank does business with them. And investors around the world own $5.2 trillion of the debt securities backed by the companies.

    Even as senior Washington officials struggled on Thursday to reassure worried investors and discussed a government intervention that could cost taxpayers billions of dollars, the companies’ stock prices plummeted again in a rush of selling, this time to their lowest level in 17 years. Freddie Mac closed down 22 percent, at $8, and Fannie Mae fell 13.8 percent, to $13.20.

    “There is a real panic about these companies on Wall Street right now, and sometimes a blaze like that grows almost without reason,” said Tom Lawler, an economist who worked at Fannie Mae for over two decades before leaving in 2006 to become a consultant. “There wasn’t really any new news to set off this crisis. The stocks just started falling, and didn’t stop.”

    What set off this storm, and what happens next?

    The cause of this week’s huge declines remains somewhat unclear. Though each rumor and concern about the company was batted down as it arose, their overall volume was amplified by Fannie’s and Freddie’s enormous obligations.

    On Monday, when the analyst report from Lehman Brothers hit the market, Fannie Mae plunged 16 percent. More than 68 million shares changed hands that day — three times as much as average. Volume jumped again on Tuesday, as the stock stabilized, and then exploded on Thursday, to 134 million, as the shares plunged once again.

    Perhaps the biggest single risk facing Fannie Mae and Freddie Mac, and with them financial companies and taxpayers, is that investors might simply lose confidence in the companies, leaving them unable to pursue their core businesses — buying home loans from banks and repackaging them for sale to investors.

    That buying and repackaging is the lifeblood of the American housing economy, because it provides the capital that banks and other financial institutions use to write new loans.

    As long as investors are confident that Fannie Mae and Freddie Mac are relatively financially healthy, then companies, banks and other institutions will continue lending them billions of dollars each week.

    But, as the companies’ stock prices decline, wary investors have begun charging higher premiums for those loans. Since January, that premium, measured by the difference between what the companies pay for debt and what the United States government pays, has more than doubled, to nearly nine-tenths of a percentage point for Fannie Mae. Spread over billions of dollars in borrowing, that increase will cost the companies dearly.

    If that spread ever became too pronounced, Fannie and Freddie could end up in the disastrous situation of paying so much for loans that it would become unprofitable for them to borrow. It has happened before: as interest rates soared in the 1980s, Fannie Mae’s borrowing costs rose above what it was earning on its mortgages, and the company lost $1 million a day before it was able to right itself.

    Should that happen again, Fannie and Freddie could suspend buying some loans — which could bring much of the American housing economy to a standstill. Or the companies could continue doing business, but losing money on many of their deals, which would continue to undermine investors’ confidence in the stocks.

    Continued in article

    What's Good for Banks...
    by David Reilly
    The Wall Street Journal

    Jul 09, 2008
    Page: C18
    Click here to view the full article on ---

    TOPICS: Advanced Financial Accounting, Banking, Consolidated Financial Statements, Consolidation

    SUMMARY: "Investors panicked this week over the possibility that accounting-rule changes could force Fannie Mae and Freddie Mac to raise $75 billion in additional capital....James Lockhart, regulator of the two mortgage giants, said as much Tuesday, noting that accounting rules don't dictate capital requirements." The article continues by considering the fact that banks likely will face this issue when new accounting standards require them " follow some common-sense principles in deciding if they control a vehicle, and so should consolidate it. These are whether a firm reaps the benefits from a vehicle or could be left holding the bag when things go wrong, and whether the firm can call the shots when problems emerge."

    CLASSROOM APPLICATION: The impact of consolidation of previously off-balance sheet special purpose entities on bank capital requirements may be covered in advanced financial accounting or financial statement analysis courses.

    1. (Introductory) Define the terms "off-balance-sheet vehicles," "special purpose entities", and "variable interest entities".

    2. (Advanced) What U.S. reporting standards address the accounting and reporting requirements for these entities? What are the major accounting issues in this area?

    3. (Advanced) What accounting change was recently announced by the Financial Accounting Standards Board (FASB)? (Hint: You may access information about FASB project activities through its Project Activities link on its web page. In particular, information on the Transfers of Financial Assets project is available at

    4. (Advanced) How can banking entities, impacted by FASB decision-making, highlight their concerns to the FASB? Hint: see comment letters related to the FASB's project on the web page cited under question 3 above. Also, an unsolicited letter from Citigroup, Inc., addresses many of the banking entities' issues and is available at

    5. (Advanced) How can changes in accounting for special purpose entities result in the need to increase a banking entity's capital? In your answer, describe the need for banks to maintain certain levels of capital.

    6. (Advanced) In the article, the author concludes that "...a failure to properly account for off-balance-sheet vehicles helped cause the financial crisis. Watering down prudent rule changes isn't going to relieve it." Explain these statements. Do you agree or disagree with them? Support your answer.

    Reviewed By: Judy Beckman, University of Rhode Island

    FASB Signals Stricter Rules for Banks' Loan Vehicles
    by David Reilly
    May 02, 2008
    Page: C1

    "What's Good for Banks... Fannie, Freddie Should Have to Meet New Capital Rules," by David Reilly, The Wall Street Journal, July 9, 2008; Page C18 ---

    Investors panicked earlier this week over the possibility that accounting-rule changes could force Fannie Mae and Freddie Mac to raise $75 billion in additional capital.

    Even if the proposed changes make Fannie and Freddie take back onto their books trillions of dollars in securitized assets, it is up to regulators to decide how much capital needs to be set aside.

    James Lockhart, regulator of the two mortgage giants, said as much Tuesday, noting that accounting rules don't dictate capital requirements. Plus, Fannie and Freddie already have set aside capital for these securitized assets.

    Even if Fannie and Freddie dodge them, the new rules will hit banks. The rules, which govern the treatment of off-balance-sheet vehicles could potentially force Citigroup Inc., Bank of America Corp. and J.P. Morgan Chase & Co. to take billions of dollars in assets onto their books.

    Banks don't currently set aside capital for those securitized assets. That means the new rules could force them to raise additional capital.

    How much isn't clear, but the amounts involved are significant. Together, Citigroup, J.P. Morgan and Bank of America have securitized more than $1 trillion in assets, according to a report by RiskMetrics Group.

    The proposed rules changes, which are likely to be finalized later this year, will eliminate special vehicles that allowed banks and others to keep securitized mortgage assets off their books, even though the institutions retained interests in them and serviced them.

    The new rules also would require financial institutions to follow some common-sense principles in deciding if they control a vehicle, and so should consolidate it. These are whether a firm reaps the benefits from a vehicle or could be left holding the bag when things go wrong, and whether the firm can call the shots when problems emerge.

    While banks' response to the proposed rules has so far been muted, they have a history of beating back challenges to their use of off-balance-sheet vehicles. When the Financial Accounting Standards Board tried to tighten the rules in the wake of Enron Corp.'s implosion, banks argued that the changes would deprive companies of low-cost, short-term funding.

    That led to a loosening of the proposed rules, which allowed banks to engineer their way around them. Off-balance-sheet vehicles then helped fuel the securitization boom that inflated the housing bubble while leaving investors and regulators in the dark about the true risks facing banks.

    This time around, fears about the impact on Fannie and Freddie could lead banks to argue that the changes will make the mortgage mess even worse and tie up capital that banks could use to shore up the economy.

    FASB needs to stand firm in the face of such arguments. Banks need to set aside capital for the risks they face. The board also needs to reject calls for exceptions for Fannie and Freddie. That would only open the door for banks to argue for special treatment.

    A failure to properly account for off-balance-sheet vehicles helped cause the financial crisis. Watering down prudent rule changes isn't going to relieve it.

    VMware's Warning Chills Tech Sector

    The revenue guidance issued by VMware Inc. Tuesday cratered the software company's stock, which plunged 24%.

    VMware, the leading provider of software designed to help companies cut back on technology costs, said it expects 2008 revenue to be "modestly below the previous guidance of 50% growth over 2007."

    That sort of growth rate might appear strong in this environment. But the warning implies a substantial slowing this year. In the first quarter, VMware -- split off by EMC Corp. last year in a popular initial public offering of stock -- posted revenue growth of nearly 70%, which means that pace has to slow markedly if it is going to come in under 50%.

    Credit Suisse analyst Philip Winslow forecasts VMware's revenue growth will slow to 33% in the fourth quarter.

    If corporate demand is falling that quickly for the kind of software that helps save money, earnings across the tech sector could disappoint.

    The bulls will respond that with the Nasdaq down nearly 14% this year, tech stocks already reflect this. For example, Oracle Corp. trades at 14 times earnings for the fiscal year ending in May 2009, apparently cheap given that analysts expect earnings growth of 16% for the company in that period.

    "Mortgage Giants Face Pressure Over Capital," by James R. Hagerty, Gregory Zuckerman, and Craig Karmin, the Wall Street Journal, July 11, 2008; Page A1

    Even as federal officials sought to reassure investors about the financial health of Fannie Mae and Freddie Mac, pressure mounted on the giant mortgage companies to raise fresh capital to offset the tumbling values of home loans they hold.

    Shares in the two stockholder-owned, government-sponsored companies declined sharply yet again Thursday. Freddie shares dropped 22% to $8 in 4 p.m. composite trading on the New York Stock Exchange. Fannie fell 14% to $13.20. Both stocks are down more than 80% from a year ago and at their lowest closing levels in more than 16 years.

    The declines have set off a raging debate on Wall Street over whether the companies, which are crucial to the battered housing market, will need a big cash infusion and possibly government help.

    One possible scenario if Fannie and Freddie's financial position worsens: Under existing law, if either company were severely low on capital, it could fall under the control of their government regulator, which would then be responsible for the firm. That step -- known as placing it in a conservatorship -- would allow the mortgage company to continue operating, but the extent of its abilities in such a distressed situation remains unclear.

    Such a move would be a drastic step and its path is uncertain, in part because few know what specific financial situation would be a trigger.

    "They need a lot more capital," said John Paulson, who heads the hedge-fund manager Paulson & Co. that has made billions betting the housing market would decline. He pointed to "growing worries" about the deterioration of securities backed by mortgages as more homeowners default and home prices fall. Meanwhile, some high-profile bond investors snapped up Fannie and Freddie debt, believing the government would never allow them to default.

    Bill Gross, chief investment officer of Pacific Investment Management Co., the large Newport Beach, Calif., bond manager known as Pimco, said the firm bought a large amount of Fannie Mae debt Thursday. A default would set off "a firestorm of intolerable proportions," Mr. Gross said.

    At a House hearing Thursday, Treasury Secretary Henry Paulson said the firms "are playing a very important and vital role." He added: "They touch 70% of the mortgages that are made in this country. They are a very important part of our economy, a very important part of our housing market."

    Federal Reserve Chairman Ben Bernanke said the firms "are playing a critical role" in the mortgage market, but "I think they could do an even a better job if they were better supervised and better capitalized." Both the Fed and the Treasury are pressing Congress to pass legislation that would create a stronger regulator for Fannie and Freddie. The Fed and Treasury also have been pressuring Fannie and Freddie to raise more capital.

    'Too Important'

    Politicians in both parties expressed their confidence in the companies and pledged to take action if things worsen.

    "Fannie Mae and Freddie Mac are too important to go under," said Democratic Sen. Charles Schumer of New York. "...If they need additional support, Congress will act quickly." But he added in an interview: "We're not at that stage. I hope and think it won't be needed."

    A Treasury spokeswoman said: "As Secretary Paulson said today, we're not going to speculate about 'what ifs' on Fannie and Freddie. What we're focused on is legislative reform."

    Continued in article

    It is hard to tell just how much impact Fannie's and Freddie's problems have had on mortgage rates. But if the two companies had more capital and were able to buy more mortgages for their own portfolios, mortgage rates could be as much as 0.25 percentage points lower, says Mahesh Swaminathan, a mortgage strategist at Credit Suisse . . .  Kenneth Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley, says mortgage rates could rise by 0.25 to 0.50 percentage points if Fannie Mae and Freddie Mac could no longer continue operating as they do today. But "the U.S. government has no choice but to support to [the] fullest extent necessary, Fannie or Freddie," he adds. "There is no alternative."
    Ruth Simon, "Questions and Answers About Fannie, Freddie," The Wall Street Journal, July 11, 2008; Page A12 ---

    From The Wall Street Journal Accounting Weekly Review on June 27, 2008

    What are banks doing creatively to hide their non-performing loans in the 21st Century?

    Smells like old wine in new bottles.

    Banks Find New Ways to East Pain of Bad Loans
    by David Enrich
    The Wall Street Journal

    Jun 19, 2008
    Page: C1
    Click here to view the full article on ---

    TOPICS: Business Ethics, Ethics, GAAP

    SUMMARY: Banks are revising internal accounting policies to mask their troubles. The maneuvers are legal but could deepen suspicion about the sector.

    CLASSROOM APPLICATION: This article illustrates how a company can change its policies and the resulting impact of those changes on the company's accounting records. Sometimes those actions violate GAAP, but in the situations presented in the article, the changes are perfectly legal. The bad part of these actions is that those changes can present a very different picture of the banks' financial condition to the users of the financial statements.

    1. (Advanced) What did these companies change that resulted in changes to their financial statements?

    2. (Advanced) Why are these changes allowed, even though they cause differences on the financial statements?

    3. (Introductory) Do the policy changes result in a permanent change over time on the financial statements? Why or why not?

    4. (Introductory) What is the regulatory impact of moving some loans to a new subsidiary? What is the impact on the financial statements? Why are these different?

    5. (Advanced) What are the public relations issues involved with these kinds of actions? Should the banks be concerned? Why or why not?

    6. (Advanced) What are the ethics of the actions of the banks in this article? What would be the ethical way to handle this reporting? If the reporting as stated is acceptable, should the banks add any additional information to the notes to the financial statement? If not, why not? If so, what should be added?

    Reviewed By: Linda Christiansen, Indiana University Southeast


    "Banks Find New Ways To Ease Pain of Bad Loans," by David Enrich, The Wall Street Journal,  June 19, 2008; Page C1 ---

    In January, Astoria Financial Corp. told investors that its pile of nonperforming loans had grown to about $106 million as of the end of last year. Three months later, the thrift holding company said the number was just $68 million.

    How did Astoria do it? By changing its internal policy on when mortgages are classified on its books as troubled. The Lake Success, N.Y., company now counts home loans as nonperforming when the borrower misses at least three payments, instead of two.

    Astoria says the change was made partly to make its disclosures on shaky mortgages more consistent with those of other lenders. An Astoria spokesman didn't respond to requests for comment. But the shift shows one of the ways lenders increasingly are trying to make their real-estate misery look not quite so bad.

    From lengthening the time it takes to write off troubled mortgages, to parking lousy loans in subsidiaries that don't count toward regulatory capital levels, the creative maneuvers are perfectly legal.

    Yet they could deepen suspicion about financial stocks, already suffering from dismal investor sentiment as loan delinquencies balloon and capital levels shrivel with no end in sight.

    "Spending all the time gaming the system rather than addressing the problems doesn't reflect well on the institutions," said David Fanger, chief credit officer in the financial-institutions group at Moody's Investors Service, a unit of Moody's Corp. "What this really is about is buying yourself time. ... At the end of the day, the losses are likely to not be that different."

    Still, as long as the environment continues to worsen for big and small U.S. banks, more of them are likely to explore such now-you-see-it, now-you-don't strategies to prop up profits and keep antsy regulators off their backs, bankers and lawyers say.

    At Wells Fargo & Co., the fourth-largest U.S. bank by stock-market value, investors and analysts are jittery about its $83.6 billion portfolio of home-equity loans, which is showing signs of stress as real-estate values tumble throughout much of the country.

    Until recently, the San Francisco bank had written off home-equity loans -- essentially taking a charge to earnings in anticipation of borrowers' defaulting -- once borrowers fell 120 days behind on payments. But on April 1, the bank started waiting for up to 180 days.

    'Out of Character'

    Some analysts note that the shift will postpone a potentially bruising wave of losses, thereby boosting Wells Fargo's second-quarter results when they are reported next month. "It is kind of out of character for Wells," says Joe Morford, a banking analyst at RBC Capital Markets. "They tend to use more conservative standards."

    Wells Fargo spokeswoman Julia Tunis says the change was meant to help borrowers. "The extra time helps avoid having loans charged off when better solutions might be available for our customers," she says. In a securities filing, Wells Fargo said that the 180-day charge-off standard is "consistent with" federal regulatory guidelines.

    BankAtlantic Bancorp Inc., which is based in Fort Lauderdale, Fla., earlier this year transferred about $100 million of troubled commercial-real-estate loans into a new subsidiary.

    That essentially erased the loans from BankAtlantic's retail-banking unit. Since that unit is federally regulated, BankAtlantic eventually might have faced regulatory action if it didn't substantially beef up the unit's capital and reserve levels to cover the bad loans.

    Because the BankAtlantic subsidiary that holds the bad loans isn't regulated, it doesn't face the same capital requirements. But the new structure won't insulate the parent company's profits -- or shareholders -- from losses if borrowers default on the loans, analysts said.

    Alan Levan, BankAtlantic's chief executive, declined to comment on how much the loan transfer bolstered the regulated unit's capital levels. "The reason for doing it is to separate some of these problem loans out of the bank so that they can get special focus in an isolated subsidiary," he said.

    Other lenders have been considering the use of similar "bad-bank" structures as a way to cleanse their balance sheets of shaky loans. In April, Peter Raskind, chairman and CEO of National City Corp., said the Cleveland bank "could imagine...several different variations of good-bank/bad-bank kinds of structures" to help shed problem assets.

    Two banks that investors love to hate, Wachovia Corp. and Washington Mutual Inc., troubled some analysts by using data from the Office of Federal Housing Enterprise Oversight when they announced first-quarter results. Other lenders rely on a data source that is more pessimistic about the housing market.

    Charter Switch

    Another eyebrow raiser: switching bank charters so that a lender is scrutinized by a different regulator.

    Last week, Colonial BancGroup Inc., Montgomery, Ala., announced that it changed its Colonial Bank unit from a nationally chartered bank to a state-chartered bank, effective immediately.

    That means the regional bank no longer will be regulated by the Office of the Comptroller of the Currency, which has become increasingly critical of banks such as Colonial with heavy concentrations of loans to finance real-estate construction projects.

    Instead, Colonial's primary regulators now are the Alabama Banking Department, also based in Montgomery, and the Federal Deposit Insurance Corp. The change probably "is meant to distance [Colonial] from what is perceived as the more aggressive and onerous of the bank regulators," said Kevin Fitzsimmons, a bank analyst at Sandler O'Neill & Partners.

    Colonial spokeswoman Merrie Tolbert denies that. Being a state-chartered bank "gives us more flexibility" and will save the company more than $1 million a year in regulatory fees, she said.

    Trabo Reed, Alabama's deputy superintendent of banking, said his examiners won't give Colonial a free pass. "There's not going to be a significant amount of difference" between the OCC and state regulators, he says.

    "The Credit Crisis and Failed Risk Analysis:  We're Nowhere Near the End Here," The Wharton School at the University of Pennsylvania, June 2008 ---;jsessionid=a8306bc6c52433251104?articleid=1998

    Bob Jensen's threads on accrual accounting and bad debt estimation are at

    "Keep Private Equity Away From Our Banks," by Andy Stern, The Wall Street Journal, July 7, 2008; Page A13 ---

    Private-equity firms have made a lavish living on making big bets when no one is looking. Unlike banks and thrifts – which are regulated, transparent and generally publicly owned enterprises – private-equity firms operate in secret, virtually free from regulation. They use tax loopholes around carried interest – and deduct interest payments on the debt they use for buyouts – to extract huge profits from the companies they buy. Private-equity profits are built on big risks, and taking advantage of lax regulation – the very problems that led to the subprime and credit crises.

    Shareholders are also paying the price for private-equity investments in banks. Texas Pacific Group's (TPG) recent investment in Washington Mutual (WaMu) massively diluted shareholder stakes by handing 50.2% of the company to TPG and its partners. While the deal – crafted in secret without shareholder input or approval – has already put $50 million in transaction fees in the pocket of TPG, WaMu shareholders have seen their stock value fall to $5.38 a share, the lowest level in 16 years (a nearly 90% drop in the last year alone).

    Continued in article

    Bob Jensen's threads on "Rotten to the Core" are at

    "Nancy Heinen, Former Apple General Counsel, Settles Backdating Charges,"  by Arik Hesseldahl, Business Week, August 14, 2008 --- Click Here

    Posted by: Arik Hesseldahl on August 14 Nancy Heinen, Apple’s former general counsel has settled civil charges brought by the Securities and Exchange Commission in 2007, the commission announced today.

    The settlement calls for Heinen, who had served as Apple’s general counsel from 1997 until her departure in mid-2006, to pay $2.2 million in disgorgement, interest and penalties, and to be barred from serving as an office of a public company for five years. Under terms of the settlement, she has neither admitted nor denied any wrongdoing.

    Heinen had been accused by the SEC of being responsible for the backdating of two big blocks of stock options grants to Apple executives, a matter that had cast a pall over the company it first disclosed the matter in June of 2006, about a month after Heinen’s departure. The SEC said that company records pertaining to a grant of 4.8 million options to Apple’s senior executive team in February of 2001, and a grant of 7.5 million shares made to CEO Steve Jobs in December of 2001 had been altered to conceal what it called a fraud. The result was that Apple underreported its stock-related expenses by nearly $40 million.

    In the case of the first grant, the SEC said, six executives including Heinen, received options that were in-the-money, meaning their strike price was lower than the actual share price on the date of grant.

    Apple was required to report the $18.9 million difference as a stock-based compensation charge in regulatory filings, but didn’t. The commission had accused Heinen of backdating the options to Jan. 17 when the price of Apple’s stock was lower, and, was also accused of having directed underlings to prepare documents showing that the grant had been properly approved by Apple’s board of directors when it had not.

    Heinen’s lawyer, Cris Areguedas had argued that Heinen hadn’t backdated the options to the Jan. 17 date as the SEC alleged, but had been laboring under the impression that the grant had been properly approved by Apple’s board in late 2000, and was only pushing back the grant date, which was legal under rules in force at the time. Her intent, Arguedas said, had been not to defraud Apple investors but to help the company avoid the appearance of having “spring-loaded” the options in advance of a an important Steve Jobs keynote address at the 2001 MacWorld Expo in San Francisco.

    In the second case, Heinen had been accused of signing fictitious board meeting minutes concerning a “special board meeting” that had never taken place, that reflected the approval of directors of a grant to Jobs. Again the difference, $20.3 million in this instance, wasn’t properly reported in regulatory filings.

    In this instance, while the SEC complaint implied that Heinen believed the proper grant date was Aug. 29, but when Jobs complained about the vesting schedule, and had wanted some of the options in the grant to be “pre-vested” meaning he would have been able to exercise them right away. As a November 2001 deadline for properly reporting the expense neared, Heinen became concerned about the delay, the SEC complaint said, and looked for a data where Apple’s share price was close to the $17.83 price of Aug. 29. She chose Oct. 19, when the stock was at $18.30, but less than $21.01, its price on the actual grant date of Dec. 18, thus creating for Jobs, an instant paper profit.

    The settlement would appear to bring final closure to the matter of Apple’s relatively minor backdating issue. During parts of 2006 and 2007, the matter had caused Apple investors some anxiety that Jobs might be targeted by the SEC either for civil charges or by the U.S. Department of Justice for criminal charges. The amount of money involved – less than $40 million – was in fact minimal to Apple, who during the its fiscal years 2006 and 2007 had reported sales of $20 billion and $24 billion respectively, and whose cash horde had exceeded $15 billion by the close of its 2007 fiscal year.

    The matter had been expected to come to trial in the federal court for the Northern District of California this year, and would have likely generated substantial media attention because Jobs, having been subpoenaed in 20007 was expected to appear as a witness.

    The settlement also means that Heinen’s version of events will likely not be aired in public. When Apple’s former CFO Fred Anderson settled charges related to the matter in 2007, he issued a public broadside at Apple and Jobs in particular. At the time Anderson, through his lawyer, said that he had warned Jobs that the company would need to record a charge for the options granted Apple executives in early 2001.

    Anderson’s version of events would seem to contradict Apple’s version of events, which it announced in October of 2006, after an investigation by a special committee of its outside directors concluded that Jobs didn’t fully appreciate the accounting implications of the matter.

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    Bob Jensen's threads on backdating are at

    Bob Jensen's fraud updates are at

    Bob Jensen Loses It

    Tom Selling apologizes to Jim Leisingring ---

    Jim’s the last accountant I would accuse of capitulating to industry or any other majority. He’s tough, smart, quick on his feet, and dedicated to standards. Jim also has a great sense of humor. He and Denny had to sell FAS 133 and 123 in a hornets nest of Silicon Valley industries badly impacted by both standards. The presentations made jointly by Denny and Jim in Silicon Valley became very tense and hostile, but these two never backed down.

    I’m glad Tom apologized to Jim, because the criticism this time was way off the mark in terms of Jim's history on the FASB.

    I do agree with Tom's criticism of Jim's vote on IFRS 3(R). There are three U.S. members on the IASB, and two of them resoundingly voted against this revision and Jim's vote. Tom Selling wrote the following at

    Instead, the IASB renegged on its promise in the worst way imaginable: they voted to allow entities a free choicebetween 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 synagouge 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.

    But I will forever admire how more than ten years ago Jim championed FAS 133 in spite of the line up of industry lobbyists and accounting firms out to either kill or greatly weaken this great standard.

    You can read an old transcript of one of Jim’s 1998 speeches at

    Bob Jensen's threads on FAS 133 are at

    Bob Jensen's threads on FAS 123(R) are at

    June 29, 2008 message from Bob Jensen

    Hi Tom,

    I disagree almost entirely on the “points you were trying to make.” .at
    It’s analogous to saying that we should do away with environmental protection legislation because the laws imposed a lot of costs to polluters, drove some out of business, and has not stopped all environmental pollution. What do you expect with so many kinds of misdeeds that are exceedingly complex and interactive?

    You apply naïve and broad sweeping generalizations that do not make any attempt to measure the benefits against the costly and ignorant efforts of companies to implement these tough FASB standards. FAS 13, 87, and 133 are complicated and hard to implement, but without these and related standards financial reporting would be a complete waste of time unless the SEC and other Federal agencies really tried to stem the tide of off-balance-sheet financial financing.

    I read the "main point" that you are trying to make as being “we can’t stop off-balance-sheet financing and off-balance-sheet executive compensation” so why bother to try? I say bull to this! The FASB courageously stood up to the problem. Sure there have been costly failures, because we’re dealing with a new wave of corporate executives intent on stealing the farm if accountants and government regulators let them get away with it. And government regulators are likely to fail since there’s a long history of industry buying out the agencies that regulate them. The FASB has indeed been fortunate that it is not a government agency.

    How the Gatekeepers Failed in Their Responsibilities to Protect the Public from Corporate and Banking Fraud
    Brooksley Born, chair of the Commodity Futures Trading Commission --- suggested that government should at least study whether some regulation might make sense, a stampede of lobbyists, members of Congress, and other regulators --- including Alan Greenspan and Robert Rubin --- ran her over, admonishing her to keep quiet.  Derivatives tightened the connections among various markets, creating enormous financial benefits and making global transacting less costly --- no one denied that.  But they also raised the prospect of a system-wide breakdown.  With each crisis, a few more dominos fell, and regulators and market participants increasingly expressed concerns about systematic risk --- a term that described a financial-market epidemic.  After Long-Term Capital collapsed, even Alan Greenspan admitted that the financial markets had been close to the brink.  
    Frank Partnoy, Infectious Greed (Henry Holt and Company, 2004, Page 229)

    I go so far as to argue that the FASB did more than anybody else in the past two decades to save the equity capital markets. You offer nothing, I mean zero, to suggest what should’ve been done to save financial reporting from the “Infectious Greed” sweeping Wall Street and out-of-control corporate executives. FAS 133 played a huge role in tripping up Enron and Fanny Mae (where much of the departures from FAS 133 were motivated to pad bonuses of the top executives). Bravo FAS 133!!!!

    Have you ever taken the Enron Quiz? ---

    Infectious Greed:  How Deceit and Risk Corrupted the Financial Markets  (Henry Holt and Company, 2003, Page 297, ISBN 0-8050-7510-0)

    A close analysis of the dealings at Enron leads to three key conclusions, each counter to the prevailing wisdom about the company. First, Enron was, in reality, a derivatives-trading firm, not an energy firm, and it took much more risk than anyone realized. By the end, Enron was even more volatile than a highly leveraged Wall Street investment bank, although few investors realized it.

    Second, Enron's core business of derivatives trading was actually highly profitable, so profitable, in fact, that Enron almost certainly would have survived if key parties had understood the details of its business. Instead, in late 2001, Enron was hoist with its own petard, collapsing --- not because it wasn't making money --- but because institutional investors and credit-rating agencies abandoned the company when they learned that Enron's executives had been using derivatives to hide the risky nature of their business.


    Fannie Mae Sues KPMG The mortgage lending company Fannie Mae filed suit on Tuesday against its former auditor KPMG, accusing the firm of negligence and breach of contract for its part in the flawed accounting that led to a $6.3 billion restatement of earnings. Fannie Mae states in its complaint that KPMG applied more than 30 flawed principles and cost it more than $2 billion in damages. Fannie Mae fired the accounting firm in mid-December 2004, just a week after the Securities and Exchange Commission ordered the company to restate more than two years of flawed earnings. A KPMG spokesman,
    Tom Fitzgerald, said the company planned to “pursue our own claims against Fannie Mae.” "Fannie Mae Sues KPMG," The New York Times, December 13, 2006 --- 
    For more on Fannie Mae's woes go to

    "The Potential Crisis at Fannie Mae," Comstock Funds, August 11, 2005 --- 

    We have no proprietary information about Fannie Mae, but what is publicly known is scary enough. As you may recall, last December the SEC required Fannie to restate prior financial statements while the Office of Federal Oversight (OFHEO) accused the company of widespread accounting regularities that resulted in false and misleading statements. Significantly, the questionable practices included the way Fannie accounted for their huge amount of derivatives. On Tuesday, a company press release gave some alarming hints on how extensive the problem may be.

    The press release stated that in order to accomplish the restatements, “we have to obtain and validate market values for a large volume of transactions including all of our derivatives, commitments and securities at multiple points in time over the restatement period. To illustrate the breadth of this undertaking, we estimate we will need to record over one million lines of journal entries, determine hundreds of thousands of commitment prices and securities values, and verify some 20,000 derivative prices …”

    “…This year we expect that over 30 percent of our employees will spend over half their time on it, and many more are involved. In addition we are bringing some 1,500 consultants on board by year’s end to help with the restatement…Altogether, we project devoting six to eight million labor hours to the restatement. We are also investing over $100 million in technology projects to enhance or create new systems related to accounting and reporting…we do not believe the restatement will be completed until sometime during the second half of 2006…”



    Infectious Greed:  How Deceit and Risk Corrupted the Financial Markets  (Henry Holt and Company, 2003, Page 351, ISBN 0-8050-7510-0)

    The range of financial malfeasance and manipulation was fast. Energy companies, such as Dynegy, El Paso, and Williams, did the same complex financial deals (particularly using SPEs) Andy Fastow engineered at Enron. Telecommunication s firms, such as Global Crossing and WorldCom, fell into bankruptcy after it became clear they, too, had been cooking their books. Financial firms were victims as well as aiders-and-abettors. PNC Financial, a major bank, settled SEC charges that it abused off-balance-sheet deals and recklessly overstated its 2001 earnings by more than half. A rogue trader at Allfirst Financial, a large Irish bank, lost $750 million in a flurry of derivatives trading that put Nick Leeson of Barings to shame. And so on, and so on.

    . . .

    As with the prior financial scandals, substantial losses were related to over-the-counter derivatives. There were prepaid swaps, in which a company received an up-rong payment resembling a loan from a bank, but did not record its future obligations to repay the bank as a liability. There were swaps of Indefeasible Rights of Use, or IRUs, long-term rights to use bandwidth on a telecommunications company's fiber-optic network, which were similar to the long-term energy derivatives Enron traded --- and just as ripe for abuse. And there were more Soecial Purpose Entities, created by Wall Street banks.

    Bob Jensen's threads on off-balance-sheet financing OBSF) are at
    The above site also discusses in-substance defeasance.


    I am critical of the FASB and in particular FAS 133 because the standards did not and still do not do enough to stop Infectious Greed.

    "Derivatives the new 'ticking bomb' Buffett and Gross warn: $516 trillion," by Paul B. Farrell, Market Watch, March 10, 2008 --- Click Here 
    Wall Street didn't listen to Buffett. Derivatives grew into a massive bubble, from about $100 trillion to $516 trillion by 2007. The new derivatives bubble was fueled by five key economic and political trends:
    1. Sarbanes-Oxley increased corporate disclosures and government oversight
    2. Federal Reserve's cheap money policies created the subprime-housing boom
    3. War budgets burdened the U.S. Treasury and future entitlements programs
    4. Trade deficits with China and others destroyed the value of the U.S. dollar
    5. Oil and commodity rich nations demanding equity payments rather than debt

    In short, despite Buffett's clear warnings, a massive new derivatives bubble is driving the domestic and global economies, a bubble that continues growing today parallel with the subprime-credit meltdown triggering a bear-recession


    The improper use of hedge accounting (contrary to FAS 133 rules) to amortize gains -- and thus smooth ragged ups and downs in quarterly earnings -- was Freddie's downfall. As a June 25 press release deadpanned: "Certain capital market transactions and accounting policies had been implemented with a view to their effect on earnings in the context of Freddie Mac's goal of achieving steady earnings growth." Translation: Steady earnings help Freddie convince investors and lenders that management has its eye on the ball. They also help ward off politicians who might point to volatility as a reason to tighten regulation or even break Freddie up. The company's quest for smooth earnings, plus its admitted lack of accounting expertise and weak management controls, proved to be a fateful combination. That became clear to PricewaterhouseCoopers auditors soon after they replaced longtime Freddie auditor Andersen LLC in 2002. The new audit team soon discovered suspicious hedge accounting involving Treasury securities.
    "Freddie Mac Attack Critics are calling for greater oversight -- or even a breakup," Business Week, July 7, 2003 ---


    And God help us if corporations could still steal from shareholders with trillions of dollars of exotic and back dated stock options.

    You failed entirely, Tom, to put things in context. The first thing I recommend is that you carefully read my timeline on the history of derivative financial instrument scandals ---
    FAS 133, complicated as it became in creating hedge accounting relief for hedging transactions, played a pivotal role in putting an end to hundreds of trillions of dollars of fraud on Wall Street and in corporate board rooms around the nation.

    The second thing I think you should do is carefully read one or more of the revealing books of Frank Partnoy. The investment banking industry and corporations had essentially stifled the finance industry regulation in the 1980s and 1990s and in many respects still get away with murder as we witness the “legal ploys” now being played by banks to hide bad debts. The banking regulations are bad jokes as far as bad debt accounting is concerned. Banks love to say that what they are doing “is legal.” It makes me sick that the regulating agencies do not have the backbone of the FASB.

    Frank Partnoy, Page 283 of a Postscript entitled "The Return"
    F.I.A.S.C.O. : The Inside Story of a Wall Street Trader
    by Frank Partnoy - 283 pages (February 1999) Penguin USA (Paper); ISBN: 0140278796 

    Perhaps we don' think we deserve a better chance. We play the lottery in record numbers, despite the 50 percent cut (taken by the government). We flock to riverboat casinos, despite substantial odds against winning. Legal and illegal gambling are growing just as fast as the financial markets, Las Vegas is our top tourist destination in the U.S., narrowly edging out Atlantic City. Are the financial markets any different? In sum, has our culture become so infused with the gambling instinct that we would afford investors only that bill of rights given a slot machine player:  the right to pull the handle, their right to pick a different machine, the right to leave the casino, abut not the right to a fair game.

    Infectious Greed:  How Deceit and Risk Corrupted the Financial Markets
      (Henry Holt and Company, 2003, Page 17, ISBN 0-8050-7510-0)

    In February 1985, the United States Financial Accounting Standards Board (FASB) --- the private group that established most accounting standards (in the U.S.) --- asked whether banks should begin including swaps on their balance sheets, the financial statements that recorded their assets and liabilities . . .since the early 1980s banks had not included swaps as assets or liabilities . . . the banks' argument was deeply flawed. The right to receive money on a swap was a valuable asset, and the obligation to pay money on a swap was a costly liability.

    But bankers knew that the fluctuations in their swaps (swap value volatility) would worry their shareholders, and they were determined to keep swaps off their balance sheets (including mere disclosures as footnotes), FASB's inquiry about banks' treating swaps as off-balance-sheet --- a term that would become widespread during the 1991s --- mobilized and unified the banks, which until that point had been competing aggressively and not cooperating much on regulatory issues. All banks strongly opposed disclosing more information about their swaps, and so they threw down their swords and banded together a serveral high-level meetings.


    Infectious Greed:  How Deceit and Risk Corrupted the Financial Markets
      (Henry Holt and Company, 2003, Page 219, ISBN 0-8050-7510-0)

    In 1988, Morgan Stanley created a security called PERCS, based on the more conservative piece of the Americus Trust dels. PERCS stood for "Preferred Equity-Redemption Cumulative Stock," and resembled a preferred stock, with cumulative dividends that were higher than the dividends paid on common stock . . . The key twist was that, in three years, PERCS automatically converted into common stock, according to a specified stock if the common stock was at $50, so as to limit the upside of PERCS. Essentially, an investor buying PERCS committed to buy a company's stock in three years, and also sold some of the upside potential of that stock by selling a three-year call option (similar to those Andy Krieger was trading at Bankers Trust). The company bought the three-year call option from the investor, and paid the investor a "premium" in the form of a cumulative dividend for three years.

    Infectious Greed:  How Deceit and Risk Corrupted the Financial Markets  (Henry Holt and Company, 2003, Page 67, ISBN 0-8050-7510-0)

    There were two major innovations at First Boston (under Allen Wheat) during the early 1990s. One involved structured notes --- essentially, highly rated bonds whose payments were linked to the same types of formulas Bankers Trust had used in its complex swaps with Gibson Greeting Cards and Proctor and Gamble . . . The other innovation related to structured finance --- a class of deals in which financial assets were repackaged to obtain higher credit ratings. Within a decade structured finance would become a trillion-dollar industry, ranging from legitimate deals that enabled institutions to transfer risk more efficiently, to more dubious transactions (including those later involved in the collapse of Enron).

    . . .

    Although structured notes were profitable for banks at first, just as complex swaps had been, inevitably the business became more competitive and margins declined. To maintain their profit margins, bankers needed to einvent new versions of the notes, (unbelievably complex) new structures that could not easily be copied, with margins that would last.

    James M. Mahoney, writing in the Federal Reserve Bank of New York Economic Policy REview, put the issue clearly:

    Some individuals and institutions use derivative securities to circumvent (sometimes self-imposed) restrictions on holdings. For instance, the investment committeee of a pension fund or insurance company may requre all investments to be denominated in the domestic currency. While this rule would prohibit direct foreign capital market holdings, the managers of these investment could gain exposure to foreign debt or equity markets through correlation products such as diff swaps or quanto swaps.


    Infectious Greed:  How Deceit and Risk Corrupted the Financial Markets  (Henry Holt and Company, 2003, Page 77, ISBN 0-8050-7510-0)

    The process of transferring receivables to a new company and issuing new bonds became known as securitization, which became a major part of the structured finance industry . . . One of the most significant innovations in structured finance was a deal called the Collateralized Bond Obligation, or CBO. CBOs are one of the threads that run through the past fifteen years of financial markets, ranging from Michael Milken to First Boston to Enron and WorldCom. CBOs would mutate into various types of credit derivatives --- financial instruments tied to the creditworthiness of companies --- which would play and important role in the aftermath of the collapse of numerous companies in 2001and 2002.

    . . .

    In simple terms, here is how a CBO works. A bank transfers a portfolio of junk bonds to a Special Purpose Entity, typically a newly created company, partnership, or trust domiciled in a balmy tax haven, such as the Cayman Islands. This entity then issues several securities, backed by bonds, effectively splitting the junk bonds into pieces. Investors (hopefully) buy the pieces.

    . . .

    The first CBO was TriCapital Ltc., a $420 million deal sold in July 1988. There were about $900 million CBOs in 1988, and almost $ $3 billion in 1989. Notwithstanding the bad press junk bonds had been getting, analysts from all three of the credit-rating agencies began pushing CBOs. Ther were very profitable for the rating agencies, which received fees for rating the various pieces.

    . . .

    With the various types of structured-finance deals, a trend began of companies using Special Purpose Entities (SPEs) to hide risks. From an accounting perspective, the key question was whether a company that owned particular financial assets needed to disclose those assets in its financial statements even after it transferred them to an SPE. Just as derivatives dealers had argued that swaps should not be included in their balance sheets, financial companies began arguing that their interest in SPEs did not need to be disclosed . . . In 1991. the acting chief accountant of the SEC, concerned that companies might abuse this accounting standard, wrote a letter saying the outside investment had to be at least three percent (a requirement that helped implode Enron and its auditor Andersen because the three percent investments were phony):

    Jensen Comment
    The "three percent rule" was highly unpopular among investment bankers corporations, and even regulators like the Federal Reserve Bank. Their complaints were largely unheeded, and the FASB eventually raised the ante to ten percent.

    Infectious Greed:  How Deceit and Risk Corrupted the Financial Markets  (Henry Holt and Company, 2003, Page 233, ISBN 0-8050-7510-0)

    Europeans had learned about the dangers of derivatives in 1993 when Metallgesellschaft, a German conglomerate, lost $1.4 billion on oil derivatives. The losses at Metalgesellschaft illustrated the difficulty of distinguishing between hedging (reducing risk) and speculating (increasing risk with the hope of higher returns), and also foreshadowed future problems in the energy markets, including the electricity crisis in California and the related collapse of Enron. Unfortunately, few people saw the parallels.

    . . .

     Metallgesellschaft hedged part of this exposure to rising oil prices by buying short-term oil futures on the New Yourk Mercantile Exhagye (NYMEX), the exchange that would figure prominently in Enron's collapse. It also bought over-the-counter oil derivatives in unregulated markets. What about these trades? Were they hedging or speculating.

    In late 1993, oil prices dropped and Metallgesellschaft began losing money on its futures positions. Theoretically, the firm could make up for these losses by selling oil-related products in the future at prices it had locked in on its long-term contracts, which were now higher than prices available in the market. But as the losses on the short-term oil hedges increase, the firm had to pay hundreds of millions of dollars right away, years berfore the future gains from its long-term contracts. On December 17, 1993, directors of the firm's German parent took control of the hedging operation and began selling off the short-term contracts, at huge losses. By January 1994, the firm had lost more than a billion dollars.


    Like Metallgesellschaft, the state of Califonia (and its electric utilities) also faced a potential mismatch between the long-term cost of electricity production and short-term revenues from electricity consumers. Because short-term rates were capped by law, California was vulnerable to an increase in electricity prices unless it entered into a long-term contract to purchase electricity. At first, the state of California did not hedge, and it lost billions of dollars when electricity prices increased . . .

    Selected works of FRANK PARTNOY
    Bob Jensen at Trinity University

    1.  Who is Frank Partnoy?

    Cheryl Dunn requested that I do a review of my favorites among the “books that have influenced [my] work.”   Immediately the succession of FIASCO books by Frank Partnoy came to mind.  These particular books are not the best among related books by Wall Street whistle blowers such as Liar's Poker: Playing the Money Markets by Michael Lewis in 1999 and Monkey Business: Swinging Through the Wall Street Jungle by John Rolfe and Peter Troob in 2002.  But in1997.  Frank Partnoy was the first writer to open my eyes to the enormous gap between our assumed efficient and fair capital markets versus the “infectious greed” (Alan Greenspan’s term) that had overtaken these markets.

    Partnoy’s succession of FIASCO books, like those of Lewis and Rolfe/Troob are reality books written from the perspective of inside whistle blowers.  They are somewhat repetitive and anecdotal mainly from the perspective of what each author saw and interpreted. 

    My favorite among the capital market fraud books is Frank Partnoy’s latest book Infectious Greed: How Deceit and Risk Corrupted the Financial Markets (Henry Holt & Company, Incorporated, 2003, ISBN: 080507510-0- 477 pages).  This is the most scholarly of the books available on business and gatekeeper degeneracy.  Rather than relying mostly upon his own experiences, this book drawn from Partnoy’s interviews of over 150 capital markets insiders of one type or another.  It is more scholarly because it demonstrates Partnoy’s evolution of learning about extremely complex structured financing packages that were the instruments of crime by banks, investment banks, brokers, and securities dealers in the most venerable firms in the U.S. and other parts of the world.  The book is brilliant and has a detailed and helpful index.


    What did I learn most from Partnoy?

    I learned about the failures and complicity of what he terms “gatekeepers” whose fiduciary responsibility was to inoculate against “infectious greed.”  These gatekeepers instead manipulated their professions and their governments to aid and abet the criminals.  On Page 173 of Infectious Greed, he writes the following: 

    Page #173

    When Republicans captured the House of Representatives in November 1994--for the first time since the Eisenhower era--securities-litigation reform was assured.  In a January 1995 speech, Levitt outlined the limits on securities regulation that Congress later would support: limiting the statute-of-limitations period for filing lawsuits, restricting legal fees paid to lead plaintiffs, eliminating punitive-damages provisions from securities lawsuits, requiring plaintiffs to allege more clearly that a defendant acted with reckless intent, and exempting "forward looking statements"--essentially, projections about a company's future--from legal liability.

    The Private Securities Litigation Reform Act of 1995 passed easily, and Congress even overrode the veto of President Clinton, who either had a fleeting change of heart about financial markets or decided that trial lawyers were an even more important constituency than Wall Street.  In any event, Clinton and Levitt disagreed about the issue, although it wasn't fatal to Levitt, who would remain SEC chair for another five years.


    He later introduces Chapter 7 of Infectious Greed as follows:

    Pages 187-188

    The regulatory changes of 1994-95 sent three messages to corporate CEOs.  First, you are not likely to be punished for "massaging" your firm's accounting numbers.  Prosecutors rarely go after financial fraud and, even when they do, the typical punishment is a small fine; almost no one goes to prison.  Moreover, even a fraudulent scheme could be recast as mere earnings management--the practice of smoothing a company's earnings--which most executives did, and regarded as perfectly legal.

    Second, you should use new financial instruments--including options, swaps, and other derivatives--to increase your own pay and to avoid costly regulation.  If complex derivatives are too much for you to handle--as they were for many CEOs during the years immediately following the 1994 losses--you should at least pay yourself in stock options, which don't need to be disclosed as an expense and have a greater upside than cash bonuses or stock.

    Third, you don't need to worry about whether accountants or securities analysts will tell investors about any hidden losses or excessive options pay.  Now that Congress and the Supreme Court have insulated accounting firms and investment banks from liability--with the Central Bank decision and the Private Securities Litigation Reform Act--they will be much more willing to look the other way.  If you pay them enough in fees, they might even be willing to help.

    Of course, not every corporate executive heeded these messages.  For example, Warren Buffett argued that managers should ensure that their companies' share prices were accurate, not try to inflate prices artificially, and he criticized the use of stock options as compensation.  Having been a major shareholder of Salomon Brothers, Buffett also criticized accounting and securities firms for conflicts of interest.

    But for every Warren Buffett, there were many less scrupulous CEOs.  This chapter considers four of them: Walter Forbes of CUC International, Dean Buntrock of Waste Management, Al Dunlap of Sunbeam, and Martin Grass of Rite Aid.  They are not all well-known among investors, but their stories capture the changes in CEO behavior during the mid-1990s.  Unlike the "rocket scientists" at Bankers Trust, First Boston, and Salomon Brothers, these four had undistinguished backgrounds and little training in mathematics or finance.  Instead, they were hardworking, hard-driving men who ran companies that met basic consumer needs: they sold clothes, barbecue grills, and prescription medicine, and cleaned up garbage.  They certainly didn't buy swaps linked to LIBOR-squared.


    The book Infectious Greed has chapters on other capital markets and corporate scandals.  It is the best account that I’ve ever read about Bankers Trust the Bankers Trust scandals, including how one trader named Andy Krieger almost destroyed the entire money supply of New Zealand.  Chapter 10 is devoted to Enron and follows up on Frank Partnoy’s invited testimony before the United States Senate Committee on Governmental Affairs, January 24, 2002 ---

    The controversial writings of Frank Partnoy have had an enormous impact on my teaching and my research.  Although subsequent writers wrote somewhat more entertaining exposes, he was the one who first opened my eyes to what goes on behind the scenes in capital markets and investment banking.  Through his early writings, I discovered that there is an enormous gap between the efficient financial world that we assume in agency theory worshipped in academe versus the dark side of modern reality where you find the cleverest crooks out to steal money from widows and orphans in sophisticated ways where it is virtually impossible to get caught.  Because I read his 1997  book early on, the ensuing succession of enormous scandals in finance, accounting, and corporate governance weren’t really much of a surprise to me.

    From his insider perspective he reveals a world where our most respected firms in banking, market exchanges, and related financial institutions no longer care anything about fiduciary responsibility and professionalism in disgusting contrast to the honorable founders of those same firms motivated to serve rather than steal.

    Young men and women from top universities of the world abandoned almost all ethical principles while working in investment banks and other financial institutions in order to become not only rich but filthy rich at the expense of countless pension holders and small investors.  Partnoy opened my eyes to how easy it is to get around auditors and corporate boards by creating structured financial contracts that are incomprehensible and serve virtually no purpose other than to steal billions upon billions of dollars.


    Most importantly, Frank Partnoy opened my eyes to the psychology of greed.  Greed is rooted in opportunity and cultural relativism.  He graduated from college with a high sense of right and wrong.  But his standards and values sank to the criminal level of those when he entered the criminal world of investment banking.  The only difference between him and the crooks he worked with is that he could not quell his conscience while stealing from widows and orphans.


    Frank Partnoy has a rare combination of scholarship and experience in law, investment banking, and accounting.  He is sometimes criticized for not really understanding the complexities of some of the deals he described, but he rather freely admits that he was new to the game of complex deceptions in international structured financing crime.

    2.  What really happened at Enron? --- 


    3.  What are some of Frank Partnoy’s best-known works?

    Frank Partnoy, FIASCO: Blood in the Water on Wall Street (W. W. Norton & Company, 1997, ISBN 0393046222, 252 pages). 

    This is the first of a somewhat repetitive succession of Partnoy’s “FIASCO” books that influenced my life.  The most important revelation from his insider’s perspective is that the most trusted firms on Wall Street and financial centers in other major cities in the U.S., that were once highly professional and trustworthy, excoriated the guts of integrity leaving a façade behind which crooks less violent than the Mafia but far more greedy took control in the roaring 1990s. 

    After selling a succession of phony derivatives deals while at Morgan Stanley, Partnoy blew the whistle in this book about a number of his employer’s shady and outright fraudulent deals sold in rigged markets using bait and switch tactics.  Customers, many of them pension fund investors for schools and municipal employees, were duped into complex and enormously risky deals that were billed as safe as the U.S. Treasury.

    His books have received mixed reviews, but I question some of the integrity of the reviewers from the investment banking industry who in some instances tried to whitewash some of the deals described by Partnoy.  His books have received a bit less praise than the book Liars Poker by Michael Lewis, but critics of Partnoy fail to give credit that Partnoy’s exposes preceded those of Lewis. 

    Frank Partnoy, FIASCO: Guns, Booze and Bloodlust: the Truth About High Finance (Profile Books, 1998, 305 Pages)

    Like his earlier books, some investment bankers and literary dilettantes who reviewed this book were critical of Partnoy and claimed that he misrepresented some legitimate structured financings.  However, my reading of the reviewers is that they were trying to lend credence to highly questionable offshore deals documented by Partnoy.  Be that as it may, it would have helped if Partnoy had been a bit more explicit in some of his illustrations.

    Frank Partnoy, FIASCO: The Inside Story of a Wall Street Trader (Penguin, 1999, ISBN 0140278796, 283 pages). 

    This is a blistering indictment of the unregulated OTC market for derivative financial instruments and the million and billion dollar deals conceived in investment banking.  Among other things, Partnoy describes Morgan Stanley’s annual drunken skeet-shooting competition organized by a “gun-toting strip-joint connoisseur” former combat officer (fanatic) who loved the motto:  “When derivatives are outlawed only outlaws will have derivatives.”  At that event, derivatives salesmen were forced to shoot entrapped bunnies between the eyes on the pretense that the bunnies were just like “defenseless animals” that were Morgan Stanley’s customers to be shot down even if they might eventually “lose a billion dollars on derivatives.”
    This book has one of the best accounts of the “fiasco” caused almost entirely by the duping of Orange County ’s Treasurer (Robert Citron) by the unscrupulous Merrill Lynch derivatives salesman named Michael Stamenson. Orange County eventually lost over a billion dollars and was forced into bankruptcy.  Much of this was later recovered in court from Merrill Lynch.  Partnoy calls Citron and Stamenson “The Odd Couple,” which is also the title of Chapter 8 in the book.Frank Partnoy, Infectious Greed: How Deceit and Risk Corrupted the Financial Markets (Henry Holt & Company, Incorporated, 2003, ISBN: 080507510-0, 477 pages)Frank Partnoy, Infectious Greed: How Deceit and Risk Corrupted the Financial Markets (Henry Holt & Company, Incorporated, 2003, ISBN: 080507510-0, 477 pages)

    Partnoy shows how corporations gradually increased financial risk and lost control over overly complex structured financing deals that obscured the losses and disguised frauds  pushed corporate officers and their boards into successive and ingenious deceptions." Major corporations such as Enron, Global Crossing, and WorldCom entered into enormous illegal corporate finance and accounting.  Partnoy documents the spread of this epidemic stage and provides some suggestions for restraining the disease.

    "The Siskel and Ebert of Financial Matters: Two Thumbs Down for the Credit Reporting Agencies" by Frank Partnoy, Washington University Law Quarterly, Volume 77, No. 3, 1999 --- 

    4.  What are examples of related books that are somewhat more entertaining than Partnoy’s early books?

    Michael Lewis, Liar's Poker: Playing the Money Markets (Coronet, 1999, ISBN 0340767006)

    Lewis writes in Partnoy’s earlier whistleblower style with somewhat more intense and comic portrayals of the major players in describing the double dealing and break down of integrity on the trading floor of Salomon Brothers.

    John Rolfe and Peter Troob, Monkey Business: Swinging Through the Wall Street Jungle (Warner Books, Incorporated, 2002, ISBN: 0446676950, 288 Pages)

    This is a hilarious tongue-in-cheek account by Wharton and Harvard MBAs who thought they were starting out as stock brokers for $200,000 a year until they realized that they were on the phones in a bucket shop selling sleazy IPOs to unsuspecting institutional investors who in turn passed them along to widows and orphans.  They write. "It took us another six months after that to realize that we were, in fact, selling crappy public offerings to investors."

    There are other books along a similar vein that may be more revealing and entertaining than the early books of Frank Partnoy, but he was one of the first, if not the first, in the roaring 1990s to reveal the high crime taking place behind the concrete and glass of Wall Street.  He was the first to anticipate many of the scandals that soon followed.  And his testimony before the U.S. Senate is the best concise account of the crime that transpired at Enron.  He lays the blame clearly at the feet of government officials (read that Wendy Gramm) who sold the farm when they deregulated the energy markets and opened the doors to unregulated OTC derivatives trading in energy.  That is when Enron really began bilking the public.

    Some of the many, many lawsuits settled by auditing firms can be found at


    Bob Jensen's Enron Quiz Answer Sources
    Many but certainly not all the answers come from the following major sources:

    I received a few really nice messages from Tom Selling.


    Part of one of my replies reads as follows ( I added a bit more below):



    Hi Tom,

    Probably most discouraging is that our younger accounting faculty have virtually no scholarship in accounting history. They were too busy studying math and econometrics in doctoral programs and are too busy applying it trying to get something published after they were awarded their PhDs. They could care less about MacNeal, Hatfield, George O. May, DR Scott, Sprague, Kohler, Trueblood, Chambers, Sterling, Zeff, Edwards and Bell, Canning, Paton, Littleton, Baxter, David Solomons, Hopwood, Previts, Marino, Tinker, Paul Williams (we now appreciate his historical scholarship on the AECM), and classical accounting historians in Europe, especially in the U.K. and Holland. Interestingly, however, their accountics mentors like Joel Demski and Bill Beaver are well grounded in history. Joel is especially up on managerial accounting history much more so than me, because I don’t recall much about the cost accounting and governmental accounting greats like Andy Barr.


    Online Accounting History Book (Free)
    Thank you David A.R. Forrester for providing a great, full-length, and online book:
    An Invitation to Accounting History --- 
    Note especially Section B2 --- "Rational Administration, Finance and Control Accounting:  the Experience of Cameralism" --- 

    Because of your interest in standard setting, Tom, you should especially read the following timeless piece:
    Accounting history lecture worth noting ---
    His last line mentions the most important thing about “principles.”

    What we both can do is support Gary John Previts and publicize the new American Accounting Association’s new community of scholars initiative ---

    I will be in Anaheim and would enjoy having a serious bar stool conversation about the discouraging movement of US GAAP toward impotency

    Bob Jensen



    The size($912 million)  of this backdating award is surprising
    Where were the Ernst&Young auditors?

    "UnitedHealth Agrees To Pay $912 Million To Settle Suits," by Vanessa Fuhrmans, The Wall Street Journal,  July 3, 2008; Page B1 ---

    The HealthSouth Settlement Does Not Include Ernst & Young

    From The Wall Street Journal Accounting Weekly Review on November 10, 2006

    TITLE: UnitedHealth Expects Probe to Result in 'Greater' Charges
    REPORTER: Steve Stecklow and Vanessa Fuhrmans
    DATE: Nov 09, 2006
    PAGE: B1
    TOPICS: Accounting, Accounting Changes and Error Corrections, Sarbanes-Oxley Act, Securities and Exchange Commission, Stock Options

    SUMMARY: "UnitedHealth Group Inc. said it would have to take charges related to its backdated stock options that will be 'significantly greater' than its previous estimates and expects the charges to impact more than 10 years of previously reported earnings."

    1.) Describe the options backdating scandal that has developed since March, 2006. If you are unfamiliar with the issue, you may click on the link for "Perfect Payday: Complete coverage" on the left hand side of the on-line article.

    2.) For how long has options backdating been going on at UnitedHealth? Have the accounting requirements remained the same throughout that period of time? Summarize the required accounting and other financial reporting practices for executive and employee stock options over the last 10 years.

    3.) Suppose that, once UnitedHealth finishes its review, the restatement of earnings nearly doubles to $500 million and that the restatement applies equally to each of the preceding 10 years. What accounting entry must be made to correct this $500 million error? What will be the ultimate impact on each year's earnings and on stockholders' equity at the end of each year? How will this correction be disclosed? In your answer, cite the accounting standards which require the treatment you present.

    4.) Click on "Read the full text" of UnitedHealth's Nov. 8 filing with the SEC on the right-hand side of the on-line article. What Form number did UnitedHealth file? Summarize the implications of the depth of the options backdating problem found at this company.

    5.) Refer to the related article. What role does the Public Accounting Oversight Board fill in assisting accountants to audit companies' accounting for stock options?

    Reviewed By: Judy Beckman, University of Rhode Island

    TITLE: Guidelines Set for How to Audit Stock Options
    REPORTER: Siobhan Hughes
    PAGE: A10 ISSUE: Oct 18, 2006

    "HealthSouth Agrees to $445 Million Settlement," AccountingWeb, October 2, 2006 ---

    HealthSouth Corp. announced on Wednesday that it will pay $445 million to settle several lawsuits that were filed against the company and some of its former directors after an accounting scandal.

    HealthSouth will pay $215 million in common stock and warrants, and its insurance carriers will pay $230 million in cash, the company said. Also, federal securities class-action plaintiffs will get 25 percent of any future judgments obtained by or on behalf of HealthSouth regarding certain claims against fired CEO Richard Scrushy, former auditors Ernst & Young, and the company’s former investment bank, UBS. Each party remains a defendant in the derivative actions and the federal securities class actions.

    A judge must approve the settlement, which is nearly the same as a preliminary settlement that was reached in February.

    "This settlement represents another significant milestone in HealthSouth's recovery and is a powerful symbol of the progress we have made as a company," said HealthSouth President and CEO Jay Grinney. HealthSouth, the Birmingham, Ala.-based rehabilitation and medical services chain, does not admit any wrongdoing in the settlement, nor does any other settling defendant, the company said.

    The settlement does not include Ernst & Young, UBS, Scrushy or any former HealthSouth officer who entered a guilty plea or was convicted of a crime in connection with the company's financial reporting activities ending in March 2003.

    Scrushy and more than a dozen top executives were accused of recording as much as $2.7 billion in bogus revenues on the company's books over six years. UBS and Ernst & Young have denied knowing about the fraud. Last year, Scrushy was acquitted of all criminal charges in the fraud. He was convicted of conspiracy, bribery and mail fraud charges in a separate government corruption trial.

    Bob Jensen's threads on Ernst & Young ---

    Why do I think TAR, JAR, JAE, AHJ, and other leading accounting research journals are in deep trouble?
    Is the policy of “not being published elsewhere” in deep kishiee?

    This incoming open-sharing tide really puts pressure on universities that sponsor expensive research journals!
    And what will SSRN do if the research is open shared by the authors' own universities?
    Will SSRN develop a two-tier pricing system where open access research papers are free but not those from universities that have not yet signed on to open access?

    Open-access advocates predicted that the move last February by Harvard University’s Faculty of Arts and Sciences and, later, by its Law School to require free online access to all faculty members’ scholarly articles would prompt other universities to adopt similar policies. The movement has not exactly snowballed, but another institution did just join in.Last week Stanford University’s School of Education revealed that it would require faculty members to allow the university to place their published articles in a free online database.The school’s faculty passed a motion unanimously — just as Harvard’s two faculties had — on June 10. A faculty member and open-access advocate, John Willinsky, made the policy public last week at the International Conference on Electronic Publishing, in Toronto. A video of his presentation is available.
    Lila Guterman, Chronicle of Higher Education, June 30, 2008 ---  [chronicle_com] 

    The real test of open access in accounting will be what happens with the Journal of Accounting Research (JAR) if the University of Chicago signs on to this trend of open access.

    Still a tougher test will be the leading journal policy (like that of The Accounting Review) that articles that it charges for in print and electronically "must not be published elsewhere."

    Are we eventually going to get free access to research of leading accounting research journals because of this open-sharing tide in leading research universities?

    Note that the Harvard Business School has not, to my knowledge, bought into the open sharing declarations of its sister Faculty of Arts and Sciences and brother at the Harvard Law School. Could it be because of the profitability of the Harvard Business Review current issues and archives?

    Bob Jensen's threads on open sharing are at

     Three Cheers for Off-Balance-Sheet Assets:  Oil and gas accounting déjà vu all over again 

    "Lawmaker Seeks Delay In Accounting Changes:  Proposed Rules Aim For Banks to Place Assets Back on Books," by Judith Burns, The Wall Street Journal, July 26, 2008 ---

    U.S. accounting-rule makers should defer until January 2010 proposed rules that would potentially require banks to bring billions of dollars in off-the-books assets back onto their balance sheets to avoid "serious unintended consequences" in financial markets, a senior member of the House Financial Services Committee wrote.

    The fear is that the rule changes will make it less attractive for banks and others to package debt and sell it to investors, a process known as securitization. Markets for such securities have slowed over the past year because many investors found they didn't know what was actually in many securitized products, often backed by mortgages.

    Accounting-rule makers proposed the changes after the financial crisis showed that securitization also hid from investors the risks that banks were facing and possibly left them undercapitalized.

    Rep. Spencer Bachus (R., Ala.) wrote in a July 22 letter to Securities and Exchange Commission Chairman Christopher Cox and Financial Accounting Standards Board Chairman Robert Herz that, "Changes to securitization accounting could have a dramatic impact on the economy, the capital markets and consumers seeking credit."

    Mr. Bachus's office issued the letter Friday. It calls for the FASB to delay any decisions on accounting for asset-backed securities until January 2010, saying that would be a "more measured and realistic deadline" than the FASB timetable.

    The FASB is aiming for the rule changes to take effect starting next year for new securitization vehicles. However, the proposals, which still must be finalized, wouldn't affect many existing vehicles until 2010.

    Spokesmen for the SEC and FASB declined to comment. The accounting issue is on the agenda for an FASB meeting Wednesday.

    The Commercial Mortgage Securities Association, a New York trade group, welcomed Rep. Bachus's recommendation, saying it has been concerned that the proposed accounting rule changes will alter the market for commercial-mortgage-backed securities.

    Bob Jensen's threads on securitizations are at


    "Corporate Tax Cut Windfall," The Wall Street Journal,  July 1, 2008; Page A16 ---

    For those who still claim that tax rates don't matter to economic decisions or U.S. competitiveness, we present Exhibit A: the 2004 American Jobs Creation Act.

    This law gave American companies a one-year window in 2005 to repatriate earnings from foreign subsidiaries to the United States at a 5.25% tax rate. Normally companies must pay the 35% U.S. corporate tax rate, minus a credit for whatever foreign taxes they paid on those earnings.

    The IRS examined the results from this tax cutting experiment and found that the money came back in a flood. More than 800 U.S. corporations repatriated $362 billion from foreign operations. Congress's Joint Committee on Taxation had predicted closer to $200 billion. These dollars are now being invested in the U.S., rather than remaining in Europe or China. This capital infusion may be one reason that U.S. business investment rose 9.6% in 2005 – the highest rate in more than a decade.

    Many Democrats, liberal groups and even some economists in the Bush Treasury opposed the measure four years ago, predicting it would lose revenue and merely be a tax holiday for profitable corporations. The Joint Tax Committee estimators also blundered again by predicting a mere $2.8 billion in revenue gains in the first year and then big losses after 2005. As always, they underestimated how tax reductions change behavior. The tax incentive raised $18 billion in 2005, and revenues have continued to exceed estimates. Instead of getting 35% of nothing, as U.S. companies kept their cash abroad, the Treasury took in 5.25% of the hundreds of billions the companies brought home.

    One lesson here is how hypersensitive the trillions of dollars of annual global capital flows are to tax rates. It also underscores how damaging the U.S. corporate income tax is to American firms. Over the past decade the U.S. has gone from a below-the-average corporate tax nation to the second highest rate in the industrial world. (See table.) Many countries have slashed their corporate rates to as low as 10%. The economic impact is even worse because the U.S. is one of the few countries that taxes foreign subsidiary income when it is repatriated.

    Most countries let their companies pay taxes in the country where the income is earned, and the few countries that do tax repatriated income are changing their models. Japan is the only developed nation with a higher corporate tax rate than the U.S., but the Japan Times reports that the government wants to change its tax laws to stop taxing repatriated capital.

    America's tax laws are repelling capital at the same time the rest of the world is inviting these dollars and the jobs and growth that inevitably follow. House Ways and Means Chairman Charlie Rangel wants to dig the ditch deeper by taxing American companies on their foreign earnings whether or not they bring the money back to the U.S. He thinks this will raise money for the Treasury, but the likelier effect is that more American multinationals will relocate abroad.

    Senator John Ensign of Nevada, the author of the 2005 holiday bill, is proposing to do the same again for one year to stimulate the economy. As a rule, we don't like temporary tax cuts because they don't provide permanent incentives. But the 2005 holiday was an exception that proved the folly of current policy.

    The best response going forward would be for Congress and the next Administration to reduce sharply the corporate tax rate so it is competitive with falling rates around the world. John McCain is proposing to cut it to 25%. If Barack Obama really wanted to "run to the center," he'd see that and cut it even further. As the 2005 results show, he'd then have more tax revenue to spend on his many social programs.

    Accountants in the Movies:  Beyond the Stereotypes
    Bob Jensen rents most movies from the terrific and cheap NetFlix service ---

    David Albrecht forwarded the link below.

    "The Discreet Charms of Accountancy," by Joe Queenan, The New York Times, July 13, 2008 ---

    IN the recent German film “Yella” a young accountant survives a car crash engineered by her stalker ex-husband, leaves town, meets a mysterious private equity fund executive and lands a job as his assistant. Initially brought on board because her command of spreadsheets allows her to raise questions at critical junctures, Yella, the accountant, soon becomes a full partner in her employer’s scheme to shake down financially imperiled start-ups, skim a few hundred thousand euros off each deal and start a new life.

    To those of us who harbor a secret passion for high-quality films about bookkeepers, certified public accountants, auditors and Internal Revenue Service operatives, the release of “Yella” is a very exciting moment in the history of the genre. This is not only because “Yella,” unlike virtually all accounting movies, does not look down its nose at practitioners of the trade (whose numbers include my wife and two of my best friends), but because the film is the fourth European release in the past decade to position accountants directly in the eye of the dramatic storm.

    The other entries are “The Dinner Game” and “The Closet,” brilliant comedies by Francis Veber, and Patrice Leconte’s sweet little romance “Intimate Strangers.” As opposed to most American movies that deal with accountancy, all four releases are art-house films that will be remembered long after “Dave,” “Same Time Next Year” and Susan Stroman’s dire rendition of “The Producers” are forgotten.

    In the fetching actress Nina Hoss of “Yella” hard-core accounting film buffs have their first bona fide pin-up girl since Cher played a lovesick bookkeeper in “Moonstruck.” (Yes, the ravishing Eva Green identifies herself as an accountant in “Casino Royale,” but there’s precious little bean counting going on.)

    That accountancy should be considered an appropriate subject for a serious film marks a sharp break with tradition. Starting with the original “Producers” (1968), in which Gene Wilder plays a neurotic, scaredy-cat accountant, and straight through “Ghostbusters,” “Midnight Run,” “Hitch” and even “Exotica,” accountants have mostly been portrayed as dweebs, geeks and losers.

    Even exceptions — Charles Grodin as a persnickety C.P.A. who defrauds the mob in “Midnight Run,” Danny Glover as a patrician C.P.A. in “The Royal Tenenbaums,” Ed Begley Jr. as a sexually predatory tax specialist in “She-Devil” — still use the profession as a joke: What could possibly be funnier than a tomcatting numbers cruncher? Especially if the tomcat is played by Ed Begley Jr.? Ho ho ho.

    Hollywood’s take on accountants is apotheosized in “Ghostbusters,” in which Rick Moranis plays a bookkeeping schlemiel smitten with his neighbor, Sigourney Weaver, unaware that she is soon to be possessed by the spirit of Zuul the Gatekeeper. As usual the idea of making one’s living as an accountant is something to be sneered at: What could be more outrageous than a C.P.A., possessed by the spirit of Vinz Clortho the Keymaster, bedding down with Zuul the Gatekeeper, thereby literally opening the gates of hell? Ho ho ho.

    Even in those rare American films where those who ply the ledger trade are accorded respect, the accountant is usually portrayed as a goof, a slob or a jerk. In Brian de Palma’s “Untouchables,” Charles Martin Smith plays a pint-size, pipe-smoking, bespectacled treasury agent who dreams up the idea of nailing Al Capone for tax evasion. Just before his demise, he tells a fellow T-man, the studly young Andy Garcia, that his new shotgun-toting life, where he gets to mix it up with the boys from the South Side, is “much more diverting than accounting.” When Sean Connery subsequently bites the dust in a hail of bullets, the mood is somber and heroic. But when Smith goes down for the count, he merely seems like a poor jerk who got caught fighting out of his weight class.

    In discussing films in this genre it is vital to distinguish between those that include accountants and those that are about accountants. Yes, Michael Caine plays one in “Hannah and Her Sisters,” and sure, Ben Kingsley plays another in “Schindler’s List”; so does Joe Pesci in “Lethal Weapon IV.” But accountancy qua accountancy is irrelevant to these movies’ central dramas.

    That’s what makes the flurry of European green-eyeshade films so exciting. When Mr. Veber made “The Dinner Game” in 1998, he cast Jacques Villeret as a bumbling Finance Ministry drone who assembles matchstick models of the Eiffel Tower and the Arc de Triomphe in his spare time. Though the civil servant ultimately prevails over those whose weekly “dinner games” are no more than a cruel ruse to humiliate goofballs like him, the movie basically adheres to the tired theme of the Accountant as Punch Line.

    But by the time the same director made “The Closet” three years later, he no longer treated accountancy as a joke. In this delicious bonbon Daniel Auteuil plays a low-key accountant who initially gets the ax for being boring and expendable, then wins his job back by pretending to be gay. In this film accountancy is not peripheral to the action, not an amusing sidelight, not some cheap banana-peel played for yucks. By the end the audience realizes that accountants can be cunning, daring and yes, even seductive.

    So wise up, Mr. John Q. Public, and wipe that smirk off your face. The European accounting-film explosion has generated so much buzz that there is now some controversy regarding what should properly be included in the canon.

    In Mr. Leconte’s “Intimate Strangers” Sandrine Bonnaire enters the wrong office, mistakes a rivetingly dull tax specialist (Fabrice Luchini) for a psychiatrist and pours out her heart to him. Flummoxed but enthralled, he cannot bring himself to confess his real identity. After a dust-up when Ms. Bonnaire finds out who he is, the two decide to continue their weekly consultations and ultimately fall in love.

    Here’s where things get complicated. According to the film’s DVD box, Mr. Luchini is an “accountant,” but in the movie itself he is described (in French) as a “fiscal counselor” while the subtitles refer to him as a “tax lawyer.” A case can thus be made that he is not really an accountant and cannot officially be included in the genre. I, however, will not make this case, as the idea of shooting a film about a beautiful woman who falls in love with an accountant she has mistaken for a shrink is so inspired that Mr. Leconte should be given the benefit of the doubt.

    One might also argue that because the accountant in “The Closet” is a liar, the one in “Yella” is a con artist, the one in “The Dinner Game” is a klutz, and the one in “Intimate Strangers” is a phony (and may not even be an accountant), none of these films does much for the overall image of the profession. That may be true, but aficionados don’t really care, because we understand that art need not imitate life to be effective. We enjoy seeing charismatic actors playing accountants in classy European movies. That doesn’t mean we’d want them doing our taxes.

    And let's not forget the Enron movies:

    That's Enron-tainment:  Positive review on the new Enron movie
    Alex Gibney's freewheeling -- and terrifically entertaining -- documentary, newly entered into national release, puts faces and voices to the men and women who've become household names since the scandal broke four years ago. Some of these former executives have already enjoyed (or endured) extensive face time on TV. But now they're characters in the context of a film that's been adapted from the book of the same name by Bethany McLean and Peter Elkind, and the big screen lends new immediacy to their appearance. That's not to say Mr. Gibney's documentary turns its characters into real people. Given the scale of the human and economic damage, of the deception and very possibly the pathological self-deception, there may not be any real people behind those scrupulously straight faces. Still, "The Smartest Guys in the Room" gives us the same sort of perverse pleasure that's been a staple of "60 Minutes" over the years -- watching world-class crooks tell world-class lies.
    "That's Enron-tainment: Company's Chief Cheats Give 'Smartest Guys' Energy:  Documentary Tracing Firm's Fall Is Provocative, Proudly Partisan; 'Machuca': Classy Class Drama," The Wall Street Journal, April 29, 2005; Page W1 ---,,SB111473473039520299,00.html?mod=todays_us_weekend_journal

    You can download Enron's Infamous Home Video
    Although it has nothing to do with the above professional movie, Jim Borden sent me a copy of the amateur video recording of Rich Kinder's departure from Enron (Kinder preceded Skilling as President of Enron).  This video features nearly half an hour of absurd skits, songs and testimonials by company executives.  It features CEO Jeff Skilling proposing Hypothetical Future Value (HPV) accounting with in retrospect is too true to be funny during the subsequent melt down of Enron.  George W. Bush (then Texas Governor Bush and his father) appear in the video.  You can download parts of it at 
    Warning:  The above video is in avi format and takes a very long time to download.  It probably dovetails nicely into Alex Gibney's new Hollywood movie.

    Footnote:  Rich Kinder left Enron, formed his own energy company, and became a billionaire ---

    Bob Jensen's threads on the Enron fraud are at

    "Deloitte to Build $300 Million Campus," SmartPros, July 1, 2008 ---

    Accounting firm Deloitte LLP announced that it will invest approximately $300 million in the creation of a 107-acre learning and leadership development center in the Dallas-Ft. Worth area in Westlake, Texas.

    Construction will begin in 2009 and the center is expected to open in 2011.

    The 750,000-square-foot campus will serve as a central destination for all of Deloitte's talent, including everyone from new hires to senior leadership to partners, principals and directors.

    "We expect this facility to become the heart of our organization -- the place where we meet, learn and develop our next generation of leaders," said Barry Salzberg, chief executive officer, Deloitte LLP.

    The campus will have 800 guest rooms, conference spaces, and classrooms. The facility will also feature dining venues, a ballroom, a business center, recreational facilities and a fitness center. The campus will be constructed according to Leadership in Energy and Environmental Design (LEED) standards established by the U.S. Green Building Council.

    In addition to the direct benefit for Deloitte and its people, the facility is expected to provide economic benefits to Westlake and the Dallas/Fort Worth region.

    Jensen Comment
    I'm certain that the location decision was influenced heavily by the same reason that AT&T is moving its top executive headquarter from San Antonio to the Dallas region. That reason --- the DFW Airport. Over and over again, a major hub airport proves its value in economic development. Companies generally want convenient airports, and airports with the most direct flights, including direct flights to Asia and Europe, are the most sought after. AT&T moved the executive headquarters not too long ago from St. Louis to San Antonio and later discovered that San Antonio did not have enough convenient direct flights.

    Having said this, however, the age of modern communications has cut into the airport advantage somewhat. One company some years back moved its executive headquarters to Camden (where the movie Carrousel was filmed) on the coast of main which is inconvenient to freeways and airports and, to be honest, civilization. But Camden has broadband and a great sailboat harbor.

    Jane Froman's rendition (a tear jerker) of Carrousel's most favorite song is at
    When you live in Camden you almost walk alone.

    Bob Jensen's threads on training alternatives are at

    "SEC Obtains Asset Freeze Against Alleged International Fraud," Blog of the Corporate Law Center, University of Cincinnati College of Law, August 16, 2008 ---

    The SEC obtained an emergency court order freezing the profits from an alleged $13 million international fraud involving a Seattle-area microcap company and a Barcelona stock promoter. The Commission charged GHL Technologies, Inc., and its CEO Gene Hew-Len with issuing a series of false press releases touting the company's business dealings. The Commission also charged Francisco Abellan (also known as "Frank Abel") of Barcelona, Spain with coordinating the scheme, sending glossy promotional mailers to over 2 million U.S. recipients and unloading over $13 million in GHL stock on unsuspecting investors. At the SEC's request, the federal district court in Tacoma, Wash. Thursday issued an order freezing Abellan's assets and prohibiting him from further dissipating the proceeds of the scheme (most of which, according to the SEC, he transferred to multiple bank accounts in the principality of Andorra).

    GHL (later renamed NXGen Holdings, Inc.) is an installer of GPS-based navigation equipment. According to the Commission's complaint, in early 2006, President and CEO Hew-Len and stock promoter Abellan arranged for GHL to issue millions of shares of GHL stock to offshore entities designated by Abellan. In April 2006, the SEC alleges, Abellan caused the dissemination of "The Street Stock Report," a full-color glossy mailer sent to millions of U.S. addresses urging investors to purchase GHL stock quickly to see huge trading profits. Around the same time, Hew-Len issued nine press releases over a nine-week period hyping the company. Among other things, according to the SEC, the press releases made false claims about contracts with large customers, fraudulently touting millions of dollars in potential revenues. Following this concerted promotion campaign, GHL's stock price doubled and trading volume spiked nearly 1500%. Abellan and his entities sold their GHL stock holdings for profits in excess of $13 million. The stock, which reached a high of nearly $9 per share at the height of the scheme, now trades at under a penny.

    The SEC's complaint charges GHL, Hew-Len and Abellan with numerous securities violations and seeks preliminary and permanent injunctions, disgorgement, penalties, and other permanent and emergency relief. Pursuant to the court's order, a hearing will be held on August 27, 2008 to determine whether the asset freeze will remain in place during the remainder of the litigation.

    Bob Jensen's fraud updates are at

    "Wachovia Agrees to Buy Back over $8.5 Billion in ARSs," Blog of the Corporate Law Center, University of Cincinnati College of Law, August 16, 2008 ---

    The SEC and the New York Attorney General announced on August 15 that investors, small businesses, and charities who purchased auction rate securities (ARS) through and Wachovia Capital Markets, LLC (collectively Wachovia) could receive over $8.5 billion to fully restore their losses and liquidity through a preliminary settlement that has been reached with Wachovia.

    Continued in article

    JP Morgan Chase and Morgan Stanley Also Agree to Buy Back ARSs in Settlement with New York AG.

    Bob Jensen's fraud updates are at

    Bob Jensen's Rotten to the Core threads on banks are at

    More on the Bare Sterns Scandal

    From Jim Mahar's blog on July 1, 2008 ---

    Financier Starts Sentence in Prostitution Case -

    It has not been a good year for Jeff Epstein. A billionaire money advisor who owned his own island in the Caribbean as well as a large townhouse in NY, Epstein used to be known for his secrecy, smart friends, dislike of suits and ties, and yoga. That has changed in the past year. In fact, it has changed in a big way! Read on:

    Financier Starts Sentence in Prostitution Case -

    "On Monday morning, he turned himself in and began serving 18 months for soliciting prostitution....It is a stunning downfall for Mr. Epstein...a tabloid monument to an age of hyperwealth. Mr. Epstein owns a Boeing 727 and the largest town house in Manhattan. He has paid for college educations for personal employees and students from Rwanda, and spent millions on a project to develop a thinking and feeling computer and on music intended to alleviate depression.

    But Mr. Epstein also paid women, some of them under age, to give him massages that ended with a sexual favor, the authorities say."


    In addition to these charges, he was also recently was identified as a major investor in Bear Stearns' (where he used to work) hedge funds that collapsed last year:


    Remember a month or so ago when the WSJ had a series of articles on Bear? I thoght they were great. Well this may be better! By Bryan Burrough who helped write "Barbarians at the Gate" (one of my all time favorites).

    From Jim Mahar's blog on June 30, 2008 ---

    What Really Killed Bear Stearns? - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times:

    One look in:

    "According to Mr. Burrough’s account, Bear did not have a liquidity problem, at least at first. In fact, he said it had more than $18 billion in cash to cover its trades when the week began. There were no major withdrawals until late in the week, after rumors flew that the company was in trouble.

    A top Bear executive told Mr. Burrough, “There was a reason [the rumor] was leaked, and the reason is simple: someone wanted us to go down, and go down hard.”

    Bear executives frantically tried to find the source of the rumors, but failed to do so in time. They have their suspicions, and they have turned over the names to federal authorities that are investigating the matter."


    If that was all the article would be great, but there is so much more. Granted some is based on rumor and sort of one sided and designed to sell magazines, but who cares? A very good read!

    And the NY Times Deal Book goes even further providing links to Fed meetings on the collapse. This will definitely be used in class!

    Jensen Comment
    Maybe a young little chippie bird sang like a canary.

    Bob Jensen's threads on "Rotten to the Core" are at

    More on how to lie with statistics

    It brings to mind the joke about Bill Gates walking into a bar and suddenly everyone in the room becomes a millionaire. Statistically, by averaging the incomes in the room, the statement is true.
    Zachary Karabell (see below)

    "There Is No 'The Economy'," by Zachary Karabell, The Wall Street Journal, June 30, 2008; Page A13 ---

    Once upon a time, and for most of the 20th century, there was. The data that we use today is a product of the nation-state, and was created in order to give government the tools to gauge the health of the nation. The Bureau of Labor Statistics, which measures the unemployment rate and inflation, was created around the turn of the 20th century, and for much of that century the U.S. was a cohesive unit. It was its own most important market, its own source of consumption, and its own source of credit.

    Big-picture statistics form the basis of almost every discussion about "the economy." But these statistics are averages reporting one blended number that is treated as if it applies to all 300 million Americans. It brings to mind the joke about Bill Gates walking into a bar and suddenly everyone in the room becomes a millionaire. Statistically, by averaging the incomes in the room, the statement is true.

    Macro data and big-picture statistics like GDP growth, the unemployment rate and consumer spending are all large averages. The fact that the economy is growing or contracting by 1% or 2% is taken as a proxy not just for the economic health of the nation, but for the economic health of the bulk of its citizens. The same goes for consumer spending. If it goes up or down 2%, that is taken as representative not just of the statistical fiction called "the American consumer" but as indicative of the behavior and attitudes of U.S. consumers writ large.

    To begin with, someone in the upper-income brackets is living a different life than those in the lower-income brackets. The top 20% of income earners spend more than the lower 60% combined. The wealthiest 400 people have more than $1 trillion in net worth, which exceeds the discretionary spending of the entire federal government. These groups are all American, yet it would be stretching the facts to the breaking point to assert that they share an economic reality. On the upper end, the soaring price of food and fuel hardly matter; on the other end, they matter above all else. The upper end does matter quantitatively, but the group of people on the lower end is vastly larger and therefore has more resonance in our public and electoral debate.

    Look at housing, widely regarded as a national calamity. The regional variations depict something different. In Stockton, Calif., one in 75 households are in foreclosure; in Nebraska, the figure is one in every 1,459; and the greater Omaha area is thriving. Similar contrasts could be made between Houston and Tampa, or between Las Vegas and Manhattan. Home prices have plunged in certain regions such as Miami-Dade, and stayed stable in others such as San Francisco and Silicon Valley. Houston, bolstered by soaring oil prices, has a 3.9% unemployment rate; the rate in Detroit, depressed by a collapsing U.S. auto industry, is 6.9%. The notion that these disparate areas share a common housing malaise or similar employment challenges is a fiction.

    We hear continual stories of the subprime economy and its fallout on Main Street and Wall Street. All true. Yet there is also an iPhone economy and a Blackberry economy. Ten million iPhones were sold last year at up to $499 a pop, and estimates are for 20 million iPhones sold this year, many at $199 each. That's billions of dollars worth of iPhones. Add in the sales of millions of Blackberrys, GPS devices, game consoles and so on, and you get tens of billions more.

    The economy that supports the purchases of these electronic devices is by and large not the same economy that is seeing rampant foreclosures. The economy of the central valley of California is not the same economy of Silicon Valley, any more than the economy of Buffalo is the same as the economy of greater New York City. Yet in our national discussion, it is as if those utterly crucial distinctions simply don't exist. Corn-producing states are doing just fine; car-producing states aren't.

    The notion that the U.S. can be viewed as one national economy makes increasingly less sense. More than half the profits of the S&P 500 companies last year came from outside the country, yet in indirect ways those profits did add to the economic growth in the U.S. None of that was captured in our economic statistics, because the way we collect data – sophisticated as it is – has not caught up to the complicated web of capital flows and reimportation of goods by U.S.-listed entities for sale here.

    These issues are not confined to the U.S. Every country is responsible for its own national data, and every country is falling victim to a similar fallacy that its national data represent something meaningful called "the economy."

    In truth, what used to be "the economy" is just one part of a global chess board, and the data we have is incomplete, misleading, and simultaneously right and wrong. It is right given what it measures, and wrong given what most people conclude on the basis of it.

    The world is composed of hundreds of economies that interact with one another in unpredictable and unexpected ways. We cling to the notion of one economy because it creates an illusion of shared experiences. As comforting as that illusion is, it will not restore a simplicity that no longer exists, and clinging to it will not lead to viable solutions for pressing problems.

    So let's welcome this new world and discard familiar guideposts, inadequate data and outmoded frameworks. That may be unsettling, but it is a better foundation for wise analysis and sound solutions than clinging to a myth.

    Jensen Comment
    Sadly, the same thing is happening with the state of financial reporting of global companies. The once tough minded FASB (leases, pensions, pooling, post-retirement benefits, stock options, derivatives, etc.) is caving in to globalization of accounting standards that is analogous to turning over law making to the United Nations. The goal is to "welcome this new world and discard familiar guideposts (read that bright lines in accounting standards), inadequate data and outmoded frameworks."

    Perhaps I'm a luddite, but I do not think IASB's so-called principles-based standards provide "a better foundation for wise analysis and sound solutions than clinging to myth." All these principle-based standards are going to do is make it harder to pin down CEO crooks and incompetent auditors in court.

    "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 the sorry trend in the setting of accounting standards are at


    Humor Between September 1 and September 30 ---

    Humor Between July 1 and August 31, 2008 --- 

    Humor Between June 1 and June 30, 2008 ---

    Humor Between May 1 and May 31, 2008 ---

    Humor Between May 1 and May 31, 2008 ---

    Humor Between April 1 and April 30, 2008 ---

    Humor Between March 1 and March 31, 2008 ---

    Humor Between February 1 and February 29, 2008 ---   

    Humor Between January 1 and January 31, 2008 ---  

    Tidbits Directory for Earlier Months and Years ---


    Humor Between July 1 and August 31, 2008

    Things I'll bet you never knew

    Forwarded by Dick Haar

    Q: Why are many coin banks shaped like pigs?

    A: Long ago, dishes and cookware in
    Europe were made of a dense orange clay called 'pygg'. When people saved coins in jars made of this clay, the jars became known as 'pygg banks.' When an English potter misunderstood the word, he made a bank that resembled a pig. And it caught on.

    Q: Did you ever wonder why dimes, quarters and half dollars have notches, while pennies and nickels do not?

    A: The US Mint began putting notches on the edges of coins containing gold and silver to discourage holders from shaving off small quantities of the precious metals Dimes, quarters and half dollars are notched because they used to contain silver. Pennies and nickels aren't notched because the metals they contain are not valuable enough to shave..

    Q: Why do men's clothes have buttons on the right while women's clothes have buttons on the left?

    A: When buttons were invented, they were very expensive and worn primarily b y the rich. Because wealthy women were dressed by maids, dressmakers put the buttons on the maid's right.! Since most people are right-handed, it is easier to push buttons on the right through holes on the left. And that's where women's buttons have remained since. 

    Q: Why do X's at the end of a letter signify kisses?

    A: In the Middle Ages, when many people were unable to read or write, documents were often signed using an X. Kissing the X represented an oath to fulfill obligations specified in the document. The X and the kiss eventually became synonymous.

    Q: Why is shifting responsibility to someone else called 'passing the buck'?

    A: In card games, it was once customary to pass an item, called a buck, from player to player to indicate whose turn it was to deal. If a player did not wish to assume the responsibility, he would 'pass the buck' to the next player.

    Q: Why do people clink their glasses before drinking a toast?

    A: It used to be common for someone to try to kill an enemy by offering him a poisoned drink. To prove to a guest that a drink was safe, it became customary for a guest to pour a small amount of his drink into the glass of the host. Both men would drink it simultaneously. When a guest trusted his host, he would then just touch or clink the host's glass with his own.

    Q: Why are people in the public eye said to be 'in the limelight'?

    A: Invented in 1825, limelight was used in lighthouses and stage lighting by burning a cylinder of lime which produced a brilliant light. In the theatre, performers on stage 'in the limelight' were seen by the audience to be the center of attention. 

    Q: Why do ships and aircraft in trouble use 'mayday'as their call for help?

    A: This comes from the French word m'aidez -meaning 'help me' -- and is pronounced 'mayday,' 

    Q: Why is someone who is feeling great 'on cloud nine'?

    A: Types of clouds are numbered according to the altitudes they attain, with nine being the highest cloud If someone is said to be on cloud nine, that person is floating well above worldly cares.. 

    Q: Why are zero scores in tennis called 'love'?

    A: In
    France , where tennis first became popular, a big, round zero on scoreboard looked like an egg and was called 'l'oeuf,' which is French for 'egg.' When tennis was introduced in the US , Americans pronounced it 'love.' 

    Q: In golf, where did the term 'Caddie' come from?

    A. When Mary, later Queen of Scots, went to France as a young girl (for education & survival), Louis, King of
    France, learned that she loved the Scot game 'golf.' So he had the first golf course outside of Scotland built for her enjoyment. To make sure she was properly chaperoned (and guarded) while she played, Louis hired cadets from a military school to accompany her. Mary liked this a lot and when she returned to Scotland (not a very good idea in the long run), she took the practice with her. In French, the word cadet is pronounced 'ca-day' and the Scots changed it into 'caddie.'

    Now YOU know! 


    Forwarded by some good friends up the road

    In a small Texas town, a new bar/tavern started construction of a building to house their business. The local Baptist church started a campaign to block the bar from opening, with petitions and prayers. Work progressed, however right up till the week before opening, when a lightning strike hit the bar and it burned to the ground.

    The church folks were rather smug in their outlook after that, until the bar owner sued the church on the grounds that the church was ultimately responsible for the demise of his building, either through direct or indirect actions or means. The church vehemently denied all responsibility or any connection to the buildings demise in its reply to the court.

    As the case made its way in to court, the judge looked over the paperwork. At the hearing he commented, '" don't know how I'm going to decide this, but as it appear from the paperwork, we have a bar owner who believes in the power of prayer, and an entire church congregation that does not."

    This may be an urban legend, but it makes some sense to me.

    Forwarded by Paula

    You learn something every's your lesson:

    Manure: In the 16th and 17th centuries, everything had to be transported by ship and it was also before commercial fertilizer's invention, so large shipments of manure were common.

    It was shipped dry, because in dry form it weighed a lot less than when wet, but once water (at sea) hit it, it not only became heavier, but the process of fermentation began again, of which a by product is methane gas As the stuff was stored below decks in bundles you can see what could (and did) happen.

    Methane began to build up below decks and the first time someone came below at night with a lantern, BOOOOM!

    Several ships were destroyed in this manner before it was determined just what was happening.

    After that, the bundles of manure were always stamped with the term 'Ship High In Transit' on them, which meant for the sailors to stow it high enough off of the lower decks so that any water that came into the hold would not touch this volatile cargo and start the production of methane.

    Thus evolved the term ' S.H.I.T ' , (Ship High In Transport) which has come down through the centuries and is in use to this very day.

    You probably did not know the true history of this word.

    Neither did I.

    I had always thought it was a golfing term.

    Jensen Comment
    I always thought it was invented by a father meeting, for the first time, the boyfriend his daughter brings home from college ---
    Sure Hate Idiot Turds

    Forwarded by Moe

    Irish Smiles 

    Definition of an Irish husband: 
    He hasn't kissed his wife for twenty years, but he will kill any man who does. 


    Murphy told Quinn that his wife was driving him to drink. 
    Quinn thinks he's very lucky because his own wife makes him walk. 


    The late Bishop Sheen stated that the reason the Irish fight so often among themselves is that they're always assured of having a worthy opponent. 


    An American lawyer asked, 'Paddy, why is it that whenever you ask an Irishman a question, he answers with another question?'    

    'Who told you that?' asked Paddy. 


    Question - Why are Irish jokes so simple?   

    Answer - So the English can understand them. 


    Reilly went to trial for armed robbery. The jury foreman came out and announced, 'Not guilty.'    'That's grand!' shouted Reilly. 'Does that mean I can keep the money?' 


    Irish lass customer: 'Could I be trying on that dress in the window?'  


    Shopkeeper: 'I'd prefer that you use the dressing room.' 


    Mrs.. Feeney shouted from the kitchen, 'Is that you I hear spittin' in the vase on the mantle piece?'  

    'No,' said himself, 'but I'm  gettin' closer all the time.' 


    Q. What do you call an Irishman who knows how to control a wife?     

    A. A bachelor. 


    Finnegin: My wife has a terrible habit of staying up 'til two o'clock in the morning. I can't break her of it.   

    Keenan:  What on earth is she doin' at that time?    

    Finnegin: Waitin' for me to come home . 


    Slaney phoned the maternity ward at the hospital.. 'Quick!' He said. 'Send an ambulance, my wife is goin' to have a baby!'    

    'Tell me, is this her first baby?' the intern asked.   

    'No, this is her husband, Kevin, speakin'.' 


    'O'Ryan,' asked the druggist, 'did that mudpack I gave you improve your wife's appearance?'  'It did surely,' replied O'Ryan, 'but it keeps fallin' off!' 


    Did you hear about the Irish newlyweds who sat up all night on 
    their honeymoon waiting for their sexual relations to arrive? 


    My mother wanted me to be a priest.   Can you imagine giving up your sex life and then once a week people come in to tell you the details and highlights of theirs?



    Forward by Gene and Joan

    Three Men on a Hike

    Three men were hiking through a forest when they came upon a large raging, Violent river. Needing to get to the other side, the first man prayed:

    'God, please give me the strength to cross the river.'

    Poof! ... God gave him big arms and strong legs and he was able to swim across in about 2 hours, having almost drowned twice.

    After witnessing that, the second man prayed: 'God, please give me strength and the tools to cross the river'

    Poof! .. God gave him a rowboat and strong arms and strong legs and he was able to row across in about an hour after almost capsizing once.

    Seeing what happened to the first two men, the third man prayed: 'God, please give me the strength, the tools and the intelligence to cross the river'

    Poof! .. He was turned into a woman. She checked the map, hiked one hundred yards up stream and walked across the bridge.


    'If at first you don't succeed, do it the way your wife told you!'

    Forwarded by Paula (who ought to know)


    1. Wear your glasses. Make sure your partner is actually in the bed.

    2. Set timer for 3 minutes, in case you doze off in the middle.

    3. Set the mood with lighting. (Turn them ALL OFF!)

    4. Make sure you put 911 on your speed dial before you begin.</ B>

    5. Write partner's name on your hand in case you can't remember.

    6. Keep the polygrip close by so your teeth don't end up under the bed.

    7. Have Tylenol ready in case you actually complete the act.

    8. Make all the noise you want. The neighbors are deaf too.

    9. If it works, call everyone you know with the good news.

    10. Don't even think about trying it twice.

    (This was sent in large type so you can read it.)

    Forwarded by Paula

    A census taker in a rural area went up to a farmhouse and knocked. When a woman came to the door, he asked her how many children she had and their ages. She said, "Les' see now, there's the twins, Sally and Billy, they're thirty-two. And the twins, Seth & Beth, they're twenty-six. And the twins, Penny and Jenny, they're twenty-four . "

    "Hold on!" said the census taker, "Did you get twins EVERY time?"

    The woman answered, "Heck no, there were hundreds of times we didn't get nothin'."

    English Can Be QUITE Confusing.

    TO write it correctly English can be TOO much with TWO or more meanings of the same spelled letters
    or identically-sounding words with TWO or more totally different meanings.

    Forwarded (mostly) by James Don Edwards

    Subject: English Can Be QUITE Confusing.

    Can you read these correctly the first time?

    01) The bandage was wound around the wound.

    02) The farm was used to produce produce.

    03) The dump was so full that it had to refuse more refuse.

    04) We must polish the Polish furniture.

    05) He could lead if he would get the lead out.

    06) The soldier decided to desert his dessert in the desert.
          There is no desert on Mount Desert Island in Maine

    07) Since there is no time like the present, he thought it was time to present the present.

    08) A bass was painted on the head of the bass drum.

    09) When shot at, the dove dove into the bushes.

    10) I did not object to the object.

    11) The insurance was invalid for the invalid.

    12) There was a row among the oarsmen about how to row.

    13) They were too close to the door to close it.

    14) The buck does funny things when the does are present.

    15) A seamstress and a sewer fell down into a sewer line.

    16) To help with planting, the farmer taught his sow to sow.

    17) The wind was too strong to wind the sail.

    18) Upon seeing the tear in the painting, I shed a tear.

    19) I had to subject the subject to a series of tests.

    20) How can I intimate this to my most intimate friend?

    Let's face it, English is a crazy language. There is no egg in eggplant, nor ham in hamburger; neither apple nor pine in pineapple. English muffins weren't invented in England nor French fries in France .

    Sweetmeats are candies while sweetbreads, which aren't sweet, are meat.

    We take English for granted, but if we explore its paradoxes, we find that quicksand can work slowly, boxing rings are square and a guinea pig is neither from Guinea nor is it a pig.

    And why is it that writers write but fingers don't fing, grocers don't groce and hammers don't ham? If the plural of tooth is teeth, why isn't the plural of booth, beeth? One goose, 2 geese. So one moose, 2 meese? One index, 2 indices? If teachers taught, why didn't preachers praught? Doesn't it seem crazy that you can make amends but not one amend? If you have a bunch of odds and ends and get rid of all but one of them, what do you call it?

    Sometimes I think all the English speakers should be committed to an asylum for the verbally insane. In what language do people recite at a play and play at a recital, ship by truck and send cargo by ship, have noses that run and feet that smell?

    How can a slim chance and a fat chance be the same, while a wise man and a wise guy are opposites? You have to marvel at the unique lunacy of a language in which your house can burn up as it burns down, in which you fill in a form by filling it out, and in which an alarm goes off by going on.

    English was invented by people, not computers, and it reflects the creativity of the human race, which, of course, is not a race at all. That is why, when the stars are out, they are visible, but when the lights are out, they are invisible.

    PS. - Why doesn't Buick rhyme with quick?

    You lovers of the English language might enjoy this:

    There is a two-letter word that perhaps has more meanings than any other two-letter word, and that is UP.

    It's easy to understand UP, meaning toward the sky or toward the top of the list, but when we awaken in the morning, why do we wake UP? At a meeting, why does a topic come UP? Why do we speak UP and why are the officers UP for election and why is it UP to the secretary to write UP a report?

    We call UP our friends. We use something to brighten UP a room, polish UP the silver, warm UP the leftovers, and clean UP the kitchen. We lock UP the house and some guys fix UP the old car. At other times the little word has real special meaning. People stir UP trouble, line UP for tickets, work UP an appetite, and think UPexcuses. To be dressed is one thing but to be dressed UP is special.

    And this UP is confusing: A drain must be opened UP because it is stopped UP. We open UP a store in the morning but we close it UP at night.

    We seem to be pretty mixed UP about UP! To be knowledgeable about the proper uses of UP, look the wordUP in the dictionary. In a desk-sized dictionary, it takes UP almost 1/4th of the page and can add UP to about thirty definitions. If you are UP to it, you might try building UP a list of the many ways UP is used. It will takeUP a lot of your time, but if you don't give UP, you may windUP. When it threatens to rain, we say it is cloudingUP. When the sun comes out we say it is clearing UP.

    When it rains, it wets the earth and often messes things UP.

    When it doesn't rain for awhile, things dry UP.

    We could go on, but I'll wrap it UP for now my time is UP, so time to zip UP my lips!
    How can I zip UP my lips UP instead of across?

    Forwarded by Paula

    Two nuns, Sister Catherine and Sister Helen, are traveling through Europe in their car. They get to Transylvania and are stopped at a traffic light.

    Suddenly, out of nowhere, a tiny Dracula jumps onto the hood of the car and hisses through the windshield.

    'Quick, quick!' shouts Sister Catherine. 'What shall we do?' 'Turn the windshield wipers on. That will get rid of the abomination,' says Sister Helen.

    Sister Catherine switches them on, knocking Dracula about, but he clings on and continues hissing at the nuns. 'What shall I do now?' she shouts.

    'Switch on the windshield washer. I filled it up with Holy Water at the Vatican,' says Sister Helen.

    Sister Catherine turns on the windshield washer.

    Dracula screams as the water burns his skin, but he clings tightly and continues hissing at the nuns.

    'Now what?' shouts Sister Catherine.

    'Show him your cross,' says Sister Helen.

    'Now you're talking,' says Sister Catherine.

    She opens the window and shouts, “Get the hell off the car!!!”

    Forwarded by Moe



    If you have sex with a prostitute against her will, is it considered rape or shoplifting?
    I think it becomes rape when the check bounces.

    Can you cry under water?

    How important does a person have to be before they are considered assassinated instead of just murdered?

    Why do you have to 'put your two cents in'.. but it's only a 'penny for your thoughts'?  Where's that extra penny going to?

    Once you're in heaven, do you get stuck wearing the clothes you were buried in for eternity?

    Why does a round pizza come in a square box?

    What disease did cured ham actually have?

    How is it that we put man on the moon before we figured out it would be a good idea to put wheels on luggage?

    Why is it that people say they 'slept like a baby' when babies wake up like every two hours?

    If a deaf person has to go to court, is it still called a hearing?

    Why are you IN a movie, but you're ON TV?

    Why do people pay to go up tall buildings and then  put money in binoculars to look at things on the ground?

    Why do doctors leave the room while you change?

    They're  going to see you naked anyway.

    Why is 'bra' singular and 'panties' plural?

    Why do toasters always have a setting that burns the toast to a horrible crisp, which no decent human being would eat?

    If Jimmy cracks corn and no one cares, why is there a stupid song about him?

    Can a hearse carrying a corpse drive in the carpool lane?

    Why does Goofy stand erect while Pluto remains on all fours?

    They're both dogs!

     If corn oil is made from corn, and vegetable oil is made from vegetables, what is baby oil made from?

    If electricity comes from electrons, does morality come from morons?

    Do the Alphabet song and Twinkle, Twinkle Little Star have the same tune?

    Why did you just try singing the two songs above?

    Why do they call it an asteroid when it's outside the hemisphere, but call it a hemorrhoid when it's in your butt?

    Did you ever notice that when you blow in a dog's face, he gets mad at you, but when you take him for a car ride, he sticks his head out the window?


    Forwarded by a Good Neighbor

    The wife came home early and found her husband in their bedroom making love to a very attractive young woman.

    'You are a disrespectful pig!' she cried. 'How dare you do this to me -- a faithful wife, the mother of your children! I'm leaving you. I want a divorce straight away!' And the husband replied, 'Hang on just a minute, love, so at least I can tell you what happened.'

    'Fine, go ahead,' she sobbed,' but they'll be the last words you'll say to me!'

    And the husband began -- 'Well, I was getting into the car to drive home, and this young lady here asked me for a lift. She looked so down and out and defenseless that I took pity on her and let her into the ca r. I noticed that she was very thin, not well dressed and very dirty. She told me that she hadn't eaten for three days.

    So, in my compassion, I b rought her home and warmed up the enchiladas I made for you last night, the ones you wouldn't eat because you're afraid you'll put on weight. The poor thing devoured them in moments.

    Since she needed a good clean-up, I suggested a shower, and while she was doing that, I noticed her clothes were dirty and full of holes, so I threw them away. Then, as she needed clothes, I gave her the designer jeans that you have had for a few years, but don't use because you say they are too tight.

    I also gave her the underwear that was your anniversary present, which you don't use because I don't have good taste. I found the sexy blouse my sister gave you for Christmas that you don't use just to annoy her, and I also donated those boots you bought at the expensive boutique and don't use because someone at work has a pair the same. '

    The husband took a quick breath and continued - 'She was so grateful for my understanding and help that as I walked her to the door, she turned to me with tears in her eyes and said, 'Please ... Do you have anything else that your wife doesn't use?'

    Forwarded by Auntie Bev

    My resume:

    1. My first job was working in an Orange Juice factory, but I got canned. I couldn't concentrate.

    2. Then I worked in the woods as a Lumberjack, but I just couldn't hack it, so they gave me the axe.

    3. After that, I tried to be a Tailor, but I just wasn't suited for it - mainly because it was a sew-sew job.

    4. Next, I tried working in a Muffler Factory, but that was too exhausting.

    5. Then, I tried to be a Chef - figured it would add a little spice to my life, but I just didn't have the thyme.

    6. Next, I attempted to be a Deli Worker, but any way I sliced it I couldn't cut the mustard.

    7. My best job was a Musician, but eventually I found I wasn't noteworthy.

    8. I studied a long time to become a Doctor, but I didn't have any patience.

    9. Next, was a job in a Shoe Factory. I tried but I just didn't fit in.

    10. I became a Professional Fisherman, but discovered that I couldn't live on my net income.

    11. I managed to get a good job working for a Pool Maintenance Company, but the work was just too draining.

    12. So then I got a job in a Workout Center, BUT THEY SAID I wasn't fit for the job.

    13. After many years of trying to find steady work! , I finally got a job as a Historian - until I realized there was no future in it.

    14. My last job was working in Starbucks, but I had to quit because it was always the same old grind.


    Forwarded by David Albrecht

    An Amish boy and his father were visiting a nearby mall. They were amazed by almost everything they saw, but especially by two shiny silver walls that moved apart and back together again by themselves.

    The lad asked, "What is this, father?"

    The father, having never seen an elevator, responded, "I have no idea what it is."

    While the boy and his father were watching wide-eyed, an old lady in a wheelchair rolled up to the moving walls and pressed a button. The walls opened and the lady rolled between them into a small room. The walls closed and the boy and his father watched as small circles lit up above the walls.

    The walls opened up again and a beautiful twenty-four-year-old woman stepped out.

    The father looked at his son anxiously and said, "Go get your mother."

    August 19, 2008 reply from Bob Jensen

    Hi David,

    Thanks for the humor. What's ironic is that just this moment my wife and I finished watching a NetFlix movie entitled "All Passion Spent." It's about how beauty and life begin at age 70 or thereabouts.

    The old Amish man might've been truly disappointed if his wife walked up to the moving walls and pressed the button.


    Bob Jensen

    Forwarded by Auntie Bev

    A recent study conducted by Harvard University found that the average American walks about 900 miles a year.

    Another study by the American Medical Association found that Americans drink, on average, 22 gallons of alcohol a year.

    This means, on average, Americans get about 41 miles to the gallon.

    Kind of Makes You Proud To Be An American.

    Forwarded by Moe

    Two English businessmen in London were sitting down for a break in their soon-to-be new store. As yet, the store wasn't ready, with only a few shelves set up.

    One said to the other, "I bet any minute now some idiot tourist is going to walk by, put his face to the window, and ask what we're selling."

     No sooner were the words out of his mouth when, sure enough, a curious Irishman walked to the window, had a peek, and in a thick Irish accent asked "What might ye be sellin' here?"

    One of the men replied sarcastically, "We're selling ass-holes."

    Without skipping a beat, the Irishman said, "You are doing well ... only two left!"

    Englishmen - God bless them - should not mess with the Irish.


    Forwarded by Paula


    In light of your failure in recent years to nominate competent candidates for President of the USA and thus to govern yourselves, we hereby give notice of the revocation of your independence, effective immediately.

    Her Sovereign Majesty Queen Elizabeth II will resume monarchical duties over all states, commonwealths, and territories (except Kansas , which she does not fancy).

    Your new Prime Minister, Gordon Brown, will appoint a Governor for America without the need for further elections. Congress and the Senate will be disbanded.

    A questionnaire may be circulated next year to determine whether any of you noticed.

    To aid in the transition to a British Crown Dependency, the following rules are introduced with immediate effect:

    You should look up 'revocation' in the Oxford English Dictionary.)

    1. Then look up aluminium, and check the pronunciation guide. You will be amazed at just how wrongly you have been pronouncing it.

    2. The letter 'U' will be reinstated in words such as 'colour', 'favour' and 'neighbour.' Likewise, you will learn to spell 'doughnut' without skipping half the letters, and the suffix '-ize' will be replaced by the suffix '-ise'. Generally, you will be expected to raise your vocabulary to acceptable levels. (look up 'vocabulary').

    3. Using the same twenty-seven words interspersed with filler noises such as 'like' and 'you know' is an unacceptable and inefficient form of communication. There is no such thing as US English. We will let Microsoft know on your behalf. The Microsoft spell-checker will be adjusted to take account of the reinstated letter 'u' and the elimination of -ize.

    4. July 4th will no longer be celebrated as a holiday.

    5. You will learn to resolve personal issues without using guns, lawyers, or therapists. The fact that you need so many lawyers and therapists shows that you're not quite ready to be independent. Guns should only be used for shooting grouse. If you can't sort things out without suing someone or speaking to a therapist, then you're not ready to shoot grouse.

    6. Therefore, you will no longer be allowed to own or carry anything more dangerous than a vegetable peeler. A permit will be required if you wish to carry a vegetable peeler in public.

    7. All intersections will be replaced with roundabouts, and you will start driving on the left with immediate effect. At the same time, you will go metric with immediate effect and without the benefit of conversion tables. Both roundabouts and metrication will help you understand the British sense of humour.

    8. The Former USA will adopt UK prices on petrol (which you have been calling gasoline) - roughly $10/US gallon. Get used to it.

    9. You will learn to make real chips. Those things you call French fries are not real chips, and those things you insist on calling potato chips are properly called crisps. Real chips are thick cut, fried in animal fat, and dressed not with ketchup but with vinegar.

    10. The cold tasteless stuff you insist on calling beer is not actually beer at all. Henceforth, only proper British Bitter will be referred to as beer, and European brews of known and accepted provenance will be referred to as Lager. South African beer is also acceptable as they are pound for pound the greatest sporting Nation on earth and it can only be due to the beer. They are also part of the British Commonwealth - see what it did for them. American brands will be referred to as Near-Frozen Gnat's Urine, so that all can be sold without risk of further confusion.

    11. Hollywood will be required occasionally to cast English actors as good guys. Hollywood will also be required to cast English actors to play English characters. Watching Andie Macdowell attempt English dialogue in 'Four Weddings and a Funeral' was an experience akin to having one's ears removed with a cheese grater.

    12. You will cease playing American football. There is only one kind of proper football; you call it soccer. Those of you brave enough will, in time, be allowed to play rugby (which has some similarities to American football, but does not involve stopping for a rest every twenty seconds or wearing full kevlar body Armour like a bunch of nancies). Don't try Rugby - the South Africans and Kiwis will thrash you, like they regularly thrash us.

    13. Further, you will stop playing baseball. It is not reasonable to host an event called the World Series for a game