Bob
Jensen's New Bookmarks April 1-30, 2013
Bob Jensen at
Trinity University
For
earlier editions of Fraud Updates go to
http://www.trinity.edu/rjensen/FraudUpdates.htm
For earlier editions of Tidbits go to
http://www.trinity.edu/rjensen/TidbitsDirectory.htm
For earlier editions of New Bookmarks go to
http://www.trinity.edu/rjensen/bookurl.htm
Click here to search Bob Jensen's web site if you
have key words to enter --- Search Box in Upper Right Corner.
For example if you want to know what Jensen documents have the term "Enron"
enter the phrase Jensen AND Enron. Another search engine that covers Trinity and
other universities is at
http://www.searchedu.com/
Bob
Jensen's Blogs ---
http://www.trinity.edu/rjensen/JensenBlogs.htm
Current and past editions of my newsletter called
New Bookmarks ---
http://www.trinity.edu/rjensen/bookurl.htm
Current and past editions of my newsletter called
Tidbits ---
http://www.trinity.edu/rjensen/TidbitsDirectory.htm
Current and past editions of my newsletter called
Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
Bob Jensen's
Pictures and Stories
http://www.trinity.edu/rjensen/Pictures.htm
All
my online pictures ---
http://www.cs.trinity.edu/~rjensen/PictureHistory/
FASB Accounting Standards Updates ---
http://www.fasb.org/cs/ContentServer?site=FASB&c=Page&pagename=FASB/Page/SectionPage&cid=1176156316498
Hasselback Accounting Faculty
Directory ---
http://www.hasselback.org/
Blast from the Past With Hal
and Rosie Wyman ---
http://www.cs.trinity.edu/~rjensen/temp/Wyman2011.htm
Bob
Jensen's threads on business, finance, and accounting glossaries ---
http://www.trinity.edu/rjensen/Bookbus.htm
2012 AAA
Meeting Plenary Speakers and Response Panel Videos ---
http://commons.aaahq.org/hives/20a292d7e9/summary
I think you have to be a an AAA member and log into the AAA Commons to view
these videos.
Bob Jensen is an obscure speaker following Rob Bloomfield
in the 1.02 Deirdre McCloskey Follow-up Panel—Video ---
http://commons.aaahq.org/posts/a0be33f7fc
2013 IFRS Blue Book
(Not Free) ---
http://shop.ifrs.org/ProductCatalog/Product.aspx?ID=1717
Links to
IFRS Resources (including IFRS Cases) for Educators ---
http://www.trinity.edu/rjensen/Theory01.htm#MethodsForSetting
Bob
Jensen's threads on controversies in accounting standard setting ---
http://www.trinity.edu/rjensen/Theory01.htm#MethodsForSetting
American
Accounting Association Past Presidents are listed at
http://www.cs.trinity.edu/~rjensen/temp/PastPresidentsAAA.htm
"2012 tax
software survey: Which products and features yielded frustration or bliss?" by
Paul Bonner, Journal of Accountancy, September 2012 ---
http://www.journalofaccountancy.com/Issues/2012/Sep/20125667.htm
Center for Financial Services
Innovation ---
http://cfsinnovation.com/
"Guide to PCAOB Inspections," Center for Audit Quality, 2012 ---
http://www.thecaq.org/resources/pdfs/GuidetoPCAOBInspections.pdf
Note this has a good explanation of how the inspection process works.
PCAOB Inspection Report Database ---
http://pcaobus.org/inspections/reports/pages/default.aspx
Bob
Jensen's taxation helpers ---
http://www.trinity.edu/rjensen/Bookbob1.htm#010304Taxation
Subtle Distinctions in Technical
Terminology
Machine Learning, Big Data, Deep Learning, Data Mining, Statistics, Decision &
Risk Analysis, Probability, Fuzzy Logic FAQ ---
http://wmbriggs.com/blog/?p=6465
Today’s FBI: Facts and Figures 2013-2014—which provides an in-depth look
at the FBI and its operations—is now available ---
http://www.fbi.gov/stats-services/publications/todays-fbi-facts-figures/facts-and-figures-031413.pdf/view
AICPA Fraud Resource Center ---
Click Here
http://www.aicpa.org/INTERESTAREAS/FORENSICANDVALUATION/RESOURCES/FRAUDPREVENTIONDETECTIONRESPONSE/Pages/fraud-prevention-detection-response.aspx
Bob Jensen's Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
Technical Tax Course Materials from
Lexis-Nexus
Graduate Tax Series ---
http://taxprof.typepad.com/files/graduate-tax-series-description-082911.pdf
CGMA Portfolio of Tools for Accountants
and Analysts ---
http://www.cgma.org/Resources/Tools/Pages/tools-list.aspx
Includes ethics tools and learning cases.
Humor Between April 1-30, 2013 ---
http://www.trinity.edu/rjensen/book13q2.htm#Humor043013
Humor Between March 1-31, 2013 ---
http://www.trinity.edu/rjensen/book13q1.htm#Humor033113
Humor Between February 1-28, 2013 ---
http://www.trinity.edu/rjensen/book13q1.htm#Humor022813
Humor Between January 1-31, 2013 ---
http://www.trinity.edu/rjensen/book13q1.htm#Humor013113
Humor Between December 1-31, 2012 ---
http://www.trinity.edu/rjensen/book12q4.htm#Humor123112
Humor Between November 1-30, 2012 ---
http://www.trinity.edu/rjensen/book12q4.htm#Humor113012
Humor Between October 1-31, 2012 ---
http://www.trinity.edu/rjensen/book12q4.htm#Humor103112
Humor Between September 1-30, 2012 ---
http://www.trinity.edu/rjensen/book12q3.htm#Humor093012
Humor Between August 1-31, 2012 ---
http://www.trinity.edu/rjensen/book12q3.htm#Humor083112
Humor Between July 1-31, 2012 ---
http://www.trinity.edu/rjensen/book12q3.htm#Humor073112
Humor Between June 1-30, 2012 ---
http://www.trinity.edu/rjensen/book12q2.htm#Humor063012
Humor Between May 1-31, 2012 ---
http://www.trinity.edu/rjensen/book12q2.htm#Humor053112
Humor Between April 1-30, 2012 ---
http://www.trinity.edu/rjensen/book12q2.htm#Humor043012
Humor Between March 1-31, 2012 ---
http://www.trinity.edu/rjensen/book12q1.htm#Humor033112
Humor Between February 1-29, 2012 ---
http://www.trinity.edu/rjensen/book12q1.htm#Humor022912
Humor Between January 1-31, 2012 ---
http://www.trinity.edu/rjensen/book12q1.htm#Humor013112
Is the AAA Leadership Abandoning the AAA Commons?
How many of you heard about "Brilliantly Disguised Opportunities"
until the cover story in the Winter 2013 Edition of Accounting Education News
arrived in your snail mail boxes? That by the way is the theme of the 2013
forthcoming AAA Annual Meetings in Anaheim.
None of the recent past presidents of the AAA showed much interest in the
Commons until they took office as Presidents-Elect and eventually President. But
after being elected to this top office they actively used the AAA Commons as a
primary vehicle for communicating with the AAA Membership. Mostly their postings
were about AAA matters, although Sue Haka and Greg Waymire were inspired to post
about their research interests as well.
Current President Karen Pincus has not had a single posting to the AAA
Commons in 2013, although she had seven posts before becoming President.
President Elect Mary Barth as never had a single post to the Commons and
never even posted a comment. Since Mary arguably is our leading accountics
scientist, I urged her to commence a Quant Corner on the Commons where
editors of TAR, JAR, JAE, and other accountics science journal editors would
encourage authors to post discussions about forthcoming articles in those
journals. Mary never answered my appeal.
There's huge problem of inspiring any of our accountics scientists to become
active in the Commons on behalf of accountics scientists ---
http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm
My good friend A, Rashad Abdek-Khalik has a grand total of one posting to the
Commons and that was a long time ago. He certainly is not a leading candidate
for becoming President of the AAA on the basis of his Commons contributions.
Competition from his opponent is more encouraging. Christine Botosan accumulated
88 postings and 14 comments on the Commons. Good work Kathy. If elected I look
forward to even more postings. Update: Christine Botosan won the election
so maybe she will revive AAA Leadership interest in the Commons.
My intent here is not to make any of our current or future AAA leaders feel
guilty about neglect of the Commons. They are very, very busy professors in
other regards. However, the AAA is paying a lot of money to maintain the
Commons, and I sense membership in the Commons is waning. The lack of interest
of our current and future leaders, other than Christine Botosan, is certainly
not helping to revive interest in the Commons.
Personally, I would rather go to the Commons more often to learn something
instead of post something I already know. I am by far and above the most
prolific professor posting the AAA Commons, but I take no pride in this. In
retirement I would instead like to back off and let the younger generation
overwhelm me with their postings to the Commons.
And the AAA leadership could certainly do more to encourage this expensive
AAA resource. It is an expensive resource. Without more AAA leadership promotion
and guidance I fear it's becoming wasted money.
April 13, 2013 reply from Dan Stone
Thanks Bob,
1. Do we really know the costs of AAA commons? Is
this really an expensive resource? What evidence exists for this assertion?
2. I'm President of the AAA IS section. I've had
trouble even getting the IS section leadership to use AAA commons. The
reactions are that having to logon, and check another messaging source, is
more trouble than it is worth, particularly in light of cloud sources (which
don't require logons) for sharing online resources.
I'm not sure the AAA leadership is really the
problem here. It may simply be that the commons was a good idea whose time
never came (as is true of many, many technologies)..
April 14, 2013 reply from Bob Jensen
Hi Dan,
The Commons still has great potential for practitioners , researchers,
and AAA leaders (including section and region presidents) to communicate
with accounting teachers.
I'm still in favor of the Commons and feel that it was growing in
popularity when AAA Presidents like Sue Haka were putting out messages that
members wanted to access. It also helped when Julie Smith David, bless her
heart, was putting out challenges for people to use the Commons.
Before dropping the Commons I would like to see the AAA leadership making
a push to promote usage. I still like my idea of a Tech Corner where editors
of our top accountics science journals arm twist authors with forthcoming
articles to discuss their research in a language that communicates better
with accounting teachers and practitioners.
When IFRS was front and center in curriculum revisions in the USA the
large accounting firms, not just the Big Four, were putting up very helpful
IFRS learning links as free teaching resources. I think we can get expanded
activity from the large firms for other topics they would like to see in our
college courses, topics that are not just in accounting.
I think there's still a chance for the Commons to be a very valuable
resource. What we need is less Jensen and more members on the Commons.
Jensen will gladly back off when members commence to post more and more to
the Commons.
Respectfully,
Bob Jensen
"These Slides Show Why We Have Such A Huge Budget Deficit And Why Taxes
Need To Go Up," by Rob Wile, Business Insider, April 27, 2013 ---
http://www.businessinsider.com/cbo-presentation-on-the-federal-budget-2013-4
This is a slide show based on a presentation by a Harvard Economics Professor.
Bob Jensen's threads on Entitlements ---
http://www.trinity.edu/rjensen/Entitlements.htm
The Downside of Fair Value Accounting for Money Funds
From the CFO.com Morning Ledger on April 30, 2013
Treasurers Hunt for Money Fund Alternatives
Corporate treasurers are hunting for alternatives
to money-market funds as the SEC eyes reforms. The biggest concern is that
money funds would have to report daily changes in the value of their
underlying assets, which would make their share prices fluctuate, writes
Vipal Monga in today’s Marketplace section. That could complicate accounting
and leave companies facing potential tax liabilities.
Proponents of floating share prices say the shift
would boost transparency. And any fluctuations in asset values aren’t
expected to be dramatic. But treasurers worry that even a little bit of
volatility would force them to track the value of the funds more closely,
which could require more staff and upgrades in software and accounting
systems. “The investor would need to keep track of the cost basis of each
investment, and would have a tax liability to pay on any gain,” said Tom
Deas, treasurer of chemical company FMC and chairman of the National
Association of Corporate Treasurers.
Among the alternatives, some corporate treasurers
are looking at separately managed accounts, which are custom-made investment
vehicles run by money managers. “If money funds are forced to go to a
floating NAV, we will see a lot of companies shift a larger portion of their
balances to separately managed portfolios,” said Jerry Klein, managing
director at investment adviser Treasury Partners. Even so, companies have
found that it’s not easy to recreate the advantages of money
funds—especially in terms of easy access to their cash.
"Amortized Cost Accounting is “Fair” for Money Market Funds," by
Dennis R. Beresford, U.S. Chamber of Commerce Center for Capital Markets
Competitiveness, Fall 2012
http://www.centerforcapitalmarkets.com/wp-content/uploads/2010/04/Money-Market-Funds_FINAL.layout.pdf
Summary
Recent events have caused the U.S.
Securities and Exchange Commission (SEC) to rethink the long-standing use of
amortized cost by money market mutual funds in valuing their investments in
securities. This practice supports the use of the stable net asset value (a
“buck” a share) in trading shares in such funds. Some critics have
challenged this accounting practice, arguing that it somehow misleads
investors by obfuscating changes in value or implicitly guaranteeing a
stable share price.
This paper shows that the use of
amortized cost by money market mutual funds is supported by more than 30
years of regulatory and accounting standard-setting consideration. In
addition, its use has been significantly constrained through recent SEC
actions that further ensure its appropriate use. Accounting standard setters
have accepted this treatment as being in compliance with generally accepted
accounting principles (GAAP). Finally, available data indicate that
amortized cost does not differ materially from market value for investments
industry wide. In short, amortized cost is “fair” for money market funds.
Background
Money market
mutual funds have been in the news a great deal recently as the SEC first
scheduled and then postponed a much-anticipated late August vote to consider
further tightening regulations on the industry.1
Earlier, Chairman Mary
Schapiro had testified to Congress about her intention to strengthen the SEC
regulation of such funds, in light of issues arising during the financial
crisis of 2008 when one prominent fund “broke the buck,” resulting in modest
losses to its investors. Sponsors of some other funds have sometimes
provided financial support to maintain stable net asset values. And certain
funds recently experienced heavy redemptions due to the downgrade of the
U.S. Treasury’s credit rating and the European banking crisis.
Money market funds historically have
priced their shares at $1, a practice that facilitates their widespread use
by corporate treasurers, municipalities, individuals, and many others who
seek the convenience of low-risk, highly liquid investments. This $1 per
share pricing convention also conforms to the funds’ accounting for their
investments in short-term debt securities using amortized cost. This method
means that, in the absence of an event jeopardizing the fund’s repayment
expectation with respect to any investment, the value at which these funds
carry their investments is the amount paid (cost) for the investments, which
may include a discount or premium to the face amount of the security. Any
discount or premium is recorded (amortized) as an adjustment of yield over
the life of the security, such that amortized cost equals the principal
value at maturity.
Some commentators have criticized the
use of this amortized cost methodology and argued for its elimination. In a
telling example of the passionate but inaccurate attention being devoted to
this issue, an editorial in the June 10, 2012, Wall Street Journal
described this longstanding financial practice in a heavily regulated
industry as an “accounting fiction” and an “accounting gimmick.”
. . .
Reasoning for Use of Amortized Cost
The FASB has been considering various
aspects of the accounting for financial instruments for approximately 25
years. During that time it has issued standards on topics such as accounting
for marketable securities, accounting for derivative instruments and
hedging, impairment, disclosure, and others. Also, the FASB has issued
standards or endorsed standards issued by the AICPA of a specialized nature
applying to certain industry groups such as investment companies, insurance
companies, broker/dealers, and banks. Further, the FASB is presently
involved in a major project that has encompassed approximately the past 10
years, whereby it is endeavoring to conform its standards on financial
instruments to the related standards issued by the International Accounting
Standards Board. Aspects of that project have stalled recently, and the two
boards have reached different conclusions on certain key issues. Other
aspects of that project are moving forward.
Over this 25-year period, probably the
most controversial aspect of the financial instruments project has been to
what extent those instruments should be carried at market or fair value in
financial statements rather than historical cost. On several occasions the
FASB has indicated a strong preference for fair value as a general
objective. But there has been a great deal of opposition from many quarters,
and the FASB has tended to determine the appropriate measurement attribute
for particular instruments (fair value, amortized cost, etc.) in different
projects based on the facts and circumstances in each case.
. . . (very long passages
from this 21-page article are not quoted here)
Conclusion
Accounting for investment securities
by money market mutual funds appropriately remains based on amortized cost.
The amortized cost method of accounting is supported by the very short-term
duration, high quality, and hold-to-maturity nature of most of the
investments held. The SEC’s 2010 rule changes have considerably strengthened
the conditions under which these policies are being applied. As a result of
the 2010 SEC rule changes, funds now report the market value of each
investment in a monthly schedule submitted to the SEC that is then made
publicly available after 60 days. That provides additional information for
investors. And the FASB’s current thinking articulates this accounting
treatment as GAAP.
Jensen Comment
My main objection to booking fair values of HTM investments is that the interim
adjustments for fair values that will never be realized destroys the income
statement. Of course, the FASB and IASB have systematically destroyed the
concept of net earnings in many other standards to a point where these standard
setters can no longer even define net earnings.
The good news is that the FASB has a proposal to offset fair value
adjustments of assets and liabilities to Other Comprehensive Income (OCI)
instead of current earnings. Let's hope this becomes the rule of the land.
Research Studies from the Chamber's Center for Capital Markets ---
http://www.centerforcapitalmarkets.com/resources/publications/
From the CFO.com Morning Ledger on April 30, 2013
Herbalife struggles to find new auditor.
Herbalife isn’t
having an easy a time finding an auditor to replace
KPMG, which
resigned earlier this month in the wake of the scandal surrounding
ex-partner Scott London.
Skechers, the other company that KPMG had to drop, found a new
auditor outside the Big 4 in BDO USA. Herbalife said
in its quarterly filing
on Monday that there can’t be assurance that it will
be able to find a new auditor. Its “substantial international operations
that require significant capacity and capabilities” mean the pool to choose
from is limited. And it has historically used other big firms for tax,
consulting and advisory work, which may, “in certain instances, impair the
ability of certain firms to serve as our independent registered public
accounting firm.” Until a new auditor can vouch for its financials,
Herbalife will be ineligible to use shelf and other registration statements
that incorporate its financials as reference. CFOJ will be diving deeper
into this topic later today, so stay tuned.
Jensen Question
High risk drivers are assigned to risk pools where automobile insurance
companies are forced (for higher prices) to share drivers in those risk pools.
Will this one day happen to high risk audit clients?
$53,300: The Average Starting Salary for New Accounting Grads (in
2013) ---
http://www.naceweb.com/salary-survey-data/?referal=research&menuID=71&nodetype=4
Jensen Comment
I think such starting salary surveys are highly misleading unless they also show
cost of living adjustments. A starting salary of $53,300 will go a lot further
in San Antonio than in San Francisco, NYC, Los Angeles, and Honolulu where
people earning $53,300 should probably get food stamps and subsidized housing.
I would go to work for $20,000 if the starting job had world class training
and exposures to clients thirsting to hire away CPAs from top accounting firms.
It's all about windows of opportunity that trump starting salaries in nearly
every instance.
I would not opt for an MBA program were graduates have average starting
salaries of $143,800 (and a high standard deviation and kurtosis) relative to a
Masters of Accounting Program where average starting salaries are $53,300 with a
small standard deviation and negligible kurtosis. By kurtosis I mean that a few
superstar graduates (such as those with whiz-kid computer science undergraduate
degrees from elite universities) with starting salaries over $250,000 are
skewing the average.
There are also misleading "expected" compensations contingent upon such
things as sales. For example, a marketing or finance job may look great when
told that last year's hires earned an average of $143,800 with commissions and
bonuses thrown in. But what about those that came in below average because they
just had a harder time selling products and services?
Please warn students that the most important thing about a new job is not the
anticipated salary. It's the anticipated opportunity with a few other factors
thrown in such as tension, long hours, geographic location, and constant travel.
For example, a CPA firm may pay double for going to Moscow, but do you really
want to start your career in Moscow where it's really dangerous on the streets
and housing is rather Spartan?
"Ten career tips for young CPAs," by Mark Ursick, cpa2biz,
February 25, 2013 ---
http://www.cpa2biz.com/Content/media/PRODUCER_CONTENT/Newsletters/Articles_2013/CPA/Feb/BuildCareers.jsp
Jensen Comment
I especially agree with: "Don’t limit your challenges;
challenge your limits."
The most gung ho student I ever had studying the accounting for
derivative financial instruments and hedging strategies never limited
his challenges even though he was less gifted than some of my students.
He just worked and worked and worked as a student.
His first job was with a Big Four firm in Houston and within three
years he was the technical guy who virtually was in charge on an audit
of a company that had over $1 billion in derivatives. He's since moved
on to become a leading executive at Microsoft.
In contrast I had more brilliant students who got buy in my
accounting theory course but would run like somebody yelled "Fire" if
they had an opportunity to audit derivative financial instruments
contracts. They never became executives in any companies.
The downloadable Robert Half salary guide ---.
http://www.roberthalf.com/SalaryGuide
Bob Jensen's threads on careers ---
http://www.trinity.edu/rjensen/Bookbob1.htm#careers
"Making Board Games in the Classroom," by Anastasia Salter,
Chronicle of Higher Education, April 29, 2013 ---
http://chronicle.com/blogs/profhacker/making-board-games-in-the-classroom/48983?cid=wc&utm_source=wc&utm_medium=en
I just got home from
THATCamp Games II
at Case Western Reserve University, where we
played and made a lot of games. In the past I’ve talked about
making games for the classroom using lots of
technologies (Inform
7,
inklewriter,
Twine,
Scratch), but games don’t require any computing
power to be great. Physical board and card games can be powerful systems of
representation and more immediately accessible for exploring something in a
classroom. This might bring back made memories for some of us of classroom
jeopardy–but when the mechanics of the game fit the content, it can be much
more powerful than that.
During THATCamp Games II I taught a crash course
workshop in making educational board games. Here’s
the full Prezi from
the workshop. The same basic process can be used for designing a game for a
lesson or in asking students to make a game, which itself can provoke a
different way of thinking about an idea. Here’s an overview of the process
we used:
Phase One: Imagine
- Brainstorm an educational objective
- Choose a central mechanic
- Clarify your theme
and concept
Most of us learned through board games at some
point–even if it was the foundations of capitalism in Monopoly, a reductive
version of the American dream in the Game of Life, or just color recognition
from Candyland. But board games can address much more complex topics:
Pandemic models cooperative disaster response to
the spreading of infectious diseases;
Eco
Fluxx poses questions of environmentalism
through a changing rules system; and there’s even an
Umberto Eco: The Name of the Rose board game.
A straightforward goal–a purpose behind the
game–works best when it can clearly be connected with the game. One of the
teams during the workshop chose creative thinking and connected it with
competitive challenges, as seen in the prototype above for “Think. Build.
Tell.” These mechanics can then be interwoven with a theme, ideally in a way
that strengthens both. For instance, a rebranded version of Monopoly may
have a new “theme”, but it doesn’t really change gameplay–while moving a
strategy game to a different era often rewrites all the rules.
Phase Two: Make
- Imagine your game space metaphor
- Design your system and pieces
- Prototype your
playable design
There are lots of ways to think of game boards, but
all of them have to represent something complex in a simple way. Most of
them do that through using a visual metaphor–Monopoly simplifies the city to
a single block, Sorry uses complete abstraction, The Game of Life conflates
movement through space with movement through stages of life. One way to
jumpstart game design thinking is to take all the pieces of a game box and
throw away the rules, then imagine a new ruleset that makes all those pieces
work together. This helps us explore how all the pieces of a physical game
combine to form a system–it’s a lot more transparent than most video games.
Continued in article
Gamification ---
http://en.wikipedia.org/wiki/Gamification
"Why Gamification is Really Powerful," by Karen Lee, Stanford Graduate
School of Business, September 2012 ---
http://stanfordbusiness.tumblr.com/post/32317645424/why-gamification-is-really-powerful
Karen Lee is the Social Web Strategist at the Stanford GSB
"How Deloitte Made Learning a Game," by Jeanne C. Meister, Harvard
Business Review Blog, January 2, 2013 ---
Click Here
http://blogs.hbr.org/cs/2013/01/how_deloitte_made_learning_a_g.html?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date
"Games in the Classroom (part 4)," by Anastasia Salter, Chronicle
of Higher Education, October 6, 2011 ---
http://chronicle.com/blogs/profhacker/games-in-the-classroom-part-4/36294?sid=wc&utm_source=wc&utm_medium=en
Bob Jensen's threads on Edutainment ---
http://www.trinity.edu/rjensen/000aaa/thetools.htm#Edutainment
"Europe imposes mandatory (14 to 25 year) rotation on audits," by Rachael Singh,
AccountancyAge, April 25, 2013 ---
http://www.accountancyage.com/aa/news/2264090/europe-imposes-mandatory-rotation-on-audits
It's anywhere from 14-25 years and can vary by individual EU member state
rules
http://www.foxbusiness.com/news/2013/04/24/eu-lawmakers-in-tentative-deal-on-accounting-cap-sources/
Seems to be 14 years where member EU states can extend the tenure of the
audit firm to 25 years
From the CFO.com Morning Ledger on April 26, 2013
EU committee backs watered-down plan on auditor rotation. Bold
plans to shake up the European audit market are being scaled back after a
group of influential EU lawmakers backed compulsory rotation of auditors
only every 25 years,
the
FT reports. The
European Parliament’s legal affairs committee endorsed a watered-down
version of the auditing reforms proposed in 2011 by the European Commission,
which wanted audit-firm rotation every six to 12 years. It also rejected the
commission’s proposal for a crackdown on auditors doing additional work,
which had raised the prospect of a breakup of one or more of the Big Four.
Jensen Comment
It is not at all certain whether Europe has the jurisdiction to impose audit
firm rotation on multinationals headquartered outside of Europe. For example,
General Electric does a lot of business in Europe. However, it's worldwide
headquarters is in the USA, and it does the majority of its business outside
Europe.
Can Europe force the USA-based General Electric to drop (after 25 years) KPMG
that has audited GE since the beginning of time?
Will this effectively impose 25-year audit firm rotation on the entire world?
I doubt that this will narrowly apply to multinational corporations
headquartered in Europe since this might trigger a mass exodus of corporate
headquarters.
This could be a boon to medium-sized audit firms who want to join the big
leagues since the large audit firms will probably shed clients up for rotation
because the audit fees are just not worth the startup costs and relocation costs
for auditors.
But turning medium-sized firms into large firms will be costly, especially in
terms of auditing clients with very complicated contracts like big banks,
multinational corporations, insurance companies, etc.
It will be an enormous boon to accounting
education programs since turnover of auditors is going to be enormous, thereby
creating huge demand for new graduates in accounting.
Personally I think the law will be rescinded in the next 25 years after
lawmakers come to their senses on what this will really cost in terms of setup
taking on enormous clients like General Electric. An added consideration will be
on how it makes being in the audit profession less desirable with prospects of
having to become gypsies without homes. Rather than move many senior auditors
may simply go to work for clients or other companies rather than face the
transactions costs of having to sell homes, take children out of schools, etc.
Audit firms will either lose their best auditors or have to double their
salaries as incentives to stay with the audit firms.
Bob Jensen's threads on the disastrous (in terms of audit costs and gypsy
lifestyles required for auditors) proposal to require audit firm rotation ---
http://www.trinity.edu/rjensen/Fraud001c.htm#Rotation
From the CFO.com Morning Ledger on April
29, 2013
Debate grows over corporate tax havens
The
FT takes a deep dive
into the growing global anger over corporate tax avoidance. There has been a
blurring of the distinctions between tax havens and larger industrialized
countries that use fiscal measures as a source of competitive advantage to
secure investment, jobs and revenues,
writes Vanessa Houlder. Economies such as
the Netherlands and Ireland have sucked up corporate investment by helping
companies avoid—entirely legally—hefty tax bills at home. The Netherlands
and Luxembourg had booked foreign direct investment of $5.8 trillion by the
end of 2012—more than the U.S., U.K. and Germany combined. Meanwhile, the
OECD is warning of a “race to the bottom” on corporate taxes.
Teaching Case from The Wall Street Journal Accounting
Weekly Review on April 26, 2013
Attention Online Shoppers: Senate Weighs Sales-Tax Bill
by:
John McKinnon and Siobhan Hughes
Apr 22, 2013
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com ![WSJ Video]()
TOPICS: sales tax
SUMMARY: "The Senate is expected to vote as soon as this week on
legislation allowing states to require Internet retailers to collect sales
taxes.... Online retail sales totaled $169 billion in 2010, about 4.4% of
total retail sales.... From 2002 to 2010, such sales rose at an average
annual rate of 18%, compared with 2.6% for total retail sales. " States are
therefore focusing on Internet sales rather than catalogue retailers because
the Internet sales are growing so much faster.
CLASSROOM APPLICATION: The article may be used in a tax class, in a
financial accounting class covering sales taxes, or in an MBA class.
QUESTIONS:
1. (Advanced) Who is responsible for paying sales taxes? How are
sales taxes collected and remitted? To what governing authorities in the
U.S. are they remitted?
2. (Introductory) What proposed new tax law related to online sales
has been moving through the U.S. Senate this week?
3. (Advanced) Why has the Senate proposed this bill with an
exemption for smaller retailers? In your answer, include the definition of
"smaller retailer" that is included in the Senate proposed legislation.
4. (Introductory) Why does online retailer Amazon support the
legislation?
5. (Advanced) Why do you think this Senate bill focuses on online
retail sales but not catalogue retailers?
SMALL GROUP ASSIGNMENT:
Group discussion (may vary according to the mix of in-state, out-of-state,
and international students in the class): 1. Compare the sales tax rates
applied in your home state or home country. 2. How would your state
legislator estimate the amount of tax losses being incurred in your home
state or country because of untaxed internet sales?
Reviewed By: Judy Beckman, University of Rhode Island
"Attention Online Shoppers: Senate Weighs Sales-Tax Bill,"
by John McKinnon and Siobhan Hughes, The Wall Street Journal, April 22, 2013 ---
http://online.wsj.com/article/SB10001424127887323551004578437040452142034.html?mod=djem_jiewr_AC_domainid
The Senate is expected to vote as
soon as this week on legislation allowing states to require Internet
retailers to collect sales taxes, opening up a battle over a tax break that
consumers love but that states say costs millions.
The outcome is uncertain, largely because of
opposition from some conservatives who see the move as a new tax and an
unfair burden on business, and from lawmakers from states that don't tax
sales.
But Senate Majority Leader Harry Reid's decision to
move to a procedural vote on the proposal suggests its prospects are
improving. In a nonbinding vote last month, senators approved a broadly
worded resolution of support for the idea by a wide margin, 75-24.
Conservative opposition has appeared to splinter, as more lawmakers see the
growth in online sales as a major source of revenue.
A 1992 U.S. Supreme Court ruling held that states
can't force retailers to collect sales tax unless they have a physical
presence—such as a warehouse or store—within their borders. Consumers are
supposed to pay tax themselves, but few do; states seldom pursue those who
don't.
State officials say catalog sales by out-of-state
merchants also cost them revenue, but online sales are a bigger worry.
Online retail sales totaled $169 billion in 2010, about 4.4% of total retail
sales, according to the U.S. Census Bureau. From 2002 to 2010, such sales
rose at an average annual rate of 18%, compared with 2.6% for total retail
sales.
Governors estimate state and local governments lose
about $20 billion a year in sales-tax revenue because of online sales.
Brick-and-mortar retailers have argued that tax-free sales give online
retailers an unfair edge.
Supporters of the legislation—which would affect
some mail-order sales as well—say it would help states collect taxes that
are already owed.
Backing by high-profile former and current GOP
governors, including Haley Barbour of Mississippi and Bob McDonnell of
Virginia, has given the measure a boost. "As we started getting some
Republican governors…Republican senators got more comfortable," said Dan
Crippen, executive director of the National Governors Association.
Support from a few big online retailers, notably
Amazon.com Inc., AMZN -7.81% also has helped. Amazon has said it supports a
national online sales tax, and a spokesman said the company is in favor of
the Senate bill, known as the Marketplace Fairness Act. The company often
has opposed state-by-state legislation, instead brokering deals to build new
distribution centers in certain states.
But some online retailers warn the legislation
could create significant new regulatory burdens on small businesses that
sell over the Internet. EBay Inc. EBAY +0.34% on Sunday said it sent tens of
millions of emails urging its active U.S. sellers to push for changes to
Congress's sales-tax bill. EBay said the bill's sales threshold for
triggering the tax is too low.
"The legislation treats you and big multi-billion
dollar online retailers—such as Amazon—exactly the same," said John Donahoe,
eBay's chief executive, in one of the emails. He said only businesses with
at least $10 million in annual out-of-state sales, or 50 or more employees,
should qualify for sales tax, compared with the $1 million sales threshold
in the bill.
Forcing businesses to comply with tax laws of other
states "is an incredible precedent to set right now," said Jim DeMint, a
former Republican senator from South Carolina who now is president of the
conservative Heritage Foundation. He added, "it violates federalism" to
require businesses in one state to collect taxes for another.
Sen. Max Baucus (D., Mont.), Finance Committee
chairman, said he opposes the bill because it could hurt businesses in his
state, which has no sales tax. He said in an interview he hopes it can be
improved through amendments. The decision to vote on the measure without
full consideration by Mr. Baucus's committee could generate opposition.
A top Senate Democratic aide predicted that the
legislation would pass the Senate, but even supporters worry that opposition
could grow if the bill remains pending too long. Sixty votes would be needed
to overcome a filibuster threat.
Continued in article
The FASB issued the following accounting standard updates (ASUs);
-
ASU 2013-07, Presentation of Financial Statements (Topic 205):
Liquidation Basis of Accounting
-
ASU 2013-06, Not-for-Profit Entities (Topic 958): Services Received from
Personnel of an Affiliate
"Everything Is Rigged: The Biggest Price-Fixing Scandal Ever:
The Illuminati were amateurs. The second huge financial scandal of the year
reveals the real international conspiracy: There's no price the big banks can't
fix," by Matt Taibbi, Rolling Stone, April 25, 2013 ---
http://www.rollingstone.com/politics/news/everything-is-rigged-the-biggest-financial-scandal-yet-20130425
Conspiracy theorists of the world, believers in the
hidden hands of the Rothschilds and the Masons and the Illuminati, we
skeptics owe you an apology. You were right. The players may be a little
different, but your basic premise is correct: The world is a rigged game. We
found this out in recent months, when a series of related corruption stories
spilled out of the financial sector, suggesting the world's largest banks
may be fixing the prices of, well, just about everything.
You may have heard of the Libor scandal, in which
at least three – and perhaps as many as 16 – of the name-brand
too-big-to-fail banks have been manipulating global interest rates, in the
process messing around with the prices of upward of $500 trillion (that's
trillion, with a "t") worth of financial instruments. When that sprawling
con burst into public view last year, it was easily the biggest financial
scandal in history – MIT professor Andrew Lo even said it "dwarfs by orders
of magnitude any financial scam in the history of markets."
That was bad enough, but now Libor may have a twin
brother. Word has leaked out that the London-based firm ICAP, the world's
largest broker of interest-rate swaps, is being investigated by American
authorities for behavior that sounds eerily reminiscent of the Libor mess.
Regulators are looking into whether or not a small group of brokers at ICAP
may have worked with up to 15 of the world's largest banks to manipulate
ISDAfix, a benchmark number used around the world to calculate the prices of
interest-rate swaps.
Interest-rate swaps are a tool used by big cities,
major corporations and sovereign governments to manage their debt, and the
scale of their use is almost unimaginably massive. It's about a $379
trillion market, meaning that any manipulation would affect a pile of assets
about 100 times the size of the United States federal budget.
It should surprise no one that among the players
implicated in this scheme to fix the prices of interest-rate swaps are the
same megabanks – including Barclays, UBS, Bank of America, JPMorgan Chase
and the Royal Bank of Scotland – that serve on the Libor panel that sets
global interest rates. In fact, in recent years many of these banks have
already paid multimillion-dollar settlements for anti-competitive
manipulation of one form or another (in addition to Libor, some were caught
up in an anti-competitive scheme,
detailed in Rolling Stone last year, to
rig municipal-debt service auctions). Though the jumble of financial
acronyms sounds like gibberish to the layperson, the fact that there may now
be price-fixing scandals involving both Libor and ISDAfix suggests a single,
giant mushrooming conspiracy of collusion and price-fixing hovering under
the ostensibly competitive veneer of Wall Street culture.
The Scam Wall Street Learned From the Mafia
Why? Because Libor already affects the prices of
interest-rate swaps, making this a manipulation-on-manipulation situation.
If the allegations prove to be right, that will mean that swap customers
have been paying for two different layers of price-fixing corruption. If you
can imagine paying 20 bucks for a crappy PB&J because some evil cabal of
agribusiness companies colluded to fix the prices of both peanuts and peanut
butter, you come close to grasping the lunacy of financial markets where
both interest rates and interest-rate swaps are being manipulated at the
same time, often by the same banks.
"It's a double conspiracy," says an amazed Michael
Greenberger, a former director of the trading and markets division at the
Commodity Futures Trading Commission and now a professor at the University
of Maryland. "It's the height of criminality."
The bad news didn't stop with swaps and interest
rates. In March, it also came out that two regulators – the CFTC here in the
U.S. and the Madrid-based International Organization of Securities
Commissions – were spurred by the Libor revelations to investigate the
possibility of collusive manipulation of gold and silver prices. "Given the
clubby manipulation efforts we saw in Libor benchmarks, I assume other
benchmarks – many other benchmarks – are legit areas of inquiry," CFTC
Commissioner Bart Chilton said.
But the biggest shock came out of a federal
courtroom at the end of March – though if you follow these matters closely,
it may not have been so shocking at all – when a landmark class-action civil
lawsuit against the banks for Libor-related offenses was dismissed. In that
case, a federal judge accepted the banker-defendants' incredible argument:
If cities and towns and other investors lost money because of Libor
manipulation, that was their own fault for ever thinking the banks were
competing in the first place.
"A farce," was one antitrust lawyer's response to
the eyebrow-raising dismissal.
"Incredible," says Sylvia Sokol, an attorney for
Constantine Cannon, a firm that specializes in antitrust cases.
All of these stories collectively pointed to the
same thing: These banks, which already possess enormous power just by virtue
of their financial holdings – in the United States, the top six banks, many
of them the same names you see on the Libor and ISDAfix panels, own assets
equivalent to 60 percent of the nation's GDP – are beginning to realize the
awesome possibilities for increased profit and political might that would
come with colluding instead of competing. Moreover, it's increasingly clear
that both the criminal justice system and the civil courts may be impotent
to stop them, even when they do get caught working together to game the
system.
If true, that would leave us living in an era of
undisguised, real-world conspiracy, in which the prices of currencies,
commodities like gold and silver, even interest rates and the value of money
itself, can be and may already have been dictated from above. And those who
are doing it can get away with it. Forget the Illuminati – this is the real
thing, and it's no secret. You can stare right at it, anytime you want.
Continued in article
Bob Jensen's Rotten to the Core threads on the banking industry ---
http://www.trinity.edu/rjensen/FraudRotten.htm#InvestmentBanking
GOVERNMENTAL ACCOUNTING RESEARCH SYSTEM ONLINE - NOW AVAILABLE ---
http://www.accountingeducation.com/index.cfm?page=newsdetails&id=152425
More on how to lie with statistics, tables, and graphs
"Did Reinhart-Rogoff Screw Up Their Debt Research?" by Barry Ritholtz,
April 16th, 2013 ---
http://www.ritholtz.com/blog/2013/04/did-reinhart-rogoff-screw-up-their-debt-research/
"How much of Reinhart/Rogoff has survived?" by Gavyn Davies,
Financial Times, April 19, 2013 ---
http://blogs.ft.com/gavyndavies/2013/04/19/how-much-of-reinhartrogoff-has-survived/?
. . .
However, if the economy is working well below
capacity, a rise in the budget deficit may not raise interest rates, but may
instead raise aggregate demand and thus boost GDP growth. Under some
circumstances, this might even reduce the debt ratio for a while.
In summary, the most dramatic version of the RR
stylised fact is no longer a stylised fact. RR were right to argue that,
over most normal periods, higher public debt has been associated with lower
real GDP growth rates, but a sudden discontinuity at 90 per cent is not
proven. Furthermore, causation might work in both directions, depending on
economic circumstances. The timing of these effects is not a definitive
indicator of true causation, and the relationship may be very different in a
time of full employment from a time of high unemployment.
The moral of this story is that it is an illusion
to expect that the complicated relationship between public debt and GDP
growth will always and everywhere be the same.
More on how to lie with statistics, tables, and graphs
"Did Reinhart-Rogoff Screw Up Their Debt Research?" by Barry Ritholtz,
April 16th, 2013 ---
http://www.ritholtz.com/blog/2013/04/did-reinhart-rogoff-screw-up-their-debt-research/
"Reinhart, Rogoff, and How the Macroeconomic Sausage Is Made," by
Justin Fox, Harvard Business Review Blog, April 17, 2013 ---
Click Here
http://blogs.hbr.org/fox/2013/04/reinhart-rogoff-and-how-the-ma.html?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date
After watching a presentation by Kaggle founder and
CEO Anthony
Goldbloom at
a conference last year, I went up to the front of
the room to ask him a question about macroeconomics.
Kaggle organizes
competitions
in which data scientists (which in most cases means anybody who wants to
sign up) compete to build predictive models based on huge troves of data.
Goldbloom founded the company after working as a macroeconomic modeler at
the Reserve Bank of Australia and the Australian Treasury.
"Could you use the Kaggle approach to make
macroeconomic predictions?" I asked him.
"No," he replied. "Not nearly enough data."
I couldn't help but think back to that as
controversy erupted this week over Harvard economists Carmen Reinhart and
Kenneth Rogoff's
oft-cited three-year-old finding that
economic growth
plummets when a country's debt-to-GDP ratio exceeds 90%.
Three University of Massachusetts economists — Thomas
Herndon, Michael Ash, and Robert Pollin — came out with a
working paper that
recrunched the Reinhart and Rogoff data set and arrived at a very different
result: instead of average -0.1% growth in countries with debt/GDP of more
than 90%, they came up with 2.2% growth.
Most of the attention since then has focused on an
Excel error that Herndon, Ash, and Pollin found —
which caused five countries to be excluded from the analysis — and Reinhart
and Rogoff
have subsequently acknowledged. That's pretty
embarrassing, but it only changed the result by 0.3 percentage points. Most
of the difference had to do instead with how Reinhart and Rogoff weighted
the results from different countries. They chose to give each country's
average growth in a particular debt/GDP range the same weight, regardless of
how many years the country had been in that situation. As Herndon-Ash-Pollin
write, this isn't an indefensible approach (they do argue that Reinhart and
Rogoff should have devoted a lot more ink to defending it). But by taking a
different approach, and instead weighting countries' results by how many
years they were above 90% debt/GDP, they were able to get a very different
result.
This is watching the sausage of macroeconomics
being made. It's not appetizing. Seemingly small choices in how to handle
the data deliver dramatically different results. And it's not hard to see
why: The Reinhart-Rogoff data set, according to Herndon-Ash-Pollin's
analysis, contained just 110 "country-years" of debt/GDP over 90%, and 63 of
those come from just three countries: Belgium, Greece, and the UK.
This is a problem inherent to macroeconomics. It's
not like an experiment that one can run multiple times, or observations that
can be compared across millions of individuals or even hundreds of
corporations. In the words attributed to economist Paul Samuelson, "We have
but one sample of history." And it's just not a very big sample.
So what to do about it? One response is to dig for
more data, and Reinhart and Rogoff have been doing that,
going back to 1800 to
examine episodes of public debt overhangs. Another is to have different
people crunch it in different ways, which is what Herndon-Ash-Pollin did, or
assemble different data sets, as several
other scholars
have done.
But the biggest challenge may be how to present it.
My reading of Reinhart-Rogoff, Herndon-Ash-Pollin, and the other papers
linked to in the preceding paragraph is that rising debt loads do weigh on
growth. Yes, there's causation at work in both directions: low growth
results in bigger debts — which has clearly been the case in the U.S. over
the past couple of years. But attempts to separate that effect out by
looking at growth rates well after a spike in debt do indicate slower growth
after higher debt. And for economists of every school but so-called
modern monetary theory, it's
logical that big debts would eventually eat
up resources and slow growth.
What there isn't, though, is an obvious tipping
point where debt becomes too high, and deficit spending becomes a drag
rather than a stimulus. At least not one that's obvious before the fact. The
initial Reinhart-Rogoff research seemed to indicate a sharp dropoff in
average growth after debt passed 90% of GDP. But they also reported a
significantly smaller dropoff in median growth, and their
subsequent analyses, as well as the Herndon-Ash-Pollin rework of their data,
similarly show a dropoff but not a dramatic inflection point.
In the 1990s, the consensus seemed to be that for
the U.S. the inflection point was a public debt/GDP ratio of 50% — which is
exactly what the country was nearing at the time. Higher than that, and the
bond market vigilantes would punish the U.S. with much higher interest rates
on government debt. The central teaching of what came to be known as
Rubinomics
was that cutting the deficit would actually stimulate
the economy as it brought interest rates down.
Now, of course,
U.S. public
debt is up to 76% of GDP, yet the bond market
vigilantes all seem to have retired or moved to Europe. In the long
aftermath of a global financial crisis, with deflation a real threat, the
U.S. can get away with running huge deficits with no immediate consequence.
In fact, the
Keynesian reasoning goes, big deficits now will lead to a better long
run growth picture (and thus lower future debt/GDP ratios).
Is this reasoning correct? Well, right now the
evidence would seem to support it: The U.S. is muddling through, while
austerity measures have pushed Europe back into recession and most of
Southern Europe into depression. For whatever it's worth, Reinhart and
Rogoff have advocated continued deficit spending too — at least for now.
But this is macroeconomics. It's hard to muster
conclusive evidence, and almost impossible to generate much in the way of
useful predictive ability. One response to this fog would be to throw up our
hands and not do anything at all. Another is to acknowledge that our
knowledge is limited and proceed anyway on a mix of data, theory, and
intuition.
This, to a certain extent, is what the Reinhart-Rogoff
project of the past few years (most notably their book
This Time is Different)
has been all about. It's a combination of history, data-crunching, and
informed opinion — intended to be consumed and debated by an audience of far
beyond academic macroeconomics. Which is exactly what's happening now. That
can't be a bad thing, can it?
Continued in article
April 19, 2013 reply from Bob Jensen
Hi Tom,
I fully agree with respect to pressures by journal editors to replicate.
But how often does this happen in accountics science? If the journal editors
were going to insist on tempting other (independent) researchers to
replicate they would have to offer something worthwhile like a promise to
publish the replications. Instead journals like TAR have a practice of not
publishing replications or even commentaries about accountics science
findings.
In real science most journals will publish something regarding exact
replications, such as publishing abstract summaries of replication outcomes
commentaries.. TAR referees are not willing to do this as far as I can tell
---
http://www.trinity.edu/rjensen/TheoryTAR.htm
Bill Cooper and I collaborated on changing the AAA journal policy on data
availability. We were both on the AAA Executive Committee at the time. As a
result the policy was instigated that AAA authors would be requested to make
data available for published studies if that data was not already in the
public realm. It is now somewhat common for authors to make private data
available, but nothing much seems to come of this in accountics science due
to lack of incentives to perform replications.
The R&R macroeconomic study that commenced this thread should have been
replicated early on because it was known from the beginning that it would
probably affect real world policies and decisions. Very few accountics
science studies are of such importance in the accounting profession. Put
another way, accountics science studies seldom provide evidence that is not
already known in the profession.
For example, finance professor Eric Lie at the University of Iowa won the
AAA's Notable Contributions to the Literature Award for his empirical study
of options back dating. This was a great accountics scuence contribution,
but by the time it was published it was widely known that corporate
executives were commonly back dating options for their compensation. The
rules against such backdating were already being changed.
What we would like from accountics science is replicated research that's
very interesting to the accounting profession because it reveals something
of importance to practitioners and standard setters that they don't already
know. Since the 1970s we've been waiting and waiting for this to happen in
accountics science. Sigh!
Respectfully,
Bob Jensen
"Excel Tip: Use Conditional Formatting to Identify Unlocked Cells," by
David Ringstrom, AccountingWeb, April 19, 2013 ---
http://www.accountingweb.com/article/excel-tip-use-conditional-formatting-identify-unlocked-cells/221617?source=technology
Russell Golden to Become the Next Chairman of the FASB
Financial Accounting Standards Board member Russell Golden will succeed Leslie
Seidman as chairman July 1, after Seidman's term ends. Golden joined the FASB as
a senior technical adviser in 2004 and rose through the ranks to become staff
technical director, then was appointed to the board in 2010
http://journalofaccountancy.com/News/20137845.htm
Russell Golden, whose technical expertise as a FASB
staff member led him to a spot on the standard-setting board in 2010, will
succeed Leslie Seidman as FASB’s chairman on July 1.
The Financial Accounting Foundation (FAF) announced
Golden’s appointment Tuesday. FAF Chairman Jeffrey Diermeier said in a news
release that Golden is the most qualified person for the role after a search
that included the evaluation of many strong candidates from a variety of
backgrounds.
“He will bring to his new position a deep
understanding of technical accounting issues informed by a broad
appreciation of the larger environment in which the FASB operates,”
Diermeier said.
Golden joined FASB’s staff in 2004 and worked a
total of six years in various staff positions before being appointed to the
board in 2010. He was reappointed to a second, five-year term in July 2012.
He served as FASB’s technical director from 2008 to
2010, overseeing staff work on standards-level projects, and chaired the
board’s Emerging Issues Task Force. Golden joined the FASB staff in 2004
after serving as a partner at Deloitte & Touche LLP in the National Office
Accounting Services department, where he provided accounting consultations
to partners and clients globally.
He previously held other positions within Deloitte
& Touche LLP. He earned his bachelor’s degree from Washington State
University and is a licensed CPA in the states of Washington and
Connecticut.
AICPA President and CEO Barry Melancon, CPA, CGMA,
said in a statement that the Institute is pleased with Golden’s selection.
”Russ has been a true thought leader,” Melancon
said, “and in his time with the FASB has demonstrated a total commitment to
improving financial reporting, which ultimately serves the public interest.
We congratulate Russ and look forward to working with him.”
Seidman’s term expires at the end of June. She has
served as FASB’s chairman since December 2010, and has been a member of the
board since July 2003.
The issues facing FASB as Golden prepares to take
over as chair include:
- Completing the standard-setting phase with the
issuance of a final standard on revenue recognition that is expected
within a few months in a convergence project with the International
Accounting Standards Board.
- Pushing forward with convergence projects on
leases, financial instruments, and insurance.
- Working with the new Private Company Council
as it debates possible GAAP exceptions and modifications for private
companies.
- Developing a disclosure framework that more
succinctly communicates relevant information to financial statement
users.
Continued in article
Teaching Case from The Wall Street Journal Accounting Weekly Review on
April 26, 2013
Accounting Board Taps Chairman
by:
Michael Rapoport and Emily Chasan
Apr 24, 2013
Click here to view the full article on WSJ.com
TOPICS: Financial Accounting Standards Board
SUMMARY: Russell Golden was named chairman of the Financial
Accounting Standards Board.... [He] is currently a member of FASB...and
formerly was a...senior staffer." Prior to joining the FASB he was a partner
with Deloitte & Touche. He has accomplished these career milestones at only
42 years of age.
CLASSROOM APPLICATION: The article may be used in any class to
introduce the U.S. standards setting body, its structure, and its members.
QUESTIONS:
1. (Introductory) Who is the new chairman of the Financial
Accounting Standards Board (FASB)? Describe his professional background.
2. (Introductory) Why did the former chairwoman, Leslie Seidman,
step down from her role?
3. (Advanced) Access the FASB website at
www.fasb.org. Click on the
tab "About FASB," then on "Our People" on the left hand column. How many
board members are there? From what backgrounds do they come?
4. (Advanced) Click on the tab "Financial Accounting Foundation"
and then on the tab "About FAF." What is the FAF? How does this
organization's purpose lead it to have been the one to select the new FASB
chairman?
Reviewed By: Judy Beckman, University of Rhode Island
"Accounting Board Taps Chairman," by Michael Rapoport and Emily Chasan,
The Wall Street Journal, April 24, 2013 ---
http://online.wsj.com/article/SB10001424127887324235304578441071573710666.html?mod=djem_jiewr_AC_domainid
Russell Golden was named chairman of the Financial
Accounting Standards Board, putting him at the center of the debate about
how much the U.S. should change its accounting rules to reflect the
standards used in most other countries.
Mr. Golden is currently a member of FASB, which
sets accounting rules for U.S. companies, and formerly was a FASB senior
staffer. He will assume the chairman's post in July for a four-year term,
succeeding Leslie Seidman, who is stepping down because she has served 10
years on the board, the longest board rules permit.
"I'm just ecstatic about this," said Robert Herz, a
former FASB chairman who worked with Mr. Golden when he was on FASB's staff.
"He's extremely well-rounded and technically very good. He's got a lot of
common sense."
In a statement Tuesday, Mr. Golden said he was
"honored" to be chosen and that he would strive to put investors' needs
first and work to make financial reporting "as clear, transparent and useful
as possible."
Mr. Golden was appointed to the chairman's post by
the trustees of the Financial Accounting Foundation, which oversees and
finances FASB.
The biggest issue facing Mr. Golden, as it has been
for Ms. Seidman, is "convergence," the push to bring U.S. and global
accounting rules closer together. FASB and its global counterpart, the
International Accounting Standards Board, have been trying for years to
eliminate major differences between U.S. generally accepted accounting
principles, or GAAP, which U.S. companies follow, and International
Financial Reporting Standards, or IFRS, in use in most of the rest of the
world.
But those attempts have been marked by delays and
sometimes disagreements between the two rule-making bodies. Some of the key
projects on which the two boards are trying to agree, including new rules on
revenue recognition and lease accounting, still haven't been completed,
nearly two years after they were originally slated to be done. The
Securities and Exchange Commission has yet to make a decision on whether to
shift U.S. companies over to the global rules altogether.
In a conference call with reporters, Mr. Golden
said he was "committed to working through these issues to arrive at a
converged solution."
IASB Chairman Hans Hoogervorst said Mr. Golden is
"an excellent choice" who "commands great respect among all of our board
members."
Mr. Golden, 42 years old, has been a FASB member
since 2010 and before that had served on FASB's staff since 2004, including
two years as technical director, overseeing the staff's work on rule-making
projects. Before joining FASB, he was a partner at Deloitte & Touche LLP,
one of the Big Four accounting firms.
The foundation, aided by search firm SpencerStuart,
has been looking for a successor for Ms. Seidman since last fall. More than
100 candidates were considered, said Robert Stewart, a FASB spokesman.
Continued in article
The New Yorker:
From maids to roofers to drug dealers the underground economy resulted in an
estimated $2 Trillion (with a T) of underreported taxable income in 2012
Unemployment and Welfare Fraud
"The Underground Recovery," by James Surowiecki," The New Yorker,
April 29, 2013 ---
http://www.newyorker.com/talk/financial/2013/04/29/130429ta_talk_surowiecki
When we all finished filing our tax returns last
week, there was a little something missing: two trillion dollars. That’s how
much money Americans may have made in the past year that didn’t get reported
to the I.R.S., according to a recent study by the economist Edgar Feige,
who’s been investigating the so-called underground, or gray, economy for
thirty-five years. It’s a huge number: if the government managed to collect
taxes on all that income, the deficit would be trivial. This unreported
income is being earned, for the most part, not by drug dealers or Mob bosses
but by tens of millions of people with run-of-the-mill jobs—nannies,
barbers, Web-site designers, and construction workers—who are getting paid
off the books. Ordinary Americans have gone underground, and, as the
recovery continues to limp along, they seem to be doing it more and more.
Measuring an unreported economy is obviously
tricky. But look closely and you can see the traces of a booming informal
economy everywhere. As Feige said to me, “The best footprint left in the
sand by this economy that doesn’t want to be observed is the use of cash.”
His studies show that, while economists talk about the advent of a cashless
society, Americans still hold an enormous amount of cold, hard cash—as much
as seven hundred and fifty billion dollars. The percentage of Americans who
don’t use banks is surprisingly high, and on the rise. Off-the-books
activity also helps explain a mystery about the current economy: even though
the percentage of Americans officially working has dropped dramatically, and
even though household income is still well below what it was in 2007,
personal consumption is higher than it was before the recession, and retail
sales have been growing briskly (despite a dip in March). Bernard Baumohl,
an economist at the Economic Outlook Group, estimates that, based on
historical patterns, current retail sales are actually what you’d expect if
the unemployment rate were around five or six per cent, rather than the 7.6
per cent we’re stuck with. The difference, he argues, probably reflects
workers migrating into the shadow economy. “It’s typical that during
recessions people work on the side while collecting unemployment,” Baumohl
told me. “But the severity of the recession and the profound weakness of
this recovery may mean that a lot more people have entered the underground
economy, and have had to stay there longer.”
The increasing importance of the gray economy isn’t
only a reaction to the downturn: studies suggest that the sector has been
growing steadily over the years. In 1992, the I.R.S. estimated that the
government was losing $80 billion a year in income-tax revenue. Its estimate
for 2006 was $385 billion—almost five times as much (and still an
underestimate, according to Feige’s numbers). The U.S. is certainly a long
way from, say, Greece, where tax evasion is a national sport and the shadow
economy accounts for twenty-seven per cent of G.D.P. But the forces pushing
people to work off the books are powerful. Feige points to the growing
distrust of government as one important factor. The desire to avoid
licensing regulations, which force people to jump through elaborate hoops
just to get a job, is another. Most important, perhaps, are changes in the
way we work. As Baumohl put it, “For businesses, the calculus of hiring has
fundamentally changed.” Companies have got used to bringing people on as
needed and then dropping them when the job is over, and they save on
benefits and payroll taxes by treating even full-time employees as
independent contractors. Casual employment often becomes under-the-table
work; the arrangement has become a way of life in the construction industry.
In a recent California survey of three hundred thousand contractors,
two-thirds said they had no direct employees, meaning that they did not need
to pay workers’-compensation insurance or payroll taxes. In other words, for
lots of people off-the-books work is the only job available.
Sudhir Venkatesh, a sociologist at Columbia and the
author of a study of the underground economy, thinks that many workers,
particularly younger ones, have become comfortable with casual work
arrangements. “We have seen the rise of a new generation of people who are
much more used to doing things in a freelance way,” he said. “That makes
them more amenable to unregulated work. And they seem less concerned about
security, which they equate with rigidity.” The growing importance of
services in the economy is also crucial. Tutors, nannies, yoga teachers,
housecleaners, and the like are often paid in cash, which is hard for the
I.R.S. to track. In a 2006 study, the economist Catherine Haskins found that
between eighty and ninety-seven per cent of nannies were paid under the
table.
Continued in article
Case Studies in Gaming the Income Tax Laws ---
http://www.cs.trinity.edu/~rjensen/temp/TaxNoTax.htm
At Long Last
The FASB Proposes Taking Some Unrealized Fair Value Changes Out of Earnings and
Relegate them to OCI
From a Deloitte "Heads Up" on April 19, 2013
http://deloitte.wsj.com/cfo/2013/04/19/recognition-and-measurement-of-financial-instruments-fasb-amendments-to-proposed-asu/
. . .
Under the proposed ASU, the unconditional fair
value option for financial assets and financial liabilities in ASC 825³
would be replaced with a conditional fair value option that would be
available when:
—Financial assets are held and managed in a
hold-and-sell business model (i.e., otherwise accounted for at fair
value through other comprehensive income).
—An entity manages the net exposure for a group
of financial assets and financial liabilities on a fair value basis and
provides net exposure information to its management.
—A hybrid financial liability contains an
embedded derivative that significantly modifies its cash flows as long
as it is clear (with little or no analysis) that separation of the
embedded derivative is not precluded.
However, the ED notes that for financial assets and
financial liabilities outside the scope of the proposed ASU such as the
following, a fair value option would no longer be available:
a. Guarantees and other contingencies accounted
for in accordance with [ASC] 460, Guarantees, or contingencies accounted
for under [ASC] 450, Contingencies, that will not be within the scope of
the forthcoming proposed [ASU] on insurance contracts. The effective
date and transition provisions to eliminate the fair value optionfor
these items would be consistent with the guidance in the proposed [ASU]
on financial instruments.[⁵]
b. Rights and obligations under an insurance
contract and obligations under a warranty that currently are accounted
for under [ASC] 944, Financial Services—Insurance, or would be accounted
for in accordance with the forthcoming proposed [ASU] on insurance
contracts. . . .
c. Rights under a warranty that would be
accounted for in accordance with the guidance in the fourthcoming [ASU]
on revenue recognition. . . .
d. Written loan commitments accounted for in
accordance with the proposed [ASU] on financial instruments. . . .
e. Firm commitments that otherwise would not be
recognized at inception and that involve only financial instruments. . .
. The effective date and transition provisions for these items would be
consistent with the guidance in the proposed [ASU] on
financial instruments.[⁶]
Entities would cease using the fair value option
under ASC 825 for each of these instruments in accordance with the effective
date and transition method for each related project. For example, public
entities would no longer be able to apply the fair value option under ASC
825 to rights under a warranty accounted for in accordance with
the forthcoming final standard on revenue recognition for fiscal and interim
periods that begin on or after January 1, 2017.⁷ The revenue standard will
permit entities to apply the new guidance retrospectively or by using a
cumulative-effect approach.⁸ The FASB has not decided what the effective
dates will be for its forthcoming standard on insurance contracts or for the
proposed ASU.
Editor’s
Note: Replacing the unconditional fair value option with one
that can be applied only in limited circumstances reduces the number of
accounting choices for similar instruments and is expected to improve
comparability. Improving comparability is one of the stated objectives in
the proposed ASU. The ED does not propose eliminating the fair value option
under ASC 860-10-35 for servicing assets and servicing liabilities.
Jensen Comment
Guess we know how intermediate textbook authors will be spending their summer
breaks, especially those end-of-chapter materials and test banks.
Of course certain types of hedges (cash flow hedges and FX hedges) under FAS
133 recorded fair value changes to OCI to the extent that the hedges were
effective. Fair value hedges did do not use OCI.
Soon you won't have to be hedging to get OCI relief for unrealized fair value
changes in general.
Does this seem, at least in a way, how the FASB has come full circle from FAS
115?
Bob Jensen's threads on the controversies of fair value accounting ---
http://www.trinity.edu/rjensen/theory02.htm#FairValue
Non-governmental organization (NGO) ---
http://en.wikipedia.org/wiki/NGO
"Global NGOs Spend More on Accounting Than Multinationals," by Jeri
Eckhart Queenan, Harvard Business Review Blog, April 23, 2013 ---
Click Here
http://blogs.hbr.org/cs/2013/04/the_efficiency_trap_of_global.html?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date
Benchmark data isn't sexy stuff, but occasionally
the numbers reveal surprising findings. Who, for instance, would have
guessed that global NGOs spend nearly 80% more to track their finances and
employ nearly twice as many finance staff as comparable for-profit
multinationals?
This hardly seems right given that multinationals
are thought to be awash in money and NGOs have the image of cash-strapped,
waste averse organizations — which they are. But the data, gathered in our
new study "Stop
Starving Scale" and compared against benchmarks
from
APQC (American
Productivity & Quality Center), hint at a little-known story: most global
NGOs today struggle to master the complexities of managing efficient,
integrated operations in large part due to restrictions placed on them by
funders.
In that regard, NGOs find themselves facing the
same issues that vexed multinational corporations as they began to master
globalized operations several decades ago. While their missions couldn't be
more different, the organizational challenges are strikingly similar.
As globalization began to shift into high gear in
the 1980s, corporations grew by opening international outposts to access new
markets. But they soon realized that dotting the globe with factories and
staff led to fragmentation that begged for better integration and
coordination. In time, corporations learned to build the administrative and
technical infrastructure needed to manage their sprawling operations.
Today, NGOs are struggling to do the same — with
one key difference. Multinationals are masters of their own fate when it
comes to investing in people and infrastructure. By contrast, NGOs rely on
the generosity of funders who, for the most part, restrict their investments
to specific programs, leaving NGOs starved for general operating support.
Continued in article
"Fair-Value Rule (IFRS 13) Seeks Clearer M&A Deals: Measuring
fair value is more challenging than ever these days. But new IFRS reporting
standards could help bring more transparency to the process, the rule-makers
hope," by Kathleen Hoffelder, CFO.com, April 5, 2013 ---
http://www3.cfo.com/article/2013/4/gaap-ifrs_gaap-ifrs-13-dell-google-fair-value-measurement
In his desire
to take Dell private, billionaire founder and CEO Michael Dell
agreed in February to value his stake of more than 15%
in the company at a lower share price than other shareholders. Hoping that
would make the deal more attractive to potential suitors, he valued Dell at
$13.65 a share, while analysts and other private equity firms claimed it was
worth almost double that.
The Dell buyout saga shows how important measuring
fair value (the price at which an asset can be sold in current markets) is,
particularly for mergers and acquisition. And with
changes
in fair-value accounting going into
effect during the next financial reporting periods for most corporations,
CFOs and other senior executives will need to keep an even sharper focus on
it—whether for acquisitions, or simply to re-value land or property.
International Financial Reporting Standard No. 13,
or
IFRS 13, which gives guidance on how to measure an
asset’s fair value, went into effect on January 1. But firms are still in
the process of implementing the standard. Both the International Accounting
Standards Board (IASB) and Financial Accounting Standards Board (FASB)
issued IFRS 13 in 2011 to provide investors with an easier and more
consistent way to analyze corporate assets that would still be aligned with
U.S. generally accepted accounting principles (GAAP).
IFRS 13 applies to most corporations, explained
David Larsen, managing director of the alternative asset advisory practice
at Duff and Phelps. Speaking at a Duff and Phelps IFRS 13 webcast yesterday,
he said the standard comes into play for any company that must disclose
fair-value measurement for M&A activity, asset impairment, or activity
involving investment entities (units which obtain funds from investors in
exchange for investment management services), he said. “In many ways, that’s
almost everybody.”
Corporations must use fair-value measurement when
they initiate impairment testing (required evaluations
comparing an asset’s book value with its open-market value) under other
financial-reporting standards, including, for instance, those covering
Recognition and Measurement (IFRS 39), Financial Instruments (IFRS 9), and
Business Combinations (IFRS 3).
But not everyone is taking heed of some of the
biggest changes outlined in IFRS 13, such as those involving disclosure.
“The expansion of disclosures [about fair values] could be a new thing for
many; a lot of judgment goes into the disclosure area” said Larsen.
Specifically, corporations now must show more
support for the assumptions made on their fair-value measurement and,
particularly, more clarity in those assets that may be difficult to value.
Under the standard, which has been in development for at least eight years,
company's now must disclose fair values according to a three-level
hierarchy: for those assets in which quoted prices in active markets are
readily available (level 1); when that’s not available, corporations will
have to disclose fair values using inputs other than quoted prices included
within level 1 that are still observable (level 2); and if those aren't
available, they need to disclose fair value using inputs that still based on
market assumptions though they may be unobservable for the asset (level 3).
Disclosure also involves performing qualitative
sensitivity analysis (where a company provides a narrative
discussion if changing inputs would result in altermative assumptions about
fair value) and initiating a quantitative disclosure for Level 3 inputs in
addition to a quantitative one already in place in the regulation, according
to the webcast.
Continued in article
Jensen Comment
Note that valuing Michael Dell's stake in the company he founded is far more
difficult that estimating the fair value of assets on the balance sheet. The
reason is that many, many items of value such as human resources in his stake
are not even booked in the accounting ledgers because they are too difficult to
value ---
http://www.trinity.edu/rjensen/theory01.htm#TheoryDisputes
Bob Jensen's threads on fair value ---
http://www.trinity.edu/rjensen/theory02.htm#FairValue
Question
What is the new acronym OIS in financial accounting?
The IASB and FASB hedge accounting standards are replete with references to
LIBOR as an interest rate underlying. LIBOR was never a risk-free underlying,
but it was assumed to come close until it was discovered that the big London
banks were fraudulently manipulating LIBOR. What has since been replacing LIBOR
as an underlying in derivative financial instruments contracts?
Answer
Overnight Indexed Swap (OIS) rates ---
http://en.wikipedia.org/wiki/Overnight_index_swap
Of course underlyings can still be the supposed risk-free U.S. Treasury ratea,
but these are pretty steady and close to zero these days since the Federal
Reserve is buying up treasury debt in its Quantitative Easing program that is
tantamount to printing dollars to pay government invoices for goods and services
and interest on legitimate government debt. Treasury rates will one day take an
abnormal jump when and if the Fed ever comes to its senses.
New Hedge Accounting Rules for IFRS
From IAS Plus on April 25, 2013
Deloitte observers at the IASB meeting currently held in London report
that the IASB has just voted on the way forward in the hedge accounting
project.
The IASB decided
with a majority of ten to six votes (official notification
outstanding) to follow the model suggested by EFRAG in its
letter dated 22 March 2013 (an option of
either following the current hedge accounting requirements until the
project on macro hedge accounting has been completed or of applying
IFRS 9). Furthermore, the IASB decided (12 – 4) that a re-exposure
will not be necessary.
More detailed
information will be available soon in the IAS Plus meeting notes
covering the current meeting.
Jensen Comment
If the IASB follows the FASB lead in posting most gains and losses from fair
value adjustments to OCI rather than current earnings, many of the hedge
accounting issues for cash flow and FX hedges will go away. Fair value hedges
will remain problematic since fair value hedges do not affect OCI under current
hedge accounting rules. For example, when inventory on hand is hedged for fair
value, current rules call for fair value of the inventory carrying amount during
the hedging period.
I've not seen where the IASB plans to follow the FASB lead in posting fair
value changes to OCI rather than current earnings. It will be a great day for
earnings change trackers when that happens.
Former FASB Chairman, Bob Herz, Speaks Out About Convergence, April
18, 2013
Companies and investors are weary of changes and distrust principles-based
standards
http://blogs.wsj.com/cfo/2013/04/18/former-fasb-chair-nobody-said-convergence-would-be-easy/
Evaluating Investment Risk
Video from the Stanford Graduate School of Business
http://www.youtube.com/watch?v=H7zePShLC5o&ct=t%28Stanford_Business_Re_Think_Issue_Eleven4_5_2013%29
Warren Buffett will agree with part of this but certainly not all of it given
his track record on beating the pants off mathematical hedging advocates like
accountics scientist Charles Lee.
If you really want to understand the problem you’re apparently wanting to
study, read about how Warren Buffett changed the whole outlook of a great
econometrics/mathematics researcher (Janet Tavkoli). I’ve mentioned this
fantastic book before --- Dear Mr.
Buffett. What opened her eyes is how Warren Buffet built his vast, vast
fortune exploiting the errors of the sophisticated mathematical model builders
when valuing derivatives (especially options) where he became the writer of
enormous option contracts (hundreds of millions of dollars per contract). Warren
Buffet dared to go where mathematical models could not or would not venture when
the real world became too complicated to model. Warren reads financial
statements better than most anybody else in the world and has a fantastic
ability to retain and process what he’s studied. It’s impossible to model his
mind.
I finally
grasped what Warren was saying. Warren has such a wide body of knowledge that he
does not need to rely on “systems.” . . . Warren’s vast knowledge of
corporations and their finances helps him identify derivatives opportunities,
too. He only participates in derivatives markets when Wall Street gets it wrong
and prices derivatives (with mathematical models) incorrectly. Warren tells
everyone that he only does certain derivatives transactions when they are
mispriced.
Wall Street derivatives traders
construct trading models with no clear idea of what they are doing. I know
investment bank modelers with advanced math and science degrees who have never
read the financial statements of the corporate credits they model. This is true
of some credit derivatives traders, too.
Janet Tavakoli, Dear Mr. Buffett,
Page 19
The Wall Street Journal increased the billing rate for me to
$26 per month. This is reasonable considering that this thick thing is delivered
to my mailbox six days each week.
However, if I choose only the digital electronic version with no hard copy
delivery, I only save $4 per month --- which is now a bummer price, especially
for students.
However, there is a simple way to read very current articles in the WSJ
electronically for free using Google Advanced Search using the "All the words"
search box ---
http://www.google.com/advanced_search .
Instructions are given at
http://www.businessinsider.com/how-to-read-the-wsj-for-free-online-2009-6
Thank you Chris Nolan for the heads up.
Those of you who have access to your campus library electronic databases can
probably access archived WSJ articles using database subscriptions paid for by
your college or university.
The New York Times has a different free-access policy. I think you get
something like 15 articles free per month. However, for me this seems to
increase if I change Web browsers --- say from Firefox to Internet Explorer.
Please don't ask me why this works or if it is totally ethical.
Students and faculty of a college might be able to able to have
free access to NYT archives using databases subscribed toy by their college. One
such database is IfnoTrac Newstands.
Academic Versus Political Reporting of Research: Percentage Columns
Versus Per Capita Columns ---
http://www.cs.trinity.edu/~rjensen/temp/TaxAirlineSeatCase.htm
by Bob Jensen, April 3, 2013
"The Happiest People Pursue the Most Difficult Problems," by Steven
Berglas, Harvard Business Review Blog, April 10, 2013 ---
http://blogs.hbr.org/cs/2013/04/if_youre_confident_about_compe.html?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date
Jensen Comment
Probably XXXXX University's top (tenured) mathematics research professor was
forced by the University enter into anger management counseling as a condition
to his reappointment. We had been good friends over the years, although I lost
touch with him since he changed universities.
The above article does explain why some accountics scientists are so unhappy
and defensive. They avoid the most difficult research problems of collecting
their own data in the real world. Instead they take the easy way out by mining
data in purchased databases.
This begs the question of why creativity in accounting research is a rare
event in terms of original inventions in the halls of our Academy ---
http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm#Inventors
Why genius lies in the selection of what is worth
observing.
"The Art of Observation and How to Master the Crucial Difference Between
Observation and Intuition," by Maria Popova, Brain Pickings, March
29, 2013
http://www.brainpickings.org/index.php/2013/03/29/the-art-of-observation/
This selection has a number of historic photographs of well-known scientists ---
all women!
“In the field of observation,” legendary
disease prevention pioneer Louis Pasteur famously
proclaimed in 1854, “chance favors only the prepared mind.”
“Knowledge comes form noticing resemblances and recurrences in the events
that happen around us,” neuroscience godfather Wilfred Trotter
asserted. That keen observation is what transmutes information into
knowledge is indisputable — look no further than
Sherlock Holmes and his exquisite mindfulness
for a proof — but how, exactly, does one cultivate that critical faculty?
From
The Art of Scientific Investigation (public
library;
public domain) by Cambridge University
animal pathology professor W. I. B. Beveridge — the same
fantastic 1957 compendium that explored
the role of the intuition and imagination in science
and
how serendipity and “chance opportunism” fuel discovery
— comes a timeless meditation on the art of
observation, which he insists “is not passively watching but is an active
mental process,” and the importance of distinguishing it from what we call
intuition.
Though a number of celebrated minds
favored intuition over rationality, and even
Beveridge himself extolled
the merits of the intuitive in science,
he sides with modern-day admonitions about
our tendency to mislabel other cognitive processes as “intuition”
and advises:
It is important to realize that observation is
much more than merely seeing something; it also involves a mental
process. In all observations there are two elements : (a) the
sense-perceptual element (usually visual) and (b) the mental, which, as
we have seen, may be partly conscious and partly unconscious. Where the
sense-perceptual element is relatively unimportant, it is often
difficult to distinguish between an observation and an ordinary
intuition. For example, this sort of thing is usually referred to as an
observation: “I have noticed that I get hay fever whenever I go near
horses.” The hay fever and the horses are perfectly obvious, it is the
connection between the two that may require astuteness to notice at
first, and this is a mental process not distinguishable from an
intuition. Sometimes it is possible to draw a line between the noticing
and the intuition, e.g. Aristotle commented that on observing that the
bright side of the moon is always toward the sun, it may suddenly occur
to the observer that the explanation is that the moon shines by the
light of the sun.
For the practical applications of observation,
Beveridge turns to French physiologist Claude Bernard’s model, pointing out
the
connection-making necessary for creativity:
Claude Bernard distinguished two types of
observation: (a) spontaneous or passive observations which are
unexpected; and (b) induced or active observations which are
deliberately sought, usually on account of an hypothesis. … Effective
spontaneous observation involves firstly noticing some object or event.
The thing noticed will only become significant if the mind of the
observer either consciously or unconsciously relates it to some relevant
knowledge or past experience, or if in pondering on it subsequently he
arrives at some hypothesis. In the last section attention was called to
the fact that the mind is particularly sensitive to changes or
differences. This is of use in scientific observation, but what is more
important and more difficult is to observe (in this instance mainly a
mental process) resemblances or correlations between things that on the
surface appeared quite unrelated.
Echoing
Jean Jacques Rousseau’s timeless words that “real wisdom is not the
knowledge of everything, but the knowledge of which things in life are
necessary, which are less necessary, and which are completely unnecessary to
know” and
Noam Chomsky’s similar assertion centuries later, Beveridge cautions:
One cannot observe everything closely,
therefore one must discriminate and try to select the significant. When
practicing a branch of science, the ‘trained’ observer deliberately
looks for specific things which his training has taught him are
significant, but in research he often has to rely on his own
discrimination, guided only by his general scientific knowledge,
judgment and perhaps an hypothesis which he entertains.
Continued in article
Jensen Comment
This begs the question of why creativity in accounting research is a rare event
in terms of original inventions in the halls of our Academy ---
http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm#Inventors
This is especially discouraging over the past five decades as accounting
research in our Academy became dominated by accountics scientists ---
http://www.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm
We
close with a quotation from Scott McLemee demonstrating that what happened
among accountancy academics over the past four decades is not unlike what
happened in other academic disciplines that developed “internal dynamics of
esoteric disciplines,” communicating among themselves in loops detached from
their underlying professions. McLemee’s [2006] article stems from Bender
[1993].
“Knowledge and competence
increasingly developed out of the internal dynamics of esoteric disciplines
rather than within the context of shared perceptions of public needs,”
writes Bender. “This is not to say that professionalized disciplines or the
modern service professions that imitated them became socially irresponsible.
But their contributions to society began to flow from their own
self-definitions rather than from a reciprocal engagement with general
public discourse.”
Now, there is a definite note of sadness in Bender’s narrative – as there
always tends to be in accounts of the
shift from Gemeinschaft to
Gesellschaft.
Yet it is also clear that the transformation
from civic to disciplinary professionalism was necessary.
“The new disciplines offered relatively precise subject matter and
procedures,” Bender concedes, “at a time when both were greatly confused.
The new professionalism also promised guarantees of competence —
certification — in an era when criteria of intellectual authority were vague
and professional performance was unreliable.”
But in the epilogue to Intellect and Public Life, Bender
suggests that the process eventually went too far. “The risk now is
precisely the opposite,” he writes. “Academe is threatened by the twin
dangers of fossilization and scholasticism (of three types: tedium, high
tech, and radical chic). The agenda for the next decade, at least as I see
it, ought to be the opening up of the disciplines, the ventilating of
professional communities that have come to share too much and that have
become too self-referential.”
Peachtree Accounting has a short new name and huge new prices
"Sticker Shock Awaits Sage 50/Peachtree Payroll Service Users," by
David Ringstrom, AccountingWeb, April 16, 2013 ---
http://www.accountingweb.com/article/sticker-shock-awaits-sage-50peachtree-payroll-service-users/221587?source=technology
The 2014 version of Sage 50, formerly known as
Peachtree Accounting, is available for purchase now. As a result, certain
users who rely on the payroll subscription are going to experience sticker
shock in the near future. Historically, you could purchase a Sage
50/Peachtree Accounting product and pay an additional fee for the annual
payroll service that makes it easy to calculate withholding taxes. As long
as your accounting software was one of the three most recent versions, the
annual payroll service typically cost around $300/year. Such users are about
to see their annual costs increase by a factor of two, three, or even more.
For several years, Sage has offered an optional
Business Care program that entitled users to priority support and automatic
program upgrades. This program is now mandatory if you want to process
payroll in the software. The Sage Business Care program is being offered at
three levels:
Silver Gold Platinum
The Silver plan offers unlimited support, annual
product upgrades, and the Business Intelligence feature that allows you to
analyze your accounting data in Microsoft Excel. However, if you wish to
process payroll within Sage 50, you must sign up for the Gold or Platinum
programs. The Gold program allows you to process payroll for up to fifty
users, while the Platinum program offers unlimited payroll as well as
priority access to a dedicated support team that offers appointment
scheduling.
Business Care is an annual subscription, which
means that rather than buying the software and sitting out a couple of
upgrade cycles, you must continue your Business Care subscription year after
year in order to process payroll in Sage 50.
Sage doesn't disclose pricing for the Gold or
Platinum programs on its website, because the pricing varies based on which
version of Peachtree/Sage 50 you're currently using and the number of
simultaneous users you require. In general, the first year of business care
will be at a higher price, with savings each year for annual consecutive
renewals. As a point of reference, a Silver Business Care subscription for a
three-user license for Peachtree Complete Accounting is $669/year. This
doesn't include payroll, so it means your ongoing annual expense will likely
be at least $800/year, year-in, year-out, as opposed to the $300 or so that
you could formerly pay to add a payroll subscription.
Continued in article
There is a somewhat useful 2011 Peachtree versus Quickbooks site at
http://blog.softwareadvice.com/articles/accounting/peachtree-vs-quickbooks-1062211/
Pricing comparisons before April 2013 are probably out of date.
Bob Jensen's accounting software bookmarks ---
http://www.trinity.edu/rjensen/Bookbob1.htm#SoftwareAccounting
Accountics Scientists Aren't Going to Like This One
"Great Scientist ≠ Good at Math: E.O. Wilson shares a secret:
Discoveries emerge from ideas, not number-crunching," E.O. Wilson, The
Wall Street Journal, April 5, 2013 ---
http://online.wsj.com/article/SB10001424127887323611604578398943650327184.html
For many young people who aspire to be scientists,
the great bugbear is mathematics. Without advanced math, how can you do
serious work in the sciences? Well, I have a professional secret to share:
Many of the most successful scientists in the world today are mathematically
no more than semiliterate.
During my decades of teaching biology at Harvard, I
watched sadly as bright undergraduates turned away from the possibility of a
scientific career, fearing that, without strong math skills, they would
fail. This mistaken assumption has deprived science of an immeasurable
amount of sorely needed talent. It has created a hemorrhage of brain power
we need to stanch.
I speak as an authority on this subject because I
myself am an extreme case. Having spent my precollege years in relatively
poor Southern schools, I didn't take algebra until my freshman year at the
University of Alabama. I finally got around to calculus as a 32-year-old
tenured professor at Harvard, where I sat uncomfortably in classes with
undergraduate students only a bit more than half my age. A couple of them
were students in a course on evolutionary biology I was teaching. I
swallowed my pride and learned calculus.
I was never more than a C student while catching
up, but I was reassured by the discovery that superior mathematical ability
is similar to fluency in foreign languages. I might have become fluent with
more effort and sessions talking with the natives, but being swept up with
field and laboratory research, I advanced only by a small amount.
Fortunately, exceptional mathematical fluency is
required in only a few disciplines, such as particle physics, astrophysics
and information theory. Far more important throughout the rest of science is
the ability to form concepts, during which the researcher conjures images
and processes by intuition.
Everyone sometimes daydreams like a scientist.
Ramped up and disciplined, fantasies are the fountainhead of all creative
thinking. Newton dreamed, Darwin dreamed, you dream. The images evoked are
at first vague. They may shift in form and fade in and out. They grow a bit
firmer when sketched as diagrams on pads of paper, and they take on life as
real examples are sought and found.
Pioneers in science only rarely make discoveries by
extracting ideas from pure mathematics. Most of the stereotypical
photographs of scientists studying rows of equations on a blackboard are
instructors explaining discoveries already made. Real progress comes in the
field writing notes, at the office amid a litter of doodled paper, in the
hallway struggling to explain something to a friend, or eating lunch alone.
Eureka moments require hard work. And focus.
Ideas in science emerge most readily when some part
of the world is studied for its own sake. They follow from thorough,
well-organized knowledge of all that is known or can be imagined of real
entities and processes within that fragment of existence. When something new
is encountered, the follow-up steps usually require mathematical and
statistical methods to move the analysis forward. If that step proves too
technically difficult for the person who made the discovery, a mathematician
or statistician can be added as a collaborator.
In the late 1970s, I sat down with the mathematical
theorist George Oster to work out the principles of caste and the division
of labor in the social insects. I supplied the details of what had been
discovered in nature and the lab, and he used theorems and hypotheses from
his tool kit to capture these phenomena. Without such information, Mr. Oster
might have developed a general theory, but he would not have had any way to
deduce which of the possible permutations actually exist on earth.
Over the years, I have co-written many papers with
mathematicians and statisticians, so I can offer the following principle
with confidence. Call it Wilson's Principle No. 1: It is far easier for
scientists to acquire needed collaboration from mathematicians and
statisticians than it is for mathematicians and statisticians to find
scientists able to make use of their equations.
This imbalance is especially the case in biology,
where factors in a real-life phenomenon are often misunderstood or never
noticed in the first place. The annals of theoretical biology are clogged
with mathematical models that either can be safely ignored or, when tested,
fail. Possibly no more than 10% have any lasting value. Only those linked
solidly to knowledge of real living systems have much chance of being used.
If your level of mathematical competence is low,
plan to raise it, but meanwhile, know that you can do outstanding scientific
work with what you have. Think twice, though, about specializing in fields
that require a close alternation of experiment and quantitative analysis.
These include most of physics and chemistry, as well as a few specialties in
molecular biology.
Newton invented calculus in order to give substance
to his imagination. Darwin had little or no mathematical ability, but with
the masses of information he had accumulated, he was able to conceive a
process to which mathematics was later applied.
Continued in article
Jensen Comment
Thus far I've come up with two inventions plus one shared inventions by
accounting researchers in our Academy. Can anybody add to this list ---
http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm#Inventors
Screencast ---
http://en.wikipedia.org/wiki/Screencast
I flipped my classrooms largely by preparing hundreds of short Camtasia
how-to video on technical aspects of my accounting theory and AIS courses ---
especially on technical aspects of FAS 133 and MS Access relational database
accounitng. My students just were not getting some of this technical I explained
in class, and I grew weary repeating the same material over and over and over
again in my office. The Camtasia videos were a huge relief to my students and
me. They could play each Camtasia video repeatedly until they mastered the
topic. I rarely had to explain those topics during office hours when Camtasia
explanations were available to students.
The Camtasia videos also meant I did not have to devote so much class time to
teaching technical procedures. This made more free time for class quizzes to
verify that students were really mastering those technical opics.
"Data on whether and how students watch screencasts," by Robert
Talbert, Chronicle of Higher Education, April 4, 2013 ---
Click Here
http://chronicle.com/blognetwork/castingoutnines/2013/04/04/data-on-whether-and-how-students-watch-screencasts/?cid=wc&utm_source=wc&utm_medium=en
Bob Jensen's screencasting helpers ---
http://www.trinity.edu/rjensen/HelpersVideos.htm
"Insider Trading or Lack of Transparency: Which is the Bigger Sin?" by
Anthony H. Catanach, Jr., Grumpy Old Accountants, August 12, 2013 ---
http://grumpyoldaccountants.com/blog/2013/4/12/insider-trading-or-lack-of-transparency-which-is-the-bigger-sin
Jensen Comment
I'm not sure we can answer this question out of context.
There's now a picture showing KPMG's Los Angeles audit partner in charge
(London) in a parking lot receiving an envelope filled with cash in in exchange
for one of his various insider tips.
"KPMG says fired a partner in Los Angeles for role in insider trading,"
Sakthi Prasad, Reuters, April 9, 2013 ---
http://www.reuters.com/article/2013/04/09/us-kpmg-partner-idUSBRE93803420130409
KPMG KPMG.UL said late on Monday it had fired a
senior partner in the accounting firm's Los Angeles office for allegedly
providing inside information to an unnamed third party, who then used that
information to trade in stocks of several West Coast companies.
KPMG, one of the "Big Four" accounting and audit
firms, said it has resigned as the auditor for two clients upon discovery of
the individual's action.
"We have informed those companies it is necessary
to withdraw our auditor reports. We have no reason to believe that the
financial statements of these companies have been materially misstated,"
KPMG spokesman Tim Connolly said in a statement.
KPMG did not name the client firms in its
statement. The firm also did not identify the West Coast companies whose
stocks were traded by the unnamed third party.
The accounting firm did not name the partner nor
did it say how it learned of the individual's alleged activity.
KPMG spokesman Tim Connolly declined to comment
beyond the statement when contacted by Reuters.
This hurt Francine a bit. She's seemingly gone easy on KPMG (compared to me)
over the years relative to her despised Deloitte.
"Another 'Rogue' Audit Partner; Another 'Duped' Audit Firm," by Francine
McKenna, Forbes, April 10, 2013 ---
http://www.forbes.com/sites/francinemckenna/2013/04/10/another-rogue-audit-partner-another-duped-audit-firm/
There are things you anticipate, worry about, know
will be troublesome once they happen. It’s safe to say global audit firm
KPMG wasn’t worrying it would someday hear the leader of its Los Angeles
audit practice was passing confidential client information to someone else
who then traded on it.
KPMG announced late Monday via press release that
the firm had “separated” a senior partner, one with a very visible role,
from the firm. The firm had” “been informed” about his “rogue” actions and
“regrets” the impact his actions may have had.
I was half-expecting, “He’s not our kind”.
That’s a lot of passive construction. Who informed
the firm about the illegal and unethical activity? The firm clearly did not
discover
Scott London’s betrayal on its own. If London was
not trading on the information himself, the anomalies wouldn’t show up in
the information he’s required to provide to the firm to prove his
independence from audit clients each year.
Deloitte wasn’t the one who discovered that its
Vice Chairman and
Chicago charity circuit regular
Tom Flanagan was trading on the inside information
of several Fortune 500 companies including
Berkshire Hathaway. In that case it was FINRA, the
securities self-regulatory organization, that saw trading activity by an
audit firm partner in a company with M&A activity.
When Deloitte tax partner
Arnie McClellan’s wife “eavesdropped” on her
husband’s phone calls where he discussed his client’s M&A targets and then
called her sister in London, Deloitte didn’t know until London authorities
called. McClellan’s wife said her husband was innocent and everyone believed
her. She did serve time for initially lying about her own involvement.
It wasn’t
Ernst & Young that uncovered tax partner James
Gansman passing M&A tips to his lover who, in
turn, passed them to hers. Gansman’s “swinging” partner ended up on an SEC
watch list and
Gansmen went to jail based on her testimony
against him. He did not profit from his breach of client confidentiality
other than in ways some men might prefer to the discounted watch, dinners,
and few thousand dollars Scott London, the KPMG partner we heard about
yesterday, says he received.
Surely more information will come out over the next
few week, from KPMG, from additional companies affected and from the media,
who will pursue this story like pit bulls. One reporter who emailed me
yesterday said these stories of have “legs”. Hubris, and stupidity in
unexpected places, are great media fodder.
KPMG said in its press release that the firm
resigned as auditor from two of London’s clients,
Herbalife and Skechers, although it did not name
them. He was the top partner on those audits. The time and money those
companies will have to spend to appoint a new auditor, re-audit years of
financial statements and fend off media attention will probably be
subsidized, one-way or another, by KPMG. In the Flanagan case,
Deloitte paid for the necessary independent investigations
to support the firm’s claim to clients that it was
still independent as an auditor. None of them – Berkshire Hathaway,
Walgreens, Sears Holdings among the victims – fired the firm.
The SEC and PCAOB did not fine or sanction
Deloitte or Ernst & Young in any of the cases.
But surely Scott London, KPMG’s “rogue”, had access
to confidential information about more clients of the firm than just the
ones he was directly responsible for. He was the partner in charge of the
audit practice for a huge market, Los Angeles. He has the right, and the
responsibility, to know about every interesting or problematic thing going
on at the audit clients in his practice group. He may be a “concurring” or
quality review partner on more companies’ audits and can “drop by” audit
committee and other client meetings on a relationship-building basis. The
exposure to KPMG and to the clients of this practice unit, and perhaps
others, may be larger than what’s been admitted by the firm so far.
Scott London is
making statements to the press. He’s wealthy
enough to afford a lawyer and PR – but obviously not wealthy enough to
resist the temptation of
a “discount” on a watch and a few bucks. (London
didn’t even get a watch. He got a discount. Looking for the tippee?
Go look for a prominent LA jeweler in financial trouble who’s too cheap to
pay well for stealing a man’s career, professional reputation and, possibly,
his freedom.)
My sources tell me KPMG is not paying for London’s
defense. Deloitte
sued Flanagan to assuage its clients. I would
expect that’s next. If KPMG’s
behavior during the 2005 tax shelter scandal is
any indication, Scott London will be completely abandoned, not just fired,
as long as he’s not needed to absolve the firm of any guilt or
accountability for his actions. KPMG has been “duped”, betrayed by its own,
and that’s a tragedy, for sure.
Continued in article
Bob Jensen's threads on the "Two Faces" of KPMG ---
http://www.trinity.edu/rjensen/Fraud001.htm
April 9, 2013 reply from Dennis Beresford
Bob, Maybe if the KPMG Los Angeles partner
ultimately is sentenced to 45 years in prison (such as Attica) it would
actually put an end to this kind of "white collar" crime.
Denny
April 10, 2013 reply from Bob Jensen
Hi Denny,It will never happen. The biggest problem with white collar
crime is that it pays even if you know you're going to get caught (at least
if you know the rudiments of hiding the loot off shore or with friends and
understand time value of money) ---
http://www.trinity.edu/rjensen/FraudConclusion.htm#CrimePays
They say that patriotism is the last refuge
To which a scoundrel clings.
Steal a little and they throw you in jail,
Steal a lot and they make you king.
There's only one step down from here, baby,
It's called the land of permanent bliss.
What's a sweetheart like you doin' in a dump like this?
Lyrics of a Bob Dylan song forwarded by Amian Gadal
[DGADAL@CI.SANTA-BARBARA.CA.US]
The law does not pretend to punish everything that is dishonest. That would
seriously interfere with business.
Clarence Darrow ---
Click Here
Why white collar crime pays for Chief Financial Officer:
Andy Fastow's fine for filing false Enron financial statements: $30,000,000
Andy Fastow's stock sales benefiting from the false reports: $33,675,004
Andy Fastow's estimated looting of Enron cash:
$60,000,000
That averages out to winnings, after his court fines, of $10,612,500 per
year for each of the six years he spent in prison.
You can read what others got at
http://www.trinity.edu/rjensen/FraudEnron.htm#StockSales
Nice work if you can get it: Club Fed's not so bad if you earn $29,075 per
day plus all the accrued interest over the past 15 years (includes years
where he got away with it).
If you aren’t now, you will by
the time you finish the new Bebchuk and Fried paper on executive
compensation. They paint a fairly gloomy picture of managers exerting their
power to “extract rents and to camouflage the extent of their rent
extraction.” Rather than designed to solve agency cost problems, the paper
makes the case that executive pay can by an agency cost in and of itself.
Let’s hope things aren’t this bad.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=364220
They say
that patriotism is the last refuge
To which a scoundrel clings.
Steal a little and they throw you in jail,
Steal a lot and they make you king.
There's only one step down from here, baby,
It's called the land of permanent bliss.
What's a sweetheart like you doin' in a dump like this?
Lyrics of a Bob Dylan song forwarded by Amian Gadal
[DGADAL@CI.SANTA-BARBARA.CA.US]
Teaching Case
From The Wall Street Journal Accounting Weekly Review on April 12, 2013
Trading Case Embroils KPMG
by:
Jean Eaglesham, Juliet Chung and Hannah Karp
Apr 10, 2013
Click here to view the full article on WSJ.com
TOPICS: Auditing, Auditor Changes, Auditor Independence, Insider
Trading
SUMMARY: Scott London was a partner at KPMG, in charge of the
audits of Herbalife Ltd. and Skechers USA Inc. Mr. London "admitted passing
on stock tips about clients to a friend who gave him cash and gifts...."
According to Mr. London's attorney, as quoted in the related article, after
making initial disclosures of inside information to a friend at his golf
club, "it wasn't until the second or third chat that he realized that
his...friend was trading on the information...."
CLASSROOM APPLICATION: The article may be used in an auditing or
ethics class to discuss 1) how ethical transgressions can develop from
friendly relationships and 2) an auditor's responsibility for independence
as a basis for providing an audit opinion on financial statements.
QUESTIONS:
1. (Advanced) What is insider information? How do auditors have
access to insider information as a regular matter in conducting business?
2. (Introductory) What is insider trading? In this scenario
involving KPMG Partner Scott London, who committed the illegal act of
insider trading?
3. (Advanced) How does an auditor's independence provide the basis
for issuing an opinion on a company's financial statements?
4. (Advanced) How did Mr. London's actions violate his auditor's
independence? What action was KPMG then obliged to take when it learned of
Mr. London's actions?
5. (Advanced) Why must Skechers and Herbalife find new auditors and
undertake its audits for the last 2 years all over again?
SMALL GROUP ASSIGNMENT:
Discuss in small groups the following questions 1. Suppose you are an
auditor working on an engagement for a publicly traded company and that a
friend asks you about your client. How would you respond to the query?
Should your response differ depending on whether you believe your friend
might trade stocks based on the information? 2. What could Mr. Scott London
have done differently once he realized his friend had made stock trades
based on their conversations while golfing?
Reviewed By: Judy Beckman, University of Rhode Island
RELATED ARTICLES:
Golf Pal Chats Led to Probes
by Hannah Karp and Jean Eaglesham
Apr 10, 2013
Page: A2
"Trading Case Embroils KPMG," by Jean Eaglesham, Juliet Chung and Hannah
Karp, The Wall Street Journal, April 10, 2013 ---
http://online.wsj.com/article/SB10001424127887323550604578411812224197182.html?mod=djem_jiewr_AC_domainid
A former KPMG LLP partner admitted passing on stock
tips about clients to a friend who gave him cash and gifts, in a scandal
that led the big accounting firm to resign as auditor for two companies.
Scott London, the partner in charge of audits of
Herbalife Ltd. HLF +2.90% and Skechers USA Inc. SKX +1.69% until KPMG fired
him last week, told The Wall Street Journal Tuesday that "I regret my
actions in leaking nonpublic data to a third party."
Mr. London said his leaks "started a few years
back," adding that KPMG bore "no responsibility" for his actions.
"What I have done was wrong and against everything"
he believed in, said Mr. London, who was based in Los Angeles for the
accounting firm. More
Golf Pal Chats Led to Probes For New Auditor, a
'War Zone' Analyst Downgrades Herbalife Shareholder Isn't Spooked Heard on
the Street: Looking for KPMG's Mystery Man Herbalife Doesn't Expect NYSE
Delisting After KPMG Resignation Statements: Herbalife | Skechers How Your
Accountant Quits
The Federal Bureau of Investigation and the
Securities and Exchange Commission are looking into allegations of insider
trading in the shares of certain KPMG clients, said people familiar with
those probes.
The investigations are the latest sign of
authorities' efforts to crack down on insider trading. They are a fresh
black eye for a Big Four accounting firm, following widespread criticism by
regulators and investors of audit firms' failure to flag problems at large
banks and securities firms in the years leading up to the financial crisis.
In resigning the two audit accounts, KPMG said it
was withdrawing its blessing on the financial statements of Herbalife, a
nutrition company, for the past three years and of Skechers, a shoe company,
for the past two. KPMG stressed, however, that it had no reason to believe
there were any errors in the companies' books. Both companies said they are
moving to find new auditors.
Herbalife has been in the middle of a tug of war
between hedge-fund manager William Ackman—who has questioned the company's
business model and bet on its stock to fall—and Herbalife investors Carl
Icahn and Daniel Loeb. Herbalife shares fell 3.8% Tuesday, while Skechers
shares rose 2%.
Neither KPMG nor Mr. London named the recipient of
Mr. London's tips. The recipient isn't associated with a hedge fund or other
professional investor, said one person familiar with the matter.
Mr. London said he didn't pass any documents but
spoke to the person by phone. He said he gave the person "no real
significant information—usually 'they're doing well, or they're not doing
well.' " The person "traded on the information, but…I am not aware of how
much he profited," Mr. London said.
Mr. London said the person gave him a discount on a
watch, bought him dinners from time to time and "on a couple of occasions"
gave him $1,000 to $2,000 in cash.
Harland W. Braun, a lawyer for Mr. London, had a
somewhat higher estimate of how much Mr. London received.
His client hasn't reached a deal to settle any
allegations that may result, the lawyer said. He described Mr. London as
trying to minimize the possible damage caused by his actions to KPMG as well
as help the authorities.
KPMG doesn't expect the events to lead to its
resigning from any additional audit engagements, according to a person
familiar with the firm's thinking. The Skechers and Herbalife accounts are
the only ones in which Mr. London was the partner in charge of the audit,
this person said.
Allegations that audit partners have exploited
confidential client information haven't happened often, say legal experts.
"Audit partners obviously have access to potential insider information, by
the nature of their job," said Howard Schiffman, a partner at law firm
Schulte Roth & Zabel LLP and a former SEC trial attorney. "However, we've
not seen a large number of enforcement actions in this area, particularly
involving the major accounting firms."
One exception to this general rule: Thomas P.
Flanagan, a former Deloitte & Touche LLP partner in Chicago, was sentenced
last year to 21 months in prison after he pleaded guilty to securities
fraud. Authorities said Mr. Flanagan made $430,000 in illegal profits by
trading on information about Deloitte clients such as Best Buy Co., BBY
-2.86% Walgreen Co., WAG +1.16% Sears Holdings Corp. SHLD -0.63% and
Motorola Inc.
U.S. companies and audit firms typically don't
identify the individual partners who supervise each audit. Mr. London wasn't
named in Herbalife or Skechers filings as the KPMG partner in charge of
their outside audits. A 2011 proposal from the government's audit-industry
regulator would require such partners to be identified. Some other countries
already have such a requirement.
In this case, the alleged insider trading was
detected by federal investigators, rather than the audit firm, according to
people familiar with the matter. KPMG appears confident its systems weren't
to blame, said one of those people.
Skechers said in a statement it was informed that
its lead audit partner from KPMG was under federal investigation for
allegedly providing nonpublic information about clients, including Skechers,
to a third party "in exchange for money."
David Weinberg, chief financial officer of Skechers,
said he wasn't told what information about Skechers was allegedly divulged,
or to whom. KPMG has been Skechers's auditor since before 1999, the year it
went public, and Mr. London audited Skechers for two multiyear stretches,
according to Mr. Weinberg, who recalls having dinner with Mr. London on
several occasions.
"He was one of the last guys I would ever suspect
of doing this," said Mr. Weinberg.
The need for firms such as Skechers and Herbalife
to have a new firm re-audit financial statements "is not trivial in terms of
time and expense and disruption," said Joseph Carcello, an accounting
professor at the University of Tennessee.
Continued in article
Did KPMG violate the SOX audit partner rotation rule (not to be confused with
audit firm rotation where there is no rule)?
"Scott London Subverted Sarbanes-Oxley: Big Four Mock Audit Partner Rotation,"
by Francine McKenna, re:TheAuditor, April 22, 2013 ---
http://retheauditors.com/2013/04/22/scott-london-subverted-sarbanes-oxley-big-four-mock-audit-partner-rotation/
. . .
I wrote today in Forbes about a small little thing
I noticed in one of the first stories about Scott London. As I tried to
research and write about it, I waited for someone else to pick up on it. (No
one else did.) I’ve been busy the last couple of weeks since the KPMG press
release about Scott London’s breach of client confidentiality hit the wires
on April 8 but I researched the issue and called KPMG and Skechers and
waited.
There’s one small detail that came out early,
mentioned in The
Financial Times by Kara Scannell and Dan McCrum
when they interviewed
Skecher’s CFO David Weinberg, that matters a lot to the current debate
in the U.S. and U.K regarding audit firm rotation and the compromise
rules for lead partner rotation on audit engagements.
Mr London
had worked on Skechers’ audits in seven or eight of the last 13 years,
said Mr Weinberg, returning after a five-year rotation away two or three
years ago. He said that he had worked with him regularly, and
never had questions about his work or integrity: “not even the
slightest”, he said.
The rest of the column goes on to explain that
London seems to have subverted the intent of
Sarbanes-Oxley Section 203
that requires lead engagement partner rotation off engagements to promote
objectivity, independence and professional skepticism. But he’s not alone.
The more I looked into this the more I realized it’s probably pretty common
in the firms. After ten plus years of Sarbanes-Oxley, we’ve probably got
quite a few of these roll off, roll back on partners out there. An
early draft of a paper by four academics,
including former PCAOB academic fellow Brian Daughtery, says almost everyone
does it.
Assignments for the lead
engagement partner, concurring partner, and other senior
members of the audit team are planned well in advance of
required rotation so members are not rotated simultaneously.
Some firms have policies that specify the qualifications of
the partner assigned to client engagements. Depending on the
engagement, regional or national office approval may be
required on partner assignments. One OMP indicated firm
policy does not allow a partner to be a concurring partner
before being a lead partner. Another indicated his
international firm now has a policy that does not allow
partners to ever return to a former public client unless the
national office agrees to make an exception based on
extenuating circumstances.
An important element of
mitigating the negative aspects of rotation is ensuring
partners are properly trained. One OMP noted the path to
partnership is now approximately 13-15 years, primarily
driven by the complexity of GAAP. Another noted many senior
managers rotate to larger practice offices or the national
office for training before standing for partnership.
But…
By the time the
Daugherty/Dickins/Hatfield/Higgs paper was published in 2012,
Brian Daugherty told me that none of the Big Four
audit firms prohibited a partner from returning to a former public
client as lead engagement partner. None, that he became aware of during
the research, prohibit the audit partner from acting as an
advisory/consulting partner before, after, or during the cooling off
period as lead audit engagement partner or as concurring/quality
partner. One firm that did forbid partners to return to a lead audit
engagement partner role after a rotation off, except on an exception
basis, dropped the prohibition before the paper was published.
Despite being very open and chatty with the press
about the London incident – looks like KPMG fed
a positive story to the WSJ about all they are
doing to review internal policies - KPMG did not want to give me exact dates
of London’s assignments on Skechers and what he did during his roll-off.
Neither did Skecher’s CFO.
Did London act as concurring or quality review
partner during those five years? Even worse, did London act as Advisory
partner, responsible for increasing non-audit tax and consulting fees at
Skechers like Deloitte’s
Tom Flanagan did at the Fortune 500 clients he
traded illegally on?
Skechers spent $351,000 for “All Other”
services with KPMG between 2003 and 2008. Given the Sarbanes-Oxley
prohibitions against an auditor providing services other than tax and
“audit related” this seems odd. The explanation? ”These are fees for
other permissible work performed by KPMG LLP that does not meet the
other category descriptions.” Translated, that means, “We don’t think we
have to explain it you.”
Skechers paid KPMG an awful lot, too, for tax
services compared to its audit fee, $4, 512,000 over the ten year period
2002-2011, or 34% of total audit fees for the same period of
$13,129,000. In 2004, Skechers paid KPMG approximately $680,000 for
acquisition due diligence services, categorized as “audit related” when
due diligence services are prohibited consulting services by an auditor
unless they’re tax-related.
There’s more at Forbes,
KPMG’s Inside Trader: What The Auditor, and Skechers, Don’t Want To Talk
About. You might be asking, though, how can we as
investors know if the Big Four are complying with the audit partner rotation
law? Who checks to see that they are following any of these laws Congress
makes that are supposed to make us believe that auditors are back on the
job, looking out for shareholders after Enron?
We can’t.
If an audit firm violates the rule, we’ll probably
find out about it only if something worse happens that causes that
information to be disclosed. The audit firms know which partners are
assigned to clients, audit and non-audit. They have to know to manage their
business as well as insure compliance in case that audit is selected for
inspection. Public companies and their Audit Committees know who is assigned
to their engagements. Rarely do the firms and their clients volunteer
information about tenure on engagement unless there’s a lawsuit, or if
feelings are hurt such as in the Skecher’s case. The Skecher CFO’s
disclosures to the FT about Scott London’s tenure on the engagement are
unusual since there’s been no lawsuit.
Continued in article
Bob Jensen's Fraud Updates are at
http://www.trinity.edu/rjensen/FraudUpdates.htm
Bob Jensen's threads on professionalism in auditing ---
http://www.trinity.edu/rjensen/Fraud001c.htm
Bob Jensen's threads on KPMG ---
http://www.trinity.edu/rjensen/Fraud001.htm
Francine's Not Going to Like This (time and time again audit firms dodge the
bullet)
"Deloitte Not Liable For Mortgage Execs' Fraud, 9th Circ. Says," by
Sindhu Sundar, Law360, April 22, 2013
http://www.law360.com/securities/articles/434838/deloitte-not-liable-for-mortgage-execs-fraud-9th-circ-says
Deloitte & Touche LLP on Monday dodged claims that
it allowed insiders at USA Commercial Mortgage Co. to steal from the
now-bankrupt mortgage company and defraud investors when the Ninth Circuit
affirmed a lower court ruling for the auditing giant.
A three-judge panel affirmed a summary judgment
ruling for the mortgage company’s erstwhile external auditor, ruling that
the lower court was correct to file that under the Nevada’s so-called sole
actor rule, only the mortgage company is at fault for the fraud of its
owners CEO...
The full articles from Law360 are not free (except for a free trial)
Bob Jensen's threads on Deloitte are at
http://www.trinity.edu/rjensen/Fraud001.htm
"Deloitte Achieves Another Unflattering Milestone in Audit Quality," by
Caleb Newquist, Going Concern, July 16, 2012 ---
http://goingconcern.com/post/deloitte-achieves-another-unflattering-milestone-audit-quality
PCAOB "Time Bomb" says Bloomberg's Jonathon Weil
"Bigger, Stronger, Faster: The PCAOB After The Supreme Court Ruling," by
Francine McKenna, re:TheAuditors, June 26, 2012 ---
http://retheauditors.com/2010/06/26/bigger-stronger-faster-the-pcaob-after-the-supreme-court-ruling/
Francine wishing that the courts would
bring Deloitte to its knees (litigation, Bear Sterns, JP Morgan, audit,
auditing, Deloitte, lawsuits, Independence, Litigation, PCAOB)
Bob Jensen's threads on auditing professionalism and independence ---
http://www.trinity.edu/rjensen/Fraud001c.htm
Question
What is the monumental difference between the Countrywide “Hustle” fraud
versus the far worse Bob JeSunTrust “Shortcut” fraud?
Hint:
After receiving credible whistleblower evidence, it appear that the former SEC
Director may have fumbled the ball in both case in a way that made the Madoff
whistle blower SEC fumble look like small change.
"Note to New S.E.C. Chief: The Clock Is Ticking," by Gretchen
Morganson. The New York Times, April 13, 2013 ---
http://www.nytimes.com/2013/04/14/business/dear-sec-chief-clock-is-ticking-on-mortgage-cases.html?ref=business&_r=1&
Bob Jensen's threads on the subprime mortgage sleaze ---
http://www.trinity.edu/rjensen/2008Bailout.htm#Sleaze
The Only School of Accountancy in Texas and One of 40 Schools of
Accounting With AACSB Separate Accounting Accreditation
Texas Tech's Rawls College of Business will debut the School of Accounting on
Aug. 15. It will be the only school in Texas with its own accounting program and
one of 40 schools in the U.S. with accreditation from the Association to Advance
Collegiate Schools of Business.
Bloomberg, April 19, 2013
http://www.businessweek.com/articles/2013-04-19/texas-gets-its-first-accounting-school
Texas Tech’s Rawls College of Business will become
the only school in Texas to have its own accounting school.
The accounting program includes nearly 500 graduate
and undergraduate students, most of them enrolled in a five-year program
leading to an M.S. degree. On Aug. 15, it will become the School of
Accounting, one of only about 40 such schools in the nation with separate
accreditation in accounting from the Association to Advance Collegiate
Schools of Business (AACSB), says Robert Ricketts, the school’s director.
The main benefit, aside from bragging rights, will
likely be an elevated academic profile for the program. As the only
accounting school in the state, the program is expected to attract students
and recruiters from outside the Dallas-Fort Worth area, Ricketts says. The
program boasts 100 percent placement for graduates for the last 10 years,
with about 85 percent landing jobs at Big Four accounting firms, but
relatively few end up outside Texas, he added.
Continued in article
Schools AACSB Accredited in Accounting- ordered by name ---
https://www.aacsb.net/eweb/DynamicPage.aspx?Site=AACSB&WebKey=4BA8CA9A-7CE1-4E7A-9863-2F3D02F27D23
Teaching Case from The Wall Street Journal Accounting Weekly Review on
April 19, 2013
Auditors Should Open the Books
by:
Helen Thomas
Apr 17, 2013
Click here to view the full article on WSJ.com
TOPICS: Audit Quality, Audit Report, Auditing, Financial Statements
SUMMARY: The author discusses the form of audit reports as "an
anodyne, one-page report, telling investors virtually nothing they didn't
already know" and characterizes the audit process as a "pass/fail system," a
concept with which students should be able to connect. Citing, for example,
the lack of change in audit reports of banks bailed out during the financial
crisis, the author proposes a more informative audit report that will help
financial statement users assess the quality of financial reporting.
Auditors, not surprisingly, do not want the litigation risks associated with
this proposed system.
CLASSROOM APPLICATION: The article may be used to broaden students'
thinking on the role and composition of the audit report.
QUESTIONS:
1. (Introductory) Summarize the main points in the article about
proposed changes to audit reports.
2. (Introductory) What are auditors concerns with changing audit
reports as proposed in this article?
3. (Advanced) When this author references the "pass/fail system,"
what audit activity is she talking about?
4. (Advanced) The author notes that "...while audit fees increased
by 60%, the missive to investors from 2008 to 2010 remained identical" for a
bank that received U.S. government bailout funds during the financial
crisis. Briefly state a description of the financial crisis and the need for
the U.S. government to provide "bailout funds" to banks.
5. (Introductory) What is the problem if the audit report on this
bank's financial statements remained the same across this time period of the
financial crisis and recovery (2008 to 2010)?
6. (Advanced) In the U.K., KPMG faces a possible inquiry into its
audit of the bank HBOS related to to the bank's loan loss provisions. What
are provisions for loan losses? What was wrong with the provisions reported
in the bank's financial statements?
7. (Advanced) Refer back again to the concern with the bank that
received U.S. bailout funds. Should audit fees be related to the content of
the report(s) issued by auditors? Explain.
8. (Introductory) According to the article, how can changing the
way auditors report on financial statements help a user to understand the
quality of the financial reporting itself?
Reviewed By: Judy Beckman, University of Rhode Island
"Auditors Should Open the Books," by Helen Thomas, The Wall Street
Journal, April 17, 2013 ---
http://online.wsj.com/article/SB10001424127887324345804578426580783731080.html?mod=djem_jiewr_AC_domainid
Number crunchers need to open up.
For a profession intimately involved in providing
information, auditors are an uncommunicative bunch. Accountants' work is
condensed into an anodyne, one-page report, telling investors virtually
nothing they didn't already know. The pass/fail system—stating whether
financial statements are fairly presented—offers no insight into judgments
or concerns, or crucially where accountants and managers disagreed. Audits
have been impenetrable black boxes for too long.
Revelations last week that a KPMG audit partner
passed stock tips to a friend are embarrassing for the industry but have
also refocused attention on auditors and what they produce. That said, it
was the financial crisis that provided the real impetus for change.
Pension fund Calpers, in postcrisis discussions
with the U.S. Public Company Accounting Oversight Board, pointed to a bank
that received government bailout funds, noting that—while audit fees
increased by 60%—the missive to investors from 2008 to 2010 remained
identical.
In the U.K., KPMG faces a possible inquiry into its
examination of HBOS over what appears to be egregious underprovisioning for
loan losses before the bank's collapse. The U.K.'s financial regulator last
year suggested that the firm had urged a more-prudent approach in the face
of management's sunny optimism. Investors, however, were left in the dark.
Changes are under way, but moving at far too slow
and uncertain a pace. In Europe, proposals have veered into ludicrous levels
of prescription, suggesting a report of no more than 10,000 characters but
requesting the names of the entire audit team. The PCAOB two years ago
floated alternatives, including an Auditor's Discussion and Analysis of
significant issues, with its chairman last month arguing that a different
form of report could "redirect the auditor's mind-set from meeting minimum
criteria to identifying key insights…that will help a user understand the
quality of financial reporting."
Thus far, the U.K. has backed additional disclosure
from board audit committees and is considering introducing a discussion of
risks into the report itself. More insipid boilerplate or reams of
meaningless information help no one. The hope is that additional commentary
becomes a yardstick upon which boards and investors can judge audit quality.
Central to the debate is who should keep
shareholders informed of audit issues: the board or the number crunchers.
The easy answer: both. Investors want to hear from the accountants regarding
the nitty-gritty of their work. The board can rightly add their view of the
issues, as well as explaining steps taken to ensure a robust and independent
process. Litigation is one concern, particularly in the U.S., where
accountants fear more disclosure will lay them open to lawsuits while some
worry that a more discursive style will let firms wriggle off the legal
hook.
Continued in article
Jensen Comment
Presumably this would not apply to CPA firms that do not perform audits. Public
disclosure becomes a bit more personal in small firms such as those that only
have one owner.
Bob Jensen's threads on audit firm professionalism ---
http://www.trinity.edu/rjensen/Fraud001c.htm
Question
What is the difference between traditional competency-based course credits and
"decoupled" competency-based course credits?
Answer
In traditional competency-based systems an instructor either does not assign
course grades or does so based solely on examinations that cannot be linked to
particular students in a way where knowing a student can affect the final grade.
Course grades are generally not influenced by class discussions (onsite or in
online chat rooms), homework, term papers, course projects, team performance,
etc. In many instances the instructors do not even prepare the examinations that
determine competency-based grades.
Western Governors University ---
http://en.wikipedia.org/wiki/Western_Governors_University
WGU was one of the universities in modern times (since 1997) to offer fully
accredited online courses using a competency-based grading system. However,
students must participate in WGU courses and do class assignments for courses before
they can take the competency-based examinations.
Southern New Hampshire University (a private onsite university that is not
funded by the State of New Hampshire) ---
http://en.wikipedia.org/wiki/Southern_New_Hampshire_University
In "decoupled" course credit systems, a university that usually offers
competency-based courses where class attendance or online course participation
is not required. Students can learn the material from any sources, including
free online learning modules, before signing up to take the competency-based
examinations. Sometimes more than one "progress" competency-based examination
may be required. But no particular course is required before taking any
competency-based examination.
Decoupled systems become a lot like the Uniform CPA Examination where there
are multiple parts of the examination that may be passed in stages or passed in
one computer-based sitting.
Southern New Hampshire University (a private onsite university that is not
funded by the State of New Hampshire) ---
http://en.wikipedia.org/wiki/Southern_New_Hampshire_University
SNHU claims to be the first university to decouple courses from
competency-based examinations. However, I'm not certain that this claim is true
since the University of Wisconsin System may have been the first to offer some
decoupled competency-based degree programs..The University of Akron now has some
similar alternatives.
Wisconsin System's Competency-Based Degrees as of November 28, 2012
---
http://www.wisconsin.edu/news/2012/r121128.htm
"College Degree, No Class Time Required University of Wisconsin to Offer a
Bachelor's to Students Who Take Online Competency Tests About What They Know,"
by Caroline Porter, The Wall Street Journal, January 24, 2013 --- "
http://online.wsj.com/article/SB10001424127887323301104578255992379228564.html
It is expected that students seeking decoupled competency-based credits will
sign up for learning modules from various free learning systems.
Listing of Sites for Free Courses and Learning Modules (unlike certificates,
transferrable credits are never free) ---
http://www.opencolleges.edu.au/informed/features/free-online-courses-50-sites-to-get-educated-for-free/
"Competency-Based Education Advances With U.S. Approval of Program,"
by Marc Parry, Chronicle of Higher Education, April 18, 2013 ---
Click Here
http://chronicle.com/blogs/wiredcampus/u-s-education-department-gives-a-boost-to-competency-based-education/43439?cid=wc&utm_source=wc&utm_medium=en
Last month the U.S. Education Department sent a
message to colleges: Financial aid may be awarded
based on students’ mastery of “competencies” rather than their accumulation
of credits. That has major ramifications for institutions hoping to create
new education models that don’t revolve around the amount of time that
students spend in class.
Now one of those models has cleared a major hurdle.
The Education Department has approved the eligibility of Southern New
Hampshire University to receive federal financial aid for students enrolled
in a new, self-paced online program called College
for America, the private, nonprofit
university has announced.
Southern New Hampshire bills its College for
America program as “the first degree program to completely decouple from the
credit hour.” Unlike the typical experience in which students advance by
completing semester-long, multicredit courses, students in College for
America have no courses or traditional professors. These working-adult
students make progress toward an associate degree by demonstrating mastery
of 120 competencies. Competencies are phrased as “can do” statements, such
as “can use logic, reasoning, and analysis to address a business problem” or
“can analyze works of art in terms of their historical and cultural
contexts.”
Students show mastery of skills by completing
tasks. In one task, for example, students are asked to study potential works
of art for a museum exhibit about the changing portrayal of human bodies
throughout history. To guide the students, Southern New Hampshire points
them to a series of free online resources, such as
“Smarthistory” videos presented by Khan Academy.
Students must summarize what they’ve found by creating a PowerPoint
presentation that could be delivered to a museum director.
Completed tasks are shipped out for evaluation to a
pool of part-time adjunct professors, who quickly assess the work and help
students understand what they need to do to improve. Southern New Hampshire
also assigns “coaches” to students to help them establish their goals and
pace. In addition, the university asks students to pick someone they know as
an “accountability partner” who checks in with them and nudges them along.
Students gain access to the program through their
employers. Several companies have set up partnerships with Southern New
Hampshire to date, including Anthem Blue Cross Blue Shield and ConAgra
Foods.
The Education Department is grappling with how to
promote innovation while preventing financial-aid abuses. Southern New
Hampshire, whose $2,500-a-year program was established last year with
support from the Bill & Melinda Gates Foundation, has served as a guinea pig
in that process. But other institutions are lining up behind it, hoping to
obtain financial aid for programs that don’t hinge on credit hours.
Continued in article
Jensen Comment
In many ways this USNH program reduces the costs of student admission and of
offering remedial programs to get students up to speed to enroll in USNH courses
on campus.
But there are enormous drawbacks
In some courses the most important learning comes from student interactions,
team projects, and most importantly case discussions. In the Harvard Business
School, master case teachers often cannot predict the serendipitous way each
class will proceed since the way it proceeds often depends upon comments made in
class by students. In some courses the most important learning takes place in
research projects. How do you have a competency-based speech course?
Time and time again, CPA firms have learned that the best employees are not
always medal winners on the CPA examination. For example, years and years ago a
medal winner on occasion only took correspondence courses. And in some of those
instances the medal winner did not perform well on the job in part because the
interactive and team skills were lacking that in most instances are part of
onsite and online education.
Note that distance education courses that are well done require student
interactions and often team projects. It is not necessary to acquire such skills
face-to-face. It is necessary, however, to require such interactions in a great
distance education course.
A USNH College for America accounting graduate may not be allowed to sit for
the CPA examination in some states, especially Texas. Texas requires a least 15
credits be taken onsite face-to-face in traditional courses on campus. Actually
I cannot find where an accounting degree is even available from the USNH College
for America degree programs.
Before you read the article below you may want to scan the classic Baruch
Lecture by Bob Elliott at
http://www.baruch.cuny.edu/library/alumni/online_exhibits/digital/saxe/saxe_1998/elliott_98.htm
"Corporate Reporting Needs a Reboot," by Paul Druckman, Harvard
Business Review Blog, April 17, 2013 ---
Click Here
http://blogs.hbr.org/cs/2013/04/corporate_reporting_needs_a_re.html?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date
There is a clamor of voices demanding the
rebooting of capitalism, from academics (such as Michael Porter) and
politicians (like Al Gore) to investors (such as CalPERS) and Occupy's
street activists.
The common thread is that today's model of
capitalism overemphasizes short-term financial data and neglects
information that gets at the true sources of sustainable value creation
— things like innovation, brand equity, customer loyalty, and key
stakeholder relationships. Corporate reporting today emphasizes
compliance, boilerplate and legalese. As a result, we have a massive
glut of filings, press releases, analyst reports and articles focused on
financial data. The system has lost sight of the point of reporting: to
give companies access to financial capital by communicating their value
to investors.
The consequence of the systemic failure of this
lopsided model is that companies focus on short-term financial
performance — because that is what they believe investors are interested
in — to the detriment of long-term value creation. Investors, meanwhile,
compensate for the lack of knowledge about issues central to longer term
value by pricing in a risk premium. This can result in market valuations
that do not reflect the fundamental performance or prospects of the
business, leading to a misallocation of capital and reduced visibility
for investors, reinforcing short-term decision-making. And it is
business that pays the price through more expensive capital, while
furthering a flawed model of capitalism.
Fortunately, there is a better way to
communicate about the sources of value creation: integrated reporting.
Such reporting integrates material information about a firm's financial
performance with information on sustainability performance and
intangibles such as intellectual and human capital.
From the investor standpoint, integrated
reporting provides insights about a firm's business model, strategy,
risk, performance and prospects that are simply not available under the
current reporting model. It therefore supports investor decision-making
by providing a more complete basis for dialogue with the company's board
and an assessment of present and future value. This benefits not only
the investor, but also investors' beneficiaries and the broader economy
by providing a platform that encourages financial stability. Companies
such as Danone, SAP, AkzoNobel and Unilever are already pushing the
boundaries on their corporate reporting in this direction.
This week, the International Integrated
Reporting Council (of which I am the chief executive) launched the
consulting draft of integrated reporting framework.
Over the next ninety days, the IIRC is seeking
feedback on the draft from companies, investor groups, reporting
standards organizations, accounting bodies and regulators — anybody who
has a stake in seeing the transformation of corporate reporting.
The framework differs from standard financial
reporting in a number of ways:
- It provides guidance on reporting that
goes beyond simply conveying past performance in order to help
investors understand how value is created (or destroyed) in the
company, given its business model and its strategies, risks and
opportunities.
- It acknowledges that financial capital is
not the only asset in a business that drives value creation;
instead, a business must report on the interaction of six different
types of capital: financial, manufactured, intellectual, human,
social and relationship, and natural.
- It demands that reporting go beyond being
simply a mash-up of a firm's existing reports, or a forced
combination of the financial and sustainability reports. Instead, it
is a concise report that concentrates on material issues — those
relevant to investors — that affect the firm's strategy and future
orientation.
Despite the evidence of green shoots
representing a new pathway for corporate reporting, I don't believe that
true integrated reporting exists anywhere just yet. However, the new
framework gets us closer to that goal.
While all this makes me hopeful for the future
of corporate reporting, one dark cloud hangs over my outlook: US
companies are lagging their European, Asian and Latin American
counterparts in moving towards an integrated reporting model. Of course,
we have great examples of US companies, such as Coca Cola, Prudential
Finance and Clorox, joining around ninety global companies in IIRC's
pilot program right now, alongside dozens of investors. But my concern
is that there are deep-rooted reasons why the US environment may stifle
innovation in corporate reporting.
One is that companies hesitate to make
statements about anticipated future performance because they fear
litigation. But there are other reasons too. Many see reporting as a
compliance issue — if it's not legislated, then don't bother. And some
will only move on this when they believe the majority of investors want
this sort of information.
The danger for US firms who lag in adopting
integrated reporting is twofold: not only will their investors lack
complete information about their performance, but they also will lose
out on the integrated thinking that integrated reporting drives: it
reduces barriers between functional silos, aligns data systems and
processes, and encourages a culture that focuses on the full spectrum of
value drivers. This is all about innovation, and I am saddened to think
that US companies, some of the world's most innovative businesses in
their own right, might be held back because they are stuck in an
out-of-date reporting model.
If integrated reporting can play its role in
better corporate performance, holistic investor engagement and the
proliferation of a longer-term model of capitalism, it will not have
come a moment too soon.
Jensen Comment
I really hate being a luddite, but if corporate reporting is to be expanded to
cover the entire ballpark as suggested in the above article, then don't look for
the accounting profession to carry the ball into the new territories of
corporate reporting.
In fairness, Paul Druckman did not propose that the accounting profession
expand to cover these new corporate reporting territories. But in this era of
rebranding of PwC and other multinational CPA firms to offer expertise in
non-accounting areas it's tempting to think CPA firms can rebrand in corporate
reporting of "brand equity, customer loyalty, and key
stakeholder relationships."
In the accounting profession we've been through this before. The AICPA even
proposed a new professional designation that became the joke of the 20th Century
---- the professional certification of a Cognitor (later changed to XYZ).
http://www.journalofaccountancy.com/Issues/2001/Oct/TheXyzCredential
Also see
http://www.journalofaccountancy.com/Issues/2001/May/CpasSpeakUpOnNewGlobalCredential
Accountants are educated and trained to do what they learn in accounting
education programs. They are generally not trained to become experts in "innovation,
brand equity, customer loyalty, and key stakeholder relationships."
Unless they have a lot more education and training outside accountancy they are
not IT experts or valuation experts.
This takes me
back to the days when Bob Elliott, eventually as President of the AICPA, was
proposing great changes in the profession, including SysTrust, WebTrust,
Eldercare Assurance, etc. For years I used Bob’s AICPA/KPMG videos as starting
points for discussion in my accounting theory course. Bob relied heavily on the
analogy of why the railroads that did not adapt to innovations in transportation
such as Interstate Highways and Jet Airliners went downhill and not uphill. The
railroads simply gave up new opportunities to startup professions rather than
adapt from railroading to transportation.
Bob’s underlying
assumption was that CPA firms could extend assurance services to non-traditional
areas (where they were not experts but could hire new kinds of experts) by
leveraging the public image of accountants as having high integrity and
professional responsibility. That public image was destroyed by the many
auditing scandals, notably Enron and the implosion of Andersen, that surfaced in
the late 1990s and beyond ---
http://www.trinity.edu/rjensen/Fraud001.htm
This is a 1998 lecture
given by Bob Eliott before his world (the lofty public perception of CPA firm
integrity) collapsed ---
http://www.baruch.cuny.edu/library/alumni/online_exhibits/digital/saxe/saxe_1998/elliott_98.htm
The AICPA
commenced initiatives on such things as Systrust. To my knowledge most of these
initiatives bit the dust, although some CPA firms might be making money by
assuring Eldercare services.
The counter
argument to Bob Elliot’s initiatives is that CPA firms had no comparative
advantages in expertise in their new ventures just as railroads had few
comparative advantages in trucking and airline transportation industries,
although the concept of piggy backing of truck trailers eventually caught on.
I still have
copies of Bob’s great VCR tapes, but I doubt that these have ever been
digitized. Bob could sell refrigerators to Eskimos.
Collateralized Debt Obligation ---
http://en.wikipedia.org/wiki/Collateralized_debt_obligation
"CDOs Are Back: Will They Lead to Another Financial Crisis?"
Knowledge@wharton, April 10, 2013 ---
http://knowledge.wharton.upenn.edu/article.cfm?articleid=3230
Can the 2008 investment banking failure be traced to a math error?
Recipe for Disaster: The Formula That Killed Wall Street ---
http://www.wired.com/techbiz/it/magazine/17-03/wp_quant?currentPage=all
Link forwarded by Jim Mahar ---
http://financeprofessorblog.blogspot.com/2009/03/recipe-for-disaster-formula-that-killed.html
Some highlights:
"For five years, Li's formula, known as a
Gaussian copula function, looked like an unambiguously positive
breakthrough, a piece of financial technology that allowed hugely
complex risks to be modeled with more ease and accuracy than ever
before. With his brilliant spark of mathematical legerdemain, Li made it
possible for traders to sell vast quantities of new securities,
expanding financial markets to unimaginable levels.
His method was adopted by everybody from bond
investors and Wall Street banks to ratings agencies and regulators. And
it became so deeply entrenched—and was making people so much money—that
warnings about its limitations were largely ignored.
Then the model fell apart." The article goes on to show that correlations
are at the heart of the problem.
"The reason that ratings agencies and investors
felt so safe with the triple-A tranches was that they believed there was
no way hundreds of homeowners would all default on their loans at the
same time. One person might lose his job, another might fall ill. But
those are individual calamities that don't affect the mortgage pool much
as a whole: Everybody else is still making their payments on time.
But not all calamities are individual, and
tranching still hadn't solved all the problems of mortgage-pool risk.
Some things, like falling house prices, affect a large number of people
at once. If home values in your neighborhood decline and you lose some
of your equity, there's a good chance your neighbors will lose theirs as
well. If, as a result, you default on your mortgage, there's a higher
probability they will default, too. That's called correlation—the degree
to which one variable moves in line with another—and measuring it is an
important part of determining how risky mortgage bonds are."
I would highly recommend reading the entire thing that gets much more
involved with the
actual formula etc.
The
“math error” might truly be have been an error or it might have simply been a
gamble with what was perceived as miniscule odds of total market failure.
Something similar happened in the case of the trillion-dollar disastrous 1993
collapse of Long Term Capital Management formed by Nobel Prize winning
economists and their doctoral students who took similar gambles that ignored the
“miniscule odds” of world market collapse -- -
http://www.trinity.edu/rjensen/FraudRotten.htm#LTCM
The rhetorical question is whether the failure is ignorance in model building or
risk taking using the model?
Also see
"In Plato's Cave: Mathematical models are a
powerful way of predicting financial markets. But they are fallible" The
Economist, January 24, 2009, pp. 10-14 ---
http://www.trinity.edu/rjensen/2008Bailout.htm#Bailout
Wall Street’s Math Wizards Forgot a Few Variables
What wasn’t recognized was the importance of a
different species of risk — liquidity risk,” Stephen Figlewski, a professor of
finance at the Leonard N. Stern School of Business at New York University, told
The Times. “When trust in counterparties is lost, and markets freeze up so there
are no prices,” he said, it “really showed how different the real world was from
our models.
DealBook, The New York Times, September 14, 2009 ---
http://dealbook.blogs.nytimes.com/2009/09/14/wall-streets-math-wizards-forgot-a-few-variables/
Bob Jensen's threads on CDOs ---
http://www.trinity.edu/rjensen/2008Bailout.htm
Teaching Case
From The Wall Street Journal Accounting Weekly Review on April 12, 2013
Silicon Valley's Mouthwatering Tax Break
by:
Mark Maremont
Apr 07, 2013
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com ![WSJ Video]()
TOPICS: Compensation, Personal Taxation, Taxes
SUMMARY: Yahoo! Chief Executive Marissa Mayer instituted free meals
at Yahoo last year when she took charge. Free meals are commonplace at other
Silicon Valley high tech firms and Ms. Mayer stated, on an investor
conference call, that "free food was among the cultural changes intended to
make 'Yahoo the absolute best place to work. And if you're that, I think
attracting talent comes reasonably easily.'" If free food is offered as a
perk to attract talent, then it should be taxed to the recipient as income.
But Silicon Valley firms seem not to have been treating this benefit as a
perk. The companies take the stand that meals may remain untaxed under the
argument that "they are served for a 'noncompensatory' reason for the
'convenience of the employer.'" "...Lawyers argue that some technology firms
could qualify, in part because free food encourages longer work hours and is
a crucial part of Silicon Valley's collaborative culture. [However,] the IRS
often takes a dim view of such claims during routine audits of companies,
said...a Washington, D.C., employment-tax attorney...."
CLASSROOM APPLICATION: The article may be used in either corporate
or personal tax classes covering taxable benefits and the IRS approach of
penalizing companies through audits for not reporting the perks as income.
QUESTIONS:
1. (Introductory) According to tax law, what is compensation to
employees? How might free meals available at Silicon Valley high tech firms
be considered compensation to employees?
2. (Advanced) What description made by the CEO of Yahoo, Marissa
Mayer, is indicative of free meals being considered compensation to
employees?
3. (Advanced) If these free meals are considered to be
compensation, how must the compensation be reported to the IRS? Who is
responsible for paying the income tax? (Hint: the related video helps with a
practical example on this issue.)
Reviewed By: Judy Beckman, University of Rhode Island
RELATED ARTICLES:
Explained: Is Your Lunch a Taxable Event
by Mark Maremont
Apr 07, 2013
Online Exclusive
"Silicon Valley's Mouthwatering Tax Break," by Mark Maremont, The
Wall Street Journal, April 7, 2013 ---
http://online.wsj.com/article/SB10001424127887324050304578408461566171752.html?mod=djem_jiewr_AC_domainid
When outsiders visit Silicon Valley, the first
thing they often notice is the food: Cafeterias brimming with free gourmet
meals and snacks offered to employees of Google Inc., GOOG +0.03% Facebook
Inc. FB +1.60% and other technology firms.
But not all is as it seems in the buffet line.
There is growing controversy among tax experts about how to treat these
coveted freebies. The Internal Revenue Service also has been focusing on the
topic, according to attorneys who practice in the area, examining whether
the free food is a fringe benefit on which employees should pay additional
tax.
Tax rules around fringe benefits are complex, but
in general they categorize meals regularly provided by an employer as a
taxable perk, similar to personal use of a company car. That leads several
tax experts to wonder if some companies providing free food may be skirting
the rules.
"I clearly think it ought to be taxable income,"
said Martin J. McMahon, Jr., a tax-law professor at the University of
Florida, who argues that in most cases the meals are really part of a
compensation package.
Other lawyers point to an exception that allows
meals to remain untaxed if they are served for a "noncompensatory" reason
for the "convenience of the employer." The exception generally has been
applied to workers in remote locations or in professions where reasonable
lunch breaks aren't feasible. But these lawyers argue that some technology
firms could qualify, in part because free food encourages longer work hours
and is a crucial part of Silicon Valley's collaborative culture.
The IRS often takes a dim view of such claims
during routine audits of companies, said Thomas M. Cryan, Jr., a Washington,
D.C., employment-tax attorney at Buchanan Ingersoll & Rooney PC "If they're
in there auditing, and you're not taxing the meals, they're going to
challenge you on it," he said. "I have worked on audits for large tech
companies in Silicon Valley on this exact issue," he added, but declined to
name the clients.
Mr. Cryan said employers generally settle, then
come up with a fair-market value for the free meals, which they include in
employees' future paycheck stubs. In those cases, he said, companies often
ensure their employees don't lose out, by giving them extra pay to cover
their larger tax bills.
An IRS spokesman declined to comment.
Google has more than 120 cafes world-wide serving
over 50,000 meals a day, according to its website, which says the aim is to
foster collaboration and healthy eating. A spokeswoman declined to comment
on the tax treatment of employee meals. Several former employees who
recently left Google said the company didn't include the value of the meals
in their paystubs or in W-2 tax statements.
A Facebook spokesman said: "We believe we are
compliant with the law."
Technically, any unpaid back taxes would be owed by
individual employees. In practice, tax lawyers say, the IRS tries to dun the
employer for failing to withhold taxes on the meals' collective value.
Although collectively hundreds of millions of
dollars in taxes could be involved, some experts say the more significant
issue is fairness. If some employers are allowed to offer tax-free perks,
they argue, that puts other employers and employees at a disadvantage, and
if left unchecked could spread.
"I buy my lunch with after-tax dollars," said Mr.
McMahon, the University of Florida professor. "And I have to pay taxes to
support free meals for those Google employees."
Still, an IRS crackdown could raise hackles in the
influential technology industry, and generate concerns that the federal
government is interfering—for relative pocket change—with a culture that has
made Silicon Valley a world leader.
"There are real benefits for knowledge workers in
having unplanned, face to face interaction," and free food helps facilitate
that, said Victor Fleischer, a tax-law professor at the University of
Colorado, who argues that aggressive enforcement of tax laws might be poor
public policy in this case.
Although some employers long have been providing
free lunches for their executives or even ordinary workers, Silicon Valley
has taken the practice to a new level.
A Gourmet magazine article last year raved about
the "mouthwatering free food" at Google's headquarters in Mountain View,
Calif. The article cited dishes such as porcini-encrusted grass-fed beef and
noted that nearly half the produce was organic.
What would a food tax on Google's meals look like
for the average employee? Assuming a fair-market value of between $8 and $10
per meal, a Googler chowing down two squares a day could get dinged for
taxes on an extra $4,000 to $5,000 a year.
Facebook's headquarters in nearby Menlo Park,
Calif., has two main cafes, plus a barbecue shack, a pizza shop, a burrito
bar, and a 50s-style burger joint. Recent menu options at Facebook's Café
Epic, which dishes up free food from morning until night, included spicy
she-crab soup and grilled steak with chimichurri sauce.
Both Twitter Inc. and Zynga Inc. ZNGA -1.16% offer
three free meals a day in their San Francisco offices. A Zynga spokeswoman
had no comment, and a Twitter spokesman confirmed the free meals policy but
otherwise didn't comment.
Tax experts say companies should be careful how
they describe the free-meals perk, lest they imply that compensation or
recruiting is the real aim, not employer convenience.
Continued in article
FASB Codification Amendments
From Ernst & Young on April 13, 2013 ---
Click Here
http://www.pwc.com/us/en/cfodirect/publications/in-brief/2013-20-fasb-exposes-consequential-amendments-for-classification-and-measurement-of-financial-instruments.jhtml?display=/us/en/cfodirect/publications/in-brief&j=103333&e=rjensen@trinity.edu&l=319824_HTML&u=5525071&mid=7002454&jb=0
On April 12, the FASB issued an exposure draft of
consequential amendments to the Accounting Standards Codification (ASC) that
would result from its financial instruments classification and measurement
proposal. The new exposure draft serves as a companion document to the
FASB's proposal issued on February 14, 2013 (see
In brief 2013-08, FASB proposes a new model for classification and
measurement of financial instruments).
"Nate Silver Gets Real About Big Data," by Matt Asay, ReadWriteWeb,
March 29, 2013 ---
http://readwrite.com/2013/03/29/nate-silver-gets-real-about-big-data
Jensen Comment
This is a message that accountics scientists don't want to hear about.
"How Non-Scientific Granulation Can
Improve Scientific Accountics"
http://www.cs.trinity.edu/~rjensen/temp/AccounticsGranulationCurrentDraft.pdf
By Bob Jensen
This essay takes off from the following quotation:
A recent accountics science study suggests
that audit firm scandal with respect to someone else's audit may be a reason
for changing auditors.
"Audit Quality and Auditor Reputation: Evidence from Japan," by Douglas J.
Skinner and Suraj Srinivasan, The Accounting Review, September 2012,
Vol. 87, No. 5, pp. 1737-1765.
Our conclusions are subject to
two caveats. First, we find that clients switched away from ChuoAoyama in
large numbers in Spring 2006, just after Japanese regulators announced the
two-month suspension and PwC formed Aarata. While we interpret these events
as being a clear and undeniable signal of audit-quality problems at
ChuoAoyama, we cannot know for sure what drove these switches
(emphasis added).
It is possible that the suspension caused firms to switch auditors for
reasons unrelated to audit quality. Second, our analysis presumes that audit
quality is important to Japanese companies. While we believe this to be the
case, especially over the past two decades as Japanese capital markets have
evolved to be more like their Western counterparts,
it is possible that audit quality is, in general, less
important in Japan
(emphasis added)
.
Added Flexibility in 2013 AACSB Standards? Is it really so?
I thought the AACSB had already gone about as far as possible to make
accreditation standards extremely over the past two decades when the AACSB opted
for "mission driven" standards rather than rather uniform former business school
standards.
The AACSB also became more flexible when it expanded "terminally qualified"
faculty to include non-Ph.D professionally qualified (PQ) faculty, In addition
it adopted a "bridging program" for allowing faculty with non-business Ph.D.
degrees (such as education and engineering doctorates) to be academically
qualified (AQ).
To my knowledge, however, the AACSB is still largely a guild of traditional
university business deans that resists accreditation of non-traditional business
schools such as AACSB accreditation of a corporate MBA program (e.g., a Deloitte
University business program) or AACSB accreditation of a for-profit business
program (e.g., the University of Phoenix which has the largest business
education program in North America). .
Have any non-traditional business schools ever been
AACSB-accredited in North America?
I don't think the AACSB has ever accredited a distance education program that
does not have an onsite campus for students.
Have any business education programs without an onsite
campus ever been
AACSB-accredited in North America?
The standards are already somewhat different for "foreign business schools"
(outside the USA and Canada) where the AACSB has been trying to capture more of
the prestigious business schools in nations other than the USA and Canada,
including some corporate for-profit MBA programs in Europe that probably
would not be accredited if they were in North America.
"Business-School Accreditor Approves New, More-Flexible Standards," by
Katherine Mangan, Chronicle of Higher Education, April 9, 2013 ---
http://chronicle.com/article/Business-School-Accreditor/138447/
Business schools would have more flexibility to
innovate but would be under more pressure to differentiate themselves under
new accrediting standards approved on Monday by AACSB International: the
Association to Advance Collegiate Schools of Business.
The
changes, which follow two years of review by a
committee of business deans that consulted with educators and employers
worldwide, were unanimously approved during the association's annual
meeting, in Chicago.
The updates—the first since 2003—come at a time of
rapid growth in the number of foreign business schools, with varying
structures and rigor, that are seeking accreditation from AACSB. The
association, which now accredits 672 institutions in nearly 50 countries and
territories, must balance calls for more flexibility with concerns by some
members in the United States that changing its standards could water down
quality and
compromise the AACSB brand.
Jan R. Williams, a former dean of the University of
Tennessee at Knoxville's College of Business Administration, was one of
several panelists who described the updated standards during a Webcast on
Tuesday. While they will open the door for more schools to qualify for
accreditation, he maintained, the process won't be less rigorous.
"Flexibility doesn't mean easier," said Mr.
Williams. "It simply means the standards are more adaptable to schools in
different countries with different cultures," as well as those in the United
States with different missions, he said.
'A Jack of All
Trades'
John Fernandes, president of AACSB, said in an
interview on Tuesday that schools would have to do a better job of carving
out those missions. "The days of being a jack of all trades and master of
none are over," he said.
The new standards, whittled down to 15 from a list
of 21, emphasize innovation, impact, and engagement. They try to make
business education more relevant to the changing needs of students and
employers, in part by acknowledging the growing interest in online learning.
The standards also seek to measure the influence
each business school has on its graduates and on society, an approach that
may require a closer look at factors such as graduation rates, placement
success, and the impact of faculty research.
Among other changes, the new standards:
- Broaden the definition of a school's mission
to include what is distinctive about it; what impact it will have on
students, businesses, and society; and the opportunities it offers for
innovation.
- Refocus a prior intellectual-contribution
standard away from counting journal articles and toward encouraging work
that affects the theory, practice, or teaching of business and
management.
- Encourage more integration of academic
research and business practice.
The standards will continue to give schools leeway
to hire faculty members with expertise in business, not necessarily business
education. A shortage of faculty members with doctorates makes recruiting
difficult and expensive, and forces many schools to hire more practitioners
and scholars from other fields. Practitioners bring real-world experience
that can make curricula more relevant to business needs, the panelists
pointed out.
Continued in article
Also see
http://www.businessweek.com/articles/2013-04-09/b-schools-to-see-sweeping-new-accreditation-standards
Note that the AACSB has never accredited Ph.D. programs. I don't think that this
2013 revision of the standards brings in doctoral program accreditation. In
North America, however, most traditional universities require that AQ faculty
have doctoral degrees from universities having AACSB accredited undergraduate
and masters programs. An exception exists for a bridging program where a CPA
with a Ph.D. in History from Princeton University can be counted as AQ even
though Princeton has no accredited AACSB programs.
Jensen Comment
Refocusing on "intellectual-contribution standard away
from counting journal articles" is fine for professionally qualified
faculty (such as CPAs without doctoral degrees) not on a tenure track.
However, getting PQ faculty on a tenure track is not really within the
jurisdiction of the AACSB. Each college and university sets its own criteria for
tenure, and the powerful humanities and science divisions are generally very
protective of that Ph.D. criterion as well as a journal counting criterion.
The higher-level college-wide Promotion and Tenure (P&T) committees already
sigh when comparing a chemistry tenure candidate having 23 refereed journal
publications with a business school candidate having eight refereed
journal publications.
Like it or not P&T committees are not going to abandon counting such
publications no matter what the AACSB allows for accreditation.
Having said this, I'm all in favor of giving more P&T credit to refereed
practitioner journals that are highly respected in the profession even if
accountics science professors hold their noses.
Big Four Responds to UK Competition Commission: the Big Fear is
Required Audit Firm Rotation
"Big Four find Competition Commission audit conclusions lacking," by Richard
Crump, AccountancyAge, April 8, 2013 ---
http://www.accountancyage.com/aa/news/2259801/big-four-find-competition-commission-audit-conclusions-lacking
THE BIG FOUR have delivered a scathing response to
claims they are failing shareholders and that their dominance of the
statutory audit market leads to higher prices, lower quality and less
innovation for companies.
In February, the Competition Commissions delivered
the provisional findings of its investigation into the Big Four's control of
the FTSE 350 audit market. It found that the high cost of switching auditor,
difficulty comparing alternative auditors, experience and reputational
barriers for mid-tier firms were stifling competition and damaging the
market.
In response to its findings, the Big Four audit
firms - PwC, Ernst & Young, KPMG and Deloitte - have criticised the basis of
the watchdog's conclusions as "flawed", "unsound" and based on selective
evidence.
PwC raised "fundamental concerns" about the
commission's "flawed approach to the evidence, which shows serious failures
of due process in the evaluation of primary facts".
The Commission accused auditors of focusing on
satisfying management interests over those of shareholders - a conclusion
that PwC claims is "flawed by false certainty".
"The conclusion is based on an underlying
assumption that because financial directors (FDs) are influential in the
appointment of an auditor (where the Commission fails to give sufficient
weight to evidence concerning the role of the audit committee), audit firms
will act contrary to their duties to shareholders in order to satisfy the
FD," PwC said.
According to Ernst & Young, there is "no reasonable
basis" for the Commission's conclusion there are significant, persistent and
widespread concerns regarding the quality of audits delivered to FTSE 350.
Continued in article
Bob Jensen's threads on auditing professionalism and independence ---
http://www.trinity.edu/rjensen/Fraud001c.htm
Enterprise Resource Planning (ERP) ---
http://en.wikipedia.org/wiki/Enterprise_resource_planning
"Kentucky Moves 173 School Districts to Cloud-Based ERP," by Leila
Meyer, T.H.E. Journal, April 4, 2013 ---
http://thejournal.com/articles/2013/04/04/kentucky-moves-173-school-districts-to-cloud-based-erp.aspx?=THENU
Bob Jensen's threads on Tools and Tricks of the Trade ---
http://www.trinity.edu/rjensen/000aaa/thetools.htm
"When Can I Rollover My 401(k) Retirement Plan?,"
by Laura Adams, Money Girl, April 24, 2013 ---
https://mail.google.com/mail/u/0/?shva=1#inbox/13e42c96e585c939
My employer discontinued our 401(k) plan. Do I have
to wait until I leave the company to roll it over into a Roth IRA or can I
do it now?
A. In general, you can't take money out of a 401(k)
until one of the following situations occurs:
- You reach age 59½ You have a financial
hardship
- You die or become disabled
- You are terminated from employment
- The plan terminates and no successive
retirement plan is established by your employer
So, if your employer doesn't intend to replace your
401(k) with another qualified retirement plan, then you're allowed to do a
rollover while you're still employed. But you can't move pre-tax 401(k)
funds directly into an after-tax Roth IRA.
"6 Retirement Accounts You Should Know
About (Part2)," by Laura Adams, Money Girl, April 23, 2013, Episode
311 ---
http://moneygirl.quickanddirtytips.com/retirement-plan-types-pt2.aspx
Frontline broadcast on "The Retirement
Gamble," April 23, 2013 ---
http://www.pbs.org/wgbh/pages/frontline/retirement-gamble/
For details see
http://www.pbs.org/wgbh/pages/frontline/business-economy-financial-crisis/retirement-gamble/the-retirement-gamble-facing-us-all/
If you’ve been watching any commercial television
lately, you are well aware that the financial services industry is very busy
running expensive ads imploring us to worry about our retirement futures.
Open a new account today, they say.
They are not wrong that we should be doing
something: America is facing a retirement crisis. One in three Americans has
no retirement savings at all. One in two reports that they can’t save
enough. On top of that, we are living longer, and health care costs, as we
all know, are increasing.
But, as I found when investigating the retirement
planning and mutual funds industries in The Retirement Gamble, which airs
tonight on FRONTLINE, those advertisements are imploring us to start saving
for one simple reason. Retirement is big business — and very profitable. It
doesn’t take a genius to figure out that the more we save into the
industry’s financial products, the more money they make in fees and
commissions trading our hard-earned cash. And as long as they don’t run away
with our money or invest it in a Ponzi scheme, they have little in the way
of accountability to us when something goes wrong. And even then it can be
hard to fight back.
Big banks, brokerages, insurance companies and
other financial service providers operate under something called a
suitability standard — which says they don’t have to give you the best
advice, just advice that isn’t too egregiously terrible.
Let’s say you sit down with an adviser at your
brokerage or bank and ask for some advice on how you should allocate your
retirement savings, or which funds you might want to choose for your IRA.
You’ll get lots of advice, but chances are it won’t
be worth much. Eighty five percent of all financial advisers and financial
planners are really just brokers or salesman. Their incentive is to sell you
a product that makes them a higher commission, not necessarily a product
that maximizes your chances of saving more. Only 15 percent of advisers are
“fiduciaries” — advisers who by law must operate with your best interests in
mind.
Last year, the Obama administration proposed a rule
to mandate that all financial advisers, financial planners and other
assorted financial wizards would have to adopt a fiduciary standard when it
came to employee retirement accounts such as your 401(k) or IRA account. The
financial services industry, which today manages something upwards of $10
trillion of our retirement nest eggs, thought this was a bad idea and pushed
back hard. Scores of their protest letters poured into the U.S. Labor
Department, the branch of our government responsible for regulating employee
retirement accounts.
Congress, too, was hit with a furious lobbying
campaign. This would be way too expensive, the industry said; if we have to
provide such a standard of service, we will either have to pack up and find
another business line, or have to pass the increased costs on to our
customers. The Obama administration pulled their proposal last fall.
How would a new fiduciary rule change things?
Chances are you would be sold less expensive products, not only in your IRA
accounts but inside your company 401(k) as well. It’s all about fees. While
reporting on retirement plans for FRONTLINE, nothing has been more
surprising to me than the corrosive effect of fees on our retirement
savings.
It’s this simple: Fund fees can erode as much as
half or more of your prospective gains.
For the sake of dramatizing the point, John Bogle,
founder of Vanguard, the world’s largest mutual fund company and pioneer of
low-cost index funds, gave me a startling example while we were filming.
Assume you are invested in a mutual fund, he says, with a gross return of 7
percent, but that the mutual fund charges you an annual fee of 2 percent.
Over a 50-year investing lifetime, that little 2
percent fee will erode 63 percent of what you would have had. As Bogle puts
it, “the tyranny of compounding costs” is overwhelming.
In short, fees matter. So what can you do? You
aren’t going to find a fund that invests your money for free, but experts
say you can come close by buying index funds. Their fees can be a tenth of
what the average mutual funds charges. And over time, in bull and bear
markets, on average, index funds perform better than their more expensive
actively managed fund cousins. This is no secret to anyone who is paying
attention.
So why aren’t our trusted financial advisers and
those ads telling us to buy index funds? Why do some 401(k) plans not even
offer them on their menus?
It’s because even though an index fund might be a
better option for you and me, a broker operating under a suitability
standard has no incentive to sell it to us. He or she will make higher
commissions from options that have higher fees.
Sadly, a recent AARP study reported that 70 percent
of mutual fund savers were not even aware that they were paying any fees at
all.
Continued in article
Dan Stone's summary of the above Frontline
show:
Enjoyed it though didn't
find much new here. Basic messages:
1. index funds are cheaper and, in the long run, preferred (Jack Bogle)
2. managed funds are a scam to generate fees for the mutual fund industry
(which some would certainly debate)
3. most Americans don't have enough for retirement
4. mutual funds make it hard to determine their fees
5. the financial services industry, through massive donations, prevents any
attempts to increase transparency in the financial services industry.
I've bought Pound Foolish, after hearing an interview with its author, but
haven't
started reading it yet
(http://www.amazon.com/Pound-Foolish-Exposing-
Personal-Industry/dp/1591844894)
Dan Stone
Bob Jensen's personal finance helpers
(but not his advice which is free and not worth the money) ---
http://www.trinity.edu/rjensen/Bookbob1.htm#InvestmentHelpers
Remember that my financial advice is free and probably not
worth the money. After selling the family farm in Iowa and my home in San
Antonio, most of my liquid savings are invested in an enormous Vanguard
Long-Term "Guaranteed" Tax Exempt Fund.
"Apocalypse, Not Now, for Municipal Bonds," by Randall W. Forsyth, Barron's,
April 23, 2013 ---
http://online.barrons.com/article/SB50001424052748703889404578438641361922074.html?mod=BOL_da_udwsd#articleTabs_article%3D0
$573.2 million in Munis defaulted in 2013 (0.6% of the $3.7 trillion
outstanding) .
My investment returns were very satisfactory and stable throughout the economic
crisis that sent stocks soaring.
At my age I care more about steady annual tax-exempt cash flows rather than
valuation ups and downs and hyper inflation risk.
When I need cash for something big like a new tractor I simply write a Vanguard
check. I love the liquidity of this fund.
Fortunately, however, my TIAA lifetime annuities cover virtually all of our
living expenses, including payments on a large mortgage.
I could write a Vanguard check to pay off the mortgage, but there are tax
advantages of not doing so unless unlikely tax reform clobbers tax exempt
interest income.
"Here's Why So Many Wealthy Athletes Wind Up Broke," by Claes Bell,
Business Insider, April 23, 2013 ---
http://www.businessinsider.com/4-money-lessons-from-broke-athletes-2013-4
. . .
Whether you're making $50,000 a year or $5 million,
poor tax planning, overspending and other common errors can trash your
finances, Dawson says. Here are four common money mistakes that typically
land athletes in trouble, and how you can avoid them.
Continued in article (Slide Show)
Before wasting money for investment advice, take advantage of free services
---
http://www.trinity.edu/rjensen/Bookbob1.htm#InvestmentHelpers
And don't end up an prison like Wesley Snipes who gambled with the IRS and lost.
Also carefully study the following:
Frontline broadcast on "The Retirement Gamble," April 23, 2013 ---
http://www.pbs.org/wgbh/pages/frontline/retirement-gamble/
For details see
http://www.pbs.org/wgbh/pages/frontline/business-economy-financial-crisis/retirement-gamble/the-retirement-gamble-facing-us
"Innovative Performance Metric or Marketing Spin?" by Anthony H.
Catanach Jr., Grumpy Old Accountants Blog, April 26, 2013 ---
http://grumpyoldaccountants.com/blog/2013/4/26/innovative-performance-metric-or-marketing-spin
Recently, two
Wall Street Journal (WSJ) articles caught my attention with
their reports of innovations in performance measurement.
Given the significant role that accounting and financial
reporting plays in evaluating performance, I just couldn’t
resist digging deeper into these claims. The result:
disappointment! There’s not even any creative accounting to
excite me. There is little new here for those of us versed
in traditional financial analysis…just some blatant
marketing spin.
The first piece titled
“Have
Investors Finally Cracked the Stock Picking Code?”
suggests that the “holy grail” for stock-picking may have
been found. What is it? Well, it’s simply a twist on two
very familiar ratios: gross profit percentage and return on
assets. The new measure is called “gross profitability” and
is touted as a measure of “quality.” The metric is nothing
more than a Company’s reported gross profit divided by total
assets. What does it do? Well, when used in conjunction
with other more traditional metrics (i.e., price to book),
it purportedly identifies companies with high future growth
potential. And here is what the researcher who came up with
this innovative metric concludes:
Continued in article
Jensen Comment
I think Warren Buffett has shown us time and time again that picking winners is
not so simple as this ---
http://en.wikipedia.org/wiki/Warren_Buffett
After all the years in which he wrote about California's high taxes of all
sorts, the TaxProf, Paul Caron, is moving from Ohio to California. This just
shows that if the total compensation package plus other factors are in place,
taxes alone do not trump those other factors ---
http://taxprof.typepad.com/
From the TaxProf Blog on April 24m 2013
Paul Caron Leaves Cincinnati for Pepperdine
After 23 years at the
University of
Cincinnati College of Law and the past four Spring semesters at
Pepperdine University
School of Law, I have accepted an offer to join
Pepperdine's tenured faculty beginning in the Fall 2013 semester.
My wife and I loved
our time in Cincinnati, as we launched our careers, raised our children, and
found our faith
there. We will be forever grateful that the University of Cincinnati College
of Law and the United States District Court for the Southern District of
Ohio took a chance on us 23 years ago.
Continued in article
Jensen Comment
Among other things, the campus of Pepperdine University is one of the most
beautiful settings in the world.
I visit Paul's blog daily. He writes a lot about the troubles of law schools
these days.
Big Blue is Blue
From the CFO.com Morning Ledger on April 25, 2013
IBM chief delivers rebuke to employees. IBM CEO Virginia Rometty delivered
a companywide reprimand via an internal video, saying the company needed to
move faster and respond more quickly to customers, reports the WSJ’s
Spencer E. Ante. “Where we haven’t
transformed rapidly enough, we struggled,” Ms. Rometty said in the video.
“We have to step up with that and deal with that, and that is on all
levels.” In another sign of fallout from the last week’s poor earnings, IBM
reassigned one of its most senior executives—the head of the company’s
computer hardware business—following a sharp drop in first-quarter sales at
the unit.
From the CFO.com Morning Ledger on April 3, 2013
Iowa state auditor to head GASB
Iowa’s state
auditor has been named the new chairman of the Governmental Accounting
Standards Board — the panel that sets accounting rules for state and local
governments. David A. Vaudt has been Iowa’s elected auditor since 2003.
Before that, he worked in KPMG’s Des Moines office for 25 years, including
13 years as a partner, the WSJ notes.
Bob Jensen's threads on the sad state of governmental accounting and
accountability ---
http://www.trinity.edu/rjensen/Theory02.htm#GovernmentalAccounting
From the CFO.com Morning Ledger on April 3, 2013
It’s
OK to tweet corporate disclosures. The SEC says that postings on
Facebook and
Twitter are just
as good as news releases and company websites — as long as the companies
have told investors which outlets they intend to use,
the WSJ reports. “You
won’t want to have a situation where access is restricted or where
shareholders don’t know that’s where they are supposed to go to get the
latest news,” said David Martin, a partner at Covington & Burling.
The
SEC decision was
prompted by Netflix
CEO Reed Hastings’s Facebook disclosure last summer, where he bragged that
the streaming-video company had topped one billion hours in a month for the
first time. That post sent the company’s shares soaring – and earned Mr.
Hastings and the company a Wells Notice.
The
SEC’s decision opens the door for all companies to get more social in their
disclosure practices, and it will likely help smaller companies who can’t
afford to issue scads of releases over wire services. But the biggest
immediate beneficiaries are Mr. Hastings and Netflix, says Monique Skruzny,
a partner with MBS Value Partners, an investor relations and consulting
firm. Even so, “it’s a very positive move,” she tells CFOJ. Ms. Skruzny’s
firm and others will need time to review the use of social media for
disclosure, and there will always be information that can’t or won’t be
disclosed on sites like Twitter. And for those who followed the saga of
former Francesca’s CFO Gene Morphis,
it may never be a good idea to tweet about your company.
"Should the SEC Permit Social Media Postings of Financial Information?"
by Accounting Professor Steven Mintz, Ethics Sage, April 15, 2013 ---
http://www.ethicssage.com/2013/04/should-the-sec-permit-social-media-postings-of-financial-information.html
From CFO.com Morning Ledger on April 11, 2013
President Obama is pushing to revamp the tax code as part of the budget
proposal he rolled out yesterday. The overall plan aims to curb the growth
of Social Security and Medicare and calls for about $1 trillion in tax
increases over 10 years, along with higher spending on programs like
education and transportation,
the WSJ notes. But it
also takes aim at the corporate tax burden. For the first time, the
president proposes segregating a set of revenue-raising provisions that
could be used to lower the corporate tax rate,
writes the Journal’s John D. McKinnon.
The provisions,
which Bloomberg says
would be funded largely with tax increases on U.S. companies' foreign
earnings, would generate about $100 billion over 10 years, enough to lower
the corporate rate by about one percentage point — not the seven points
sought by Obama or the 10 favored by House Republicans.
“This is a significant movement in the way they’re framing it,” said Drew
Lyon, an economist in the tax-policy group at PricewaterhouseCoopers. “It
really allows a discussion on corporate reform to move forward.” Still,
Republican leaders and business groups like the
U.S. Chamber of Commerce
and the Business Roundtable panned the plan, especially the proposed tax
hikes.
Getting any of this through Congress will be an uphill battle. A senior
administration official told McKinnon that an overhaul of the corporate tax
code is hard to do without considering the individual income tax code, and
an overhaul of the individual tax code is tough to contemplate except as
part of a broader deficit deal. But the president dug in his heels on
further compromise on his part, warning that the budget represents his
bottom-line offer. Any deal, he said, must not only replace the sequester
cuts, but also raise revenue from “the wealthiest individuals and biggest
corporations,”
the Washington Post notes.
The Treasury Department released the 256-page Green Book ---
http://www.treasury.gov/resource-center/tax-policy/Documents/General-Explanations-FY2014.pdf
Thank you Paul Caron for the summary
President's 2013 Proposed Budget:
- Reduce the value of certain tax expenditures to 28% for the top
three tax brackets ($529.3 billion tax increase over 10 years)
- Reform the U.S. international tax system ($157.4 billion tax
increase)
- Replace the current Consumer Price Index (CPI) with the chained CPI
for indexed tax provisions. ($100.0 billion tax increase)
- Repeal the Last-in, First-out (LIFO) accounting method ($80.0
billion tax increase)
- Increase tobacco taxes and index them to inflation ($78.1 billion
tax increase)
- Raise the estate tax rate to 45% and reduce the exclusion to $3.5
million ($71.7 billion tax increase)
- Enact a financial crisis responsibility fee ($59.3 billion)
- Enact a "Buffet Rule" 30% minimum tax on individuals with AGI above
$500,000 ($53.4 billion tax increase)
- Expand the Federal Unemployment Tax Act base ($51.5 billion tax
increase)
- Implement a program integrity statutory cap adjustment for tax
administration ($46.5 billion tax increase)
- Repeal oil & gas tax preferences ($40.7 billion tax increase)
- Mark-to-market financial derivatives ($18.9 billion tax increase)
- Tax carried interest as ordinary income ($15.1 billion tax increase)
- Enact life insurance tax increases ($11.6 billion tax increase)
- Index all tax renalties to inflation ($10.8 billion tax increase)
- Impose $3 million cap on retirement accounts ($9.3 billion tax
increase)
- Reclassify more workers as employees rather than as independent
contracts ($9.1 billion tax increase)
- Make the R&D Tax Credit permanent ($99.4 billion tax cut)
- Permanently extend the American Opportunity Tax Credit ($92.4
billion tax cut)
- Extend increased expensing for small businesses ($68.7 billion tax
cut)
- Permanently extend increased refundability of the child tax credit
($51.5 billion tax cut)
- Enact temporary 10% small business tax cut for new jobs/wage
increases ($25.8 billion tax cut)
- Enact green energy tax incentives ($23.7 billion tax cut)
- Permanently extend the Earned Income Tax Credit expansion ($17.8
billion tax cut)
- Enact automatic enrolling in IRAs ($17.6 billion tax cut)
- Enact incentives for investment in infrastructure ($17.4 billion tax
cut)
Jensen Comment
Instead of going down and dirty back room dealings with Congress, President
Obama tends fly back and forth across the nation with his teleprompter. This
might work for some gun control legislation that voters understand. It won't
work for tax reforms that are too complicated to explain to most voters.
Remember that among the 62 million voters who voted President Obama back into
office in 2012 ware 48 million food stamp recipients who probably do not have a
clue about corporate taxation.
"Should the SEC Permit Social Media Postings of Financial Information?"
by Accounting Professor Steven Mintz, Ethics Sage, April 15, 2013 ---
http://www.ethicssage.com/2013/04/should-the-sec-permit-social-media-postings-of-financial-information.html
From CFO.com Morning Ledger on April 11, 2013
Why you should stop using ROI
Companies that aim to maximize their ROI tend to under-invest,
under-innovate and leave value on the table,
writes Bennett Stewart,
CEO of EVA Dimensions, in this guest column. To maximize ROI, managers will
size projects to just where the forecast return peaks when they should
continue expanding the planned scale so long as the
incremental return exceeds the cost of
the incremental capital. Instead, CFOs should focus on their firms’ profit
less a capital charge, or economic value added. ROI brings capital into the
management equation by division, and EVA by subtraction – by turning the
balance sheet into a charge to profit, just like any other operating cost.
EVA is additive where ROI is not. Add a good enough investment to a great
business and EVA is greater still. Add a low margin business to a strong
one, and EVA increases so long as the cost of capital is covered.
evaDimensions ---
http://www.evadimensions.com/
Bob Jensen's threads on ROI are at
http://www.trinity.edu/rjensen/roi.htm
Made in the USA: Renaissance in US Manufacturing (But Not Jobs So
Much)
From the Barry Ritholtz Blog on April 12, 2013
http://www.ritholtz.com/blog/2013/04/manufacturing-returns-to-usa/
Fascinating cover story in Time magazine about the
renaissance in US Manufacturing.
What is so interesting about this is while new
businesses are being created, the amount and kinds of jobs that go with this
are very different than what the manufacturing sector produced in the past.
Some takeaways from the article:
• Post-recession, U.S. manufacturing growth is
outpacing other advanced nations;
• 500,000 manufacturing jobs created in the USA
over the past three years;
• U.S. factories access to cheap energy, (oil
and gas from the shale boom) means cheaper costs versus
expensive overseas Oil and costly shipping prices.
• Energy- and resource-intensive industries
(chemicals, wood products, heavy machinery and appliances) do better,
powered by that cheaper homegrown energy.
• New made-in-America economics is centered
largely on cutting-edge technologies (3D printing, specialized metals,
robotics and bioengineering);
• New US factories are “superautomated”
and heavily roboticized;
• Employees typically are required to have
computer skills and specialized training; Minimum of two-year tech
degree, which is likely to rise to four-year degree (eventually);
More machines and fewer workers is the future of
manufacturing in the USA. But looking only at factories misses some of the
new jobs that are related to these industries. Many of the jobs created are
outside the factory floors — R&D, support services, software engineers, data
scientists, user-experience designers, transportation & shipping, etc.
Perhaps this helps to explain why every $1 of
manufacturing activity returns $1.48 to the economy.
Here is an excerpt:
“Today’s U.S. factories aren’t the noisy places
where your grandfather knocked in four bolts a minute for eight hours a
day. Dungarees and lunch pails are out; computer skills and specialized
training are in, since the new made-in-America economics is centered
largely on cutting-edge technologies. The trick for U.S. companies is to
develop new manufacturing techniques ahead of global competitors and
then use them to produce goods more efficiently on superautomated
factory floors. These factories of the future have more machines and
fewer workers—and those workers must be able to master the machines.
Many new manufacturing jobs require at least a two-year tech degree to
complement artisan skills such as welding and milling. The bar will only
get higher. Some experts believe it won’t be too long before employers
expect a four-year degree—a job qualification that will eventually be
required in many other places around the world too.
Understanding this new look is critical if the
U.S. wants to nurture manufacturing and grow jobs. There are
implications for educators (who must ensure that future workers have the
right skills) as well as policymakers (who may have to set new
educational standards). “Manufacturing is coming back, but it’s evolving
into a very different type of animal than the one most people recognize
today,” says James Manyika, a director at McKinsey Global Institute who
specializes in global high tech. “We’re going to see new jobs, but
nowhere near the number some people expect, especially in the short
term.”
If the U.S. can get this right, though, the
payoff will be tremendous. Labor statistics actually shortchange the
importance of manufacturing because they mainly count jobs inside
factories, and related positions in, say, Ford’s marketing department or
at small businesses doing industrial design or creating software for big
exporters don’t get tallied. Yet those jobs wouldn’t exist but for the
big factories. The official figure for U.S. manufacturing employment,
9%, belies the importance of the sector for the overall economy.
Manufacturing represents a whopping 67% of private-sector R&D spending
as well as 30% of the country’s productivity growth. Every $1 of
manufacturing activity returns $1.48 to the economy. “The ability to
make things is fundamental to the ability to innovate things over the
long term,” says Willy Shih, a Harvard Business School professor and
co-author of Producing Prosperity: Why America Needs a Manufacturing
Renaissance. “When you give up making products, you lose a lot of the
added value.” In other words, what you make makes you.”
The full article is well worth your time to read . . . ---
Source:
Made in the USA ---
http://www.time.com/time/magazine/article/0,9171,2140793,00.html
Rana Foroohar and Bill Saporito
Time, April 2013
http://business.time.com/2013/04/11/how-made-in-the-usa-is-making-a-comeback/
Sometime soon we may reduce Direct Labor Cost to a footnote in cost
accounting textbooks
"Baxter: The Blue-Collar Robot: Rethink Robotics’ new creation is easy to
interact with, but the innovations behind the robot show just how hard it is to
get along with people," by Will Knight, MIT's Technology Review, April
23, 2013 ---
Click Here
http://www.technologyreview.com/featuredstory/513746/baxter-the-blue-collar-robot/?utm_campaign=newsletters&utm_source=newsletter-daily-all&utm_medium=email&utm_content=20130425
Robotics Displacing Labor Even in Higher Education
"The New Industrial Revolution," by Jeffrey R. Young, Chronicle of Higher
Education's Chronicle Review, March 25, 2013 ---
http://chronicle.com/article/The-New-Industrial-Revolution/138015/?cid=cr&utm_source=cr&utm_medium=en
"Rethink Robotics invented a $22,000 humanoid (i.e. trainable) robot that
competes with low-wage workers," by Antonio Regalado, MIT's Technology
Review, January 16, 2013 ---
Click Here
http://www.technologyreview.com/news/509296/small-factories-give-baxter-the-robot-a-cautious-once-over/?utm_campaign=newsletters&utm_source=newsletter-daily-all&utm_medium=email&utm_content=20130116
"Rise of the Robots," by Paul Krugman, The New York Times,
December 8, 2012 ---
http://krugman.blogs.nytimes.com/2012/12/08/rise-of-the-robots/
¶Catherine Rampell and Nick Wingfield write
about the
growing evidence for “reshoring” of manufacturing
to the United States. They cite several reasons: rising wages in Asia; lower
energy costs here; higher transportation costs. In a
followup piece, however, Rampell cites another
factor: robots.
¶The most valuable part of each
computer, a motherboard loaded with microprocessors and memory, is
already largely made with robots, according to my colleague Quentin
Hardy. People do things like fitting in batteries and snapping on
screens.
¶As more
robots are built, largely by other robots, “assembly can be done here as
well as anywhere else,” said Rob Enderle, an analyst based in San Jose,
Calif., who has been following the computer electronics industry for a
quarter-century. “That will replace most of the workers, though you will
need a few people to manage the robots.”
¶Robots mean that labor costs don’t
matter much, so you might as well locate in advanced countries with
large markets and good infrastructure (which may soon not include us, but
that’s another issue). On the other hand, it’s not good news for workers!
¶This is an
old concern in economics; it’s “capital-biased technological change”, which
tends to shift the distribution of income away from workers to the owners of
capital.
¶Twenty years
ago, when I was writing about globalization and inequality, capital bias
didn’t look like a big issue; the major changes in income distribution had
been among workers (when you include hedge fund managers and CEOs among the
workers), rather than between labor and capital. So the academic literature
focused almost exclusively on “skill bias”, supposedly explaining the rising
college premium.
¶But
the college premium hasn’t risen for a while.
What has happened, on the other hand, is a notable shift in income away from
labor:.
"Harley Goes Lean to Build Hogs," by James R. Hagerty, The Wall
Street Journal, September 22, 2012 ---
http://professional.wsj.com/article/SB10000872396390443720204578004164199848452.html?mod=djem_jiewr_AC_domainid&mg=reno64-wsj
If the global economy slips into a deep slump,
American manufacturers including motorcycle maker Harley-Davidson Inc. that
have embraced flexible production face less risk of veering into a ditch.
Until recently, the company's sprawling factory
here had a lack of automation that made it an industrial museum. Now,
production that once was scattered among 41 buildings is consolidated into
one brightly lighted facility where robots do more heavy lifting. The number
of hourly workers, about 1,000, is half the level of three years ago and
more than 100 of those workers are "casual" employees who come and go as
needed.
All the jobs are not going to Asia, They're going to Hal ---
http://en.wikipedia.org/wiki/2001_Space_Oddessey
"When Machines Do Your Job: Researcher Andrew McAfee says advances in
computing and artificial intelligence could create a more unequal society,"
by Antonio Regalado, MIT's Technology Review, July 11, 2012 ---
http://www.technologyreview.com/news/428429/when-machines-do-your-job/
"Raytheon's Missiles Are Now Made by Robots," by Ashlee Vance,
Bloomberg Business Week, December 11, 2012 ---
http://www.businessweek.com/articles/2012-12-11/raytheons-missiles-now-made-by-robots
A World Without Work," by Dana Rousmaniere, Harvard Business Review
Blog, January 27, 2013 ---
Click Here
http://blogs.hbr.org/morning-advantage/2013/01/morning-advantage-a-world-with.html?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date
Walter E. Williams ---
http://en.wikipedia.org/wiki/Walter_E._Williams
"Black Unemployment," by Walter E. Williams, Townhall, April
10, 2013 ---
http://townhall.com/columnists/walterewilliams/2013/04/10/black-unemployment-n1561096?utm_source=thdaily&utm_medium=email&utm_campaign=nl
Question
What tax breaks are the most valuable to USA corporations?
Answer
From the GAO as reported by TaxProf (Paul Caron) on April 16, 2013 ---
http://taxprof.typepad.com/

Sadly, the FASB loves (sort of in 4-3 voting) that controversial
dual-recognition model for lease accounting
"FASB lease proposal moves forward despite dissenting views," by Ken
Tysiac, Journal of Accountancy, April 10, 2013 ---
http://journalofaccountancy.com/News/20137752.htm
Jensen Comment
This is disappointing since I think many, many operating lease contracts will
simply be rewritten to circumvent the new standard:
A Dual Model for Lease Accounting:
Redrawing the Lines Into a Brick Wall of Forecasted Lease Renewal
Controversy
http://www.cs.trinity.edu/~rjensen/temp/LeaseAccounting.htm
Bob Jensen's threads on lease accounting ---
http://www.trinity.edu/rjensen/Theory02.htm#Leases
In
"Fighting Fraud," a new video created by the Center for Audit Quality (CAQ),
external auditor Ledger Lines asks, "What makes an honest Joe become a
fraudster?"
Conditions may exist that lead Joe to commit financial reporting fraud,
but as the video demonstrates, there are ways to mitigate those
conditions and lower the risk of financial reporting fraud. In the new
video, the members of the System of Investor Protection - Ledger Audit
Committee Chair Indy Pendent, CFO Lotta Charts, Internal Auditor Ida
Figures, and Regulator Johnny Law - are back to show how they contribute
to the effort. "Fighting Fraud" is the fourth episode in the CAQ's
series of videos designed to inform investors and the general public
about the people, laws, and requirements that make sure the financial
reporting process protects investors' interests.
"Financial reporting fraud has a profound
negative impact on investors' confidence in public companies and the
capital markets," said CAQ Executive Director Cindy Fornelli. "The CAQ's
new video explains how members of the system of investor protection work
to mitigate the conditions that can lead to fraud and protect investors
by working to ensure the integrity of financial information released by
public companies."
The video explains the responsibilities
of audit committee members, financial executives, internal auditors, and
external auditors to lower the risk of financial reporting fraud. Lotta
Charts helps set a strong and ethical tone at the top of the company.
Ledger Lines must exercise professional skepticism when assessing audit
evidence. Indy Pendent oversees the financial reporting process and
makes sure that whistleblower reports on financial reporting fraud are
carefully evaluated. Ida Figures assesses the company's fraud risk
management and testing controls to see if they work as intended.
"Fighting Fraud" follows previous
episodes in the video series, including "The System of Investor
Protection," "The Financial Statement Audit," and "The Audit Committee."
All four videos are available free of charge on
CAQForInvestors.org. They also are available
on the CAQ's YouTube channel as well as on Facebook and Twitter.
The new video also is an important
contribution to financial reporting fraud deterrence and detection
resources and can be accessed on
www.AntiFraudCollaboration.com, the website
for the CAQ's collaboration with the National Association of Corporate
Directors, The Institute of Internal Auditors, and Financial Executives
International.
Source: Center for Audit Quality
Bob Jensen's Fraud Updates are at
http://www.trinity.edu/rjensen/FraudUpdates.htm
Remember those tiresome and frequent adds on television from "The Scooter
Store"
"Scooter Store Files For Bankruptcy After Overbilling Medicare At Least
$47 Million," by Laura Northrup, Consumerist, April 15, 2013 ---
http://consumerist.com/2013/04/15/scooter-store-files-for-bankruptcy-after-fbi-raid-and-medicare-fraud-allegations/
If you watch daytime TV or have been stuck watching
daytime TV while visiting your parents, surely you’re familiar with The
Scooter Store. The power wheelchair vendor has had some trouble lately,
including accusations of Medicare and Medicaid fraud, a raid by the FBI, and
even a lawsuit from the company’s hometown, of New Braunfels, Texas. The
company laid off most of its employees, and plans to deal directly with
health care providers, rather than blanketing the airwaves and selling
directly to consumers.
Those investigations came after a
a scathing investigative piece by CBS News about the company.
(Warning: the video at that link plays automatically.) Former salesmen and
doctors who prescribed chairs in the past explained the company’s tactics:
contact doctors’ offices incessantly to wear them down and convince them to
prescribe scooters and power chairs whether the patient really needed one or
not, and to depend on bureaucratic incompetence and error to get them
approved by Medicare and Medicaid.
That got the attention of the federal government,
and led to a raid by the Federal Bureau of Investigation. The company’s CEO
insists that The Scooter Store itself wasn’t accused of fraud. Just
a few weeks later, the company
furloughed all employees, then permanently laid off about 1,000.
An independent audit found that the company had
overbilled Medicare and Medicaid somewhere between $46.8 million and $87.7
million. The company had agreed to pay back $19.5 million. The Centers for
Medicare and Medicaid Services is one of the largest creditors listed in the
company’s bankruptcy petition, which details about $50 million in debt.
Just a few short years ago, in 2009, the city of
New Braunfels gave the Scooter Store economic development money to convert a
former Kroger store into their sparkling new headquarters. On Friday,
the city filed a lawsuit to to get $2.6 million of that money back.
Continued in article
Jensen Comment
Milking Medicare and Medicaid seems to be the rule rather than the exception.
Bob Jensen's Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
Tell Me It Isn't So!
"Enron's Jeff Skilling Could Get Early Release From Prison," CNBC, April
4, 2013 ---
http://www.cnbc.com/id/100615931
Bob Jensen's threads on the Enron and WorldCom frauds ---
http://www.trinity.edu/rjensen/FraudEnron.htm
Joe Hoyle has a question for you?
"I HAVE A QUESTION FOR YOU," by Joe Hoyle, Teaching Blog, April 27,
2013 ---
http://joehoyle-teaching.blogspot.com/2013/04/i-have-question-for-you.html
Jensen Comment
I would never ask such a question about the entries in my three blogs, because
faithful followers would have to sift through over 50,000 postings in my three
blogs that are also posted in various places in my massive Website. Joe has only
166 postings to sift through which is a much more manageable task. But sifting
through my postings for likes and dislikes is out of the question even for me
---
http://www.trinity.edu/rjensen/threads.htm
This is not to imply that my stuff has been better or worse than that of my good
friend Joe. It's simply a fact that I'm a more active blogger and Web site
manager.
I also have over 31,000 postings to the AECM and nearly 18,000 postings and
comments on the AAA Commons. Obviously searching for "favorites" is out of the
question. My postings have covered the waterfront for education technology to
learning theory to nearly all accounting topics.
I do have some early-on postings that I'm very proud of in the early stages
of my blog. I was one of the early writers who tried to dispel the myth that
online courses needed to be less interactive and intense with individual
students. When done "optimally" the communications between a student and an
instructor and other students in an online course are more intense than any
onsite course. Of course, online courses are not always conducted with such
intensity just as onsite courses vary to a tremendous extent in terms of
interactions of students and instructors.
But when it comes down to identify the real game changers arising from my
postings I can hardly take credit for most of the game changers since in most
of my postings I'm mostly referencing and quoting articles. I have to give
others most of the credit for seminal ideas. In most ways I'm more of a scout
for new inventions than an inventor. I like to think I've been a pretty good
scout.
What I enjoy most are the debates with such writers as Tom Selling, Stever
Kachelmeier, Richard Sansing, Paul Williams, Patricia Walters, and many, many
others. I've learned immensely from these scholars and hope I returned something
of value to them.
Although I'm a bit more active as a blogger after my retirement from teaching
in 2006, I want to stress that I was nearly as active since the late 1980s when
commenced to blog more and more and then more and more. My point is that
bloggers need not be retired just to make blogging contributions just like Joe
Hoyle is not yet retired and makes many valuable contributions to our craft.
Reply from Joe Hoyle on April 28, 2013
I bet you'd be surprised -- if you simply asked the
question "what have I ever said that you immediately remember," you'd get a
lot of interesting comments. People's memory serves as a pretty good filter.
Almost invariably when people write to me, they start off with "you once
said the following and it has stuck with me." And, it is often something
that wasn't all that important to me. But it clearly meant something to
them. I find that interesting with my students also -- years after they
graduate, they will tell me something that I said to them that impacted
their life and I won't even remember having said it.
That's one of the things that makes this teaching
job so interesting.
Joe
April 29, 2013 reply from Bob Jensen
Hi Joe,
Our styles tend to be different and are probably
not comparable. Your blog is more like a personal diary that discusses your
own feelings and beliefs and philosophy.
My postings are full of commentaries on what other
scholars and researchers have written. My style is more like a journal
referee commenting on an article at hand --- pointing out the good and the
bad aspects of the article.
You also focus mostly on your personal teaching
experiences. I cover more of the ball park --- fraud updates, audit
professionalism, communications from standard setters, education technology
(bright and dark sides), tools and tricks of the trade, learning theory,
accounting theory, and on and on and on.
I think we both provide a service to our
professions Joe. We just have different styles and scope of coverage.
Keep up the good work Joe. I still wish you would
join the AECM even as a lurker.
Keep up the good work Joe,
Bob Jensen
By the way, my answer to Joe Hoyle's question about his posting that I
like best is
"How You Test Is How They Will Learn," by Joe Hoyle, Teaching Blog,
January 31, 2010 ---
http://joehoyle-teaching.blogspot.com/2010/01/how-you-test-is-how-they-will-learn.html
An example of a Website helper page that I take pride in is at
http://www.trinity.edu/rjensen/000aaa/thetools.htm
Bob Jensen's links to similar Website helper pages ---
http://www.trinity.edu/rjensen/threads.htm
My Outstanding Educator Award Speech ---
http://www.trinity.edu/rjensen/000aaa/AAAaward_files/AAAaward02.htm
"WHAT MAKES GREAT TEACHERS GREAT?" by Joe Hoyle, Teaching Blog, April
16, 2013 ---
http://joehoyle-teaching.blogspot.com/2013/04/what-makes-great-teachers-great.html
. . .
Great teachers seem to possess most of the
following qualities:
(1) Love of Their Subject. They love what they
teach. That love is obvious and contagious, often rubbing off on students.
Many of their students say, for example, “I really didn’t like history until
I took his class. Now I love it.”
(2) Vibrant. They are enthusiastic and energetic.
Their classes are vibrant and lively, usually punctuated with regular
give-and-take with students. Here the teaching process is a two-way street.
(3) Up-to-date. Great teachers have complete
command of their subject based on current scholarship, and they know how to
present it in organized and understandable ways. There are no yellowed or
dog- eared lecture notes in their classes. If they teach in technical
fields, they stay up-to-date with constantly changing technology.
(4) Creative. They are creative and help students
look at things from different perspectives. They challenge assumptions and
help students learn how to think analytically and critically, and to see
things in a different light. Virginia’s Standard of Learning testing
requirements stifle creative teaching in public schools, according to many
critics. A former high school principal, however, told me that the great
teachers he knows have adapted to the SOLs and still do a superb job in the
classroom.
(5) Demanding. Great teachers usually are not easy
teachers. They keep their students on their toes and do not pander to them.
Yet they attempt to bring out the best in their students without badgering
or humiliating them.
(6) Relevancy. They have the ability to make their
subject relevant so that students can see a connection to their own lives
and the world around them.
(7) Trust. Their credibility is unquestioned, and
they are trusted by their students, who sense that the teacher is honest,
forthright and fair.
Continued in article
Jensen Comment
I find that the above criteria can be repackaged in various ways. For example,
the KPMG Foundation has been striving now for over 25 years to provide
significant financial support to minorities in accounting doctoral programs and
has been doing a great job in a selected subset of accounting doctoral programs.
One of the main purpose is to provide minority role models.
I don't know quite how to define a great role model for teachers because
there are so many different types of great role models. Great role models all
seem to have a passion for teaching and sufficient expertise for the levels of
their courses.
What needs to be expanded by Joe is the fact that the "great teachers" are
not always a very popular teachers. Conversely, the "most popular" teachers are
not necessarily great teachers. Some teachers appear to be popular just because
they are almost certain to raise a student's grade point average. Sometimes
they've popular because they cover so little material and skip over the hard
stuff. Students love being entertained by humor, learning games such as Monopoly
or Jeopardy, etc.
Students like to be spoon fed and often give teachers high ratings simply
because these teachers make the textbook seem easy. A great teacher may instead
make the textbook seem superficial or lacking in modules that great teachers
think are vital to the course. Or a great teacher may critically evaluate a
textbook module to provide students with illustrations of critical thinking.
Somewhat neglected here is education versus teaching.
It is possible to be a great educator without necessarily being a great teacher.
These days I like to think of myself as an educator even though I no longer
teach. There are various ways of being a great educator. One way is by making
very current learning materials available and making them easy to find --- such
as on a Website. I would like to give more credit to professors have tremendous
open access Websites. I don't find many terrific Websites among accounting
educators and researchers.
Some educators are great because they provide the world with outstanding
textbooks, including those great end-of-chapter materials. In many instances
textbook writers are highly rewarded financially, but certainly not in all cases
--- especially in small market specialties.
Some great educators lead great teachers and help to bring the resources that
make programs great.
Some great educators challenge great teachers, great researchers, and other
educators. For example, some bloggers do a terrific job challenging recent
research journal articles and published teaching cases.
I think sometimes great educators inspire critical thinking
even though they themselves may not be considered great teachers under the
criteria listed by Joe in the above article.
Such educators are seldom happy with materials great teachers
think are tremendous.
Teacher to Teacher: Critical Thinking in the College Classroom ---
http://www.utexas.edu/academic/ctl/criticalthinking/accessible.php?section=1
Why Critical Thinking is so Hard to Teach ---
http://www.trinity.edu/rjensen/000aaa/thetools.htm#CriticalThinking
April 16, 2013 reply from Joe Hoyle
Hi Bob --
I have no idea why the blog won't accept your comments. And, I'm
disappointed because I'd love to have your thoughts. They would add to the
site. I'm actually not very blog savvy and on these free sites there are no
live human beings to ask questions of. I seem to remember when I first
started that I had to have a Google account in order to register comments. I
had a gmail email address and so that password worked but that is only a
vague recollection. I'm a person who very much operates on a "need to know"
basis.
I enjoyed your comments below. I think we need more
opinions out there on education. I'm also troubled that it is so difficult
to identify who "great teachers" really are. I can't remember if I have ever
written this on the blog but I often say it when I give live presentations:
student evaluations are one of the worst things to ever happen to college
education. And that is because, as you say, "great teacher" and favorite
teacher have become "intertwined concepts."
How do you determine greatness in teachers? Any way
that i can come up with another person could easily take apart. I have one
pet method. I don't know if you ever look at Rate My Professor.com. Okay,
for the most part it is a bunch of baloney. However, my theory is that the
best teachers are the ones who have the largest spread between "quality" and
"easiness." A 5 and a 5 is an extremely easy teacher who is popular and
funny and a 1 and a 1 is a tough teacher who isn't very clear. But a 5 and a
1 is doing something right - high quality and extreme toughness. Now, I will
warn you that I probably like that one measure because I do well on it.
Soooo, are we just drawn to evaluation techniques that put us in the best
possible light? That might be the one thing that is really true.
I suspect that the best way to evaluate great
teaching is to give students some type of course evaluation 3 years after
they graduate. They have a better perspective. But again, I'm sure someone
else can tell me why that is complete nonsense.
Thanks for congratulations on the innovation award.
You know the best part of that. They give me a 75 minute slot to talk to
people. Of course, as you might guess, it is on Wednesday at 2:00 when most
people have left or headed to Disney Land but that will still give me a
chance to meet some new people and make some new teaching friends. The only
real way to get better as a teacher is to have some thoughtful conversations
and I can always use more friends to talk with.
Keep up the good work. We need more folks like you.
Hope to see you in August -- grab me and we'll have a drink together and
figure out what great teaching really means.
Joe
April 17, 2013 reply from Bob Jensen
Hi Joe,
I probably go to RateMyProfessor.com more than any other accounting
professor --- mostly out of curiosity but sometimes with purpose. I'm often
seeking evidence about teachers who try to indoctrinate more than they
educate:
"Noam Chomsky Spells Out the Purpose of Education," by Josh Jones, Open
Culture, November 2012 ---
http://www.openculture.com/2012/11/noam_chomsky_spells_out_the_purpose_of_education.html
I never even look at the numerical scores on RMP because the sample
respondents are self selecting.
I find the subjective comments sometimes revealing about such things as
easiness, course requirements, mood swings, and bias.
I have great difficulty distinguishing between popularity versus teaching
greatness. Sometimes students praise things that do not make great teaching
in my opinion. Sometimes they criticize things that do not detract from
teaching greatness in my opinion.
When I was a department chair I had an intermediate teacher who was not
at all great in the classroom. But she spent 6-8 hours each day helping
students in her office. In this she excelled. So I consider her a great
teacher having passion, dedication, and respect from her students concerning
what they learned.
But 6-8 hours in the office does not make all teachers great. In some
cases students may grow angry over having to spend so much time outside the
classroom when great teachers would make better use of class time.
I'm actually a great fan of the BAM pedagogy that most students hate.
Students probably learn the most while hating their teachers the most ---
http://www.trinity.edu/rjensen/265wp.htm
I think the BAM teachers who can pull this off are probably the greatest
teachers and the most hated teachers in higher education --- keeping in mind
that students probably only have time for one BAM course per term.
There's no magic formula for teaching greatness and no single role model.
In any case keep up the good work Joe.
My one wish from you is that you would become more active on the AECM.
There is so much you could add to our debates.
Respectfully,
Bob Jensen
Does anybody out there have feedback regarding this in-home tutoring service
(includes accounting with pictures of the tutors)?
If I were to seek out tutoring I would first look at the many free tutorials
on almost any topic (including advanced topics like hedge accounting) on
YouTube. These vary in quality and do not push to learn like in-home tutors can
possibly push to learn.
It's a little like learning to play the piano. Sure there are tutorials on
YouTube for learning how to play the piano. However, an in-home piano teacher
may be more effective and more expensive.
VarsityTutors
Private In-Home Tutoring
April 15, 2013 message from Jennifer Thomas
Hi Robert,
My name is Jennifer Thomas, and I work for Varsity Tutors. We have
recently launched a powerful new academic resource: a comprehensive suite of
completely free practice tests, flashcards, and questions of the day for
standardized tests and academic subjects of all levels:
www.varsitytutors.com/practice-tests
We noticed that you offer assistance to your students in locating
resources to help them with courses and tests. Would you please consider
also adding our free practice test webpage to your list of resources?
If you would like any further information in order to consider listing
us, please let me know. Attached is an overview highlighting all the
features of our online testing tools. Again, our free practice test resource
can be found here:
www.varsitytutors.com/practice-tests.
Thank you very much for your time and I hope that you'll take advantage
of this great free resource!
Regards,
Jennifer Thomas
Question
Do accounting professors know more about inflation index calculations than the
voting public?
First note that in order to be deceptive the government took food and fuel
out of the inflation index so that price changes for retired people that buy
food and fuel are deceived by why their so-called Social Security adjustments
are much less than if food and fuel price changes were factored into their
inflation adjustments.
Here we go again with another round of deception.
"The Obama Price Index ," The Wall Street Journal, April
10, 2013 ---
http://online.wsj.com/article/SB10001424127887324695104578414891693238684.html?mod=djemEditorialPage_h
President Obama is said to be trying to lure
Republicans into another grand bargain by including a proposal in his 2014
budget that would slightly slow the growth of Social Security and other
federal benefits. But he's also telling the Democrats going bonkers about
slashing Social Security not to worry, the cuts aren't drastic and barely
noticeable.
It's the Schrödinger's cat of entitlement reform.
Both his political postures can't be true at once, and no points awarded for
guessing what the details reveal.
Mr. Obama is proposing that Congress replace the
conventional consumer price index with a more accurate measure of inflation
known as "chain-weighted CPI," or chain CPI. This alternative measure of
purchasing power takes into account how consumers change their buying habits
over time as prices change. When oranges cost more, for example, people buy
fewer oranges and eat more apples instead.
If such "substitution effects" don't sound like
much of a concession to Republicans or much for Democrats to get mad about,
well, chain CPI is one of those Beltway specials—a proposal everyone can
support because it gouges both sides.
Over the last decade or so, chain CPI has grown
about a quarter of a percentage point slower than the normal index. Plugging
the new measure into the Social Security formula means that the program's
cost of living adjustments wouldn't increase as fast. The same applies to
other federal assistance programs like food stamps, federal pensions and
refundable tax credits. In total, chain CPI would reduce federal spending by
$216 billion over 10 years, according to the Congressional Budget Office.
Chain CPI would also raise $123 billion in new revenue, because the annual
income amounts for the tax brackets would rise more slowly as well.
Chain CPI is a useful technocratic correction. The
Social Security formula wasn't written with a finger of light on stone
tablets, and in any case who's in favor of inaccurately measuring inflation?
Well, it seems Mr. Obama is. It turns out that his
budget doesn't accept chain CPI for everyone. Instead it modifies the
modification of inflation with (still undefined) "protections for the very
elderly and others who rely on Social Security for long periods of time, and
only applies the change to non-means-tested benefit programs." His version
reduces the deficit $230 billion—$100 billion of it tax increases—not CBO's
$339 billion.
So Mr. Obama's olive branch would accurately
measure inflation for some people, but then continue to inaccurately measure
inflation for the people he thinks are more deserving of larger government
transfers. These exceptions are meant to placate the liberals who want to
expand Social Security, but means-testing chain CPI defeats the alleged
purpose of the change. Why not just go all the way and invent a new measure
called Obama CPI?
Governmental accounting in general is all done with smoke and mirrors ---
http://www.trinity.edu/rjensen/Theory02.htm#GovernmentalAccounting
Credit Default Swaps (CDS) ---
http://en.wikipedia.org/wiki/Credit_default_swap
"Global Financial Stability Report: Old Risks, New Challenges"
International Monetary Fund
April 2013
http://www.docstoc.com/docs/154106200/IMF Report
The Global Financial Stability Report (GFSR)
assesses key risks facing the global financial system. In normal times, the
report seeks to play a role in preventing crises by highlighting policies
that may mitigate systemic risks, thereby contributing to global financial
stability and the sustained economic growth of the IMF’s member countries.
Risks to financial stability have declined since the October 2012 GFSR,
providing support to the economy and prompting a rally in risk assets. These
favorable conditions reflect a combination of deeper policy commitments,
renewed monetary stimulus, and continued liquidity support. The current
report analyzes the key challenges facing financial and nonfinancial firms
as they continue to repair their balance sheets and unwind debt overhangs.
The report also takes a closer look at the sovereign credit default swaps
market to determine its usefulness and its susceptibility to speculative
excesses. Lastly, the report examines the issue of unconventional monetary
policy (“MP-plus”) and its potential side effects, and suggests the use of
macroprudential policies, as needed, to lessen vulnerabilities, allowing
country authorities to continue using MP-plus to support growth while
protecting financial stability.
The analysis in this report has been coordinated by
the Monetary and Capital Markets (MCM) Department under the general
direction of José Viñals, Financial Counsellor and Director. The project has
been directed by Jan Brockmeijer and Robert Sheehy, both Deputy Directors;
Peter Dattels and Laura Kodres, Assistant Directors; and Matthew Jones,
Advisor. It has benefited from comments and suggestions from the senior
staff in the MCM department.
Individual contributors to the report are: Ali Al-Eyd,
Sergei Antoshin, Serkan Arslanalp, Craig Botham, Jorge A. Chan-Lau, Yingyuan
Chen, Ken Chikada, Julian Chow, Nehad Chowdhury, Sean Craig, Reinout De
Bock, Jennifer Elliott, Michaela Erbenova, Jeanne Gobat, Brenda González-Hermosillo,
Dale Gray, Sanjay Hazarika, Heiko Hesse, Changchun Hua, Anna Ilyina, Tommaso
Mancini-Griffoli, S. Erik Oppers, Bradley Jones, Marcel Kasumovich, William
Kerry, John Kiff, Frederic Lambert, Rebecca McCaughrin, Peter Lindner, André
Meier, Paul Mills, Nada Oulidi, Hiroko Oura, Evan Papageorgiou, Vladimir
Pillonca, Jaume Puig, Jochen Schmittmann, Miguel Segoviano, Jongsoon Shin,
Stephen Smith, Nobuyasu Sugimoto, Narayan Suryakumar, Takahiro Tsuda,
Kenichi Ueda, Nico Valckx, and Chris Walker. Martin Edmonds, Mustafa Jamal,
Oksana Khadarina, and Yoon Sook Kim provided analytical support. Gerald
Gloria, Nirmaleen Jayawardane, Juan Rigat, Adriana Rota, and Ramanjeet Singh
were responsible for word processing. Eugenio Cerutti, Ali Sharifkhani, and
Hui Tong provided database and programming support. Joanne Johnson and Gregg
Forte of the External Relations Department edited the manuscript and the
External Relations Department coordinated production of the publication.
This particular issue draws, in part, on a series
of discussions with banks, clearing organizations, securities firms, asset
management companies, hedge funds, standards setters, financial consultants,
pension funds, central banks, national treasuries, and academic researchers.
The report reflects information available up to April 2, 2013.
The report benefited from comments and suggestions
from staff in other IMF departments, as well as from Executive Directors
following their discussion of the Global Financial Stability Report on April
1, 2013. However, the analysis and policy considerations are those of the
contributing staff and should not be attributed to the Executive Directors,
their national authorities, or the IMF.
Jensen Comment
Note that much of this report deals with the state of Credit Default Swaps.
Bob Jensen’s threads on the CDO and CDS scandals ---
http://www.trinity.edu/rjensen/2008Bailout.htm#Sleaze
Teaching Case from The Wall Street Journal Accounting Weekly Review on
April 5, 2013
Tesla Sees First-Ever Quarterly Profit
by:
Mike Ramsey and Tess Stynes
Apr 02, 2013
Click here to view the full article on WSJ.com
TOPICS: Corporate Taxes, Earnings Forecasts, Revenue Forecast,
Revenue Recognition
SUMMARY: "Tesla Motors Inc. said it would report a first-quarter
profit, sending the luxury electric-car maker's shares surging 16% on
Monday." The article notes that the company recognizes revenue when cars are
delivered--no surprise there but the company takes a $5,000 for each car
ordered that becomes nonrefundable as soon as the customer selects
specifications. The company also earns a significant portion of its revenues
from sales of pollution control tax credits issued by the state of
California and by the U.S. Federal government.
CLASSROOM APPLICATION: Questions lead students to the Form 8-K
filing specifically discussing management guidance about soon-to-be released
earnings and to the 2012 Form 10-K for revenue recognition policies.
QUESTIONS:
1. (Introductory) What product does Tesla Motors manufacture?
Identify your source for information about the company.
2. (Introductory) What milestone did Tesla Motors reach during the
first quarter of 2013? How did the market react to this news? Do you think
this is likely to be an overreaction? Explain your answer.
3. (Advanced) When does Tesla record revenue from its sales of
automobiles? Why do you think this accounting policy is mentioned--is there
anything unusual about the timing of recognition? To help answer this
question, you may access the Tesla Motors annual report for 2012 filed on
Form 10-K and available on the SEC web site at
http://www.sec.gov/cgi-bin/viewer?action=view&cik=1318605&accession_number=0001193125-13-096241&xbrl_type=v#
Click on Notes to Financial Statements and then Reservation Payments on the
left hand side of the page.
4. (Advanced) Access the company's Filing on Form 8-K--dated March
30, 2013, and filed on April 1, 2013--on which this article is based,
available on the SEC's web site at
http://www.sec.gov/Archives/edgar/data/1318605/000119312513135229/d514482dex991.htm
What is the basis for the improved financial performance to be reported for
the upcoming quarter?
5. (Advanced) The 8-K filing contains the words, "as a result,
Tesla is amending its Q1 guidance to full profitability, both GAAP and
non-GAAP." What is management guidance? What are GAAP earnings versus
non-GAAP earnings?
6. (Introductory) Why do you think that management reported this
guidance as soon as the number of vehicles sold indicated that the company
would do better than break-even? Why not just wait until the quarterly
report for the 3 months ended March 31, 2013, is reported very soon?
7. (Advanced) What are pollution tax credits? What is the
significance of this portion of the company's operations? Hint: to
understand the company's earning and sale of California state and U.S.
Federal pollution control credits, return to the Form 10-K and review the
Summary of Significant Accounting Policies related to revenue recognition.
Reviewed By: Judy Beckman, University of Rhode Island
"Tesla Sees First-Ever Quarterly Profit," by: Mike Ramsey and Tess Stynes,
The Wall Street Journal, April 2, 2013 ---
http://online.wsj.com/article/SB10001424127887323611604578396313231119032.html
Tesla Motors Inc. TSLA -0.90% said it would report
a first-quarter profit, sending the luxury electric-car maker's shares
surging 16% on Monday.
The Palo Alto, Calif., maker of $70,000 vehicles
lifted its forecast for the quarter after delivering more Model S electric
vehicles than it previously forecast. Tesla has a backlog of 15,000 orders
and books revenue for the vehicles as soon as they are shipped to customers.
The company, which has reported a loss every
quarter since it went public in 2010, said its Model S deliveries reached
more than 4,750 vehicles in the first quarter, compared with Tesla's
February outlook for 4,500 cars.
In 4 p.m. Nasdaq Stock Market NDAQ +0.47% trading,
Tesla shares finished up $6.04 at $43.93. Corporate Intelligence
Tesla Says It Will Turn a Profit, No Fooling
Analysts polled by Thomson Reuters had projected a
first-quarter loss of seven cents a share for Tesla.
The disclosure, made late Sunday, came a few days
after Chief Executive Officer Elon Musk had used Twitter to foreshadow news
coming from the Silicon Valley car maker.
"I am incredibly proud of the Tesla team for their
outstanding work. There have been many car startups over the past several
decades, but profitability is what makes a company real. Tesla is here to
stay and keep fighting for the electric car revolution," Mr. Musk said in a
statement.
A Tesla representative said the profit forecast
wasn't the big announcement that Mr. Musk alluded to, and later added the
company would make an announcement on Tuesday.
In a message posted last week on Twitter, Mr. Musk
said a "really exciting" bit of news was to come and that he was going to
"put my money where my mouth is in v[ery] major way." He later said he had
to delay the announcement so as not to create any end-of-quarter
distractions.
The profit forecast for Tesla comes at a critical
time as investors had been waiting to see if the company could ever move
beyond the startup stage in an industry where even long-established giants
have struggled to compete.
Tesla also said it would no longer offer the
40-kilowatt-hour battery pack with the Model S. That option, which allowed
buyers to buy a car that cost around $60,000, is being discontinued because
of lack of demand. The smaller battery pack offered an estimated range of
160 miles, compared with 230 miles for the 60 kWh version.
The 60 kWh Model S, the next largest battery size,
starts at just under $70,000. Buyers may be eligible for a $7,500 federal
tax credit for a vehicle's purchase.
Tesla said it would give customers who ordered the
smaller pack a 60 kWh model, but limit its range electronically, unless they
choose to pay for the upgrade.
Tesla last month said in regulatory filings that it
shortened its $465 million loan term by nearly five years.
Last year, the company booked $40.5 million for
selling pollution tax credits to other auto makers, an amount that equaled
almost 10% of its total annual revenue. Higher sales this year would
generate more credits and could be a significant source of earnings.
Continued in article
Also see the take on this topic in MIT's Technology Review
"Why Tesla Survived and Fisker Won’t," by Kevin Bullis, MIT's Technology
Review, April 4, 2013 ---
http://www.technologyreview.com/news/513151/why-tesla-survived-and-fisker-wont/
Jensen Comment
Two things that really bug me about virtually all articles about electric cars.
- The articles never discuss the cost to the car owner and the costs to
society for recharging the batteries. A considerable amount of electricity
is required to recharge the Tesla and Fisker cars. But the articles never
investigate those costs.
- The Teslas and Fisker electric cars are probably the worst decisions in
terms of cost per mile after the luxury-car purchase prices and recharging
power bills are spread over the miles driven.
It's important the companies like Tesla are continuing to conduct R&D, but
don't expect the buyers of such cars in the near future to be buying them
because of what they save relative to conventional cars.
The Japanese are getting out of all-electric cars until they make more sense
to the general public. Much of their hopes ride on fuel cell discoveries of the
future --- especially hydrogen fuel cells.
"7 states where residents don't pay income tax," NBC News,
March 31, 2013 ---
http://www.nbcnews.com/business/7-states-where-residents-dont-pay-income-tax-1C9085090?ocid=twitter
Jensen Comment
New Hampshire is not on the list even though it does not tax wages, salaries,
retirement incomes, tips, etc. But it has a somewhat nuisance "Interest and
Dividends Tax" beyond an exemption threshold that, if I'm not mistaken, is
$5,000. It does not tax such items that are buried in retirement income. I let
Turbo Tax compute the amount I owe without paying too much attention to details.
But New Hampshire more significantly has no sales tax such that
residents of states like Texas, Florida, Nevada, South Dakota, Washington, and
Wyoming with sales taxes may not come out as far ahead as they think relative to
New Hampshire.
The above article has some interesting details that are worth noting. For
example, tax collections and spending per capita are listed for the seven states
featured in the article.
What states have no individual or corporate income taxes?
Hint: Antelope run free even if they own corporations.
April 3, 2013 message from Neal Hannon
There is a wealth of accounting hidden just below
the surface in XBRL. In my latest article published today on the Hitachi
blog
http://bit.ly/10yJMLf I explore how to use free
XBRL online software tools to find answers to today's financial accounting
questions. Zane's ASKaRef tool is briefly reviewed in the article. I also
feature FASB's Louis Matherne talking about implementation guides. Enjoy!
"Say It With Me: Correlation ≠ Causation," by Invictus, Ritholtz
Blog, March 31, 2013 ---
http://www.ritholtz.com/blog/2013/03/say-it-with-me-correlation-%E2%89%A0-causation/
Jensen Comment
In his liberal zeal Barry Ritholtz commits the same misleading cherry picking
analysis while pointing a finger at conservatives. For example, when it
comes to blaming climate instead of state income taxes for flows of businesses
to blue states from red states Barry selectively cherry picks "climate" data in
his table. Granted that his "cold" red-state places the average temperatures are
really lower in Cleveland, Detroit, Buffalo, Providence, and Rochester.
But why did Barry selectively leave out average temperatures in most cities
in California where some city migrations to blue state cities have been as much
or more than from the five red-state cities above? California is
complicated, however, because it is one of the more conservative states in terms
of worker unemployment compensation taxes and benefits.
Why did he not analyze why Indiana is stealing jobs from Illinois or why
high-tax Illinois is heavily subsidizing large employers like Caterpillar and
Sears to stay in Illinois?
Obviously correlation is not causation, but don't suggest this too loudly to
referees of The Accounting Review ---
An enormous problem with accountics science, and finance in general, is
that these sciences largely confine themselves to databases where it's only
possible to establish correlations and not causes, because zero causal
information is contained in the big databases they purchase rather than collect
themselves ---
http://www.cs.trinity.edu/~rjensen/temp/AccounticsGranulationCurrentDraft.pdf
A factor to consider is quality of the work force apart from climate and income
taxes. For example, Boston is a city that has not suffered nearly as badly as
most other red-state cities losing jobs to blue-state cities. One reason is the
historic highest quality universities and technical schools in the Boston
metropolitan area. High tech firms seek out Boston in great measure because
there are skilled workers not available in many of the blue-state cities.
The fact is that business migration is caused by a number of interactive
factors including tax incentives and climate but not limited to such factors.
High tax states in cold climates offset such barriers with subsidies (tax
credits, free land, zero-interest lending, etc.).
Also not mentioned by Barry is the one-ton gorilla of union activism,
especially in red-states. If Wisconsin, Maine, Massachusetts, Michigan, and
Illinois dropped state income taxes they still might not steal a whopping number
jobs from Texas apart from climate and tax considerations. This purportedly why
militant unions are loosing some, certainly not all, their political clout in
states like Wisconsin and Michigan.
Derek Jeter ---
http://en.wikipedia.org/wiki/Derek_Jeter
Derek Jeter establishes Florida residency to avoid N.Y. taxes ---
Click Here
http://www.smartbrief.com/news/cpa/storyDetails.jsp?issueid=4C242192-DF4A-4AC8-A117-83A8E669BF92©id=7130F57E-86D4-4407-89A2-DD8BABDD1CD5&sid=a2a2cb80-d593-4abd-a32d-06da951fad0a&brief=cpa
"Five Really Dumb Money Moves You've Got to Avoid (Jensen does not
agree)," by Brett Arends, The Wall Street Journal, March 31, 2013 ---
http://online.wsj.com/article/SB10001424127887324789504578384610026843812.html
1. Reaching for yield
2. Going into the poor house to send Junior to a country-club college
3. Owning stock in your employer
4. Taking Social Security too early
5. Buying long-term bonds
You know the smartest things to do with your money.
But what are the worst moves? What should you avoid?
Weirdly enough, they are things that a surprising
number of people are still doing—even though they probably know, in their
heart of hearts, how foolish they really are.
Any list is going to be incomplete. But here are
five to avoid.
1. Reaching for yield
What this country needs is a good 5% certificate of
deposit. Instead the collapse in interest rates, and the Federal Reserve's
policy of keeping them down for as long as possible, is driving people
crazy—especially people who need to generate income from their investments.
In these circumstances, people start to do really
foolish things in the desperate hunt for higher interest rates. That
includes taking on crazy amounts of risk, or investing in complex products
they don't understand, in the hope of higher yields. The Fed is producing a
bull market in scams, Ponzi schemes and associated rackets.
The Securities and Exchange Commission recently
warned about an epidemic of bogus high-yield "corporate promissory notes"
being marketed to investors by scam artists.
The Wall Street Journal's Jason Zweig highlighted
the woes of those sold complex "reverse convertibles," a legal but
complicated product with embedded risks. Eric Lewis, chief investment
officer of Bedrock Capital Management in Los Altos, Calif., suggests that if
you can't explain an investment to a friend, including what might go wrong,
you should think twice.
A high-yield bond fund such as the iShares High
Yield Corporate Bond exchange-traded fund (HYG), which lends money to risky
companies, sports a yield of about 5%. That's the maximum yield you can earn
without taking on much more risk.
2. Going into the poor house to send Junior to a
country-club college
Over the past 40 years, the cost of tuition and
fees at a private university has tripled—after accounting for inflation. The
cost of a public university has quadrupled.
The cost of getting a bachelor's degree has become
a scandal in this country. Students spend $160,000 on a four-year degree and
the results are too often questionable.
Financial planners strongly advise parents against
plundering their own retirement savings, which they are likely to need, to
pay for this.
Admittedly, a degree has become a protection
racket—you can't get a job without one, but there are fewer jobs for those
with them. But the smart move for the budget-constrained is to get a
bachelor's degree at a public university. The tuition and fees average less
than $9,000 a year instead of $30,000 at a private college.
3. Owning stock in your employer
This is one of the silliest and riskiest moves any
investor can make. If the company hits trouble, you get whacked twice. You
can lose your job and your savings—all in one fell swoop. Ask anyone who
worked for Enron…or Lehman Brothers.
The law, amazingly, actually encourages this crazy
move. While employers' 401(k) plans are subject to punitive regulations,
lest they allow you to take on too much "risk," employers are allowed to
offer their own stock among the investment options. Many do.
The Employee Benefit Research Institute says that
the percentage of 401(k) assets held in employers' stock has been halved
since 2000, but the numbers are still alarming. Furthermore, it's the
youngest workers—those best able to take a gamble—who are shunning their
employers' company stock.
At companies where the 401(k) plan offers the
option, workers aged 40 or over typically hold about 20% of their entire
401(k) account in the company's stock, according to EBRI data. Crazy.
4. Taking Social Security too early
If you can afford to delay taking your Social
Security retirement benefit, do.
Someone earning $50,000 a year who starts claiming
Social Security as soon as he or she is able, age 62, will typically collect
a monthly check of about $1,000, according to the Social Security
Administration. If they wait until they are 70, that amount would double.
Taking Social Security too early, or without
thinking through the consequences, is one of the biggest financial blunders
people can make—roughly on a par with buying tech stocks in 2000 or a Las
Vegas condo in 2006. The lure of getting money early can blind people to the
big cost down the road.
(Many retirees may not have much of a choice. Hard
labor at low pay over a lifetime takes its toll on a person. Also, many
companies all but force older workers into early retirements.)
In any case, it doesn't take more than just a few
years before the total money accrued with the higher, later benefits
surpasses the total earned starting at the earlier retirement age.
But that understates the bigger issue. Social
Security is insurance. For many retirees, the big risk isn't that they will
run out of money before they turn 70, but after 85. According to the Centers
for Disease Control, more than half of women currently age 65 will live to
85 or longer, and three out of eight men.
David Blanchett, head of retirement research for
financial research firm Morningstar, says it makes sense for women, married
couples and those with good health to wait longer for a bigger paycheck.
5. Buying long-term bonds
A surprising number of people still subscribe to
the flawed and circular argument that bonds, including long-term government
bonds, are "safe." In reality, bonds—especially long-term government
bonds—are the rare example of a bubble that has been explicitly declared.
Continued in article
Jensen Comment
Owning stock in your employer ---
In some cases Arends is overly influenced by outliers like Enron. For example,
owning stock in your employer after the fact was unfortunate if your employer
went bankrupt. However, I don't think many employees of Apple, Microsoft,
Intel, GE, Exxon, etc. made bad decisions by owning stock in their employers.
You should, however, have some diversification in your portfolio.
Spending Too Much on an Expensive Private School
I agree with Arends about spending too much for your kid to go to an expensive
private university like Northwestern as an undergraduate, including
private universities that are not in the Ivy League. If your kid is a great
student who can compete in places like Ohio State University, Texas A&M, the
University of Illinois, Texas Tech, UC Berkeley, etc. --- save your own money
and minimize student loans until your high-performing child is ready for a
very elite graduate school. Then spend as much as you can and fill in with
student loans for this child to go to an elite graduate school like Harvard,
Chicago, Wharton, Dartmouth, Stanford, Northwestern, USC, etc.
I think you should invest in your promising college senior now rather
than before or save it up for her or him when you die at age 88 and the "kid" is
66 years of age.
If your high school senior is less likely to perform well in an
undergraduate college program at a reputable and competitive state university,
then think about coming up with what it takes to get into the best undergraduate
private school you can afford (with student loans) since grades are easier to
obtain in nearly all of those private colleges and universities ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm#GamingForGrades
Of course if having your high school graduate
interacting with certain religion-affiliated college students is most important
to you, then by all means spend more on that private religious college. I can
see why a devout Mormon family would shoot for Brigham Young University or a
strong Catholic family might shoot for a quality Catholic college. I can
understand when a Jewish family prefers Brandeis University. There are many,
many college students who meet and marry shortly after graduating from college.
I agree about taking Social Security early ---
don't do it unless you're a multimillionaire.
I don't agree with avoiding long-term bonds in all cases ---
Much depends upon your age and the types of bonds. As you grow older and have a
relatively large nest egg, you become less worried about inflation. For example,
suppose you are getting a divorce in 2013 from a spouse who is the primary bread
winner as a professor. If you are 42 years old and receive half of the TIAA-CREF
accumulation in the divorce settlement, avoid the buying lifetime fixed annuity
options in TIAA. Inflation will eat you alive if you live beyond your life
expectancy (now over 80 for a man or a woman).
On the otherhand, if you're 67 years old at the time of the divorce
settlement, inflation becomes somewhat less of a concern. Much depends upon your
health and other sources of income such as prospects of remarriage.
When I retired in 2006 I purchased lifetime fixed annuities for my wife and
myself. And then I put nearly all of our remaining discretionary savings into an
insured long-term tax-exempt bond fund from Vanguard. I've not regretted these
decisions for an instant since I retired. Both of these investments weathered
the 2007 economic crash like the Rock of Gibraltar. Returns from our lifetime
annuities will never vary, although our fixed annuity returns negotiated in 2006
are higher than can be negotiate from TIAA in 2013. Thank the Quantitative
Easing policy of the Fed for the unfortunate low interest rate alternatives on
safe lifetime savings.
Returns in our long-term tax exempt bond fund remain relatively high because
this is a long-term bond fund. Inflation would kill us if we were
younger. But since we are both over seventy years of age, we're less worried
about inflation and enjoy our comfortable-living monthly cash flows that are tax
exempt. I don't much care how the values of our shares in the tax-exempt fund
fluctuate since I don't intend to cash in on anything except parts of the annual
cash yield on those shares.
My point is that all investors should not avoid long-term bond funds as
Arends advises. Only some, primarily younger investors, should maybe ipso
facto avoid such long-term bond funds. But keep in mind that bond prices in
general are negatively correlated with interest rates. When interest rates are
very low, like now, bond prices are relatively high. Arends has a point here!
The bond prices were better in 2006 when I retired, but things become confounded
by risk.
Tax exempt bonds in general are higher risk than AAA corporate bonds, which
is why I prefer to invest in a very huge and diversified fund of tax exempt
bonds that can weather the storm of unavoidable bankruptcies in some
municipalities and school districts. There is also some risk that tax reform
will reduce some of the benefits of tax exempt investments. For example, the
degree of tax exemption might eventually be tied to adjusted gross income such
that there's tax reform risk of having a very, very high proportion of your
annual income being tax exempt.
Reaching for yield is probably a bad choice ---
unless you either are well protected against inflation in other parts or your
portfolio or put those cash earnings to work into some very promising
investments. For example, if you're land poor because you own real estate that
significantly takes as much or more for property taxes than it pays in cash
annually then I say go for some yield in your portfolio. Your real estate will
most likely counter inflation over the long haul so you need not deprive
yourself of the cash needed to pay your property taxes and some first-class
accommodations on cruises to scenic places.
"A More Complicated — and More Dangerous — Fear," by jcoumarianos,
Institutional Imperative, March 30, 2013 ---
http://www.institutionalimperative.com/2013/03/30/a-more-subtle-and-more-dangerous-fear/
When people talk about “fear and greed” in the
markets, they usually mean fear of loss by “fear.” However, often a stronger
fear is fear is missing upside. Listen to
Jeremy Grantham talk about how many clients he
lost in the late 1990s for his conservative posture, or note that
Steve Romick lost 90%
of his investors during the same period for his, and you’ll understand that
more subtle, but no less insidious, portfolio-damaging, fear. This is a kind
of strange fear mixed with, not opposed to, greed.
It turns out, investors tolerate losses reasonably
well as long as everyone else is losing. It’s kind of the investment version
of misery loves company. Lose your clients’ money when everyone else is
losing, and you’ll very likely keep your job. Lag a roaring market, however,
and you’ll get dropped in a hurry.
This weekend the WSJ has
a story about a couple, both physicians, who have
re-entered the market after losing half their savings in the crash of
2008-2009, and parking their money in a bank account until now. The article
notes
[t]his week, as the Dow Jones Industrial
Average and Standard and Poor’s 500-stock index pushed to record highs,
Ms. White and her husband hired a financial adviser and took the plunge
back into the market.
The following graph shows what the physician couple
missed by selling stock and moving to a bank account at the market’s nadir.
Continued in article
April 9, 2013 message from Ruth Bender
I thoughts some of you might be interested in some of the material below,
which comes from a Symposium from the UK’s Higher Education Academy.
The site is
http://blogs.heacademy.ac.uk/social-sciences/2013/03/21/teaching-developments-in-finance-and-accounting/
Regards
Ruth
______________________________
Dr Ruth Bender
Reader in Corporate Financial Strategy
Cranfield School of Management
Tel:
+44 (0) 1234 751122 ext 3183
http://www.cranfield.ac.uk/som
www.Twitter.com/Ruth999
Winchester Business School hosted the first symposium of the Higher
Education Academy’s Social Science Workshop series on teaching developments
in finance and accounting. It consisted of three sessions each considering
the findings of three HEA funded projects completed by University of
Winchester academics and aimed at providing best practice guidelines for
dissemination across the sector.
Best practice in Using Simulation Games in Finance Education aimed
to obtain a snapshot of current usage of finance related simulation games in
UK higher education, investigating the curriculum design issues involved,
identifying any barriers to simulation use and how they may be overcome. The
report gives an overview of key finance simulations for classroom use and
provides a best practice guideline on how to best select, set-up, use and
assess performance on financial simulation games for either undergraduate or
postgraduate finance modules.
This report is available via:
www.heacademy.ac.uk/assets/documents/disciplines/social-sciences/Blog/simulations_finance.pdf
Best practice in Teaching Ethics in UK Accounting Programmes
project aimed to develop a best practice guideline document on
the teaching of ethics in accounting education. The report reviews the
literature on teaching ethics in business and accounting with a particular
focus on evidence of good practice, what should be taught, how it should be
taught (methods, approach, as stand-alone or embedded, etc), expected
learning outcomes, and means to assess learning. The report presents a
snapshot of current practice in teaching ethics in Accountancy programmes in
the UK, including curriculum content, methods of teaching, where it is
placed in the curriculum, and means of assessing learning outcomes. The
report investigates the curriculum design issues involved in the embedding
ethics education into the Accountancy curriculum and how to address these
issues. This report is available via:
www.heacademy.ac.uk//assets/documents/disciplines/social-sciences/Blog/Ethics_in_accounting_report.pdf
Obtaining a snapshot of current usage of ICT for assessment and feedback
on undergraduate accounting modules in UK higher education was the aim of
the Best practice in the use of ICT for Assessment
and Feedback project. The report identifies the
barriers and problems with the use of ICT for assessment and feedback and
how they may be overcome, investigates students’ perceptions and attitude to
the use of ICT for assessment and feedback using a case study approach and
provides a best practice guideline document on how to use ICT for assessment
and feedback on accounting modules at undergraduate level. This report is
available via:
www.heacademy.ac.uk/assets/documents/disciplines/social-sciences/Blog/ict_in_assessmentandfeedback.pdf
Presentations
Siew Min (Amy) Tan and Neil Marriott presented their work on the use of
simulations to teach finance (presentation can be accessed via
www.heacademy.ac.uk/assets/documents/disciplines/social-sciences/Blog/MarriotandTan.ppt)
Paul Jennings discussed the integration of ethics into undergraduate
accounting programmes (presentation can be accessed via
www.heacademy.ac.uk/assets/documents/disciplines/social-sciences/Blog/Teaching_Ethics_Accounting.pdf
)
Lim Keong Teoh and Pru Marriott disseminated their work relating to
on-line assessment and feedback in accounting (presentation can be accessed
via
www.heacademy.ac.uk/assets/documents/disciplines/social-sciences/Blog/MarriottandTeoh.ppt)
The event was organised and hosted by Pru Marriott, Head of Department of
Accounting, Economics and Finance, who was delighted to see over 40
delegates from across the UK and Ireland including academics from Exeter,
Loughborough, Royal Holloway, Sheffield, Southampton and Waterford come to
listen to the innovative pedagogic work of colleagues from her department.
Pru was also pleased to see representatives from three of the UK’s
professional accounting bodies indicating that the research has wide appeal
and is of relevance to both academics and practitioners.
Lyn Vos, HEA Discipline Lead for Accounting and Finance, was very
impressed with the level of attendance and indicated the need for more
events in these areas.
Pru and Lim’s work was recently published in the December edition of
Accounting Education: an international journal, the official journal of
the International Association for Accounting Education and Research based in
New York. Amy, Neil and Paul intend to submit their work to forthcoming
specialist academic conferences and journals.
Discussion
The authors are keen to develop their research and would welcome
comments, suggestions or possible collaboration opportunities with academics
across the UK.
Ruth
Bob Jensen's threads on education technology ---
http://www.trinity.edu/rjensen/000aaa/0000start.htm
City Government Fraud and Incompetence: The Rule Rather Than the
Exception
"Stockton, CA Filing Bankruptcy," by Ann-Marie Murrell, Townhall,
April 2, 2013 ---
http://finance.townhall.com/columnists/ann-mariemurrell/2013/04/02/way-to-go-unions--stockton-ca-filing-bankruptcy-n1555096?utm_source=thdaily&utm_medium=email&utm_campaign=nl
. . .
“In the 1990s,” Miller said, “Stockton granted its
employees some of the most generous and unsustainable labor contracts in the
State of California... Safety employees could now retire at the age of
50...Many safety retirees today earn 90 to 100 percent of what they made
when they were still on the job.”
Miller also talked about the city granting things
like “unlimited vacation and sick time” that could be “cashed out when an
employee retired” and “Lamborghini” style health plans.
Other outrageous expenditures have been coming out
of Stockton for years. From
StocktonFireFacts.com, here are the top 10 boondoggles:
1. City Council spent $48 Million to
purchase a new City Hall building for itself. That’s just the
purchase price and the cost to pay Wall Street to BORROW the money necessary
for the new governmental palace. The total cost of the building after all
the interest is calculated? We don’t know and the City Council never asked.
City Hall Report & Bond Documents
2. $33 Million settlement with Howard
Jarivs Taxpayers Association due to the City illegally using Water Utility
fees to fund the construction of the Stockton Events Center.
• City
Repayment Schedule?•
Stockton Record Article
3. $22 million sunk into money losing
Downtown Marina and has racked up $700,000 in annual operating cost losses.
During the height of a City budget crisis, the Stockton City
Council sunk $22 million into building a new downtown marina and then due to
underestimating the costs, needed to add another $2.3 million to the bill.
City bureaucrats estimated that the marina would lose $100,000 a year. The
actual figure has balloned to $700,000 in losses a year.
Rising tide of red ink | Recordnet.com
Dry Dock Expenditure
4. Paid $1.25 million over the
independent appraisal value for a piece of property owned by a former
councilmember. The site was supposed to be used for a new fire
station, which even the Stockton Fire Department stated it didn’t want. The
Stockton Record’s Editorial Board urged the Council to reject the deal,
stating, “the city shouldn’t be dopey. It should pay no more than the
appraised value.” Unfortunately, Dopey won at that Council meeting. The
Council this year scrapped plans for the fire station, meaning that $2.75
million taxpayer funds have been wasted.
You can view the property here.
• Stockton ponders $2.75M land deal highlighted?•
White editorial?•
Council slashes program funding | Recordnet.com
5. $4 million legal settlement because
the City failed to maintain our sewer system, causing too many sewage spills
and violating the Federal Clean Water Act.
• Cal Tax Article?•
Stockton to Pay $4 Million in Sewer Spill Settlement?•
California Sportfishing Protection Alliance Settlement
6. $7 million loss at entertainment
venues (Stockton Arena, Stockton Ballpark, Bob Hope Theater, etc.)
subsidized by the City General Fund—which pays for firefighters and
police officers
•
Stockton Venue continue a troubling trading for taxpayers | Recordnet.com
7. $25,000 to clean up elephant dung
at the Stockton Arena.We’d write more, but why?
• Cal Tax Article
8. $205,000 settlement for City’s
failure to meet Americans with Disabilities Act requirements within the
city. Note that in addition to the settlement, money needed to be
spent to bring facilities into compliance. We do not have that total
•
ADA Settlement Agreement
9. $200,000 settlement with the
Building Industry Association of the Delta due to City improperly using
development fees to pay for General Fund services.
•
BIA Settlements?•
BIA Settlements article
10. $400,000 settlement with the San
Joaquin Hotel & Motel Property Owner’s Association for devaluing property
prior to the City attempting to purchase them.
None of this is anything new, and sadly none of it
is surprising. For years now, California’s state priorities have been all
about satisfying unions and union workers at the expense of students and
taxpayers. Of course, anyone who regularly listens to KFI’s
Jon and Ken Show in
Los Angeles knew this was going to happen, and the only real
surprise is that more California cities haven’t already gone belly-up.
However, Stockton probably won’t be alone for very long; many are predicting
that other cities have been waiting for someone to be the first ‘fall guy’
and more bankruptcy proceedings will almost certainly follow suit.
The thing Stockton (and Bell and others) never seem
to figure out is that promising insane, out-of-control “forever pensions” to
anyone who works in a public capacity is impossible to maintain. You’d also
think that parents of public school students would be a little curious as to
why they
have had to dip into their own pockets to buy
things like books and lab equipment when the average (union) California
teacher makes around $83,000 (total compensation, according to
Salary.com)
Continued in article
Jensen Comment
The sad thing is nobody will be held accountable for this fraud. Sadly such
frauds became the rule rather than the exception in city governments across the
USA where kickbacks are a way of doing business.
The Sad State of Government Accounting and Accountability ---
http://www.trinity.edu/rjensen/Theory02.htm#GovernmentalAccounting
Bob Jensen's Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
Question
Does a half gallon of milk cost society $200 when externalities are partly taken
into account?
Or is the net benefit $$500 per carton when externalities are fully taken into
account?
"Financial Accounting’s Relevance Lost," by Tom Selling, The
Accounting Onion, March 31, 2013 ---
http://accountingonion.com/2013/03/financial-accountings-relevance-lost.html
. . .
But, more to the point, the above statement from
Brooks struck the nerve that got my accounting juices flowing. Double-entry
accounting was a great technological advancement when it was conceived
however many centuries ago that was. Further advances in technology have
reduced costs associated with financial reporting, but other costs have
increased because needed ‘rationalization of social institutions’ has been
hindered by “dysfunctional political squabbles.”
For example, in her popular book on the history of
accounting, Jane Gleesen-White cited research claiming that when
externalities are taken fully into account, McDonald’s consumes $200 worth
of resources in order to produce one Big Mac.
Yikes! I know what your thinking — two hundred
bucks? Let’s just say that the full, full cost of a Big Mac is merely $10.
That’s still an astounding number. Accounting by the Corporation is not
the Same as Accounting for the Corporation Although the problem of
accounting for externalities has always existed, it had been less
significant than a flea on a horse’s hindquarter until about one hundred
years ago. That corporations—a social institution designed to promote
large-scale investments—would consume so much without accounting for that
consumption is surely an unintended consequence of its establishment in the
law. When resource consumption is portrayed by financial reporting standards
as if it were free—or merely under-costed—corporate decision makers will
inevitably find value-creating projects from the corporation’s standpoint,
even when aggregate costs exceed aggregate benefits.
I’m sure everything I have written to this point
has been a huge understatement; yet no accounting standard setting body has
ever seriously considered any of this. The implicit reasoning goes something
like this: it’s not our job. Accounting standards are largely the creature
of the federal securities laws; which are intended to prevent public
companies from misleading its investors, and to provide information that
puts investors on a level-playing field with respect to available
information. As long as investors get adequate information to value a
company, and not be mislead by unscrupulous management, then let the chips
fall where they may. It is simply not in the job description of the standard
setter to prevent the application of accounting standards to make kings
while destroying families, much less soil the air we breathe, or determine
where the Atlantic Ocean stops and New Jersey begins (a tip of the hat to
Gail Collins for that bit of imagery). I’ll be the first to admit that the
problem of adequately accounting for externalities is hard. My grad school
advisor, the late Tom Burns, once remarked that defining the entity of
account—roughly speaking, drawing the line between events that affect the
corporation and everything else—is the thorniest problem in accounting. I
suppose I should summon up some empathy for accounting standards setters who
haven’t even paid lip service to this problem—but I can’t. I can’t, because
accounting standards setters are richly paid, and they serve at the pleasure
of oligarchs, who require that more attention is paid to their predilections
and ideologies than to the plausibly deniable costs of mis-pricing
resources. We can all recite the litany of problems that have occurred in
our generation alone, and precisely identify who has benefitted while most
everyone else has lost: treating stock options granted to employees as if
there is no cost to other shareholders; not recognizing the implications on
pension plans (private and governmental) when assets fail to grow as hoped;
or misrepresenting the economics of banks and the loans they make. Trust me,
I can think of many more.
Jensen Comment
There are two major defects of bookkeeping in both socialist and capitalists
enterprises.
- We don't know how to book many types of "assets" and "expenses" of the
enterprise such as the value of unbooked human resources and externalities
such as the impact of the enterprise's operations on other segments of
society such as the cost of air pollution on the health and life expectancy
of people downwind of a manufacturing plant. Air pollution, water pollution,
etc. are expenses just cannot be measured because the impacts are so
widespread and undertain with primary and higher order effects that just
cannot be measured.
- We don't know how to book many types of "liabilities" and "revenues" of
the enterprise such as unknown health hazards (at the time of production) of
products and services and the unknown values of research and development
discoveries at the time they are discovered.
Tom mentions that a Big Mac might cost $200 in terms of societal direct costs
plus externalities. But nearly everything else humans eat costs much more in
externalities. Since dairy cows pollute the air and water about the same as beef
cows, perhaps a carton of mild also costs $200. An ear of corn might cost $100.
A bowl of oatmeal might cost $150.
But this ignores the societal benefits of eating. Because our children get
oatmeal, corn, Big Macs, etc. they grow and mature to produce a lifetime of
labor to society such that their net benefits of societal revenues may exceed
societal costs by $1 million or more dollars.
It is naive to blame all externalities on business/capitalism since we know
that in any type of economy there are costs of survival, costs of corruption,
etc.
Tom picks on the faults of IASB and FASB accounting standard setters. But in
terms of accounting and accountability standards I contend that there are even
bigger faults in the setting of accountability standards in the public sector
where worldwide corruption is rampant.

Having said this, I might add that financial accounting reports are lost a
lot of their predictive power?
"Investors Beware: Corporate Financial Statements Decline in Predictive
Value ," by Bill Snyder, Stanford Graduate School of Business, March 22,
2013 ---
Click Here
http://www.gsb.stanford.edu/news/research/investors-beware-corporate-financial-statements-decline-predictive-value?utm_source=Stanford+Business+Re%3AThink&utm_campaign=eeb27543e5-Stanford_Business_Re_Think_Issue_Ten3_22_2013&utm_medium=email&ct=t%28Stanford_Business_Re_Think_Issue_Ten3_22_2013%29
Over time, financial statements of public
corporations show more losses, intangibles, and earnings restatements, which
lower their value for predicting corporate bankruptcies.
Corporate bankruptcies, like earthquakes, are rare
events. But when they do occur, says
Maureen
F. McNichols of Stanford's Graduate School of
Business, the results can be financially devastating for investors and other
stakeholders.
An important role of financial statement
information is to permit investors to assess the likely timing and amount of
future cash flows. Recent research by McNichols and coauthors examines the
usefulness of financial statement and market data for investors who want to
ascertain the likelihood of bankruptcy. The results of that research are not
completely reassuring.
The authors — McNichols, Marriner S. Eccles
Professor of Public and Private Management;
William
H. Beaver, Joan E. Horngren Professor of
Accounting, Emeritus, at the Graduate School of Business; and
Maria Correia,
assistant professor of accounting at the London Business School — examined
40 years of financial data garnered from thousands of public corporations.
They analyzed key financial ratios, such as return on assets and leverage,
reported in filings to the
U.S. Securities and Exchange Commission, and market-related data such as
market capitalization and stock returns. Over the period they examined —
1962 to 2002 — the data became significantly less useful in predicting
bankruptcy. "Investors should be concerned and aware of this when they
assess bankruptcy risk," McNichols says.
A professor of accounting, McNichols is quick to add that financial
statement data are still highly relevant. Of the firms she and her
colleagues studied, about 1% fell into bankruptcy, and despite the
deterioration in financial-statement usefulness, financial ratios and market
data are still important tools for predicting insolvency, she says.
Nonetheless, the results are concerning enough that McNichols believes
that regulators and standards setters such as the U.S. Securities and
Exchange Commission and the
Financial Accounting
Standards Board should be aware of this issue.
Three major factors muddy the waters for investors
attempting to predict bankruptcy, the researchers found:
- Over the sample period, there is increasing
evidence that management exercises discretion over financial reporting,
and that there have been increasing numbers of restatements because the
financial statements were materially misleading. "Our findings indicate
that the manipulation of reported results gives a misleading impression
of profitability and reduces investors' ability to predict bankruptcy,"
notes Correia. For example, firms recognizing revenue ahead of schedule
or fraudulently may appear profitable. As a result, the bankruptcy
prediction model is much less likely to classify bankrupt firms that
also restated earnings accurately, assigning lower risk due to their
overstated earnings.
- Many firms, particularly the technology
companies listed on the
NASDAQ exchange,
are heavy spenders on research and development. R&D in itself is
certainly not a cause for concern, but because this "intangible" is not
recognized on the balance sheet, it makes various financial ratios and
data less useful.
- The frequency of firms reporting losses has
increased substantially over the past 40 years. Because predicting
future earnings for firms that suffer losses involves substantially
greater uncertainty than for firms that are profitable, the bankruptcy
prediction model is less likely to accurately classify loss firms that
will go bankrupt.
Consider a firm that suffers a loss. The fact that
it has lost money is obviously not good news, but in and of itself a loss
doesn't mean a company will go bankrupt. Losses complicate the financial
picture, the researchers found, because while firms reporting a loss are
more likely to go bankrupt on average, it is harder to predict which loss
firms will do so relative to firms earning a profit.
Continued in article
Jensen Comment
Until the 1990s net earnings showed a surprising predictive power in empirical
capital market studies. I say "surprising" in the sense that we all knew
historical cost earnings based upon many arbitrary assumptions in accrual
accounting such as depreciation, amortization, and bad debt estimation.
Although net earnings was never defined very well in the old days, the FASB
and IASB pretty well destroyed any remaining definition as fair value
accounting, goodwill impairment, and many other components of earnings took away
any remaining meaning of bottom-line net earnings. The biggest bomb, in my
opinion, was the combining of unrealized fair value changes with realized
revenues on contracts.
Solution 1
There are two solutions in my viewpoint. One is to require multi-column
reporting along the lines advocated in
"Academic Research and Standard-Setting: The Case of Other
Comprehensive Income," by Lynn L. Rees and Philip B. Shane, Accounting
Horizons, December 2012, Vol. 26, No. 4, pp. 789-815. ---
http://aaajournals.org/doi/full/10.2308/acch-50237
In particular note Table 2 at
http://www.cs.trinity.edu/~rjensen/temp/ReesShane2012Table3.jpg
Solution 2
The other solution is to stop reporting bottom line net earnings as reported in
http://www.trinity.edu/rjensen/Theory01.htm#ChangesOnTheWay
Solution 3
Pray hard that the IASB and FASB will one day define "net earnings" in a way
that it will have predictive value. That prayer has about as much hope as
praying for world peace or a balanced Federal Budget in Washington DC.
None of the above approaches necessarily will automatically improve the
predictive value of financial statements. Our hope is that in both solutions
financial analysts will be forced to perform deeper analysis rather than simply
track bottom line net earnings that has little, if any, predictive value after
the FASB and IASB screwed it up.
"
Ball and Brown and the Usefulness of EPS." by Robert Lipe,
FASRI, August 9, 2012 ---
http://www.fasri.net/index.php/2012/08/ball-and-brown-and-the-usefulness-of-eps/
At the AAA meeting in
DC, I attended a presidential address by Ray Ball and Phil Brown
regarding their seminal research paper (JAR 1968). They described the
motivation for their study as a test of existing scholarly research that
painted a dim picture of reported earnings. The earlier writers noted
that earnings were based on old information (historical cost) or, worse
yet, a mix of old and new information (mixed attributes). The early
articles concluded that earnings could not be informative, and therefore
major changes to accounting practice where necessary to correct the
problem.
Ball and Brown viewed
this literature as providing a testable hypothesis – market participants
should not be able to use earnings in a profitable manner. Stated
another way, knowing the amount of earnings that would be reported at
the end of the year with certainty could not be used to profitably trade
common stocks at the beginning of the year. Evidence to the contrary
would suggest the null that earnings are non-informative does not hold.
While the methods part
of the paper is probably difficult for recent accounting archivalists to
follow, Ball and Brown produce perhaps the single most famous graph in
the accounting literature. It shows stock returns trending up over the
year for companies that ultimately report increases in earnings and
trending down for companies that report decreases in earnings. Thus they
show that accounting numbers can be informative even if the aggregate
number is not computed using a single unified measurement approach
across transactions/events. Subsequent research would show that numbers
from the income statement have predictive ability for future earnings
and cash flows.
As I sat listening to
these two research icons, I could not help but think about some comments
I have heard recently from a few standard setters and practitioners.
Those individuals express contempt for EPS in a mixed attribute world.
They appear to wish they could jump in a time machine and eliminate per
share computations related to income. I readily admit that EPS does not
explain much of the variance in returns over periods of one year or less
( e.g., Lev, JAR 1989). However the link is clearly significant, and
over longer periods, the R2’s are quite high (Easton, Harris, and Ohlson,
JAE 1992). Can the standard setters make incremental improvements to
increase usefulness of EPS? I sure hope so, and maybe the recent paper
posted by Alex Milburn will help. But dismissing a reported number
because it is not derived from a single consistent measurement attribute
– be it fair value or historical cost – seems to revert back to pre-Ball
and Brown views that are rejected by years of research.
Jensen Comment
Given the balance sheet focus of the FASB and the IASB at the expense of the
income statement I don't see how net income or eps could be anything but
misleading to investors and financial analysts. The biggest hit, in my
opinion, is the way the FASB and IASB create earnings volatility not only
unrealized fair value changes but the utter fiction created by posting fair
value changes that will never ever be realized for held-to-maturity
investments and debt. This was not the case at the time of the seminal Ball
and Brown article. Those were olden days before accounting standards
injected huge doses of fair value fiction in eps numbers so beloved by
investors and analysts.
Sydney Finkelstein, the Steven Roth professor of management at the
Tuck School of Business at Dartmouth College, also pointed out that Bank of
America booked a $2.2 billion gain by increasing the value of Merrill
Lynch’s assets it acquired last quarter to prices that were higher than
Merrill kept them. “Although perfectly legal, this move is also perfectly
delusional, because some day soon these assets will be written down to their
fair value, and it won’t be pretty,” he said
"Bank Profits Appear Out of Thin Air ," by Andrew Ross
Sorkin, The New York Times, April 20, 2009 ---
http://www.nytimes.com/2009/04/21/business/21sorkin.html?_r=1&dbk
This is starting to feel
like amateur hour for aspiring magicians.
Another day, another
attempt by a Wall Street bank to pull a bunny out of the hat, showing
off an earnings report that it hopes will elicit oohs and aahs from the
market. Goldman Sachs, JPMorgan Chase, Citigroup and, on Monday, Bank of
America all tried to wow their audiences with what appeared to be —
presto! — better-than-expected numbers.
But in each case,
investors spotted the attempts at sleight of hand, and didn’t buy it for
a second.
With Goldman Sachs, the
disappearing month of December didn’t quite disappear (it changed its
reporting calendar, effectively erasing the impact of a $1.5 billion
loss that month); JPMorgan Chase reported a dazzling profit partly
because the price of its bonds dropped (theoretically, they could retire
them and buy them back at a cheaper price; that’s sort of like saying
you’re richer because the value of your home has dropped); Citigroup
pulled the same trick.
Bank of America sold its
shares in China Construction Bank to book a big one-time profit, but Ken
Lewis heralded the results as “a testament to the value and breadth of
the franchise.”
Sydney
Finkelstein, the Steven Roth professor of management at the Tuck School
of Business at Dartmouth College, also pointed out that Bank of America
booked a $2.2 billion gain by increasing the value of Merrill Lynch’s
assets it acquired last quarter to prices that were higher than Merrill
kept them.
“Although
perfectly legal, this move is also perfectly delusional, because some
day soon these assets will be written down to their fair value, and it
won’t be pretty,” he said.
Investors reacted by
throwing tomatoes. Bank of America’s stock plunged 24 percent, as did
other bank stocks. They’ve had enough.
Why can’t anybody read
the room here? After all the financial wizardry that got the country —
actually, the world — into trouble, why don’t these bankers give their
audience what it seems to crave? Perhaps a bit of simple math that could
fit on the back of an envelope, with no asterisks and no fine print,
might win cheers instead of jeers from the market.
What’s particularly
puzzling is why the banks don’t just try to make some money the
old-fashioned way. After all, earning it, if you could call it that, has
never been easier with a business model sponsored by the federal
government. That’s the one in which Uncle Sam and we taxpayers are
offering the banks dirt-cheap money, which they can turn around and lend
at much higher rates.
“If the federal
government let me borrow money at zero percent interest, and then lend
it out at 4 to 12 percent interest, even I could make a profit,” said
Professor Finkelstein of the Tuck School. “And if a college professor
can make money in banking in 2009, what should we expect from the highly
paid C.E.O.’s that populate corner offices?”
But maybe now the banks
are simply following the lead of Washington, which keeps trotting out
the latest idea for shoring up the financial system.
The latest big idea is
the so-called stress test that is being applied to the banks,
with results expected at the end of this month.
This is playing to a
tough crowd that long ago decided to stop suspending disbelief. If the
stress test is done honestly, it is impossible to believe that some
banks won’t fail. If no bank fails, then what’s the value of the stress
test? To tell us everything is fine, when people know it’s not?
“I can’t think of a
single, positive thing to say about the stress test concept — the
process by which it will be carried out, or outcome it will produce, no
matter what the outcome is,” Thomas K. Brown, an analyst at
Bankstocks.com, wrote. “Nothing good can come of this and, under
certain, non-far-fetched scenarios, it might end up making the banking
system’s problems worse.”
The results of the
stress test could lead to calls for capital for some of the banks. Citi
is mentioned most often as a candidate for more help, but there could be
others.
The expectation, before
Monday at least, was that the government would pump new money into the
banks that needed it most.
But that was before the
government reached into its bag of tricks again. Now Treasury, instead
of putting up new money, is considering swapping its preferred shares in
these banks for common shares.
The benefit to the bank
is that it will have more capital to meet its ratio requirements, and
therefore won’t have to pay a 5 percent dividend to the government. In
the case of Citi, that would save the bank hundreds of millions of
dollars a year.
And — ta da! — it will
miraculously stretch taxpayer dollars without spending a penny more.
Bob Jensen's threads on accounting theory ---
http://www.trinity.edu/rjensen/Theory01.htm
Bob Jensen's threads on controversies in the setting of accounting
standards ---
http://www.trinity.edu/rjensen/Theory01.htm#MethodsForSetting
Bob Jensen's threads on controversies in the setting of accounting
standards ---
http://www.trinity.edu/rjensen/Theory01.htm#MethodsForSetting
April 3, 2013 message from Bob
Jensen
- Hi Tom,
Although I'm inclined to agree
with you about the the decline in quality of financial reporting, but
I'm not as inclined to put as much blame on the accounting standards
setters. Perhaps we've just given standard setters an impossible job.
Much of the blame has to be
placed on the clients themselves along with their lawyers and
accountants who created contracts so filled with contingencies and
incomprehensible clauses that it's impossible to account for them, at
least in our overly simplistic double-entry system of accounting.
There were once thousands and
now ten thousands of types of complicated derivatives contracts,
financial structures, and collateralizations. We require accounting
systems to mark contracts to market when markets are thin and unstable
as morning dew on flower petals in a wind.
I think even you would be
overwhelmed if you were appointed to the IASB or IASB. I know that I
would be dumbfounded in less than a week.
As to externalities, I don't
think we will ever be able to measure the costs and benefits because of
the higher order interactions that befuddle even our best scientists. I
sit up here in the mountains and view first-hand what I think is global
warming. But the scientists who measure temperatures around the world
tell us that temperatures are declining rather than rising. There's ever
so much we don't understand in science, macroeconomics (where we are now
facing complexities we've never seen in the history of the world). and
financial risk contracting that the experts who write the contracts do
not understand.
We bookkeepers clomp around in
worlds where angels fear to tread. We can't even explain why financial
statements lost predictive ability since the 1970s.
Respectfully,
Bob Jensen
Teaching Case
From The Wall Street Journal Accounting Weekly Review on April 5, 2013
Regulators Let Big Banks Look Safer Than They Are
by:
Sheila Bair
Apr 02, 2013
Click here to view the full article on WSJ.com
TOPICS: Banking, Derivatives, Fair-Value Accounting Rules,
Investments, Regulation
SUMMARY: The point of this opinion page piece by the former
chairman of the FDIC is that "capital-ratio rules...[lead to the view that]
fully collateralized loans are considered riskier than derivatives
positions.... The recent Senate report on the J.P. Morgan Chase 'London
Whale' trading debacle revealed emails, telephone conversations and other
evidence of how Chase managers manipulated their internal risk models to
boost the bank's regulatory capital ratios.... [B]ecause regulators allow
banks to use a process called 'risk weighting,' [banks] raise their capital
ratios by characterizing the assets they hold as 'low risk.'" Ms. Bair goes
on to describe the process of asset measurement by comparing risk-weighted
to "accounting-based" assets.
CLASSROOM APPLICATION: The article may be used in a class when
introducing fair value disclosures, accounting for derivatives, financial
statement analysis for banking, or just the various asset valuation methods
that may be used as identified in the U.S. FASB's or IASB's Conceptual
Framework.
QUESTIONS:
1. (Introductory) Who is Sheila Bair? What is Ms. Bair's concern
with bank regulation and banks' capital ratios? In your answer, define the
latter term.
2. (Advanced) Define the contents of a bank's balance sheet:
identify major assets, major liabilities, and the types of capital, or
shareholders' equity you expect to see on a bank balance sheet.
3. (Advanced) "On average, the three big universal banking
companies (J.P. Morgan Chase, Bank of America and Citigroup) risk-weight
their assets at only 55% of their total assets. For every trillion dollars
in accounting assets, these megabanks calculate their capital ratio as if
the assets represented only $550 billion of risk." How is it possible that
total assets as reported in a bank balance sheet only contain risk
representing a little more than half of their reported amounts?
4. (Advanced) What are the different valuation methods that may be
used for a bank's assets-in fact, for any company's assets? Cite
authoritative literature from a conceptual framework discussing the use of
these valuation methods and the types of assets for which they should be
used.
5. (Advanced) What are the three levels of determining fair values
for which accounting standards require different types of disclosure? For
which of these categories of assets is Ms. Bair concerned about bank's risk
assessment? (Note that the bank regulatory capital requirements are
different from the accounting disclosure requirements for assets reported at
fair values.)
6. (Advanced) Refer to the related article. Who was the London
Whale and how did his and his manager's actions show that valuation models
can be manipulated?
7. (Advanced) Refer again to the London Whale. How do "capital
regulations create incentives for even legitimate models to be manipulated,"
as stated by Ms. Bair?
Reviewed By: Judy Beckman, University of Rhode Island
RELATED ARTICLES:
JP Morgan 'Whale' Report Signals Deeper Problem
by Dan Fitzpatrick and Gregory Zuckerman
Jul 14, 2012
Online Exclusive
"Regulators Let Big Banks Look Safer Than They Are," by Sheila Bair, The
Wall Street Journal, April 2, 2013 ---
http://online.wsj.com/article/SB10001424127887323415304578370703145206368.html?mod=djem_jiewr_AC_domainid
The recent Senate report on the J.P. Morgan Chase
JPM +0.21% "London Whale" trading debacle revealed emails, telephone
conversations and other evidence of how Chase managers manipulated their
internal risk models to boost the bank's regulatory capital ratios. Risk
models are common and certainly not illegal. Nevertheless, their use in
bolstering a bank's capital ratios can give the public a false sense of
security about the stability of the nation's largest financial institutions.
Capital ratios (also called capital adequacy
ratios) reflect the percentage of a bank's assets that are funded with
equity and are a key barometer of the institution's financial strength—they
measure the bank's ability to absorb losses and still remain solvent. This
should be a simple measure, but it isn't. That's because regulators allow
banks to use a process called "risk weighting," which allows them to raise
their capital ratios by characterizing the assets they hold as "low risk."
For instance, as part of the Federal Reserve's
recent stress test, the Bank of America BAC +0.33% reported to the Federal
Reserve that its capital ratio is 11.4%. But that was a measure of the
bank's common equity as a percentage of the assets it holds as weighted by
their risk—which is much less than the value of these assets according to
accounting rules. Take out the risk-weighting adjustment, and its capital
ratio falls to 7.8%.
On average, the three big universal banking
companies (J.P. Morgan Chase, Bank of America and Citigroup C +0.75% )
risk-weight their assets at only 55% of their total assets. For every
trillion dollars in accounting assets, these megabanks calculate their
capital ratio as if the assets represented only $550 billion of risk.
As we learned during the 2008 financial crisis,
financial models can be unreliable. Their assumptions about the risk of
steep declines in housing prices were fatally flawed, causing catastrophic
drops in the value of mortgage-backed securities. And now the London Whale
episode has shown how capital regulations create incentives for even
legitimate models to be manipulated.
According to the evidence compiled by the Senate
Permanent Subcommittee on Investigations, the Chase staff was able to
magically cut the risks of the Whale's trades in half. Of course, they also
camouflaged the true dangers in those trades.
The ease with which models can be manipulated
results in wildly divergent risk-weightings among banks with similar
portfolios. Ironically, the government permits a bank to use its own
internal models to help determine the riskiness of assets, such as
securities and derivatives, which are held for trading—but not to determine
the riskiness of good old-fashioned loans. The risk weights of loans are
determined by regulation and generally subject to tougher capital treatment.
As a result, financial institutions with large trading books can have less
capital and still report higher capital ratios than traditional banks whose
portfolios consist primarily of loans.
Compare, for instance, the risk-based ratios of
Morgan Stanley, MS 0.00% an investment bank that has struggled since the
crisis, and U.S. Bancorp, USB 0.00% a traditional commercial lender that has
been one of the industry's best performers. According to the Fed's latest
stress test, Morgan Stanley reported a risk-based capital ratio of nearly
14%; take out the risk weighting and its ratio drops to 7%. USB has a
risk-based ratio of about 9%, virtually the same as its ratio on a non-risk
weighted basis.
In the U.S. and most other countries, banks can
also load up on their own country's government-backed debt and treat it as
having zero risk. Many banks in distressed European nations have
aggressively purchased their country's government debt to enhance their
risk-based capital ratios.
In addition, if a bank buys the debt of another
bank, it only needs to include 20% of the accounting value of those holdings
for determining its capital requirements—but it must include 100% of the
value of bonds of a commercial issuer. The rules governing capital ratios
treat Citibank's debt as having one-fifth the risk of IBM IBM -0.05% 's. In
a financial system that is already far too interconnected, it defies reason
that regulators give banks such strong capital incentives to invest in each
other.
Regulators need to use a simple, effective ratio as
the main determinant of a bank's capital strength and go back to the drawing
board on risk-weighting assets. It does make sense to look at the riskiness
of banks' assets in determining the adequacy of its capital. But the current
rules are upside down, providing more generous treatment of derivatives
trading than fully collateralized small-business lending.
The main argument megabanks advance against a tough
capital ratio is that it would force them to raise more capital and hurt the
economic recovery. But the megabanks aren't doing much new lending. Since
the crisis, they have piled up excess reserves and expanded their securities
and derivatives positions—where they get a capital break—while loans, which
are subject to tougher capital rules, have remained nearly flat.
Continued in article
After the Bailout the Banks are Still Hiding Debt and the
Auditors Acquiesce
"Major Banks Said to Cover Up Debt Levels," The New York Times via The
Wall Street Journal, April 9, 2010 ---
http://dealbook.blogs.nytimes.com/2010/04/09/major-banks-said-to-cover-debt-levels/?dlbk&emc=dlbk
Goldman Sachs,
Morgan Stanley, JPMorgan
Chase, Bank of America and
Citigroup are the big names among
18 banks revealed by data from the Federal Reserve
Bank of New York to be hiding their risk levels in
the past five quarters by lowering the amount of
leverage on the balance sheet before making it
available to the public, The Wall Street Journal
reported.
The Federal
Reserve’s data shows that, in the middle of
successive quarters, when debt levels are not in the
public domain, that banks would acknowledge debt
levels higher by an average of 42 percent, The
Journal says.
“You want your leverage to
look better at quarter-end than it actually was
during the quarter, to suggest that you’re taking
less risk,” William Tanona, a former Goldman analyst
and head of financial research in the United States
at Collins Stewart, told The
Journal.
The newspaper suggests this
practice is a symptom of the 2008 crisis in which
banks were harmed by their high levels of debt and
risk. The worry is that a bank displaying too much
risk might see its stocks and credit ratings suffer.
There is nothing illegal
about the practice, though it means that much of the
time investors can have little idea of the risks the
any bank is really taking.
Bob Jensen's threads on off-balance-sheet financing ---
http://www.trinity.edu/rjensen/Theory02.htm#OBSF2
From the CFO.com Morning Ledger on April 2, 2013
Former SEC chief lands new job. Less than four months after
stepping down as SEC chief, Mary Schapiro is joining a consulting firm —
Promontory Financial — that has built a reputation as a shadow regulator by
hiring scores of former government officials,
the WSJ’s Jean Eaglesham reports.
“In my case, there’s no revolving door…I won’t ever be
going back to government,” Ms. Schapiro said in an interview. She said she
won’t exploit her valuable Rolodex by lobbying on behalf of clients. And she
has agreed with Promontory to never appear before any federal agency on
behalf of a client.
Jensen Comment
Whew! I thought she might make big bucks lobbying for IFRS convergence. Yeah
Right!
From the CFO.com Morning Ledger on April 8, 2013
Tech companies’ food freebies stoke tax debate
The free meals that Silicon Valley companies like
Google and
Facebook dole out
to workers are fueling a growing debate about taxes. Tax rules around fringe
benefits are complex, but in general they categorize meals regularly
provided by an employer as a taxable perk, similar to personal use of a
company car. That leads several tax experts to wonder if some companies
providing free food may be skirting the rules,
writes the WSJ’s Mark Maremont.
Some lawyers point to an exception that allows meals
to remain untaxed if they are served for a “noncompensatory” reason for the
“convenience of the employer.” But the IRS often takes a dim view of such
claims during routine audits of companies, said Thomas M. Cryan, Jr., an
employment-tax attorney at Buchanan Ingersoll & Rooney. “If they’re in there
auditing, and you’re not taxing the meals, they’re going to challenge you on
it,” he said.
Jensen Comment
This begs the question of how to tax discounted food in company stores and
cafeterias. For example, Erika and I often eat at the Littleton Regional
Hospital because it has the best chef in this region --- the former head chef at
a luxury hotel in Northern Michigan and at a luxury resort in Vermont. Workers
in the hospital and medical office wings attached to the hospital get a 25%
discount relative to what Erika and I pay. I consider what Erika and I pay to be
about half of what we would pay in a fine local restaurant.
For example, a 10 oz. prime rib dinner with all the trimmings and dessert is
$8.95 and a fish and a chips huge dinner is $4.95. When you take 25% off of that
for medical workers, this is really a huge subsidy of about 75%.
We like the hospital food because the tremendous chef various the menu for
virtually foods of virtually all parts of the world. We generally take two
dinners home for the next day. It's much, much cheaper than buying the food and
preparing it at home. There's no beer or wine in the hospital cafeteria, but
there is also no tipping.
This is a question for AECM tax experts like Amy Donbar, Richard Sansing,
Elliot Kamlet, and Scott Bonacker.
Should the employees report what is tantamount to more than a 75% discount (in
terms of local restaurant prices for comparable meals) as a taxable benefit. To
complicate matters, eating at the hospital in some cases is "for the convenience
of the employer" for employees who often are limited to less than a half hour
for lunch such as when surgeries take longer than planned and subsequent
patients waiting in line must be expedited. In most instances, however, the
employees to get an hour for lunch --- which is more than enough time to dine
out for lunch since traffic and parking problems are virtually zero in these
boondocks.
Elliott answered that he thinks the customary discount that the hospital
allows is a 20% discount on the price to charged to non-employees.
We know some hospital workers who, like us, treat the noon meal at the cafeteria as
their main meal of the day. They often take dinners home for their family at
night.
Teaching Case
From The Wall Street Journal Accounting Weekly Review on April 12, 2013
Silicon Valley's Mouthwatering Tax Break
by:
Mark Maremont
Apr 07, 2013
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com ![WSJ Video]()
TOPICS: Compensation, Personal Taxation, Taxes
SUMMARY: Yahoo! Chief Executive Marissa Mayer instituted free meals
at Yahoo last year when she took charge. Free meals are commonplace at other
Silicon Valley high tech firms and Ms. Mayer stated, on an investor
conference call, that "free food was among the cultural changes intended to
make 'Yahoo the absolute best place to work. And if you're that, I think
attracting talent comes reasonably easily.'" If free food is offered as a
perk to attract talent, then it should be taxed to the recipient as income.
But Silicon Valley firms seem not to have been treating this benefit as a
perk. The companies take the stand that meals may remain untaxed under the
argument that "they are served for a 'noncompensatory' reason for the
'convenience of the employer.'" "...Lawyers argue that some technology firms
could qualify, in part because free food encourages longer work hours and is
a crucial part of Silicon Valley's collaborative culture. [However,] the IRS
often takes a dim view of such claims during routine audits of companies,
said...a Washington, D.C., employment-tax attorney...."
CLASSROOM APPLICATION: The article may be used in either corporate
or personal tax classes covering taxable benefits and the IRS approach of
penalizing companies through audits for not reporting the perks as income.
QUESTIONS:
1. (Introductory) According to tax law, what is compensation to
employees? How might free meals available at Silicon Valley high tech firms
be considered compensation to employees?
2. (Advanced) What description made by the CEO of Yahoo, Marissa
Mayer, is indicative of free meals being considered compensation to
employees?
3. (Advanced) If these free meals are considered to be
compensation, how must the compensation be reported to the IRS? Who is
responsible for paying the income tax? (Hint: the related video helps with a
practical example on this issue.)
Reviewed By: Judy Beckman, University of Rhode Island
RELATED ARTICLES:
Explained: Is Your Lunch a Taxable Event
by Mark Maremont
Apr 07, 2013
Online Exclusive
"Silicon Valley's Mouthwatering Tax Break," by Mark Maremont, The
Wall Street Journal, April 7, 2013 ---
http://online.wsj.com/article/SB10001424127887324050304578408461566171752.html?mod=djem_jiewr_AC_domainid
When outsiders visit Silicon Valley, the first
thing they often notice is the food: Cafeterias brimming with free gourmet
meals and snacks offered to employees of Google Inc., GOOG +0.03% Facebook
Inc. FB +1.60% and other technology firms.
But not all is as it seems in the buffet line.
There is growing controversy among tax experts about how to treat these
coveted freebies. The Internal Revenue Service also has been focusing on the
topic, according to attorneys who practice in the area, examining whether
the free food is a fringe benefit on which employees should pay additional
tax.
Tax rules around fringe benefits are complex, but
in general they categorize meals regularly provided by an employer as a
taxable perk, similar to personal use of a company car. That leads several
tax experts to wonder if some companies providing free food may be skirting
the rules.
"I clearly think it ought to be taxable income,"
said Martin J. McMahon, Jr., a tax-law professor at the University of
Florida, who argues that in most cases the meals are really part of a
compensation package.
Other lawyers point to an exception that allows
meals to remain untaxed if they are served for a "noncompensatory" reason
for the "convenience of the employer." The exception generally has been
applied to workers in remote locations or in professions where reasonable
lunch breaks aren't feasible. But these lawyers argue that some technology
firms could qualify, in part because free food encourages longer work hours
and is a crucial part of Silicon Valley's collaborative culture.
The IRS often takes a dim view of such claims
during routine audits of companies, said Thomas M. Cryan, Jr., a Washington,
D.C., employment-tax attorney at Buchanan Ingersoll & Rooney PC "If they're
in there auditing, and you're not taxing the meals, they're going to
challenge you on it," he said. "I have worked on audits for large tech
companies in Silicon Valley on this exact issue," he added, but declined to
name the clients.
Mr. Cryan said employers generally settle, then
come up with a fair-market value for the free meals, which they include in
employees' future paycheck stubs. In those cases, he said, companies often
ensure their employees don't lose out, by giving them extra pay to cover
their larger tax bills.
An IRS spokesman declined to comment.
Google has more than 120 cafes world-wide serving
over 50,000 meals a day, according to its website, which says the aim is to
foster collaboration and healthy eating. A spokeswoman declined to comment
on the tax treatment of employee meals. Several former employees who
recently left Google said the company didn't include the value of the meals
in their paystubs or in W-2 tax statements.
A Facebook spokesman said: "We believe we are
compliant with the law."
Technically, any unpaid back taxes would be owed by
individual employees. In practice, tax lawyers say, the IRS tries to dun the
employer for failing to withhold taxes on the meals' collective value.
Although collectively hundreds of millions of
dollars in taxes could be involved, some experts say the more significant
issue is fairness. If some employers are allowed to offer tax-free perks,
they argue, that puts other employers and employees at a disadvantage, and
if left unchecked could spread.
"I buy my lunch with after-tax dollars," said Mr.
McMahon, the University of Florida professor. "And I have to pay taxes to
support free meals for those Google employees."
Still, an IRS crackdown could raise hackles in the
influential technology industry, and generate concerns that the federal
government is interfering—for relative pocket change—with a culture that has
made Silicon Valley a world leader.
"There are real benefits for knowledge workers in
having unplanned, face to face interaction," and free food helps facilitate
that, said Victor Fleischer, a tax-law professor at the University of
Colorado, who argues that aggressive enforcement of tax laws might be poor
public policy in this case.
Although some employers long have been providing
free lunches for their executives or even ordinary workers, Silicon Valley
has taken the practice to a new level.
A Gourmet magazine article last year raved about
the "mouthwatering free food" at Google's headquarters in Mountain View,
Calif. The article cited dishes such as porcini-encrusted grass-fed beef and
noted that nearly half the produce was organic.
What would a food tax on Google's meals look like
for the average employee? Assuming a fair-market value of between $8 and $10
per meal, a Googler chowing down two squares a day could get dinged for
taxes on an extra $4,000 to $5,000 a year.
Facebook's headquarters in nearby Menlo Park,
Calif., has two main cafes, plus a barbecue shack, a pizza shop, a burrito
bar, and a 50s-style burger joint. Recent menu options at Facebook's Café
Epic, which dishes up free food from morning until night, included spicy
she-crab soup and grilled steak with chimichurri sauce.
Both Twitter Inc. and Zynga Inc. ZNGA -1.16% offer
three free meals a day in their San Francisco offices. A Zynga spokeswoman
had no comment, and a Twitter spokesman confirmed the free meals policy but
otherwise didn't comment.
Tax experts say companies should be careful how
they describe the free-meals perk, lest they imply that compensation or
recruiting is the real aim, not employer convenience.
Continued in article
"Ex-Goldman Trader Pleads Guilty to Fraud," by Chad Bray and Justin
Baer, The Wall Street Journal, April 3, 2013 ---
http://online.wsj.com/article/SB10001424127887324600704578400332210938670.html
In late 2007, with a seven-figure bonus and his
reputation at Goldman Sachs Group Inc. GS -2.28% on the line, Matthew Taylor
placed an $8.3 billion futures bet and hid it from his bosses. Now, he faces
a possible long prison sentence.
On Wednesday, Mr. Taylor pleaded guilty to a single
count of wire fraud for concealing the trades, which cost Goldman $118.4
million to unwind. He told a federal judge he made the big bets to boost his
reputation and bonus at the bank.
"I accumulated this trading position and concealed
it for the purpose of augmenting my reputation at Goldman and increasing my
performance-based compensation," Mr. Taylor said at a hearing in Manhattan
federal court on Wednesday. "I am truly sorry for my actions." Related
U.S. Attorney's Case Against Taylor Plea Agreement
CFTC Complaint Against Trader Taylor's Response to CFTC Complaint
Ex-Trader's Gambit Bites Goldman CFTC Charges Trader With Concealing $8.3
Billion Trade
Prosecutors recommended a sentencing-guidelines
range of two years and nine months to three years and five months in prison.
The range was based in part on Mr. Taylor's compensation for 2007—$150,000
in salary and an expected $1.6 million bonus—rather than the loss suffered
by Goldman.
But the judge in the case sent a signal that the
ex-trader might face an even stiffer sentence. U.S. District Judge William
Pauley III questioned why prosecutors, in negotiating a plea agreement,
didn't seek a longer potential sentence. "He cooked the books," the judge
said.
Sentencing is set for July 26.
Wednesday's plea is the latest twist in the case of
a young trader whose career went off track in the final days of 2007, just
as the securities industry was bracing for the looming crisis.
It also comes as time is running out for
prosecutors and regulators to bring actions related to the events that
occurred in the months leading up to and during the downturn.
Mr. Taylor attended high school in suburban Boston,
where his guidance counselor, Adelaide Greco, remembers him as the class
valedictorian once named "most likely to succeed." While enrolled at the
Massachusetts Institute of Technology, he returned to his high school to
talk to students about achieving one's dreams, Ms. Greco said. "Kids looked
up to him," she said.
From MIT, Mr. Taylor headed to Wall Street. He
worked for Morgan Stanley MS -2.72% from 2001 until 2005, then landed at
Goldman.
By November 2007, Mr. Taylor was an
equity-derivatives trader on Goldman's Capital Structure Franchise Trading
desk and had lost a "significant portion" of the trading profits he had
accumulated earlier that year, according to criminal charging documents
filed by prosecutors Wednesday.
Because of his lost profits and the general market
conditions, his supervisors ordered him to rein in the risks he was taking.
By December, they had told him his annual bonus would decline
"significantly," according to the document.
In mid-December, Mr. Taylor ratcheted up the size
of his bet on electronic futures contracts tied to the Standard & Poor's
500-Stock Index, accumulating a position with a face value of $8.3 billion.
That figure, court records show, exceeded the risk
limits for his entire desk at Goldman, a group of about 10 traders.
At the same time, Mr. Taylor also made false trade
entries that appeared to take the opposite side of that bet. The purpose,
according to court records: "to conceal and understate the true size" of his
long position on so-called S&P 500 E-mini futures.
Goldman fired Mr. Taylor on Dec. 21, 2007, for
"alleged conduct related to inappropriately large proprietary futures
positions in a firm trading account," the bank wrote in a filing submitted
to the Financial Industry Regulatory Authority, which oversees
broker-dealers.
Goldman agreed to pay $1.5 million in December to
settle civil charges by the CFTC that it failed to supervise Mr. Taylor. The
agency also said in its complaint against the bank that it wasn't fully
forthcoming with regulators when Mr. Taylor was fired. Goldman settled the
charges without admitting or denying wrongdoing.
The bank cooperated in the probe, according to a
person familiar with the investigation. "We are very disappointed by Mr.
Taylor's unauthorized conduct and betrayal of the firm's trust in him," a
Goldman spokeswoman said Wednesday.
The episode didn't bring an immediate end to Mr.
Taylor's Wall Street career. In March 2008, he returned to Morgan Stanley as
trader in the firm's equities division. He left Morgan Stanley a second time
last August, according to Finra.
Continued in article
"JPMorgan Chase, And Dimon, Starting To Sweat About Everything," by
Francine McKenna, re:TheAuditors, April 3, 2013 ---
http://retheauditors.com/2013/04/03/jpmorgan-chase-and-dimon-starting-to-sweat-about-everything/
Banking and investment banking have become rotten to the core ---
http://www.trinity.edu/rjensen/FraudRotten.htm#InvestmentBanking
Bob Jensen's Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
"With Ron Johnson Out, What Should J.C. Penney Do Now?" by Rafi
Mohammed, Harvard Business Review Blog, April 9, 2013 ---
Click Here
http://blogs.hbr.org/cs/2013/04/now_what_should_jc_penney_do.html?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date
Jensen Comment
When I asked my wife that question she says the answer is simple --- bring back
that J.C. Penney catalog that was as thick as the Chicago telephone directory.
Before Jzock Pennea dropped this catalog she managed to be elected to its
Hall of Fame.
This morning we are going to St. Johnsbury, Vermont for one of Erika's
medical appointments. Afterwards Erika insists, as always, that we go to the
really nice J.C. Penney department store in St. J. Ibet 20 to 1 odds that we
will be the only shoppers in the store. All the Vermonters will be down in a New
Hampshire Wal-Mart trying to beat the Vermont sales tax.
Travelers Casualty Sues PwC for Negligence
Travelers Casualty and Surety Co. of America has sued
PricewaterhouseCoopers LLP in New Jersey on behalf of Alfa Wasserman Inc.,
claiming PwC should have uncovered chinks in the laboratory instrument maker's
accounting processes that enabled a nearly $880,000 embezzlement scheme ---
http://www.lexisnexis.com/community/insurancelaw/blogs/mealeysandlaw360/archive/2013/04/01/travelers-blames-pwc-for-embezzlement-scheme.aspx
Bob Jensen's threads on lawsuit woes of PwC are at
http://www.trinity.edu/rjensen/Fraud001.htm
"Wait Continues for Lease Accounting Clarity: CFOs have to wait longer for
an agreement on lease-accounting standards. But they may not mind the wait,
considering that more record-keeping may be on tap,". by Kathleen Hoffelder,
CFO.com ---
http://www3.cfo.com/article/2013/4/gaap-ifrs_lease-accounting-elfa-debt-covenant-issues-fasb-iasb
Jensen Comment
I don't think standard setters will ever resolve the problem of (operating)
lease accounting until they come to grips with how to account for renewal
options and probabilities.
Bob Jensen's threads on the lease accounting mess ---
http://www.trinity.edu/rjensen/Theory02.htm#Leases
Wunderbar: USA Auditors Don't Have a Monoply on Incompetence When
Valuting Derivative Financial Instruments
"German regulators probe Deutsche Bank accounting - sources," Fox Business,
April 4, 2013 ---
http://www.foxbusiness.com/news/2013/04/04/german-regulators-probe-deutsche-bank-accounting-sources/
"The Debt Bomb That Taxpayers Won't See Coming ," by Steven Malanga,
The Wall Street Journal, March 29, 2013 ---
http://online.wsj.com/article/SB10001424127887324077704578362101467799948.html
Earlier this month, the Securities and Exchange
Commission charged Illinois officials with making misleading statements to
bond investors about the state's pension system. The agency detailed a long
list of deceptive practices including failure to tell investors that the
system was so underfunded that it risked bankruptcy.
Illinois taxpayers, as well as the holders of its
debt, will ultimately bear the burden of the officials' misdeeds. But there
is nothing unique about the Prairie State. For years, elected officials in
states and municipalities across the country have been imprudently piling up
obligations that are imposing serious strains on budgets, prompting higher
taxes and cutbacks in services.
In January, city officials in Sacramento,
California's capital, reported the results of a study they had commissioned
on all the debt that the municipality had incurred. At a City Council
meeting that the Sacramento Bee reported as "sobering," the city manager
explained that Sacramento had racked up some $2 billion in obligations
(mostly pensions and retiree health care). All this for a municipality of
477,000 residents with an annual general fund budget of just $366 million.
Sacramento finances are already stretched—the city
has cut some 1,200 workers, or 20% of its workforce, in the past several
years. Servicing its debt in years to come will only add more woe,
especially given the intractability of public unions. The budget report
noted that "While reducing staff is clearly not the preferred method for
reducing costs, the city has a very limited ability to reduce the cost of
labor absent cooperation from the city's employee groups."
According to studies by the Pew Center on the
States, states and the biggest cities have made nearly three-quarters of a
trillion dollars in promises to pay for retiree health-care insurance. Yet
governments have set aside only about 5% of the money they'll need to pay
for these promises.
This year a Chicago city commission reported that
retiree health-care expenditures would soar from $109 million in this year's
budget to $541 million in a decade. After concluding that the expenditures
were unaffordable, one member of the commission proposed that retirees be
required to sign on to the Illinois Health Insurance Exchange being created
under President Obama's Affordable Care Act. Health insurance would be
cheaper if it is subsidized by the federal government.
A December report by the States Project, a joint
venture of Harvard's Institute of Politics and the University of
Pennsylvania's Fels Institute of Government, estimated that state and local
governments now owe in sum a staggering $7.3 trillion. Incredibly, the vast
majority of this debt has never been approved by taxpayers, who are often
unaware of the extent of their obligations.
Most state constitutions and many municipal
charters limit borrowing and mandate voter approval. No matter. Politicians
evade the limits, issuing billions of dollars in municipal offerings never
approved by voters, sometimes with disastrous consequences. Courts have
rubber-stamped many of these schemes.
The debt incurred by New Jersey for school projects
is a case in point. In 2001, legislators in Trenton hatched a scheme to
borrow a shocking $8.6 billion for refurbishing school buildings. The
reaction to their plan in the press and among taxpayer groups was so
negative that the politicians knew that voters would never approve it. So
the legislature created an independent borrowing authority. Since it, and
not taxpayers, would take on the debt, politicians claimed that there was no
need for voters' consent.
Taxpayer groups challenged the maneuver. The state
Supreme Court brushed aside their objections, arguing that there was already
precedent for such borrowing.
New Jersey's Schools Construction Corp. quickly
squandered half of the money on patronage and inefficient construction
practices, so in 2005 the state borrowed another $3.9 billion. All of the
debt is being repaid by taxpayers. The authority, which was dissolved
several years ago, had no revenues of its own.
Next door, in New York, a scant 5% of the Empire
State's $63 billion in outstanding debt has ever been authorized by voters,
according to the state comptroller. The rest has been engineered through
independent authorities such as the Transitional Finance Authority.
These authorities are designed to circumvent
voters. Of the seven bond offerings that have gone before New York voters in
the past 25 years, four have been defeated. But thanks to unsanctioned debt,
New Yorkers bear the second-highest per capita debt burden in the nation,
$3,258, according to a January report by the state comptroller. New Jersey
is No. 1, at $3,964.
To prevent the pile-up of hidden debt, taxpayers
need to spearhead a revolt that will narrow the ability of officials to
mortgage their future. Any such revolt will first of all seek an end to
government sponsored defined-benefit pension plans, through which
politicians promise benefits years hence to current employees in a manner
that potentially leaves taxpayers on the hook for unlimited liabilities.
Simpler, defined-contribution plans featuring individual retirement accounts
would make government pension systems less expensive and their accounting
more transparent.
Continued in article
Jensen Comment
I was wondering why my tax exempt bond fund keeps paying relatively high
interest rates each month. Yipes! Now I know.
"Former comptroller general urges fiscally responsible reforms," by
Ken Tysiac, Journal of Accountancy, October 6, 2012 ---
http://journalofaccountancy.com/News/20126578.htm
The sad state of governmental accounting: It's all done with smoke
and mirrors ---
http://www.trinity.edu/rjensen/Theory02.htm#GovernmentalAccounting
"The Ethics of Profit Repatriation by U.S. Multinationals: U.S.
Companies Using Short-Term Loans to Avoid Taxes on Repatriated Cash," by
Steven Mintz, Ethics Sage, April 1, 2013 ---
http://www.ethicssage.com/2013/04/the-ethics-of-profit-repatriation-by-us-multinationals.html
I have previously blogged about the use of
transfer pricing techniques by U.S. companies to
shift profits away from the U.S., which has the highest corporate tax rate
(about 40%), to countries with lower tax rates such as Ireland (12.5%). As
long as profits made overseas are not repatriated back to the U.S., those
overseas profits remain untaxed by the IRS. Critics claim that a much lower
tax rate (say, 15-20%) would encourage U.S. companies to bring the profits
home in the form of investments and spur economic development and job
growth.
Other countries have come to realize their
corporate tax rates are too high. For example, Germany has reduced its rate
from a high of 45% in 2008 to 15% today. The UK has gradually lowered its
rate from 52% in 1981 to a projected 20% in 2015.
Repatriation is more than an economic issue; it has
ethical overtones. It also highlights a practice used by some U.S. companies
to skirt the repatriation law by taking the “trapped” overseas cash and
providing loans to their U.S. parent companies. Under U.S. tax rules, a
foreign subsidiary can lend funds to its parent without jeopardizing its
untaxed status. Here is how it works:
- The loans have to be short term and can remain
outstanding throughout a fiscal quarter as long as they don't cross
beyond its end. If they do cross a quarter, they can remain outstanding
for a total of 30 days. And that can be done for 60 days a year by any
one foreign unit.
- If the borrowing is carefully set up to comply
with IRS rules and U.S. auditing standards, the funds can be used over
and over without incurring taxes.
- Companies are not required to disclose these
moves, which makes it difficult to assess how many use them.
According to the
Wall Street Journal, Hewlett-Packard (H-P)
entities lent the parent about $6 billion in the year that ended in October
2010. For the 2011 fiscal year and through July 2012, the average
outstanding balance of the alternating loans was $1.6 billion.
The sums rivaled H-P's borrowings in the
commercial-paper market—the traditional source of big firms' day-to-day
funds. Those averaged $1.9 billion over the 2011-2012 period.
More details of H-P's transactions have emerged
since a 2012 hearing conducted by the U.S. Senate. The company said it told
the Senate panel it used the alternating loans for all but 85 days of the
2011 and 2012 fiscal years. In a 2008 internal presentation, H-P called the
loans "the most important source of U.S. liquidity for repurchases and
acquisitions."
H-P spokesman Michael Thacker says H-P has
"complied fully with all applicable provisions of the U.S. Internal Revenue
Code, and auditor Ernst & Young has consistently reviewed and approved the
accuracy of H-P's financials." The IRS has never raised concerns about the
loan programs, he adds.
American concerns have long argued they should be
allowed to bring back some of the estimated $1.7 trillion in profits they
hold at their foreign subsidiaries, saying the money could be put to use in
the U.S. The firms claim to be deterred by the huge tax liabilities they
would incur under current IRS tax rates.
The U.S. is the only major economy that taxes its
companies' overseas earnings. Those taxes aren't actually incurred until the
money is considered to have been transferred to the U.S. parent, giving
companies an incentive to maximize their earnings at foreign subsidiaries
and keep them there indefinitely.
People on both sides of the debate argue the system
doesn't work, creating perverse incentives that distort companies' balance
sheets and deprive the U.S. Treasury of tax revenue. The short-term loans to
avoid repatriation and taxes is the main example of the practice.
During the last Presidential election, business
interests called for a “tax holiday,” in which American corporations would
be allowed to transfer their foreign profits to their American bank accounts
at a tax rate under 6 percent for one year. Such a holiday would raise
revenues and create jobs in the U.S., according to the WinAmerica Campaign,
a coalition of companies including Apple, Google and Pfizer.
But the last time such a holiday was tried, in
2004, it raised less than $19 billion and did not substantially increase
jobs. Most of the repatriated profits went to corporate shareholders,
through dividends or stock repurchases.
Instead of a one-off holiday, some corporations —
Caterpillar and Kimberly Clark, for example — have called for a permanent
fix: a territorial system for taxing foreign corporate profits, as most
industrialized countries use. In a pure territorial system, the profits of
multinational companies based in the U.S. would be taxed only by the country
in which the profit is earned.
But none of our major trading partners takes a pure
territorial approach, for two good reasons. First, almost all countries
impose domestic taxes on “mobile” corporate income — for example, investment
interest or royalties that can easily be shifted from one country to
another. Second, many countries still collect taxes on foreign profits of
domestic corporations if those profits are earned in tax havens that collect
little or no taxes, like Bermuda and the Cayman Islands. These havens
violate the premise of the territorial system, which is that corporate
profits are taxed somewhere in the world at a reasonable rate.
Continued in article
Reporting Discontinued Operations
On April 2, 2013, the FASB issued a proposal that changes the criteria for
reporting discontinued operations. The proposal also enhances disclosure
requirements for discontinued operations and adds new disclosures for
individually material dispositions that do not qualify as discontinued
operations.
From PwC ---
Click Here
http://www.pwc.com/us/en/cfodirect/publications/in-brief/2013-18-fasb-issues-exposure-draft-on-reporting-discontinued-operations.jhtml?display=/us/en/cfodirect/publications/in-brief&j=93936&e=rjensen@trinity.edu&l=309364_HTML&u=5080218&mid=7002454&jb=0
"Groupon Revisited: New Mission, New Reporting Issues," Anthony H.
Catanach, Jr., Grumpy Old Accountants, March 29, 2013 ---
http://grumpyoldaccountants.com/blog/2013/3/29/groupon-revisited-new-mission-new-reporting-issues
Bob Jensen's threads on Groupon ---
http://www.trinity.edu/rjensen/Fraud001.htm
Do a word search for Groupon
"Federal Tax Crimes, 2013," by John A. Townsend , SSRN, February 5,
2013 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2212771
Abstract:
This is
the 2013 01 edition of the Federal Tax Crimes book that I started many years
ago for use in a Tax Fraud and Money Laundering course at the University of
Houston Law School. With some colleagues, we substantially revised that
earlier version into a separately targeted book, titled Tax Crimes published
by LEXIS-NEXIS. The full title of the LEXIS-NEXIS book is John Townsend,
Larry Campagna, Steve Johnson and Scott Schumacher, Tax Crimes (LEXIS-NEXIS
Graduate Tax Series 2008).
This pdf text offered here is a self-published version of my original text
that I have kept up since publication of the LEXIS-NEXIS book. The
LEXIS-NEXIS book is more suitable for students in a classroom setting and is
targeted specifically for graduate tax students. This pdf book I make
available here is not suitable for students in a class setting, but is more
suitable for lawyers in practice, covering far more topics and with far more
detail and footnotes that may be helpful to the busy practitioner. It cannot
be used fruitfully for the target audience of the LEXIS-NEXIS book.
Bob Jensen's Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
The Big Problem for MOOCs Visualized ---
https://mail.google.com/mail/u/0/?shva=1#inbox/13dca6e0fa137324
MOOCs — they’re getting a lot of hype, in part
because they promise so much, and in part because you hear about
students signing up for these courses in massive numbers. 60,000 signed
up for Duke’s Introduction to Astronomy on Coursera. 28,500 registered
for Introduction to Solid State Chemistry on edX. Impressive figures, to
be sure. But then the shine comes off a little when you consider that
3.5% and 1.7% of students completed these courses respectively. That’s
according to a
Visualization of MOOC Completion Rates
assembled by educational researcher
Katy Jordan,
using publicly available data. According to her
research, MOOCs have generated 50,000 enrollments on average, with the
typical completion rate hovering below 10%. Put it somewhere around
7.5%,
or 3,700 completions per 50,000
enrollments. If you click the image above, you can see interactive data
points for 27 courses.If you’re a
venture capitalist, you’re probably a little less wowed by 3,700
students taking a free course. And if you’re a university, you might be
underwhelmed by these figures too, seeing that the average MOOC costs
$15,000-$50,000, while professors
typically invest 100 hours in building a MOOC, and another 8-10 hours
per week teaching the massive course. And then
don’t forget the lousy
contract terms offered by MOOC providers like edX –
terms that make it hard to see how a university
will recoup anything on their MOOCs in the coming years.
Right now, universities are producing MOOCs
left and right, and it’s great deal for you, the students. (See
our list of 300 MOOCs.)
But I’ve been around universities long enough to know one thing — they
don’t shell out this much cash lightly. Nor do professors sink 100 hours
into creating courses that don’t count toward their required teaching
load. We’re in a honeymoon period, and, before it’s over, the raw number
of students completing a course will need to go up — way up. Remember,
the MOOC is free. But it’s the finishers who will
pay for certificates and
get placed into jobs for a fee. In short, it’s
the finishers who will create the major revenue streams that MOOC
creators and providers are relying on.
Jensen Comment
The above article brought to mind all the many, many books I checked out from
libraries or purchased that I must honestly say I did not finish. Unless there
are incentives to read to the end, we're a society of waders who stick our feet
into the waters without becoming fully submerged. A better phrase might be
"curiosity dabblers."
I think that signing up for a MOOC course in most instances is motivated by
curiosity much like checking out a book from the library just to "check it out."
The reasons we don't finish a book or a MOOC are many and varied.
For many of us leisure reading is motivated by little else other than
curiosity and leisure entertainment. Finishing a book or MOOC is not a
burning goal in life unless we are facing a competency-based examination
covering the entire book or MOOC.
Most of us underestimate how busy we will become before we finish a book
or a MOOC.
Most of us have to be very selective about where we devote our big sweat
concentrations in learning. Great learning, like great exercise/sex, cannot
be attained without deep, deep concentration and heavy sweating. Little bits
are fine and fun, but the great finishes take lots of sweat.
Most of us are easily bored.
Most of us are easily disappointed.
Most of us end our flight and get back home without quite finishing the
book that occupied our time while traveling.
Most of us in our senior years doze off without props/pokes to stay
awake. Reading is bad enough. Operas, long sermons, and lectures are deadly.
So are long drives --- which is why I prefer that Erika take the wheel when
our destination is more than 30 miles. She likes driving. I've always hated
driving like I hate other wastes of time. In my entire life I would never
have opted for a job that had a long commute. Traffic jams and long lines in
general drive me nuts.
Bob Jensen's threads on MOOCs, EdX, and MITx ---
http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI
"Students Avoid ‘Difficult’ Online
Courses, Study Finds," by Ann Schnoebelen, Chronicle of Higher Education,
April 26, 2013 ---
http://chronicle.com/blogs/wiredcampus/students-avoid-difficult-online-courses-study-finds/43603?cid=wc&utm_source=wc&utm_medium=en
Jensen Comment
Students just don't understand that when done correctly online courses can have
more rather than less interactions with the instructor and other students who
can help them. Of course, not all distance education courses are "done
correctly/" MOOC classes tend to be so huge that interactions are
minimized. MOOCs, however, often have some of the best lecturers in the world
and are sought after because they are free. MOOCs sometimes take advantage of
technology like screen cast videos that can be repeated over and over until
mastered. This is also the idea behind Khan Academy videos.
Bob Jensen's threads on distance education alternatives around the world
---
http://www.trinity.edu/rjensen/Crossborder.htm
Denny Beresford visited Joe with some interesting advice for accounting
students!
Watch for Anaheim Joe on August 7, 2013 at the AAA Meetings
"NICE NEWS (for Joe Hoyle) and GREAT STUDENT ADVICE (from Denny Beresford),"
by Joe Hoyle, Teaching Blog, April 4, 2013 ---
http://joehoyle-teaching.blogspot.com/2013/04/nice-news-and-great-student-advice.html
I got the nicest email a few days ago from the
president of the American Accounting Association: “I am happy to give you
some great news: you have been selected as the recipient of the 2013
Innovation in Accounting Education award for your blog, Joe Hoyle: Teaching
-- Getting the Most From Your Students. The award was established to foster
innovation and improvement in accounting education through ‘significant
programmatic changes or a significant activity, concept, or set of
educational materials.’”
I was really thrilled.
As a result, I will make a 90 minute presentation
on August 7 at the AAA annual meeting in Anaheim. If you are going to be at
that conference, I hope you will stop by.
And, I want to thank everyone who reads this blog
for helping to spread the word. We have now had 78,000 page views over the
years and my guess is that most of those hits came from you guys telling
other folks about the blog. So I believe that the above award should be
shared with you. Thanks!!! **
For two days last week, Dennis Beresford – the
former chairman of the Financial Accounting Standards Board – was on our
campus. He gave talks and presentations to several hundred of our students
as well as over 100 members of the local accounting community. It was a
wonderful couple of days here at the University of Richmond.
At one presentation, a student in the audience
asked “What piece of advice would you give to us as college students?”
That was a very legitimate question to ask a person who has been so very
successful in the business world and as a college educator.
I did not try to write down every word that Mr.
Beresford said in response but I did love his answer and I want to
paraphrase it here. He paused for a moment and then talked about students
often being too interested in focusing on getting 120 hours of nothing but
accounting. He spoke about the importance of gaining a broader education and
coming to appreciate classes outside of accounting and business.
I wish I could have written down every word because
it was a great answer. I could not have agreed more to what he said. A
college education should be about creating a foundation for a thoughtful
life rather than a quest for a first job. Understanding accounting is, of
course, important but college needs to be about more than just making sure
the debits equal the credits. If that is all a person wants to learn, life
is going to be very dull.
After Mr. Beresford’s talk, I started thinking
about how to encourage my students to develop that kind of attitude. I
certainly want my students to learn lease accounting and pension accounting
but I also want them to appreciate art, literature, and the like. How do you
push a student to go outside of his or her comfort zone?
Luckily, registration for the fall semester is
coming up so the selection of courses is on everyone’s mind at the moment. I
quickly wrote a note to our seniors graduating in accounting and asked each
of them to hit reply and tell me the name of the best course they had ever
taken at the University of Richmond outside of the Robins Business School. I
explained what I wanted to do and asked them to identify that special,
non-business course.
Almost immediately, a long list of courses started
pouring into my email account. Several students listed multiple courses they
would recommend. I had not asked for any type of explanation but many of the
students wrote out glowing comments about a particular course and what they
had learned.
To me, the list was thoroughly fascinating
including such courses as Hebrew Prophets, Justice in Civil Society, The
Propaganda State, Minds and Machines, Leadership and Economic Policy, Thomas
Jefferson and Revolutionary American, Introduction to Film Studies, Civil
Rights and Civil Liberties, Lincoln, Saints and Sinners in Muslim
Literature, Elementary Symbolic Logic, Introduction to Environmental
Studies, and Global Women Writers.
The list was so interesting that I was ready to go
back to college and take many of the courses myself.
Continued in article
"A Nose for Honest Financial Statements," by David Albrecht, Summa,
April 1, 2013 ---
http://profalbrecht.wordpress.com/2013/04/01/a-nose-for-honest-financial-statements/
Pretending to be a shoeless and homeless bum is good business
"Bum given boots by kind-hearted cop is back to begging barefoot Panhandler
has '30 pairs of shoes'," by M.L. Nestel, Kevin Fasick, and Bob Fredericks,
The New York Post, March 26, 2016 ---
http://www.nypost.com/p/news/local/manhattan/kind_cop_bum_goes_from_gift_to_grift_93SD0wxjPPCxm7lzZ8vlwM
Jensen Comment
Reminds me of the time I followed a fashionably-dressed beautiful woman with two
small children through a payment line at a supermarket in San Antonio. She paid
for her groceries with food stamps and then a man helped her load the stash into
a shiny new Cadillac Escadade (starting around at over $60,000). I overheard her
children him "Daddy." My guess is that she had more than 50 pairs of shoes
stored at his magnificent house.
Why do any parents want to get married? The food stamp game can be played
better without getting married.
"Ten Reasons to Avoid a 30 Year Mortgage," by Roger Schlesinger,
Townhall, April 8, 2013 ---
http://townhall.com/columnists/rogerschlesinger/2013/04/08/ten-reasons-to-avoid-a-30-year-mortgage-n1560810?utm_source=thdaily&utm_medium=email&utm_campaign=nl
Jensen Comment
This article reaffirms my opinion that there are very few absolutes when it
comes to personal finance. Mr. Schlesinger provides some very good points for
some home owners in many economic circumstances.
But I don't think it applies to all home owners in all circumstances. It
applied to me for most of the four homes I owned in my younger years (not
counting my present home, my ocean cottage in Maine, or the home I inherited
from my parents in Iowa). In those instances
But I can think of economic circumstances where I think a 30-year mortgage
makes more sense.
Perhaps we can have some AECM debate on this topic.
Beneish M-Score Index for Fraud Detection and Portfolio Selection
April 5, 2013 message from Tom Selling
I'm writing some study materials for CFA Institute
and need to include one example of the Beneish fraud (M) score calculation.
I haven't run any numbers yet, but I was thinking of doing it for Dell —
both before its restatement of 2006 financials and on a restated basis.
Before I run the Dell numbers, I was wondering if
anyone had a better example, hopefully showing dramatic results for
illustrative purposes, that I should run?
Best, Tom
April 6, 2013 reply from Bob Jensen
Hi Tom,
Joe Wells discusses some of the history and details and provides some
warnings in a paper called "Irrational Ratios" ---
http://www.buec.udel.edu/jenkinsd/Articles/Irrational Ratios.htm
. . .
THE NUMBERS DON’T LIE
The most basic analytical techniques
(vertical, horizontal and ratio analyses) might have given the auditors for
ZZZZ Best some important clues. Since these techniques compare changes in
the numbers from year to year, they can point out significant discrepancies.
In the ZZZZ Best case, look at what a simple ratio analysis would have
revealed (see exhibit 1, below).
|
Exhibit 1:
Selected Ratios From ZZZZ Best |
| |
1985
|
1986 |
| Current ratio of
assets to liabilities |
36.552 |
.0977 |
|
Working capital: Total assets |
0.5851 |
(0.0080) |
| Collection ratio
|
N/A |
26.131 |
|
Asset turnover |
.144 |
1.041 |
| Debt to equity ratio
|
.017 |
1.486 |
|
Receivables turnover |
N/A |
6.984 |
| Times interest
earned |
N/A |
43.136 |
|
Cost of sales: Sales |
.465 |
.423 |
| Gross margin
percentage |
53.51% |
57.68% |
|
Return on equity |
183.75% |
46.58% |
|
These numbers make no sense at all—they are
all over the place. Particularly revealing are the current ratio and the
debt to equity and return on equity ratios. The current ratio shows a
company with no cash in 1986 despite record “revenues.” The 1986 debt to
equity ratio is up 8600% from the prior year; return on equity has dropped
by more than 75%. These are not indicators of a legitimate business.
A NEW (1999) APPROACH?
Since the ZZZZ Best case, there have been attempts to develop new
analytical techniques to better assist the auditor. In his 1999 article,
“The Detection of Earnings Manipulation,” (Financial Analysts Journal, Sep./
Oct.99), Messod D. Beneish—an associate professor at the Kelly School of
Business, Indiana University—researched the quantitative differences between
public companies that had committed financial statement manipulations and
those that had not.
Beneish theorized there may be up to five useful predictors of earnings
manipulation, which he defined as “an instance in which a company’s managers
violate generally accepted accounting principles (GAAP) to favorably
represent a company’s financial performance.” Beneish’s ratios, which he
labeled “indexes,” used figures he obtained from financial statements.
Continued in article
Joe goes on to explain the ratios that are instead used in the Benish
index.
You might find the following article to be more concise ---
http://articles.businessinsider.com/2011-05-24/markets/30078297_1_earnings-manipulation-financial-ratios-gmi
. . .
Does the Beneish M-Score work?
Beneish used all the companies in the Compustat database between
1982-1992. In his out of sample tests, Beneish found that he could correctly
identify 76% of manipulators, whilst only incorrectly identifying 17.5% of
non-manipulators. You can read the
Cornell University Enron paper referred to above here.
In a 2007 paper - The
Predictable Cost of Earnings Manipulation - Beneish examines the use of
the
M score as a stock selection technique (over the period 1993-2003). The
M-score strategy apparently generated a hedged return of nearly 14% per
annum. A subsequent paper titled quot;Identifying
Overvalued Equityquot; showed that an overvaluation score (O-Score)
combining proxies for earnings overstatement, merger activity, stock
issuance, and the manipulation of operating activities was able to identify
firms with one-year-ahead abnormal price declines averaging -27%.
The Source:
This is the link to the original paper on the
Detection of Earnings Manipulation - as well as to a subsequent paper by
Beneish -
The Relation between Accruals and the Probability of Earnings Manipulation.
Other Sources
Jensen Comment
I have not studied this literature enough to pass judgment and am glad to see
you delving into this model.
My reaction to any such models is to apply Darwin's Theory on Survival of the
Fittest. If the M-Score was really a great portfolio selection model I think
there would be more evidence of it catching on in the investment world.
If the M-Score was really a great fraud detection model I think the SEC and
FBI would be employing it widely today. I don't see any evidence of this, but
your contacts within the SEC are better than my contacts (virtually zero at this
point).
As the saying goes in biology, the proof is in what survives. It's probably
too early to write the M-Score off, but I'm not really optimistic. There are too
many important variables in both fraud detection and portfolio selection that
are not even disclosed in financial statements let alonge booked into the
ledger. Hence ratios derived from financial statements are limited at the
starting line.
I have my doubts about some of the components of this model. For example, are
receivables really a big deal at Dell? I've not looked at Dell's financial
statements, but I thought Dell generally collected the money before building
a customer's computer. Dell certainly had my money in the bank before
building my two fine computers.
One thing that fraudsters might keep in mind is the M-Score model when
working up their phony financial statements. ZZZZ Best could easily have
invented financial statements that had a pretty good M-Score if the M-Score had
been invented and was a big deal at the time.
Fraudsters are really clever at getting around barriers that stand in their
way. That's why most of them don't get caught at all or don't get caught until
after the damage is done.
"Earnings Manipulation and Expected Returns," by Messod Daniel Beneish,
Charles M.C. Lee, and D. Craig Nichols, SSRN, March 31, 2013 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2241717
Abstract:
An accounting-based earnings manipulation detection model has strong
out-of-sample power to predict cross-sectional returns. Companies with a
higher probability of manipulation (M-score) earn lower returns on every
decile portfolio sorted by size, book-to-market, momentum, accruals, and
short interest. The predictive power of M-score stems from its ability to
forecast changes in accruals and is most pronounced among low-accrual
(ostensibly “high-earnings-quality”) stocks. These findings support the
investment value of careful fundamental and forensic analyses of public
companies.
Keywords:
Equity Investments, Fundamental Analysis (Sector, Industry, Company),
Valuation of Individual Equity Securities, Company Analysis, Financial
Statement Analysis, Financial Reporting Quality, Aggressive Financial
Reporting Techniques
Jensen Comment
I still stand by my knee jerk reaction that any forecasting models using only
financial statement data are likely to have missing variable problems because
there are so many important variables not contained in the financial statements.
I would look first for missing variables affecting non-discretionary
accruals versus discretionary accruals.
And always keep in mind that correlation is not causation.
"How Non-Scientific Granulation Can Improve Scientific Accountics"
http://www.cs.trinity.edu/~rjensen/temp/AccounticsGranulationCurrentDraft.pdf
Hi again Tom,
One thing to think about is that Beneish developed his fraud detection
model before FAS 133 was being widely implemented in the USA. As a result it
is built financial statement manipulation before many firms shifted tactics
for managing earnings.
Among financial institutions and some corporations that newer way of
managing earnings is hanky pank in estimation fair values of derivative
financial instruments, hanky pank in estimating edge effectiveness, and
bending the hedge accounting rules such as taking hedge accounting on
oortfolio hedges that seldom qualify for hedge accounting. I don't see how
these newer types of earnings management ploys are captured in teh Beneish
M-Factor index.
For example, probably the largest earnings management fraud in history
was committed by Franklin Raines when he was CEO of the tirllion dollar
Fannie Mae. His tactics were all three of the above hanky pank ploys with
derivative financial instruments and hedge accounting. I should be recalled
that the earnings management was so blatant that KPMG was eventually fired
from what was probably its biggest audit client in history ---
http://www.trinity.edu/rjensen/Theory02.htm#Manipulation
As I recall Dell has been accused of some hanky pank accounting for
derivative financial instruments. I can't recall the citations of the top of
my head, but Dell is certainly a heavy player in hedge accounting ---
http://www.wikinvest.com/stock/Dell_%28DELL%29/Derivative_Instruments
I just cannot see how the M-Score will effective capture hanky pank
financial statement manipulation in fair value accounting in general and in
particular accounting for speculation and hedging under FAS 133 hanky pank.
Respectfully,
Bob Jensen
Dilbert: The Best Way to Evaluate a Fund ---
http://www.ritholtz.com/blog/2013/04/dilbert-the-best-way-to-evaluate-a-fund/
"Loan Accounting? The Public Can’t Handle the Truth!" by Tom Selling,
The Accounting Onion, April 18, 2013 ---
http://accountingonion.com/2013/04/loan-accounting-the-public-cant-handle-the-truth.html
Jensen Comment
Tom never mentions our prior threads on this subject on the
AEMC that dealt
with such things as difficulties in measuring fair values of troubled loans for
which there is no market such a the hog silage lagoon loans of Ole versus Sven.
He never mentions that the FDIC "stress tests" require granulation of details
about why Ole's loan is more troublesome than Sven's loan. An assumed market for
hog sewage lagoon loans does not drill (granulate) down as to why Ole's loan is
more troublesome than Sven's loan even though both loans are in default. The
FASB approach
allows for recognition of expected payback differences between the two hog
farmers. The FDIC, on the other hand, requires this type of information in
stress tests.
Tom implies that fair values of troubled loans are not disclosed unless they
are booked into the ledgers. He doesn't mention our
AECM debates
where I propose multi-column reporting with hard-to-estimate and volatile fair
values reported in an adjoining column.
He does not mention the volatility in earnings that results from fair value
bookings that are not realized and may never be realized.
Since we've been round and round previously I see no need to debate Tom's
version of "Truth" once again since he insists that fair values be booked rather
than simply reported in an adjoining column.
My answer on fair value accounting is and will remain that the best way to
report fair values and changes in
OCI are in
multiple columns of financial statements.
April 20, 2013 reply from Bob Jensen
Hi Patricia,
Some years back I wrote the following on the AECM ---
http://www.trinity.edu/rjensen/Theory02.htm
To my knowledge the first accountant to assert
that fair value accounting was "truth" to my knowledge was Kenneth
MacNeal. I've really enjoyed these intense
friendly debates about single-column versus multiple column financial
statements with Tom Selling and Patricia Walters on the AECM. But I
do not want to leave anybody with the impression that I'm an advocate of
historical costing balance sheets. I'm opposed to such balance
sheets for reasons never envisioned by current value reporting scholars
like Kenneth MacNeal, John Canning, Ray Chambers, Bob Sterling, Edgar
Edwards, Phillip Bell, and others. I merely advocate a historical cost
column in the balance sheet because I believe there is value added in
reporting net earnings based upon only legally realized revenues and
profits under the matching principle. I do think the historical cost
balance accounts are residuals of the realized revenue matching concept
that have enormous limitations in terms of evaluating financial
opportunities and risks.
The first scholar to ever associate exit value accounting to "Truth in
Accounting" to my knowledge was Kenneth MacNeal in the context of going
concern accounting (as opposed to personal financial statements and business
liquidation accounting). His 1939 book Truth in Accounting made a
strong case for exit value accounting.
Scholars Book reprinted MacNeal's classic 1939 Book (ISBN 0914348043 )
http://books.google.com/books/about/Truth_in_Accounting.html?id=zokDYAAACAAJ
Tom Selling on January 23, 2012 wrote the following ---
http://accountingonion.typepad.com/theaccountingonion/2012/01/
For nearly 100 years leading academics have
advocated some type of current cost or value replacement of the
historical cost basis of accounting. Historical cost never pretended, as
repeatedly noted by AC Littleton, to be valuation accounting. In 1929,
John Canning started the ball rolling for current (replacement) cost
accounting, which is sometimes called "entry value" accounting. In 1939,
Kenneth MacNeal commenced the ball rolling for exit value accounting
where buildings, vehicles, and factory machinery are valued at what they
can sell for, rather than amortized historical costs.
From an academic standpoint the literature on
value accounting has probably been more focused upon the bad features
(e.g., goodwill accounting) of historical cost accounting rather than on
convincing research that some type of "value" accounting justifies the
costs of preparation. The sermons on the evils of historical cost
accounting became less convincing as research emerged in the 1990s
showing that historical cost accounting really did have value for both
earnings and stock price forecasting.
John Canning's current (replacement) cost baton
has now been passed to Tom Selling. Like John Canning, Tom advocates
that business firms spend tens of billions of dollars annually shifting
from traditional historical cost reporting of operating assets to
replacement costs. The problem is that replacement cost advocates can
point to zero research convincing us that the benefits of such drastic
changes in financial statements justify the costs.
Entry (replacement) cost adjustments of historical costs advocated early
on in John Canning's famous doctoral dissertation really is not in
the realm of "fair value" accounting since it is really is only
cost-adjusted accounting complete with all the arbitrary accruals that exit
value theorists hate such as depreciation and amortization.
So let's return to exit value accounting and "Truth""
"Truth in Accounting: The Ordeal of Kenneth MacNeal," by S.A. Zeff,
The Accounting Review, July 1982.
MacNeal's book was controversial to say the least and was generally
not well received at first, although various scholars picked up the exit
valuation ball and ran with it in accounting theory. Highly notable were
Accounting Hall of Famers Ray Chambers, Bob Sterling, Edgar Edwards, and
Phillip Bell ---
http://fisher.osu.edu/departments/accounting-and-mis/the-accounting-hall-of-fame/membership-in-hall/
Some of MacNeal's deciples were thus inducted into the Hall of Fame whereas
he himself has been overlooked.
Shortly thereafter in 1939 Hall of Famers Bill Paton and A.C. Littleton
countered MacNeal in their 1940 defense of historical cost accounting on the
grounds that it was never intended to be valuation accounting. Rather it
focused more on the income statement and the Matching Principle were as a
result of double entry accounting the balance sheet was a secondary
accumulation of residuals. In fair value accounting the balance sheet is
primary and the income statement is an accumulation of residuals that
comingle realized transactions with unrealized changes in value.
http://www.trinity.edu/rjensen/theory01.htm#Paton
Whereas some fair value advocates claim that exit value accounting is the
only "truth" in accounting, other accounting theorists are more cautious
about throwing about the word "truth" --- especially in our Academy where
words like "truth" and "proof" are generally avoided outside the context of
explicit underlying assumptions that are almost always open to debate.
One of the most popular Excel
spreadsheets that Bob Jensen ever provided to his students ---
www.cs.trinity.edu/~rjensen/Excel/wtdcase2a.xls
I will close this tidbit with several articles that I think dispel the
notion that fair value accounting is "truth" outside certain concepts and
assumptions.
Article One (when "truth" is not in fair value earnings
Largely because fair value theorists cannot define net income on
anything other than cherry-picked Hicksian theory, the FASB and IASB
standard setters instead focus on the balance sheet where think they are
on more solid footing conceptualizing assets and liabilities. This,
however, is not without its troubles.
See
"The Asset and Liability View: What It Is and What It Is
Not—Implications for International Accounting Standard Setting from a
Theoretical Point of View"
Jens Wüstemann, University of Mannheim; Sonja Wüstemann, Goethe
University Frankfurt am Main
American Accounting Association Annual Meetings, August 4, 2010
http://aaahq.org/AM2010/display.cfm?Filename=SubID_2022.pdf&MIMEType=application%2Fpdf
I would like you, Tom, and Patricia to especially note the reference
to the "stewardship function" below in the context of historical cost
accounting.
ABSTRACT
In their current standard setting projects the FASB and the IASB
seek to enhance consistency in the application of accounting
standards and comparability of financial statements by fully
implementing the asset and liability view. However, neither in
standard setting nor in the accounting literature is there agreement
on what the asset and liability view constitutes. In this paper, we
show that the asset and liability view is compatible with different,
sometimes even opposing concepts, such as historical cost accounting
and fair value accounting, and thus cannot ensure internal
consistency on its own. By means of the example of revenue
recognition we point out the difficulty to determine the changes in
assets and liabilities that shall give rise to revenue. We argue
that the increase in assets that leads to revenue is the obtainment
of the right to consideration and thus should be focused on by the
Boards.
1. Introduction
A major aim of the FASB and
the IASB in their current standard setting projects is to achieve
internal consistency of the accounting regimes U.S. GAAP and IFRS (IASB
2008c, BC2.46; IASB 2008a, S3; IASB 2008d, par. 5; IASB 2009, p. 5).
One of the reasons for inconsistencies in present U.S. GAAP and IFRS
is that recognition and measurement principles and rules are
developed on the basis of two competing concepts − the asset and
liability view and the revenue and expense view (Wüstemann and
Wüstemann 2010).
Until the 1970s the so called
revenue and expense view had been prevailing in international
accounting standard setting. In the U.S. this view was introduced by
Paton and Littleton in the American Accounting Association Monograph
No. 3 in 1940 (Paton and Littleton 1940: 1956) and soon became the
state of the art in U.S. accounting theory and practice. Similar
developments took place in other countries, e.g. Germany, where
Schmalenbach (1919) was the main driver for the establishment of the
comparable ’dynamic accounting theory’
(Dynamische
Bilanztheorie)
According to the revenue and expense view the principal purpose of
accounting is to determine periodic net income as a measure of an
entity’s effectiveness in using inputs to obtain and sell output (stewardship
function) by recognising
revenue when it is earned or realised and by matching the related
costs with those revenues (FASB 1976, par. 38−42; Paton and
Littleton 1940: 1956, p. 10 et sqq.; see for the tradition of the
stewardship function Edwards, Dean and Clarke 2009). Some proponents
of the revenue and expense view see net income as an indicator of an
entity’s ‘usual, normal, or extended performance’ (‘earning power’)
(FASB 1976, par. 62) that may help users not only to assess
management’s performance but also to estimate the value of the firm
(Black 1980, p. 20; Breidleman 1973, p. 654). This requires
irregular and random events that distort net periodic profit, such
as the receipt of grants and losses from bad debt, to be smoothed
out (Beidleman 1973, p. 653 et sqq.; Bevis 1965: 1986, p. 104−107;
FASB 1976, par. 59; Schmalenbach 1919, p. 32−36). Under the revenue
and expense view the function of the balance sheet is to ‘store’
residuals resulting from the matching and allocation process; the
deferred debits and credits depicted in the balance sheet do not
necessarily represent resources and obligations (Paton and Littleton
1940: 1956, p. 72−74; Schmalenbach 1919, p. 26; Sprouse 1978, p.
68).
In
the 1970s the FASB realised that the key concepts under the revenue
and expense view − revenues and expenses − are not precisely
definable making earnings ‘unduly subject to the effects of personal
opinion about what earnings of an enterprise for a period should be’
(FASB 1976, par. 60). In order to limit arbitrary judgements and to
achieve a more consistent income determination the FASB decided to
shift the focus to the more robust concepts of assets and
liabilities and thus to the asset and liability view as evidenced by
the issuance of SFAC 3
Elements of
Financial Statements
(now SFAC 6) in 1980
(Storey 2003, p. 35 et sqq.; Miller 1990, p. 26 et seq.; see for a
similar development in Germany around the same time Moxter 1993).
The so called asset and liability view in the U.S. has its origins
in the Sprouse and Moonitz monograph that was published in 1962 as
part of the AICPA’s Accounting Research Studies.
Under this view all financial
statement elements are derived from the definitions of assets and
liabilities. Income resulting from changes in assets and liabilities
measures an entity’s increase in net assets (FASB 1976, par. 34;
Johnson 2004, p. 1; Ronen 2008, p. 184; Sprouse and Moonitz 1962,
par. 11, 46, 49). The asset and liability view can serve the purpose
to objectify income measurement by restricting recognition in the
balance sheet to those items that embody resources and obligations (Sprouse
1978, p. 70). Alternatively, the asset and liability view can be
adopted in order to inform users about future cash flows that are
expected to flow from an entity’s assets and liabilities, which are
supposed to help them in estimating firm value (Scott 1997, p.
159−162; Hitz 2007, p. 333 and 336−338).
Despite the declared shift
from the revenue and expense view to the asset and liability view in
the 1970s, certain U.S. standards and also the ‘older’ IFRS, for
example those on revenue recognition, still follow the revenue and
expense view (Ernst & Young 2009, p. 1558; Wüstemann and Kierzek
2005, p. 82 et seq.). In the beginning of the 21st century the FASB
and the IASB have begun several projects, above all the Conceptual
Framework Project, that shall lead to an all-embracing
implementation of the asset and liability view (Wüstemann and
Wüstemann 2010).
We observe that both in the
accounting literature and the standard setting processes, there is
confusion about the meaning and implications of the asset and
liability view, especially as regards the role of the realisation
principle and the matching principle as well as fair value
measurement (see literature review below). A second problem is that
the asset and liability view does not provide clear guidance on how
assets and liabilities shall be defined and which changes in assets
and liabilities shall give rise to income. The FASB and the IASB
have − up to now − been struggling with the problem of bringing
current revenue recognition guidance in conformity with the asset
and liability view for seven years. In December 2008, they finally
published a Discussion Paper ‘Preliminary Views on Revenue
Recognition in Contracts with Customers’, but the issuance of the
new standard is not yet foreseeable.
The aim of this paper is to
shed light on the conceptual underpinnings of the asset and
liability view, to clarify misunderstandings in the accounting
literature and standard setting about its meaning and to discuss
implications for international accounting standard setting. The
remainder is organised as follows: In the first part of the paper we
depict the different opinions that exist with regard to the asset
and liability view and then clarify the concept by defining
recognition and measurement principles as well as purposes of
financial statements that are compatible with this view.
Subsequently, we analyse in how far the asset and liability view is
implemented in present U.S. GAAP and IFRS and in which areas
accounting principles still exist that oppose the asset and
liability view. In the final part we point out the difficulty to
define assets and liabilities taking the current FASB’s and IASB’s
joint project on revenue recognition as an example and make
suggestions for improvement.
Continued in article
http://aaahq.org/AM2010/display.cfm?Filename=SubID_2022.pdf&MIMEType=application%2Fpdf
Conclusion
And after all these years of trying the standard setters have not yet
come up with standards that are very good for evaluating financial
performance of business firms, something that they are well aware of in
Australia ---
"GAAP Based Financial Reporting: Measurement and Business Performance"
---
Click Here
http://www.charteredaccountants.com.au/Industry-Topics/Reporting/Resources-and-toolkits/~/media/Files/Industry
topics/Reporting/Resources and
toolkits/Reports/GAAPbased_financial_reporting.ashx
I think the major problem, aside from the cost of generating more
relevant and reliable information, is that standards setters never look
beyond single-column financial statements that inevitably lead them to
horrid mixed model measurements that destroy aggregations into summary
measures like "Total Assets" and "Net Income." Bob Herz recommends doing
away with aggregating net income metrics. I recommend having multiple
columns and multiple net income aggregations.
See
http://www.trinity.edu/rjensen/theory02.htm#ChangesOnTheWay
Article Two (when "truth" is not in fair value earnings)
Spinning Debt Into Earnings With the Wave of a Fair Value
Accounting Wand
"Euro banks' £169bn in accounting alchemy," by: Lindsey White,
Financial Times Advisor, January 19, 2009 --- Click Here
European banks conjured more than £169bn of
debt into profit on their balance sheets in the third quarter of
2008, a leaked report shows.
Money Managementhas gained exclusive access
to a report from JP Morgan, surveying 43 western European banks.
It shows an exact breakdown of which banks
increased their asset values simply by reclassifying their holdings.
Germany is Europe's largest economy, and
was the first European nation to announce that it was in recession
in 2008. Based on an exchange rate of 1 Euro to £0.89, its two
largest banks, Deutsche Bank and Commerzbank, reclassified £22.2bn
and £39bn respectively.
At the same exchange rate, several major UK
banks also made the switch. RBS reclassified £27.1bn of assets, HBOS
reclassified £13.7bn, HSBC reclassified £7.6bn and Lloyds TSB
changed £3.2bn. A number of Nordic and Italian banks also switched
debts to become profits.
Banks are allowed to rearrange these
staggering debts thanks to an October 2008 amendment to an
International Accounting Standards law, IAS 39. Speaking to MM, IAS
board member Philippe Danjou said that the amendment was passed in
"record time".
The board received special permission to
bypass traditional due process, ushering through the amendment in a
matter of days, in order to allow banks to apply the changes to
their third quarter reports.
However, it is unclear how much choice the
board actually had in the matter.
IASB chairman Sir David Tweedie was
outspoken in his opposition to the change, publicly admitting that
he nearly resigned as a result of pressure from European politicians
to change the rules.
Danjou also admitted that he had mixed
views on the change, telling MM, "This is not the best way to
proceed. We had to do it. It's a one off event. I'd prefer to go
back to normal due process."
While he was reluctant to point fingers at
specific politicians, Danjou admitted that Europe's "largest
economies" were the most insistent on passing the change.
As at December 2008, no major French,
Portuguese, Spanish, Swiss or Irish banks had used the amendment.
BNP Paribas, Credit Agricole, Danske Bank,
Natixis and Societe Generale were expected to reclassify their
assets in the fourth quarter of 2008.
The amendment was passed to shore up bank
balance sheets and restore confidence in the midst of the current
credit crunch. But it remains to be seen whether reclassifying major
debts is an effective tactic.
"Because the market situation was unique,
events from the outside world forced us to react quickly," said
Danjou. "We do not wish to do it too often. It's risky, and things
can get missed."
Article Three (when amortized cost seems to more of the
"truth")
"Amortized Cost Accounting is “Fair” for Money Market Funds,"
U.S. Chamber of Commerce Center for Capital Markets Competitiveness,
Fall 2012
http://www.centerforcapitalmarkets.com/wp-content/uploads/2010/04/Money-Market-Funds_FINAL.layout.pdf
Summary
Recent events have caused the
U.S. Securities and Exchange Commission (SEC) to rethink the
long-standing use of amortized cost by money market mutual funds in
valuing their investments in securities. This practice supports the
use of the stable net asset value (a “buck” a share) in trading
shares in such funds. Some critics have challenged this accounting
practice, arguing that it somehow misleads investors by obfuscating
changes in value or implicitly guaranteeing a stable share price.
This paper shows that the use
of amortized cost by money market mutual funds is supported by more
than 30 years of regulatory and accounting standard-setting
consideration. In addition, its use has been significantly
constrained through recent SEC actions that further ensure its
appropriate use. Accounting standard setters have accepted this
treatment as being in compliance with generally accepted accounting
principles (GAAP). Finally, available data indicate that amortized
cost does not differ materially from market value for investments
industry wide. In short, amortized cost is “fair” for money market
funds.
Background
Money
market mutual funds have been in the news a great deal recently as
the SEC first scheduled and then postponed a much-anticipated late
August vote to consider further tightening regulations on the
industry.1
Earlier,
Chairman Mary Schapiro had testified to Congress about her intention
to strengthen the SEC regulation of such funds, in light of issues
arising during the financial crisis of 2008 when one prominent fund
“broke the buck,” resulting in modest losses to its investors.
Sponsors of some other funds have sometimes provided financial
support to maintain stable net asset values. And certain funds
recently experienced heavy redemptions due to the downgrade of the
U.S. Treasury’s credit rating and the European banking crisis.
Money market funds
historically have priced their shares at $1, a practice that
facilitates their widespread use by corporate treasurers,
municipalities, individuals, and many others who seek the
convenience of low-risk, highly liquid investments. This $1 per
share pricing convention also conforms to the funds’ accounting for
their investments in short-term debt securities using amortized
cost. This method means that, in the absence of an event
jeopardizing the fund’s repayment expectation with respect to any
investment, the value at which these funds carry their investments
is the amount paid (cost) for the investments, which may include a
discount or premium to the face amount of the security. Any discount
or premium is recorded (amortized) as an adjustment of yield over
the life of the security, such that amortized cost equals the
principal value at maturity.
Some commentators have
criticized the use of this amortized cost methodology and argued for
its elimination. In a telling example of the passionate but
inaccurate attention being devoted to this issue, an editorial in
the June 10, 2012, Wall Street Journal described this
longstanding financial practice in a heavily regulated industry as
an “accounting fiction” and an “accounting gimmick.”
. . .
Reasoning for Use of Amortized Cost
The FASB has been considering
various aspects of the accounting for financial instruments for
approximately 25 years. During that time it has issued standards on
topics such as accounting for marketable securities, accounting for
derivative instruments and hedging, impairment, disclosure, and
others. Also, the FASB has issued standards or endorsed standards
issued by the AICPA of a specialized nature applying to certain
industry groups such as investment companies, insurance companies,
broker/dealers, and banks. Further, the FASB is presently involved
in a major project that has encompassed approximately the past 10
years, whereby it is endeavoring to conform its standards on
financial instruments to the related standards issued by the
International Accounting Standards Board. Aspects of that project
have stalled recently, and the two boards have reached different
conclusions on certain key issues. Other aspects of that project are
moving forward.
Over this 25-year period,
probably the most controversial aspect of the financial instruments
project has been to what extent those instruments should be carried
at market or fair value in financial statements rather than
historical cost. On several occasions the FASB has indicated a
strong preference for fair value as a general objective. But there
has been a great deal of opposition from many quarters, and the FASB
has tended to determine the appropriate measurement attribute for
particular instruments (fair value, amortized cost, etc.) in
different projects based on the facts and circumstances in each
case.
. . . (very long
passages from this 21-page article are not quoted here)
Conclusion
Accounting for investment
securities by money market mutual funds appropriately remains based
on amortized cost. The amortized cost method of accounting is
supported by the very short-term duration, high quality, and
hold-to-maturity nature of most of the investments held. The SEC’s
2010 rule changes have considerably strengthened the conditions
under which these policies are being applied. As a result of the
2010 SEC rule changes, funds now report the market value of each
investment in a monthly schedule submitted to the SEC that is then
made publicly available after 60 days. That provides additional
information for investors. And the FASB’s current thinking
articulates this accounting treatment as GAAP.
Jensen Comment
My main objection to booking fair values of HTM investments is that the
interim adjustments for fair values that will never be realized destroys
the income statement. Of course, the FASB and IASB have systematically
destroyed the concept of net earnings in many other standards to a point
where these standard setters can no longer even define net earnings.
Research Studies from the Chamber's Center for Capital Markets ---
http://www.centerforcapitalmarkets.com/resources/publications/
Article Four (a video)
Frank Partnoy and Lynn Turner contend that Wall
Street bank accounting is an exercise in writing fiction:
Watch the video! (a bit slow loading)
Lynn Turner is Partnoy's co-author of the white paper."Make Markets Be
Markets"
"Bring Transparency to Off-Balance Sheet Accounting," by Frank Partnoy,
Roosevelt Institute, March 2010 ---
http://www.rooseveltinstitute.org/policy-and-ideas/ideas-database/bring-transparency-balance-sheet-accounting
Watch the video!
"Report: Apple returned 8 million shoddy iPhones to Foxconn," by Simon
Sharwood, The Register, April 22, 2013 ---
http://www.theregister.co.uk/2013/04/22/apple_returns_iphones_to_foxconn/
. . .
With a cost to manufacture of $US200 apiece,
Foxconn is apparently preparing to take a hit of up to $1.6bn to cover the
cost of making replacement handsets. China Business suggests the cost of
making new iPhones represents further bad news, not a reason for Foxconn's
recently-revealed financial woes.
China Business is silent on which model of iPhone
failed Apple's quality tests. If it's the current iPhone 5, or the
still-on-sale 4S, the impact of eight million phones failing to appear would
punch a two-or-three-week hole in Apple's supply chain, an assertion we make
on the basis that the company says it sold 47.8m handsets in its last
quarter. That quarter included Christmas, so we can safely assume the
January-March quarter sees a little less handset-selling action.
If the botched phone is a
newer-and-as-yet-unreleased handset, it could be grounds for a delay in its
announcement or release.
"Why Baseball Seats Should be Priced like Airline Tickets," by Rafi
Mohammed, Harvard Business Review Blog, April 5, 2013 ---
Click Here
http://blogs.hbr.org/cs/2013/04/why_baseball_tickets_should_be.html?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date
Jensen Comment
There are obvious similarities in pricing baseball seats and airplane seats. In
both instances most of the costs are fixed either for the season and/or for a
given episode (game or flight). Hotels and airlines now cooperate with online
services that sell vacant seats at bargain prices as the date of the episode
approaches. Perhaps airlines would also benefit from such pricings since empty
seats contribute zero toward fixed costs.
One difference is that many airline flights fly almost full at normal
pricing. This is especially the case on nearly all Southwest Airlines flights.
It is also the case for all airlines on their long routes such as between the
U.S. and Australia and the U.S. and parts of South America.
Another complication is that many flights from the boondocks to airport hubs
are merely legs of longer flights. Discounting merely one leg of a longer flight
may not entail all that much savings on total trip costs. Baseball games are not
legs to "trips" unless they are part of an entitle travel package that includes
airline tickets, hotel reservations, ground transportation, and games.
I once attended an accounting education technology conference at the
University of North Texas where one feature of the conference were bus tickets
that included seats to a Rangers night game.
A more exciting variation for airlines is seat pricing based upon the weight
of each passenger at the time of check in ---
http://www.cs.trinity.edu/~rjensen/temp/TaxAirlineSeatCase.htm
Samoa Airlines has already instigated this weigh in policy..
Humor for April 1-30, 2013
The 12 Funniest Google Searches Ever ---
http://www.businessinsider.com/best-google-search-results-ever-2013-4
The 40th President of the United States (Richard Prior) ---
http://www.youtube.com/watch_popup?v=-_cdbByTeNE
Tom Lehrer’s Mathematically and Scientifically Inclined Singing and
Songwriting, Animated ---
http://www.openculture.com/2013/04/tom_lehrer_math_animated.html
The Great Flydini (Steve Martin with Johnny Carson) ---
http://rubytooth.com/link/45516
Unusual Brass Band (Humor) ---
http://www.wimp.com/brassband/
Woman calls cops to report that kittens are having sex in her yard ---
http://now.msn.com/wisconsin-woman-calls-police-to-report-kittens-having-sex#scpshrtu
Bob Jensen probably blogs from his cottage bout as much as anybody in the
world blogs from a personal residence. At last another blogger, Robert Moran,
has shown Jensen how he can probably get a refund from the IRS rather than pay
all those taxes he's been sending off to Uncle Sam.
"'That Seems About Right,' Says Soon-To-Be-Audited Man," TheOnion,
April 2, 2013 ---
http://www.theonion.com/articles/that-seems-about-right-says-soontobeaudited-man,31898/?ref=auto
Forwarded by Gene and Joan
One day, shortly after joining the PGA tour in 1965, Lee Trevino, a
professional golfer and married man, was at his home in Dallas , Texas mowing
his front lawn, as he always did.
A lady driving by in a big, shiny Cadillac stopped in front of his house,
lowered the window and asked, Excuse me, do you speak English?"
Lee responded, Yes Ma'am, I do."
The lady then asked, What do you charge to do yard work?
Lee said, "Well, the lady in this house lets me sleep with her."
The lady hurriedly put the car into gear and sped off.
Forwarded by Gene and Joan
The toilet seat
was invented in
Minnesota, but
twenty years
later an Iowan
invented the
hole in it.
When Ole
accidentally
lost 50 cents in
the outhouse, he
immediately
threw in his
watch and
billfold. He
explained, 'I'm
not going down
dere yust for 50
cents.'
A Norwegian
appeared with
five other men
in a rape case
police line-up.
As the victim
entered the
room, the
Norwegian
blurted, 'Yep,
dat's her!'
A Swedish woman
competed with a
French woman and
an English woman
in the Breast
Stroke division
of an English
Channel swim
competition. The
French woman
came in first,
the English
woman second.
The Swede
reached shore
completely
exhausted. After
being revived
with blankets
and coffee, she
remarked, 'I
don't vant to
complain, but I
tink dose other
two girls used
der arms.'
Two Norwegians
from Minnesota
went fishing in
Canada and
returned with
only one fish..
'The way I
figger it, dat
fish cost us
$400' said the
first Norwegian
'Vell,' said the
other one, 'At
dat price it's a
good ting ve
didn't catch any
more.'
A Swede took a
trip to Fargo,
North Dakota .
While in a bar,
an Indian on the
next stool spoke
to him in a
friendly manner
...
'Look,' he said,
'let's have a
game if you
answer it, I'll
buy YOU a drink,
if you can't,
then you buy ME
one, Okay?'
'Ya, dat sounds
purty good,'
said the Swede.
The Indian said,
'My father and
my mother had
one child. It
wasn't my
brother. It
wasn't my
sister. Who was
it?'
The Swede
scratched his
head and finally
said, 'I give
up. Who vas it?'
'It was ME,'
chortled the
Indian. So the
Swede paid for
the drinks.
Back in Sioux
Falls the Swede
went into a bar
and spotted one
of his cronies,
'Sven,' he said,
'I got a game.
If you can
answer a
qvestion, I buy
you a drink. If
you can't, YOU
have to buy ME
vun. Fair
enough?'
'Fair enough,'
said Sven.
Okay....my
fadder and
mudder had vun
child. It vasn't
my brudder, It
vasn't my
sister, Who vas
it?'
'Search me, '
said Sven. 'I
give up. Who vas
it?'
'It vas some
Indian up in
Fargo, Nort
Dakoda.'
Ole and Lena
were getting on
in years. Ole
was 92 and Lena
was 89. One
evening they
were sitting on
the porch in
their rockers
and Ole reached
over and patted
Lena on her
knee. 'Lena ,
vat ever
happened tew our
sex relations?'
He asked.
'Vell, Ole, I
yust don't
know,' replied
Lena . 'I don't
tink ve even got
a card from dem
last Christmas.'
Ole bought Lena
a piano for her
birthday.. A few
weeks later,
Lars inquired
how she was
doing with it.
'Oh,' said Ole,
'I persvaded her
to svitch to a
clarinet.'
'Vell,' Ole
answered,
'because vith a
clarinet, she
can't sing.
The phone rings
in the middle of
the night when
Ole and Lena are
in bed and Ole
answers. 'Vell
how da hell
should I know,
dats two tousand
miles from here'
he says and
hangs up.
'Who vas dat?'
asks Lena .
'I donno, some
fool wanting to
know if da coast
vas clear.
On their
honeymoon trip
they were
nearing
Minneapolis when
Ole put his hand
on Lena 's knee.
Giggling, Lena
said, 'Ole, you
can go farther
dan dat if you
vant to.'
Forwarded by Gene and Joan
PONDERISMS (some things to think about)
1- I used to eat a lot of natural foods until I learned that most people die
of natural causes.
2- There are two kinds of pedestrians . . . The quick and the dead.
3- Life is sexually transmitted.
4- Healthy is merely the slowest possible rate at which one can die.
5- The only difference between a rut and a grave is the depth.
6- Health nuts are going to feel stupid someday, lying in hospitals dying of
nothing.
7- Have you noticed since everyone has a cell phone these days no one talks
about seeing UFOs like they used to?
8- Whenever I feel blue, I start breathing again.
9- All of us could take a lesson from the weather. It pays no attention to
criticism.
10- In the 60's, people took acid to make the world weird. Now the world is
weird and people take Prozac to make it normal.
11- How is it one careless match can start a forest fire, but it takes a
whole box to start a campfire?
12- Who was the first person to look at a cow and say, 'I think I'll squeeze
these dangly things and drink whatever comes out'? Hmmmmm, How about eggs ? . .
.
13- If Jimmy cracks corn and no one cares, why is there a song about him?
14- Why does your OB-GYN leave the room when you get undressed if they are
going to look up there anyway?
16- If corn oil is made from corn, and vegetable oil is made from vegetables,
then what is baby oil made from?
17- Do illiterate people get the full effect of Alphabet Soup?
18- Does pushing the elevator button more than once make it arrive faster?
19- Why doesn't glue stick to the inside of the bottle?
BEST
BAR JOKE....EVER (forwarded by Auntie Bev)
Guy goes
into a bar in Louisiana where there's a robot bartender!
The robot
says, "What will you have?"
The robot
brings back his drink and says to the man, "What's your IQ?"
The robot
then proceeds to talk about physics, space exploration and medical
technology.
The guy
leaves, . . . but he is curious . . . So he goes back into the bar.
The robot
bartender says, "What will you have?"
Again,
the robot brings the man his drink and says, "What's your IQ?"
The robot
then starts to talk about NASCAR, Budweiser, the Lions and
LSU.
The guy
leaves, but finds it very interesting, so he thinks he will try it
one more time. He goes back into the bar.
The robot
says, "What will you have?"
The guy
says, "Whiskey," and the robot brings him his whiskey.
The robot
then says, "What's your IQ?"
The guy
says, "Uh,about 50.
"The
robot leans in real close and says, "SO, . . . you people . . still
happy . . . with Bob Jensen's Tidbits?"
Humor Between April 1-30, 2013 ---
http://www.trinity.edu/rjensen/book13q2.htm#Humor04301
Humor Between March 1-31, 2013 ---
http://www.trinity.edu/rjensen/book13q1.htm#Humor033113
Humor Between February 1-28, 2013 ---
http://www.trinity.edu/rjensen/book13q1.htm#Humor022813
Humor Between January 1-31, 2013 ---
http://www.trinity.edu/rjensen/book13q1.htm#Humor013113
Humor Between December 1-31, 2012 ---
http://www.trinity.edu/rjensen/book12q4.htm#Humor123112
Humor Between November 1-30, 2012 ---
http://www.trinity.edu/rjensen/book12q4.htm#Humor113012
Humor Between October 1-31, 2012 ---
http://www.trinity.edu/rjensen/book12q4.htm#Humor103112
Humor Between September 1-30, 2012 ---
http://www.trinity.edu/rjensen/book12q3.htm#Humor093012
Humor Between August 1-31, 2012 ---
http://www.trinity.edu/rjensen/book12q3.htm#Humor083112
Humor Between July 1-31, 2012 ---
http://www.trinity.edu/rjensen/book12q3.htm#Humor073112
Humor Between June 1-30, 2012 ---
http://www.trinity.edu/rjensen/book12q2.htm#Humor063012
Humor Between May 1-31, 2012 ---
http://www.trinity.edu/rjensen/book12q2.htm#Humor053112
Humor Between April 1-30, 2012 ---
http://www.trinity.edu/rjensen/book12q2.htm#Humor043012
Humor Between March 1-31, 2012 ---
http://www.trinity.edu/rjensen/book12q1.htm#Humor033112
Humor Between February 1-29, 2012 ---
http://www.trinity.edu/rjensen/book12q1.htm#Humor022912
Humor Between January 1-31, 2012 ---
http://www.trinity.edu/rjensen/book12q1.htm#Humor013112
And that's
the way it was on April 30, 2013 with a little help from my friends.
Bob
Jensen's gateway to millions of other blogs and social/professional networks ---
http://www.trinity.edu/rjensen/ListservRoles.htm
Bob
Jensen's Threads ---
http://www.trinity.edu/rjensen/threads.htm
Bob
Jensen's Blogs ---
http://www.trinity.edu/rjensen/JensenBlogs.htm
Current and past editions of my newsletter called
New Bookmarks ---
http://www.trinity.edu/rjensen/bookurl.htm
Current and past editions of my newsletter called
Tidbits ---
http://www.trinity.edu/rjensen/TidbitsDirectory.htm
Current and past editions of my newsletter called
Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
Bob Jensen's past presentations and lectures ---
http://www.trinity.edu/rjensen/resume.htm#Presentations
Free
Online Textbooks, Videos, and Tutorials ---
http://www.trinity.edu/rjensen/ElectronicLiterature.htm#Textbooks
Free Tutorials in Various Disciplines ---
http://www.trinity.edu/rjensen/Bookbob2.htm#Tutorials
Edutainment and Learning Games ---
http://www.trinity.edu/rjensen/000aaa/thetools.htm#Edutainment
Open Sharing Courses ---
http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI
Bob
Jensen's Resume ---
http://www.trinity.edu/rjensen/Resume.htm
Bob
Jensen's Homepage ---
http://www.trinity.edu/rjensen/
|
For an elaboration on the reasons you should join a ListServ (usually
for free) go to http://www.trinity.edu/rjensen/ListServRoles.htm |
|
AECM (Accounting Educators)
http://listserv.aaahq.org/cgi-bin/wa.exe?HOME
The AECM is an email Listserv list which
started out as an accounting education technology Listserv. It has
mushroomed into the largest global Listserv of accounting education
topics of all types, including accounting theory, learning, assessment,
cheating, and education topics in general. At the same time it provides
a forum for discussions of all hardware and software which can be useful
in any way for accounting education at the college/university level.
Hardware includes all platforms and peripherals. Software includes
spreadsheets, practice sets, multimedia authoring and presentation
packages, data base programs, tax packages, World Wide Web applications,
etc
Roles of a ListServ --- http://www.trinity.edu/rjensen/ListServRoles.htm
|
|
CPAS-L (Practitioners) http://pacioli.loyola.edu/cpas-l/
(closed down)
CPAS-L provides a forum for discussions
of all aspects of the practice of accounting. It provides an unmoderated
environment where issues, questions, comments, ideas, etc. related to
accounting can be freely discussed. Members are welcome to take an
active role by posting to CPAS-L or an inactive role by just monitoring
the list. You qualify for a free subscription if you are either a CPA or
a professional accountant in public accounting, private industry,
government or education. Others will be denied access. |
|
Yahoo (Practitioners)
http://groups.yahoo.com/group/xyztalk
This forum is for CPAs to discuss the
activities of the AICPA. This can be anything from the CPA2BIZ portal
to the XYZ initiative or anything else that relates to the AICPA. |
|
AccountantsWorld
http://accountantsworld.com/forums/default.asp?scope=1
This site hosts various discussion groups on such topics as accounting
software, consulting, financial planning, fixed assets, payroll, human
resources, profit on the Internet, and taxation. |
|
Business Valuation Group
BusValGroup-subscribe@topica.com
This discussion group is headed by Randy Schostag
[RSchostag@BUSVALGROUP.COM] |
Concerns That Academic Accounting Research is Out of Touch With Reality
|
I think leading academic researchers avoid applied research for the
profession because making seminal and creative discoveries that
practitioners have not already discovered is enormously difficult.
Accounting academe is threatened by the
twin dangers of fossilization and scholasticism (of three types:
tedium, high tech, and radical chic)
From
http://www.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm
“Knowledge and competence increasingly developed out of the internal
dynamics of esoteric disciplines rather than within the context of
shared perceptions of public needs,” writes Bender. “This is not to
say that professionalized disciplines or the modern service
professions that imitated them became socially irresponsible. But
their contributions to society began to flow from their own
self-definitions rather than from a reciprocal engagement with
general public discourse.”
Now, there is a definite note of sadness in Bender’s narrative – as
there always tends to be in accounts
of the
shift from Gemeinschaft to
Gesellschaft. Yet it is also
clear that the transformation from civic to disciplinary
professionalism was necessary.
“The new disciplines offered relatively precise subject matter and
procedures,” Bender concedes, “at a time when both were greatly
confused. The new professionalism also promised guarantees of
competence — certification — in an era when criteria of intellectual
authority were vague and professional performance was unreliable.”
But in the epilogue to Intellect and Public Life,
Bender suggests that the process eventually went too far.
“The risk now is precisely the opposite,” he writes. “Academe is
threatened by the twin dangers of fossilization and scholasticism
(of three types: tedium, high tech, and radical chic).
The agenda for the next decade, at least as I see it, ought to be
the opening up of the disciplines, the ventilating of professional
communities that have come to share too much and that have become
too self-referential.”
What went wrong in accounting/accountics research?
How did academic accounting research become a pseudo science?
http://www.trinity.edu/rjensen/theory01.htm#WhatWentWrong
|
Accountancy, Tax, IFRS, XBRL, and Accounting History News Sites
---
http://www.trinity.edu/rjensen/AccountingNews.htm
Accounting
Professors Who Blog ---
http://www.trinity.edu/rjensen/ListservRoles.htm
Cool
Search Engines That Are Not Google ---
http://www.wired.com/epicenter/2009/06/coolsearchengines
Free
(updated) Basic Accounting Textbook --- search for Hoyle at
http://www.trinity.edu/rjensen/ElectronicLiterature.htm#Textbooks
CPA
Examination ---
http://en.wikipedia.org/wiki/Cpa_examination
Free CPA Examination Review Course Courtesy of Joe Hoyle ---
http://cpareviewforfree.com/
Bob Jensen's
Pictures and Stories
http://www.trinity.edu/rjensen/Pictures.htm
Bob
Jensen's Homepage ---
http://www.trinity.edu/rjensen/