Bob Jensen's New Bookmarks for July 1-31, 2014

New Bookmarks July 15, 2014, 2014
Bob Jensen at Trinity University 

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

Click here to search Bob Jensen's web site if you have key words to enter --- Search 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

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


Bob Jensen's Pictures and Stories


All my online pictures ---

David Johnstone asked me to write a paper on the following:
"A Scrapbook on What's Wrong with the Past, Present and Future of Accountics Science"
Bob Jensen
February 19, 2014
SSRN Download: 


FASB Accounting Standards Updates ---

Hasselback Accounting Faculty Directory ---

Blast from the Past With Hal and Rosie Wyman ---

Bob Jensen's threads on business, finance, and accounting glossaries --- 

2012 AAA Meeting Plenary Speakers and Response Panel Videos ---
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 ---

"CONVERSATION WITH DENNIS BERESFORD," by Joe Hoyle, Teaching Blog, March 26, 2013 ---

"CONVERSATION WITH BOB JENSEN," by Joe Hoyle, Teaching Blog, October 8, 2013 ---

List of FASB Pronouncements ---

2013 IFRS Blue Book (Not Free) ---

Links to IFRS Resources (including IFRS Cases) for Educators ---

Find comparison facts on most any Website ---
For example, enter "" without the http:\\

Find Accounting Software (commercial site) ---

Galt Travel Reviews and Guides ---

Quandl:  over 8 million demographic, economic, and financial datasets from 100s of global sources ---

David Giles Econometrics Beat Blog ---

Common Accountics Science and Econometric Science Statistical Mistakes ---

Citations: Two Selected Papers About Academic Accounting Research Subtopics (Topical Areas) and Research Methodologies 

Alliance for Financial Inclusion (financial literacy initiative funded by Bill and Melinda Gates) ---
Also see Bob Jensen's related helpers at

Find Real Estate for Sale ---

Humor Between July 1-31, 2014, 2014 ---

Humor Between June 1-31, 2014 ---

Humor Between May 1-31, 2014, 2014 ---

Humor Between April 1-30, 2014 ---

Humor Between March 1-31, 2014 ---

Humor Between February 1-28, 2014 ---

Humor Between January 1-31, 2014 ---

Humor Between December 1-31, 2013 ---

Humor Between November 1-30, 2013 ---

Humor Between October 1-31, 2013 ---

Humor Between September 1 and September 30, 2013 ---

Humor Between July 1 and August 31, 2013 ---

Humor Between June 1-30, 2013 ---

Humor Between May 1-31, 2013 ---

Humor Between April 1-30, 2013 ---

Hiring Forecast Has Good News for Accountants ---

Bob Jensen's threads on careers ---

Possible Teaching Case

If you presented the following article in class how would you approach the analysis of this article and/or evaluate student reactions to this article?

First consider the fact that neither the FASB nor the IASB has a working definition of net earnings, and it's quite dangerous to compare earnings numbers of a company over time.

Second consider the classical debate over whether accrual financial statements or cash flow financial statements are more important when analyzing the future of a company --- realizing that both may be important at the same time.

Third consider any problems of revenue recognition and unrealized fair value changes that may or may not be factors in these particular Twitter financial statements.

"Why This Twitter Earnings Report Matters So Much," by Jon C. Ogg, 24/7 Wall Street, July 28, 2014 --- Click Here

Twitter, Inc. (NYSE: TWTR) is set to report its second quarter earnings report after the close of trading on Tuesday. This will be just the second full quarter earnings report since its late 2013 initial public offering.

24/7 Wall St. has seen that the Thomson Reuters estimate is for a loss of one-cent per share on revenues of $283 million. Management had guided in a range of $270 to $180 million. New advertising is said to be continuing to let the company grow, but we are also looking at that user growth closely and the internal ad metrics rather than just the raw revenue number.

We would caution that 2013 revenue was $664.89 million, up almost 110% from the $316.93 million in 2012. Revenue growth is expected to slow ahead – with 90% growth to $1.27 billion in 2014 and with revenue growth of another 62% to $2.06 billion in 2015. This is still massive growth expected, but many investors remain mixed to uncertain about Twitter and its endless growth.

On top of revenue growth, we will again be looking closely at user growth. This should be up somewhere close to around 6% again to around 270 million users, although the fair range might be 265 million to 275 million.

The number is too wild to calculate for an earnings multiple for 2014, but even after losing half of its post-IPO peak value Twitter still trades above 140-times expected 2015 earnings per share. It is also trading at a multiple of almost 11-times expected 2015 revenues.

We have long wondered how investors will continue to treat social media stocks in the years ahead. At some point there will either be a split where social media takes over or there will be user fatigue. That verdict remains out.

Twitter shares were above $38 on Monday in afternoon trading. Its 52-week trading range is $29.51 to $74.73, and the consensus analyst price target is almost $43.50.

It almost feels like a conundrum for Twitter investors. The stock has lost half of its peak value, but it likely still has to post very strong numbers to keep investors happy. Having a market cap of $22.25 billion in revenues comes with high expectations, and disappointing on those expectations could come with serious consequences.

These were the metrics posted in the first quarter of 2014, verbatim from Twitter’s release:


"Twitter's Recent 8-K Begs for More Transparency," by Anthony H. Catanach, Grumpy Old Accountants, February 2014 ---

On the AECM Tom Selling was not so much concerned about the insider trading issue as he his with Mark Cuban's EBITDA lecture to the jury
"An Accounting Lesson for Twitter," by Jonathan Weil, Bloomberg Businessweek, October 14, 2013 --- 

What Cuban failed to mention is that net earnings and EBITDA cannot be defined since the FASB elected to give the balance sheet priority over the income statement in financial reporting ---
"The Asset-Liability Approach: Primacy does not mean Priority," by Robert Bloomfield, FASRI Financial Accounting Standards Research Initiative, October 6, 2009 ---

Bob Jensen's threads on accounting theory ---

July 29, 2014
CFA Exam Results Are Out And Most People Are Finding Out They Failed -

The American Dream
"15 Billionaires Who Were Once Dirt Poor," by Vivian Giang, Business Insider, July 1, 2014 ---

Jensen Comment
Note that they are not all white and not all males.

The Humble First Jobs Of 15 Highly Successful People ---


Bob Jensen's threads on The American Dream ---

The China Dream
The Rise of China's Billionaire Tiger Women

"Convergence unachieved after IASB publishes financial instruments standard (IFRS 9)" by Ken Tysicac, Journal of Accountancy, July 24, 2014 ---

The International Accounting Standards Board (IASB) on Thursday issued a new financial instruments standard that introduces an expected-loss impairment model. But the standard falls short of the goal of convergence with financial instruments guidance being developed by FASB.

IFRS 9, Financial Instruments, is the final element of the IASB’s response to the global financial crisis.

The IASB and FASB worked for years to meet international calls for a converged financial instruments standard, but their efforts proved unsuccessful in part because they were unable to agree on a model for impairment.

The standard, which takes effect for annual periods beginning on or after Jan. 1, 2018, includes:

  • A model for the classification and measurement of financial instruments.
  • The new impairment model.
  • A substantially reformed model for hedge accounting.
  • Changes removing the volatility in profit or loss that was caused by changes in the credit risk of liabilities elected to be measured at fair value.

“The reforms introduced by IFRS 9 are much-needed improvements to the reporting of financial instruments and are consistent with the requests from the G-20, the Financial Stability Board, and others for a forward-looking approach to loan-loss provisioning,” IASB Chairman Hans Hoogervorst said in a news release. “The new standard will enhance investor confidence in banks’ balance sheets and the financial system as a whole.”

Convergence not achieved

The lack of convergence with the standard FASB is developing, though, falls short of the goals of some in the international community. FASB’s standard is expected to be published late this year.

In a December 2012 letter to FASB and the IASB, the Basel Committee on Banking Supervision expressed concern that the boards may not reach convergence and reiterated the committee’s strong support for a converged standard. In July 2013, the Basel Committee urged the boards to reconvene to reach a converged solution.

The Financial Stability Board also restated its support for a converged standard in a September 2013 report.

“It continues to be very important to have a globally applied standard on accounting for loan loss provisions, which recognises losses on portfolios earlier and more consistently,” the report stated.

Although the IASB and FASB agreed that their standards needed to reflect expected-loss rather than incurred-loss principles, they developed different models for recognizing those expected losses. An IASB summary of the financial instruments project states that the international board worked closely with FASB throughout the development of IFRS 9. The summary states that although every effort was made to reach a converged solution, those efforts were unsuccessful.

The AICPA Financial Reporting Executive Committee also wrote to FASB in May 2013 strongly supporting convergence but said convergence should not be more important than a high-quality accounting standard.

IASB’s new approach

The standard published by the IASB provides an approach for the classification of financial assets that is driven by cash flow characteristics and the business model in which an asset is held. This single, principles-based approach replaces existing, rules-based requirements that, according to the IASB, are considered complex and difficult to apply. The new model also aims to remove complexity by applying a single impairment model to all financial instruments.

The new expected-loss impairment model is designed to require more timely recognition of expected credit losses, addressing concerns about delayed recognition of credit losses on loans that arose during the financial crisis. Entities will be required to account for expected credit losses from the time that financial instruments are first recognized and to recognize full lifetime expected losses on a more timely basis, according to the IASB.

A transition resource group the IASB plans to form will support stakeholders in the transition to the new impairment requirements.

The IASB’s substantially reformed model for hedge accounting will enhance disclosures about risk management activity. The hedge accounting changes are designed to align the accounting treatment with risk management activities, enabling these activities to be better reflected in financial statements. The changes are designed to give financial statement users more information about risk management and the effect of hedge accounting on financial statements.

In addition, IFRS 9 will bring about changes in an entity’s own credit risk reflected in profit or loss. An entity will no longer recognize in profit or loss gains caused by the deterioration of an entity’s own credit risk that are elected to be measured at fair value.

Early application of this change, before any other changes in the accounting for financial instruments, is permitted by IFRS 9.

PwC's Overview of IFRS 9 --- Click Here

Bob Jensen's threads on differences between IASB international and FASB domestic accounting standards ---

Bob Jensen's threads on principles-based (IFRS) versus rules-based (bright line) FASB accounting standards ---

And all that while you own land as an investment you must pay those confounded property taxes even if there is no annual cash coming in from the land.
"Land Is A Wildly Risky Investment," by Sean Fergus, Business Insider, July 29, 2014 ---

Jensen Comment:  How Property Taxes Can Ruin Land Investment
Mr. SSSSS from Chicago (who also has a Loon Mountain ski chalet about 30 miles from our cottage) in 1993 invested $200,000 in a 24-acres across the road from where we bought our retirement cottage. Most of his 24 acres are deemed lower wet lands protected from development by law. However, there is an upper ridge house lot with the best mountain views in New Hampshire. Shortly thereafter our Village of Sugar Hill re-appraised all of its properties and assigned nearly $600,000 tax value to this lot. On average Mr. SSSSS then paid $12,000 per per year for 20 years while trying to sell this lot. He never had an offer because he set such a high price --- plus nobody wanted to pay taxes of $1,000 per month on just the bare scenic lot.

New Hampshire is somewhat unique in the USA because it has a relatively high view tax that is factored into the property taxes.

In 2006 before the real estate bubble burst Seller SSSSS was asking $1.4 million for the lot for which the property taxes on just the lot would be increased to well over $20,000 per year on just the bare lot. After the bubble burst Seller SSSSS reduced the asking price to $400,000 in 2009. Still nobody wanted to pay those taxes at most any price on the lot.

Then a naive investor, Buyer BBBBB, in autumn of 2013 made a $300,000 offer that was accepted. I say "naive" because Buyer BBBBB assumed the tax appraisal would be reduced to his purchase price $300,000. Sugar Hill does not lower tax appraisal values such that Buyer BBBBB was shocked that he would have to pay $12,000 per year property taxes while trying to sell his investment. He has no intention of building a home on this lot with such high property taxes.

Mr. and Mrs. BBBBB stopped by the other day while I was on my tractor mowing. They are considering selling the 24 acres at a huge loss to the Ammonoosuc Conservation Trust that would eliminate the property taxes on the entire 24 acres. Sugar Hill would most likely agree to this since the ridge is a popular site with a mounted telescope where tourists visit each year winter and summer to look out over three mountain ranges.

This is the mounted telescope on the lot

My point is that for both Seller SSSSS and Buyer BBBBB their investment dreams for this 24 acres were largely shattered by property taxes that seemingly cannot be reduced if sold at any price to another investor or to a buyer who wants to build a home and pay the high property taxes on the lot.

The Ammonoosuc Conservation Trust, on the other hand, owns various tax-free scenic parcels in this area. It also has deed restrictions on the 68-acre golf course behind our cottage. This means that the property may never be anything but a public golf course or an undeveloped forest in perpetuity.

Land indeed is usually a risky investment.
If investment land, like a farm, has annual cash flows that cover the property taxes each year then the purchase price is adjusted upward. Rich folks like Ted Turner diversify their land investments all over the world to deal with financial risks of individual parcels. Being rich they can also cover the annual property taxes. But average folks like me that cannot diversify their land investments to such an extent take on huge risks when buying a single parcel.

There are two big arguments for land investment. First it is a pretty good long-term inflation hedge. Second it can often be leveraged with a small cash down payment and a huge mortgage for buyers who want to take on the added risk of financial leverage. This generally is not a good idea for financial amateurs who are not "insiders" in real estate markets..

An investment in your home is a somewhat different matter since your enjoyment or hatred of the years living in that home make home ownership much more than an economic proposition. But it can be a real sweat trying to sell your home in most, not all, current real estate markets. I've been lucky selling the five homes I've sold in my lifetime thus far, but I would certainly lose money on my present home if I had to sell in the present real estate market in these economically-depressed White Mountains. Throughout northern New England we have abandoned homes with no buyer prospects in nearly-dead lumber and paper mill towns.

However, my plan is to die in our wonderful cottage so the profit or loss on the ultimate sale really no longer matters to me. Erika and I love our retirement home, pay our very high view tax twice each year, and do not give any thought to resale value ---
Getting older in retirement eliminates a lot of worries and financial stress in our former lives. I have a four-year supply of heating oil to hedge against the ups and downs of oil prices.

And I really don't mind paying property taxes since these fund our free public schools, provide comfort to people less fortunate than me, provide my fire and police protection, and fund the plowing of the road out front 14 times a day in snow season.

Jensen Comment
I hope Tony Catanach is maybe back into blogging at the Grumpy Old Accountants Blog site
Years ago this was a blog maintained by Penn State's Ed Ketz --- the original Grumpy Old Accountant
Then Ed was joined by Villanova's Anthony Catanach
Then several years ago Ed dropped out for reasons that were never fully explained (I'm guessing it might be a health reason)
Then after February 2014 no new postings appeared on the site until the new posting on July 10, 2014 by Tony

I've always liked the Grumpy Old Accountants blog because it is in the style of the old Barron's critical commentaries of particular financial statements by Abe Briloff (who was finally admitted to the Accounting Hall of Fame in 2014). These days its hard to find an accounting academic who pours over a given company's accounting and auditing reports and raises questions about conformance with GAAP and GAAS at at technical level. Ed did this when he commenced the Grumpy Old Accountant's blog and it appears that Tony will carry on with that fine tradition.

"Annie's, Inc. - Why Did PwC Abandon This BNNY?" by Anthony H. Catanach, Jr., Grumpy Old Accountants, July 10, 2014 ---

I thought bunnies were supposed to be cute and cuddly little creatures?  Well after looking at Annie’s, Inc….maybe not.  This Company has recently “hit the trifecta:” a restatement of its financials (2014 10K, p. 54), a material weakness report on its controls over financial reporting (2014 10K, pp. 45 and 74), and an auditor resignation (2014 8K dated June 1)…all in the space of a week.  And if this weren’t bad enough, along comes a class action suit alleging false and/or misleading financial statements and disclosures.

But should we really be surprised.  No, not really since until this year the Company avoided scrutiny of its accounting and controls via its JOBS Act status as an “emerging growth company”(2014 10K, p. 32).  It has been less than a year since I reminded you in Garbage In, Garbage Out – Are Accountants Really to Blame? that:

“Proponents of “emerging-growth” company (EGC) internal control reporting exemptions claim cost savings that promote business development. The reality is that most ECGs simply have no internal controls.”

So, did PricewaterhouseCoopers (PwC) really dump Bernie, Annie’s mascot, just over a restatement and some internal control weaknesses?  After all, there’s many a PwC client that has committed far greater sins and still remained a client of the firm (hint: Financial Crisis of 2007 and 2008).  Just how could PwC disapprove of Bernie, Annie’s “Rabbit of Approval?”  This is just the kind of question this grumpy old accountant likes to tackle.

Management Under Fire

Given recent allegations made in the class action suit filed in United States District Court, Northern District of California, and docketed under 3:14-cv-03001, it seems reasonable to first investigate whether Annie’s management had any incentives to engage in inappropriate financial reporting behaviors.

Clearly, management experienced significant pressures to report positive performance results.  The following factors individually and collectively may have created demands to engage in aggressive financial reporting:

The Company’s history of operating losses as evidenced by its retained earnings deficit (2014 10K, p. 47)

  • The recent rapid growth in profitability despite declining gross profit percentages (2014 10K, p. 34)

  • Restrictions imposed by credit agreements (2014 10K, p. 22)

  • The steady decline in the Company’s stock price per share from a high of $51.36 on November 15, 2013 to its current price of 33.14 (a decline of over 35 percent)

  • The role of stock based rewards in management compensation (2014 10K, pp. 63-65)

And all of these hurdles had to be addressed in a highly competitive market (2014 10K, pp. 9 and 12). 

Could the Company’s operating environment contribute to or facilitate inappropriate financial reporting by management?  The recent negative report on internal controls over financial reporting would seem to suggest so.  Acknowledging “an insufficient complement of finance and accounting resources” (2014 10K, p. 74) is a fairly damning admission for any organization, much less a publicly-traded company.  The statement suggests an environment devoid of controls and oversight…one just perfect for aggressive financial reporting.  And contrary to managements’ assertions, there is no quick fix to this problem.

Then, there is the issue of key officer turnover at Annie’s.  Amanda K. Martinez joined the Company as Executive Vice President in January 2013 (2013 8K dated January 5), was promoted in December 2013 (2013 8K dated December 9), and resigned without a stated reason in March 2014 just prior to the end of the fiscal year (2014 8K dated March 26).  Also, the Company’s previous chief financial officer, Kelly J. Kennedy, resigned effective November 12, 2013 and was succeeded by Zahir Ibrahim on the following day (2013 8K dated October 16).  Such changes in the C-suite can wreak havoc on internal controls, and potentially negatively affect financial reporting.

So, is there any quantitative support for my qualitative concerns about the quality of Annie’s financial reporting? Absolutely!  Let’s first see what the Beneish Model reveals about the likelihood of earnings manipulation by the Company’s management. 

Continued in article

Many of the older blogs along with Jensen commentaries are linked at

Go to either of the above sites and do a word search on the phrase "Grumpy Old."
Most the hits will be older blogs that cannot be accessed easily from Tony's new site since he commenced a new blog after Ed dropped out.
I provide generous quotations of Ed's old blog modules.

"Visualizing Algorithms," by Mike Bostock (The New York Times Graphics Editor) , June 26, 2014 ---

"The power of the unaided mind is highly overrated… The real powers come from devising external aids that enhance cognitive abilities. " —Donald Norman

Algorithms are a fascinating use case for visualization. To visualize an algorithm, we don’t merely fit data to a chart; there is no primary dataset. Instead there are logical rules that describe behavior. This may be why algorithm visualizations are so unusual, as designers experiment with novel forms to better communicate. This is reason enough to study them.

But algorithms are also a reminder that visualization is more than a tool for finding patterns in data. Visualization leverages the human visual system to augment human intellect: we can use it to better understand these important abstract processes, and perhaps other things, too.

Continued in the article (You really have to study the visuals to appreciate this article)

Visualization of Multivariate Data (including faces) --- 

MOOC ---

180 MOOCs to Start the 2014 New Year (Is This the Crest of the Wave?) ---

800 Free MOOCs from Great Universities ---


"The Quick and Dirty on Data Visualization," by Nancy Duarte, Harvard Business Review Blog, April 16, 2014 ---

"Harvard and MIT Release Visualization Tools for Trove of MOOC Data," Chronicle of Higher Education, February 20, 2014 --- Click Here

Harvard University and the Massachusetts Institute of Technology have released a set of open-source visualization tools for working with a rich trove of data from more than a million people registered for 17 of the two institutions’ massive open online courses, which are offered through their edX platform.

The tools let users see and work with “near real-time” information about course registrants—minus personally identifying details—from 193 countries. A Harvard news release says the tools “showcase the potential promise” of data generated by MOOCs. The aggregated data sets that the tools use can be also downloaded.

The suite of tools, named Insights, was created by Sergiy Nesterko, a research fellow in HarvardX, the university’s instructional-technology office, and Daniel Seaton, a postdoctoral research fellow at MIT’s Office of Digital Learning. Mr. Nesterko said the tools “can help to guide instruction while courses are running and deepen our understanding of the impact of courses after they are complete.”

The Harvard tools are here, while those for MIT are here.

Bob Jensen's threads on MOOCs and open sharing learning materials in general ---

Jensen Comment
Wharton's Financial Accounting course is in the Top 12
Also note that those that argue you can't teach public speaking online are apparently wrong, although I don't see why they are wrong.

The moving forces behind MOOCs have been MIT, Harvard, and Stanford.
MIT and Harvard have the most MOOC offerings, but none of them made the Top 12. However, the rankings below are considered "professional" courses, and the graduate business schools at MIT, Harvard, and Stanford are not, to my knowledge, serving up MOOC courses. The Wharton School at Penn, however, is serving up the core courses in the first year of Wharton's two-year MBA program. Two of those courses are in the Top 12 below.

Reasons for taking MOOCs are many and varied. I think many students who enroll for the free Wharton core business courses are preparing to do better in their forthcoming MBA programs wherever those are to be taken around the globe.

Most students probably take free MOOCs in general out of curiosity of how popular courses at prestigious universities are taught. Some professors take MOOCs just to see how the content of courses is handled by a well-known teacher.

"The 12 Most Popular Free Online Courses (MOOCs) For Professionals," by Maggie Zhang, Business Insider, July 8, 2014 ---

01. Wesleyan University's "Social Psychology"

02. University of Maryland's "Programming Mobile Applications for Android Handheld Systems"

03. Duke University's "Think Again: How to Reason and Argue"

04. Duke University's "A Beginner's Guide to Irrational Behavior"

05. University of Toronto's "Learn to Program: The Fundamentals"

06. Stanford University's "Startup Engineering"

07. Yale University's "Financial Markets"

08. The University of Pennsylvania Wharton School's "An Introduction to Financial Accounting"

09. University of Washington's "Introduction to Public Speaking"

10. University of Michigan's "Introduction to Finance"

11. The University of Pennsylvania Wharton School's "An Introduction to Marketing"

12. Johns Hopkins Bloomberg School of Public Health's "Data Analysis"

Read more:

Bob Jensen's threads on MOOCs and open sharing learning materials in general ---

There are for-credit distance education courses available from most major universities these days. These, however, are not free due, in part, to the costs of assigning grades for credit. Bob Jensen's threads on fee-based distance education training and education alternatives ---

From US News in 2014
Best Online Degree Programs (ranked)

Best Online Undergraduate Bachelors Degrees ---
Central Michigan is the big winner

Best Online Graduate Business MBA Programs ---
Indiana University is the big winner

Best Online Graduate Education Programs ---
Northern Illinois is the big winner

Best Online Graduate Engineering Programs ---
Columbia University is the big winner

Best Online Graduate Information Technology Programs ---
The University of Southern California is the big winner

Best Online Graduate Nursing Programs ---
St. Xavier University is the big winner

US News Degree Finder ---
This beats those self-serving for-profit university biased Degree Finders

US News has tried for years to rank for-profit universities, but they don't seem to want to provide the data.

DID AMAZON JUST CHANGE THE LIBRARY WORLD (including the textbook world)?
Unlimited Kindle Books is a Game Changer (if they can license everything)
The Ubiquotous Librarian
July 18, 2014, 8:51 pm
By Brian Mathews

Amazon just announced an All-You-Can-Read service: Unlimited Kindle. It offers a collection of over 600,000 eBook titles for a low price of $9.99 per month. If this truly includes all Kindle books—it is a game changer.

Continued in article

Jensen Comment
This may well change the world eventually for over a million newer books, but it is not quite the game changer for millions of older books as Google Books ---

Bob Jensen's threads on electronic book readers ---

Bob Jensen's links to Electronic Literature ---

In the realm electric power, what is a "levelized cost?"

The Economist:  Wind and solar power are even more expensive than is commonly thought ---

. . .

But whereas the cost of a solar panel is easy to calculate, the cost of electricity is harder to assess. It depends not only on the fuel used, but also on the cost of capital (power plants take years to build and last for decades), how much of the time a plant operates, and whether it generates power at times of peak demand. 

To take account of all this, economists use "levelised costs"--the net present value of all costs (capital and operating) of a generating unit over its life cycle, divided by the number of megawatt-hours of electricity it is expected to supply.

The trouble, as Paul Joskow of the Massachusetts Institute of Technology has pointed out, is that levelised costs do not take account of the costs of intermittency. Wind power is not generated on a calm day, nor solar power at night, so conventional power plants must be kept on standby--but are not included in the levelised cost of renewables.

Electricity demand also varies during the day in ways that the supply from wind and solar generation may not match, so even if renewable forms of energy have the same levelised cost as conventional ones, the value of the power they produce may be lower. In short, levelised costs are poor at comparing different forms of power generation.

To get around that problem Charles Frank of the Brookings Institution, a think-tank, uses a cost-benefit analysis to rank various forms of energy. The costs include those of building and running power plants, and those associated with particular technologies, such as balancing the electricity system when wind or solar plants go offline or disposing of spent nuclear-fuel rods.

The benefits of renewable energy include the value of the fuel that would have been used if coal- or gas-fired plants had produced the same amount of electricity and the amount of carbon-dioxide emissions that they avoid. 

Mr Frank took four sorts of zero-carbon energy (solar, wind, hydroelectric and nuclear), plus a low-carbon sort (an especially efficient type of gas-burning plant), and compared them with various sorts of conventional power. Obviously, low- and no-carbon power plants do not avoid emissions when they are not working, though they do incur some costs.

So nuclear-power plants, which run at about 90% of capacity, avoid almost four times as much CO{-2} per unit of capacity as do wind turbines, which run at about 25%; they avoid six times as much as solar arrays do. If you assume a carbon price of $50 a tonne--way over most actual prices--nuclear energy avoids over $400,000-worth of carbon emissions per megawatt (MW) of capacity, compared with only $69,500 for solar and $107,000 for wind.

Nuclear power plants, however, are vastly expensive. A new plant at Hinkley Point, in south-west England, for example, is likely to cost at least $27 billion. They are also uninsurable commercially. Yet the fact that they run around the clock makes them only 75% more expensive to build and run per MW of capacity than a solar-power plant, Mr Frank reckons.

To determine the overall cost or benefit, though, the cost of the fossil-fuel plants that have to be kept hanging around for the times when solar and wind plants stand idle must also be factored in. Mr Frank calls these "avoided capacity costs"--costs that would not have been incurred had the green-energy plants not been built.

Thus a 1MW wind farm running at about 25% of capacity can replace only about 0.23MW of a coal plant running at 90% of capacity. Solar farms run at only about 15% of capacity, so they can replace even less. Seven solar plants or four wind farms would thus be needed to produce the same amount of electricity over time as a similar-sized coal-fired plant. And all that extra solar and wind capacity is expensive.

A levelised playing field

If all the costs and benefits are totted up using Mr Frank's calculation, solar power is by far the most expensive way of reducing carbon emissions. It costs $189,000 to replace 1MW per year of power from coal. Wind is the next most expensive. Hydropower provides a modest net benefit.

But the most cost-effective zero-emission technology is nuclear power. The pattern is similar if 1MW of gas-fired capacity is displaced instead of coal. And all this assumes a carbon price of $50 a tonne. Using actual carbon prices (below $10 in Europe) makes solar and wind look even worse. The carbon price would have to rise to $185 a tonne before solar power shows a net benefit.

There are, of course, all sorts of reasons to choose one form of energy over another, including emissions of pollutants other than CO{-2} and fear of nuclear accidents. Mr Frank does not look at these. Still, his findings have profound policy implications. At the moment, most rich countries and China subsidise solar and wind power to help stem climate change.

Yet this is the most expensive way of reducing greenhouse-gas emissions. Meanwhile Germany and Japan, among others, are mothballing nuclear plants, which (in terms of carbon abatement) are cheaper. The implication of Mr Frank's research is clear: governments should target emissions reductions from any source rather than focus on boosting certain kinds of renewable energy.

Bob Jensen's threads on cost and managerial accounting ---

July 21, 2014

Thank you Rhoda Icerman for the heads for the link to a Bentley College 2014 explanation of the data fabrication of Professor James A. Hunton.

Links to the Boston Globe and Chronicle of Higher Education reports of the Professor Hunton data fabrication scandal ---

Jensen Comment
Since accountics research is rarely replicated and or even commented upon in accounting research journals, detection of data fabrication is a rare event. It was therefore a total shock to the academic accounting research world when the Hunton and Gold paper was retracted by The Accounting Review in 2012. To my knowledge this was only the second instance of a paper retraction by TAR since it started publishing in 1926.

At the time the only explanation is that the retracted Hunton and Gold paper had a "misstatement." Until now, there were no details given about the nature of this "misstatement."

"Following Retraction, Bentley Professor Resigns," Inside Higher Ed, December 21, 2012 ---

James E. Hunton, a prominent accounting professor at Bentley University, has resigned amid an investigation of the retraction of an article of which he was the co-author, The Boston Globe reported. A spokeswoman cited "family and health reasons" for the departure, but it follows the retraction of an article he co-wrote in the journal Accounting Review. The university is investigating the circumstances that led to the journal's decision to retract the piece.

An Accounting Review Article is Retracted

One of the article that Dan mentions has been retracted, according to 

Retraction: A Field Experiment Comparing the Outcomes of Three Fraud Brainstorming Procedures: Nominal Group, Round Robin, and Open Discussion

James E. Hunton, Anna Gold Bentley University and Erasmus University Erasmus University This article was originally published in 2010 in The Accounting Review 85 (3) 911–935; DOI: 10/2308/accr.2010.85.3.911.

The authors confirmed a misstatement in the article and were unable to provide supporting information requested by the editor and publisher. Accordingly, the article has been retracted.

July 21, 2014

Pursuant to the Bentley University Ethics Complaint Procedures (“Ethics Policy”), this report summarizes the results of an eighteen - month investigation into two separate allegations of research misconduct that were received by Bentley in November 2012 and January 2013 against James E. Hunton, a former Professor of Accountancy. The complainants – one a confidential reporter (as defined in the Ethics Policy) and the other a publisher – alleged that Dr. Hunton engaged in research misconduct in connection wit h two papers that he published while a faculty member at the University: “A Field Experiment Comparing the Outcomes of Three Fraud Brainstorming Procedures: Nominal Group, Round Robin, and Open Discussion,” The Accounting Review 85 (3): 911 - 935 (“Fraud Br barnstorming”) and “The Relationship between Perceived Tone at the Top and Earnings Quality,” Contemporary Accounting Research 28 (4): 1190 - 1224 (“Tone at the Top”).

Because of concerns regarding Fraud Brainstorming that the editors at The Accounting Review had been discussing with Dr. Hunton since May 2012, the editors withdrew that paper in November 2012. Bentley received the allegation of research misconduct from the confidential reporter later that month. The confidential reporter also raised questions about ten other articles that Dr. Hunton published or provided data for while he was at Bentley, which, the reporter alleged, raised similar questions of research integrity.

In my role as Ethics Officer, it was my duty to make the preliminary determination n about whether the allegations warranted a full investigation. To make that determination, I met with Dr. Hunton in person when Bentley received this allegation, after I first instructed Bentley IT to back up and preserve all of his electronic data store d on Bentley’s servers. During that meeting, we discussed the allegation, I explained the process that would be followed if I found an investigation was warranted, and I described the need for his cooperation, including the specific admonition that he pre serve, and make available to me, all relevant materials, including electronic and paper documents. This information and these instructions were confirmed in writing to Dr. Hunton. Dr. Hunton resigned shortly after that meeting, which coincided with my de termination that a full investigation was warranted.

In January 2013 as the investigation was just getting underway, Bentley received the second allegation of research misconduct from the editor of Contemporary Accounting Research. The editor had contacted ted Dr. Hunton directly in November 2012 with concerns about Tone at the Top after the Fraud Brainstorming paper was retracted. The journal brought the issue to Bentley’s attention after the response it received failed to resolve its concerns. When Bentley received this second allegation, I informed Dr. Hunton of it, as well.

Continued in article

Jensen Comment
The last paragraph of the article suggests that Professor Hunton did not cooperate in the investigation to the extent that it is unknown if his prior research papers were also based upon fabricated data. The last paragraph reads as follows:

Bentley cannot determine with confidence which other papers may be based on fabricated data. We will identify all of the co - authors on papers Dr. Hunton published while he was at Bentley that involve research data. We will inform them that, unless they have independent evidence of the validity of the data, we plan to ask the journals in which the papers they co - authored with Dr. Hunton were published to determine, with the assistance of the co - authors, whether the data analyzed in the papers were valid. The various journals will then have the discretion to decide whether any further action is warranted, including retracting or qualifying, with regard to an y of Dr. Hunton’s papers that they published

Years ago Les Livingstone was the first person to detect a plagiarized article in TAR (back in the 1960s when we were both doctoral students at Stanford). This was long before digital versions articles could be downloaded. The TAR editor published an apology to the original authors in the next edition of TAR. The article first appeared in Management Science and was plagiarized in total for TAR by a Norwegian (sigh).
Not much can be done to warn readers about hard copy articles if they are subsequently "retracted." One thing that can be done these days is to have an AAA Website that lists retracted publications in all AAA journals. The Hunton and Gold article may be the only one since the 1960s.

November 28, 2012 forward from Dan Stone

Anna Gold sent me the following statement and also indicated that she had no objections to my posting it on AECM:

Explanation of Retraction (Hunton & Gold 2010)

On November 9, 2012, The Accounting Review published an early-view version of the voluntary retraction of Hunton & Gold (2010). The retraction will be printed in the January 2013 issue with the following wording:

“The authors confirmed a misstatement in the article and were unable to provide supporting information requested by the editor and publisher. Accordingly, the article has been retracted.”

The following statement explains the reason for the authors’ voluntary retraction. In the retracted article, the authors reported that the 150 offices of the participating CPA firm on which the study was based were located in the United States. In May 2012, the lead author learned from the coordinating partner of the participating CPA firm that the 150 offices included both domestic and international offices of the firm. The authors apologize for the inadvertently inaccurate description of the sample frame.

The Editor and the Chairperson of the Publications Committee of the American Accounting Association subsequently requested more information about the study and the participating CPA firm. Unfortunately, the information they requested is subject to a confidentiality agreement between the lead author and the participating firm; thus, the lead author has a contractual obligation not to disclose the information requested by the Editor and the Chairperson. The second author was neither involved in administering the experiment nor in receiving the data from the CPA firm. The second author does not know the identity of the CPA firm or the coordinating partner at the CPA firm. The second author is not a party to the confidentiality agreement between the lead author and the CPA firm.

The authors offered to print a correction of the inaccurate description of the sample frame; however, the Editor and the Chairperson rejected that offer. Consequently, in spite of the authors' belief that the inaccurate description of the sample does not materially impact either the internal validity of the study or the conclusions set forth in the Article, the authors consider it appropriate to voluntarily withdraw the Article from The Accounting Review at this time. Should the participating CPA firm change its position on releasing the requested information in the future, the authors will request that the Editor and the Chairperson consider reinstating the paper.


James Hunton Anna Gold

References: Hunton, J. E. and Gold, A. (2010), “A field experiment comprising the outcomes of three fraud brainstorming procedures: Nominal group, round robin, and open discussions,” The Accounting Review 85(3): 911-935.


December 1, 2012 reply from Harry Markopolos <

Harry Markopolos <>

The explanation provided by the Hunton and Gold regarding the recent TAR retraction seems to provide more questions than answers. Some of those questions raise serious concerns about the validity of the study.

1. In the paper, the audit clients are described as publically listed (p. 919), and since the paper describes SAS 99 as being applicable to these clients, they would presumably be listed in the U.S. However, according to Audit Analytics, for fiscal year 2007, the Big Four auditor with the greatest number of worldwide offices with at least one SEC registrant was PwC, with 134 offices (the remaining firms each had 130 offices). How can you take a random sample of 150 offices from a population of (at most) 134?

Further, the authors state that only clients from the retail, manufacturing, and service industries with at least $1 billion in gross revenues with a December 31, 2007 fiscal year-end were considered (p. 919). This restriction further limits the number of offices with eligible clients. For example, the Big Four auditor with the greatest number of offices with at least one SEC registrant with at least $1 billion in gross revenues with a December 31, 2007 fiscal year end was Ernst & Young, with 102 offices (followed by PwC, Deloitte and KPMG, with 94, 86, and 83 offices, respectively). Limiting by industry would further reduce the pool of offices with eligible clients (this would probably be the most limiting factor, since most industries tend to be concentrated primarily within a handful of offices).

2. Why the firm would use a random sample of their worldwide offices in the first place, especially a sample including foreign affiliates of the firm? Why not use every US office (or every worldwide office with SEC registrants)? The design further limited participation to one randomly selected client per office (p. 919). This design decision is especially odd. If the firm chose to sample from the applicable population of offices, why not use a smaller sample of offices and a greater number of clients per office? Also, why wouldn’t the firm just sample from the pool of eligible clients? Finally, would the firm really expect its foreign affiliates to be happy to participate just because the US firm is asking them to do so? Would it not be much simpler and more effective to focus on US offices and get large numbers of clients from the largest US Offices (e.g., New York, Chicago, LA) and fill in the remaining clients needed to reach 150 clients from smaller offices?

3. Given the current hesitancy of the Big Four to allow any meaningful access to data, why would the international offices be consistently willing to participate in the study, especially since each national affiliate of the Big Four is a distinct legal entity? The coordination of this study across the firm’s international offices seems like a herculean effort, at least. Further, even if the authors were not aware that the population of offices included international offices, the lead author was presumably aware of the identity of the partner coordinating the study for the firm. Footnote 4 of the paper and discussion on page 919 suggest that the US national office coordinated the study. It seems quite implausible that the US national office alone would be able to coordinate the study internationally.

4. In the statement that has been circulated among the accounting research community, the authors state:

“The second author was neither involved in administering the experiment nor in receiving the data from the CPA firm. The second author does not know the identity of the CPA firm or the coordinating partner at the CPA firm. The second author is not a party to the confidentiality agreement between the lead author and the CPA firm.”

However, this statement is inconsistent with language in the paper suggesting that both authors had access to the data and were involved in discussions with the firm regarding the design of the study (e.g. Footnote 17). Also, isn’t this kind of arrangement quite odd, at best? Not even the second author could verify the data. We are left with only the first author’s word that this study actually took place with no way for anyone (not even the second author or the journal editor) to obtain any kind of assurance on the matter. Why wouldn’t the firm be willing to allow Anna or Harry Evans to sign a confidentiality agreement in order to obtain some kind of independent verification? If the firm was willing to allow the study in the first place, it seems quite unreasonable for them to be unwilling to allow a reputable third party (e.g. Harry) to obtain verification of the legitimacy of the study. In addition, assuming the firm is this extremely vigilant in not allowing Harry or Anna to know about the firm, does it seem odd that the firm failed to read the paper before publication and, therefore, note the errors in the paper, including the claim that is made in multiple places in the paper that the data came from a random sample of the firm’s US offices?

5. Why do the authors state that the paper is being voluntarily withdrawn if the authors don’t believe that the validity of the paper is in any way questioned? The retraction doesn’t really seem voluntary. If the authors did actually offer to retract the study that implies that the errors in the paper are not simply innocent mistakes.

Given that most, if not all US offices would have had to be participants in the study (based on the discussion above), it wouldn’t be too hard to obtain some additional information from individuals at the firms to verify whether or not the study actually took place. In particular, if we were to locate a handful of partners from each of the Big Four who were office-managing partners in 2008, we could ask them if their office participated in the study. If none of those partners recall their office having participated in the study, the reported data would appear to be quite suspect.


Harry Markopolos

Jensen Comment
Thanks to the Ethics Officer at Bentley College on July 14, 2014 we now know more of the story.

I have no idea what happened to Professor Hunton after he resigned from Bentley University in 2012.

Bob Jensen's threads on professors who plagiarize or otherwise cheat ---

"B-Schools Finally Acknowledge: Companies Want MBAs Who Can Code," by Cory Weinberg, Bloomberg Businessweek, July 11, 2014 ---

Jensen Comment
One question is whether this is mostly a filtering criterion or a genuine criterion for hiring. For example, some popular business schools require students to complete two courses in calculus before matriculating as undergraduate business majors. It's not so much that calculus is a prerequisite for business courses as it is that calculus weeds out the dummies.

It's doubtful that many Big Four partners can code.
More important are perceived trustworthiness and going the extra mile in client relations. In my opinion, most partners are the ones visible in public service (such as volunteer work for communities), work pro bono a lot of nights and weekends, and play a lot of golf with clients and prospective clients. I used to belong to a downtown bridge club in Bangor, Maine. A senior partner in a law firm who belonged to that club told me that his job was to get the clients that were served by his technical staff. Some partners with marginal devotion devotion to religion are extremely active in their churches, mosques, and synagogues. My point --- for partners it's the extra hours of the week building relationships outside the office that really count.

"The qualities of a Big Four partner:  Chris Carter, Crawford Spence and Claire Dambrin studied Big Four firms in three countries to find out what qualities make a partner," Economia, July 16, 2014 --- 

The Big Four are quintessentially global organisations, their logos adorn major commercial centres and they are prominent players in most western economies. Unlike their corporate counterparts, their governance structures are more opaque. This is a consequence of the partnership model which gives a high degree of independence to each country in which the Big Four operates. Global organisations –in general – and the Big Four in particular invite the following question: to what extent is there convergence or divergence between their operations in different countries?

We set out to answer this question by researching partners in Canada, France and the UK. We were particularly interested in the types of people that became partner and the process of them actually getting there. Was this similar across the three countries or were there striking differences?

The broad career structure is much the same across the three contexts: following qualification, employees move into the manager position – during which time many tend to leave the firm – before proceeding to senior manager, director and ultimately partner. Only 2-3% of members of the Big Four will ever make partner; ascension to this position is to enter the elite of the accounting profession. In provincial cities, Big Four partners are well known “business celebrities”, while in capital cities they are players within their service lines. Partners are the pinnacle of the accounting profession for those that remain in private practice.

We started by looking at British and Canadian partners. What we found was remarkably similar: it takes most partners 15-17 years to become a partner after joining; 60 to 70 hour weeks are the norm; partners are more likely to be white and male; the process of becoming a partner has become far more formalised than it was in the past; most people who make partnership highlight the importance of “having a good mentor” to help them navigate the complex, Byzantine politics of a Big Four firm.

To add to this picture, interviewees emphasised the importance of trust: does the firm trust a candidate enough to make them a part-owner? All of this takes place against a broader economic backdrop which will determine whether a particular service is deemed worthy of supporting a further partner. The economic conditions can in boom times create more partnerships in a firm; recessionary times can preclude gifted candidates from making partner.

We talked to over 50 partners, ex-partners and people who didn’t make partner in Britain and Canada. The similarities far overshadowed any differences. Partners were very much “self-made men” and, save for a few exceptions, were drawn from modest social backgrounds. This meritocratic quality was deeply infused within the firms we visited, with a notable ‘can do’ ethos. The driven quality of the partners often extended to their leisure pursuits. Whereas the stereotype is of a partner playing a good deal of golf, they were much more likely to be competing in endurance cycle races or long distance running events. The participation in endurance sports is a fitting metaphor. Partners are driven, high energy people who exude self-confidence.

By midway through our research we were accustomed to partners recounting that “their career was different”. This statement surprised us as most of the partners spent most of their careers in one firm, something that is very unusual in the contemporary workplace, and we imagined that there was a distinct career path. The expression, however, spoke to the different ways in which the partners had proved themselves.

In every case, the accountant “proved themselves” through completing a difficult piece of work that gained praise from the firm. This demonstrated that the accountant had ability and could be trusted by the organisation. This building of reputation brought the accountant into new networks in the firm where more opportunities arose. Proving oneself as being very good at a complex job is generally enough to get a promotion to director. Beyond that, wannabe partners need to demonstrate that they can move effortlessly with senior executives in client firms and that they can generate revenue. It’s a cliché, but cash is king. The Big Four are packed full of extremely competent technical specialists – what makes someone stand out is their ability to generate fee income. Entrepreneurialism is a prime quality.

The similarities between British and Canadian partners were striking regarding this topic, in fact the only compelling difference was that British partners went for football and rugby metaphors, while their Canadian counterparts used ice hockey and NFL.

We travelled to France to find out about the French experience. Our intuition was that the capacity to generate new business would be crucial there too but that leverages to increase turnover might be of a different nature. In particular we expected that belonging to a cultural or social elite would be essential for partners to bring in new business in France. The Big Four are similarly prominent in France, although there are different rules around audit rotation. What became immediately clear was the Big Four are structured differently in France.

First, it was incredibly important where an employee had studied. In France, there are a number of Grandes Ecoles that are, in effect, elite Business Schools. The Big Four strive to recruit a quota from each of these schools. Unlike in Britain, where the Big Four recruit from a wide range of universities and where partners are pretty diverse in terms of their educational backgrounds, in France attending one of these Grande Ecoles will vastly increase your chances of getting recruited in the first instance, and is even more important in rising to partner grade in the second instance. One of our French partners explained: “We are worried when we don’t have enough ‘parisiennes’ [graduates of top Grandes Ecoles]. I find that daft but in this firm we always have the illusion that if you haven’t been to a ‘parisienne’ then you can’t be a partner. That said, given that the clients of tomorrow will have studied at the same place, it is better to have them.”

The quote reveals a great deal about how educational background is a determinant of future success in the Big Four in France. Simply put, having graduated from a top school (a parisienne) marks out an employee as special and puts them onto a different career trajectory from those who had attended more routine universities. In France Big Four firms agree with each other on starting salary grids depending on the school category of their recruits. High expectations are placed very early on their recruits from Grandes Ecoles and this has a very basic economic rationale.

It is through the process of offering parisiennes more varied and exciting work – projects that add value and generally “pampering” them – that their “specialness” becomes a reality in the French Big Four. Contrary to what we expected, educational pedigree actually becomes more important at the partner level: it is easier for graduates of the Grandes Ecoles to interact with each other and so future sources of revenue will come through the conversion of their educational background into social skills and new business for the firm. It is a fascinating contrast to the British and Canadian experiences where the treatment of recruits is much more homogeneous. More broadly, the French experience is suggestive of the grip that Grandes Ecoles have on elite careers within the French corporate sector.

The Grandes Ecoles cast a long shadow over the Big Four in France; this raises questions as to whether a different set of qualities are required to become partner. A key insight from our research study is that the pressures that French partners and aspirant partners face are much the same as in Britain and Canada: clients need to be kept happy; new business needs to be generated and delivered; new service lines need to be developed; for personal career strategies, aspirant partners need to be seen as less technical and more strategic.

In short, the descriptions of the Big Four in France were remarkably similar to their counterparts in Britain and Canada. What was particularly striking was the creed of commercialism that underpins the Big Four across the three countries. One partner in France explained: “The first thing we look at is [the candidate’s] commercial skills. Dilution [of profit-per-partner] is a real concern for us. If partners don’t bring in revenue, the partners’ committee will lose money because there is less to share in the end. So the capacity to make business grow obviously matters a lot.”

This quote could have come from any of the firms in any of the three countries. The ability to generate business and ‘grow the cake’ is an absolutely central skill for someone who wants to make partner. The central difference between Britain, Canada and France is that in the French case the assumption is that being a graduate of a Grandes Ecoles will help generate new business. In Britain and Canada it is demonstrably not the case that an elite degree will lead to these outcomes. In France, attendance at one of these schools has a huge bearing on an alumnus’s future career in the Big Four.

Our research emphasises that people skills – the ability to get on with people and build durable networks – are crucial to success in a Big Four career. These skills need to be converted into revenues. To put this in some sort of context, the following revenues were quoted to us. In Canada, one interviewee suggested that a partner needed to generate around $3m (Canadian) per annum (£1.63m), in France this figure was estimated at €3m (£2.4m), whereas in Britain, a figure of £2m was frequently cited. Partners are clearly under pressure to generate vast sums of fee income for the Big Four; the prospect of being able to generate such fees is crucial to ascending to a partnership.

Continued in article

See more at:

Bob Jensen's threads on careers are at

"Three Radical Changes That Can Save Business Schools From Extinction," by Cory Weinberg, Bloomberg Businessweek, July 16, 2014 ---

If online education is a tsunami threatening the future of business schools, consider a recent report from two professors at the University of Pennsylvania’s Wharton School an emergency manual on where top business schools should seek high ground.

Karl Ulrich, Wharton’s vice dean of innovation, and Christian Terwiesch, a professor of operations and information management, write in a paper published on Wednesday that the video technology used in massive open online courses (MOOCs) would make MBA classes 40 percent cheaper to produce. A shift to this cheaper model would radically alter the traditional full-time MBA, which relies on lots of professors to offer in-class lectures.

Business schools have tiptoed around big shifts so far (for example, only a handful of top B-schools have put their MBA programs online), but full-time MBA programs have three options if they want to avoid irrelevance or extinction, the authors write:

Give students a bigger, better MBA program

The professors, who have both taught popular MOOCs, calculated that schools spend about 100 times less for each student to finish an online course than a traditional course. They write that schools should harness those potential cost savings by remaking full-time MBA programs into campus programs that give students less classroom time, but more time for experiential learning or study abroad.

This is pretty close to the status quo for B-schools, they admit, but schools could still enhance the student experience. “You can either leave the old customer satisfaction in place and you have cost savings, or you hold cost per students constant and you can provide a more worthwhile experience for students,” says Terwiesch.

“Dramatically” downsize tenure-track faculty

The professors pose a question in the title of the paper: “Will video kill the classroom star?” They don’t answer the question definitively, but do say B-schools have the clear option of “dramatically” slicing the number of tenure slots once online education becomes dominant. Professors that can become masters of video will likely get higher salaries as a result, they write.

This route isn’t as likely to happen at top B-schools that have strong enrollments and don’t face serious cost pressures, but would appeal to other colleges and universities under financial duress, they write. The point hits a nerve across higher education: Moody’s Investors Service reported on Monday that higher education faces a negative financial outlook in part because MOOCs have “accelerated the pace of change in online delivery models over the last two years.”

To avoid the ax, business faculty “should think about what can we do to deliver value to our customers so when the world changes, we’re not a Kodak married to an old technology,” Terwiesch says.

Switch to an iTunes model

The professors compare a full-time MBA program to a Swiss army knife that students can buy today to bone up on basic finance, management, and marketing to “use it one day in the future.” MOOC technology could make that model irrelevant because too much time elapses between when students learn a skill and then put it into action in the workplace.

Instead, “business education has the potential to move to mini-courses that are delivered to the learner as needed, on demand,” they write. B-schools could also certify specific skills instead of bundling courses together. That kind of shift would “dramatically change the way in which business education is delivered.”

Bob Jensen's threads on higher education controversies ---

When can an auditor having sex with the Chief Accounting Officer (CAO) be an appropriate application of "detail testing?"

It may beat statistical sampling and analytical review combined. Maybe it should not ipso facto get a bad rap. But it does become more difficult to remain independent.

Yeah it probably should get a bad rap for the same reason teachers should not assign grades to students with whom they are "sleeping."

"Ventas Fires EY as Auditor Over Independence Violation," by Adrienne Gonzalez, Going Concern, July 10, 2014 ---

And sent out a press release, no less:

Ventas, Inc. (NYSE: VTR) (“Ventas” or the “Company”) today announced that the Company has dismissed Ernst & Young (“E&Y”) as its public accounting firm, effective July 5, 2014, due to E&Y’s determination that it was not independent solely as a result of an inappropriate personal relationship between an E&Y partner and Ventas’s former Chief Accounting Officer and Controller. Ventas also announced that, following such dismissal, its Audit Committee has engaged KPMG LLP (“KPMG”) as the Company's independent public accounting firm.

E&Y has advised the Company that, solely due to the inappropriate personal relationship, it determined that it was not independent of the Company during the periods in question. As a result of such determination, E&Y stated that it was obligated under applicable law and professional standards to withdraw (and it has withdrawn) its audit reports on the Company’s financial statements for the years ended December 31, 2012 and 2013, and its review of the Company’s results for the quarter ended March 31, 2014. E&Y’s decision to withdraw such audit reports and review was made exclusively due to the personal relationship in question, and not for any reason related to Ventas’s financial statements, its accounting practices, the integrity of Ventas’s controls or for any other reason.

The crony in question, one Robert J. Brehl, has "separated himself" from his duties as Chief Accounting Officer and Controller.

Continued in article

Added Jensen comment?
Are the working papers on this audit X-rated?

Bob Jensen's threads on audit firm independence and professionalism ---

Bob Jensen's threads on EY are at

July 7, 2014 messages form David Giles on his Econometrics Blog

A Big "Thank You" to the NZAE

I'd like to express my heart-felt thanks to the New Zealand Association of Economists for making me a Distinguished Fellow.

The award took place last Thursday evening at the dinner for the 55th Conference of the Association, in Auckland. The award was most humbling, all the more so for coming from those who first supported me in my career.

Recipients of this award in recent years have included such ex-pats as Peter Phillips, Stephen Turnovsky, Leslie Young. John McMillan, and John Riley. All the more reason for me feeling humbled.

Thanks NZAE. I'm truly grateful for this honour. 


© 2014, David E. Giles

Saturday, July 5, 2014

My July Reading List

Here we go again - no excuses - time to catch up on your reading:
  • Baillie, R. T., G. Kapetanios, and F. Papailias, 2014. Modified information criteria and selection of long memory time series models. Computational Statistics and Data Analysis, 76, 116-131. 
  • Pitarakis, J-Y., 2014. A joint test for structural stability and a unit root in autoregressions. Computational Statistics and Data Analysis, 76, 577-587.
  • Ghysels, E., J. B. Hill, and K. Motegi, 2013. Testing for Granger causality with mixed data frequency. DP9655, Centre for Economic Policy Research.  
  • Gresnigt, F., E. Kole, and P. H. Franses, 2014. Interpreting financial market crashes as earthquakes: A new early warning system for medium term crashes. Tinbergen Institute Discussion Paper TI 2014-067.  
  • Marsh, P., 2013. A review of non-parametric econometrics. Econometrics Journal, 16, B1-B3(3). 


Jensen Comment
The following article makes no sense to me. To compete with for-profit universities you have to lower admission hurdles to zero apart from ability to pay. US News has tried for years to rank for-profit universities, but they don't want to provide the data.

"University of Georgia Business School Launches Online Degree to Compete With For-Profit Schools," by Cory Weinberg, Bloomberg Businessweek, July 9, 2014 --- 

The University of Georgia’s Terry College of Business announced last week that it will offer an online bachelor of business administration starting in January. While business schools have begun offering online MBAs in earnest, offering quality undergraduate business degrees online “seems like a niche that isn’t being filled,” says Myra Moore, Terry’s director of assessment, rankings, and undergraduate programs.

Terry becomes one of only a few undergraduate business programs ranked in Bloomberg Businessweek’s top 50 to offer an online bachelor’s degree; others include Pennsylvania State’s Smeal College of Business and the University of Florida’s Warrington College of Business Administration.

UGA hopes its new program will attract students who need a degree to get ahead at work, as well as regional stay-at-home parents and military officers, says Moore. “There are for-profit institutions that attempt to serve this group, like University of Phoenix and Strayer. We think we can offer them much better quality at a better price.”

Continued in article

From US News in 2014
Best Online Degree Programs (ranked)

Best Online Undergraduate Bachelors Degrees ---
Central Michigan is the big winner

Best Online Graduate Business MBA Programs ---
Indiana University is the big winner

Best Online Graduate Education Programs ---
Northern Illinois is the big winner

Best Online Graduate Engineering Programs ---
Columbia University is the big winner

Best Online Graduate Information Technology Programs ---
The University of Southern California is the big winner

Best Online Graduate Nursing Programs ---
St. Xavier University is the big winner

US News Degree Finder ---
This beats those self-serving for-profit university biased Degree Finders

US News has tried for years to rank for-profit universities, but they don't want to provide the data.

Bob Jensen's threads on online training and education alternatives ---

UNC to offer master's degree in accounting online ---

Bob Jensen's threads on online masters degrees in accounting or taxation (there are no online accountancy PhD programs in North America from AACSB accredited universities) ---

Five Of The World's Lakes About To Dry Up:  Things Don't Look Good for Santa Barbara ---

Can't win 'em all!
"The 10 Worst Apple Products Of All Time
," by Sam Colt, Business Insider, July 21, 2014 ---

Relaunched FASB Technical Agenda Web Page Brings Online Visitors Up-To-Speed At a Glance  [07/17/14] ---

"Banks Outside U.S. Get New Rules on Accounting for Bad Loans:  IASB's Changes on Recording Losses Will Make It Harder to Compare Banks Inside and Outside the U.S.," by Michael Rapoport, The Wall Street Journal, July 24, 2014 ---

European banks and other banks outside the U.S. will have to record losses on bad loans more quickly and set aside more reserves for loan losses under an overhaul of finance-accounting rules that global rule makers made final on Thursday.

Under the new standard, non-U.S. banks will have to book loan losses based on their expectation that future losses will occur, beginning in 2018. That is expected to speed up the booking of losses and require greater loan-loss reserves.

Currently, banks don't record losses until they have actually happened, but many observers believe that method led banks to be too slow in taking losses during the financial crisis.

The move by the London-based International Accounting Standards Board, which has been in the works for years, could create a conundrum for the banking industry: Because U.S. and global rule makers haven't been able to agree on the same accounting approach for writing off bad loans, it could become more difficult to compare U.S. banks and those outside the U.S.

U.S. and global rule makers have been striving for years to eliminate differences between their rules in some major areas of accounting, including loans and other financial instruments, but the effort has been plagued by problems and delays. The two systems have gotten more similar in some areas, but on this banking issue, some analysts say they are growing more different.

The Financial Accounting Standards Board, the U.S. accounting rule-setter, has proposed U.S. banks switch from the incurred-loss model that both use now to the expected-loss approach, too. But the two disagree on just how rapidly banks should book their loan losses.

The IASB will require non-U.S. banks to immediately book only those losses based on the probability that a loan will default in the next 12 months. If the loan's quality gets significantly worse, other losses would be recorded in the future. The IASB move will affect all financial assets on non-U.S. companies' balance sheets, but the treatment of bank loans is particularly important due to the role that soured loans and credit losses play in their businesses.

The change "will enhance investor confidence in banks' balance sheets and the financial system as a whole," said Hans Hoogervorst, chairman of IASB, which sets accounting rules for most countries outside the U.S.

The Institute of Chartered Accountants in England and Wales, a London-based accountants' group, estimated that the IASB changes will increase banks' loan-loss provisions by about 50% on average. Iain Coke, head of ICAEW's financial-services faculty, said the new rule, combined with tougher regulatory-capital requirements, may force banks to hold more capital for the same risks. "This may make banks safer but may also make them more costly to run," he said.

The FASB proposal, however, would require all losses expected over the lifetime of a loan to be booked up front—so if it is enacted, U.S. banks would record more losses immediately than banks in other countries, and might have to set aside more reserves, hurting their current financial results and making them look worse compared with foreign banks, many banking and accounting observers believe. The FASB hasn't completed its proposed changes, though it hopes to do so by year-end.

"It's unfortunate that we do have a different standard being issued," said Tony Clifford, a partner with Big Four accounting firm EY.

The IASB said in documents laying out its proposal Thursday that although it and the FASB had made "every effort" to agree on the same approach, "ultimately those efforts have been unsuccessful."

Christine Klimek, a FASB spokeswoman, said the FASB believes its approach "best serves the interests of investors in U.S. capital markets because it better reflects the credit risks of loans on an institution's balance sheet." IASB's approach likely would lead to lower loan-loss reserves than FASB's at U.S. banks, she said, "which would have been counterintuitive to the lessons learned during the recent financial crisis."

In addition, Mr. Clifford said, the new IASB rule requires banks to use their own judgment to a greater extent than existing rules when determining their expected losses, and that could lead to differences between individual banks that could make it harder for investors to compare them.

Among other provisions of the new rule the IASB issued Thursday, non-U.S. banks will no longer have to record gains to net income when their own creditworthiness declines, and losses when their creditworthiness improves—a counterintuitive practice known in the U.S. as "debt/debit valuation adjustments," or DVA. Those gains and losses will be stripped out of the banks' net income and be placed into "other comprehensive income," a separate measurement that doesn't affect the main earnings number tracked by most investors. Banks can adopt that change separately, before the rest of the IASB rule.

The FASB has proposed a similar move for U.S. banks but has yet to enact it.

Bob Jensen's threads on loan losses and bad debts ---

From the CFO Journal's Morning Ledger on July 29, 2014

As it turns out, all kinds of people can become whistleblowers.
A Freedom of Information Act request by The Wall Street Journal into the more than 6,500 people who have offered confidential information under the Securities and Exchange Commission’s confidential whistleblower program yielded job titles for nearly 3,600 of them
, CFOJ’s Maxwell Murphy reports. And while retirees were the largest group with 365 tips, the rest included adult entertainers, engineers, pilots and even a pastor.

At least 42 of the tips came from senior executives and board members, according to the listed titles, but executives may want to watch what they say in restaurants, bars and taxis, because a number of them also came from hospitality and service employees.

Still, the vast majority of reports don’t come to anything, and even a successful prosecution can take years from the initial report and ensuing follow-up interviews to any penalties actually being assigned. The program has brought in more than $150 million in restitution and fines via just five cases from eight whistleblowers. That translated into more than $15 million in payments to whistleblowers—$14 million of which went to just one person.

From the CFO Journal's Morning Ledger on July 25, 2014

Update on Regulatory Issues Affecting Audit Committees ---

Audit quality, transparency, auditor retention and other financial reporting matters relevant to audit committees have been on regulator's agendas in recent months. The SEC, PCAOB and other regulatory bodies are actively soliciting the audit committee's views on various topics and initiatives, and have released a variety of publications, communications and resources targeted to committee members. The recent issue of the Deloitte's “Audit Committee Brief” discusses recent domestic and international regulatory developments that are likely to affect audit committees, and includes links to a variety of resources for further information.

From the CFO Journal's Morning Ledger on July 24, 2014

Good morning. The Securities and Exchange Commission yesterday voted to force large institutional and corporate investors in money-market funds to abandon the stable buck-a-share value, as had been expected. But in an effort to head off business concerns that the funds will become unworkable for companies that will now need to record gains and losses on their holdings, the SEC said it worked with the Treasury Department and the Internal Revenue Service to develop new tax guidance that aims to limit the accounting headaches, CFOJ’s Emily Chasan reports.

But that move addresses just one of the many concerns raised by users of the funds and even some regulators, underscoring SEC Chairwoman Mary Jo White’s position that the need to drain risk from money funds is more important than the challenges that new rules may inflict.

Cathy Gregg, a partner at Chicago-based Treasury Strategies, said some investors may pull back from money funds because of the new rules, “because they’re not permitted to invest in a floating-rate product like that.” And Kara Stein, one of two SEC commissioners to vote against the new rules, said she feared the redemptions restrictions they include might spark, rather than curb, investor flight from the funds in a crisis.

From the CFO Journal's Morning Ledger on July 22, 2014

Venezuela’s car culture fades as dollars are hard to come by.
Production is drying up in what was once South America’s third-largest auto industry as big auto makers can’t obtain dollars to pay parts suppliers and sky-high inflation turns older cars into investment vehicles, the
WSJ’s Ezequiel Minaya reports. Balance sheets have been battered, with revenue vulnerable to devaluation and trapped in Venezuela because of currency controls.

Jensen Comment
The irony is that fuel is almost free in oil-rich Venezuela. But violent car stealing, funerals, and spare parts are so expensive that it's best to deeply hide the car from sight.

"Should Presidents Pay Taxes on Their Houses?," Inside Higher Ed, July 14, 2014 ---

Jensen Comment
This raises several issues, one being whether living on campus is an option. For example, some colleges require that campus police chiefs, campus fire chiefs, chaplains, chief campus medical officers, presidents, computer center directors, and some other officials live on campus. Those officials generally cannot own their campus homes and may or may not pay rent. For income tax purposes an implied rent must be factored into taxable benefits on federal and state income tax returns..

At Harvard some faculty live apartments in student dormitories --- the idea being that faculty and students living in one building can have educational benefits. I used to visit a professor at the Harvard Business School who lived with his wife in an apartment within a HBS dorm.

The larger issue is the extent to which students, faculty, and administrators use costly municipal services even though they live on campus. For example, Stanford University pays the costs of its own campus streets, police, and elementary schools for parents living on campus. But when I lived in campus housing with my wife and children Stanford did not provide high school and community college services wcwn though our children were too young to use such services. Our kids did attend a Stanford elementary school. I'm not sure about fire protection services, but I think these were provided by the City of Palo Alto.  Even if students, faculty, and administrators live on campus, there is often an arrangement for a college to pay the town for costs of some but not all services without paying property taxes on student, faculty, and administrator housing on campus.

I remember when I lived in San Antonio that one of the local colleges was having a dispute with the City regarding taxation of an off-campus home owned by the college. It was several miles from campus and was provided for zero rent to the college's president. I don't know how this dispute was resolved but rumor had it that all colleges in San Antonio eventually paid property taxes on faculty and administrator housing. I don't think student housing is taxed most anywhere in the USA if it is owned and operated by a college.

This opens the door to larger issues such as taxation of church property used to house the clergy. A high percentage of the real estate in Boston is owned by the Catholic church. I'm not certain how church-owned commercial property is taxed, but I don't think that it is tax free if used for commercial purposes such as when the church owns a shopping mall. But I suspect that parsonages for clergy are not taxed in Boston. Members of the clergy also get housing income tax relief in the federal and state statutes that is not available to anybody else ---,-Dividends,-Other-Types-of-Income/Ministers%27-Compensation-&-Housing-Allowance/Ministers%27-Compensation-&-Housing-Allowance 

Does the President of the USA have to factor in White House rent when filling out Form 1040? Does Washington DC tax the White House at fair value? I doubt it!

From the CPA Newsletter on July11, 2014

IRS tightens rules on IRA rollovers
The Internal Revenue Service formalized a new interpretation of the one-rollover-per-year rule for IRAs by withdrawing proposed regulations from 1981 that had allowed taxpayers with multiple IRAs to make one rollover per year from each IRA. Starting in 2015, taxpayers will only be able to make one rollover per year no matter how many IRAs they own.
Journal of Accountancy online (7/10)

Where are governmental payments (especially tax refund, Medicaid, Medicare, disability, and unemployment fraud) internal controls? What controls?

From the CPA Newsletter on July 9, 2014

Improper government payments reached $100B in 2013
By its own reckoning, the U.S. government made $100 billion in improper payments last year in the form of tax credits and unemployment benefits to people who didn't qualify, and medical payments for unnecessary procedures. Improper payments peaked in 2010, reaching $121 billion. The government has been trying to put controls in place to address this issue. The House Subcommittee on Government Operations is holding a hearing today on the matter. San Francisco Chronicle (free content)/The Associated Press (7/9

Bob Jensen's threads on the sad state of governmental accounting ---

"GAO: IRS misleads audited taxpayers," by Bernie Becker, The Hill, July 7, 2014 ---

The IRS tells taxpayers facing an audit that it’ll get back to them quickly and then often falls short of that goal,

GAO said that the IRS has “misled taxpayers by providing unrealistic time frames” — saying it would get back to audited taxpayers within 30 to 45 days.

In fact, the watchdog says the IRS consistently takes several months to respond to correspondence audits, which are done through the mail and account for about three-quarters of the audits conducted by the tax agency.

In all, GAO says that the IRS is behind on more than 50 percent of the correspondence that taxpayers send in to deal with audits.

That misleading time frame that the IRS circulates for audits hurts both taxpayers and agency staffers, according to the report.

Taxpayers, for instance, often can’t get their refunds until an audit is finished.

IRS staffers, meanwhile, have to deal with extra phone calls because taxpayers are told to expect a response before the agency can reasonably offer one. Those staffers say they often have few answers for taxpayers wondering when the IRS will respond.

The IRS agreed to implement the GAO’s recommendations, which push the agency to better document how quickly it can get back to audited taxpayers and to give those taxpayers a more accurate timeline.

But a top IRS official also suggested that the budget cuts the agency has absorbed in recent years played a role in the unrealistic timeline for audited taxpayers.

Continued in article


Commenced Over 12 Years Ago Before It Became Such a Negotiating Issue
"Why Ernst & Young Believes So Strongly In Paid Paternity Leave
, by Richard Feloni, Business Insider, July 1, 2014 ---

. . .

Research shows that the majority of fathers believe all companies should offer some form of paid leave for them to spend time with their newborns, but only a small percentage of American companies — 14% according to the Families and Work Institute — currently offer paid paternity leave.

That might change. With more Gen Xers and millennials starting their families and expecting more flexibility from employers, Twaronite says she's seen a cultural shift in the past decade or so.

Ernst & Young introduced its paternity leave policy 12 years ago. The accounting giant offers two weeks of paid leave to all new fathers, and up to six weeks for fathers acting as the primary caregiver. While tech companies like Facebook and Yahoo have attracted attention in the past few years for offering extremely generous paid paternity leaves — four months and two months, respectively EY started offering the benefit long before there was a public demand for it.

"There were some who thought it was silly and that there would be no participation," Twaronite says. It started as a perk that many men were happy to take, but today it is seen as an essential benefit, she says.

EY doesn't offer paternity leave simply for the sake of being progressive. It firmly believes that it helps with employee retention, saving money on rehires and increasing engagement, Twaronite explains. Between 500 and 600 EY employees take advantage of paternity leave each year.

A recent report called "The New Dad," which is the fifth annual study of working fathers by Boston College's Center for Work & Family (CWF) and is sponsored by EY, shows an increasing trend in professional men wanting paid paternity leave.

The CWF surveyed 1,029 fathers at 286 companies. While it's important to note that 58% of respondents came from the CWF's network of companies, meaning most were highly educated professionals at companies with progressive benefits, the report shows that most men will take paid paternity leave if it is offered and will take the maximum amount of time offered.

Continued in article

Read more:

Read more:

From the CPA Letter Daily on July 1, 2014

Study: 1M Americans might lose federally insured pensions
More than 1 million Americans covered by multiemployer pension plans are in danger of losing retirement benefits when the plans collapse in the next few years, according to a study by the Pension Benefit Guaranty Corp. The study says that as these plans fail, federal insurance that is supposed to protect members' benefits "is more likely than not to run out of money within the next eight years." The New York Times (tiered subscription

"How Do Auditors Use Valuation Specialists When Auditing Fair Values?" by Emily E. Griffith, SSRN, May 30, 2014 --- 

Auditors frequently rely on valuation specialists in audits of fair values to help them improve audit quality in this challenging area. However, auditing standards provide inadequate guidance in this setting, and problems related to specialists’ involvement suggest specialists do not always improve audit quality. This study examines how auditors use valuation specialists in auditing fair values and how specialists’ involvement affects audit quality. I interviewed 28 audit partners and managers with extensive experience using valuation specialists and analyzed the interviews from the perspective of Giddens’ (1990, 1991) theory of trust in expert systems. I find that while valuation specialists perform many of the most difficult and important elements of auditing fair values, auditors retain the final responsibility for making overall conclusions about fair values. This situation causes tension for auditors who bear responsibility for the final conclusions about fair values, yet who must rely on the expertise of valuation specialists to make their final judgments. Consistent with this tension, auditors tend to make specialists’ work conform to the audit team’s prevailing view. This puts audit quality at risk. Additional threats to audit quality arise from the division of labor between auditors and valuation specialists because auditors, though ultimately responsible for audit judgments, must rely on work done by valuation specialists that they cannot understand or review in the depth that they review other audit work papers. This study informs future research addressing problems related to auditors’ use of valuation specialists, an area in which problems have already been identified by the PCAOB and prior research

Jensen Comment 1
One of the problems is that some types of valuation may rely upon the same defective databases no matter whether they are used by employees of audit firms or outsourced valuation specialists hired by audit firms.Exhibit A is that virtually all valuation experts of interest rate swaps and forward contracts using the LIBOR underlying were relying upon LIBOR yeild curves in the Bloomberg or Reuters database terminals that were using LIBOR rates manipulated fraudulently by the large banks like Barclays ---

On 28 February 2012, it was revealed that the U.S. Department of Justice was conducting a criminal investigation into Libor abuse.[49] Among the abuses being investigated were the possibility that traders were in direct communication with bankers before the rates were set, thus allowing them an advantage in predicting that day's fixing. Libor underpins approximately $350 trillion in derivatives. One trader's messages indicated that for each basis point (0.01%) that Libor was moved, those involved could net "about a couple of million dollars".[50]

On 27 June 2012, Barclays Bank was fined $200m by the Commodity Futures Trading Commission,[7] $160m by the United States Department of Justice[8] and £59.5m by the Financial Services Authority[9] for attempted manipulation of the Libor and Euribor rates.[51] The United States Department of Justice and Barclays officially agreed that "the manipulation of the submissions affected the fixed rates on some occasions".[52][53] On 2 July 2012, Marcus Agius, chairman of Barclays, resigned from the position following the interest rate rigging scandal.[54] Bob Diamond, the chief executive officer of Barclays, resigned on 3 July 2012. Marcus Agius will fill his post until a replacement is found.[55][56] Jerry del Missier, Chief Operating Officer of Barclays, also resigned, as a casualty of the scandal. Del Missier subsequently admitted that he had instructed his subordinates to submit falsified LIBORs to the British Bankers Association.[57]

By 4 July 2012 the breadth of the scandal was evident and became the topic of analysis on news and financial programs that attempted to explain the importance of the scandal.[58] On 6 July, it was announced that the U.K. Serious Fraud Office had also opened a criminal investigation into the attempted manipulation of interest rates.[59]

On 4 October 2012, Republican U.S. Senators Chuck Grassley and Mark Kirk announced that they were investigating Treasury Secretary Tim Geithner for complicity with the rate manipulation scandal. They accused Geithner of knowledge of the rate-fixing, and inaction which contributed to litigation that "threatens to clog our courts with multi-billion dollar class action lawsuits" alleging that the manipulated rates harmed state, municipal and local governments. The senators said that an American-based interest rate index is a better alternative which they would take steps towards creating.[60] Aftermath

Early estimates are that the rate manipulation scandal cost U.S. states, counties, and local governments at least $6 billion in fraudulent interest payments, above $4 billion that state and local governments have already had to spend to unwind their positions exposed to rate manipulation.[61] An increasingly smaller set of banks are participating in setting the LIBOR, calling into question its future as a benchmark standard, but without any viable alternative to replace

Jensen Comment 2
FAS 133 and IAS 39 ushered in national and international requirements to book derivative contracts at fair values and adjust those values to "market" at least every 90 days. However, those "markets" are replete with market manipulation scandals that corrupt the databases used by valuation experts---

An accounting professor says shareholders need accountants to keep track of asset history, not to forecast future prices.
"Why Fair-Value Accounting Isn’t Fair
," by Charles Lee, Stanford University Graduate School of Business, July 2014 --- Click Here

During the darkest days of the financial crisis, banks came under scathing criticism for using traditional accounting practices to minimize their massive losses tied to junk mortgages.

The culprit, according to many financial reformers, was the practice of valuing financial assets on the basis of their historical cost. Even if subprime borrowers were still paying on time, the critics said, their mortgages and the securities backed by them had become almost worthless on the open market. Nobody wanted to buy them. To the critics, the banks were pretending that their capital was still strong when much of it had been wiped out.

To promote transparency, reformers have pushed banks and all other companies to embrace “fair-value’’ accounting – valuing assets on the basis of the current price they would fetch if they were put up for sale. It’s not just an issue for mortgage loans and bank balance sheets. Supporters of fair-value accounting would apply it to most other tradable assets, even patents.

Charles Lee, professor of accounting at Stanford Graduate School of Business, begs to disagree.

Fair-value accounting, he argues, goes against the fundamental purpose of accounting. It would actually inject more uncertainty into financial reporting and make life harder for shareholders. It might even create new opportunities for companies to cook their books.

In a combative keynote address at a London accounting conference last December, Lee argued that fair-value accounting confounds and confuses the core purpose of rigorous accounting. That purpose, he contends, is to provide economic history — an accurate report on transactions that have already occurred.

Market-value assessments represent something entirely different: collective forecasts about future returns. They embody the combined judgment of investors, buyers, and sellers about future cash flows, future growth, and future economic conditions.

Lee isn’t disparaging market valuations. In fact, he argues that the most important component of a company’s market value lies in shareholder expectations about its future earnings. But the purpose of accounting isn’t to make those forecasts, he insists. The purpose is to give shareholders the tools they need to make their own forecasts.

Continued in article

A very concise summary of the positions of various accounting theory experts in history since 1909 and authoritative bodies over the years since 1936:
"Asset valuation: An historical perspective"
Authors: Racliffe, Thomas A. (Thomas Arthur) and Munter, Paul
Accounting Historians Journal
Jensen Comment:  I really liked this summary of the valuation literature prior to 1980.
For example, what was the main difference between exit value advocates Chambers versus Sterling?

Bob Jensen's threads on fair value accounting ---

10 Business Books to Read This Summer of 2014 as Recommended by the Stanford University Graduate School of Business ---

Dumb, Dumb, and Dumber
Bill Isaac Blamed the Economic Meltdown of over 1.000 banks on fair value accounting

"Former FDIC Chief: Fair Value Caused the Crisis " by David M. Katz, CFO Journal, October 29, 2014 ---

Things were fine before the accounting standards-setters barged in and "destroyed hundreds of billions of dollars of capital," he contends.

In perhaps the most sweeping indictment of fair-value accounting to date, the chairman of the Federal Deposit Insurance Corporation during the 1980s savings-and-loan debacle told the Securities and Exchange Commission today that mark-to-market accounting rules caused the current financial meltdown.

Speaking at an SEC panel on mark-to-market accounting and the recent period of market turmoil, William Isaac, FDIC chairman from 1978 to 1985 and now the chairman of a consulting firm that advises banks, said that before FAS 157, the controversial accounting standard issued in 2006 that spells out how companies should measure assets and liabilities that have been marked to market, took hold, subprime losses were “a little biddy problem.”

Isaac rhetorically asked the participants how the financial system could have come upon such hard times in under two years. “I gotta tell you that I can’t come up with any other answer than that the accounting system is destroying too much capital, and therefore diminishing bank lending capacity by some $5 trillion,” he asserted. “It’s due to the accounting system, and I can’t come up with any other explanation.”

As of late 2006, Isaac, now chairman of The Secura Group, a financial institutions consulting firm, argued, “inflation was under control, economic growth was good, unemployment was low, and there were no major credit problems in the banking system.” There were $1.2 trillion worth of U.S. subprime mortgages, with about $300 billion provided by FDIC-insured banks and the rest held by investors world-wide.

Since subprime losses were estimated to be about 20 percent in 2006, federally insured U.S. banks had lost about $60 billion in that market, according to Isaac. But those banks had recorded about $150 billion in after-tax earnings and had $1.4 trillion of capital.

The devastation that followed stemmed largely from the tendency of accounting standards-setters and regulators to force banks, by means of their litigation-shy auditors, to mark their illiquid assets down to “unrealistic fire-sale prices,” the former FDIC chief asserted. The fair-value rules “have destroyed hundreds of billions of dollars of capital in our financial system, causing lending capacity to be diminished by ten times that amount,” he said in his prepared remarks.

Noting that 157 was issued in 2006, Isaac noted that he wasn’t “asking that we change the whole system of accounting that has been developed for centuries.” Instead, he said, “I’m asking for a very bad rule to be suspended until we can think about this more and stop destroying so much capital in our financial system. I think that’s a basic step that needs to be taken immediately.”

Isaac added that it’s his “fervent hope that the SEC will recommend in its report to Congress that we abandon mark-to-market accounting altogether.” The panel was held as part of the commission’s effort to comply with a requirement in the Emergency Economic Stabilization Act signed earlier this month that the SEC complete a study of mark-to-market’s role in the current crisis by Jan. 2, 2009.

Continued in article

Update in 2014:  Researchers find fair value accounting was not to blame for financial crisis
"Fair Value Accounting’s Role in Financial Crisis Scrutinized," by Michael Cohn, Accounting Today, June 30, 2014 ---

A new academic study finds that fair value accounting was unfairly blamed for precipitating the 2008-2009 financial crisis, but acknowledges that some investors reacted positively to news that the rules would be relaxed in response to the crisis.

In the wake of the crisis, Congress convened hearings to examine the impact of mark-to-market accounting and fair value measurement on the shares of investment banks such as Bear Stearns, Lehman Brothers and Merrill Lynch that had difficulty valuing mortgage-based securities in illiquid markets, pressuring the Financial Accounting Standards Board to relax the requirements for writing down the value of such securities. One of the provisions of the economic stimulus legislation, the Emergency Economic Stabilization Act of 2008, was to require the Securities and Exchange Commission to release a report in December 2008 to examine the role of mark-to-market accounting. The SEC study largely defended the role of mark-to-market and fair value accounting, but also provided some recommendations for revising the standards, which FASB and the International Accounting Standards Board quickly began to do.

Now a new academic study by researchers at Columbia Business School also examines the role of fair value accounting in the financial crisis. The study, published in the Journal of Accounting and Public Policy, examines FVA’s role in the financial crisis and considers the advantages it offers relative to other methods of accounting.

“Fair value accounting has been blamed for the near collapse of the U.S. banking system,” said Urooj Khan, assistant professor of accounting at Columbia Business School and co-author of the research. “On one hand, FVA can provide timely and relevant information during crisis, but it can feel like ripping off a Band-Aid causing immediate pain as it accelerates the process of price adjustment and resource reallocation in times of financial turmoil. On the other hand, it can increase contagion among banks by potentially fueling fire sales. Our research demonstrates that investors’ concerns about FVA’s detrimental affect overshadowed the beneficial role it plays in promoting timely market information.”

The study, titled “Market reactions to policy deliberations on fair value accounting and impairment rules during the financial crisis of 2008-2009,” was co-authored by Professor Urooj Khan of Columbia Business School and Professor Robert M. Bowen of the University of San Diego’s School of Business Administration and the University of Washington’s Foster School of Business. The researchers explored stock market investors' and creditors' reactions to events such as policy deliberations, recommendations and decisions related to the relaxation of FVA rules during a period of extreme financial turmoil from September 2008 to April 2009.

The research found that while news about relaxing FVA rules generally led to positive stock market reactions, the results varied depending on a variety of bank characteristics. The research also revealed additional points that call into question FVA’s role in the recent financial crisis.

Investors acted as if FVA rules harmed banks and accelerated their decline, resulting in a favorable reaction to discussions about relaxing FVA rules, the study noted. The researchers found some evidence that banks that were more susceptible to contagion are the ones that benefited the most from the change in FVA rules. For banks without analyst coverage, investor reactions to relaxed FVA rules were less positive, suggesting that, in the absence of other information sources, investors perceive FVA data as providing timely and informative disclosures about banks’ financial soundness. Banks with a higher proportion of illiquid assets saw a more positive stock price reaction to potential relaxation of FVA rules.

For the study, Khan and Bowen examined investor and creditor reactions to 10 events—including policymaker deliberations, recommendations, and decisions—related to the relaxation of FVA and impairment rules in the banking industry.

To complement the event analysis, the study also investigated cross-sectional stock price reactions to bank-specific factors that potentially contributed to the financial crisis’ spread. Factors analyzed included whether banks were well capitalized, their proportion of fair value assets, and the availability of information sources other than FVA data.

Continued in article

Jensen Comment
At the time in 2008 I wrote that Bill Isaac was an ignorant advocate of horrible and dangerous bank accounting ---
Don't Blame Fair Value Accounting Standards (except in terms of executive bonus payments): This includes a bull crap case based on an article by the former head of the FDIC," Bob Jensen, 2008 ---
Isaac blamed the subprime collapse of thousands of banks on the FASB requirements for fair value accounting (totally dumb) ---

Isaac wanted the FASB to continued to grossly under estimate loan loss reserves (now that the FASB is finally trying to fix the problem)
“AccountingWEB Exclusive: Former FDIC Chief says FASB proposal is 'irresponsible'," AccountingWeb, June 3, 2010 ---

The author must've never heard the phrase "eating your seed corn."

"Profitless' Amazon Myth Lives On Thanks To Lazy Financial Media," Peridot Capital Management, June 30, 2014 ---

Last night CNBC premiered their newest documentary entitled Amazon Rising. I tuned in, as I have thoroughly enjoyed most of their previous productions. I found this one to have a noticeably anti-Amazon vibe, but none of the revelations about the company’s business practices should have surprised many people, or struck them as having “crossed the line.” For me, by far the most annoying aspect of the one-hour show was the continued insistence that Amazon “barely makes any money” and “trades profits for success.” It’s a shame that the media continues to run with this theme (or at least not correct it), even when the numbers don’t support it.

Most savvy business reporters understand the difference between accounting earnings and cash flow, the latter being the more relevent metric for profitability, as it measures the amount of actual cash you have made running your business. There are numerous accounting rules that can increase or decrease the income you report on your tax return, but have no impact on the cash you have collected from your customers. A good example would be your own personal tax return. Did the taxable income you reported on your 2013 tax return exactly match the dollar amount of compensation that was deposited into your bank account during the year? Almost by definition the answer is “no” given that various tax deductions impact the income you report and therefore the taxes you pay. But for you personally, the cash you received (either on a net or gross basis) is really all that matters. One can try to minimize their tax bill (legally, of course) by learning about every single deduction that may apply to them, but it doesn’t change the amount of pre-tax cash they actually collected.

As a result, the relevent metric for Amazon (or any other company) when measuring profitability should be operating cash flow. It’s fancy term that simply means the amount of actual net cash generated (in this case “generated” means inflows less outflows, not simply inflows) by your business operations. In the chart below I have calculated operating cash flow margins (actual net cash profit divided by revenue) for five large retailing companies — Costco, Walgreen, Target, Wal-Mart, and Amazon — during the past 12 months. The media would have you belive that Amazon would lag on this metric, despite the cognitive dissonance that would result if you stopped to think about how Amazon has been able to grow as fast as they have and enter new product areas so aggressively. After all, if they don’t make any money, where have the billions of dollars required for these ventures come from? The answer, of course, is that Amazon is actually quite profitable.

Continued in article

Jensen Comment
It is important to when analyzing financial statements to carefully study cash flows, especially when otherwise profitable companies are having worrisome cash flow problems such as when customers are slow paying what is owed to a vendor.

But to imply that accrual profits are mostly irrelevant is irresponsible --- something we should never teach our students.

Airline companies would look amazingly profitable if by some magic they never had to replace their aircraft. Think of how profitable a railroad could be if its rolling stock and road beds remained as good as new for 100 years of heavy use.

Companies could pay employees in long-term stock options and look amazingly profitable because the cash compensation is deferred for a very long time --- sort of like cash payments for pensions that are way off in the distant future for companies like Google and Amazon --- amounts owing when current managements are long gone and eating on the lotus leaves.

Executives would do cartwheels if you paid their bonuses on operating cash flow at Amazon.

Operating cash flow "profits" are the ultimate in profit myopia.

The author must've never heard the phrase "eating your seed corn."

The author perhaps does not understand the moral hazards of basing investments and management performance rewards on operating cash flows.
Bob Jensen's threads on cash flow profits versus accrual profits are at

"Stakeholder Demand for Accounting Quality and Economic Usefulness of Accounting in U.S. Private Firms," by Ole-Kristian Hope, Wayne B. Thomas, and Dushyantkumar Vyas, SSRN, June 23, 2014 ---

For some privately-held firms, the costs of providing high-quality accrual-based financial statements may outweigh the benefits of accommodating the demands of their stakeholders who may rely more on cash flows or have direct access to management. For other private firms, greater stakeholder demand for their financial information necessitates them providing higher-quality accounting. Consistent with these expectations and using a large sample of U.S. private firms, we find that accrual quality increases with the demand for monitoring by equity investors, lenders, and suppliers. We also find that ex-ante litigation risk relates positively to accrual quality (a supply factor). Additional tests confirm that accrual quality in private firms is associated with the ability of accruals to predict future cash flows and with the quality of investment decisions. Overall, our evidence suggests that accrual quality of private U.S. firms is useful, has economic consequences, and varies predictably with certain firm characteristics.

Bob Jensen's threads on accounting for derivative financial instruments and hedging activities ---

"Navigating the Accounting Academic Job Market and Related Advice," Jason Bergner, Joshua J. Filzen and Jeffrey Wong, SSRN,  May 8, 2014 ---

The vast majority of students in accounting doctoral programs ultimately hope to find a tenure-track faculty position upon graduation. However, it has been our experience that many candidates pursue this goal with an incomplete understanding of many aspects of the market, including how the market clears, job expectations, and other issues that we believe are important for graduates to understand in order to have a successful start to their careers. Further, while other authors have adequately addressed the importance of research in the profession and allude to some aspects of the market, we provide additional useful information about the market and other career aspects in order to assist both new graduates and relocating professors in their quests to find fulfilling appointments. Our paper is not meant to be a comprehensive guide covering all aspects of the market and duties as a new professor; rather, we seek to complement existing literature to form a more complete picture of the market and profession.

Bob Jensen's threads on the sad state of accountancy doctoral programs in North America ---

From the CPA Newsletter on July 29, 2014

What other countries have learned about using XBRL ---
Many countries have been using eXtensible Business Reporting Language for years, giving the U.S. an opportunity to put their knowledge to use. Open data leaders from other nations shared their expertise at a recent industry gathering in Washington, D.C. "Adopt a global open standard, and make sure you put together enough standards for linkage of data so that users can follow the money," says Marcela Rozo of the World Bank. Learn more about XBRL on Federal Computer Week (7/29)

"Long Silent SEC Offers New Guidance, Warnings on XBRL," by Tammy Whitehouse, Compliance Week, July 8, 2014 ---

After taking its time to assess the state of XBRL compliance and start calling for needed corrections, the Securities and Exchange Commission has issued some new cautions regarding XBRL filings to public companies: don't forget to provide your calculation relationships, and particularly for smaller companies, reduce your use of custom tags.

The SEC's Division of Corporation Finance published an open “Dear CFO” letter as a sample of correspondence sent directly to certain public companies indicating they weren't including all the required calculation relationships in their XBRL filings. “Acceptance of your filing by EDGAR does not mean that your filing is complete or in compliance with the commission's requirements,” the letter says. “We ask that you, in preparing your required exhibit with XBRL data, take the necessary steps to ensure that you are including all required calculation relationships.”

Calculation relationships in an XBRL filing explain the additive or summation relationships between parent-child items in financial statements. In the balance sheet, for example, calculation relationships would show how current assets and noncurrent assets add up to a total asset figure. The SEC's Dear CFO letter reminds companies to take a look at the EDGAR Filer Manual for information on how to comply with the requirement to provide calculation relationships in filings.

Separately, SEC staff also published observations on custom tags, or extensions, that are used to express numbers that are not readily found in the GAAP Taxonomy that all companies follow to tag their financial data and disclosures. The SEC's Division of Economic and Risk Analysis recently assessed the quality of XBRL exhibits from 2009 through 2013 and determined larger companies have reduced their use of custom tags, making XBRL exhibits more directly comparable, but smaller companies have not shown the same reduction.

Continued in article

Bob Jensen's threads on XBRL, XML, and OLAP ---

"How U.S. Companies can become more competitive - Start with System Thinking and Reengineering," by Jim Martin, MAAW's Blog, July 30, 2014 ---

Feedback on the question in my previous post could take many directions. Around the same time that Elliott wrote about the 3rd wave many authors were advocating various approaches to help U.S. companies become competitive. Deming and Goldratt published books about the problem in 1986 and followed that with other books adding more specificity. CAM-I published its conceptual design (edited by Berliner and Brimson) in 1988 and numerous authors (e.g., McNair) have written about activity-based cost management since that time. In 1990 Senge wrote about systems thinking (The Fifth Discipline) and Hammer introduced the concept of Reengineering adding more depth and specificity in Reengineering the Corporation with Champy in 1993. In 1996 Womack and Jones published Lean Thinking with recommendations similar to Imai's approach in his 1986 Kaizen. More recently Johnson and Broms wrote about the living systems model (in Profit Beyond Measure) and Baggaley and Maskell have described value-stream management. I have developed a considerable amount of information about the first three approaches, some information about approaches 5, 6, and 7, but very little about 4th approach Reengineering. To consider the Reengineering approach see my summary of Hammers' 1990 paper (Hammer, M. 1990. Reengineering work: Don't automate, obliterate. Harvard Business Review (July-August): 104-112. ) at
My current view is that reengineering should be the first step after one embraces systems thinking and then it can be followed by other approaches. This is because approaches such as continuous improvement (TOC, PDCA, etc.), and value-stream management should not be used on process designs that companies should not be doing in the first place.

1. The systems thinking (Deming 1986, 1993, Senge 1990) approach.
2. The theory of constraints (Goldratt 1986, 1990) approach.
3. The activity-based cost management (CAM-I 1988, McNair 1990, etc.) approach.
4. The reengineering (Hammer and Champy 1990, 1993) approach.
5. The self-organizing lean enterprise, including just-in-time (Womack and Jones 1996, Imai 1986) approach.
6. The living systems model (Johnson and Broms 2000) approach.
7. The value-stream management (Baggaley and Maskell 2003) approach.


"Measuring Accounting Disclosure Complexity with XBRL," by Rani Hoitash and Udi Hoitash, SSRN, May 6, 2014 ---

Understanding and measuring accounting disclosure complexity is important because increased accounting disclosure complexity can lead to poor financial reporting. However, to date, the measurement of accounting disclosure complexity remains elusive. Using eXtensible Business Reporting Language (XBRL) filings, we propose two measures of accounting disclosure complexity. The first is based on the number of US GAAP XBRL Taxonomy tags reported in company filings. This variable is based on the premise that a higher volume of reported accounting concepts captures greater disclosure complexity. The second is based on the number of customized (extensions) XBRL tags that are created by companies when the Taxonomy does not include suitable tags to represent company-specific accounting concepts. This measure captures the volume of unique, and therefore difficult, aspects of accounting concepts. We validate these measures by showing that greater accounting disclosure complexity is associated with poor financial reporting quality. Specifically, we find that these two accounting disclosure complexity measures are positively associated with likelihood of issuing financial statement restatements, disclosing material weaknesses in the internal controls over financial reporting, and reporting higher abnormal accruals. Further, these complexity proxies are positively associated with higher audit fees that we use to proxy for the level of auditor effort/risk-adjustment. These measures are distinct from proxies for operating complexity and financial reports readability, and exhibit more consistent association with measures of poor financial reporting quality. We suggest that these measures can be used by companies when deciding on internal resource allocation to the accounting function or by external stakeholders who wish to assess financial reporting risk.

Bob Jensen's threads on XBRL, XML, and OLAP ---

"Factors Limiting Behavioral Research in Accounting," by A. Rashad Abdel-Khalik, SSRN, June 16, 2014 ---

The objective of this note is to caution against expecting golden eggs from a normal goose. It's probably easier for those who have not actually conducted behavioral research to build high expectations for its policy use and implications simply because it appears the obvious way to do ex ante research, i.e., prior to making the final standards. Behavioral research methods have their own promises as well as weaknesses. The message I intend to emphasize in this note is the need for triangulation in research; that is, multiplicity of research methods of which behavioral methods are only a component. Furthermore, almost by necessity, policy relevant research is one that generates concordant findings simply because policies and standards generate their own strength from being generally acceptable.

"Growth in Financial Derivatives: The Public Policy and Accounting Incentives," by A. Rashad Abdel-Khalik and Po-Chang Chen, SSRN, May 9, 2014 --- 

During the period 1995-2012, the USA has captured a large proportion of both invention and growth in financial derivatives. The notional amount of total derivatives held by U.S. bank holding companies has grown from 16.6 trillion in 1995 to 308 trillion in 2012, while the U.S. GDP has slightly more than doubled from 7.7 trillion to 16.2 trillion over the same period. In this paper, we consider three potential drivers of this growth: (a) the Gramm-Leach-Bliley Act of 1999 that repealed the Glass-Steagall Act; (b) the Commodity Futures Modernization Act of 2000 that sanctioned gambling in securities by preempting all anti- bucket shop laws; and (c) the FAS 133 Accounting for Derivative Instruments and Hedging Activities which was issued in 1998 and became effective in 2000. The results are consistent with two expectations: (i) the enactment of the two Congressional Acts was a motivating factor in the growth of trading derivatives (which amounted to 98% of the total derivatives), and (ii) adoption of hedge accounting was a contributor to growth in non-trading derivatives.

Bob Jensen's threads on accounting for derivative financial instruments and hedging activities ---

"Fair Value Accounting and Stewardship," by A. Rashad Abdel-Khalik, SSRN, Accounting Perspectives, Vol. 9, No. 4, 2009 ---

Current standards define fair value as the market price at which an asset could be sold or a liability could be settled in the normal course of business. Setting aside measurement issues, assessing the relevance of exit values has intensified in recent years as fair value becomes a pervasive component of accounting regulation. The current debate about accounting measurement is framed in terms of making a choice between fair value and historical cost. In this article I argue that this is not a correct framing of the issues; knowledge of fair value alone cannot help investors to evaluate stewardship, because they would not know how much resources the management had sacrificed to obtain that fair value. To properly evaluate stewardship, investors need both types of information, historical cost and fair value. Using this information, a rate-of-return-like index of stewardship quality is proposed. This commentary concludes with a statement about three significant drawbacks of relying solely on fair value accounting.

"Accounting and Auditing of Financial Derivatives: The Case of Maridive & Oil Services," by Karim Hegazy, SSRN,  June 21, 2014 ---

This case study discusses accounting and auditing implications resulting from the dispute among auditors and the management of Maridive & Oil Services Company (MOS) in the preparation of the company’s financial statements at December 31, 2008. The dispute occurred for the accounting treatment of losses of $ 18 million dollars expected to be realized on the swap agreement made between MOS and a number of international banks during the period 2009-2018. MOS is a publicly traded company at both Cairo and Alexandria Stock exchanges, with total assets of more than $390 million dollars. The company entered into swap agreement with two international banks to minimize the risk associated with credit facilities received by the company to expand its marine services through the construction of a number of marine vessels. The dispute among the three international audit firms resulted in the issuance of two different sets of audit reports.

The Egyptian Capital Market Authority (CMA) examined the company’s financial statements for the year ended on December 31, 2008, while the auditors’ reports forced the company’s management, despite the objection of two of the company’s auditors, to restate its financial statements at December 31, 2008, and modify its profit appropriation statement after their publication to shareholders and the public. The research presents the problems related to the application of the International Accounting Standards no 32 and 38 “Financial assets and Derivatives,” their Egyptian equivalents, and the Egyptian Standards on auditing no 700 and 702. Further, the research identifies the differences associated with auditors issuing contradictory audit reports for a company’s single set of financial statements.

Bob Jensen's helpers on accounting for derivative financial instruments and hedge accounting ---

"Bad Tax Shelters -- Accountability or the Lack Thereof: Ten Years of Tax Malpractice," by Jacob L. Todres, SSRN, February 24, 2014 ---

In the 1990’s and early 2000’s the tax landscape in the United States was overrun by an epidemic of tax shelters that was unprecedented. The shelters were designed and sold by seemingly reputable large accounting and law firms. The same shelters were sold to many taxpayers. They became generic, off-the-shelf, products. However, the tax shelters had no business substance. The shelters were eventually found to be invalid by the courts. In light of the invalidity of the shelters, the large fees paid for the shelters and the large damages caused by participating in the invalid shelters, there were predictions that many malpractice suits against the sellers of the shelters would ensue.

For this article I attempted to determine whether the predicted wave of tax malpractice suits occurred and what impact, if any, resulted in the area of tax malpractice litigation.

Much to my surprise, there ended up being very few cases focusing on substance. There were several class actions that were settled but, in light of the settlements, offered no useful insights. Most of the other reported cases dealt with procedural issues such as whether the action must be arbitrated, federal versus state venue, statute of limitations, etc. In the end, there were only a few cases that addressed any issue of substance. The only exception was a huge case in Kentucky, Yung v. Grant Thornton LLP , that was decided in late November, 2013. The case was huge because of its length (over 200 pages) and because it awarded $20 million in compensatory damages and $80 million in punitive damages.

In the article I analyze the few existing generic tax shelter cases and try to fit them into the general principles governing tax malpractice. I then also review the other developments in the tax malpractice area during approximately the last decade.

"Erik Jensen: The Constitutionality of a Mark-to-Market Taxing System," by Paul Caron, TaxProf Blog, July 9, 2014 ---

Jensen Comment
The above article focuses on income taxation. However, over the years we've come to expect mark-to-market revaluations of real estate property for purposes of computing property taxes. It is not at all uncommon for retired folks to have to sell their long-time homes because they can no longer keep up with property tax increases caused by mark-to-market adjustments of the base.

This was the main reason why California years ago voted in Proposition 13 banning mark-to-market adjustments that were particularly troublesome to home owners in the insanely hot real estate market of most parts of California ---

Home owners in other states have not been given such serious mark-to-market relief. If investors had to additionally pay annual income taxes on unrealized fair value gains in their savings portfolios it would compound the felony.

A random walk among the free articles from the Accounting Historians Journal
Bob Jensen on June 28, 2014

AICPA Launches Site on Future of Learning for CPA Profession A Call to Action Tied to Findings of Institute-Led Task Force on Professional Education ---
Thank you Raza for the heads up.

No Elementary Internal Controls
"After $13-Million Fraud, Ball State U. Commissions External Review," Chronicle of Higher Education, July 11, 2014 ---

Ball State University will hire a former federal prosecutor to investigate how it was defrauded of $13.1-million, The Star Press reports. Deborah Daniels, an Indianapolis lawyer and former U.S. assistant attorney general, will also recommend ways for the university to better protect itself from fraud.

The university fell victim to the vast fraud because of two investments made by a former director of cash and investments, Gale Prizevoits, whom Ball State fired in 2011. Two men have been convicted and sentenced to time in federal prison for defrauding the university of $8-million and $5-million, respectively.

Jensen Comment
This is a short illustration of neglect in the most basic internal controls.

"FASB votes in favor of new consolidation standard," by Ken Tysiac, Journal of Accountancy, July 16, 2014 ---

New accounting rules approved by FASB on Wednesday are designed to make financial reporting about consolidation more transparent and consistent.

FASB will issue the standard in the coming months, following the drafting of the final Accounting Standards Update (ASU).

All public and private companies that apply variable-interest entity (VIE) guidance will be affected by the ASU, as will limited partnerships and similar legal organizations such as limited liability corporations.

The new rules are intended to be less complex for limited partnerships and similar legal organizations. In addition, the rules are designed to simplify the consolidation guidance to focus more on principal risk, and remove the indefinite deferral available to certain investment funds.

The ASU will:

  • Change requirements for when a general partner consolidates a limited partnership.
  • Clarify when fees paid to a decision-maker (such as an asset manager) should be considered for VIEs when evaluating if a decision-maker is required to consolidate the VIE.
  • Reduce the complexity of the guidance for VIEs as it applies to related-party relationships such as affiliates.
  • Exclude certain money market funds from the guidance’s scope.

Bob Jensen's threads on accounting theory are at

"FASB proposals on inventory, extraordinary items seek simplification," by Ken Tysiac, Journal of Accountancy, July 15, 2015 ---

FASB published proposals Tuesday that are designed to simplify the measurement of inventory and eliminate the concept of extraordinary items.

The proposals are part of FASB’s simplification initiative, which is designed to reduce cost and complexity in financial reporting while improving or maintaining the usefulness of information to users through narrow-scope projects that could simplify GAAP in a short period.

In the proposal titled Inventory (Topic 330): Simplifying the Measurement of Inventory, FASB proposes measuring inventory at the lower of cost or net realizable value. Current GAAP requires reporting organizations to measure inventory at the lower of cost or market, where market could be net realizable value, replacement cost, or net realizable value less a normal profit margin when measuring inventory.

The proposal is designed to reduce complexity by narrowing the possibilities for measurement. The proposal would eliminate existing requirements to consider the replacement cost of inventory and the net realizable value of inventory less an approximately normal profit margin.

The other proposal, Income Statement–Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items, seeks to lower cost and complexity by eliminating the concept of extraordinary items.

Under current GAAP, organizations are required to evaluate whether an event or transaction is an extraordinary item. If deemed extraordinary, the item is required to be separately presented and disclosed.

But, according to FASB, uncertainty arises in the determination of whether items are extraordinary, because it is unclear when an item should be considered both unusual and infrequent. FASB believes eliminating the concept would relieve preparers from the burden of assessing whether events or transactions are extraordinary.

In addition, FASB intends to alleviate uncertainty for preparers, auditors, and regulators because it would no longer be necessary for auditors and regulators to evaluate whether a preparer presented an unusual and/or infrequent item appropriately.

FASB expects that both proposals, if approved, would be applied prospectively in annual periods, and interim periods within those annual periods, beginning after Dec. 15, 2015. Early adoption would be permitted.


"Does Big 4 Consulting Revenue Impair Audit Quality?" by Ling Lei Lisic, Robert J. Pawlewicz, and Timothy A. Seidel, SSRN, June 1, 2014 ---

Over the past decade, the Big 4 public accounting firms have steadily increased the proportion of their revenue generated from consulting services (consulting revenue hereafter), primarily from nonaudit clients. Regulators and investors have expressed concerns about the potential implications of accounting firms’ expansion of consulting services on audit quality. We examine the associations between Big 4 audit firm consulting revenue and various measures of audit quality, including auditor going concern reporting errors, client misstatements, and client probability of meeting or just beating analyst earnings forecasts. Overall, our results suggest that a higher proportion of firm-level consulting revenue is not associated with impaired audit quality for the Big 4 firms. However, results of earnings response coefficient tests suggest that investors perceive a deterioration of audit quality when a higher proportion of the firms’ revenue is generated by consulting services.

"Survey Finds Audit Flaws by the Big Accounting Firms," New York Times,, April 11, 2014 --- 

Public company and bank audits conducted around the globe by units affiliated with the world’s six largest accounting firms are persistently riddled with flaws, a group of international regulators have found.

The finding, released on Thursday in the results of a survey conducted in 2013 by the International Forum of Independent Audit Regulators, raises major policy questions about whether global regulators have done enough to improve audit quality since the 2007-9 financial crisis.

Leading up to the crisis, many publicly traded banks portrayed a rosy financial picture of their corporate books, only to suffer huge losses later on subprime mortgage securities in their portfolios.

Critics have questioned why independent auditors responsible for reviewing the accuracy and quality of public company financial reporting failed to spot the problems sooner.

“The high rate and severity of inspection deficiencies in critical aspects of the audit, and at some of the world’s largest and systemically important financial institutions, is a wake-up call,” said Lewis H. Ferguson, a board member of the Public Company Accounting Oversight Board, which polices auditors in the United States.

“More must be done to improve the reliability of audit work performed globally on behalf of investors,” he said.

The findings discussed Thursday stem primarily from inspections conducted at firms affiliated with the six largest accounting firms. They include the Big Four — PricewaterhouseCoopers, KPMG, Deloitte and Ernst & Young — as well as BDO and Grant Thornton.

The survey looked at inspection results for audits of public companies and large financial institutions considered “systemically important” to the global economy.

With public company audits, regulators found problems related to auditing fair value measurements, internal control testing and procedures used to assess how financial statements are presented.

The regulators also said that audits of systemically important financial firms often had deficiencies stemming from allowances for loan losses and loan impairments, and the auditing of investment valuation.

Cindy Fornelli, executive director at the Center for Audit Quality, said on Thursday in reaction to the survey that her group’s members recognized there was still “work to do.”

At the same time, she noted that accounting reforms enacted in the United States in 2002 “have led to improvements in audit quality, financial reporting, and internal controls over financial reporting.”

Continued in article

Jensen Comment
Given the repeated deficiencies in Big Four audits as reported in PCAOB inspection reports year after year perhaps cost cutting is more of a problem in Big 4 audit professionalism than independence. In some cases the Big Four firms are flagged for poor audit supervision of inexperienced staff auditors. In most instances, however, the problem is one of failure to do enough detail testing.

"Do Big 4 Auditors Provide Higher Audit Quality after Controlling for the Endogenous Choice of Auditor?" by John Daniel Eshleman and Peng Guo, SSRN, April 18, 2014 --- 

Recent research suggests that Big 4 auditors do not provide higher audit quality than other auditors, after controlling for the endogenous choice of auditor. We re-examine this issue using the incidence of accounting restatements as a measure of audit quality. Using a propensity score matching procedure similar to that used by recent research to control for clients’ endogenous choice of auditor, we find that clients of Big 4 audit firms are less likely to subsequently issue an accounting restatement than are clients of other auditors. In additional tests, we find weak evidence that clients of Big 4 auditors are less likely to issue accounting restatements than are clients of Mid-tier auditors (Grant Thornton and BDO Seidman). Taken together, the evidence suggests that Big 4 auditors do perform higher quality audits.

Jensen Comment
Audit restatements, in my opinion, are lousy surrogates for audit quality. Restatements can, and often do, arise when the audits are outstanding because there are many factors leading to restatements that may not be picked up in the best of audits. On the other hand, audits not accompanied by restatements may be horrible audits. In fact, audit firms may be inclined to cut corners in audit firms that they believe are likely to be in close conformance to GAAP and are in great financial shape. Such positive incentives for cutting corners in audits does not justify cutting corners in my opinion --- and in the opinion of the PCAOB that are repeatedly finds audit deficiencies by Big 4 firm audits of clients that did not later issue restatements.

Bob Jensen's threads on audit firm independence and professionalism ---

"Accounting for Contingent Liabilities: What You Disclose Can Be Used Against You," by Linda Allen, SSRN, June 20, 2014 --- 

Accounting standards require disclosure of estimable losses from contingent liabilities such as litigation expenses. However, revelation of the firm’s private estimates of the probability of loss and possible legal damages can be detrimental to the firm by encouraging litigation and increasing the costs of settlement. In this paper, I propose a model (the US-patented TMTM) that uses publicly-available data to provide accurate and unbiased estimates of litigation damages without requiring firms to publicly disclose their private assessments or litigation reserves. This provides valuable information to the users of financial statements without undermining the firm’s right to preserve sensitive internal information


From KPMG University Connection on July 14, 2014
11 New Audit Teaching Cases

Company Risk, Governance, and Accounting Policy Cases

Developed by Brian Ballou, Ph.D., CPA, and Dan L. Heitger, Ph.D., Miami University
  • Case 1: Jet Blue, Inc.
  • Case 2: Verizon Communications
  • Case 3: U.S. Department of Treasury
  • Case 4:
  • Case 5: Target Corporation
  • Case 6: Time Warner Inc.
  • Case 7: Panera Bread Co.
  • Case 8: Toyota Motor Corp.
  • Case 9: Johnson & Johnson
  • Case 10: Best Buy
  • Case 11: Nike

Click to download the cases


Find what you need! Click the links below to view KPMG's curriculum resource guides.

Audit Resources for Faculty
Tax Resources for Faculty
Advisory Resources for Faculty
IFRS Resources for Faculty
Professional Judgment and Ethics Resources for Faculty


From The Wall Street Journal Accounting Weekly Review on July 18, 2014

Sale-Leasebacks Ease Italy's Real-Estate Jam
by: Alessia Pirolo
Jul 15, 2014
Click here to view the full article on

TOPICS: Lease Accounting

SUMMARY: Two funds traded on the NYSE, Blackstone Group and Och-Ziff Capital Management Group, as well as Cerberus Capital Management LP, have been able to buy Italian properties that other foreign investors are unable to acquire "due to the slow pace of sales." The properties are being sold by financially stressed governments and institutions; they "are occupied by barracks, police stations, ministries and other government offices...." These U.S. based funds are making acquisitions from two Italian funds "owned by Italian banks and institutional investors" which "were set up by the Italian government in 2004 to do sale-leasebacks of government-owned property." Two times in the article the similarities between leases are bonds are mentioned. Discussion questions focus on understanding sale-leaseback transactions and the similarity to bonds in the annuity stream that follows.

CLASSROOM APPLICATION: The article may be used in a financial reporting class when covering leasing. Even when not planning to cover accounting for sale-leaseback transactions, it is useful for students to know of the existence of these transactions.

1. (Advanced) What are sale-leaseback transactions? Cite your source for this definition if it comes from a source other than this article.

2. (Introductory) Why does the Italian government need to sell its properties that it owns and occupies if it does not plan to remove operations from them?

3. (Advanced) How do terms of sale-leaseback transactions make the transactions like bonds, that is, more "financial operations...than classic real-estate operations"?

4. (Advanced) Describe how leases are priced for accounting purposes. In your answer, point out the similarities to and differences from pricing of bonds.

Reviewed By: Judy Beckman, University of Rhode Island

"Sale-Leasebacks Ease Italy's Real-Estate Jam," by Alessia Pirolo, The Wall Street Journal, July 16, 2014 ---

Many foreign investors that have shown up in Italy to buy property from financially stressed governments and institutions have been discouraged by the slow pace of sales.

But there is a recent exception to this rule: Deals have begun to flow out of two funds that were set up by the Italian government in 2004 to do sale-leasebacks of government-owned property.

Blackstone Group BX -0.84% LP, Cerberus Capital Management, LP, and Och-Ziff Capital Management Group OZM -0.81% are buying properties from these funds that are occupied by barracks, police stations, ministries and other government offices, according to people familiar with the matter. The total value of three deals expected to close this summer is over €600 million ($816 million), people said.

The two 10-year-old funds are owned by Italian banks and institutional investors. One of them—Fondo Immobili Pubblici, managed by Investire Immobiliare SGR SpA—purchased €3.7 billion of government-occupied properties and leased them back to the government. The other—Patrimonio Uno, managed by BNP Paribas Real Estate—purchased and leased back €700 million of buildings.

Together, the funds own hundreds of properties. The recent sales won't make a dent in Italy's public debt of over €2 trillion because the funds aren't owned by the government. But the deals are a sign that the slow recovery of the European economy is increasing demand for Italian property.

More deals are expected. Fondo Immobili Pubblici is scheduled to liquidate by December 2019, with a possible extension to 2022. Patrimonio Uno is scheduled to liquidate by December 2017, with a possible extension to 2020.

Sale-leasebacks are popular with investors because they offer a guaranteed steady rent stream as long as the leases last. The Italian state leases over 11,000 properties and pays €1.25 billion annually in rents, according to data from Agenzia del Demanio, the agency that manages the state's real-estate assets.

Lately, many sale-leaseback deals with the Italian government have taken on a new level of risk. Under recent laws passed in the wake of the financial crisis, the government has given itself rights to cut its rents by 15%, and to break a lease without notification to landlords.

"Investors are skeptical of properties rented to the public administration," said Carlo Vanini, a partner for capital markets at Cushman & Wakefield Inc. He recently had a deal for a portfolio of office buildings in Rome fall through because the tenant, an Italian ministry, broke its lease unexpectedly.

But sales by the two funds are expected to attract a lot of investor interest because they were set up with specific regulations by the Italian Ministry of Finance. As a result, the property they own aren't subject to the new laws that give the government the ability to get out of leases or cut rents.

Overall, commercial real-estate sales volume in Italy has been increasing as the euro zone has recovered from the financial crisis. CBRE Group Inc. predicts that there will be about €5 billion in Italian commercial-property sales in 2014, compared with €4.6 billion in 2013.

Blackstone was one of the most-active buyers of Italian real estate in the first quarter of 2014, with acquisitions of a portfolio of logistics warehouses and another portfolio of office and retail assets.

Now, Blackstone is in exclusive talks to buy a Fondo Immobili Pubblici portfolio of nine office buildings for €240 million, according to people familiar with the matter. The portfolio includes offices of the Italian Revenue Services and of the Ministry of Finance in the Northern cities of Turin and Pavia.

Fondo Immobili Pubblici also has selected Och-Ziff as exclusive bidder for three complexes of office buildings and barracks occupied by the Italian financial police with an initial offer of €290 million, according to people familiar with the matter. One of the complexes in the southern city of L'Aquila was where a G-8 summit took place in 2009.

Mr. Vanini compared these assets to bonds because the rent payments guarantee a secure cash flow. "They are financial operations more than classic real-estate operations," he said.

According to people familiar with the deals, yields are approximately 7% for the office buildings and over 10% for the barracks, mostly located in Southern Italy.

In another deal involving state-rented properties, Cerberus is expected to close soon on the purchase of seven police barracks across Italy owned by Patrimonio Uno. It is expected to pay €90 million for properties that will guarantee yields up to 12%, according to people familiar with the deal.

Continued in article

Bob Jensen's threads on lease accounting ---

Teaching Case on Contingent Liabilities
From The Wall Street Journal Accounting Weekly Review on February 21, 2014

Cisco is Hit by Sagging Global Demand
by: Don Clark
Feb 13, 2014
Click here to view the full article on

TOPICS: Contingent Liabilities, Interim Financial Statements

SUMMARY: This article describes fiscal second quarter results for Cisco Systems. The company reported a charge of $655 million to repair faulty chips. The press release is available at In it, the company reports non-GAAP results which exclude this charge.

CLASSROOM APPLICATION: The article may be used to discuss contingent liabilities, quarterly reporting requirements resulting in the charge for defective chip repairs in one quarter, and non-GAAP reporting issues in financial accounting classes. The managerial accounting topic of quality cost also is covered. This product-related issue might be compared to coverage of Target's woes covered under another article in this review

1. (Introductory) Define the term contingent liability.

2. (Advanced) Based on the description in the article, is the "$655 million charge to cover the costs of addressing the memory-chip problem" a contingent liability? Support your answer.

3. (Advanced) Access the Cisco press release of its fiscal second quarter results for the period ended January 25, 2014, filed with the SEC on February 12, 2014, and available at Refer to the statement that "GAAP net income for the second quarter of fiscal 2014 included a pre-tax charge of $655 million related to the expected cost of remediation of issues with memory components in certain products sold in prior fiscal years." Why must the $655 million cost be recorded in one quarter's financial statements when it relates to chips sold in prior fiscal years? Identify all relevant areas of financial reporting requirements that you consider in answering this question.

4. (Advanced) In its press release, Cisco says "this [$655 million] charge was excluded from non-GAAP net income and earnings per share." Do you agree this is a relevant treatment to identify the company's performance? In your answer, include a brief definition of reporting non-GAAP results by U.S. companies.

Reviewed By: Judy Beckman, University of Rhode Island


"Cisco is Hit by Sagging Global Demand," by Don Clark, The Wall Street Journal, February 13, 2014 ---

Cisco Systems Inc. CSCO -0.55% continues to face sagging demand for some important products, a problem exacerbated in its fiscal second quarter by some faulty memory chips.

The network-equipment giant on Wednesday reported a 55% drop in income for the quarter, blaming a $655 million charge to cover the costs of addressing the memory-chip problem. Cisco's revenue declined 7.8%,

That's a bit better than its forecast in November for an 8% to 10% revenue decline. Cisco predicted Thursday revenue would decline an additional 6% to 8% in the current quarter.

Cisco's shares slid 4% in after-hours trading to $21.94.

John Chambers, Cisco's chief executive, said the company faces a slowdown in orders from emerging economies and "product transition" issues, as customers hold up purchases to evaluate its latest switching and routing equipment.

The company said switching revenue declined 12% in the second quarter, while revenue from routers declined 11%.

Cisco faces stiff competition in those markets, including new rivals that are attempting to shift some switching chores to general-purpose server systems. Mr. Chambers said the company is actually gaining market share in some segments of the switching market, and said orders are picking up for its new products.

On another positive note, Mr. Chambers predicted that a broad trend of connecting everyday products to the Internet—which Cisco calls the Internet of Everything—would begin to impact its business positively soon.

"The Internet of Everything has moved from an interesting concept to a business imperative," Mr. Chambers said during a conference call with analysts, predicting that 2014 will be an "inflection point" for sales of such technologies.

But Bill Kreher, an analyst at Edward Jones, said he sees stiffening competition and other issues making it tougher for Cisco to return to growth in its current fiscal year. "There was some hope, but now it appear that that's evaporating," he said.

The Silicon Valley company, which is seen as a bellwether for corporate technology spending, in November reported a sharp drop in orders in China, Brazil, Mexico, India and Russia. Cisco said the picture improved somewhat in the second period, with aggregate orders from such emerging economies declined 3%, compared with 12% in the first quarter.

Cisco, whose routers and switching gear funnel traffic on corporate campuses and over the Internet, has also built up a fast-growing line of servers. But the company signaled last year that it expected business to slow and said it was moving to trim some 4,000 jobs, or 5% of its workforce.

For the period ended Jan. 25, Cisco reported a profit of $1.43 billion, or 27 cents a share, down from $3.14 billion, or 59 cents a share, a year earlier. Excluding stock-based compensation, acquisition-related costs and other items, adjusted profit slipped to 47 cents from 51 cents. Revenue dropped to $11.2 billion.

Analysts on that basis had expected per share earnings of 46 cents on revenues of about $11 billion, according to Thomson Reuters.

In the current quarter, Cisco predicted adjusted earnings per share of 47 cents to 49 cents. Analysts had been expected 48 cents.

Cisco said the memory chips were used in a number of products it sold to customers between 2005 and 2010, and were purchased from a single supplier it didn't identify. The company said the majority of the affected hardware is beyond Cisco's warranty terms, and failure rates are low, but said Cisco is nevertheless working with customers to mitigate the problem. A company spokesman declined to comment on whether Cisco would get any compensation from the chip company.

The company on Wednesday boosted its quarterly dividend to 19 cents a share, up two cents.

Bob Jensen's threads on contingent liability accounting ---

Are financial analysts overrated?

This appears to be the case for those advising mutual funds.

"Who Routinely Trounces the Stock Market? Try 2 Out of 2,862 Funds," The New York Times, July 19, 2014 ---

American Banker Resources ---

"The Latest Public-Sector Pension Scandal: The state-pension-industrial complex corrupts politics on multiple levels," by Ira Stoll, Reason Magazine, July 14, 2014 ---

"By the end of approximately 2007, Villalobos had made, and I had accepted, bribes totaling approximately $200,000 in cash, all of which was delivered directly to me in the Hyatt Hotel in downtown Sacramento across from the Capitol. Villalobos delivered the first two payments of approximately $50,000 each in a paper bag, while the last installment of approximately $100,000 was delivered in a shoebox."—Plea Agreement, United States of America v. Fred Buenrostro, U.S. District Court, Northern District of California, filed July 11, 2014.

The government official who pleaded guilty here, Fred Buenrostro, wasn’t some city council member or state senator, but rather, from December 2002 to May 2008, the CEO of the California Public Employees Retirement System. Calpers, the largest public pension fund in the country, managed assets of as much as $250 billion during that period.

The bribing of Buenrostro was part of a successful effort by a New York money management firm (which claims it had no knowledge of the bribe and has not been charged with any wrongdoing) to win $3 billion in business managing pension money for California state employees and retirees.

Crooked government officials come along often enough that there’s a tendency to tune them out, but this case is worth pausing to analyze further for a number of reasons.

For one thing, there’s the hypocrisy angle. Calpers has been at the forefront of criticizing company boards for practices that are not shareholder friendly. Sometimes it’s right about that, but even when it is, it manages to come off as holier-than-thou. It doesn’t exactly add to Calpers credibility denouncing board-management coziness at big publicly traded companies when its own CEO is taking paper bags full of cash from a representative of a contractor.

For another thing, Calpers isn’t the only big public pension fund with a recent scandal. The New York State Comptroller, Alan Hevesi, pleaded guilty in 2010 to a felony in connection with corruption in managing the $125 billion fund that covers New York public employees.

What I’ve called the state-pension-industrial complex has deleterious effects on several levels.

The current system takes rich money managers, who ordinarily might be a voice for lower taxes and restrained government spending, and makes them beholden, for business, on public pension boards that sometimes include union officials. Instead of arguing for less generous pensions, or for personal accounts that employees would manage individually, the money managers now have incentives to argue for more generous pensions and to avoid upsetting the system that is enriching them.

And the current system takes public employees, who if they had personal accounts might be able to invest in corporate stocks and root for their success, and instead makes them reliant for their retirement income on the same state government bureaucracy that now employs them.

Naturally, it also breeds corruption. So much money sitting in the hands of government officials is a temptation too strong to resist. It is too strong for the money managers who want to get a piece of it, and it is too strong for the government officials and their friends who want some money or other benefits in exchange for helping the money managers get a piece of it.

Continued in article

Bob Jensen's Fraud Updates ---

Bob Jensen's threads on pension accounting ---

Bob Jensen's threads on the sad state of governmental accounting ---

"Gowex Boss Paid Maid $405 to Hide His $2.6 Billion Fraud," by Rodrigo Orihuela, Bloomberg News, July 21, 2014 ---

Let’s Gowex SA’s founder and his wife paid their maid 300 euros ($405) to help him fake clients for the Wi-Fi hotspots provider that was exposed this month as a fraud.

Chief Financial Officer Francisco Martinez escorted Guillermina Almeida to a notary and several banks to sign papers creating at least one company that purported to buy Gowex services, Almeida told Judge Santiago Pedraz of Spain’s National Court today, according to a court statement.

Florencia Mate introduced Almeida to Martinez, according to the statement, which was read by an official who can’t be named under court policy. Mate’s husband, Jenaro Garcia, founded Gowex and she served as investor relations manager and on the company’s board. Mate has also been called to answer questions before Pedraz.

Gowex’s market value reached as high as 1.9 billion euros three months ago. The one-time darling of the Spanish tech community -- which Garcia projected would provide free Wi-Fi to 20 percent of the world population by 2018 -- started unraveling July 1, when short-seller Gotham City Research LLC said Gowex lied about its earnings. The stock plummeted 60 percent in two days after Gotham’s report and trading was suspended on July 3.

Martinez told Pedraz last week that he was following Garcia’s orders and couldn’t stop him from faking accounts. Garcia resigned as chief executive officer on July 5 and told the judge he had falsified records since at least 2005 and made up clients to attract investors to the 15-year-old company. University Friend

Two other witnesses told Pedraz today that they too signed paperwork to form make-believe Gowex clients. Javier Vaquero said Martinez, a university friend, introduced him to Garcia. Vaquero told the judge he worked for Gowex for three months making photocopies and signed ownership papers for 10 companies. He said he left Gowex because they didn’t pay him, according to the statement.

Antonio Salmeron told Pedraz he created two companies with Martinez as his partner. They never developed into anything and were abandoned years ago, he said. Salmeron only found out the companies, which hadn’t been legally shut down, were being used as Gowex clients, under his name, when the scandal became public, according to the statement.

Pedraz questioned Gowex’s auditor, Jose Antonio Diaz Villanueva, last week and said Diaz admitted that he not only helped cover up the fictitious accounts, he also didn’t report the money he made working on Gowex to the tax authorities.

Garcia was ordered to hand in his passport and report into authorities once a week after appearing before Pedraz on July 14. He was given a 600,000 euro bail and the judge put a freeze on a 3 million-euro bank account in Luxembourg that Garcia told Pedraz he held under the name of another company.

Bob Jensen's Fraud Updates --- 

"Evaluating the Ethics of Affirmative Action Policies on University Campuses," by Steven Mintz, Ethics Sage, July 22, 2014 ---

"University of Wisconsin Diversity Plan Requires 'Proportional Participation' in Grades, Majors," by Paul Caron, TaxProf Blog, July 19, 2014 ---

Responsibility Accounting ---
For details see

"Problems with Traditional Responsibility Accounting," by Jim Martin, MAAW's Blog, July 22, 2014 ---

To continue with the theme of the previous post on Elliott's Third wave breaks on the shores of accounting, see the following for some background on the problems with traditional responsibility accounting and recommended changes.

McNair, C. J. 1990. Interdependence and control: Traditional vs. activity-based responsibility accounting. Journal of Cost Management (Summer): 15-23.

McNair, C. J. and L. P. Carr, 1994. Responsibility redefined: Changing concepts of accounting-based control. Advances in Management Accounting: 85-117.

Dolk, D. R. and K. J. Euske. 1994. Model integration: Overcoming the stovepipe organization. Advances in Management Accounting (3): 197-212.

Jensen Comment
The big problems are the usual suspects in evaluation of managers, including long-term versus short-term evaluations and activities where managers have partial but not total control along with circumstantial events over which managers have no control, e.g., weather and the economy. There are also externalities that should be taken into account where decisions of a manager have direct and indirect impacts upon external realms such as how opening or closing of a plant affects the greater community outside the firm.

Bob Jensen's threads on managerial accounting are at

"Charles O'Reilly: Narcissists Get Paid More Than You Do:  New research explores why some CEOs have such big salaries," Stanford Graduate School of Business, July 2014 ---

Larry Ellison towered again among the top ranks of the highest-paid CEOs in 2013 with total compensation of $78 million. He is in plentiful company. Sixty-five chief executives took home annual pay of more than $20 million last year. What prompts boards of directors to grant such astounding sums? And why would individuals, who by any objective measure have all their needs satisfied, seek such exaggerated amounts?

New research by Stanford management professor Charles A. O’Reilly shows that it is the persuasive personality and aggressive “me first” attitude embodied by narcissistic CEOs that helps them land bloated pay packages. Specifically, narcissistic CEOs are paid more than their non-narcissistic (and merely self-confident) peers. There is also a larger gap between narcissists’ compensation and that of their top management teams than is found with CEOs who do not display the trait. The longer the narcissists have held the top post, the bigger the differential, according to the study published in The Leadership Quarterly earlier this year.

Narcissism is a personality type characterized by dominance, self-confidence, a sense of entitlement, grandiosity, and low empathy. Narcissists naturally emerge as leaders because they embody prototypical leadership qualities such as energy, self-assuredness, and charisma.

“They don’t really care what other people think, and depending on the nature of the narcissist, they are impulsive and manipulative,” says O’Reilly, whose research examines grandiose narcissism, a form associated with high extraversion and low agreeableness.

The study that O’Reilly coauthored with UC Berkeley doctoral student Bernadette Doerr, Santa Clara University professor David F. Caldwell and UC Berkeley professor Jennifer A. Chatman, surveyed employees in 32 large publicly traded technology companies to identify the narcissistic CEOs among them. Employees filled out personality assessments about their CEOs, which included rating the chiefs’ degree of narcissistic qualities such as “self-centered,” “arrogant,” and “conceited.”

They also completed a Ten Item Personality Inventory (TIPI) about their CEOs. In addition, researchers scanned CEOs’ shareholder letters and earnings call transcripts for an abundance of self-referential pronouns such as “I.” Narcissists use first person pronouns and personal pronouns more often than their non-narcissistic peers, prior research shows.

The scholars chose to focus on the quickly changing, high-stakes technology industry, in part because it prizes individuals who are convinced of their own vision and who are willing to take risks. They figured correctly that it would bolster narcissists with large pay contracts. “In places like Silicon Valley, where grandiosity is rewarded, we almost select for these people,” says O’Reilly. “We want people who want to remake the world in their images.”

Narcissistic CEOs secure these pay contracts, at least in part, by winning over board members. The study found that companies with highly narcissistic top bosses do not necessarily perform better than those led by less narcissistic chiefs.

Narcissistic CEO/founders obtained even larger compensation than their narcissistic peers who didn’t found their companies. O’Reilly says this is logical given the extreme self-confidence and persistence of founders, who have to raise capital and overcome obstacles in order to survive.

“From the board member’s perspective, you’ve got this person who is quite charming, charismatic, self-confident, visionary, action-oriented, able to make hard decisions (which means the person doesn’t have a lot of empathy) and the board says, ‘This is a great leader,’” O’Reilly says, adding that board members might not necessarily see their self-serving, superficial qualities.

The paper notes that the CEO is often involved in hiring a compensation consultant who sets the CEO’s pay. Thus, it is in the consultant’s interest to make sure the chief is well paid. Unencumbered by a sense of fairness toward others, narcissists believe they are special and will often manipulate others in order to get large pay contracts they believe is their due.

The study also found that the longer the narcissistic chief executive was in charge, the farther ahead of his team his pay progressed, because he had recurring exchanges with the board, seeking more money for himself and less for his team.

A large pay divide between the CEO and other top executives can chip away at company morale, leading to higher employee turnover and lower satisfaction, according to O’Reilly’s research. Given the dissatisfaction and protests this pay gap can breed among employees, the researchers questioned how narcissistic CEOs could occupy the big office for so long. While some employees leave on their own accord, the paper supposes that CEOs may “eliminate those who might challenge them or fail to acknowledge their brilliance.” The same lack of empathy that makes narcissists less likeable to underlings also helps these CEOs fire them with little guilt.

Continued in article

"The Pay-for-Performance Myth,"  By Eric Chemi and Ariana Giorgi, Bloomberg Businessweek, July 22, 2014 ---

Bonuses for What?
The only guy to make almost a $100 Million dollars at GE is the CEO who destroyed shareholder value by nearly 50% in slightly less than a decade

"GE has been an investor disaster under Jeff Immelt," MarketWatch, March 8, 2010 ---

When things go well, chief executives of major companies rack up hundreds of millions of dollars, even billions, on their stock allotments and options.

It's always justified on the grounds that they've created lots of shareholder value. But what happens when things go badly?

For one example, take a look at General Electric Co. /quotes/comstock/13*!ge/quotes/nls/ge (GE 16.27, +0.04, +0.22%) , one of America's biggest and most important companies. It just revealed its latest annual glimpse inside the executive swag bag.

By any measure of shareholder value, GE has been a disaster under Jeffrey Immelt. Investors haven't made a nickel since he took the helm as chairman and chief executive nine years ago. In fact, they've lost tens of billions of dollars.

The stock, which was $40 and change when Immelt took over, has collapsed to around $16. Even if you include dividends, investors are still down about 40%. In real post-inflation terms, stockholders have lost about half their money.

So it may come as a shock to discover that during that same period, the 54-year old chief executive has racked up around $90 million in salary, cash and pension benefits.

GE is quick to point out that Immelt skipped his $5.8 million cash bonus in 2009 for the second year in a row, because business did so badly. And so he did.

Yet this apparent sacrifice has to viewed in context. Immelt still took home a "base salary" of $3.3 million and a total compensation of $9.9 million.

His compensation in the previous two years was $14.3 million and $9.3 million. That included everything from salary to stock awards, pension benefits and other perks.

Too often, the media just look at each year's pay in isolation. I decided to go back and take the longer view.

Since succeeding Jack Welch in 2001, Immelt has been paid a total of $28.2 million in salary and another $28.6 million in cash bonuses, for total payments of $56.8 million. That's over nine years, and in addition to all his stock- and option-grant entitlements.

It doesn't end there. Along with all his cash payments, Immelt also has accumulated a remarkable pension fund worth $32 million. That would be enough to provide, say, a 60-year-old retiree with a lifetime income of $192,000 a month.

Yes, Jeff Immelt has been at the company for 27 years, and some of this pension was accumulated in his early years rising up the ladder. But this isn't just his regular company pension. Nearly all of this is in the high-hat plan that's only available to senior GE executives.

Immelt's personal use of company jets -- I repeat, his personal use for vacations, weekend getaways and so on -- cost GE stockholders another $201,335 last year. (It's something shareholders can think about when they stand in line to take off their shoes at JFK -- if they're not lining up at the Port Authority for a bus.)


Aside from outrageous compensation levels of top executives, my biggest gripe is how executives are paid outrageous salaries and golden parachutes even when they fail ---

Much Confusion and Debate Over Implementation of the New Joint Revenue Recognition Accounting Standard ---

From EY of July 11, 2014
Audit committee considerations for the new revenue standard

Helpers from PwC
The revenue recognition page features a number of key resources, including a full list of revenue recognition publications and sector-specific webcasts. Sample documents include:

Teaching Case
From The Wall Street Journal Accounting Weekly Review on July 25, 2014

For Apple, iPhone Roars and iPad Whimpers
by: Daisuke Wakabayashi
Jul 23, 2014
Click here to view the full article on

TOPICS: Financial Statement Analysis, Managerial Accounting, Segment Analysis

SUMMARY: Ahead of a refresh of the iPhone, Apple Inc. reported 12% profit growth and strong sales of its current handset, especially in markets far afield from its traditional customer base in the U.S. The iPhone results stood in contrast to iPad sales, which slid for the second consecutive quarter, raising questions about the future of Apple's tablet as the company gears up to launch bigger-screen iPhone models.

CLASSROOM APPLICATION: This article offers a variety of managerial accounting aspects, as well as an opportunity to discuss some financial statement analysis with a real company.

1. (Introductory) What are Apple's various business segments? Which of those segments are growing? Are any of them stagnant or in decline?

2. (Advanced) What is segment reporting? What is the value of segment analysis? How is Apple using segment analysis in the information in this article? What additional value could Apple be gleaning from segment analysis that is not presented in this article?

3. (Advanced) What strategies and plans is Apple employing based on the conclusions it has reached from segment data? Do you think the company is making the right moves? Why or why not?

4. (Advanced) What is gross margin? What did the company report regarding year-to-year gross margin? How did that compare with analyst's expectations? What factors likely contributed to the change in gross margin?

5. (Advanced) What new segments is the company considering or expanding? Why are these segments attractive to Apple?

Reviewed By: Linda Christiansen, Indiana University Southeast

Tim Cook on Apple's iPad Declines: 'This Isn't Something That Worries Us'
by Daisuke Wakabayashi
Jul 22, 2014
Online Exclusive

Apple's New Product Hit: the Mac
by Daisuke Wakabayashi
Jul 22, 2014

"For Apple, iPhone Roars and iPad Whimpers," by Daisuke Wakabayashi, The Wall Street Journal, July 25, 2014 ---

Ahead of a refresh of the iPhone, Apple Inc. AAPL -0.16% reported 12% profit growth and strong sales of its current handset, especially in markets far afield from its traditional customer base in the U.S.

The iPhone results stood in contrast to iPad sales, which slid for the second consecutive quarter, raising questions about the future of Apple's tablet as the company gears up to launch bigger-screen iPhone models.

The consumer electronics giant said it sold 35.2 million iPhones in the quarter ended June 28, up 12.7% from a year earlier and just shy of analysts' estimates. Apple said the growth was helped by demand from Brazil, Russia, India, and China—collectively known as the BRIC countries—where iPhone sales rose 55%.

The iPhone growth propelled Apple's profit in its third quarter to $7.75 billion, up from $6.9 billion in the year-ago period. Revenue rose 6% to $37.4 billion.

"We're thrilled with the results, and we're thrilled with where we are going," Apple Chief Executive Tim Cook said in an interview. "The momentum is really strong."

Shares of Apple, which closed at $94.72 on Tuesday, were little changed after the report.

Apple has entered into a period of steady growth and efficient earnings, generating billions of dollars of cash every quarter. But it will likely need to enter new product categories to reignite earnings that have flattened after more than a decade of remarkable growth.

This year, the Cupertino, Calif., company is banking on an expected new product push of larger iPhones and a series of smartwatches before year-end, people familiar with the matter have said. In the past few years, the June quarter has been the slowest for Apple as the company gears up with new products ahead of the year-end.

Despite what new Chief Financial Officer Luca Maestri characterized on the analysts' conference call as "new product rumors" pushing customers to hold off on potential purchases, iPhone sales were at the high end of Apple's expectations, he said.

But Apple struggled for the second consecutive quarter to sell iPads, with unit sales falling 9.2% after a 16% drop three months earlier. In the quarter just two years ago, iPad sales were up 84%.

Apple appears to be struggling, like other tablet makers, with sluggish demand overall in North America and Europe—the base of iPad growth in recent years. Apple said this runs contrary to strong demand in emerging markets, especially in China and the Middle East.

On the call, Mr. Cook said iPad sales met his expectations and that the iPad is still in its early days. "This isn't something that worries us," he said in an interview.

Macintosh sales showed growth for the third straight quarter, with units rising 18% to 4.4 million units. Undescoring the diverging trajectory of iPads and Macs, the gap in revenue between the two products is fast closing: Apple sold $5.44 billion worth of Macs in the quarter, compared with $5.9 billion in iPads. The last time Mac revenue topped iPad's was in 2011 when the tablet was still in its early days.

Continued in article

Apple announced that its tablet sales fell 1.4 million from a year earlier. The coming iPhone 6, which is bigger and more powerful than all the iPhones before it, will be the iPad's biggest competition ---

Jensen Comment
I have two laptops and a MS Surface tablet. The tablet mostly collects dust.

Teaching Case on Revenue Recognition and Fraud
From The Wall Street Journal's Weekly Accounting Review on July 11, 2014

The Magic Runs Out for a Spanish Charmer
by: Christopher Bjork and Matt Moffett
Jul 09, 2014
Click here to view the full article on

TOPICS: Accounting Fraud, Audit Quality

SUMMARY: Let's Gowex SA is a Spanish start up company that provides Wi-Fi hot spots in major cities around the world. After assertions by a short-seller, Gotham Research, that most of Gowex's revenues must be suspect, the founder admitted last Saturday to fabricating the financial reports filed with the stock exchange on which the company traded, the Alternative Stock Market.

CLASSROOM APPLICATION: The article may be used in an ethics class, a general financial reporting class, or auditing class.

1. (Introductory) What service does Let's Gowex SA supply? What problems arose with the company's implementation of service in Paris?

2. (Advanced) Who is Gotham City Research LLC, what does it do, and how did its work result in the admission by Gowex's founder of fabricating financial statements? In your answer, define the term "short sale."

3. (Introductory) What does Professor Robert Tornabell say should come about because of the Gowex fraud? In your answer, comment on the requirements of the stock exchange on which Gowex was traded.

4. (Advanced) What might be the effects on other small Spanish companies of this admission that Gowex fabricated its financial statements?

Reviewed By: Judy Beckman, University of Rhode Island

Gowex Files for Bankruptcy Protection After Chairman Quits
by Ilan Brat
Jul 07, 2014
Page: B1

Short Seller Gotham Unmasks Gowex, but Stays in Shadows
by Juliet Chung
Jul 09, 2014
Page: B5

"The Magic Runs Out for a Spanish Charmer," by Christopher Bjork and Matt Moffett, The Wall Street Journal, July9, 2014 ---

When Jenaro García's tech company Let's Gowex SA GOW.MC -26.05% won the top prize from Spain's marketing association in May, the presenter hailed him as an innovator who was making wireless Internet ubiquitous, "a magician who converted Wi-Fi into water."

Mr. García, outfitted in an Indiana Jones-style jacket, appeared before the appreciative crowd alongside Wi-Fi Man, a masked, caped superhero figure.

The cheering for Mr. García stopped this month as Gowex's success story abruptly unraveled. U.S. investment firmGotham City Research LLC on July 1 posted a takedown of the company, asserting that its stellar financial results were largely fabricated and its highflying stock worthless.

With investors jumping ship, Mr. García gave one last defiant performance on Friday. At a meeting of employees, the 46-year-old chairman and chief executive vowed to bring "Wi-Fi to Gotham." To demonstrate his resilience, he brandished metal pins that he said had been used to set 24 broken bones he had suffered in an accident years

The next day, though, he told Gowex's board that the financial results had been fabricated for at least four years. Gowex filed for bankruptcy, and Mr. García sent a tweet asking forgiveness from those he had harmed.

Mr. García couldn't be reached for comment, and Gowex declined to comment.

Mr. García, who had been held up as the archetype of a new brand of Spanish entrepreneur, now has become a reason to doubt the solidity of a business class that the government is counting on to lead a recovery from Spain's worst recession in decades.

"I feel ashamed as a Spaniard and as a professor of corporate finance because I know that American investors will say 'Oh, be careful before you invest in smaller companies in Spain,' " said Robert Tornabell, a professor at ESADE business school in Barcelona. "This scandal must lead to stronger regulations, and the companies must have real auditors."

As other stocks plummeted on the Alternative Stock Market, the secondary exchange where Gowex had traded, some companies sought to be relisted elsewhere. "Gowex had discovered a toy market with few powers to function correctly," said an editorial in the Spanish business daily El Economista.

Government officials and groups that had showered Gowex with awards attempted to dissociate themselves from its disgraced leader.

"When you give a prize, you listen to what the analysts say, what the market says, what investors say and everyone at that point thought they were good and worthy," said a spokesman at Ernst & Young LLP, which had given Mr. García an award for innovation as part of its 2011 Spanish Entrepreneur of the Year program. "He has cheated the whole country and not just this country but France, the U.S., all of the world."

Ernst & Young served as Gowex's registered adviser from when the company listed its shares in 2010 until its collapse. The spokesman said Ernst & Young's mandate wasn't to audit information Gowex sent to the market, only to ensure that it was "presented in the right format and in a timely fashion."

Continued in article

Teaching Case
From The Wall Street Journal Weekly Accounting Review on June 6, 2014

New Rules to Alter How Companies Book Revenue
by: Michael Rapoport
May 28, 2014
Click here to view the full article on

TOPICS: Financial Accounting Standards Board, International Accounting Standards Board, Revenue Recognition

SUMMARY: "New rules released Wednesday[, May 28, 2014, jointly by the FASB and IASB] will overhaul the way businesses record revenue...capping a 12-year project....The new standards...will take effect in 2017 [and will cause] ... a broad array of companies...either to speed up or slow down the rate at which they book at least some of their revenue....Companies were cautious in assessing the potential impact of the overhaul...." Many companies are optimistic about eliminating the many inconsistencies across industries in current U.S. revenue recognition requirements. With greater consistency in timing of revenue recognition, the new standard also should help improve reporting issues because "...allegations of improperly speeding up or deferring revenue have been at the heart of many accounting-fraud scandals."

CLASSROOM APPLICATION: The article may be used in any financial accounting course covering revenue recognition. It is more helpful to access information from the FASB's web site to understand the objectives and requirements of the standard. The summary of the Accounting Standards Update (ASU) is linked in the first question. The article focuses more on the expected results and effects across different industries.

1. (Advanced) Summarize the revenue recognition process in the new accounting standard. You may access the summary of the Accounting Standards Update to help answer this question. It is available on the FASB web site at

2. (Introductory) According to the article, what types of industries or products will be most affected by the new requirements?

3. (Introductory) Review the graphic entitled "On the Books" which compares accounting for software, wireless devices, and automobiles under present GAAP and the new revenue recognition requirements. How do the new requirements move the accounting to be more similar across these three products?

4. (Advanced) Consider the current requirements for revenue recognition in these three products. What was the reasoning behind these differences? That is, what is the determining factor for the point of recognizing a sale and how does it differ across these three products? Cite any source you use in developing your answer.

Reviewed By: Judy Beckman, University of Rhode Island

"New Rules to Alter How Companies Book Revenue," by: Michael Rapoport, The Wall Street Journal, May 28, 2014 ---

New rules released Wednesday will overhaul the way businesses record revenue on their books, capping a 12-year project that will affect companies ranging from software firms to auto makers to wireless providers.

The new standards, issued jointly by U.S. and global rule makers, will take effect in 2017, prompting a broad array of companies—from software giants like Microsoft Corp. MSFT -0.42% and Oracle Corp. ORCL +0.23% to major appliance makers—either to speed up or slow down the rate at which they book at least some of their revenue.

The rules aim to simplify and inject more uniformity into one of the most basic yardsticks of a company's performance—how well its products or services are selling.

"It's one of the most important metrics for investors in the capital markets," said Russell Golden, chairman of the Financial Accounting Standards Board, which sets accounting rules for U.S. companies and collaborated on the new rules with the global International Accounting Standards Board.

Companies were cautious in assessing the potential impact of the overhaul, but some were optimistic. "We've been waiting for it for a long time," said Ken Goldman, chief financial officer of Black Duck Software Inc., a provider of software and consulting services. "This levels the playing field and takes a lot of the ambiguity out of what are overly restrictive rules."

The rules are designed to replace fragmented and inconsistent standards under which companies in different industries often record their revenue differently and sometimes book a portion of it well before or after the sales that generate it.

"We wanted to make sure there was a consistent method for companies to identify revenue," said the FASB's Mr. Golden.

But the new rules could make corporate earnings more volatile, accounting experts said, by changing the timing of when revenue is recorded. They also could lead to increased costs for companies as they seek to track their performance while providing the additional disclosure the new standards require.

"This has at least the potential to affect every company," said Joel Osnoss, a partner at accounting firm Deloitte & Touche LLP. They "really should look at the standard" and ask how the revenue-rule changes will affect them, he said.

Accounting rule makers have long focused on the question of when businesses should book revenue, because it touches every company and can be an area ripe for fraud. Allegations of improperly speeding up or deferring revenue have been at the heart of many accounting-fraud scandals.

In 2002, for example, Xerox Corp. XRX +0.93% paid a big settlement to the Securities and Exchange Commission to resolve allegations that it had improperly accelerated revenue. Xerox didn't admit or deny the SEC's allegations.

The new rule's impact will be most felt in a handful of industries in which goods and services are "bundled" together and parts of that package are provided long before or after customers pay for them. These include such benefits as maintenance that comes with the purchase of a new car, or software upgrades given to customers who bought the original program.

In such cases, the time at which companies recognize revenue is often out of sync by months or years with when customers get the goods and services associated with it. For instance, when auto and appliance makers sell their products, they typically book the purchase price immediately, but the transactions can also include free maintenance or repairs under warranty that the company might not provide for months or years.

Under the new rules, the manufacturer would book less revenue up front and more revenue later, because some of the revenue from the car or appliance would be assigned to cover future service costs. As a result, some of a company's revenue might be stretched over a longer period.

Conversely, software makers such as Microsoft and Oracle might be able to recognize some revenue more quickly. Software companies now often have to recognize their revenue over time, because they have to wait until all of the software upgrades and other pieces of a sale are delivered to the customer. The new rules will make it easier for companies to value upgrades separately and so recognize more of the software's overall revenue upfront, Mr. Golden said.

Microsoft and Oracle declined to comment.

Similarly, wireless phone companies like Verizon Communications Inc. VZ +0.32% and AT&T Inc. T -0.14% might book some revenue faster under the new rules. Currently, a wireless company books revenue each month, as customers receive wireless services—but none of that revenue is allocated to any phone that customers get free or for a low price.

That will change under the new rules; some of the monthly revenue will be applied to those phones. And since customers get the phone when they first sign up, at the beginning of their contracts, that will have the effect of pulling the revenue forward in time, allowing the company to book it earlier.

Verizon and AT&T didn't have any immediate comment.

Even companies that aren't affected so much by the timing changes will have to disclose more about the nature and certainty of their revenue—something Deloitte & Touche's Mr. Osnoss said will help investors. "I think investors are going to have much more of a view into the company."

But companies may find that providing that information complicates their lives and raises their costs. "For the majority of people, it's going to be difficult," said Peter Bible, chief risk officer for accounting firm EisnerAmper and a former chief accounting officer at General Motors Co. GM +0.39%

Continued in article

Bob Jensen's threads on Revenue Accounting Controversies --- 

Handicaps and Uneven Playing Fields in Data Analysis:  How Good Is Andrew Luck?

Jensen Comment
It is really difficult to compare greatness on unequal playing fields. In terms of military commanders, Robert E. Lee is rated by some analysts as better than Ulysses S. Grant even though Lee went down in devastating defeat.

Uneven playing fields greatly complicate statistical data analysis. There are various terminologies that essentially mean the same thing such as "varying circumstances" and "handicaps." A handicap horse race means that extra weights are placed on each favored horse. Afterwards it's very difficult to compare the outcomes for any two horses carrying different handicap weightings. In golf the handicapped winners can later be compared on the basis of their non-handicapped scores. In a horse race, however, this is impossible since the horses on a given day on given track conditions did not carry equal wights.

Quarterback comparisons are more like comparing handicapped race horses than golfers since each quarterback has a different supporting case of offensive linemen, wide receivers, tight ends, running backs, blocking backs, and on and on and on.

However, even even handicapped golfers are a bit difficult to compare in terms of handicapped versus non-handicapped tournaments. The reason is that how they play the game may be different in a handicapped tournament. A very great and steady great player in a non-handicapped tournament may be inclined to take more risks in a handicapped tournament, and not all great golfers are equal when motivated to take risks.

Alas, there are more uneven playing fields (handicaps) in both sports and life in general than perfectly even playing fields.

"How Good Is Andrew Luck?" by Neil Paine, Nate Silver's 5:38 Blog, July 28, 2014 ---

This article is a great summary of how difficult it is to compare performance data from uneven playing fields.

Bob Jensen's links to helpers in mathematics and statistics ---

Teaching Case
From The Wall Street Journal's Weekly Accounting Review on July 11, 2014

Time for Firms to Earn It
by: Alexandra Scaggs
Jul 07, 2014
Click here to view the full article on

TOPICS: Earnings Forecasts, Revenue Forecast

SUMMARY: Corporate-earnings growth is forecast to accelerate this year as are revenues. Nonetheless, the companies in the S&P 500 are trading at higher multiples of forecasted 12 month earnings than at anytime since June 2007 and greater than the average for the last ten years. This dichotomy results in differing opinions about stock market valuations discussed in this article.

CLASSROOM APPLICATION: The article may be used in any general financial reporting class to discuss quarterly earnings reports, earnings and revenue forecasts, and the use of price-to-earnings ratios.

1. (Introductory) What is "earnings season"?

2. (Advanced) What do market participants expect in the earnings reported in the second quarter of 2014? Who establishes those expectations and how are they reported?

3. (Advanced) How are current stock market prices assessed relative to the expected earnings discussed above? In your answer, name a financial statement ratio that helps to make this assessment.

4. (Introductory) How is revenue assessed differently from earnings in this article? In your answer, define the terms revenue and earnings.

Reviewed By: Judy Beckman, University of Rhode Island

"Time for Firms to Earn It," by Alexandra Scaggs, The Wall Street Journal, July 7, 2014 ---

After a cold winter, stock investors are looking to earnings growth for further proof that the economy is warming up.

The Dow Jones Industrial Average broke through 17000 for the first time ever last week, powered by an upbeat jobs report that was the latest in a string of strong U.S. economic indicators. That helped cement investors' view that the weakness caused by severe weather in the first quarter was behind them.

Now, with stocks trading at their highest levels in seven years when compared with expected earnings, some investors say corporate revenue and profits need to accelerate to sustain the rally, especially as the Federal Reserve continues to pare back stimulus measures.

"People are going to want to see an improvement in earnings," said Greg Luttrell, who manages $272 million in the J.P. Morgan Dynamic Growth Fund. "That would confirm that, yes…growth is on track."

Mr. Luttrell is holding on to so-called growth stocks such as Facebook Inc., FB +1.97% PCLN -0.17% and Google Inc. GOOGL +0.89% that sold off steeply in March and April amid concerns that the shares were overvalued. Valuations of these stocks have fallen to reasonable levels, and they could start to look more attractive if those companies report strong earnings, he said.

The unofficial start to earnings season comes Tuesday, when aluminum producer Alcoa Inc. AA +1.66% reports second-quarter results. Alcoa's earnings per share in the period are expected to double from the second quarter of 2013, according to consensus estimates from FactSet.

S&P 500 companies are forecast to show a 4.9% rise in second-quarter earnings per share from the previous year, according to FactSet. While that still would fall short of the 8.6% growth in the fourth quarter of 2013, it would outpace the 2.1% rise posted in the first quarter.

For the rest of the year, Wall Street analysts' outlook is even rosier. Estimates call for profits to increase at their fastest pace since 2011, according to FactSet.

"If the economy is accelerating, those expectations may be reasonable," said Patrick Kaser, lead manager for two funds overseeing $6.1 billion in stocks and fixed income for Brandywine Global Investments. Mr. Kaser has been buying shares of auto makers, airlines and industrial firms, which tend to rise in tandem with the economy.

Mr. Kaser said he would be keeping a close eye on companies, such as Reliance Steel & Aluminum Co. RS +0.06% , that he considers to be proxies for growth. If the metal-processing and distribution firm sees more demand from customers, that "would benefit them, but it would also be a good economic indicator," he said.

To be sure, some investors still consider valuations to be stretched despite selloffs in some corners of the stock market in recent months. The S&P 500 is trading at 15.7 times its expected earnings for the next 12 months, the highest since June 2007 and above its average of 13.9 over the past 10 years, according to FactSet.

"To a certain degree, valuations still make us nervous," said Mark Spellman, portfolio manager with Alpine Funds, which oversees about $2.1 billion. "There are lots of good companies, but that doesn't always translate into a stock you're going to make money in."

As a result, Mr. Spellman is holding 10% of his portfolio in cash, a higher level than usual, since he is having trouble finding deals on stocks.

Continued in article

Teaching Case
From The Wall Street Journal's Weekly Accounting Review on July 11, 2014

How to Tap an IRA Early Without a Tax Penalty
by: Georgette Jasen
Jul 07, 2014
Click here to view the full article on

TOPICS: IRAs, Personal Taxation

SUMMARY: This article explains the tax provisions for withdrawals from both regular and Roth IRAs very clearly. The article highlights two items that lead readers to seek professional advice: (1) calculating the amount of allowable withdrawals when a taxpayer meets the criteria for avoiding a penalty on withdrawals before age 59 ½; and (2) tracking withdrawals from Roth IRAs after age 59 ½ but before holding an investment for 5 years to determine the non-taxable versus taxable portions. A discussion question asks students to think about themselves as a professional offering personal tax service and whether this type of article helps or hinders them.

CLASSROOM APPLICATION: The article may be used in a personal tax class.

1. (Introductory) What is an IRA? What two types of IRAs exist in U.S. tax law?

2. (Advanced) Summarize the basic rules relating to IRAs and withdrawing from them, including the reasoning behind the penalty for withdrawal before age 59 ½.

3. (Advanced) In what cases may an individual withdraw from an IRA before age 59 ½ without penalty? What do you think is the reasoning behind these provisions in the tax law?

4. (Advanced) Suppose you are a practicing CPA with a personal tax client base. Do you think this type of an article reduces the value of your services or hurts your potential to give client services? Explain.

Reviewed By: Judy Beckman, University of Rhode Island"

"How to Tap an IRA Early Without a Tax Penalty," by Georgette Jasen, The Wall Street Journal, July 7, 2014 ---

Make an early withdrawal from an IRA and you may be hit with a 10% tax penalty.

But that's a bigger "may" than you might think.

Financial advisers generally warn against tapping an individual retirement account early, and not just because of the potential tax penalty. There's also the loss of any investment gains that could have been racked up by the money that's withdrawn. "If you have other assets, use them" instead, says Maria Bruno, senior investment analyst at Vanguard Group.

But if you must tap an IRA early, the good news is that there are several exceptions to the tax penalty.

Here's what you need to know.

First, what are the basic rules on the taxation of IRA withdrawals?

If all your contributions to your traditional IRA were tax-deductible, all your withdrawals will be taxable as ordinary income. If you made some after-tax contributions as well, a part of each withdrawal may be tax-free. (We'll talk about Roth IRAs, which are funded only with after-tax dollars, separately below.)

Taking a distribution from an IRA before age 59½ generally incurs a penalty—an additional 10% of the taxable amount.

There are several specific exceptions to that penalty, though. And if you don't qualify for one of those, you may be able to avoid the penalty by taking a series of payments from the IRA over several years.

What are the specific exceptions to the 10% penalty?

If you have lost your job and collected 12 consecutive weeks of state or federal unemployment compensation, you can use money from an IRA at any age, without penalty, to pay health-insurance premiums. There also is no penalty if an early distribution goes for qualified higher-education expenses, such as college or vocational-school tuition for yourself, your spouse, your children or grandchildren, or your spouse's children or grandchildren.

You can withdraw up to $10,000—$20,000 for a couple—penalty-free to buy, build or rebuild a first home, and that, too, applies for children and grandchildren. There also is an exception if the money goes to pay for unreimbursed medical expenses greater than 10% of your adjusted gross income (7.5% if you or your spouse was born before 1949). You also would be exempt from the penalty if you become disabled before you are 59½.

There are some additional exceptions and in some cases conditions to qualify for an exception. For more information see Internal Revenue ServicePublication 590.

How do the periodic payments work?

You can avoid the 10% penalty by taking a series of roughly equal payments over five years or until you are 59½, whichever is longer, making at least one withdrawal annually. But calculating how much you can take is complicated. Even the IRS says you may want to consult a financial professional.

The amount depends on which of the three IRS-approved calculation methods you choose, all based on life expectancy—either yours alone or yours and your beneficiary's. The simplest calculation method is known as required minimum distribution, or RMD—something of a misnomer because it results in the exact amount that must be withdrawn, not a minimum. The amount must be recalculated every year, changing with your age and any fluctuations in the account balance.

Continued in article

From the CPA Newsletter on July11, 2014

IRS tightens rules on IRA rollovers
The Internal Revenue Service formalized a new interpretation of the one-rollover-per-year rule for IRAs by withdrawing proposed regulations from 1981 that had allowed taxpayers with multiple IRAs to make one rollover per year from each IRA. Starting in 2015, taxpayers will only be able to make one rollover per year no matter how many IRAs they own.
Journal of Accountancy online (7/10)


"8 Ways YouTube Will Be Changing How You Create Videos," Stephanie Chan, Yahoo Tech, June 30, 2014 ---

Bob Jensen's video helpers (a neglected site) ---

The launch of a new futures exchange in Australia is the latest sign that water is becoming a speculative commodity, just like crude oil.---

Jensen Comment
Time to change economics courses illustrations of free goods --- water and air. In California private vendors are now selling water apart from bottled drinking water. But they don't have enough of it to save agriculture in a drought ---

PCAOB Announces 102 "Merit" Scholarships for the Coming Academic Year ---

PCAOB Scholarship Program

Under the Sarbanes-Oxley Act of 2002, monetary penalties imposed by the PCAOB must be used to fund merit scholarships for students in accredited accounting degree programs. The Board has established the PCAOB Scholarship Program to provide a source of funding to encourage outstanding undergraduate and graduate students to pursue a career in auditing.

Scholarship Program Administration

The Board has hired Scholarship America of Minneapolis, Minnesota, to administer and manage the program on behalf of the PCAOB, including contacting eligible educational institutions, providing customer service, and disbursing funds. On an annual basis, the PCAOB will select, with the help of Scholarship America, educational institutions and invite them each to nominate, by the deadline, an eligible student as a recipient of the PCAOB Scholarship. The scholarships are one-time awards that will be paid directly to the educational institution for eligible expenses such as tuition, fees, books, and supplies. Recipients will receive written notification of their selection as well as notification when the funds have been provided to the school.

Selection of Nominating Institutions

Accredited U.S. colleges and universities that award bachelor's or master's degrees in accounting and report the number of degrees awarded using the Integrated Postsecondary Education Data System are eligible to be selected to nominate students for the scholarships. Eligible institutions will be divided into two groups; Group A includes the one hundred institutions with the highest total of master's degrees in accounting conferred during the preceding five academic years, and Group B contains all other institutions that offer bachelor's or master's degrees in accounting.

The PCAOB, with Scholarship America's help, will select institutions to provide student nominations by using a statistical selection process that follows protocols for fairness and impartiality. Seventy-five percent of the scholarships will go to students attending institutions in Group A and twenty-five percent will be awarded to students who attend institutions in Group B. Schools selected as nominating institutions in a given year will not be considered for selection for the next five years or until all institutions in the respective group have been selected, whichever occurs first.

Student Eligibility Criteria

The Program is merit-based and students eligible to receive a PCAOB Scholarship must:

  • Be enrolled in a bachelor's or master's degree program in Accounting
  • Demonstrate interest and aptitude in accounting and auditing
  • Demonstrate high ethical standards
  • Not be a PCAOB employee or a child or spouse of a PCAOB employee. (Note: This includes all full-time and part-time employees of the PCAOB, including interns, and independent consultants who are natural persons.)

The PCAOB supports the development of a diverse accounting profession and encourages educational institutions to give consideration to students from populations that have been historically underrepresented in the profession, in determining student nominations.

"Deloitte ordered to pay another $33-million in Livent negligence case," by Janet McFarland, Globe and Mail, July 15, 2014 ---

An Ontario judge has ordered Deloitte & Touche to pay $33-million in interest payments to creditors of defunct theatre company Livent Inc., bringing the auditing firm’s total payments in the long-running negligence case to $118-million.

The interest payments were the final issue to be determined by Ontario Superior Court Justice Arthur Gans in a lawsuit between Livent’s lenders and Deloitte. He ruled in April that Deloitte must pay $85-million in damages to creditors because auditors were negligent in their review of Livent’s 1997 financial statements, but said at the time he would hear further submissions on how to calculate interest on the payment.

Livent ---

Bob Jensen's threads on Deloitte are at

Teaching Case
From The Wall Street Journal Weekly Accounting Review on July 25, 2014

Accounting Firm Must Face FDIC Suit Over Colonial Bank Failure
by: Patrick Fitzgerald
Jul 17, 2014
Click here to view the full article on

TOPICS: Auditing, Auditing Standards, Fraud, Fraud Detection

SUMMARY: A federal judge said PricewaterhouseCoopers LLP must face the Federal Deposit Insurance Corp.'s $1 billion lawsuit that alleges the accounting firm failed to catch the massive fraud that brought down Colonial Bank, one of the largest bank collapses in U.S. history. Judge W. Keith Watkins of the U.S. District Court in Montgomery, Ala., said the FDIC's theory that the auditor's failure to uncover the fraud was "plausible" enough to allow the suit to survive. The accounting firm's lawyers have previously argued the FDIC's suit is without merit because Colonial's own management and largest customer-Taylor Bean-lied to regulators, internal auditors and to PwC itself.

CLASSROOM APPLICATION: This article could be used when covering the issues of auditor liability for fraud.

1. (Introductory) What are the facts of this case? Who are the parties to this lawsuit? What was the judge's ruling?

2. (Advanced) What was the reasoning behind the judge's ruling? What particular issue was he addressing?

3. (Advanced) What are the rules regarding auditor detection of fraud? Are auditors responsible to detect fraud?

4. (Advanced) What are fraud examiners? What are their tasks and responsibilities? How does fraud examination differ from auditing?

5. (Introductory) Who was behind the fraud at Taylor Bean? What was his scheme? What happened to him? Could he have the same punishment if his boss had instructed him to do these activities?

Reviewed By: Linda Christiansen, Indiana University Southeast

Colonial Bank Parent Wins Bankruptcy Fight With FDIC
by Patrick Fitzgerald
Sep 01, 2010
Online Exclusive

Colonial BancGroup Wins Bankruptcy Plan Approval
by Patrick Fitzgerald
Jun 03, 2011
Online Exclusive

Lenders Sued in Colonial Bank Failure
by Dan Fitzpatrick
Aug 10, 2012
Online Exclusive

BofA Sues FDIC Over Mortgage Losses
by Patrick Fitzgerald
Oct 20, 2010
Online Exclusive

"Accounting Firm Must Face FDIC Suit Over Colonial Bank Failure," by Patrick Fitzgerald, The Wall Street Journal, July 17, 2014 ---

A federal judge said PricewaterhouseCoopers LLP must face the Federal Deposit Insurance Corp.'s $1 billion lawsuit that alleges the accounting firm failed to catch the massive fraud that brought down Colonial Bank, one of the largest bank collapses in U.S. history.

Judge W. Keith Watkins of the U.S. District Court in Montgomery, Ala., said Tuesday that the FDIC's theory that the auditor's failure to uncover the fraud was "plausible" enough to allow the suit to survive. It was the second legal setback in as many weeks for the accounting firm.

"FDIC's theory is that the defendants failed to discover existing fraud at the time of their auditing services, which permitted the continuation of the fraudulent scheme, albeit through different means," Judge Watkins wrote in a six-page order. "It is plausible that the defendant auditors should have reasonably anticipated that a general fraudulent scheme would continue if their allegedly faulty auditing services failed to detect existing wrongdoing."

The FDIC, as the receiver for the failed Alabama bank, sued PwC and fellow accounting firm Crowe Horwath LLP for failing to detect the long-running fraud at Colonial's largest client, Taylor Bean & Whitaker Mortgage Corp.

The FDIC lawsuit, which already survived an earlier legal challenge from the accounting firms, blames the auditors for missing "huge holes in Colonial's balance sheet" and other serious gaps without ever detecting the multibillion-dollar fraud at Taylor Bean.

The Taylor Bean fraud "would have been prevented had PwC and Crowe properly performed their audits in compliance with applicable professional standards," said the FDIC's lawyers in the suit.

PwC and Crowe Horwath have denied any wrongdoing.

A PwC spokeswoman wasn't immediately available for comment Wednesday, but the accounting firm's lawyers have previously argued the FDIC's suit is without merit because Colonial's own management and largest customer—Taylor Bean—lied to regulators, internal auditors and to PwC itself. Crowe Horwath spokeswoman Amanda Shawaluk said the firm believes that all claims against Crowe are totally without merit.

The FDIC has been left with remnants of hundreds of failed banks in recent years, the result of the wave of bank closures by regulators in the aftermath of the bursting of the housing bubble. Although the FDIC transfers a failed bank's deposits to a stronger company—to BB&T Corp. BBT +0.75% (BBT) in Colonial's case—it is left as a receiver for what remains.

The collapse of Colonial, which had $25 billion in assets and $20 billion in deposits, was the biggest bank failure of 2009. The regulator estimates Colonial's failure will ultimately cost its insurance fund $5 billion, making it one of the most expensive bank failures in U.S. history. The FDIC, however, hadn't made a point of targeting the professional firms who advised the failed banks until filing the original Colonial lawsuit in 2012.

The mastermind behind the fraud at Taylor Bean was the company's top executive, 61-year-old Lee Farkas, who is now serving a 30-year prison sentence in North Carolina for orchestrating the seven-year fraud that pumped a pile of bad loans into what appeared to be billions of dollars of assets.

His scheme involved Colonial "purchasing" mortgage loans from Taylor Bean that already had been sold to other investors, such as Freddie Mac. He wasn't caught until after federal authorities raided Colonial's and Taylor Bean's offices in August 2009.

Mr. Farkas, whom federal prosecutors described as a "consummate fraudster," was convicted in the spring of 2011 of misappropriating about $3 billion and trying to fraudulently obtain more than $550 million from the government's Troubled Asset Relief Program in a failed effort to prop up Colonial.

"PwC Can't Duck FDIC Negligence Claims Over $899M Fraud," by Cara Salvatore, Law 360, July 15, 2014 --- 

An Alabama federal judge refused Tuesday to dismiss Federal Deposit Insurance Corp. claims against PricewaterhouseCoopers LLC and another company over alleged failures in their auditing of Colonial Bank, saying the agency didn't need to show it could have anticipated the form that an $899 million mortgage fraud would take.

U.S. District Judge Keith Watkins said the FDIC had sufficiently pled the claims that auditor negligence enabled double- and triple-pledging by Taylor Bean & Whitaker Mortgage Corp., a scheme in which Taylor Bean allegedly kept loan proceeds...

Continued in article

Bob Jensen's threads on PwC are at

From PwC Newsletter on July 2, 2014

In depth: FASB revises consolidation accounting ---


BoardroomDirect: Update on current board issues - June 2014
This issue of BoardroomDirect® includes an article about the influence of activist shareholders and the role they play today in forcing change. There is also news about a Delaware bill that would prohibit fee-shifting bylaws, environmental groups warning boards of fossil fuel companies about climate-change litigation, the new converged revenue recognition standard, and the first round of conflict minerals disclosures.

ProxyPulse Second Edition 2014
This second 2014 edition of ProxyPulse, a special publication from PwC's Center for Board Governance and Broadridge Financial Solutions, covers 2,788 shareholder meetings held between January 1 and May 22, 2014. 


Lousy Internal Controls at Ball State University
"How One Investment Manager Gambled Away $13.1-Million of Her University’s Money," by Vimal Patel, Chronicle of Higher Education, June 30, 2014 ---

After He is Accused of Similar Fraud at Oklahoma State University (more than $1 million)
"Official at U. of Maryland at Baltimore Resigns After Accusation of Past Fraud," by Andy Thomason, Chronicle of Higher Education, June 301, 2014 ---

"Ask Pogue: (video) Finding Phone Numbers Online," by David Pogue, Yahoo Tech, June 27, 2014 ---
David's answer is not what we want to hear.

Prison Bound Ex-KPMG Partner Scott London ---

"Scott London Rationalizes Insider Trading prior to going to Prison:  Ethical Blindness Motivates Egregious Behavior," by Steven Mintz, Ethics Sage, July 1, 2014 ---

USA Schools:  1776 versus 1876 versus 1976 and beyond

Back when schools were just not about four-hour days, long bus rides, breakfast, and lunch
Here's What School Was Like In America Back In 1776," by Dan Abendschein, Business Insider, July 3, 2014 ---

On-the-job training ruled. Learning was all about apprenticeships back then, according to Paula Fass, a history professor at UC- Berkeley. Blacksmiths, brewers, printers and other tradesmen learned their crafts on the job.  Women learned most of  their skills--spinning, cooking, sewing, at home.  "In our school-centered obsession we forget that learning used to take place in a much more broad-based way,"says Fass.


Only white men were formally educated. While some white men never received much formal education, almost nobody else received any.  Girls were sometimes educated, but they didn’t go to college. Blacks were mostly forbidden to learn to read and write, and Native Americans were not part of the colonial education system.  They relied mainly on oral histories to pass down lessons and traditions.

Classroom, what classroom? Actual schools were found mainly in cities and large towns. For most other people, education meant a tutor teaching a small group of people in someone's home or a common building.  And the school year was more like a school season: usually about 13 weeks, says USC historian Carole Shammas.  That meant that there was almost no such thing as a professional teacher.  

Books were few and far between. There were no public libraries in the country in 1776.  The biggest book collections were at colleges.  Books were so expensive that getting a large enough collection to provide a serious education was one of the biggest barriers to founding a college.  When Harvard was founded in 1636, it had a collection of about 1,000 books, which was considered an enormous amount at the time, according to Paula Fass.

Writing joined the other R’s. Teaching students to read was a lot easier than teaching writing, and writing was not necessary in a lot of professions.  So many students learned just to read and do math.  By 1776, teaching writing was becoming much more common.

No papers, pens, or pencils.  Most students worked on slates--mini-chalkboards that allowed students to erase their work and keep at it until they got it right.  Paper was expensive, so it was not commonly used, which also meant pens were not often used.  Pencils had not yet been invented.

Read more:

Jensen Comment
Dan did not write about the enormous progress made in USA schools between 1776 and 1876. I did not attend a one-room country school in northern Iowa, but my grandparents attended such schools. My Grandma Jensen even taught in what was known as "normal school" before she got married ---

A normal school is a school created to train high school graduates to be teachers. Its purpose is to establish teaching standards or norms, hence its name. Most such schools are now called teachers' colleges.

In 1685, John Baptist de La Salle, founder of the Institute of the Brothers of the Christian Schools, founded what is generally considered the first normal school, the École Normale, in Reims. According to the Oxford English Dictionary, normal schools in the United States and Canada trained primary school teachers, while in Europe normal schools educated primary, secondary and tertiary-level teachers.[1]

In 1834, the first teacher training college was established in Jamaica by Sir Thomas Fowell Buxton under terms set out by Lady Mico's Charity "to afford the benefit of education and training to the black and coloured population." Mico Training College (now Mico University College) is considered the oldest teacher training institute in the Western Hemisphere and the English-speaking world.

The first public normal school in the United States was founded in the Commonwealth of Massachusetts in 1839. It operates today as Framingham State University. In the United States teacher colleges or normal schools began to call themselves universities beginning in the 1960s. For instance, Southern Illinois University was formerly known as Southern Illinois Normal College. The university, now a system with two campuses that enroll more than 34,000 students, has its own university press but still issues most of its bachelor degrees in education.[2] Similarly, the town of Normal, Illinois, takes its name from the former name of Illinois State University.

Many famous state universities—such as the University of California, Los Angeles—were founded as normal schools. In Canada, such institutions were typically assimilated by a university as their Faculty of Education, offering a one- or two-year Bachelor of Education program. It requires at least three (usually four) years of prior undergraduate studies.

Continued in article

Jensen Comment
Dan may be correct about 1776 but he's certainly wrong about 1876 when "on-the=job" training did not rule, at least not if farm country where children learned how to farm at home. School was deep into learning Latin, grammar, writing, history, geography, literature, and mathematics. Many of America's famous writers were educated in country schools of the 1800s. Students brought their own lunches from home after eating hearty breakfasts after early morning chores such as picking eggs and helping with the milking. .

The children had books, including the famous and tough McGuffy Readers for different grade levels ---

The school described by Dan Abendschein above probably did not give examinations like the supposed 1895 eighth-grade final examination in Salina Kansas.
1895 Examination in Salina, Kansas (That it was an eighth-grade examination has not been proven)
Also see

Grammar (Time, one hour)

1. Give nine rules for the use of Capital Letters.

2. Name the Parts of Speech and define those that have no modifications.

3. Define Verse, Stanza and Paragraph.

4. What are the Principal Parts of a verb? Give Principal Parts of do, lie, lay and run.

5. Define Case, Illustrate each Case.

6. What is Punctuation? Give rules for principal marks of Punctuation.

7. - 10. Write a composition of about 150 words and show therein that you understand the practical use of the rules of grammar.


Arithmetic (Time, 1.25 hours)

1. Name and define the Fundamental Rules of Arithmetic.

2. A wagon box is 2 ft. deep, 10 feet long, and 3 ft. wide. How many bushels of wheat will it hold?

3. If a load of wheat weighs 3942 lbs., what is it worth at 50 cts.bushel, deducting 1050 lbs. for tare?

4. District No. 33 has a valuation of $35,000. What is the necessary levy to carry on a school seven months at $50 per month, and have $104 for incidentals?

5. Find cost of 6720 lbs. coal at $6.00 per ton.

6. Find the interest of $512.60 for 8 months and 18 days at 7 percent.

7. What is the cost of 40 boards 12 inches wide and 16 ft. long at $20 per metre

8. Find bank discount on $300 for 90 days (no grace) at 10 percent.

9. What is the cost of a square farm at $15 per are, the distance around which is 640 rods?

10. Write a Bank Check, a Promissory Note, and a Receipt.


U.S. History (Time, 45 minutes)

1. Give the epochs into which U.S. History is divided.

2. Give an account of the discovery of America by Columbus.

3. Relate the causes and results of the Revolutionary War.

4. Show the territorial growth of the United States.

5. Tell what you can of the history of Kansas.

6. Describe three of the most prominent battles of the Rebellion.

7. Who were the following: Morse, Whitney, Fulton, Bell, Lincoln, Penn, and Howe?

8. Name events connected with the following dates: 1607 1620 1800 1849 1865.


Orthography (Time, one hour)

1. What is meant by the following: Alphabet, phonetic, orthography, etymology, syllabication?

2. What are elementary sounds? How classified?

3. What are the following, and give examples of each: Trigraph subvocals, diphthong, cognate letters, linguals?

4. Give four substitutes for caret 'u.'

5. Give two rules for spelling words with final 'e.' Name two exceptions under each rule.

6. Give two uses of silent letters in spelling. Illustrate each.

7. Define the following prefixes and use in connection with a word: Bi, dis, mis, pre, semi, post, non, inter, mono, sup. Mark diacritically and divide into syllables the following, and name the sign that indicates the sound:Card, ball, mercy, sir, odd, cell, rise, blood, fare, last.

9. Use the following correctly in sentences, cite, site, sight, fane, fain, feign, vane, vain, vein, raze, raise, rays.

10. Write 10 words frequently mispronounced and indicate pronunciation by use of diacritical marks and by syllabication.


Geography (Time, one hour)

1. What is climate? Upon what does climate depend?

2. How do you account for the extremes of climate in Kansas?

3. Of what use are rivers? Of what use is the ocean?

4. Describe the mountains of North America.

5. Name and describe the following: Monrovia, Odessa, Denver, Manitoba, Hecla, Yukon, St. Helena, Juan Fermandez, Aspinwall and Orinoco.

6. Name and locate the principal trade centers of the U.S.

7. Name all the republics of Europe and give capital of each.

8. Why is the Atlantic Coast colder than the Pacific in the same latitude?

9. Describe the process by which the water of the ocean returns to the sources of rivers.

10. Describe the movements of the earth. Give inclination of the earth.


In one century we went from teaching Latin and Greek in high school to offering remedial English in college.
Joseph Sobran as quoted by Mark Shapiro at

Jensen Comment
The point is not that we should still be teaching the same material in the 21st Century that was taught in the 19th Century. Knowledge exploded exponentially since the 1800s, and there are many newer and more important things to learn today. But there are certain skills that are still needed, especially skills in reading and arithmetic. In modern times we should not overlook the need for studying history and geography. Things like economics and science are more important today than they were in the 1800s.

But it's a crying shame that high schools are graduating students who can barely read and do simple arithmetic.

Most Students in Remedial Classes in College Had Solid Grades in High School Nearly four out of five students who undergo remediation in college graduated from high school with grade-point averages of 3.0 or higher, according to a report issued today by Strong American Schools, a group that advocates making public-school education more rigorous.
Peter Schmidt, Chronicle of Higher Education, September 15, 2008 ---

Too Much Need for Remedial Learning in 21st Century College, Too Little Success ---

"American High Schools Are A Complete Disaster," by Laurence Steinberg, Slate via Business Insider, February 13, 2014 ---

"U.S. 15 and 16-year olds rank 36th of 65 countries in PISA Educational Achievement Tests :  Education Efforts in the U.S. are a Resounding Failure," by Steven Mintz, Ethics Sage, December 4, 2013 ---

Steven Pinker Uses Theories from Evolutionary Biology to Explain Why Academic Writing is So Bad.---

Bob Jensen's helpers for writers are at

"Texas Celebrates Fourth of July By Ousting Corrupt UT Austin President," by Robby Soave, Reason Magazine, July 4, 2014 ---

A major shakeup is coming to the University of Texas at Austin. President Bill Powers, who is believed to be involved in an admissions scandal, was given an ultimatum: resign by the next regents' meeting or be fired.

According to The Houston Chronicle, Powers has not yet accepted the offer:

UT System Chancellor Francisco Cigarroa asked Powers to resign before the regents meet again July 10, or be fired at the meeting, the source said. Powers told Cigarroa he will not resign, at least not under the terms that the chancellor laid out Friday. Powers told Cigarroa he would be open to discussing a timeline for his exit, the source said.

Powers' ouster follows the opening of an investigation into UT Law School. Numerous media outlets have reported that the law school was admitting vast numbers of unqualified students who had political connections. Powers was formerly dean of the law school.

The scandal may have remained unknown to the public if not for a personal investigation undertaken by UT Regent Wallace Hall, who filed numerous public records requests after coming across some suspicious documents. Powers' allies in the legislature retaliated by attempting to impeach Hall, though the motion was tabled by a legislative subcommittee.

The sudden downfall of Powers is a stunning vindication of the efforts of Hall and Texas's Jon Cassidy, who provided an analysis of UT admissions that corroborated Hall's findings.

Thankfully, it looks like corrupt college administrators will no longer be able to keep the extent of their wrongdoing a secret from the public.



"Cronyism Blamed for Half of Univ. of Texas Law School Grads’ Inability to Pass the Bar," by Paul Caron, TaxProf Blog, May 23, 2014 ---
Raw Story --- 

A mushrooming scandal at the University of Texas has exposed rampant favoritism in the admissions process of its nationally-respected School of Law.

According to, Democratic and Republican elected officials stand accused of calling in favors and using their clout to obtain admission to the law school for less-than-qualified but well-connected applicants.

The prestigious program boasts a meager 59 percent of recent graduates who were able to pass the Texas bar exam. Those numbers rank UT “dead last among Texas’ nine law schools despite it being by far the most highly regarded school of the nine,” wrote Erik Telford at

“Every law school — even Harvard and Yale — turns out the occasional disappointing alum who cannot pass the bar,” said Telford. “In Texas, however, a disturbing number of these failed graduates are directly connected to the politicians who oversee the university’s source of funding.”

Telford singled out State Sen. Judith Zaffirini (D) and State House Speaker Joe Straus (R) as particularly egregious offenders. A series of Zaffirini emails showed that the state Senator was more than willing to pull strings in applicants’ favor. Another six recent graduates who failed the bar exam twice each have connections to Straus’ office.

“None of the emails published so far explicitly mention any sort of quid pro quo, but none need do so,” wrote’s Jon Cassidy, “as the recipients all know Zaffirini is the most powerful voice on higher education funding in the Texas Legislature. Even so, in one of the emails, Zaffirini mentions how much funding she’s secured for the university before switching topics to the applicant.”

Furthermore, the children of three Texas lawmakers, including Zaffirini’s son, have graduated from UT Law School and failed the bar exam eight times between them. In addition to Zaffirini, State Sen. John Carona (R) and House Appropriations Committee Chairman Jim Pitts (R) each sent their sons to the program, neither of whom has passed the bar to this day.

Continued in article


Feb. 2014 Texas Bar (1st Time Takers)




Pass Rate


Texas Tech








Texas A&M








South Texas








St. Mary’s




Texas Southern








Jensen Comment
Bill Powers became famous (some might argue infamous) while Dean at the UT Law School when he was also Chairman of the Board of Directors of Enron when Enron imploded. However, in my opinion Enron's top executives were adept at hiding their illegal and unethical behavior from the Board and the Audit Committee. Bill Powers commissioned the very long and informative Powers Report about the underhanded dealings of Enron executives, most of whom eventually served short prison terms ---

Enron:  Bankruptcy Court Link 

The 208 Page February 2, 2002 Special Investigative Committee of the Board of Directors (Powers) Report--- 
Alternative 2: 
Alternative 3: 
Alternative 4:  Part One | Part Two
| Part Three | Part Four


Bob Jensen's threads on the decline of jobs in the law profession and the decline of law school enrollments are at

"How to Get Rich: Paul Graham on Money vs. Wealth," by Maria Popova, Brain Pickings, July 2, 2014 ---

Misleading Television Advertising for Credit Cards
Capital One Quicksilver: A No-Fee, No-Gimmicks Cash Card That Advertises An Awful Lot (high pressure advertisements) on Television ---

One of the best free credit cards out there, the Capital One Quicksilver earns a solid 1.5% back on all purchases made. It’s low-maintenance, with no annual fee or foreign transaction fee. In terms of straight-up rewards rate, it doesn’t fare well against the cash rewards heavyweights. We’ll break down the Capital One Quicksilver’s benefits and compare it to the best cash back credit cards on the market. Read on!

At a glance

Verdict: Ideal for its simplicity. You never have to worry about annual fees, changing bonus categories and rewards gimmicks.

Good for:

Bad for:

Why Capital One Picked Samuel L. Jackson for New Card Ads ---

Sam's Club Discover is now one of the better free credit cards that I use---
Note that you do not have to shop at a Sam's Club to use this credit card. It is good almost anywhere that accepts Discover cards in general.  I never liked Capital One and never will use on of this company's credit cards.

People that use credit cards a lot (especially people who travel a great deal) are probably better off choosing a fee-based credit card. Shop around for the best deals. No matter how many airline miles I can get for free (even without traveling) I prefer cash back credit card deals. ---

I stopped using credit cards in restaurants and fuel stations where I don't know the vendor personally --- and trust the controls of my friend. I mostly buy fuel from the same pump I've used for years. I do use credit cards on line, but I try to limit the number of online vendors. I still take a chance with supermarkets and other big box stores since those credit card cash back benefits do add up. Most of my online credit card use is with Amazon. And I have a low credit limit card that I use for online shopping. I still get my credit card protection on my home insurance plan. There are probably better deals for this protection.

Repeat Embezzler Who Got His Second Chance
"Michigan Accountant Accused of Killing Boss Over Embezzlement," by ABC News, June 28, 2014 ---

"5 states, IL, HI, CT, NJ, KY need over 60% of their citizens’ average yearly earnings," State Data Lab, July 11, 2014 ---

. . .

Truth in Accounting (TIA) calculates "Per Taxpayer Burden"  - remaining debt after available assets are tapped, for all 50 states.  Much of this debt is retirement contributions not paid each year, as part of employee compensation. 

So tomorrow’s taxpayers must pay  retirement costs for services they never received.  Select your state on the map at to see more.  


State Per Taxpayer Burden Average Income Percent of Average Income
Illinois $42,200 $45,832 92%
Hawaii $41,300 $44,767 92%
Connecticut $46,000 $59,687 77%
Kentucky $26,700 $35,643 75%
New Jersey $34,200 $54,987 63%


Some politicians claim state debt can be paid “over time.”  But the debt also grows over time, as more employees retire and collect pensions and retirement health benefits. 

Truth in Accounting recommends legislators tell citizens the truth about state debt during the budget cycle.  Read more about FACT Based Budgeting (Full Accrual and Counting Techniques) here.  



Jensen Comment
Especially note the charts for the Top 25 and the Bottom 25 states at ---


Diploma mills are almost as old as the university itself. Scott McLemee wonders why there isn't more scholarship on the real problem of fake degrees.

"A Degree of Fraud," by Scott McLemee, Inside Higher Ed, July 2, 2014 --- 

It’s surprising how many house pets hold advanced degrees. Last year, a dog received his M.B.A. from the American University of London, a non-accredited distance-learning institution. It feels as if I should add “not to be confused with the American University in London,” but getting people to confuse them seems like a pretty basic feature of the whole AUOL marketing strategy.

The dog, identified as “Peter Smith” on his diploma, goes by Pete. He was granted his degree on the basis of “previous experiential learning,” along with payment of £4500. The funds were provided by a BBC news program, which also helped Pete fill out the paperwork. The American University of London required that Pete submit evidence of his qualifications as well as a photograph. The applicant submitted neither, as the BBC website explains, “since the qualifications did not exist and the applicant was a dog.”

The program found hundreds of people listing AUOL degrees in their profiles on social networking sites, including “a senior nuclear industry executive who was in charge of selling a new generation of reactors in the UK.” (For more examples of suspiciously credentialed dogs and cats, see this list.)

Inside Higher Ed reports on diploma mills and fake degrees from time to time but can’t possibly cover every revelation that some professor or state official has a bogus degree, or that a “university” turns out to be run by a convicted felon from his prison cell. Even a blog dedicated to the topic, Diploma Mill News, links to just a fraction of the stories out there. Keeping up with every case is just too much; nobody has that much Schaudenfreude in them.

By contrast, scholarly work on the topic of counterfeit credentials has appeared at a glacial pace. Allen Ezell and John Bear’s expose Degree Mills: The Billion-Dollar Industry -- first published by Prometheus Books in 2005 and updated in 2012 – points out that academic research on the phenomenon amounts is conspicuously lacking, despite the scale of the problem. (Ezell headed up the Federal Bureau of Investigation's “DipScam” investigation of diploma mills that ran from 1980 through 1991.)

The one notable exception to that blind spot is the history of medical quackery, which enjoyed its golden age in the United States during the late 19th and early 20th centuries. Thousands of dubious practitioners throughout the United States got their degrees from correspondence course or fly-by-night medical schools. The fight to put both the quacks and the quack academies out of business reached its peak during the 1920s and ‘30s, under the tireless leadership of Morris Fishbein, editor of the Journal of the American Medical Association.

H.L. Mencken was not persuaded that getting rid of medical charlatans was such a good idea. “As the old-time family doctor dies out in the country towns,” he wrote in a newspaper column from 1924, “with no competent successor willing to take over his dismal business, he is followed by some hearty blacksmith or ice-wagon driver, turned into a chiropractor in six months, often by correspondence.... It eases and soothes me to see [the quacks] so prosperous, for they counteract the evil work of the so-called science of public hygiene, which now seeks to make imbeciles immortal.” (On the other hand, he did point out quacks worth pursuing to Fishbein.)

The pioneering scholar of American medical shadiness was James Harvey Young, an emeritus professor of history at Emory University when he died in 2006, who first published on the subject in the early 1950s. Princeton University Press is reissuing American Health Quackery: Collected Essays of James Harvey Young in paperback this month. But while patent medicines and dubious treatments are now routinely discussed in books and papers on medical history, very little research has appeared on the institutions -- or businesses, if you prefer -- that sold credentials to the snake-oil merchants of yesteryear.

There are plenty still around, incidentally. In Degree Mills, Ezell and Bear cite a Congressional committee’s estimate from 1986 that there were more than 5,000 fake doctors practicing in the United States. The figure must be several times that by now.

The demand for fraudulent diplomas comes from a much wider range of aspiring professionals now than in the patent-medicine era – as the example of Pete, the canine MBA, may suggest. The most general social-scientific study of the problem seems to be “An Introduction to the Economics of Fake Degrees,” published in the Journal of Economic Issues in 2008.

The authors -- Gilles Grolleau, Tarik Lakhal, and Naoufel Mzoughi – are French economists who do what they can with the available pool of data, which is neither wide nor deep. “While the problem of diploma mills and fake degrees is acknowledged to be serious,” they write, “it is difficult to estimate their full impact because it is an illegal activity and there is an obvious lack of data and rigorous studies. Several official investigations point to the magnitude and implications of this dubious activity. These investigations appear to underestimate the expanding scale and dimensions of this multimillion-dollar industry.”

Continued in artilce
Read more:
Inside Higher Ed

Bob Jensen's threads on diploma mills ---

The biggest scandal in higher education is still grade inflation in legitimate universities ---

"In Japan, Research Scandal Prompts Questions," by David McNeill, Chronicle of Higher Education, June 30, 2014 ---

. . .

Ms. Obokata’s actions "lead us to the conclusion that she sorely lacks, not only a sense of research ethics, but also integrity and humility as a scientific researcher," a damning report concluded. The release of the report sent Ms. Obokata, who admits mistakes but not ill intent, to the hospital in shock for a week. Riken has dismissed all her appeals, clearing the way for disciplinary action, which she has pledged to fight.

In June the embattled researcher agreed to retract both Nature papers—under duress, said her lawyer. On July 2, Nature released a statement from her and the other authors officially retracting the papers.

The seismic waves from Ms. Obokata’s rise and vertiginous fall continue to reverberate. Japan’s top universities are rushing to install antiplagiarism software and are combing through old doctoral theses amid accusations that they are honeycombed with similar problems.

The affair has sucked in some of Japan’s most revered professors, including Riken’s president, Ryoji Noyori, a Nobel laureate, and Shinya Yamanaka, credited with creating induced pluripotent stem cells. Mr. Yamanaka, a professor at Kyoto University who is also a Nobel laureate, in April denied claims that he too had manipulated images in a 2000 research paper on embryonic mouse stem cells, but he was forced to admit that, like Ms. Obokata, he could not find lab notes to support his denial.

The scandal has triggered questions about the quality of science in a country that still punches below its international weight in cutting-edge research. Critics say Japan’s best universities have churned out hundreds of poor-quality Ph.D.’s. Young researchers are not taught how to keep detailed lab notes, properly cite data, or question assumptions, said Sukeyasu Yamamoto, a former physicist at the University of Massachusetts at Amherst and now an adviser to Riken. "The problems we see in this episode are all too common," he said.

Hung Out to Dry?

Ironically, Riken was known as a positive discriminator in a country where just one in seven university researchers are women—the lowest share in the developed world. The organization was striving to push young women into positions of responsibility, say other professors there. "The flip side is that they overreacted and maybe went a little too fast," said Kathleen S. Rockland, a neurobiologist who once worked at Riken’s Brain Science Institute. "That’s a pity because they were doing a very good job."

Many professors, however, accuse the institute of hanging Ms. Obokata out to dry since the problems in her papers were exposed. Riken was under intense pressure to justify its budget with high-profile results. Japan’s news media have focused on the role of Yoshiki Sasai, deputy director of the Riken Center and Ms. Obokata’s supervisor, who initially promoted her, then insisted he had no knowledge of the details of her research once the problems were exposed.

Critics noted that even the head of the inquiry into Ms. Obokata’s alleged misconduct was forced to admit in April that he had posted "problematic" images in a 2007 paper published in Oncogene. Shunsuke Ishii, a molecular geneticist, quit the investigative committee.

Continued in article

Bob Jensen's threads on the need for independent replication and other validity studies in research (except in accountancy were accountics researchers are not encouraged by journals to do validity checks) ---

Bob Jensen's threads on professors who cheat ---

Scandal Brewing on for Software Company That Launders Admission Fees for Leading Colleges and Universities

"Troubles at Embark," by Rivard, Inside Higher Ed, July 3, 2014 --- 

Stalin Becomes the Hero of the European Union:  White Washing History in the Public Record

"Google Is Being Forced To Censor The History Of Merrill Lynch — And That Should Terrify You," by Jim Edwards, Business Insider, July 3, 2014 ---

The European Union's new law giving people a "right to be forgotten," which requires Google to remove links to information about them, is having exactly the effect its critics predicted: It is censoring the internet, giving new tools that help the rich and powerful (and ordinary folk) hide negative information about them, and letting criminals make their histories disappear.


Exhibit A: Google was required to delete a link to this BBC article about Stan O'Neal, the former CEO of Merrill Lynch. O'Neal led the bank in the mid-2000s, a period when it became dangerously over-exposed to the looming mortgage crisis. When the crisis hit, Merrill's losses were so great the bank had to be sold to Bank of America. O'Neal lost his job, but he exited with a $161.5 million golden parachute.

Read more:

Jensen Comment
For the record if you really want to document the criminal and unethical behavior of Merrill Lynch over many decades and the fraudulent Stan O'Neal do a word search on "Merrill Lynch" at
For example, Merrill Lynch was behind the $1 billion in derivatives trading frauds in Orange County --- one of the many Merrill Lynch frauds.

"PwC must face $1 billion lawsuit over MF Global collapse," by Jonathan Stempel, Reuters, July 9, 2014 ---

A federal judge on Wednesday rejected PricewaterhouseCoopers' request to dismiss a $1 billion lawsuit accusing the auditor of providing bad accounting advice that contributed to the October 2011 collapse of MF Global Holdings Ltd, a brokerage run by former New Jersey Governor Jon Corzine.

U.S. District Judge Victor Marrero rejected PwC's [PWC.UL] argument that the MF Global's bankruptcy plan administrator, which brought the lawsuit, "stands in the shoes" of the company under the "in pari delicto" legal doctrine, and cannot recover because Corzine and other officials were also to blame for the collapse.

Marrero has yet to review other PwC arguments for dismissal, including that the administrator had no authority to sue and did not show that the accounting advice was a "proximate" cause of MF Global's bankruptcy.

A PwC spokesman had no immediate comment. The auditor's lawyer did not immediately respond to a request for comment.

The March 28 lawsuit accused PwC of professional malpractice for providing "flatly erroneous" advice on how to account for Corzine's $6.3 billion investment in European sovereign debt.

Marrero said that while MF Global may have provided information used to formulate that advice, the complaint did not suggest it had an "active, voluntary" role in the advice or was a "willing participant" in unlawful conduct related to it.

"Under PwC's reasoning, the in pari delicto doctrine would insulate an auditor from liability whenever a company pursues a failed investment strategy after receiving wrongful advice from an accountant," Marrero wrote. "Such a broad reading of the doctrine would effectively put an end to all professional malpractice actions against accountants."

Prior to its Oct. 31, 2011 bankruptcy, MF Global had struggled with worries about the sovereign debt, margin calls, credit rating downgrades, and news that money from customer accounts was used to cover liquidity shortfalls.

Corzine is also a former Goldman Sachs co-chairman. He is not a defendant in the PwC case but faces other lawsuits over MF Global from investors, customers and U.S. regulators.

The case is MF Global Holdings Ltd as Plan Administrator v. PricewaterhouseCoopers LLP, U.S. District Court, Southern District of New York, No. 14-02197.


"Who Is The PwC Partner Responsible For MF Global? Someone With A Lot of Baggage," by Francine McKenna, re:TheAuditors, June 14, 2013 --- Click Here

Bob Jensen's threads on PwC, including the MF Global saga ---

"Auditors and the Financial Crisis: Part of the Solution or Part of the Problem?," by Francine McKenna, re:TheAuditors, July 13, 2014 ---

This is the text of my speech for the Society for the Advancement of Socio-Economics Conference last Friday.

The theme of this year conference was “The Institutional Foundation of Capitalism”. Our special session was entitled ‘The New Financial Architecture after Financial Crisis’.

I was a panelist with moderator Guler Aras, Ph.D. and Professor of Finance &  Accounting and Visiting Scholar of Finance at the McDonough School of Business and Center for Financial Markets and Policy at Georgetown University, Thomas Clarke, Professor of Management and Director of the Key University Research Centre for Corporate Governance at the University of Technology, Sydney, Shyam Sunder, James L. Frank Professor of Accounting, Economics, and Finance at the Yale School of Management; Professor in the Department of Economics; and Fellow of the Whitney Humanities Center, and Paul Williams, Professor, Ernst & Young Faculty Research Fellow, at NC State University. Williams is also Associate Editor for Critical Perspectives on Accounting. The conference was organized by Northwestern University and the University of Chicago and will be held in Chicago.



Auditors have been weak, complacent and, in some cases, complicit in the recent failures and frauds, as well as the illegal acts such as money laundering, foreign bribery and corruption, tax evasion and Libor-fixing we have seen perpetrated by public companies, especially banks, after Sarbanes-Oxley, during the financial crisis and since the crisis.

They no longer follow the mandate of U.S. v Arthur Young & Co., 465 U.S. 805, 817-818 (1984):

…By certifying the public reports that collectively depict a corporation’s financial status, the independent auditor assumes a public responsibility transcending any employment relationship with the client. The independent public accountant performing this special function owes ultimate allegiance to the corporation’s creditors and stockholders, as well as to the investing public.

This “public watchdog” function demands that the accountant maintain total independence from the client at all times, and requires complete fidelity to the public trust.

To insulate from disclosure a certified public accountant’s interpretations of the client’s financial statements would be to ignore the significance of the accountant’s role as a disinterested analyst charged with public obligations.

Instead of being watchdogs, the global audit firms are lapdogs to their perceived clients, the company executives. Their meddling in politics in Hong Kong is a great recent example.

Continued in article

Bob Jensen's threads on causes of the financial crisis ---
The role the auditors played is overstated. These were the causes of the financial crisis that commenced in 2007:

Fraud on Main Street
Issuance of "poison" mortgages (many subprime) that lenders knew could never be repaid by borrowers.
Lenders didn't care about loan defaults because they sold the poison mortgages to suckers like Fannie and Freddie.
For low income borrowers the Federal Government forced Fannie and Freddie to buy up the poisoned mortgages ---

Math Error on Wall Street
Issuance of CDO portfolio bonds laced with a portion of healthy mortgages and a portion of poisoned mortgages.
The math error is based on an assumption that risk of poison can be diversified and diluted using a risk diversification formula.
The risk diversification formula is called the
Gaussian copula function
The formula made a fatal assumption that loan defaults would be random events and not correlated.
When the real estate bubble burst, home values plunged and loan defaults became correlated and enormous.

 Fraud on Wall Street
All the happenings on Wall Street were not merely innocent math errors
Banks and investment banks were selling CDO bonds that they knew were overvalued.
Credit rating agencies knew they were giving AAA high credit ratings to bonds that would collapse.
The banking industry used powerful friends in government to pass its default losses on to taxpayers.
Greatest Swindle in the History of the World ---

Warnings from a Theoretical Physicist With an Interest in Economics and Finance
"Beware of Economists (and accoutnics scientists) Peddling Elegant Models," by Mark Buchanan, Bloomberg, April 7, 2013 --- 


"Letting My Students Know What I Want From Them," by Joe Hoyle, Teaching Blog, July 13, 2014 ---

On Tuesday (July 15) at 11:00 a.m. I will be hosting a 35 minute webinar on “The Flipped Classroom.” I am doing this program in connection with my Financial Accounting textbook (coauthored with C. J. Skender of UNC). However, I hope to keep the textbook marketing down to a bare minimum because I really am interested in talking about the flipped classroom.

I would love for you to join me if you can. You can register in advance at: 


Below is an email that I sent out this evening to all of my students for the upcoming fall semester. I am trying to plant a seed in their minds about what I want from them in the fall. I always believe that a semester goes better if the students know before they ever meet you what you want from them. They don’t have to waste important classroom time trying to figure out what you value. As you can see, I just tell them.

Continued in article

"Fixing the Shiller CAPE: Accounting, Dividends, and the Permanently High Plateau," Philosophical Economics, December 13, 2013 ---

For most of history, the Shiller Cyclically-Adjusted Price-Earnings ratio (CAPE) oscillated in a pseudo sine wave around a long-term (130 year) average of 15.30. It spent 55% percent of the time above the average, and 45% of the time below–a reasonable result for a metric that allegedly mean reverts. Since 1990, however, the metric has only spent 2% of the time below its historical average–98% of the time above.

The metric’s failure to mean-revert over the last 23 years hasn’t been for a lack of reasons. The period covered three recessions, two stock market crashes, and one bonafide financial panic–the likes of which hadn’t been seen since the Great Depression. Even in the worst parts of the 2008-2009 crash–at levels that we now look back on with nostalgia as the “buying opportunity” of our generation–the metric failed to provide an accurate valuation signal. In an inexcusable blunder, it basically called the market “slightly below fair value” (see the black circle).

If we’re being honest, there are only two possibilities. Either the “normal” levels of the metric have shifted significantly upwards over the last few decades, or the metric is broken. There is no other way to coherently explain why the metric has consistently failed to migrate towards its long-term average, or spend any amount of time below it, as it should do every so often in bear markets.

Which possibility is it? In my view, both. The Shiller CAPE, as constructed by its proponents, utilizes inconsistent data. In this piece, I’m going to explain the inconsistency in rigorous accounting detail, and then share the results of a modified version of CAPE that eliminates it. I’m also going to illustrate the distortion that changes in dividend payout ratios create for CAPE. Finally, I’m going to taunt the bears (slightly facetiously) and argue that valuations have probably reached a “permanently high plateau”, to borrow the famously fatal words of Irving Fisher in October 1929.

There is no question that the current stock market is more expensive than the averages of certain past eras–the 1910s, 1930s, 1940s, 1970s, 1980s, etc. Looking forward, long-term equity returns will obviously be lower than they were in those eras. But the market is not as expensive as the Shiller CAPE suggests. Moreover, there’s no reason to think that the valuations of those eras–distorted by world wars (1914-1918, 1939-1945, 1950-1953), gross economic mismanagement (1929-1938), and painfully high inflation and interest rates (1970-1982)–were somehow more “appropriate” than current valuations. The valuations in those eras were “appropriate” to the circumstances of those eras; we live in different circumstances.

The Use of Reported Earnings: Inconsistently Measured Data

(Please note that the points below–related to accounting inconsistencies and dividend payout ratio distortions in the Shiller CAPE–are not new. Jeremy Siegel, legendary professor at the Wharton School of Business, has been raising them publicly since at least 2008.)

The Shiller CAPE was developed by Nobel Laureate Robert Shiller, the well-known originator of the Case-Shiller house price index. The metric is calculated by dividing an index’s inflation-adjusted price by the average of its inflation-adjusted annual earnings over the last 10 years.

But how does one define “earnings”? As far as the metric is concerned, the answer doesn’t matter, as long as the definition is consistent across time. If the definition is consistent across time, then apples-to-apples comparisons can be made between the metric’s present value and its prior values. The comparisons will give an accurate indication of how cheap or expensive the index is relative to its history, or to what is “normal” for it.

Continued in article

Jensen Comment
Accounting standard setters cannot define earnings let alone make indices derived from earnings comparable between firms or for a given firm over time. I'm dubious of any analysis based upon an earnings-derived index ---

From the CFO Journal's Morning Ledger on July 15, 2014

Accounting for Real Estate Sales Under the New Revenue Standard

The latest issue of Deloitte's Heads Up discusses the framework of the FASB's and IASB's new revenue model and highlights key accounting issues and potential challenges for entities that account for real estate disposals under U.S. GAAP. The report includes a discussion of the revenue recognition framework, key accounting issues, challenges for entities that account for real estate transactions and other details.

Read More at CFO Journal »

From the CFO Journal's Morning Ledger on July 15, 2014

The wave of companies looking to cut their U.S. tax bills by relocating abroad through merger deals shows no sign of ebbing, particularly in the pharmaceutical sector.
AbbVie Inc
. and Mylan Inc. are both nearing deals that will include an off-shore relocation, the
WSJ’s Liz Hoffman and Hester Plumridge report.

The deals are also cropping up in retail, consumer and manufacturing, and are being driven by a new appetite for large, transformative acquisitions, as well as the nagging fear that the chance to use the cross-border tax strategy may soon vanish. U.S. executives fear being left out of the party and worry the government, fearful of lost tax revenue, will shut it down.

And the anxiety among policymakers that tax dollars will leave for good are well founded. It’s hard to say precisely how much the U.S. Treasury stands to lose from the inversions, but one estimate puts the figure at close to $20 billion, the WSJ’s Joseph Walker reports.


Aside from zero interest on liquid savings of individuals banks are another casualty of of the Fed's unnecessary continuation of zero interest rates

From the CFO Journal's Morning Ledger on July 11, 2014

Good morning. The lending business is showing growth and stock markets are near record highs, but don’t look for banks to show any exuberance when the sector’s earnings season kicks off today, starting with Wells Fargo & Co. Analysts are forecasting that the six largest banks will post a 5.6% revenue decline from last year, the WSJ’s Saabira Chaudhuf reports.

The blame lies with the ongoing low-rate environment. Net interest margins, which measure the difference between what a bank makes on lending and what it pays depositors, have been squeezed.

Some analysts said the slump may be temporary, pointing to future rate rises and the possibility of legal costs finally subsiding for Citigroup Inc. and Bank of America Corp. But even though lending growth is accelerating, trading desks have experienced a slowdown that has hampered revenue and profit growth.


PWC:  Non-GAAP financial measures: Enhancing their usefulness ---

From the CFO Journal's Morning Ledger on July 10, 2014

Audit Committees: The Risks and Rewards of Emerging Technologies

Given their global significance, technology implementations and related security activities involving emerging technologies are becoming tightly linked to broader business, governance and risk activities for the audit committee, other board members and management. The opportunities presented by access to a wide array of data and informational sources must be balanced with a recognition of the challenges and risks they pose, and audit committees can benefit from understanding the company's overall technology landscape, plans and priorities.

Read More at CFO Journal ---

From the CFO Journal's Morning Ledger on July 8, 2014

Wal-Mart shrinks the big box
Retail giant Wal-Mart Stores Inc. is trying to embrace new business models as its superstores fall out of favor, the WSJ’s Shelly Banjo reports.. In May, Wal-Mart reported its fifth straight quarter of negative U.S. sales, excluding newly opened or closed stores, and its sixth straight quarter of dwindling traffic. The discounter is also dogged by allegations of bribery overseas. Company executives say CEO Doug McMillon has doled out urgent instructions to accelerate new store concepts and online strategies in an attempt to gain back market share from encroaching rivals like Inc. and dollar-store chains.

Jensen Comment
In this era of the e-Shopping rise in popularity, big box store inventory costs are drag on profits along with having to pay more for big-box labor.

Purportedly the most profitable Wal-Mart per square foot in New England is the old and relatively small Wal-Mart in Littleton, NH. Since new Wal-Marts are banned in Vermont a high percentage of shoppers in Littleton have green license plates. They also come over to avoid Vermont, Massachusetts, and Maine sales taxes on big ticket items like medication supplies, television sets, computers, and air conditioners. But the nearby new Super Wal-Mart store in Woodsville, NH  that is on the Vermont border does not seem to do as well per square foot as the old Littleton Wal-Mart. Go figure!

Canadians also shop a lot in New Hampshire. Among other things the relatively cheap liquor and wine in NH State stores is a huge draw as Canadians stockpile for their long and cold winters. Wal-Nart sells beer and wine but not the hard stuff where the NH State Stores have a monopoly but not monopoly prices --- somebody taught NH officials years ago about Cost=Profit-Volume (CPV) analysis where high volume trumps high margins on booze.

The Granite State would be in deep trouble if accounting courses were more popular in Canada, Vermont, Massachusetts, and Maine.

Can you believe that the Department of Defense would pay too much in in inappropriate payments for spare parts?

The Inspector General of the USA seems to think so.

Can you believe that the Federal contractor sued by the Justice Department for failing to adequately conduct government security clearances—including NSA leaker Edward Snowden—is processing sensitive immigration applications for the Obama administration?

Go to the article itself to see the historic paintings
"The vanished grandeur of accounting Once, bookkeepers were valorized in great art. Sound funny now? The joke might be on us," by Jacob Soll, Boston Globe, June 8, 2014 ---

In Washington’s National Gallery of Art hangs a portrait by Jan Gossaert. Painted around 1530, at the very moment when the Dutch were becoming the undisputed masters of European trade, it shows the merchant Jan Snouck Jacobsz at work at his desk. The painter’s remarkable gift for detail is evident in Jacobsz’s dignified expression, his fine ermine clothes and expensive rings. Rendered just as carefully are his quill pen, account ledger, and receipts.

This is, in short, a portrait of not only wealth and material success, but of accounting. It might seem strange that an artist would lavish such care on the nuts and bolts of something so mundane, like a poet writing couplets about a corporate expense report. But the Jacobsz portrait is far from unique: Accounting paintings were a significant genre in Dutch art. For 200 years, the Dutch not only dominated world trade and portrayed themselves that way, but in hundreds of paintings, they also made sure to include the account books.

This was not simply a wealthy nation crowing about its financial success. The Dutch were the leading merchants of their time, and they saw good accounting as the key to both their wealth and the moral health of their society. To the audience of the time, the paintings carried a clear message: Mastering finance was an achievement requiring both skill and humility.

Today when we see accountants in art or entertainment, they are marginal figures—comically boring bean-counters or fraudsters cooking the books. Accounting is almost a synonym for drudgery: from the hapless daydreamer Walter Mitty to the iconic nerd accountant Rick Moranis plays in “Ghostbusters.” Accounting is seen as less a moral calling than a fussy brake on the action.

In the wake of decades of financial scandal—much of it linked to creative accounting, or to no accounting all—the Dutch tradition of accounting art suggests it might be us, not the Dutch, who have misjudged accounting’s importance in the world. Accounting in the modern sense was still a new idea in the 1500s, one with a weight that carried beyond the business world. A proper accounting invoked the idea of debts paid, the obligation of nightly personal reckonings, and even calling to account the wealthy and powerful through audits.

It was an idea powerful enough to occupy the attention of thinkers in religion, art, and philosophy. A look back at the tradition of accounting in art shows just how much is at stake in “good accounting,” and how much society can gain from seeing it, like the Dutch, not just as a tool but as a cultural principle and a moral position.


Scratches on ancient tablets show us that accounts have been kept for as long as humans have been able to record them, from ancient Mesopotamians to the Mayans. This kind of accounting was about measuring stores: Merchants and treasurers recorded how much grain, bread, gold, or silver they had. Most ledgers were simple lists of assets or payments.

Accounting in the modern sense started around 1300 in medieval Italy, when multipartner firms had to calculate their investments in foreign trade. We don’t know who, if anyone, can take credit for the invention, but it was around this time that double-entry bookkeeping emerged in Tuscany. Instead of a simple list, it consisted of two separate columns, recording income in one against expenditures in the other. Every transaction of expenditure could be checked against corresponding income: If one sold a goat for three florins, one gained three florins and, in the other column, lost a goat. It was a kind of self-checking mechanism that also helped calculate profit or loss. In Hogarth’s “Marriage a la Mode: The Tête a Tête,” the man with the account books walks off in disgust (left).

HIP/Art Resource, New York

In Hogarth’s “Marriage a la Mode: The Tête a Tête,” the man with the account books walks off in disgust (left).

It would come to change finance, but was not an immediate hit. Any system of enforcing fiscal discipline is an incursion against the absolute control of the account-holder, and kings and the powerful tended to see themselves above the merchant-like calculations of bookkeeping. They not only hid their wealth and debts: They often did not bother to calculate them. In the end, they saw themselves as only accountable to God; if they needed more ready cash, they could always lean on their inferiors. At least in the short run, it was far more comfortable to govern without the constraints of financial accountability.

But in one place, the idea of financial accountability did take hold. By the early 1500s, Holland had become the center of global trade, with Antwerp and later Amsterdam acting as the most important ports in the world. Ships arrived laden with spices, exotic fruit, minerals, animals, whale oil, cloths, and other luxury goods. In 1602, the Dutch government in essence created modern capitalism by founding both the first publicly traded company—the Dutch East India Company, or VOC—and the Amsterdam Stock Exchange.

Accounting was central to managing not only these companies, but also the Dutch government itself. While not all tax collectors or company managers kept perfect double-entry books, it represented an ideal. It was also seen as a necessary skill for civic participation. Most members of Dutch society were fluent in accounting, having studied at home or in publicly funded city accounting schools.

Double-entry accounting made it possible to calculate profit and capital and for managers, investors, and authorities to verify books. But at the time, it also had a moral implication. Keeping one’s books balanced wasn’t simply a matter of law, but an imitation of God, who kept moral accounts of humanity and tallied them in the Books of Life and Death. It was a financial technique whose power lay beyond the accountants, and beyond even the wealthy people who employed them.

Accounting was closely tied to the notion of human audits and spiritual reckonings. Dutch artists began to paint what could be called a warning genre of accounting paintings. In Jan Provost’s “Death and Merchant,” a businessman sits behind his sacks of gold doing his books, but he cannot balance them, for there is a missing entry. He reaches out for payment, not from the man who owes him the money, but from the grim reaper, death himself, the only one who can pay the final debts and balance the books. The message is clear: Humans cannot truly balance their books in the end, for they are accountable to the final auditor.

This message rubbed off on political and financial leaders. They were expected to keep good books, and they could expect to be publicly audited—a notion fiercely resisted in the great monarchies of the Continent. In the 17th century, another genre of paintings emerged, showing public administrators holding their books open for all to see. More than 100 of these paintings were produced between 1600 and 1800. Transparency became a cultural ideal worthy of art.

The Dutch also appreciated that ledgers, bills of exchange, and files, like any tool in human hands, were liable to misuse in the interest of wealth or pride. Dutch painters like Marinus van Raemerswaele warned against hubris and greed with paintings of bookkeepers as twisted, grotesque figures in absurd hats who would be as likely to commit fraud as to keep good books.

The value the Dutch placed on accounting made a large impression on the English, who sought to emulate “the Mighty Dutch” in many ways, including this new business technique. By the 1700s, they were also the only other nation to paint accounting pictures. The English celebrated the wealth of their Industrial Revolution and Empire with portraits of successful merchants smiling over their books—and, like the Dutch, also used account books as a way to wag a finger. In one scene from William Hogarth’s “Marriage à la Mode,” a popular series of paintings from the 18th century, a noble couple squanders their lives on parties and gambling. In a final signal of disapproval, almost like a punctuation mark, their accountant walks away in disgust.


By the late 19th century, accounting had become a profession of its own, rather than fundamentally a shared practice and value. It receded from the lives of individuals, and began to take on more the reputation it holds today.

Continued in article

Bob Jensen's threads on the history of accountancy ---

What do bankrupt cities in California have in common with Argentina?

It has more to do with the future than the past.

"Franklin, Calpers Clash on Stockton Pension Issue Investment Titans Disagree on Whether Stockton, Calif.'s Pension Payments Should Be Cut to Pay Back a Loan," by Dan Fitzpatrick, The Wall Street Journal, July 7, 2014 ---

Two U.S. investment titans are clashing over whether public pensions should be protected in municipal bankruptcy, a major test that has implications for workers, investors and distressed cities across the country.

Payments into pension funds are usually considered sacrosanct, but fights are breaking out around the U.S. over who gets priority when a municipality seeks protection from creditors. The latest battle involves the bankruptcy of Stockton, Calif., and pits mutual-fund giant Franklin Templeton Investments against California Public Employees' Retirement System, the largest public pension fund in the U.S.

The firms disagree on whether Stockton's retirement contributions should be reduced to free up money for a loan repayment. U.S. Bankruptcy Court Judge Christopher Klein in Sacramento could rule on the dispute as early as Tuesday.

Many troubled municipalities are grappling with how to bring down pension costs while municipal-bond holders are trying to figure out how to protect their interests before or during a municipal insolvency. Franklin Templeton is separately challenging a new law in Puerto Rico allowing some troubled public agencies to restructure their debt, saying it violates the U.S. Constitution.

A ruling that Stockton's pensions can be curtailed could embolden more cities to use bankruptcy as a way to seek retirement concessions. In December the judge overseeing Detroit's bankruptcy case ruled that pensions aren't entitled to "extraordinary protection" despite state constitutional safeguards against benefit cuts. Calpers has argued in court that the ruling on Detroit's city-run retirement systems doesn't apply to California's state-run plan.

The outcome in Stockton "is being watched by everyone," said Suzanne Kelly, co-founder of Scottsdale, Ariz., pension strategy and restructuring firm Kelly Garfinkle Strategic Restructuring LLC. If the judge rules that pensions can be curtailed, Ms. Kelly added, it could push cities "on the brink" to see bankruptcy as a "feasible option."

Franklin Templeton, which manages assets of more than $908 billion, is the lone creditor challenging Stockton's plan to end a two-year run through bankruptcy, arguing the northern California port city wants to unfairly slice a debt repayment while leaving public pension contributions intact. The city is offering the San Mateo, Calif., firm about $350,000, or less than 1%, back on a $35 million loan that paid for fire stations, a police station, bridges, street improvements and parks.

"The meager recovery that the city is attempting to cram down," said a Franklin Templeton spokeswoman, "has left us with no choice but to object so that we can deliver a fair recovery for our investors."

The state's retirement system, known by the acronym Calpers, has responded by arguing pension payments are guaranteed by California law and can't be cut. Stockton contributes roughly $30 million a year to Calpers, which controls retirement money for municipal workers across California and has assets of roughly $300 billion.

A Calpers actuary testified in May that Stockton would be faced with a hefty fee if it chose to terminate its relationship with the retirement system. The amount would be $1.6 billion, according to Calpers. "How will that get Franklin more money?" said John Knox, an attorney representing the city of Stockton. "It boggles the mind."

The bankruptcy judge is expected to rule on the value of the collateral supporting Franklin Templeton's $35 million loan: two golf courses and a park. It isn't known if he also will rule on the larger question of whether pensions can be reduced.

Continued in article

Jensen Comment
Political leaders in Argentina stuck their middle fingers upwards toward hedge funds that invested billions in Argentina bonds. But the recent U.S. Supreme Court decision makes it harder for Argentina to borrow badly needed money from USA investors  without repaying former investors in failed Argentine bonds.

Similarly, bankrupt cities like Stockton that ignore obligations to municipal bond holders in favor of giving priorities to labor unions may find themselves having to pay soaring interest rates on bonds the city needs to borrow in the future. The problem of borrowing by California towns and cities is exacerbated by the gloomy forecast of long-term drought. Screwing former municipal bond investors may be the height of stupidity in drought-ridden California. Borrowing costs may soar into the clouds even when California towns and cities can find investors dumb enough to invest in the Golden State's municipal bonds. This does not bode well for a troubled state hoping to rebuild its school district, town, county, and state infrastructure.

Stockton is already becoming a high crime city due in to large measure by having to lay off so many police officers.


Humor July 1-31, 2014

Ray Stevens at the Border ---

Donnalou Stevens Singing Country ---

Senior Moments ---

Hillary Can't Wait ---

Hot Rod Lincoln ---

Who Put the Dick on the Snowman ---

Ray Stevens Squirrel Revival ---

Ray Stevens Help Me Make it Through the Night (starts out serious) ---

Ray Stevens Sings The Streak ---

Ronald Reagan poked as much fun at himself as he did others, and never got butt-hurt when someone criticized or made fun of him.---

Old Women With Spray Glue ---

After Nigeria was eliminated from the world cup the Nigerian captain personally offered to refund all the expenses of fans that travelled to Brazil. He said he just needs their bank details and pin numbers to complete the transaction.

Forwarded by Dr. Wolff

Meet Walter Barnes - All golfers should live so long as to become this kind of old man!

Toward the end of the Sunday service, the Minister asked, "How many of you have forgiven your enemies?"

80% held up their hands. The Minister then repeated his question. All responded this time, except one man, Walter Barnes.

"Mr. Barnes, are you not willing to forgive your enemies?"

"I don't have any," he replied gruffly.

"Mr. Barnes, that is very unusual. How old are you?"

"Ninety-eight," he replied. The congregation stood up and clapped their hands.

"Oh, Mr. Barnes, would you please come down in front and tell us all how a person can live ninety-eight years and not have an enemy in the world?"

The old golfer tottered down the aisle, stopped in front of the pulpit, turned around, faced the congregation, and said simply,

“I outlived all them assholes" - and he calmly returned to his seat.


Forwarded by Gene and Joan

I have been in many places, but I've never been in Kahoots. Apparently, you can't go alone. You have to be in Kahoots with someone.

I've also never been in Cognito. I hear no one recognizes you there.

I have, however, been in Sane. They don't have an airport; you have to be driven there. I have made several trips there, thanks to my children, friends, family and work.

I would like to go to Conclusions, but you have to jump, and I'm not too much on physical activity anymore.

I have also been in Doubt. That is a sad place to go, and I try not to visit there too often. I've been in Flexible, but only when it was very important to stand firm.

Sometimes I'm in Capable, and I go there more often as I'm getting older. One of my favorite places to be is in Suspense! It really gets the adrenalin flowing and pumps up the old heart! At my age I need all the stimuli I can get!




Humor Between July 1-31, 2014, 2014 ---

Humor Between June 1-31, 2014 ---

Humor Between May 1-31, 2014, 2014 ---

Humor Between April 1-30, 2014 ---

Humor Between March 1-31, 2014 ---

Humor Between February 1-28, 2014 ---

Humor Between January 1-31, 2014 ---

Humor Between December 1-31, 2013 ---

Humor Between November 1-30, 2013 ---

Humor Between October 1-31, 2013 ---

Humor Between September 1 and September 30, 2013 ---

Humor Between July 1 and August 31, 2013 ---

Humor Between June 1-30, 2013 ---

Humor Between May 1-31, 2013 ---

Humor Between April 1-30, 2013 ---

And that's the way it was on April 30, 2014 with a little help from my friends.

Bob Jensen's gateway to millions of other blogs and social/professional networks ---

Bob Jensen's Threads ---

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

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

Bob Jensen's Resume ---

Bob Jensen's Homepage ---


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

AECM (Accounting Educators)
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 ---

CPAS-L (Practitioners)  (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)
This forum is for CPAs to discuss the activities of the AICPA. This can be anything  from the CPA2BIZ portal to the XYZ initiative or anything else that relates to the AICPA.

This site hosts various discussion groups on such topics as accounting software, consulting, financial planning, fixed assets, payroll, human resources, profit on the Internet, and taxation.

Business Valuation Group 
This discussion group is headed by Randy Schostag [RSchostag@BUSVALGROUP.COM



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)

“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?


Accountancy, Tax, IFRS, XBRL, and Accounting History News Sites  ---

Accounting Professors Who Blog ---

Cool Search Engines That Are Not Google ---

Free (updated) Basic Accounting Textbook --- search for Hoyle at

CPA Examination ---
Free CPA Examination Review Course Courtesy of Joe Hoyle ---

Bob Jensen's Pictures and Stories


Bob Jensen's Homepage ---