Accounting Scandal Updates on January 31, 2003
Bob Jensen at Trinity University

Bob Jensen's main document on the Enron scandal and other accounting frauds is at 

Bob Jensen's SPE threads are at  
Bob Jensen's threads on accounting theory are at  

Bob Jensen's Summary of Suggested Reforms --- 

Bob Jensen's Bottom Line Commentary --- 

The Virginia Tech Overview:  What Can We Learn From Enron? --- 

Fraud Facts and Prevention Tips from SmartPros --- 
Bob Jensen's tips are at 

Many of the scandals are documented at 

The 9th U.S. Circuit Court of Appeals has accused the IRS of committing fraud and acting deceptively with regard to the agency's favored treatment of two pilots who ratted out 1,300 other pilots, all of whom participated in a flaky investment scheme over 20 years ago. 
AccountingWeb ---   and 

The federal agency that insures the pensions of some 44 million Americans has been pounded by a succession of big corporate bankruptcies and has burned through its entire $8 billion surplus in one year. The agency, the Pension Benefit Guaranty Corporation, provides protection to retirees in case of a failure, much as the Federal Deposit Insurance Corporation protects depositors when a bank fails. Though it can continue to make its current payments, the agency is expected to disclose a deficit of $1 billion to $2 billion at the end of this month. Its soundness is likely to deteriorate further in the coming months, as more bankrupt companies find themselves unable to fulfill their promises to tens of thousands of present and future retirees. US Airways, United Airlines and Kmart are among the companies struggling to emerge from bankruptcy protection under the weight of large underfunded pension plans.
Mary Williams Walsh, January 25, 2003
The homepage of the PBGC is at 

Any way you look at it, the audit business cannot continue much longer as it is. If years of "clean" audits are no guarantee that billions of dollars of previously reported profits are, in fact, illusory, then what value does an audit actually provide? Congress and the SEC are vigorously investigating this, but there is a grave danger that they may be focusing on the wrong problem.
David Maister (see below)

Principle-based accounting "works well when the financial implications of a transaction can be consistently interpreted by accounting professionals," says Anthony Sanders, a finance professor at Ohio State University who laments that off-the-books deals are often too complicated and esoteric to expect consistent application of accounting principles. "These things are heavily structured and not easy to interpret." 
(See Below)
'Off the Books' Cleanup Turns Out to Be Tough, by Cassel ?Bryan-Low and Carrick Mollenkamp, The Wall Street Journal, January 13, 2003, Page C1 ---,,SB1042413640174608024,00.html?mod=todays%5Fus%5Fmoneyfront%5Fhs  

Asked if there is a feeling by some CPAs that "the big firms have tarnished the whole profession," Mr. Ezzell replied, "Among CPAs in firms that don't do public-company audits there has been a real sense of concern that the firms that do public-company audits, that individuals in those firms, have not lived up to the standards of this profession. It has been very visible, and it hurts. It hurts us all."
In an interview with Business Week, William Ezzell, chairman of the American Institute of CPAs --- 

The City of San Francisco has accused PwC of violating the state's consumer protection laws. If successful, this will be the first time these laws are used against auditors for knowing about fraud and failing to report it.
The AccountingWeb on January 17, 2003 --- 

Ernst & Young may need some life insurance of its own as it argues in the courtrooms of England that it is not responsible for the near collapse in 2000 of 240-year-old Equitable Life, Britain's oldest life insurer.  
The AccountingWeb on January 17, 2003 --- 

Ariba, a maker of business software, was once of the Nasdaq's highest-flying companies, but the stock has fallen into the single digits during the technology downturn. The company recently announced that it would restate 10 quarters of results stemming from the way it accounted for payments from one executive to another and employee stock options. That expanded a previously announced restatement of 2001 earnings.
The Wall Street Journal, January 24, 2003,,SB1042834607475671504,00.html?mod=technology%5Fmain%5Fwhats%5Fnews 

Feeling cynical?

  If you aren’t (cynical) now, you will by the time you finish the new Bebchuk and Fried paper on executive compensation.  They paint a fairly gloomy picture of managers exerting their power to “extract rents and to camouflage the extent of their rent extraction.”  Rather than designed to solve agency cost problems, the paper makes the case that executive pay can by an agency cost in and of itself.  Let’s hope things aren’t this bad.

They say that patriotism is the last refuge
To which a scoundrel clings.
Steal a little and they throw you in jail,
Steal a lot and they make you king.

There's only one step down from here, baby,
It's called the land of permanent bliss.
What's a sweetheart like you doin' in a dump like this?

Lyrics of a Bob Dylan song forwarded by Damian Gadal [DGADAL@CI.SANTA-BARBARA.CA.US

Thus, in an unheralded way, FAS 141 introduces a process of identifying and placing value on intangible assets that could prove to be a new experience for many in corporate finance, as well as a costly and time-consuming exercise. Nonetheless, an exercise critical to compliance with the new rule.
FAS 141 and the Question of Value By PricewaterhouseCoopers CFOdirect Network Newsdesk, January 16, 2003 --- 
Bob Jensen's threads on intangibles and valuation can be found at 

Simply Overwhelmed by the Volume
Thank you for copying me on your mail. We have, as you note, stopped updating this, and did so last year. We were simply overwhelmed by the volume of work needed to keep up to date with the status of the ever-growing number of cases involved, and, in some cases, dealing with the companies' lawyers. We have removed the article from the active part of the site, and will append a note to it to the effect that we have stopped updating it.
Paul Maidment, Executive Editor, Forbes & Editor,
Mr. Maidment is referring to the Forbes' abandoned effort to publish a "tracker" of corporate scandals --- 

Recipes for Cooking the Books ---  
Compiled by Miklos A. Vasarhelyi []

The Right Hand 
On January 23, 2003 I opened my mail and found the excellent Year 2002 Annual Report of the KPMG Foundation outlining the many truly wonderful things KPMG is doing for minority students, education, and accounting research --- 

The Left Hand 
On January 23, 2003 I also linked to the electronic version of The Wall Street Journal 

SEC Set to File Civil Action Against KPMG Over Xerox The Securities and Exchange Commission is set to file civil-fraud charges against KPMG LLP as early as next week for its role auditing Xerox Corp., which last year settled SEC accusations of accounting fraud, people close to the situation said. The expected action by the SEC would represent the second time in recent years that the SEC has charged a major accounting firm with fraud. It comes at a crucial juncture for the accounting industry, which is attempting to rebuild its credibility and make changes following more than a year of accounting scandals at major corporations. It also indicates that, while the political furor over corporate fraud has died down, the fallout may linger for some time. 
The Wall Street Journal, January 23, 2003 ---,,SB1043272871733131344,00.html?mod=technology_main_whats_news 

Also see 

If the S.E.C. files a complaint, KPMG would become only the second major accounting firm to face such charges in recent decades. The first was Arthur Andersen, which settled fraud charges in connection with its audit of Waste Management in 2001, the year before it was driven out of business as a result of the Enron scandal.

The S.E.C. settled a complaint against Xerox in April, when the company said it would pay a $10 million fine and restate its financial results as far back as 1997. The company later reported that the total amount of the restatement was $6.4 billion, with the effect of lowering revenues and profits in 1997, 1998 and 1999 but raising them in 2000 and 2001.

The first piece I ever wrote about the right hand and the left hand sides of large public accounting firms was the piece I wrote about Andersen  (Scroll down to my commentary on the CEO of Andersen)

What integrity really boils down to is practicing what you preach.

In Spite of the KPMG and Andersen cases mentioned above, the SEC is hesitant to tackle 2000 lb gorillas!
An investigation by The Washington Post has revealed that despite the fact that the Big Four audit the majority of publicly traded companies, the SEC is much more likely to discipline individual auditors from smaller firms, rather than the Big Four. 

But the "Top Cop" of the SEC has other ideas

"SEC's Top Cop Again Says Audit Firms May Face Suits," by Judith Burns, The Wall Street Journal, January 31, 2003 ---,,SB1044063159310521504,00.html?mod=technology%5Fmain%5Fwhats%5Fnews 

Accounting fraud remains a top priority for regulators and could spur lawsuits against accounting firms as well as accountants, the Securities and Exchange Commission's top cop said Friday.

Underscoring that push, the SEC sued KPMG LLP and four partners this week in connection with work they did for Xerox Corp., the Stamford, Conn., maker of copiers and printers that allegedly inflated revenue by $6 billion over three years. Xerox previously settled with the SEC without admitting or denying the claims. KPMG and its partners plan to litigate.

SEC enforcement division director Stephen Cutler said the case involves more than "an honest disagreement" about the method Xerox used to account for revenue on equipment it leased. He made his remarks at a Northwestern University Law School conference and gave the usual disclaimer that his remarks reflect his own views, not those of the SEC.

Mr. Cutler said he is "very comfortable" that KPMG was reckless in using the accounting method in question, saying others in the firm "had raised a red flag," about it. He said, "the facts will come out in the litigation."

Continued in the article.

Some News and Views Expressed in the January 2003 Edition of The CPA Journal --- 

Enron and beyond: What's the 'WorldCom'ing to?

Through the eyes of an auditor: Trust and verify

Accountants' responsibilities and the New York State Attorney General's Charities Bureau

The role of professional associations

Should the accounting profession take a step backward?

Book Review: Intellectual Property Assets in Mergers and Acquisitions

Expensing stock options or not: Does it matter?

Website of the month: Tax analysts

The accounting profession then and now

From the December 2002 Edition --- 

The Enron affair from a lender's view

The more things change, the more they stay the same

Accountancy and society: A covenant desecrated

Deductible business travel expenses


Will Enron deter students from majoring in accounting?

Website of the Month: Tax and Accounting Sites Directory

Book Review: Take on the Street: What Wall Street and Corporate America Don't Want You to Know

Letters to the Editor: IRA distribution rules ... ... Reviving the profession ... Seeing the big picture

Accountants will be relieved to know that the SEC eased some aspects of its proposed auditor independence rules in response to concerns about restrictions on tax services and effects on small accounting firms. 

Most respected companies according to The Financial Times --- 

New AICPA Antifraud & Corporate Responsibility Resource Center (includes fraud by topic) --- 

Some of the biggest challenges facing business today are re-establishing confidence among investors, promoting ethics and integrity in the workplace, and establishing clarity in reporting procedures. This resource center will give you the tools and information you need to combat fraud — whatever your role in the business community.

Internet Consumer Fraud Continues to Rise --- 
Annual FTC report says 47 percent of non-identity theft complaints were Internet-related in 2002.,,10375_1573071,00.html 

How you can protect yourself --- 

January 23, 2003 message from 

This morning in a faculty meeting, I heard a rumor that Thomas Havey, LLP, which had been named one of the "Next 5" top accounting firms in the nation, had gone the way of the Do-Do and AA. Something about some problems with a whole bevy of labor union clients?

I tried Havey's website and got a 404.

A google search on "Thomas Havey" turned up lots of stories about the union audit situation, but no website for Havey.

Chalk off another one?

If this keeps up, audit firms will soon become as scarce as snake oil salesmen.

David R. Fordham 
PBGH Faculty Fellow 
James Madison University

(Yes, that was intended to be an opening line. Somebody run with it!)

Hi David,
Note the following June 24, 2002 quotation and link:

The National Legal and Policy Center (NLPC) requests that the Office of Labor-Management Standards (OLMS) use its International Compliance Audit Program (I-CAP) and Compliance Audit Program (CAP) to audit every union that employs the services of the accounting, auditing, and consulting firm of Thomas Havey LLP.

Since 1997, NLPC has been dedicated to investigating and exposing union corruption at every level. In publishing the fortnightly newsletter, Union Corruption Update, we have observed hundreds of cases of union embezzlement and other union-related crimes. For more information about NLPC, please visit

Continued at 

Any way you look at it, the audit business cannot continue much longer as it is. David Maister shares his thoughts about the Enron scandal and what is next for the profession. 

Any way you look at it, the audit business cannot continue much longer as it is. If years of "clean" audits are no guarantee that billions of dollars of previously reported profits are, in fact, illusory, then what value does an audit actually provide? Congress and the SEC are vigorously investigating this, but there is a grave danger that they may be focusing on the wrong problem.

Auditing is a business full of paradoxes. The providers think they’re providing one thing (carefully phrased as "an attestation that financial accounts based on information provided by management are in accordance with generally accepted accounting principles"), and the investing public, the users of the service, continue to believe (despite the profession’s best efforts to tell them otherwise) that the service is something else: a protection against fraud, reliably affirming the financial health of the enterprise being audited.

Many people seem to think that auditing's problems are due to the conflicts created by audit firms also providing consulting services. Legislators and regulators are today holding emergency hearings about whether auditors should be able to provide these additional services, and (in anticipation of their rulings) four of the Big 5 either have spun off their consulting divisions or have plans to do so. Amid all this activity, one point goes unrecognized: how irrelevant it all is!

The problem of auditor independence is not, ultimately, about the provision of consulting services. The conflict is built into the auditing system itself. Auditors are supposed to be independent of management, providing a neutral "attestation" that financial reports are a fair reflection of the business. Yet, who hires the auditors? Who pays them? Who retains them? Who can fire them? Answer: Only the company they are supposed to be auditing, and no-one else. Even if they never did a dime's worth of consulting, auditors would be conflicted.

The problem is made even worse by the way the output of an auditor's work is structured. They are permitted only, in reporting to the public, to issue a standardized letter with fixed language, basically saying one of two things: either "We concur" or "We have reservations" (usually with no elaboration or explanation.) Since the latter option is equivalent to dropping the guillotine, it's not used too often. There's not much else auditors are allowed to do.

Imagine a management that is doing something questionable or on the edge. The auditor's choice is to go along, or to resign, causing a public scandal (and a loss of their own revenues.) How much ability do you think they have to influence that management team? All they've got is a threat to resign (or what is close to the same thing, issue a qualified opinion) and management knows that if they did that, they'd hurt their own business (i.e. lose substantial revenue.) What happens? Honorable, well-intentioned people try, with integrity, to get management to do the right thing, but unless they have incredible guts, they are forced to accept a lot of grey areas before they have to pull the trigger. If they are to do their job, auditors need more than these options in reporting their findings.

It is readily understandable that auditing firms have historically looked for additional services to provide. The auditing "product line" is an unattractive business. It’s a low- (or no-) growth, declining margin, high-litigation-exposure business. Why would a firm that had options want to nurture this product line? True, it does have the virtue of providing an annuity, a good regular, dependable cash flow, year after year. And (here's the rub) firms view it as a base from which they can cross-sell their other services.

Continued at 

Fraud specialist Gary Zeune offers 20 key insights on how to ensure that your organization doesn't turn into the next Enron. 

Book Recommendation
I am invited to be on a program at Kent State University in April.  I received the following message from the conference organizer.


The Keynote Luncheon Speaker will be Robert Bryce from your area.

He wrote Pipe Dreams which is one of the better Enron books.

I have attached a copy of their new release.

nmeonske [

Publishers Weekly, the bible of the book publishing world, has named Robert Bryce's new book, PIPE DREAMS: Greed, Ego, and the Death of Enron DREAMS (PublicAffairs; $27.50; 416 pages; ISBN 1-58648-138-X), one of the best non-fiction books of the year.

Deloitte's practical guidelines to transparent financial reporting --- 
This is the third in a series of publications from Deloitte & Touche on how to improve financial reporting and auditing.

My Favorite Whistle Blower Hero Who's Heads and Shoulders Above the Time Magazine Trio
Cindy Ossias not only risked her job, she risked her law license to ever work again as an attorney. She also blew the whistle at the risk of going to jail.  Unlike the Time Magazine Women of the Year, Cindy Ossias knew there was no hope in blowing the whistle to her boss. Her boss was the big crook when she blew the whistle on him and the large home owner insurance companies operating in the State of California.
See Below (near the bottom of this document)

The Washington Post put together a terrific Corporate Scandal Primer that includes reviews and pictures of the "players," "articles,", and an "overview" of each major accounting and finance scandal of the Year 2002 --- 
I added this link to my own reviews at

TIMING IS EVERYTHING in humor, but the jokes told by a few former Enron executives on a recently surfaced videotape border on bad taste in light of the events of the past year.
Home Video Uncovered by the Houston Chronicle, December 19, 2002
Skits for Enron ex-executive funny then, but full of irony now --- 
(The above link includes a "See it Now" link to download the video itself which played well for me.)
Question:  How does former Enron CEO Jeff Skilling define HFV?

The tape, made for the January 1997 going-away party for former Enron President Rich Kinder, features nearly 30 minutes of absurd skits, songs and testimonials by company executives and prominent Houstonians. The collection is all meant in good fun, but some of the comments are ironic in the current climate of corporate scandal.

In one skit, former administrative executive Peggy Menchaca plays the part of Kinder as he receives a budget report from then-President Jeff Skilling, who plays himself, and financial planning executive Tod Lindholm. When the pretend Kinder expresses doubt that Skilling can pull off 600 percent revenue growth for the coming year, Skilling reveals how it will be done.

"We're going to move from mark-to-market accounting to something I call HFV, or hypothetical future value accounting," Skilling jokes as he reads from a script. "If we do that, we can add a kazillion dollars to the bottom line."

Richard Causey, the former chief accounting officer who was embroiled in many of the business deals named in the indictments of other Enron executives, makes an unfortunate joke later on the tape.

"I've been on the job for a week managing earnings, and it's easier than I thought it would be," Causey says, referring to a practice that is frowned upon by securities regulators. "I can't even count fast enough with the earnings rolling in."

Texas' political elite also take part in the tribute, with then-Gov. George W. Bush pleading with Kinder: "Don't leave Texas. You're too good a man."

Former President George Bush also offers a send-off to Kinder, thanking him for helping his son reach the Governor's Mansion.

"You have been fantastic to the Bush family," he says. "I don't think anybody did more than you did to support George."

Note:  Jim Borden showed me that it is possible to download and save this video using Camtasia.  Thank you Jim.  It is not a perfect capture, but it gets the job done.

Bob Jensen's threads on accounting scandal humor are at 

Will CPA Auditing Survive?  Insurance Versus Assurance?

The following text is taken from 

Why Not Eliminate Public Accounting Firm Audits? SmartPros, January 2, 2003

Jan. 2, 2003 (Thomson Media) — The latest accounting debacle is shaking up not only the financial industry, with bankers probed about loans to corporate miscreants, but also our political environment with the White House being maneuvered toward reforms. The question on the minds of everyone from executives to the President to the SEC is, how do we fix the audit system? The real question, however, should be, is the audit system even necessary?

In the name of full disclosure, I received my CPA well over 10 years ago working for the accounting firm KPMG. I did not keep up my certification programs and no longer practice as a CPA. My current mission of improving corporate value via productivity makes me passionate about efficiency.

My fervent recommendation is to eliminate the entire public auditing industry. In this new world, sans the auditing industry, auditors would still have a vital role in ensuring compliance, but not through an artificially forced extra layer, such as is currently in place. Half of the auditors would work for the SEC to reinforce interpretation and opinion. The rest of the auditors would work directly for the companies who file their financial statements with the SEC. The companies themselves would provide the sole and detailed opinion on their financial statements. Checks and balances would occur directly between the company and the SEC -- which would remain an unbiased and financially independent compliance organization.

The auditing perspective is based on principles of public auditing that I learned at KPMG in my early years. The perception of conflict of interest is to be avoided as much as the realities of it. In the case of the audit profession, the fact that the firms are "for profit" partnerships paid by clients is the fundamental conflict of interest issue -- not specifically the payments made for the consulting work. Too many control points dilute rather than reinforce accountability. This is the problem in almost all of the current situations. Auditors blame management, which is ultimately accountable. But management blames the auditors upon whom it relies. One proposed solution is to implement an overseeing body to supervise the auditors-adding even more layers of theoretical control. This is a true waste of resources and puts us in a vicious cycle. Bad business models create bad business judgment.

The value of public auditing is difficult even for auditors to justify. If the company is reporting according to principles defined by the SEC, then the public audit provides little additional value. Though there are certainly mistakes caught inside an audit that are fixed and never make it to the public's attention, a strong internal audit group could likely provide the same level of value. If the company has financial and management issues and is not reporting correctly, then the role of the outside auditor is conflicted. It is clear current audit methods often do not go far enough. For external audits to provide real value, they would likely need to be significantly deeper and less influenced than they are today.

From the productivity point of view, our economic system can provide just so many resources for overseeing company accounting activities. If they are spread unevenly across internal auditors, internal accountants and finance departments, internal compliance, external auditors, external auditor review boards, and the SEC, we are likely to continue to get the results we have seen in the last nine months: too many touch points with too little assurance. The redundancy is ineffective and expensive. Eliminating the public system altogether and putting the onus on the company to report correctly and directly with the SEC makes the most sense.

So what would this change really look like and will anyone take it seriously? CPAs would continue to be trained on SEC regulations, but wouldn't be required to work at a public firm to receive their licenses. Instead of working for audit firms, they'd work directly for companies. Internal auditors and these SEC-trained auditors would work together to ensure the company followed correct accounting procedures. Direct corporate repercussions from the SEC would alleviate concerns about management influence over their audit employees.

The reality is we'll probably just add another layer of governing to the already cumbersome public auditing industry. But just for a moment, wouldn't it be nice to imagine efficiency and responsibility winning over wasted resources, additional red tape, and continued finger-pointing?

-- Thomson Media


Will public accounting external audit services survive?  
What are the alternatives to financial assurance by public accounting firms?  

My first answer is that the public accounting auditors will probably survive.  However, if they survive they may have to add more value and less costs to most audits.  One way to add value is to insure rather than assure the quality of audit services.  This was first proposed by me in March 2002 at 

My answers, albeit naive, begin with a recommendation that auditing firms "warrant" or "insure" their services much like insurance companies insure against liability with limits as to what they will pay such as limits to liability in automobile accidents.  Clients should decide how much auditing liability insurance they are willing to purchase as a component of the total audit fee.  The insured liability limit  should be publicized on Page 1 of a corporate annual report and in stock price listings in newspapers and on the Internet.  Accordingly, the amount of insured audit liability would then become an important input into investor and creditor decisions.  Firms paying for lower audit liability would then pay the price by having a higher cost of capital.   This does not mean that all audits should not be held accountable to identical high auditing standards or that audit insurance claims can be filed for stock price declines.  Claims should only be filed when there is evidence of audit negligence and/or fraud.
Bob Jensen at 

Audit service warranties may also reduce the cost of some audits and lead to more efficient resource allocations.  Two factors work toward inefficient and ineffective allocation of resources in audits.  

I wrote first recommended that insurance replace assurance appeared in March 2002.  Subsequently, Joshua Ronen took a more radical stance by recommending a Financial Statement Insurance (FSI) alternative in "Policy Reforms in the Aftermath of Accounting Scandals," Journal of Accounting and Public Policy, Volume 21, Winter 2002, Page 284 ---

The threat of legal liability is not at present properly crafted to eliminate the incentive to do management's bidding.  Moreover, the expected cost of litigation and other penalties is recouped in the aggregate from the auditees, but not in such a way that each of the auditees defrays the expected cost it imposes: high-quality auditees subsidize lower-quality auditees.  This results in an inefficient allocation of risk and resources.  Furthermore, the recoupment is made out of the client-corporation's resources, diminishing the wealth of the shareholders, who purchased the shares at prices potentially inflated as a result of misrepresentations.  Thus, instead of being protected, the shareholders end up partially shouldering the costs.  Only severing the agency relation between the client-management and the auditors can remove the inherent conflict of interest.  We need to create instead an agency relationship between the auditor and an appropriate principal--one whose economic interests are aligned with those of investors, who are the ultimate intended beneficiaries of the auditor's attestation.  Insurance carriers are eminently reasonable candidates.

Financial statement insurance (FSI) would change the principal-agent relationship.  Instead of appointing and paying auditors, companies would purchase insurance that provides coverage to investors against losses suffered as a result of misrepresentation in financial reports.  The insurance coverage the companies obtain would be publicized, along with the premiums paid for the coverage.  The insurance carriers would appoint--and pay-- the auditors, who would attest to the accuracy of the financial statements of the insurance company's prospective clients.

Companies announcing higher limits of coverage and smaller premiums would distinguish themselves in the eyes of the investors as companies with higher-quality financial statements.  In contrast, those with smaller or no coverage or higher premiums would reveal themselves as those with lower quality financial statements.  Every company would be eager to avoid this characterization.  A sort of Gresham's law in reverse would be set in operation, resulting in a flight to quality.

The FSI scheme effectively eliminates the conflict of interest that came to light in the aftermath of Enron.  But financial statement insurance has other important benefits: the credible signaling of financial statement quality and the consequent improvement of such quality, the decrease in shareholder losses, and the better channeling of savings to socially desirable projects.

This solution can be complemented and reinforced by GAAP and GAAS reforms, resulting in significant additional indirect benefits.  If implemented, FSI would facilitate an accounting approach based on underlying principles rather than detailed rules.  It has been argued in this journal that the US model of specifying rules that must be applied has allowed or encouraged firms such as Andersen to accept procedures that, while they conformed to the letter of the rules, violated the basic objectives of GAAP accounting.  For example, although SPEs in Enron usually appeared to have the minimum required three percent of independent equity.  Enron in fact bore most of the risk.  The contention is that general principles such as UK GAAP, which require auditors to report a "true and fair view" of an enterprise, are preferable to the over-specified US model, and that the US model encourages corporate officers to view accounting rules as analogous to the Tax Code.1

1    "ENRON: what happened and what we can learn from it," by George J. Benston and Al L. Hartgraves, Journal of Accounting and Public Policy, 2002, pp. 105-127 

"The Evolving Accounting Standards for Special Purpose Entities and Consolidations," by Al L. Hartgraves and George J. Benston, Accounting Horizons, September 2002, pp. 245-258.

Neither FSI nor audit service warranty insurance proposals have been worked out in any kind of detail by Professor Ronen or me. Two components that I would like to include are as follows:

  1. A whistle blowing incentive scheme that will help disclose breakdowns in the services.

    Reply from Kevin O'Brien [
    Kevin made an excellent presentation on CPA whistle blowing obligations.

    Bob, thanks for the feedback; I have had several CPAs come up and tell me your presentation was very thought provoking!

    My Powerpoint related to the presentation is on my website at the following URL: 

    You can also access it at  and follow the link to "CPA Ethics".

    I highly recommend Kevin's proposed solutions.

  2. For claims to be adjudicated in an "accounting court" very similar to the "court" proposed by the most famous managing partner (Leonard Spacek) in the history of Arthur Andersen --- Spacek, L., "The Need for an Accounting Court", The Accounting Review, l958, pp. 368-379.  Whereas Spacek was more concerned with the setting of accounting principles and resolving disputes between auditors and clients, my vision would expand upon this concept. I think what I envision is both a an accounting justice system that would review the merits of claims and press charges for wrongful acts in the accounting court.

    I envision the "accounting court" of the future to operate with both arbitration and mediation schema much like labor arbitration and mediation systems have evolved to keep labor disputes out of the courts.  The accounting court would attempt to keep disputes between investors and auditors out of the legal system and arbitrate claims of auditor errors, incompetence, and frauds.  Each auditing firm would charge clients for audit insurance and the accounting court would attempt to settle claims that the auditing firm did not voluntarily settle.

Leonard Spacek was the most famous and most controversial of all the managing partners of the accounting firm of Arthur Andersen. It is really amazing to juxtapose what Spacek advocated in 1958 with the troubles that his firm having in the past decade or more.

In the link below, I quote a long passage from a 1958 speech by Leonard Spacek. I think this speech portrays the decline in professionalism in public accountancy. What would Spacek say today if he had to testify before Congress in the Enron case.

What I am proposing today is the need for both an accounting court to resolve disputes between auditors and clients along with something something like an investigative body that is to discover serious mistakes in the audit, including being a sounding board for whistle blowing. Spacek envisioned the "court" to be more like the FASB. My view extends this concept to be more like the accounting court in Holland combined with an investigative branch outside the SEC.

You can download the passage below from 

My   proposal differs somewhat from the "Investigative Body" proposal of Deloitte and Touche CEO Jim Copeland in that Copeland's investigative body would look only at financial failures.  My proposal is intended to help investors not be mislead by bad accounting before the failures transpire.  It is intended to weaken the powers of large clients when trying to force auditors to compromise on representational faithfulness and adherence to accounting and auditing rules.  This does not eliminate the need Copeland's Investigative Body.  See 

My extended thoughts on these topics can be found at 

January 7, 2003 reply from MacEwan Wright, Victoria University [Mac.Wright@VU.EDU.AU

Dear Bob, 
I seem to remember writing something about a year ago, in which I discussed the abandonment of external audits. From memory rather than straight insurance or bonding, it involved an external review of the internal audit, a position put forward by a group of Scottish accountants. This proposal however is conceptually similar to bonding employees. Bonding employees is very popular in the American financial sector but virtually never used in Australia. It reflects a distinct difference in ethical attitudes. The implication of not bonding employees when bonding is available is that honesty is expected. The implication of bonding is that honesty is not expected. Regards, Mac Wright Victoria University Melbourne Australia Email; 

SEC's Month of Rulemaking Includes Big Win for Accountants --- 

WASHINGTON, Jan. 27, 2003  — Working against a January 26 deadline to have Sarbanes-Oxley Act standards in place, the five commissioners of the Securities and Exchange Commission spent the past two weeks deliberating nearly a dozen rules that directly impact accounting and finance professionals.

The accounting industry won a major victory when the SEC decided auditors can consult corporate clients on tax advice -- including tax shelters -- so long as an audit committee approves. The industry argued tax work is a natural outgrowth of their audit work. Critics are calling this a political victory for the industry and accusing the SEC of bowing to the industry's lobbying.

The SEC did ban audit firms from performing particular consulting services, including legal and information systems work.

Here's an overview of the SEC's final rulings:

January 19, 2003 message from Lawrence Gordon [

Dear Bob:

The Journal of Accounting and Public Policy has initiated a new sub-section called "Accounting and Information Assurance Letters." The sub-section publishes short papers (not to exceed 6 printed pages, or approximately 2400 words) that link timely accounting (broadly defined) and information assurance issues to public policy and/or corporate governance. Papers submitted to this subsection of the journal will be reviewed within four weeks of receipt and revisions will be limited to one. Papers accepted for this subsection will be published within four months of acceptance.

We believe that this new section of the journal will help define the relationship between accounting and information assurance, and would be especially pleased to publish papers on this topic from members of the journal's Editorial Board. Accordingly, if you are working on research papers that seem to fit the new section of the Journal of Accounting and Public Policy ,we hope you will consider submitting it to the journal. More information about the new section can be found at: . We also hope you will bring this new section of the journal to the attention of your colleagues.


Larry and Marty

Lawrence A. Gordon, Ph.D. Ernst & Young Alumni Professor of Managerial Accounting and Information Assurance Director, Ph.D. Program The Robert H. Smith School of Business University of Maryland - College Park College Park, Maryland 20742 Phone: (301) 405-2255 Fax: (301) 314-9611 

Martin P. Loeb Professor of Accounting and Information Assurance Deloitte & Touche Faculty Fellow The Robert H. Smith School of Business University of Maryland, College Park College Park, MD 20742-1815 e-mail:  phone: 301-405-2209 fax: 301-405-0359

Betting the Farm in a Rigged Game:  It's Worse Than I Speculated on January 10, 2002

About a year ago on January 10, 2002, I speculated how Enron had "bet the farm" --- 
It turns out that the now-indicted executives of Enron bet the farm, but the game was rigged in Enron's favor.  The rigged game was making millions, but the mountain of debt in SPEs ( ) backed by Enron stock price eventually exposed the energy trading fraud when Enron's share prices plummeted near the end of Year 2001.  Now we are beginning to see how Enron and other utility companies took advantage of Wendy Gramm's political success in deregulating energy trading on the NASCENT market.  For more about Wendy Gramm and energy trading deregulation, go to 

Now we are discovering how and why previously "staid utilities" became knowing players in a fraudulent trading scheme designed to bilk both trading investors and energy consumers (especially in California).

"How Energy Traders Turned Bonanza Into a Historic Bust," by Paul Beckett, Jathon Sapsford, and Alexei Barrionuevo, The Wall Street Journal, Page A1, December 31, 2002 ---,,SB1041287245721136273,00.html?mod=todays%5Fus%5Fpageone%5Fhs 

Spurred by Deregulation, Industry Greed And Deceit Unraveled the Nascent Market 

How did it happen? Regulatory rollbacks and changes in accounting rules enticed some of the biggest names in the industry to remake themselves from staid utilities and pipeline operators into high-tech traders of contracts for electricity, natural gas and other fuels. Then, things got out of hand.

It's not that energy trading was necessarily a bad idea, says Peter Fusaro, an industry consultant in New York. The trading titans recklessly ruined it. "It became a big casino of making as much money as you could."

The companies looked for extra profits by taking advantage of customers. Trading became a means for fudging financial results. And a cozy core group of traders in Houston and elsewhere colluded on sham transactions aimed at fooling investors about the volume of activity in the new market. Eventually, the scam began to unravel. In the midst of an energy crisis in 2000, California officials accused avaricious traders of ripping off the state. Questions arose about concealed liabilities at Enron Corp. and dubious gas deals at Dynegy Inc.

Continued at,,SB1041287245721136273,00.html?mod=todays%5Fus%5Fpageone%5Fhs 

Bob Jensen's threads on accounting and corporate fraud are at 

Babylon in the 21st Century
Top Executive Compensation for the Year 2001 --- 

From The Conference Board
Corporate Citizenship in the New Century: Accountability, Transparency, and Global Stakeholder Engagement
Publication Date:  July 2002
Report Number:  R-1314-02-RR --- 

Doctors nationwide are reporting a surge in silver poisoning cases. The growing popularity of bogus silver-based remedies on the Internet appears to be the culprit ---,1286,57119,00.html 

The FASB has released Statement No. 148. 
FAS 148 improves disclosures for stock-based compensation and provides alternative transition methods for companies that switch to the fair value method of accounting for stock options --- 
The transition guidance and annual disclosure provisions of Statement 148 are effective for fiscal years ending after December 15, 2002, with earlier application permitted in certain circumstances.  .  Fair value accounting is still optional (until the FASB finally makes up its mind on stock options.)

FASB Amends Transition Guidance for Stock Options and Provides Improved Disclosures

Norwalk, CT, December 31, 2002—The FASB has published Statement No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure, which amends FASB Statement No. 123, Accounting for Stock-Based Compensation. In response to a growing number of companies announcing plans to record expenses for the fair value of stock options, Statement 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, Statement 148 amends the disclosure requirements of Statement 123 to require more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation.

Under the provisions of Statement 123, companies that adopted the preferable, fair value based method were required to apply that method prospectively for new stock option awards. This contributed to a “ramp-up” effect on stock-based compensation expense in the first few years following adoption, which caused concern for companies and investors because of the lack of consistency in reported results. To address that concern, Statement 148 provides two additional methods of transition that reflect an entity’s full complement of stock-based compensation expense immediately upon adoption, thereby eliminating the ramp-up effect.

Statement 148 also improves the clarity and prominence of disclosures about the pro forma effects of using the fair value based method of accounting for stock-based compensation for all companies—regardless of the accounting method used—by requiring that the data be presented more prominently and in a more user-friendly format in the footnotes to the financial statements. In addition, the Statement improves the timeliness of those disclosures by requiring that this information be included in interim as well as annual financial statements. In the past, companies were required to make pro forma disclosures only in annual financial statements.

The transition guidance and annual disclosure provisions of Statement 148 are effective for fiscal years ending after December 15, 2002, with earlier application permitted in certain circumstances. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002.

As previously reported, the FASB has solicited comments from its constituents relating to the accounting for stock-based compensation, including valuation of stock options, as part of its recently issued Invitation to Comment, Accounting for Stock-Based Compensation: A Comparison of FASB Statement No. 123, Accounting for Stock-Based Compensation, and Its Related Interpretations, and IASB Proposed IFRS, Share-based Payment. That Invitation to Comment explains the similarities of and differences between the proposed guidance on accounting for stock-based compensation included in the International Accounting Standards Board’s (IASB’s) recently issued exposure draft and the FASB’s guidance under Statement 123.

After considering the responses to the Invitation to Comment, the Board plans to make a decision in the latter part of the first quarter of 2003 about whether it should undertake a more comprehensive reconsideration of the accounting for stock options. As part of that process, the Board may revisit its 1995 decision permitting companies to disclose the pro forma effects of the fair value based method rather than requiring all companies to recognize the fair value of employee stock options as an expense in the income statement. Under the provisions of Statement 123 that remain unaffected by Statement 148, companies may either recognize expenses on a fair value based method in the income statement or disclose the pro forma effects of that method in the footnotes to the financial statements.

Copies of Statement 148 may be obtained by contacting the FASB’s Order Department at 800-748-0659 or by placing an order at the FASB’s website at .

Bob Jensen's threads on accounting theory are at 

PwC Outlines Strategies for Internal Control Framework --- 

To assist companies' compliance, PricewaterhouseCoopers' paper, The Sarbanes-Oxley Act of 2002: Strategy for Meeting New Internal Control Reporting Challenges: A White Paper, offers the following guidelines:    

For a copy of this report, go to

New AICPA Business Reporting Model Beginning to Emerge - Timeliness, Reliability, Transparency to Be Improved --- 

For nearly a decade, the AICPA has advocated a modernized financial reporting process that provides more and better information from which investors, creditors and management can make decisions. The highest quality auditing will be of declining value if the underlying information is outdated or excludes relevant factors.

Using the current one as a base, the new business reporting model would encompass five fundamental elements: reliable systems to collect and analyze information; industry-specific financial and nonfinancial performance measures; better quality disclosures written in “plain English”; corporate accountability; and real-time distribution of information. These fundamentals must integrate within an organization, as an organization moves toward online, real-time reporting. Achieving the online, real-time goal is the only way to truly meet marketplace demand for more relevant, up-to-the-minute information.

By supplying a broader “bandwidth” of information that addresses such issues as off-balance-sheet activity, liquidity, nonfinancial performance indicators and unreported intangibles, financial reporting can begin to address the complexities of today’s corporations.

 “Our current financial reporting model, although a solid foundation from which to start, is neither complete nor timely,” said Senior Vice President-Member and Public Interests Al Anderson in a recent interview. “Stakeholders now want more information and ‘data on demand’ using technology formats that allow quick access and analysis to help make better decisions.”

A special committee, established by the AICPA Board of Directors and operational next month, will build a migration plan for moving the elements of the current model to the online, real-time business reporting framework. AICPA committee representatives from assurance services, consulting services, the Auditing Standards Board, accounting standards, business and industry, government, PCPS-the Alliance for CPA Firms and the board of directors will comprise the special committee. The committee will engage several constituencies and have various task forces working toward the common goal of making all five elements successful.

For a summary of new business reporting trends in Canada and the U.S., go to 

J.P. Morgan said it would take a $1.3 billion charge for the fourth quarter, largely to settle litigation over its involvement with Enron. Included in the charge is $400 million it will swallow to settle a suit with insurers over $1 billion in Enron-related losses.
See Page A1 of The Wall Street Journal, January 3, 2002 ---,,SB1041523025176008513,00.html?mod=todays%5Fus%5Fpageone%5Fhs 

The Securities and Exchange Commission is expected to provide local school boards with a new curriculum option next year: investor education for high school students --- 

I wonder if there will be any accounting in the curriculum?

Dec. 27, 2002 (The Internal Auditor) — Following the recent series of corporate accounting scandals in the United States, audit firms are performing less nonaudit work for both U.S. and U.K. companies, according to a survey by the Investor Responsibility Research Center (IRRC) --- 

"Pricewaterhouse (PwC) Taking a Stand and a Big Risk," by Jonathan D. Glater, The New York Times,  January 1, 2003

PricewaterhouseCoopers, the nation's largest accounting firm, has taken a risky public stance in favor of better, more thorough and more detailed audits.

In recent advertisements, the firm has promised to take a tougher stance with clients and resign if it cannot resolve concerns about a particular audit.

It is a gamble strongly favored by those who want accounting firms to be more aggressive with their corporate clients, to weed out fraud before investors suffer catastrophic losses. And it distinguishes the firm from its three most important competitors among the largest accounting firms.

But it is still a gamble. PricewaterhouseCoopers has begun to outline a yardstick by which its own performance will be judged, and if it falls short, the firm could find itself singled out for special criticism in a profession that came under heavy fire in 2002.

"The talk is great, and if they walk the talk, it will be a tremendous move that will clearly differentiate them from any of the other big firms," said Lynn Turner, the former chief accountant for the Securities and Exchange Commission. "It will be a tremendous gain for investors as well. But let's see the walk first."

The talk has been evident in recent full-page newspaper advertisements in which PricewaterhouseCoopers has stated its willingness "to ask the tough questions and tackle the tough issues." The firm further pledges, "In any case where we cannot resolve concerns about the quality of the information we are receiving or about the integrity of the management teams with whom we are working, we will resign."

But PricewaterhouseCoopers faces a significant challenge from continuing public scrutiny of its past work. For instance, it approved financial disclosures at Tyco International despite the company's use of "aggressive accounting that, even when not erroneous, was undertaken with the purpose and effect of increasing reported results above what they would have been if more conservative accounting were used," according to a report filed by Tyco on Monday with the S.E.C. Tyco also said it was reducing previously reported earnings by $382 million.

The approval of technically permissible — but perhaps misleading — "aggressive accounting" shows the difficulty the firm faces in bridging what John J. O'Connor, a vice chairman at PricewaterhouseCoopers, called the "expectations gap" between what investors want from audits and what auditors do. Mr. O'Connor said the firm planned to close that gap.

"We are looking at the type of qualitative reporting that we can do," he said, so that investors would be informed of just how aggressive or conservative the assumptions behind a company's financial disclosures were. For now, he said, "we are clearly starting with the audit committees and management."

The firm has also put together ethical guidelines that, while not new, have not been codified before. The code of conduct tells employees confronted with difficult judgment calls to consider, among other things, "Does it feel right?", "How would it look in the newspapers?" and "Can you sleep at night?"

The questions illustrate that many of the decisions auditors are called on to make are not strictly dictated by the rules.

"That's the issue," said Charles A. Bowsher, a former comptroller general of the United States and head of the Public Oversight Board that used to supervise ethics and disciplinary issues for the accounting profession. "In each case, unfortunately, you've got to look at the facts. I'm a great believer that if you have a client who's pushing the envelope too far too many times — and I believe that is how Arthur Andersen got into trouble — then the auditor should resign from the account."

Mr. O'Connor says that if the firm's accountants ask themselves these questions and are uncomfortable with the answers — even if a client's preferred accounting complies with generally accepted principles — they should not sign off on the books. In recent months the company has resigned from several clients, he added, but he would not identify them.

Auditors do not often resign. According to Auditor-Trak, a service of Strafford Publications, an Atlanta-based publisher of legal and business information services and accounting industry data, 348 accounting firms resigned from clients in 2002 through Monday, with firms indicating in 59 cases that the reasons were concerns about independence or a company's practices or concerns by a company about the auditor's standards. The four largest firms resigned from 80 clients, and PricewaterhouseCoopers accounted for 13 of those. In 2001, there were 286 resignations, 88 of them by the four largest firms and 22 by PricewaterhouseCoopers.

But the data may understate how often companies and auditors part ways over accounting disputes because it is in neither side's interest to make such disagreements public. Executives do not want their companies to suffer the increased scrutiny and decline in stock price that would probably follow an auditor's resignation, and accounting firms do not want to attract the attention of lawyers looking for grounds for securities lawsuits.

If PricewaterhouseCoopers does provide audits that give more information to investors, Mr. Turner said, it may actually help shield the firm from such lawsuits.

"The way an accounting firm has to manage its risk if it's going to be successful — and none of them have been in the last three or four years — is you have to be sure that whoever you have out there on the audit team is identifying the problems," he said. Finding the problems will be easier the more thorough the audit is, he added.

Continued in The New York Times,  January 1, 2003

The City of San Francisco has accused PwC of violating the state's consumer protection laws. If successful, this will be the first time these laws are used against auditors for knowing about fraud and failing to report it. 

Revenue Round Tripping and Bogus Swaps (Too Bad PwC did not have such aggressive auditing and codes of conduct last year)

"As the Bubble Neared Its End, Bogus Swaps Padded the Books," by Dennis K. Berman, Julia Angwin, and Chip Cummins, The Wall Street Journal, December 23, 2002, Page A1 ---,,SB1040606010738807193,00.html?mod=todays%5Fus%5Fpageone%5Fhs 

It was 10 p.m. on a Friday, 50 hours before Qwest Communications International Inc. was due to close the books on its third quarter of 2001. Chief Operating Officer Afshin Mohebbi sat down in his 52nd floor office at the telephone giant's Denver headquarters and tapped out a desperate e-mail to his top salesmen.

The subject line: "Help!!!!!!!!!"

Mr. Mohebbi was alarmed because a series of sweet deals he urgently needed weren't working out. The plan was for Qwest to swap connections to its phone network for connections to other companies' networks. Phone companies had been making trades like that for years, but lately there was a twist: Both companies would book revenue from these transactions -- inflating their financial results even though they were actually swapping assets of equal value.

But Qwest couldn't quite make these latest swaps work. It had agreed to buy $231 million in access to telecom networks. But the companies on the other side of the table had committed to spend less than $100 million with Qwest. The company was going to have to squeeze more money out of the deals if it was going to meet the projections it had given Wall Street.

"What happened to the creativity of this company and its employees?" Mr. Mohebbi wrote in his e-mail. "Let's not have a disaster now."

. . . 

When the business history of the past decade is written, perhaps nothing will sum up the outrageous financial scheming of the era as well as the frenzied swapping that marked its final years. Internet companies such as Homestore Inc. milked revenue from complex advertising exchanges with other dot-coms in ultimately worthless deals. In Houston, equal amounts of energy were pushed back and forth between companies. The beauty of the deals, from the perspective of the participants, was that everyone walked away with roughly the same amount of revenue to put on their books.

But the swaps rage turned out to be no bargain for investors. The bad deals contributed to an epidemic of artificially inflated revenue. In many cases, swaps slipped through legal loopholes left in place by regulators who had failed to keep pace with the ever-changing dealmaking of ever-changing industries. The unraveling of those back-scratching arrangements helped usher in the market collapse and led to the realization by investors that the highest-flying industries of the boom era -- telecom, energy, the Internet -- were built in part on a combustible mix of wishful thinking and deceit.

Bogus swaps added up to a far bigger piece of American commerce than is widely recognized. The amount of restated revenue from bad swaps totals more than $15 billion since 1999, according to an analysis by The Wall Street Journal. That number is especially significant since investors focused on revenue in new industries that often had little earnings to show for themselves. Investigators are still trying to figure out whether Enron Corp. conducted illegal reciprocal energy trades, dubbed wash trades by regulators.

Swaps were used by at least 20 public companies. Some, including AOL Time Warner Inc., CMS Energy Corp. and Global Crossing Ltd., the onetime telecom highflier now in bankruptcy proceedings, are under federal investigation.

'A Normal Part of Operations'

It's no accident that the swaps frenzy sprung up in industries with newfangled, intangible products. After all, putting a price tag on online ads, energy or telecom-transmission contracts, and moving them back and forth, is a lot trickier than dealing with a fleet of trucks or a cement plant. Swaps essentially involved "manipulating an abstraction," says Andrew Lipman, a telecom attorney in Washington. "These swaps morphed into devices to satisfy the God of quarterly performance."

Continued at,,SB1040606010738807193,00.html?mod=todays%5Fus%5Fpageone%5Fhs 

Bob Jensen's threads on revenue and round trip accounting are at 

Bob Jensen's threads on accounting frauds are at 

News from PwC --- 

New York, NY, 19 DEC 2002—As information security continues to evolve toward a balance between enabling secure e-business and protecting companies from threats, PricewaterhouseCoopers today announced an expansion of its Threat & Vulnerability Services to include assistance to clients with an integrated security "dashboard." The customized security dashboard will enable companies to integrate, correlate and report security data from disparate sources such as server logs, intrusion detection systems and firewalls. PricewaterhouseCoopers Security & Privacy Practice professionals will team with selected security technology vendors to help clients create the dashboard.

"We developed our new Enterprise Security Business Model (ESBM) to help our clients identify, create, capture and sustain the value of security across the enterprise," said Frederick Rica, partner, Security & Privacy Practice, PricewaterhouseCoopers. "The concept of the security dashboard is a key component of our ESBM model. We believe that the ESBM framework and a security dashboard will help give our clients what they have asked for - an integrated, holistic approach to securing their business in order to successfully balance the need to allow open access to their systems with the need to protect valuable information assets."

Continued at 

Question:  Is there an image of conflict of interest when auditing firms publish business forecasting journals?

PwC launches Global and Capital Markets Journal --- 

The December edition of the journal focuses on issues facing banking and capital markets firms. This global publication addresses the following key issues:

What's ahead for China's financial markets - Kenneth DeWoskin & Kenneth Chung Creating value in the new risk paradigm - Richard Barfield & Richard Reynolds The future of corporate reporting - David Phillips, Henry Daubeney & Kimberley Smith Branch Taxation - Is a global change imminent? - Jurgen Kuhn, Adam Katz & Simon Leach Strategic and emerging issues in South African banking - Tom Winterboer, Hardie Malan & Johan Cloete Xbrl: One standard - many applications - Bruno Tesniere, Mike Willis, Richard Smith.

PwC's European Insurance Digest, December 2002

This publication is dedicated to providing thought-provoking insights into some of the key strategic issues facing the insurance industry in Europe.

Focusing on what you do best - the future shape of the reinsurance market Achieving operational excellence - have you go what it takes Capital is the issue IAIS takes first step towards a global approach to supervision of reinsurers Outsourcing in the insurance industry Countdown to IAS The insurance market in China

Free Video on Building Public Trust --- 

PwC Global Code of Conduct --- 

The American Institute of Certified Public Accountants has issued a toolkit to aid auditors understand and apply SAS standards when auditing fair value measurements and disclosures relating to business combinations, goodwill, and certain impairment situations --- 

The GAO released a report on "Actions Needed to Improve Public Company Accounting Oversight Board Selection Process." At the top of list are improved communications and other lessons that can be learned from the FASB. 

Business Week Cover Story
If ever there was a year to examine how managers succeed--and fail--it was 2002 

Fortune Magazine's Listing of the Top 100 Companies to Work For --- 
You may also read the listing in hard copy in Fortune, January 20, 2003, pp. 128-152.
Only Ernst & Young (Rank 68) and Deloitte and Touche (Rank 79) made the list among the Big 4 accounting giants.  The only other accounting firm in the Top 100 was Plante & Moran (Rank 11).

CPA firm financial information is among the most guarded pieces of information about the profession. But a divorce proceeding in Indiana involving Ernst & Young Global Chief Executive Richard S. Bobrow has forced the unveiling of part of the hidden world of Big Four finances. 

Ernst & Young may need some life insurance of its own as it argues in the courtrooms of England that it is not responsible for the near collapse in 2000 of 240-year-old Equitable Life, Britain's oldest life insurer. 

Concerns are mounting among both accounting firms and consumer groups over SEC's proposed rules to limit the tax services provided by auditors. The rule proposal took a compromise position that no one likes. 

Irony of the Week
Andersen, destroyed by the Enron accounting scandal, recently abandoned the eighth and ninth floors of the building, ironically making way for the accounting board (PCAOB) that is charged with overseeing auditing firms and public company accounting --- 

The SEC voted on January 15, 2003 to adopt Regulation G, which will apply to non-GAAP financial measures. The new rule is one of several adopted in a regulatory scramble to meet the deadline imposed by the Sarbanes-Oxley Act --- 

New Ideas from Todd Boyle
Accounting Hypercubes on the Internet --- 

Transaction systems are gradually, and very cautiously, being interconnected via the internet. In 2002 the country is busy rolling out bill presentment and payment, integration to online storefronts, web-based business services, and all manner of B2B and supply chain connections.

Clearly, in the future, our transaction infrastructure will be better evolved both in internal information management, and its communications. It will become effortless for individuals and small companies, to remit funds, send invoices, order goods, etc. with browsers or network devices.

The emergence of internet payments technologies and high-powered accounting hosts on the internet has been sudden. It may take a decade or more for large numbers of individuals to wake up to the potentials. Some of the most explosive potentials are already possible, today.

The online payments and accounting infrastructure enables individuals, for the first time, the creation of partnership accounting systems that are capable of operating mostly automatically, with feedback to the participants in real time.

These would enable individuals (or companies) to participate in collaborative ventures of arbitrary complexity by enabling allocations of revenue they helped to generate, or in allocations of costs or cost pools from which they have drawn resources by their activities.  There is nothing preventing this from being realized. 

Millions of people are familiar with, shared calendars such as  Yahoo Calendars on internet. Many are aware of other collaboration platforms like Groove, or services like E-room or or open source communities/portals, which enable shared discussion and files as well as calendars. (There are hundreds of project and collaboration websites equally as good for particular needs.) 

Now, imagine these with a powerful accounting hypercube beneath, where you could view every cent of every transaction of the venture, and the way it was allocated to members. Imagine these with realtime facilities that give you the power, every day, to control and limit your exposure:

Todd also has some radical proposals for public access to what is now considered private insider information --- 

Dec. 31, 2002 (Crain's New York Business) — Ernst & Young International (E&Y) is being sued by former clients for setting up a tax shelter for them --- 

While the rest of the world hurried to prepare for the Christmas holidays, lawyers and public relations specialists at Big Four firm Ernst & Young kicked into overdrive to respond to the filing of a $1 billion lawsuit filed against the firm. 

Corporate law faculty across the United States have joined in support of a rule recently proposed by the U.S. Securities and Exchange Commission that would make lawyers involved in executing corporate transactions more accountable for addressing client fraud --- 

Federal regulatory agencies including the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation, are asking for public comment on proposed rules that would enable the regulators to remove, suspend, or bar an accountant or an accounting firm from performing audit and attestation services for certain financial institutions. 

FIN 46 

Revised FIN 46 Interpretation of Accounting Research Bulletin No. 51, Consolidated Financial Statements,
From the January 17, 2003 FEI Express

Those FEI members whose companies have November 30 or December 31 fiscal year-ends need to take a close look at FASB Interpretation No. 46, Consolidation of Variable Interest Entities, as soon as possible for two reasons: (1) FIN 46 has disclosure requirements that become effective for financial statements issued after January 31, 2003; (2) FIN 46 applies to all types of unconsolidated entities (e.g., joint ventures, partnerships, cost basis investments, etc.). For those who have not followed this project closely, FIN 46 could affect your company's financial statements even if it has no involvement with so-called "special purpose entities" (SPEs). The following is a brief synopsis of the rule. The complete document is available now at the FASB's web site at:

A summary of the new interpretation is as follows:

This Interpretation of Accounting Research Bulletin No. 51, Consolidated Financial Statements, addresses consolidation by business enterprises of variable interest entities, * which have one or both of the following characteristics: 

1. The equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties, which is provided through other interests that will absorb some or all of the expected losses of the entity. 

2. The equity investors lack one or more of the following essential characteristics of a controlling financial interest: 

a. The direct or indirect ability to make decisions about the entity’s activities through voting rights or similar rights 

b. The obligation to absorb the expected losses of the entity if they occur, which makes it possible for the entity to finance its activities 

c. The right to receive the expected residual returns of the entity if they occur, which is the compensation for the risk of absorbing the expected losses. 

The following are exceptions to the scope of this Interpretation: 

1. Not-for-profit organizations are not subject to this Interpretation unless they are used by business enterprises in an attempt to circumvent the provisions of this Interpretation. 

2. Employee benefit plans subject to specific accounting requirements in existing FASB Statements are not subject to this Interpretation. 

3. Registered investment companies are not required to consolidate a variable interest entity unless the variable interest entity is a registered investment company. 

4. Transferors to qualifying special-purpose entities and “grandfathered” qualifying special-purpose entities subject to the reporting requirements of FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, do not consolidate those entities.

5. No other enterprise consolidates a qualifying special-purpose entity or a “grandfa-thered” qualifying special-purpose entity unless the enterprise has the unilateral ability to cause the entity to liquidate or to change the entity in such a way that it no longer meets the requirements to be a qualifying special-purpose entity or “grandfathered” qualifying special-purpose entity. 

6. Separate accounts of life insurance enterprises as described in AICPA Auditing and Accounting Guide, Life and Health Insurance Entities, are not subject to this Interpretation. 

Reason for Issuing This Interpretation 

Transactions involving variable interest entities have become increasingly common, and the relevant accounting literature is fragmented and incomplete. ARB 51 requires that an enterprise’s consolidated financial statements include subsidiaries in which the enterprise has a controlling financial interest. That requirement usually has been applied to subsidiaries in which an enterprise has a majority voting interest, but in many circumstances the enterprise’s consolidated financial statements do not include variable interest entities with which it has similar relationships. The voting interest approach is not effective in identifying controlling financial interests in entities that are not controllable through voting interests or in which the equity investors do not bear the residual economic risks. 

The objective of this Interpretation is not to restrict the use of variable interest entities but to improve financial reporting by enterprises involved with variable interest entities. The Board believes that if a business enterprise has a controlling financial interest in a variable interest entity, the assets, liabilities, and results of the activities of the variable interest entity should be included in consolidated financial statements with those of the business enterprise. 

Differences between This Interpretation and Current Practice 

Under current practice, two enterprises generally have been included in consolidated financial statements because one enterprise controls the other through voting interests. This Interpretation explains how to identify variable interest entities and how an enterprise assesses its interests in a variable interest entity to decide whether to consolidate that entity. This Interpretation requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse risks among parties involved. Variable interest entities that effectively disperse risks will not be consolidated unless a single party holds an interest or combination of interests that effectively recombines risks that were previously dispersed.

An enterprise that consolidates a variable interest entity is the primary beneficiary of the variable interest entity. The primary beneficiary of a variable interest entity is the party that absorbs a majority of the entity’s expected losses, receives a majority of its expected residual returns, or both, as a result of holding variable interests, which are the ownership, contractual, or other pecuniary interests in an entity. The ability to make decisions is not a variable interest, but it is an indication that the decision maker should carefully consider whether it holds sufficient variable interests to be the primary beneficiary. An enterprise with a variable interest in a variable interest entity must consider variable interests of related parties and de facto agents as its own in determining whether it is the primary beneficiary of the entity. 

Assets, liabilities, and noncontrolling interests of newly consolidated variable interest entities generally will be initially measured at their fair values except for assets and liabilities transferred to a variable interest entity by its primary beneficiary, which will continue to be measured as if they had not been transferred. If recognizing those assets, liabilities, and noncontrolling interests at their fair values results in a loss to the consolidated enterprise, that loss will be reported immediately as an extraordinary item. If recognizing those assets, liabilities, and noncontrolling interests at their fair values would result in a gain to the consolidated enterprise, that amount will be allocated to reduce the amounts assigned to assets in the same manner as if consolidation resulted from a business combination. However, assets, liabilities, and noncontrolling interests of newly consolidated variable interest entities that are under common control with the primary beneficiary are measured at the amounts at which they are carried in the consolidated financial statements of the enterprise that controls them (or would be carried if the controlling entity prepared financial statements) at the date the enterprise becomes the primary beneficiary. After initial measurement, the assets, liabilities, and noncontrolling interests of a consolidated variable interest entity will be accounted for as if the entity were consolidated based on voting interests. In some circumstances, earnings of the variable interest entity attributed to the primary beneficiary arise from sources other than investments in equity of the entity. 

An enterprise that holds significant variable interests in a variable interest entity but is not the primary beneficiary is required to disclose (1) the nature, purpose, size, and activities of the variable interest entity, (2) its exposure to loss as a result of the variable interest holder’s involvement with the entity, and (3) the nature of its involvement with the entity and date when the involvement began. The primary beneficiary of a variable interest entity is required to disclose (a) the nature, purpose, size, and activities of the variable interest entity, (b) the carrying amount and classification of consolidated assets that are collateral for the variable interest entity’s obligations, and (c) any lack of recourse by creditors (or beneficial interest holders) of a consolidated variable interest entity to the general credit of the primary beneficiary.

How This Interpretation Will Improve Financial Reporting 

This Interpretation is intended to achieve more consistent application of consolidation policies to variable interest entities and, thus, to improve comparability between enterprises engaged in similar activities even if some of those activities are conducted through variable interest entities. Including the assets, liabilities, and results of activities of variable interest entities in the consolidated financial statements of their primary beneficiaries will provide more complete information about the resources, obligations, risks, and opportunities of the consolidated enterprise. Disclosures about variable interest entities in which an enterprise has a significant variable interest but does not consolidate will help financial statement users assess the enterprise’s risks. 

How the Conclusions in This Interpretation Relate to the Conceptual Framework 

FASB Concepts Statement No. 1, Objectives of Financial Reporting by Business Enterprises, states that financial reporting should provide information that is useful in making business and economic decisions. Including variable interest entities in consolidated financial statements with the primary beneficiary will help achieve that objective by providing information that helps in assessing the amounts, timing, and uncertainty of prospective net cash flows of the consolidated entity. 

Completeness is identified in FASB Concepts Statement No. 2, Qualitative Characteristics of Accounting Information, as an essential element of representational faithfulness and relevance. Thus, to faithfully represent the total assets that an enterprise controls and liabilities for which an enterprise is responsible, assets and liabilities of variable interest entities for which the enterprise is the primary beneficiary must be included in the enterprise’s consolidated financial statements. 

FASB Concepts Statement No. 6, Elements of Financial Statements, defines assets, in part, as probable future economic benefits obtained or controlled by a particular entity and defines liabilities, in part, as obligations of a particular entity to make probable future sacrifices of economic benefits. The relationship between a variable interest entity and its primary beneficiary results in control by the primary beneficiary of future benefits from the assets of the variable interest entity even though the primary beneficiary may not have the direct ability to make decisions about the uses of the assets. Because the liabilities of the variable interest entity will require sacrificing consolidated assets, those liabilities are obligations of the primary beneficiary even though the creditors of the variable interest entity may have no recourse to the general credit of the primary beneficiary.

Bob Jensen’s threads on What's Right and What's Wrong With (SPEs), SPVs, and VIEs can be found at 

Reply from The Wall Street Journal
'Off the Books' Cleanup Turns Out to Be Tough, by Cassel ?Bryan-Low and Carrick Mollenkamp, The Wall Street Journal, January 13, 2003, Page C1 ---,,SB1042413640174608024,00.html?mod=todays%5Fus%5Fmoneyfront%5Fhs 

But the nation's accounting standards-setters are finding that devising simple accounting standards -- to head off future "off the books" shenanigans -- isn't quite as easy as many had hoped.  

Reformers had wanted the Financial Accounting Standards Board to ditch the existing dozens of pages of disparate and complex rules that accountants at Enron Corp. and elsewhere have gamed in order to keep debt out of sight, replacing them with a methodology reflecting economic reality: If a company has responsibility for a debt, it ought to record it on its balance sheet.

The problem? A final version of the new guidelines, expected to be issued as early as this month (See ), reveals that the effort to restrict the use of Enronesque off-the-books partnerships has become mired in the kind of detail that only an accountant can wallow in. In fact, the new rules may be more complicated than the existing approach. And companies already are plotting how to circumvent the new rules, just as they did -- to spectacular effect in the Enron example -- the old ones.

Principle-based accounting "works well when the financial implications of a transaction can be consistently interpreted by accounting professionals," says Anthony Sanders, a finance professor at Ohio State University who laments that off-the-books deals are often too complicated and esoteric to expect consistent application of accounting principles. "These things are heavily structured and not easy to interpret."

Hopes for the principle-based approach were high when the FASB set out last year to issue new guidelines for the often-secretive entities being kept off the books by many companies. Estimates of the assets currently in such entities run into trillions of dollars. The accounting issue is hardly a new one. The FASB, based in Norwalk, Conn., had debated the matter on and off for two decades before Enron's downfall. The revelation of billions of dollars of Enron-backed debt in its hidden partnerships was a big factor behind the energy-trading company's December 2001 bankruptcy-protection court filing.

Robert Herz, FASB's chairman, says the guiding principle was to bring onto a company's books any entity in which the company bears the majority of the risk or reward. The challenge, however: Each off-the-books entity has its own unique DNA, so it's difficult for one rule to cover each and every structure, he says.

Still, Mr. Herz stresses that the proposed new approach does require more judgment than before, in an attempt to move away from a check-the-box mentality that lends itself to getting around the system. He describes it as "principle-based with some rules underneath it, which is probably as good as it can get."

The FASB currently is going through comment letters that were due Dec. 30 on the final draft circulated to members of the FASB's Emerging Issues Task Force, the Securities and Exchange Commission, and others consulted on the project. The FASB is scheduled to discuss the final draft at a meeting Wednesday. Board members may make some adjustments, but no major overhaul is expected.

Many accounting experts applaud the FASB's overall attempt and give the board credit for getting a rule out in about a year, which for the FASB is lightning speed. John Roglieri, a director at credit-ratings firm Fitch Ratings, says the language in the proposed approach is broader than under the existing standard yet retains enough rules to provide specific guidance. "You can feel the flavor shifting a bit more" toward a principle-based, rather than a rule-based, standard, he says.

Even by the time the board released its original proposal in the summer, critics complained that the new way was anything but simple. Critics included General Electric Co.'s vice president and comptroller, who called the proposed changes "stunning in their complexity and ambiguity."

The seven-member board quickly became flooded with requests for exemptions to allow for more favorable treatment from companies claiming their particular circumstances are different or special, as well as requests for more specific examples of how to implement the changes. Some 130 companies wrote to the FASB to lobby against the changes, and many flocked to FASB meetings in Norwalk to get their points of view heard.

Among them: Banks that use "conduits," the structures that allow banks' corporate clients to raise money by putting in assets such as receivables that then are used to back short-term borrowings from commercial-paper investors. The banks argued that although they provide a financial backstop to the transactions, their own risk is dispersed, and therefore, the borrowings made via the conduits shouldn't qualify for consolidation onto their balance sheets. The final draft, according to Mr. Herz, helps clarify that banks would need to bear at least a majority of the risk or reward to require consolidation. Under a working version this past summer, banks potentially would have had to consolidate such entities even if they were exposed to less than a majority of the bad-debt risk of the borrowings.

For their part, many accountants, too, lobbied the FASB. "It makes life simpler for us auditors to have black-and-white, clear, objective guidelines we can show our clients and not debate with them what these guidelines mean," says Randall Vitray, an accounting-consultant partner in the risk and quality group at auditor PricewaterhouseCoopers LLP and a consultant to the FASB.

Even as the FASB's experience with the off-balance-sheet entities casts doubt on its ability to succeed at a principle-based approach on other tough issues, the immediate result seems to be this: Companies and their investment bankers already are finding outs.

One potential way that banks and other companies could circumvent consolidation under the new approach would be to form a joint venture with one or more independent companies, thus diluting their control as measured by voting control. The consolidation test under the new approach differs for entities where voting or decision-making power exists, with consolidation in such cases based on voting majority, as opposed to who carries the majority of the risks and rewards for those cases where no decision-making power exists. As a result, some accounting specialists fear that the incentive will be to create less-than substantive voting mechanisms to circumvent the risk-majority test.

Such a joint venture would require a 10% equity investment coming at least partially from the independent company or companies. The existing rules require only a 3% investment; while smaller than the 10% of the new one, some experts note that it's a fairly rigid figure while the new standard allows for flexibility around the 10%.

"There will always be people that find loopholes around things," concedes Mr. Herz, who hopes that any efforts to restructure off-balance-sheet transactions would diversify the risk that a company is exposed to. FASB notes that a company's accountants and/or the SEC may conclude that an investor needs to consolidate an entity for reasons other than those in the new standard.

As the proposal currently stands, pre-existing entities that fall under the new rule would have to be consolidated beginning in this year's third quarter for calendar-year companies, and new entities must be upon creation. The proposal also requires companies to disclose any significant off-balance-sheet relationships in annual filings due at the end of March, including their nature and the financial risk they pose.

"The problem is, the transactions that underline these entities are so complicated and have so many owners that identifying to whom the real economic benefit falls is really, really difficult," says Philip Livingston chief executive of Financial Executives International, a professional group in Morristown, N.J.

January 24, 2003 message from Risk Waters Group [

Jersey-registered collateralised bond obligation (CBO) investor Beaford is suing US investment bank Morgan Stanley and French insurer Axa, along with a number of its subsidiaries, for failing to properly manage three CBOs between 1996 and 2002. Morgan Stanley will contest the allegations, in what could prove a landmark case for CBO arrangers and managers. Poor management of collateralised debt obligations (CDOs) has become an increasingly contentious issue in the structured finance market. Beaford's objections significantly predate the more sophisticated managed CDO structuring taking place today. But the issue of how arrangers and CDO managers deal with investors that have seen significant credit events erode the value of their investment pools is still ongoing. 

From The Wall Street Journal Accounting Educators' Review on January 17, 2003

TITLE: Fixing the Numbers Problems 
REPORTER: Jonathan Weil 
DATE: Jan 13, 2003 
TOPICS: Accounting, Earnings Management, Emerging Issues Task Force, Financial Accounting, Financial Accounting Standards Board, International Accounting Standards Board, Earnings Quality, Regulation, Standard Setting

SUMMARY: The Financial Accounting Standards Board (FASB) is considering a number of proposals to address recent accounting scandals and improve the quality of earnings. Questions focus on the standard setting process and the implications of the proposed changes.

1.) Describe the role of the Financial Accounting Standards Board (FASB). What is the Emerging Issues Task Force (EITF)? Briefly discuss the standard setting process.

2.) What accounting issues are discussed in the article? Why are changes to current accounting methods for these issues being considered? Discuss the issues that must be addressed before introducing changes in accounting standards?

3.) What is earnings quality? How do accounting principles influence earnings quality? What additional factors influence earnings quality? Support your answers.

4.) What is the International Accounting Standards Board? Discuss the advantages and disadvantages of harmonization between international accounting standards and U.S. accounting standards. Discuss the major obstacles of achieving harmonization between the standards.

5.) Refer to the related article. What is a principle-based accounting system? Is the current accounting system in the U.S. principle based? Discuss the advantages and disadvantages of a principle-based accounting system.

Reviewed By: Judy Beckman, University of Rhode Island 
Reviewed By: Benson Wier, Virginia Commonwealth University 
Reviewed By: Kimberly Dunn, Florida Atlantic University

TITLE: 'Off the Books' Cleanup Isn't a Snap 
REPORTER: Cassell Bryan-Low and Carrick Mollenkamp 
ISSUE: Jan 13, 2003 

January 6, 2002 message form Hossein Nouri

-----Original Message----- 
From: Hossein Nouri [mailto:hnouri@TCNJ.EDU]  
Sent: Monday, January 06, 2003 10:46 AM 
Subject: Re: Time Magazine's Persons of the Year 2002 

In the case of Enron, I remember I read (I think in US News) that the whistle-blower sold her Enron's shares before speaking out and made a significant profit. I do not know whether or not she returned that money to the people who lost their money. But if she did not, isn't this ethically and morally wrong?

Hi Hossein,

This is a complex issue. In a sense, she might have simply taken advantage of insider information for financial gain. That is unethical and in many instances illegal.

She also may have acted in a manner only to ensure her own job security --- See "Sherron Watkins Had Whistle, But Blew It" That would be unethical.

However, in this particular case, she allegedly believed that it was not too late to be corrected by Ken Lay and Andersen auditors. Remember that she did not whistle blow to the public. Whistle blowers face a huge dilemma between whistle blowing on the inside versus whistle blowing on the outside.

Quite possibly (you will say "Yeah sure!") Watkins really had reasons to sell even if she had not detected any accounting questions? There are many reasons to sell, such as a timing need for liquidity and a need to balance a portfolio.

Somewhat analogous dilemmas arise when criminals cooperate with law enforcement to gain lighter punishments. Is it unethical to let a criminal off completely free because that criminal testifies against a crime figure higher up the chain of command? There are murderers (one named Whitey from Boston) who got off free by testifying. Incidentally, Whitey went on to commit more murders!

PS, I think Time Magazine failed to make a hero out of the most courageous whistle blower in recent years. Her name is Cindy Ossias --- 

Cindy Ossias not only risked her job, she risked her law license to ever work again as an attorney. She also blew the whistle at the risk of going to jail.  Unlike Sherron Watkins, Cindy Ossias knew there was no hope in blowing the whistle to her boss. Her boss was the big crook when she blew the whistle on him and the large home owner insurance companies operating in the State of California.

Bob Jensen

Petition for a Change of Leadership in the AICPA --- 

AICPA's Melancon Named Among 20 Worst Managers of 2002
BusinessWeek magazine released its annual Best Managers of the Year list last week for 2002 and supplemented this year's list with a complementary Worst Managers of the Year. Take a look at how the accounting profession was represented. 

This kind of publicity from Business Week cannot be doing the AICPA any good when trying to regain credibility for the CPA profession.

Mr. Berardino was accused by the magazine's editors of failing to take a hard line on ethics when he took over the helm of Andersen in the wake of scandals that had already marred the image of the Big Five firm, including Waste Management and Sunbeam. Instead, Business Week reports, the CEO pointed the firm in the direction of continued revenue growth and landed himself not only on the unemployment line but in the BusinessWeek list of The Fallen managers.

My new and updated documents the recent accounting and investment scandals are at the following sites:

Bob Jensen's threads on the Enron/Andersen scandals are at  
Bob Jensen's SPE threads are at  
Bob Jensen's threads on accounting theory are at  

Bob Jensen's Summary of Suggested Reforms --- 

Bob Jensen's Bottom Line Commentary --- 

The Virginia Tech Overview:  What Can We Learn From Enron? --- 



Professor Robert E. Jensen (Bob)
Jesse H. Jones Distinguished Professor of Business Administration
Trinity University, San Antonio, TX 78212-7200
Voice: 210-999-7347 Fax: 210-999-8134  Email: