Warning 1:  Many of the links were broken when the FASB changed all of its links.  If a link to a FASB site does not work , go to the new FASB link and search for the document.  The FASB home page is at http://www.fasb.org/ 

 

Warning 2:  In February 2008 the FASB for the first time allowed users free access to its "FASB Accounting Standards Codification" database. Access will be free for at least one year, although registration is required for free access. Much, but not all, information in separate booklets and PDF files may now be accessed much more efficiently as hypertext in one database. The document below has not been updated for the Codification Database. Although the database is off to a great start, there is much information in this document and in the FASB standards that cannot be found in the Codification Database. You can read the following at http://asc.fasb.org/asccontent&trid=2273304&nav_type=left_nav

Welcome to the Financial Accounting Standards Board (FASB) Accounting Standards Codification™ (Codification).

The Codification is the result of a major four-year project involving over 200 people from multiple entities. The Codification structure is significantly different from the structure of existing accounting standards. The Notice to Constituents provides information you should read to obtain a good understanding of the Codification history, content, structure, and future consequences.

 

Links to Accounting Theory Documents

Bob Jensen at Trinity University

Introduction to Accounting Theory ---  http://www.trinity.edu/rjensen//theory/00overview/theory01.htm  

Revenue Reporting Frauds --- http://www.trinity.edu/rjensen/ecommerce/eitf01.htm

Accounting for Electronic Commerce, Including Controversies on Business Valuation, ROI, and Revenue Reporting --- http://www.trinity.edu/rjensen/ecommerce.htm 

Revenue Accounting and Fraud --- http://www.trinity.edu/rjensen/ecommerce/eitf01.htm

ROI, Valuation, and Risk --- http://www.trinity.edu/rjensen/roi.htm 

What's Right and What's Wrong With (SPEs), SPVs, and VIEs --- 
http://www.trinity.edu/rjensen//theory/00overview/speOverview.htm

State of Accountancy in the Year 2002: My Lectures for Germany (Augsburg and Rothenburg) in June 2002 --- http://www.trinity.edu/rjensen/FraudConclusion.htm 

Accounting Tricks and Creative Accounting Schemes Intended to Mislead Investors, Creditors, and Employees --- http://www.trinity.edu/rjensen//theory/00overview/AccountingTricks.htm

Controversies Over Accounting for Revenue (including problems with round tripping and swaps) --- http://www.trinity.edu/rjensen/ecommerce/eitf01.htm 

Letter to Senator Schumer --- http://www.trinity.edu/rjensen/theory/sfas123/jensen01.htm 

Links to the following accountancy documents:

Accounting Theory Course --- http://www.trinity.edu/rjensen/acct5341/index.htm 

Pro forma reporting ---  http://www.trinity.edu/rjensen/acct5341/theory/00overview/theory01.htm 

Accounting for Derivative Financial Instruments and Hedging Activities --- http://www.trinity.edu/rjensen/caseans/000index.htm 

The Controversy Over Accounting for Employee Stock Options as Compensation --- http://www.trinity.edu/rjensen/theory/sfas123/jensen01.htm 

Real Options, Option Pricing Theory, and Arbitrage Pricing Theory --- http://www.trinity.edu/rjensen/realopt.htm 

"Visualization of Multidimensional Data (A Preliminary Working Draft)" --- http://www.trinity.edu/rjensen/352wpVisual/000DataVisualization.htm 

An Accounting Theory Final Examination, The Open Polytechnic of New Zealand Semester Two, 2000,  http://www.topnz.ac.nz/info/services/pdf/71300_00_2.pdf 

Bob Jensen's threads on e-Commerce and e-Business can be found at http://www.trinity.edu/rjensen/ecommerce.htm 

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

Bob Jensen's Helpers for Accounting Educators --- http://www.trinity.edu/rjensen/default3.htm 

Bob Jensen's Accountancy Bookmarks --- http://www.trinity.edu/rjensen/bookbob.htm 

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

Bob Jensen's Enron Quiz (with answers) --- http://www.trinity.edu/rjensen/FraudEnronQuiz.htm

Future of Auditing --- http://www.trinity.edu/rjensen/FraudConclusion.htm#FutureOfAuditing

Comparisons of IFRS with Domestic Standards of Many Nations
http://www.iasplus.com/country/compare.htm

More Detailed Differences (Comparisons) between FASB and IASB Accounting Standards

2011 Update

"IFRS and US GAAP: Similarities and Differences" according to PwC (2011 Edition)
http://www.pwc.com/us/en/issues/ifrs-reporting/publications/ifrs-and-us-gaap-similarities-and-differences.jhtml
Note the Download button!
Note that warnings are given throughout the document that the similarities and differences mentioned in the booklet are not comprehensive of all similarities and differences. The document is, however, a valuable addition to students of FASB versus IASB standard differences and similarities.

It's not easy keeping track of what's changing and how, but this publication can help. Changes for 2011 include:

This continues to be one of PwC's most-read publications, and we are confident the 2011 edition will further your understanding of these issues and potential next steps.

For further exploration of the similarities and differences between IFRS and US GAAP, please also visit our IFRS Video Learning Center.

To request a hard copy of this publication, please contact your PwC engagement team or contact us.

Jensen Comment
My favorite comparison topics (Derivatives and Hedging) begin on Page 158
The booklet does a good job listing differences but, in my opinion, overly downplays the importance of these differences. It may well be that IFRS is more restrictive in some areas and less restrictive in other areas to a fault. This is one topical area where IFRS becomes much too subjective such that comparisons of derivatives and hedging activities under IFRS can defeat the main purpose of "standards." The main purpose of an "accounting standard" is to lead to greater comparability of inter-company financial statements. Boo on IFRS in this topical area, especially when it comes to testing hedge effectiveness!

One key quotation is on Page 165

IFRS does not specifically discuss the methodology of applying a critical-terms match in the level of detail included within U.S. GAAP.
Then it goes yatta, yatta, yatta.

Jensen Comment
This is so typical of when IFRS fails to present the "same level of detail" and more importantly fails to provide "implementation guidance" comparable with the FASB's DIG implementation topics and illustrations.

I have a huge beef with the lack of illustrations in IFRS versus the many illustrations in U.S. GAAP.

I have a huge beef with the lack of illustrations in IFRS versus the many illustrations in U.S. GAAP.

I have a huge beef with the lack of illustrations in IFRS versus the many illustrations in U.S. GAAP.

Bob Jensen's threads on accounting standards setting controversies ---
http://www.trinity.edu/rjensen/Theory01.htm#MethodsForSetting

Comparisons of IFRS with Domestic Standards of Many Nations
http://www.iasplus.com/country/compare.htm

 


Shielding Against Validity Challenges in Plato's Cave ---
http://www.trinity.edu/rjensen/TheoryTAR.htm

What went wrong in accounting/accountics research?  ---
http://www.trinity.edu/rjensen/theory01.htm#WhatWentWrong

The Sad State of Accountancy Doctoral Programs That Do Not Appeal to Most Accountants ---
http://www.trinity.edu/rjensen/theory01.htm#DoctoralPrograms

AN ANALYSIS OF THE EVOLUTION OF RESEARCH CONTRIBUTIONS BY THE ACCOUNTING REVIEW: 1926-2005 ---
http://www.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm#_msocom_1

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

Tom Lehrer on Mathematical Models and Statistics ---
http://www.youtube.com/watch?v=gfZWyUXn3So

Systemic problems of accountancy (especially the vegetable nutrition paradox) that probably will never be solved ---
http://www.trinity.edu/rjensen/FraudConclusion.htm#BadNews

 


Accounting Educators should pay more attention to the following blog that seeks out weaknesses in company filings of 10Q (and other reports) with the SEC

10Q Detective blog by David Phillips --- http://10qdetective.blogspot.com/

Investors often overlook SEC filings, and it is the job of the 10Q Detective to dig through businesses’ 8-K and 10-Q SEC filings, looking for financial statement ‘soft spots,' (depreciation policies, warranty reserves, and restructuring charges, etc.) that may materially impact Quality of Earnings

Bob Jensen's threads on creative accounting are at http://www.trinity.edu/rjensen//theory/00overview/AccountingTricks.htm

Bob Jensen's threads on the roles of listservs and blogs --- http://www.trinity.edu/rjensen/ListservRoles.htm


June 2, 2005 message from Paul Pacter (HK - Hong Kong) [paupacter@DELOITTE.COM.HK]

Both the SEC (US) and CESR (Europe) have issued guidance on disclosure of non-GAAP financial information:

SEC: http://www.sec.gov/rules/final/33-8176.htm  This is a final rule. There was some further guidance here: http://www.sec.gov/rules/final/33-8216.htm 

CESR: It is a consultation paper, comment deadline 11 July 2005: http://www.cesr-eu.org/  then click "Consultations" or download the paper here: http://www.iasplus.com/europe/0505cesrnongaap.pdf 

Paul Pacter


What are the three main problems facing the profession of accountancy at the present time?

One nation, under greed, with stock options and tax shelters for all.
Proposed revision of the U.S. Pledge of Allegiance following a June 26, 2002 U.S. court decision that the present version is unconstitutional.

On June 26, 2002, the SEC charged WorldCom with massive accounting fraud in a scandal that will surpass the Enron scandal in losses to shareholders, creditors, and jobs.  WorldCom made the following admissions on June 25, 2002 at http://www.worldcom.com/about_the_company/press_releases/display.phtml?cr/20020625 

CLINTON, Miss., June 25, 2002 – WorldCom, Inc. (Nasdaq: WCOM, MCIT) today announced it intends to restate its financial statements for 2001 and the first quarter of 2002. As a result of an internal audit of the company’s capital expenditure accounting, it was determined that certain transfers from line cost expenses to capital accounts during this period were not made in accordance with generally accepted accounting principles (GAAP). The amount of these transfers was $3.055 billion for 2001 and $797 million for first quarter 2002. Without these transfers, the company’s reported EBITDA would be reduced to $6.339 billion for 2001 and $1.368 billion for first quarter 2002, and the company would have reported a net loss for 2001 and for the first quarter of 2002.

The company promptly notified its recently engaged external auditors, KPMG LLP, and has asked KPMG to undertake a comprehensive audit of the company’s financial statements for 2001 and 2002. The company also notified Andersen LLP, which had audited the company’s financial statements for 2001 and reviewed such statements for first quarter 2002, promptly upon discovering these transfers. On June 24, 2002, Andersen advised WorldCom that in light of the inappropriate transfers of line costs, Andersen’s audit report on the company’s financial statements for 2001 and Andersen’s review of the company’s financial statements for the first quarter of 2002 could not be relied upon.

The company will issue unaudited financial statements for 2001 and for the first quarter of 2002 as soon as practicable. When an audit is completed, the company will provide new audited financial statements for all required periods. Also, WorldCom is reviewing its financial guidance.

The company has terminated Scott Sullivan as chief financial officer and secretary. The company has accepted the resignation of David Myers as senior vice president and controller.

WorldCom has notified the Securities and Exchange Commission (SEC) of these events. The Audit Committee of the Board of Directors has retained William R. McLucas, of the law firm of Wilmer, Cutler & Pickering, former Chief of the Enforcement Division of the SEC, to conduct an independent investigation of the matter. This evening, WorldCom also notified its lead bank lenders of these events.

The expected restatement of operating results for 2001 and 2002 is not expected to have an impact on the Company’s cash position and will not affect WorldCom’s customers or services. WorldCom has no debt maturing during the next two quarters.

“Our senior management team is shocked by these discoveries,” said John Sidgmore, appointed WorldCom CEO on April 29, 2002. “We are committed to operating WorldCom in accordance with the highest ethical standards.”

“I want to assure our customers and employees that the company remains viable and committed to a long-term future. Our services are in no way affected by this matter, and our dedication to meeting customer needs remains unwavering,” added Sidgmore. “I have made a commitment to driving fundamental change at WorldCom, and this matter will not deter the new management team from fulfilling our plans.”

Actions to Improve Liquidity and Operational Performance

As Sidgmore previously announced, WorldCom will continue its efforts to restructure the company to better position itself for future growth. These efforts include:

Cutting capital expenditures significantly in 2002. We intend 2003 capital expenditures will be $2.1 billion on an annual basis.

Downsizing our workforce by 17,000, beginning this Friday, which is expected to save $900 million on an annual basis. This downsizing is primarily composed of discontinued operations, operations & technology functions, attrition and contractor terminations.

Selling a series of non-core businesses, including exiting the wireless resale business, which alone will save $700 million annually. The company is also exploring the sale of other wireless assets and certain South American assets. These sales will reduce losses associated with these operations and allow the company to focus on its core businesses.

Paying Series D, E and F preferred stock dividends in common stock rather than cash, deferring dividends on MCI QUIPS, and discontinuing the MCI tracker dividend, saving approximately $375 million annually.

Continuing discussions with our bank lenders.

Creating a new position of Chief Service and Quality Officer to keep an eye focused on our customer services during this restructuring.

“We intend to create $2 billion a year in cash savings in addition to any cash generated from our business operations,” said Sidgmore. “By focusing on these steps, I am convinced WorldCom will emerge a stronger, more competitive player.”

 

Contrary to the optimism expressed above, most analysts are predicting that WorldCom will declare bankruptcy in a matter of months.  Unlike the Enron scandal where accounting deception was exceedingly complex in very complicated SPE and derivatives accounting schemes, it appears that WorldCom and its Andersen auditors allowed very elementary and blatant violations of GAAP to go undetected.

This morning on June 27, 2002, I found some interesting items in the reported prior-year SEC 10-K report for WorldCom and its Subsidiaries:

  1999 2000 2001
Net income (in millions) $4,013 $4,153 $1,501
Taxes paid (in millions) $106 $452 $148

The enormous disparity between income reported to the public and taxes actually paid on income are consistent with the following IRS study:

An IRS study released this week shows a growing gap between figures reported to investors and figures reported for tax income. With all the scrutiny on accounting practices these days, the question is being asked - are corporations telling the truth to the IRS? To investors? To anyone? 
http://www.accountingweb.com/item/83690
 

Such results highlight the fact that audited GAAP figures reported to investors have lost credibility.  Three problems account for this.  One is that bad audits have become routine such that too many companies either have to belatedly adjust accounting reports or errors and fraud go undetected.  The second major problem is that the powerful corporate lobby and its friends in the U.S. Legislature have muscled sickening tax laws and bad GAAP. The third problem is that in spite of a media show of concern, corporate America still has a sufficient number of U.S. senators, congressional representatives, and accounting/auditing standard setters under control such that serious reforms are repeatedly derailed.  Appeals to virtue and ethics just are not going to solve this problem until compensation and taxation laws and regulations are fundamentally revised to impede moral hazard.

One example is the case of employee stock options accounting.  Corporate lobbyists muscled the FASB and the SEC into not booking stock options as expenses for GAAP reporting purposes.  However, corporate America lobbied for enormous tax benefits that are given to corporations when stock options are exercised (even though these options are not booked as corporate expenses).  Following the Enron scandal, powerful investors like Warren Buffet and the Chairman of the Federal Reserve Board, Alan Greenspan, have made strong efforts to book stock options as expenses, but even more powerful leaders like George Bush have blocked reform on stock options accounting

For more details, study the an examination that I gave to my students in April 2002 --- http://www.cs.trinity.edu/~rjensen/Exams/5341sp02/exam02/ 
Also see http://www.trinity.edu/rjensen/theory/sfas123/jensen01.htm

For example, in its Year 2000 annual report, Cisco Systems reported $2.67 billion in profits, but Cisco managed to wipe out nearly all income taxes with a $2.5 billion benefit from the exercise of employee stock options (ESOs).  In a similar manner, WorldCom reported $585 million in 1999 and $124 million in 2000 tax benefits added to paid-in capital from exercise of ESOs.  The benefits would have been even more enormous if WorldCom’s stock price had not been declining since 1999.

One nation, under greed, with stock options and tax shelters for all.
Proposed revision of the U.S. Pledge of Allegiance following a U.S. June 26, 2002 court decision that the present version is unconstitutional.

 


Questions
Are GE's Recent Restatements Part of Jack Welch's Legacy?

In this post-Enron and S-OX 404 environment, would a CEO today would so openly express such a blatant disregard for reporting to investors?

The WSJ article also mentions that in addition to the firing of some division managers (perhaps one or more of the same cookie sharers), the SEC probe lead to the resignation of Phil Ameen, long-time VP and comptroller -- and prime specimen of the accounting equivalent of a wolf in sheep's clothing let loose in the barnyard. (Whew, that was a long way to go for a metaphor!) Believe it or not, Ameen was a member of the FASB's Emerging Issues Task Force (EITF) during much of the 1990s.  He was also an active and influential FASB lobbyist.  Separately, out of one side of this mouth came exhortations to simplify accounting, and out of the other side, to ditch simple solutions that might have impaired GE's ability to manage its earnings and reported debt . . .
Tom Selling, The Accounting Onion, February 18, 2008 --- http://accountingonion.typepad.com/

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


"The Truth Behind the Earnings Illusion:  The profit picture has never been so distorted. The surprise? Things aren't as ugly as they look" by Justin Fox, Fortune, July 22, 2002 --- http://www.fortune.com/indexw.jhtml?channel=artcol.jhtml&doc_id=208677 

Question:  
Where are the major differences between book income and taxable income that favor booked income reported to the investing public?

Answer according to Justin Fox:

What the heck happened? The most obvious explanations for the disconnect are disparities in accounting for stock options and pension funds. When a company's employees exercise stock options, the gains are treated for tax purposes as an expense to the company but are completely ignored in reported earnings. And while investment gains made by a company's employee pension fund are counted in reported earnings, they don't show up in tax profits.

Analysts at Standard & Poor's are working to remove those two distortions by calculating a new "core earnings" measure for S&P 500 companies that includes options costs and excludes pension fund gains. When that exercise is completed in the coming weeks, most of the profit disconnect may disappear. Then again, maybe not. In struggling to deliver the outsized profits to which they and their investors had become accustomed in the mid-1990s, a lot more CEOs and CFOs may have bent the rules than we know about. "There was some cheating around the edges," says S&P chief economist David Wyss. "It's just not clear how big the edges are."

While conservative accounting is now back in vogue, it's impossible to say with certainty that reported earnings have returned to reality: Comparing the earnings per share of the S&P 500 with the tax profits of all American corporations, both public and private (which is what the Commerce Department reports), is too much of an apples and oranges exercise. But over the long run reported earnings and tax earnings do grow at about the same rate--just over 7% a year since 1960, according to Prudential Securities chief economist Richard Rippe, Wall Street's most devoted student of the Commerce Department profit numbers. So the fact that Commerce says after-tax profits came in at an annualized rate of $615 billion in the first quarter--a record-setting pace if it holds up for the full year--ought to be at least a little reassuring to investors. "I do believe the hints of recovery that we're seeing in tax profits will continue," Rippe says.

That does not mean we're due for another profit boom. Declining interest rates were the biggest reason profits rose so fast in the 1990s, says S&P's Wyss. Rates simply don't have that far to fall now. So even when investors start believing again what companies say about their earnings, they may still be shocked at how slowly those earnings are growing.

Continued at http://www.fortune.com/indexw.jhtml?channel=artcol.jhtml&doc_id=208677 

Reply by Bob Jensen:

For a technical explanation of the stock option accounting alluded to in the above quotation, go to one of my student examinations at http://www.cs.trinity.edu/~rjensen/Exams/5341sp02/exam02/Exam02VersionATeachingNotes.htm 

The exam02.xls Excel workbook answers can be downloaded from http://www.cs.trinity.edu/~rjensen/Exams/5341sp02/exam02/ 

The S&P revised GAAP core earnings model alluded to in the above quotation can be examined in greater detail at http://www.standardandpoors.com/Forum/MarketAnalysis/coreEarnings/index.html 

The pause that refreshes just got a bit more refreshing - Coca-Cola Co. announced Sunday it will lead the corporate pack by treating future stock option grants as employee compensation. http://www.accountingweb.com/item/86333

Question:
Where are the major differences between book income and economic income that understate book income reported to the investing public?

Answer:
This question is too complex to even scratch the surface in a short paragraph.  One of the main bones of contention between the FASB and technology companies is FAS 2 that requires the expensing of both research and development (R&D)  even though it is virtually certain that a great deal of the outlays for these items will have economic benefit in future years.  The FASB contends that the identification of which projects, what future periods, and the amount of the estimated benefits per period are too uncertain and subject to a high degree of accounting manipulation (book cooking) if such current expenditures are allowed to be capitalized rather than expensed.  Other bones of contention concern expenditures for building up the goodwill, reputation, and training "assets" of companies.  The FASB requires that these be expensed rather than capitalized except in the case of an acquisition of an entire company at a price that exceeds the value of tangible assets less current market value of debt.  In summary, many firms have argued for "pro forma" earnings reporting such that companies can make a case that huge expense reporting required by the FASB and GAAP can be adjusted for better matching of future revenues with past expenditures.

You can read more about these problems in the following two documents:

Accounting Theory --- http://www.trinity.edu/rjensen/theory.htm 

State of the Profession of Accountancy --- http://www.trinity.edu/rjensen/FraudConclusion.htm 

 


Bob Jensen's threads on the Enron/Andersen scandals are at  http://www.trinity.edu/rjensen/fraud.htm 

Bob Jensen's SPE threads are at http://www.trinity.edu/rjensen//theory/00overview/speOverview.htm 

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

Bob Jensen's threads on the state of accountancy can be found at http://www.trinity.edu/rjensen/FraudConclusion.htm