Not everything that can be counted, counts. And not everything that counts can be counted.
Albert Einstein

For a long time, elite accounting researchers could find no “empirical evidence” of widespread earnings management. All they had to do was look up from the computers where their heads were buried.

Expert Financial Predictions (John Stewart's hindsight video scrapbook) --- http://www.technologyreview.com/blog/post.aspx?bid=354&bpid=23077&nlid=1840
You have to watch the first third of this video before it gets into the scrapbook itself
The problem unmentioned here is one faced by auditors and credit rating agencies of risky clients every day:  Predictions are often self fulfilling
If an auditor issues going concern exceptions in audit reports, the exceptions themselves will probably contribute to the downfall of the clients
The same can be said by financial analysts who elect to trash a company's financial outlook
Hence we have the age-old conflict between holding back on what you really secretly predict versus pulling the fire alarm on a troubled company
There are no easy answers here except to conclude that it auditors and credit rating agencies appeared to not reveal many of their inner secret predictions in 2008
Auditing firms and credit rating agencies lost a lot of credibility in this economic crisis, but they've survived many such stains on their reputations in the past
By now we're used to the fact that the public is generally aware of the fire before the auditors and credit rating agencies pull the alarm lever
On the other hand, financial wizards who pull the alarm lever on nearly every company all the time lose their credibility in a hurry

One time I posed a question to the, then, Editor of The Wall Street Journal Editorial Page (my former fraternity brother Bob Bartley) about why the WSJ on that very day was attacking Mike Milken as a felonious thief on Page 1 and praising Milken as a creative capitalist on the Editorial Page. Bob Bartley's truthful response was that the WSJ, more than any other newspaper, is really two newspapers bundled into one copy. The Editorial Page is an unabashed advocate of free-reining capital markets (Damn the Torpedoes). The rest of the newspaper reports the facts (and I think the WSJ reporters are among the best in the world, especially when they commenced to prickle Ken Lay and Jeff Skilling about hidden related party transactions at Enron). See Question 22 at http://www.trinity.edu/rjensen/FraudEnronQuiz.htm
It's interesting that WSJ reporters discovered related party transactions when Enron's auditors pleaded ignorance about such fraudulent dealings. But then Andersen was becoming notorious at that time for bad audits.

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

Probably be an accountant. I like to figure out stuff. In accounting, if you miss one number you get the whole thing wrong. You have to be perfect --- I'm a perfectionist.
Giovani Soto (catcher for the Chicago Cubs when asked what he'd like to be if he wasn't in professional baseball), as quoted in an interview with Mary Burns in Sports Illustrated, June 2008
Jensen Comment
If Soto only knew that accountants are second only to economists in terms of inaccuracies. When accountants total up the numbers on a balance sheet the total is always accurate, but the numbers being added up can be off by 1000% or more. Accuracy varies of course. Cash counts are highly accurate. Fixed assets, net of depreciation, are make-pretend within limits. Intangible asset valuations are about as accurate as ground eyesight measurements of floating cloud dimensions on a windy day. Accountants make highly inaccurate estimates of assets, liabilities, and equities. Then accountants change hats and chairs and add these estimates up very accurately and pretend that the total must mean something --- but accountants aren't sure what.

If Soto wants accuracy perhaps he should become a baseball statistician collecting up subjective estimates of the umpires. In the business world, accountants are the statisticians and the umpires. Therein lies the problem. An umpire decides what's a ball/strike, hit/foul, etc. and then leaves it up to baseball statisticians to book the numbers. In the world of business, accountants decide what are current versus deferred revenues, current versus capitalized costs, and additionally make highly subjective estimates about values of such things as forward contracts and interest rate swaps. After making their inaccurate estimates they then put on another hat, change chairs, and record their own estimates to the nearest penny. They're the business world's umpires and statisticians who simply change hats and chairs and wait for the investors to file lawsuits against them.

Brief Summary of Accounting Theory

Bob Jensen at Trinity University

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.

Click here to view the Notice to Constituents (Adobe Acrobat format).

FASB's Accounting Standards Codification --- http://asc.fasb.org/home

FASB Master Glossary --- http://asc.fasb.org/glossary&letter=D

Accounting for Derivative Financial Instruments and Hedging Activities
Bob Jensen's free tutorials and videos for FAS 133 and IAS 39 are at
http://www.trinity.edu/rjensen/caseans/000index.htm

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“Accounting for Business Firms versus Accounting for Vegetables” ---
http://www.trinity.edu/rjensen/FraudConclusion.htm#BadNews 

Take the Enron Quiz ---
http://www.trinity.edu/rjensen/FraudEnronQuiz.htm

Accounting History in a Nutshell

Accounting for the Shadow Economy

Media Reporting Controversies

Efficient Markets (EMH) versus Inefficient Markets

Islamic and Social Responsibility Accounting

Key Differences Between International (IFRS) and U.S. GAAP (SFAS)

Accounting Research Versus the Accountancy Profession

Learning at Research Schools Versus "Teaching Schools" Versus "Happiness"
With a Side Track into Substance Abuse

Why must all accounting doctoral programs be social
science (particularly econometrics) doctoral programs?
Why accountancy doctoral programs are drying up and
why accountancy is no longer required for admission or
graduation in an accountancy doctoral program

GMAT: Paying for Points

Accounting Journal Lack of Interest in Publishing Replications

Rankings of Academic Accounting Research Journals and Schools

Role of Accounting Standards in Efficient Equity Markets

Controversies in Setting Accounting Standards

Should "principles-based" standards replace more detailed requirements for complex
financial contracts such as structured financing contracts and financial instruments derivatives contracts?

Why Let the I.R.S. See What the S.E.C. Doesn't?

Radical Changes in Financial Reporting

Underlying Bases of Balance Sheet Valuation

The Controversy Between OCI versus Current Earnings

Accrual Accounting and Estimation 

Controversy Over  the SEC's Rule 144a

Cookie Jar Accounting and FAS 106

FIN 48 Liability if Transaction Is Later Disallowed by the IRS

Controversy Over FAS 2 on Research and Development (R&D)

Creative Earnings Management, Agency Theory, and Accounting Manipulations to Cook the Books 

Goodwill Impairment Issues 

Purchase Versus Pooling: The Never Ending Debate

Minority Interests:  Lambs being led to slaughter?

Off-Balance Sheet Financing (OBSF)

Insurance:  A Scheme for Hiding Debt That Won't Go Away

CDOs: A Securitization Scheme for Hiding Debt That Won't Go Away

Pensions and Post-retirement benefits:  Schemes for Hiding Debt 

Leases:  A  Scheme for Hiding Debt That Won't Go Away 

Accounting for Executory Contracts Such as
Purchase/Sale Commitments and Loan Commitments

Debt Versus Equity (including shareholder earn-out contracts)

Synthetic Assets and Liabilities Accounting  

Time versus Money

Intangibles and Contingencies:   Theory Disputes Focus Mainly on the Tip of the Iceberg

Intangibles:  An Accounting Paradox

Intangibles:  Selected References On Accounting for Intangibles

EBR:  Enhanced Business Reporting (including non-financial information)

The Controversy Over Revenue Reporting and HFV 
--- http://www.trinity.edu/rjensen/ecommerce/eitf01.htm

The Controversy Over Employee Stock Options as Compenation  

Accounting for Options to Buy Real Estate

The Controversy over Accounting for Securitizations and Loan Guarantees  

The Controversy Over Pro Forma Reporting

Triple-Bottom (Social, Environmental) Reporting  

The Sad State of Government Accounting and Accountability

The Cost Conundrum:  What a Texas town can teach us about health care

Which is More Value-Relevant: Earnings or Cash Flows?

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

Online Resources for Business Valuations
See http://www.trinity.edu/rjensen/roi.htm

Understanding the Issues 

Issues of Auditor Professionalism and Independence 
http://www.trinity.edu/rjensen/fraud001.htm#Professionalism

Quality of Earnings, Restatements, and Core Earnings

Sale-Leaseback Accounting Controversies
http://www.trinity.edu/rjensen/ecommerce/eitf01.htm#SaleLeasback

Economic Theory of Accounting (including Game Theory)

Socionomics Theory of Finance and Fraud

Facts Based on Assumptions:  The Power of Postpositive Thinking

Critical Postmodern Theory --- http://www.uta.edu/huma/illuminations/

Mike Kearl's great social theory site

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

Peter, Paul, and Barney: An Essay on 2008 U.S. Government Bailouts of Private Companies ---
http://www.trinity.edu/rjensen/2008Bailout.htm

Bob Jensen's threads on GAAP comparisons (with particular stress upon derivative financial
instruments accounting rules) are at http://www.trinity.edu/rjensen/caseans/canada.htm
The above site also links to more general GAAP comparison guides between nations.

Implications of Bad Auditing on Capital Markets
and Client's Cost of Captial
http://www.trinity.edu/rjensen/FraudConclusion.htm#IncompetentAudits

Bob Jensen's threads on corporate governance are at
http://www.trinity.edu/rjensen/fraud.htm#Governance

Great Minds in Management:  The Process of Theory Development --- http://www.trinity.edu/rjensen//theory/00overview/GreatMinds.htm

Great Minds in Sociology ---
http://www.sociosite.net/topics/sociologists.php
Also see Also see http://www.sociologyprofessor.com/ 

"Cornell Theory Center Aids Social Science Researchers," PR Web, June 19, 2006 --- http://www.prweb.com/releases/2006/6/prweb400160.htm

How Do Scholars Search? --- http://www.trinity.edu/rjensen/Searchh.htm#Scholars

Some of the many, many lawsuits settled by auditing firms can be found at http://www.trinity.edu/rjensen/Fraud001.htm

What happened when legendary philosopher A. J. Ayer cleverly encountered prize fighter Mike Tyson?

Wonderful Video on the History and Controversies of Logical Positivism (Vienna Circle) and Philosophy of Science
Pragmatism under William James --- http://en.wikipedia.org/wiki/William_James
Metaphysics --- http://en.wikipedia.org/wiki/Metaphysics
Logical Positivism under Karl Popper --- http://en.wikipedia.org/wiki/Karl_Popper
Logical Positivism under Sir Alfred Jules (A.J.) Ayer --- http://en.wikipedia.org/wiki/Alfred_Ayer

• Interview with Sir Alfred Jules (A.J.) Ayer (Section 1) ---  http://www.youtube.com/watch?v=DMlXmLbGKJY
• Interview with Sir Alfred Jules (A.J.) Ayer (Section 2) ---- http://www.youtube.com/watch?v=QQS9fFg0cGY
• Interview with Sir Alfred Jules (A.J.) Ayer (Section 3) ---- http://www.youtube.com/watch?v=ip6p6Y7IUrE
• Interview with Sir Alfred Jules (A.J.) Ayer (Section 4) ---- http://www.youtube.com/watch?v=4cnRJGs08hE&feature=related
  Link forwarded by Jagdish Gangolly
   
• What happened when Ayer cleverly encountered prize fighter Mike Tyson?
  http://www.associatedcontent.com/article/268510/when_mike_tyson_met_aj_ayer.html?cat=60
  Link forwarded by Roger Collins
   
• A Lecture on Logical Positivism --- http://www.youtube.com/watch?v=HjBOuycK7uI
• Summary of Links --- http://www.youtube.com/results?search_type=search_playlists&search_query=Ayer+on+Logical+Positivism%3A

The philosophy of leadership, management, and theory development --- http://www.trinity.edu/rjensen/theory/00overview/GreatMinds.htm

FASB Codification Database Supersedes All FASB Standards

Countdown to Codification Alert:  FASB Alert #4, 5-22-09

What happens to U.S. GAAP literature when the Codification goes live on July 1, 2009?
All existing standards that were used to create the Codification will become superseded upon the adoption of the Codification.  The FASB will no longer update and maintain the superseded standards. Also, upon adoption of the Codification, the U.S. GAAP hierarchy will flatten from five levels to two­authoritative and non-authoritative.  The following table illustrates the result:

 
DON’T BE CAUGHT OFF GUARD!  GET READY FOR THE CODIFICATION!
 
The FASB is expected to institute a major change in the way accounting standards are organized. The FASB Accounting Standards Codification^TM is expected to become the single official source of authoritative, nongovernmental U.S. generally accepted accounting principles (GAAP).   After final approval by the FASB only one level of authoritative GAAP will exist, other than guidance issued by the Securities and Exchange Commission (SEC). All other literature will be non-authoritative.
 
While the FASB Codification is designed to make it much easier to research accounting issues, the transition to use of the Codification will require some advance training.  These weekly “Countdown to Codification” alerts are designed to provide tips to make that transition easier.
 
The FASB offers a free online tutorial at http://asc.fasb.org.  A recorded instructional webcast­The Move to Codification of US GAAP, first presented live on March 13, 2008­also is available at http://www.fasb.org/fasb_webcast_series/index.shtml. In addition, Codification training opportunities are offered through professional accounting organizations such as the American Institute of Certified Public Accountants (AICPA).

The following message was forwarded by David Albrecht on June 16, 2009

From: "Tracey E. Sutherland" <traceysutherland@aaahq.org>
Organization: American Accounting Association
Date: Tue, 16 Jun 2009 17:25:23 -0400

FAF and AAA to Provide FASB Codification to Faculty and Students

On July 1, 2009, the Financial Accounting Standards Board (FASB) is instituting a major change in the way accounting standards are organized. On that date, the FASB Accounting Standards Codification™ (FASB Codification) will become the single official source of authoritative, nongovernmental U.S. generally accepted accounting principles (U.S. GAAP).  After that date, only one level of authoritative U.S. GAAP will exist, other than guidance issued by the Securities and Exchange Commission (SEC).  All other literature will be non-authoritative.

As part of its educational mission, the Financial Accounting Foundation (FAF), the oversight and administrative body of the FASB, in a joint initiative with the American Accounting Association (AAA), will provide faculty and students in accounting programs at post-secondary academic institutions with the Professional View of the online FASB Codification.

Accounting Program Access—No Cost to Individual Faculty or Students
The Professional View of the FASB Codification will be accessible at no cost to individual faculty and students, through the AAA’s Academic Access program, available to Registered Accounting Programs.  The Professional View will provide advanced search functions with special utilities to assist in the navigation of content, representing the fully functional view of the FASB Codification that will be used by auditors, financial analysts, investors, and preparers of financial statements.  All of the features that have been available with the verification version currently at http://asc.fasb.org are included with the Professional View.
AAA Academic Access

The AAA will provide direct services to accounting departments through its Academic Access program; issuing authentication credentials for faculty and students through Registered Accounting Programs, at a low annual institutional fee of $150.  Information about this program will be forthcoming directly from AAA and on the AAA website at http://aaahq.org/FASB/Access.cfm.

Transitional Access—From July 1 through August 31, 2009
The AAA will provide credentials to individual faculty and students, at no charge, during the transition period before the beginning of the fall semester when faculty and students will receive credentials for access through their Registered Accounting Programs.

The FAF, FASB, and AAA are enthusiastic about this new initiative and understand the value of this program to accounting education and scholarship, in addition to its benefit to faculty and students to have access to the advanced view of U.S. GAAP that will be used by accounting professionals.


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This advertisement was sent to you from the American Accounting Association. This message includes valuable information about upcoming events hosted by the American Accounting Association. If you no longer want to receive email announcements from us, please send an email to office@aaahq.org with "EMAIL OPT-OUT" in the subject line.
American Accounting Association | 5717 Bessie Drive | Sarasota, FL 34233-2399 | Phone: (941) 921-7747 | Fax: (941) 923-4093 | Office@aaahq.org

The FASB home page is at http://www.fasb.org/home

June 24, 2009 Update
There was some doubt initially about whether the free or discounted faculty and student access version of the FASB Codification database would be the "Professional" version (that includes searching and cross-referencing at an $850 single user license per year).

The AAA registration site for the discounted ($150 annual discount price) version makes it clear that accounting education departments or schools will get the full "Professional" version at a discount, thereby saving each academic program $700 per year savings per license. What is not yet perfectly clear is whether this is a single-user access license. My reading is that multiple users within a department or school can use the Codification database at the same time. I could be wrong.

The AAA program enrollment site for this discounted version is http://aaahq.org/FASB/Access.cfm 
The form is at https://aaahq.org/AAAforms/FASB/enroll.cfm

Since all future financial statements will no longer reference hard copy sources like FAS 166 or EITF 98-1 or FIN 48, it is vital for students and teachers and researchers to have access to the Codification database for financial statement analysis.

Reasons why registration for the Codification database are important are given at http://www.cfo.com/article.cfm/13854787/c_2984368/?f=archives
Also see http://www.trinity.edu/rjensen/theory01.htm#MethodsForSetting

FREE access to ANNUAL REPORTS in XBRL --- http://www.trinity.edu/rjensen/XBRLandOLAP.htm#TimelineXBRL
From EDGAR Online --- http://www.tryxbrl.org/

Finance Test Questions --- http://financetestquestions.wikispaces.com/

Watch the Video
"Sometimes we can't see the forest for the trees," by Jim Mahar, FinanceProfessor Blog, May 27, 2009 --- http://financeprofessorblog.blogspot.com/2009/05/sometimes-we-cant-see-forest-for-trees.html

Part Behavioral finance, part cycling, and part a study in how the brain works, the following "Test" is eye opening at least.

We all get so caught up in seeing what we want to see that we sometimes miss the obvious. This effects us in many ways: In finance, if bullish (optimistic), we are more apt to see the good news, if bearish (pessimistic) you see only bad news.

That is one reason why big break throughs happen from those outside the field. It is one reason why sabbaticals and vacations are important. But it can also have important implications in many other ways.

Go ahead, take the test. It takes about a minute --- Click Here

You can order back issues or relevant links management and accounting books and journals from MAAW --- http://maaw.info/

Free Access to Back Issues of The Accounting Review --- http://maaw.info/TheAccountingReview.htm 

Bob Jensen's threads on special purpose (variable interest) entities are at http://www.trinity.edu/rjensen//theory/00overview/speOverview.htm

"Visualization of Multidimensional Data" --- http://www.trinity.edu/rjensen/352wpVisual/000DataVisualization.htm 

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

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

Comparisons of International IAS Versus FASB Standards --- http://www.deloitte.com/dtt/cda/doc/content/pocketiasus.pdf 

This is a Good Summary of Various Forms of Business Risk  --- http://www.erisk.com/portal/Resources/resources_archive.asp 

1. Enterprise Risk Management

2. Credit Risk

3. Market Risk

4. Operational Risk

5. Business Risk

6. Other Types of Risk?

Skills and knowledge should be required as part of the pre-certification education of CPAs
Prompted by New York’s forthcoming adoption of the 150-hour requirement to sit for the CPA exam, the NYSSCPA’s Quality Enhancement Policy Committee drafted a white paper to encourage discussion on what skills and knowledge should be required as part of the pre-certification education of CPAs. This white paper, which was approved by the Society’s Board of Directors, is presented here, along with additional commentary from the NYSSCPA’s Higher Education Committee.
Quality Enhancement Policy Committee Sharon Sabba Fierstein, Chair, August 2008 --- http://www.nysscpa.org/cpajournal/2008/808/infocus/p26.htm

Mary-Jo Kranacher Editorial, CPA Journal, August 2008 --- http://www.nysscpa.org/cpajournal/2008/808/essentials/p80.htm

Specific requirements for becoming a CPA, and the rights and obligations of a licensed CPA, are set forth in the laws and regulations of 54 United States jurisdictions --- http://www.cpa-exam.org/global/boards.html

NASBA Tools --- http://www.nasbatools.com/display_page
NASBA Resources (Includes documents and audio files on knowledge requirements) --- http://www.nasba.org/nasbaweb/NASBAWeb.nsf/wpmtp?openform

Free and Fee CPA Review Courses --- http://www.trinity.edu/rjensen/Bookbob1.htm#010303CPAExam

Bob Jensen's threads on accountancy careers --- http://www.trinity.edu/rjensen/Bookbob1.htm#careers

Peter, Paul, and Barney: An Essay on 2008 U.S. Government Bailouts of Private Companies ---
http://www.trinity.edu/rjensen/2008Bailout.htm

Accounting History in a Nutshell

Confucius is described, by Sima Qian and other sources, as having endured a poverty-stricken and humiliating youth and been forced, upon reaching manhood, to undertake such petty jobs as accounting and caring for livestock.

Early accounting was a knotty issue
South American Indian culture apparently used layers of knotted strings as a complicated ledger.
Two Harvard University researchers believe they have uncovered the meaning of a group of Incan khipus, cryptic assemblages of string and knots that were used by the South American civilization for record-keeping and perhaps even as a written language. Researchers have long known that some knot patterns represented a specific number. Archeologist Gary Urton and mathematician Carrie Brezine report today in the journal Science that computer analysis of 21 khipus showed how individual strings were combined into multilayered collections that were used as a kind of ledger.
Thomas H. Maugh, "Researchers Think They've Got the Incas' Numbers," Los Angeles Times, August 12, 2005 ---
http://www.latimes.com/news/science/la-sci-khipu12aug12,1,6589325.story?coll=la-news-science&ctrack=1&cset=true
Also note http://snipurl.com/incaknots   [64_233_169_104

Jensen Comment:  I'm told that accounting tallies in Africa and other parts of the world preceded written language.  However, tallies alone did not permit aggregations such as accounting for such things as three goats plus sixty apples.   Modern accounting awaited a combination of the Arabic numbering ( http://en.wikipedia.org/wiki/Arabic_numbers ) and a common valuation scheme for valuing heterogeneous items (e.g., gold equivalents or currency units) such that the values of goats and apples could be aggregated.  It is intriguing that Inca knot patterns were something more than simple tallies since patterns could depict different numbers and aggregations could possibly be achieved with "multilayered collections."

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

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A nice timeline of accounting history --- http://www.docstoc.com/docs/2187711/A-HISTORY-OF-ACCOUNTING

From Texas A&M University
Accounting History Outline --- http://acct.tamu.edu/giroux/history.html

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Accounting History (across hundreds of years)
 A Change Fifty-Years in the Making, by Jennie Mitchell, Project Accounting WED Interconnect --- http://accounting.smwc.edu/historyacc.htm

Serious Accounting Historians May Find Some Things of Use Here
Advanced Papyrological Information System from Columbia University --- http://www.columbia.edu/cu/lweb/projects/digital/apis/

APIS is a collections-based repository hosting information about and images of papyrological materials (e.g. papyri, ostraca, wood tablets, etc) located in collections around the world. It contains physical descriptions and bibliographic information about the papyri and other written materials, as well as digital images and English translations of many of these texts. When possible, links are also provided to the original language texts (e.g. through the Duke Data Bank of Documentary Papyri). The user can move back and forth among text, translation, bibliography, description, and image. With the specially-developed APIS Search System many different types of complex searches can be carried out.

APIS includes both published and unpublished material. Generally, much more detailed information is available about the published texts. Unpublished papyri have often not yet been fully transcribed, and the information available is sometimes very basic. If you need more information about a papyrus, you should contact the appropriate person at the owning institution. (See the list of contacts under Rights & Permissions.)

APIS is still very much a work in progress; current statistics are shown in the sidebar at right. Other statistics are available on the statistics page in the project documentation. Curators of collections interested in becoming part of APIS are invited to communicate with the project director, Traianos Gagos.

More Than a Numbers Game: A Brief History of Accounting
Author: Thomas A. King
ISBN: 0-470-00873-3
Hardcover 242 pages
September 2006

Inspired by a 1998 speech by former SEC Chairman Arthur Levitt, this book addresses the why of accounting instead of the how, providing practitioners and students with a highly readable history of U.S. corporate accounting. Each chapter explores a controversial accounting topic. Author Thomas King is treasurer of Progressive Insurance.
SmartPros Newsletter, September 25, 2006

Question
What are some "aha" moments in the history of accounting that are attributed to one person's original/seminal idea?

"A Wandering Mind Heads:  Straight Toward Insight Researchers Map the Anatomy." The Wall Street Journal, June 19, 2009 --- http://online.wsj.com/article/SB124535297048828601.html 

It happened to Archimedes in the bath. To Descartes it took place in bed while watching flies on his ceiling. And to Newton it occurred in an orchard, when he saw an apple fall. Each had a moment of insight. To Archimedes came a way to calculate density and volume; to Descartes, the idea of coordinate geometry; and to Newton, the law of universal gravity.

Five light-bulb moments of understanding that revolutionized science.

In our fables of science and discovery, the crucial role of insight is a cherished theme. To these epiphanies, we owe the concept of alternating electrical current, the discovery of penicillin, and on a less lofty note, the invention of Post-its, ice-cream cones, and Velcro. The burst of mental clarity can be so powerful that, as legend would have it, Archimedes jumped out of his tub and ran naked through the streets, shouting to his startled neighbors: "Eureka! I've got it."

In today's innovation economy, engineers, economists and policy makers are eager to foster creative thinking among knowledge workers. Until recently, these sorts of revelations were too elusive for serious scientific study. Scholars suspect the story of Archimedes isn't even entirely true. Lately, though, researchers have been able to document the brain's behavior during Eureka moments by recording brain-wave patterns and imaging the neural circuits that become active as volunteers struggle to solve anagrams, riddles and other brain teasers.

Following the brain as it rises to a mental challenge, scientists are seeking their own insights into these light-bulb flashes of understanding, but they are as hard to define clinically as they are to study in a lab.

To be sure, we've all had our "Aha" moments. They materialize without warning, often through an unconscious shift in mental perspective that can abruptly alter how we perceive a problem. "An 'aha' moment is any sudden comprehension that allows you to see something in a different light," says psychologist John Kounios at Drexel University in Philadelphia. "It could be the solution to a problem; it could be getting a joke; or suddenly recognizing a face. It could be realizing that a friend of yours is not really a friend."

These sudden insights, they found, are the culmination of an intense and complex series of brain states that require more neural resources than methodical reasoning. People who solve problems through insight generate different patterns of brain waves than those who solve problems analytically. "Your brain is really working quite hard before this moment of insight," says psychologist Mark Wheeler at the University of Pittsburgh. "There is a lot going on behind the scenes."

In fact, our brain may be most actively engaged when our mind is wandering and we've actually lost track of our thoughts, a new brain-scanning study suggests. "Solving a problem with insight is fundamentally different from solving a problem analytically," Dr. Kounios says. "There really are different brain mechanisms involved."

By most measures, we spend about a third of our time daydreaming, yet our brain is unusually active during these seemingly idle moments. Left to its own devices, our brain activates several areas associated with complex problem solving, which researchers had previously assumed were dormant during daydreams. Moreover, it appears to be the only time these areas work in unison.

"People assumed that when your mind wandered it was empty," says cognitive neuroscientist Kalina Christoff at the University of British Columbia in Vancouver, who reported the findings last month in the Proceedings of the National Academy of Sciences. As measured by brain activity, however, "mind wandering is a much more active state than we ever imagined, much more active than during reasoning with a complex problem."

She suspects that the flypaper of an unfocused mind may trap new ideas and unexpected associations more effectively than methodical reasoning. That may create the mental framework for new ideas. "You can see regions of these networks becoming active just prior to people arriving at an insight," she says.

In a series of experiments over the past five years, Dr. Kounios and his collaborator Mark Jung-Beeman at Northwestern University used brain scanners and EEG sensors to study insights taking form below the surface of self-awareness. They recorded the neural activity of volunteers wrestling with word puzzles and scanned their brains as they sought solutions.

Some volunteers found answers by methodically working through the possibilities. Some were stumped. For others, even though the solution seemed to come out of nowhere, they had no doubt it was correct.

In those cases, the EEG recordings revealed a distinctive flash of gamma waves emanating from the brain's right hemisphere, which is involved in handling associations and assembling elements of a problem. The brain broadcast that signal one-third of a second before a volunteer experienced their conscious moment of insight -- an eternity at the speed of thought.

The scientists may have recorded the first snapshots of a Eureka moment. "It almost certainly reflects the popping into awareness of a solution," says Dr. Kounios.

In addition, they found that tell-tale burst of gamma waves was almost always preceded by a change in alpha brain-wave intensity in the visual cortex, which controls what we see. They took it as evidence that the brain was dampening the neurons there similar to the way we consciously close our eyes to concentrate.

"You want to quiet the noise in your head to solidify that fragile germ of an idea," says Dr. Jung-Beeman at Northwestern.

At the University of London's Goldsmith College, psychologist Joydeep Bhattacharya also has been probing for insight moments by peppering people with verbal puzzles.

Continued in article

Jensen Comment
I'm having a hard time finding a worthy "aha" moment in accountancy. It certainly would not be Pacioli's double entry contribution since double entry accounting is thought to have been used for over 1,000 years before Pacioli. There have been aha moments in the invention of derivative contracts, but none of them to my knowledge are attributable to accountants. There have been some seminal accounting ideas such as ABC costing, but I think a team of people at Deere is credited for ABC Costing.

What are some "aha" moments in the history of accounting that are attributed to one person's original/seminal idea? 
A short summary of the history of accounting is available at
http://www.trinity.edu/rjensen/theory01.htm#AccountingHistory

-----Original Message----- 
From: Dale Flesher University of Mississippi [mailto:actonya@HOTMAIL.COM]  
Sent: Friday, January 25, 2002 1:35 PM 
To: AECM@LISTSERV.LOYOLA.EDU 
Subject: Re: The Only Invention of Academic Accountants

Contrary to a recent statement in this forum, Dollar-Value Lifo (DVL) was not developed by a professor. The father of DVL was Herbert T. McAnly, who retired in 1964 as a partner at Ernst & Ernst after 44 years with the firm. Throughout his career, McAnly was known as "Mr. LIFO."

Although he did not develop LIFO, which had been around for decades in the form of the base-stock method, he did develop DVL after the Internal Revenue began accepting LIFO from all types of companies. The Treasury would probably never have agreed to allow all companies to use LIFO (in 1939) had they been able to prognosticate McAnly's idea. He first described the concept in an address delivered at the Accounting Clinic and the Central States Accounting Conference in Chicago in May 1941. His concept was finally accepted by the IRS following the Hutzler Brothers Co. case in 1947 (8 TC 14 (1947)). He later worked with the Treasury Department trying to get more practical regulations relating to LIFO.

Dale L. Flesher 
Professor of Accountancy University of Mississippi

"The SEC Rules Historical Cost Accounting: 1934 to the 1970s," by Stephen A. Zeff, SSRN, January 2007 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=956163

Abstract:
From its founding in 1934 until the early 1970s, the SEC and especially its Chief Accountant disapproved of most upward revaluations in property, plant and equipment as well as depreciation charges based on such revaluations. This article is a historical study of the evolution of the SEC's policy on such upward revaluations. It includes episodes when the private-sector body that established accounting principles sought to gain a degree of acceptance for them and was usually rebuffed. In the decade of the 1970s, the SEC altered its policy. Throughout the article, the author endeavors to explain the factors that influenced the positions taken by the parties.

More Than a Numbers Game: A Brief History of Accounting
Author: Thomas A. King
ISBN: 0-470-00873-3
Hardcover 242 pages
September 2006

Inspired by a 1998 speech by former SEC Chairman Arthur Levitt, this book addresses the why of accounting instead of the how, providing practitioners and students with a highly readable history of U.S. corporate accounting. Each chapter explores a controversial accounting topic. Author Thomas King is treasurer of Progressive Insurance.
SmartPros Newsletter, September 25, 2006

Jensen Comment
The Chief Accountant of the SEC under Arthur Levitt was one of my heroes named Lynn Turner.
Let me close by citing Harry S. Truman who said, "I never give them hell; I just tell them the truth and they think its hell!"
Great Speeches About the State of Accountancy
"20th Century Myths," by Lynn Turner when he was still Chief Accountant at the SEC in 1999 --- http://www.sec.gov/news/speech/speecharchive/1999/spch323.htm

It is interesting to listen to people ask for simple, less complex standards like in "the good old days." But I never hear them ask for business to be like "the good old days," with smokestacks rather than high technology, Glass-Steagall rather than Gramm-Leach, and plain vanilla interest rate deals rather than swaps, collars, and Tigers!! The bottom line is—things have changed. And so have people. Today, we have enormous pressure on CEO’s and CFO’s. It used to be that CEO’s would be in their positions for an average of more than ten years. Today, the average is 3 to 4 years. And Financial Executive Institute surveys show that the CEO and CFO changes are often linked. In such an environment, we in the auditing and preparer community have created what I consider to be a two-headed monster. The first head of this monster is what I call the "show me" face. First, it is not uncommon to hear one say, "show me where it says in an accounting book that I can’t do this?" This approach to financial reporting unfortunately necessitates the level of detail currently being developed by the Financial Accounting Standards Board ("FASB"), the Emerging Issues Task Force, and the AICPA’s Accounting Standards Executive Committee. Maybe this isn’t a recent phenomenon. In 1961, Leonard Spacek, then managing partner at Arthur Andersen, explained the motivation for less specificity in accounting standards when he stated that "most industry representatives and public accountants want what they call ‘flexibility’ in accounting principles. That term is never clearly defined; but what is wanted is ‘flexibility’ that permits greater latitude to both industry and accountants to do as they please." But Mr. Spacek was not a defender of those who wanted to "do as they please." He went on to say, "Public accountants are constantly required to make a choice between obtaining or retaining a client and standing firm for accounting principles. Where the choice requires accepting a practice which will produce results that are erroneous by a relatively material amount, we must decline the engagement even though there is precedent for the practice desired by the client." We create the second head of our monster when we ask for standards that absolutely do not reflect the underlying economics of transactions. I offer two prime examples. Leasing is first. We have accounting literature put out by the FASB with follow-on interpretative guidance by the accounting firms—hundreds of pages of lease accounting guidance that, I will be the first to admit, is complex and difficult to decipher. But it is due principally to people not being willing to call a horse a horse, and a lease what it really is—a financing. The second example is Statement 133 on derivatives. Some people absolutely howl about its complexity. And yet we know that: (1) people were not complying with the intent of the simpler Statements 52 and 80, and (2) despite the fact that we manage risk in business by managing values rather than notional amounts, people want to account only for notional amounts. As a result, we ended up with a compromise position in Statement 133. To its credit, Statement 133 does advance the quality of financial reporting. For that, I commend the FASB. But I believe that we could have possibly achieved more, in a less complex fashion, if people would have agreed to a standard that truly reflects the underlying economics of the transactions in an unbiased and representationally faithful fashion. I certainly hope that we can find a way to do just that with standards we develop in the future, both in the U.S. and internationally. It will require a change in how we approach standard setting and in how we apply those standards. It will require a mantra based on the fact that transparent, high quality financial reporting is what makes our capital markets the most efficient, liquid, and deep in the world.

In her notes compiled in 1979, Professor Linda Plunkett of the College of Charleston S.C., calls accounting the "oldest profession"; in fact, since prehistoric times families had to account for food and clothing to face the cold seasons. Later, as man began to trade, we established the concept of value and developed a monetary system. Evidence of accounting records can be found in the Babylonian Empire (4500 B.C.), in pharaohs' Egypt and in the Code of Hammurabi (2250 B.C.). Eventually, with the advent of taxation, record keeping became a necessity for governments to sustain social orders.
James deSantis, A BRIEF HISTORY OF ACCOUNTING: FROM PREHISTORY TO THE INFORMATION AGE --- http://www.ftlcomm.com/ensign/historyAcc/ResearchPaperFin.htm 

Origins of Double Entry Accounting are Unknown

• 1300s A.D. crusades opened the Middle East and Mediterranean trade routes
• Venice and Genoa became venture trading centers for commerce
• 1296 A.D. Fini Ledgers in Florence
• 1340 City of Massri Treasurers Accounts are in Double Entry form.
• 1494 Luca Pacioli's Summa de Arithmetica Geometria Proportionalita (A Review of Arithmetic, Geometry and Proportions)   

Recall that double entry bookkeeping supposedly evolved in Italy long before it was put into algebraic form in the book Summa by Luca Pacioli .  As a result the English term "Debit" really has a Latin origin.  

You can read the following at http://www.wikiverse.org/debit

**************
Debit is an accounting and bookkeeping term that comes from the Latin word debere which means "to owe." The opposite of a debit is a credit. Debit is abbreviated Dr while credit is abbreviated Cr.
**************

December 13, 2005 message from Robert Bowers [M.Robert.Bowers@WHARTON.UPENN.EDU]

In the 14th Century, the Phoenicians sent trading ships to Cathay (China) to trade for silk. Problem was, if a ship sank, the merchant prob sank (bankrupt) with it. So the merchants pooled their resources so if a ship sank no one merchant lost everything. Along with this, an Italian Count named Paole (seriously) set up a system of recordkeeping to keep track of the ventures. In this system, he created two registers, a Debit Register (DR), and a Credit Register (CR)

I'll bet 95% of all CPA's don't know that which makes me .... a trivia freak?

December 16, 2005  message from Robert B Walker [walkerrb@ACTRIX.CO.NZ]

Luca Pacioli did not invent double entry book-keeping. The rudiments of double entry book-keeping (DEBK) can be found in Muslim government administration in the 10th Century. (See Book-keeping and Accounting Systems in a tenth Century Muslim Administrative Office by Hamid, Craig & Clark in Accounting, Business & Financial History Vol 3 No 5 1995).

As I understand it Pacioli saw the technique being used by Arab traders and adapted and codified the technique allowing it to spread to Northern Europe where it became a* key component in Western economic dominance in the last 500 years.

This is logical if you think about it. DEBK is the greatest expression of applied algebra – that Arab word betraying the origin of the particular mathematical technique in which the world’s duality is reflected.

RW

* but not the key component as Werner Sombart would have it. But then his reason for wanting that to be was his extreme anti-semitism … but that is another story.

December 13, 2005 reply from Earl Hall [earl@PERSPLAN.COM]

From thefreedictionary.com

DR = Debit [Middle English debite, from Latin dbitum, debt; see debt.]

CR=Credit [French, from Old French, from Old Italian credito, from Latin crditum, loan, from neuter past participle of crdere, to entrust; see kerd- in Indo-European roots.]

Who am I to argue with a free dictionary? The answer is worth what I paid.

Accountancy and the da Vinci Code

April 12, 2007 message from Barry Rice [brice@LOYOLA.EDU] 

From the April 11 Brisbane Times:

Forgotten magic manual contains original da Vinci code
AFTER lying almost untouched in the vaults of an Italian university for 500 years, a book on the magic arts written by Leonardo da Vinci's best friend and teacher has been translated into English for the first time.

The world's oldest magic text, De viribus quantitatis (On the Powers of Numbers), was penned by Luca Pacioli, a Franciscan monk who shared lodgings with da Vinci.

Continued at http://www.brisbanetimes.com.au/articles/2007/04/10/1175971101054.html  .

E. Barry Rice, MBA, CPA
Director, Instructional Services
Emeritus Accounting Professor
Loyola College in Maryland
BRice@Loyola.edu
410-617-2478
www.barryrice.com 

Facebook me! http://www.facebook.com/p/Barry_Rice/20102311

The following is a controversial quotation from http://www.cbs.dk/staff/hkacc/BOOK-ART.doc 

"The power of double-entry bookkeeping has been praised by many notable authors throughout history. In Wilhelm Meister, Goethe states, "What advantage does he derive from the system of bookkeeping by double-entry! It is among the finest inventions of the human mind"... Werner Sombart, a German economic historian, says, "... double-entry bookkeeping is borne of the same spirit as the system of Galileo and Newton" and "Capitalism without double-entry bookkeeping is simply inconceivable. They hold together as form and matter. And one may indeed doubt whether capitalism has procured in double-entry bookkeeping a tool which activates its forces, or whether double-entry bookkeeping has first given rise to capitalism out of its own (rational and systematic) spirit".

If, for a moment, one considers the credibility crisis of practical accounting, it would be quite impossible to dismiss the following paradox: the conflict between the enthusiastic praise of the system's strength on the one hand, and on the other, the many financial failures in the real world. How can such a powerful system, even when applied meticulously, still result in disasters? Although it is hardly necessary to argue more in favour of double-entry book-keeping, I still want to underline the two qualities of the system which I find are valid explanations of the system's very important and world-wide role in financial development for five centuries.

The Logic of Double-Entry Bookkeeping, by Henning Kirkegaard
Department of Financial & Management Accounting 
Copenhagen Business School 
Howitzvej 60

Along this same double-entry thread I might mention my mentor at Stanford.
Nobody I know holds the mathematical wonderment of double-entry and historical cost accounting more in awe than Yuji Ijiri.  For example, see Theory of Accounting Measurement, by Yuji Ijiri (Sarasota:  American Accounting Association Studies in Accounting Research No. 10, 1975).  

Dr. Ijirii also extended the concept to triple-entry bookkeeping in (Sarasota:  Triple-Entry Bookkeeping and Income Momentum
American Accounting Association Studies in Accounting Research No. 18, 1982).
http://accounting.rutgers.edu/raw/aaa/market/studar.htm tm 

Also see the following:

• The History of Mathematics and Accounting by Mary Bellis at http://inventors.about.com/library/inventors/blmathmatics.htm 
• Luca Pacioli - Mathematics and the Liberal Arts --- http://math.truman.edu/~thammond/history/LucaPacioli.html 

Brush up your Shakespeare:  Medieval manuscripts to hit Internet
Stanford University Libraries, the University of Cambridge and Corpus Christi College, Cambridge, will make hundreds of medieval manuscripts, dating from the sixth through the 16th centuries, accessible on the Internet.
"Medieval manuscripts to hit Internet," Stanford Report, July 13, 2005 ---
http://news-service.stanford.edu/news/2005/july13/parker-071305.html

A summary of the medieval times and literature is available at http://en.wikipedia.org/wiki/Medieval

Brush up your Shakespeare:  Medieval manuscripts to hit Internet
Stanford University Libraries, the University of Cambridge and Corpus Christi College, Cambridge, will make hundreds of medieval manuscripts, dating from the sixth through the 16th centuries, accessible on the Internet.
"Medieval manuscripts to hit Internet," Stanford Report, July 13, 2005 ---
http://news-service.stanford.edu/news/2005/july13/parker-071305.html

A summary of the medieval times and literature is available at http://en.wikipedia.org/wiki/Medieval

May 28, 2005  reply from Barbara Scofield [scofield@GSM.UDALLAS.EDU]

Thank you for the notice about the availability of the medieval manuscripts on the Internet through the project Parker on the Web at Stanford University. Two manuscripts are currently available, and on page 11 of the English translation of Matthew Paris's "English History From 1235 to 1273" I have already found references to accounting (see below).

Accountants are still using the principle "under whatever name it may be called" and entities are still making up new names for inconvenient economic events in the hopes of avoiding full disclosure.

At this Catholic liberal arts university Shakespeare is modern, and the medieval world is revered, so I'm interested in gaining some insight into the medieval worldview.

Barbara W. Scofield, PhD, CPA
Associate Professor of Accounting
University of Dallas
1845 E. Northgate Irving, TX 75062
Braniff 262 scofield@gsm.udallas.edu 

Ancient Finance from Harvard Business School

From Jim Mahar's blog on May 17, 2006 --- http://financeprofessorblog.blogspot.com/

 

The HBS Working Knowledge site has an interesting article by William Goetzmann on financial instruments back in the time of the Romans and Greeks. For instance on checks:

...bankers' checks written in Greek on papyri appeared in ancient Egypt as far back as 250 B.C. Papyri preserved well in Egypt thanks to its arid climate, but Goetzmann thinks it's safe to say such checks changed hands throughout the Mediterranean world . . . So the whole tradition of bank checks predates the current era and has its roots at least in Hellenistic Greek times," he says.

Going Concern and Accrual Accounting Evolved in the 1500s

• Venture accounting over the life of a venture with interim statements evolved in The Netherlands
• 1673 Code of Commerce in France requires biannual balance sheet reporting  
• Charge and Discharge Agency Responsibility and Stewardship Accounting in English trust accounting

Limited liability Corporations (divorced professional management from ownership shares)

• 1555 A.D. Russia Company
• 1600 A.D. East India Company
• 1670 A.D. Hudson's Bay Company
• England's Joint Stock Companies Act of 1844 required depreciation accounting for railroads, mining, and manufacturing (although the concept of depreciation dates back to Roman times).

Speculation Fever
Fraud and corruption festered and grew with the trading of joint stock, especially after 1600 A.D.  The South Seas Company scandal (reporting stock sales as income and paying dividends out of capital) led to England's Bubble Act in 1720 A.D. that focused on misleading accounting practices that helped managers rip off investors, especially by crediting stock sales to income.

One of the earliest and probably the most famous accounting and investment scandal was the South Sea Bubble in 1720
From the Harvard University Business School
Sunk in Lucre's Sordid Charms: South Sea Bubble Resources in the Kress Collection at Baker Library --- http://www.library.hbs.edu/hc/ssb/

Free online textbooks, cases, and tutorials in accounting, finance, economics, and statistics --- http://www.trinity.edu/rjensen/ElectronicLiterature.htm#Textbooks

 

Laissez-Faire Accounting survived endless debates and scandals until the Great Depression in 1933

• Much of the debate focused on capital maintenance (e.g., failure to charge off depreciation and failure to provide for replacement of operating assets), but governments did not legally impose auditing requirements and serious GAAP until the U.S. securities laws in the early 1930s.  Accountants were vocal in reform movements, but governments were slow to react with legislation and courts failed to establish consistent GAAP.
• Creation of the SEC in an effort to regain public trust in financial reporting and equity investing.
• Many firms did have independent audits and conformed to the best GAAP traditions of the day (thereby giving some evidence that Agency Theory works sometimes.)  Agency theory hypothesizes that it is in the best interest of management to contract for protection of investors and avoid scandalous asymmetries of information.

After 1933, the AICPA and the SEC seriously attempted to generate accounting standards, enforce accounting standards, and provide academic justification for promulgated standards.

• ASRs of the SEC
• In a 3-2 vote the SEC followed George O. May's efforts to mandate external audits of securities traded across state lines in the U.S.
• 1939-1959 A.D.: Accounting standards were generated by the AICPA's Committee on Accounting Procedure (CAP) that issued Accounting Research Bulletins (51 ARBs) --- but the tendency was to overlook controversial issues such as off-balance sheet financing, public disclosure of management forecasts, price-level accounting, current cost accounting, and exit value accounting.  Controversial items avoided by the CAP included management compensation accounting, pension accounting, post-employment benefits accounting, and off balance sheet financing (OBSF).  The CAP did very little to restrain diversity of reporting.
• 1960-1972 A.D.:  Accounting standards in the U.S. were generated by the AICPA's Accounting Principles Board (APB) that had more members than the CAP and a mandate to attack more controversial reporting issues.  The APB attacked some controversial issues but often failed to resolve their own disputes on such issues as pooling versus purchase accounting for mergers.  
• 1972-???? A.D.  Accounting standards in the U.S. were, and still are, being generated by the Financial Accounting Standards Board (FASB) that has seven members, including required members from industry, academe, and financial analysts in addition to members from public accountancy.  FASB members must divorce themselves from previous income ties and work full time for the FASB.  The formation of the FASB was a desperation move by CPA's to stave off threatened takeover of accounting standards by the Federal Government (there were the Moss and Metcalf bills to do just that under pending legislation in the U.S. House and Senate).  Unlike the CAP and APB, the FASB has a full-time research staff and has issued highly controversial standards forcing firms to abide by pension accounting rules, capitalization of many leases, and booking of many previous OBSF items (capital leases, pensions, post-employment benefits, income tax accounting, derivative financial instruments, pooling accounting, etc.).  The road has been long and hard on some other issues where attempts to issue new standards (e.g., expensing of dry holes in oil and gas accounting and booking of employee stock options) have been thwarted by highly-publicized political pressuring by corporations.

History of the U.S. Financial Accounting Standards Board (FASB) and earlier accounting standard setting in the United States --- http://www.trinity.edu/rjensen/Theory01.htm#AccountingHistory

July 16, 2008 message from Brady, Joseph [bradyj@LERNER.UDEL.EDU]

I recommend the book “More than a numbers game – a brief history of accounting”, by Thomas A. King. Mr. King traces the development of our accounting standards, from the railroad accounting era through Enron. King describes the major accounting controversies in each era. The reader gains an understanding of the differing points of view – academic, management, enforcement, public accountants, internal accountants. King writes clearly and is a good story teller, so the pace of the book is fast.

I used the book in a senior level accounting systems course last semester, covering all 15 chapters in 3 weeks. It would be possible to go somewhat faster by jettisoning some chapters, without loss of continuity. I am sure that all my 80 students learned from the book, and most said they enjoyed learning some of the profession’s history. I liked it because it allowed me to challenge students to think about what the nature of our reporting system and of that system’s limitations. In their four years, our students learn a lot of techniques and rules; the book puts these into context and I liked the book for that reason, too.

Mr. King began his career in public accounting. He is now Treasurer of Progressive Insurance.

Joe Brady
Accounting & MIS
Lerner College of Business & Economics
University of Delaware

In 1973 the International Accounting Standards Committee (IASC) was formed and evolved into the International Accounting Standards Board IASC) in 1981.
A Timeline of development can be found at http://www.trinity.edu/rjensen/FraudRotten.htm#DerivativesFrauds
History of the International Accounting Standards Board (IASB) ---  http://www.iasb.org/About+Us/About+the+Foundation/History.htm
A more complete commentary on the history of the IASC and IASB by Paul Pacter --- http://www.trinity.edu/rjensen/acct5341/speakers/pacter.htm#001
lso see http://static.managementboek.nl/pdf/9780471726883.pdf

Some of the many, many lawsuits settled by auditing firms can be found at http://www.trinity.edu/rjensen/Fraud001.htm

Wow Online Accounting History Book (Free)
Thank you David A.R. Forrester for providing a great, full-length, and online book:
An Invitation to Accounting History --- http://accfinweb.account.strath.ac.uk/df/contents.html 
Note especially Section B2 --- "Rational Administration, Finance And Control Accounting:  the Experience of Cameralism" --- http://accfinweb.account.strath.ac.uk/df/b2.html 

Forrester's great book is no longer free --- http://isbndb.com/d/book/an_invitation_to_accounting_history.html

A nice timeline of accounting history --- http://www.docstoc.com/docs/2187711/A-HISTORY-OF-ACCOUNTING

Accounting history lecture worth noting --- http://newman.baruch.cuny.edu/digital/saxe/saxe_1978/baxter_79.htm

Before reading this it is advisable to read about the Efficient Market Hypothesis --- http://en.wikipedia.org/wiki/Efficient_Market_Hypothesis
For decades Fama and French have been the leading scholars on this hypothesis

Stocks are still the best investment for the long run. But maybe not for your long run.
Justin Fox, "Are Stocks Still Good for the Long Run?" Time Magazine, June 15, 2009 --- http://www.time.com/time/magazine/article/0,9171,1902843-2,00.html
Also see Jim Mahar's June 10, 2009 summary at http://financeprofessorblog.blogspot.com/
In particular this references a study by Arnott that asserts that over the past 40 years the stock market underperformed the bond market. In my opinion, if you into bonds for the next 40 years they'd better be inflation-indexed bonds such as Treasury TIPs.

Are mutual fund managers with "superior skills" earning their keep?

For 1984-2006...mutual funds on average and the average dollar invested in funds underperform three-factor and four-factor benchmarks by about the amount of costs (fees and expenses). Thus, if there are fund managers with skill that enhances expected returns relative to passive benchmarks, they are offset by managers whose stock picks lower expected returns. We attempt to identify the presence of skill via bootstrap simulations. The tests for net returns say that even in the extreme right tails of the cross-sections of three-factor and four-factor t(α) estimates, there is no evidence of fund managers with skill sufficient to cover costs.
Eugene F. Fama and Kenneth R. French, "Luck versus Skill in the Cross Section of Mutual Fund Alpha Estimates," SSRN, March 9, 2009 --- http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1356021

Abstract:
The aggregate portfolio of U.S. equity mutual funds is close to the market portfolio, but the high costs of active management show up intact as lower returns to investors. Bootstrap simulations produce no evidence that any managers have enough skill to cover the costs they impose on investors. If we add back costs, there is some evidence of inferior and superior performance (non-zero true alpha) in the extreme tails of the cross section of mutual fund alpha estimates. The evidence for performance is, however, weak, especially for successful funds, and we cannot reject the hypothesis that no fund managers have skill that enhances expected returns.

XBRL is no longer something we only play with in academe.  It is now available to investors around the world, although it may take a while for some companies to add the XBRL tags to their financial statements.  Some things that are now being done in XBRL such as time graphs and ratio graphs can be done with things other than XBRL.  What XBRL does, however, is make it possible to:

(1) Compare different companies in a Web browser

(2) Perform customized analyses if the XBRL statements are downloaded into Excel

(3) Conduct easy searches that do not yield thousands of unwanted and extraneous hits

Bob Jensen's New Video Tutorial on XBRL (about 30 minutes)
It's the XBRLdemos2005.wmv file at http://www.cs.trinity.edu/~rjensen/video/Tutorials/ 
But first read the following and watch the KOSDAQ video before watching the above video.

Question
What are the two most significant events in the history of accounting, financial reporting, and financial statement analysis? 

Answers
Double Entry Bookkeeping and XBRL

The origins of double entry bookkeeping are unknown.  It goes back over 100 years before Luca Pacioli  made it famous by algebraically describing it in the world's first algebra book called Summa written in 1494.  Pacioli's basic equation A=L+E simply shows how recorded asset values in total equal the double-entry sum of creditor liabilities plus owner equities in those assets.  For over 500 years accounting disputes mainly lie in defining the A, L, and E concepts and measuring them in financial statements.  Pacioli gave us the algebra without the crucial and operational definitions of terms.  Bob Jensen's brief summary of the history of accounting is at http://www.trinity.edu/rjensen//theory/00overview/theory01.htm

XBRL stands for eXtensible Business Reporting Language in XML that can now be interpreted by every Web browser such as Microsoft's Internet Explorer.  In the future, virtually every all academic disciplines such as Chemistry, Physics, and History will probably develop their own taxonomies for XML reporting on the Web.  Hence, we one day may have XCHEM, XPHYS, and XHIST eXtensible reporting languages. 

Whereas the famous HTML tags on data are not extensible and are more or less fixed in scope and time, XML extensible meta-tags will become the world's most popular way of creating customized "meta-tags" that attach to virtually every piece of Web data and describe attributes of each piece of data.  The history of data tags and meta-tags is briefly outlined at http://www.trinity.edu/rjensen/XBRLandOLAP.htm
I also highly recommend the XBRL history and news site at XBRL headquarters at http://www.xbrl.org/Home/

XBRL is a taxonomy for XML meta-tags to be placed on virtually every number in a set of financial statements.  For over a decade, efforts have been made by huge companies and accounting firms to develop standardized XBRL tags for key taxonomies in accounting.  These taxonomies may vary as to a particular set of accounting generally accepted accounting principles (GAAP) such as International GAAP or US GAAP.  Once a company or user selects which GAAP taxonomy to use, it's financial statements can be "marked up" with XBRL meta-tags that facilitate comparative financial statement analysis.  Users may also take any set of financial statements and add tags for a chosen set of GAAP tags.  For example, see Drag and Tag from Rivet Corporation --- http://www.rivetsoftware.com/
Also see http://www.xbrl.org/eu/CEBS-3/Rivet_Industry Day_Brussels_14 Sept 2005.pdf

Because adding XBRL meta-tags to a given set of financial statements is time consuming, most large companies are in the process of adding these tags to their own financial data so that investors will not have to do their own tagging.  The major stock exchanges of the world are now urging companies to send in their financial reports marked up in XBRL.  Soon they will require all listed companies to submit XBRL-tagged financial statements.

Bob Jensen's Old XBRL Video Tutorial called XBRLdemos.wmf
About four years ago (I can't remember exactly when) I prepared a XBRL tutorial on how to use XBRL in financial statement analysis.  The tutorial itself was actually developed by NASDAQ, Microsoft, and PwC in a NMP partnership.  NASDAQ selected 20 companies and marked up their financial statements in XBRL.  Microsoft wrote a fancy Excel program to analyze those financial statements in Excel.  PwC served up the data on the Web.  This NMP tutorial was intended to have a short life since the plan was eventually to use XBRL directly in Web browsers without having to use Excel.  Indeed, PwC no longer serves up this tutorial.  Bob Jensen probably has the only recorded history of this NMP tutorial on video in the file XBRLdemos.wfm at http://www.cs.trinity.edu/~rjensen/video/Tutorials/

Bob Jensen's New 2005 XBRL Video Tutorial called XBRLdemos2005.wmf
XBRL is now marked up on many financial statements on the Web and can be used for financial statement analysis in Web browsers.  I found a set of such statements for various (Star) companies on the Korean KOSDAQ stock exchange homepage. 

Before looking at my new video, I want you to first view the KOSDAQ Camtasia video at http://www.ubmatrix.com/solutions/WebHelp/KOSDAQDemo.html

After viewing this video, you can then go to my new Camtasia 2005 video XBRLdemos2005.wmv file at http://www.cs.trinity.edu/~rjensen/video/Tutorials/ 

My new video is mainly a tutorial about how I learned to use the XBRL financial statements made available by KOSDAQ for actual use by investors in companies listed on the KOSDAQ stock exchange.

In particular, my new video shows how to perform the following steps at the KOSDAQ site.

First Watch the http://www.ubmatrix.com/solutions/WebHelp/KOSDAQDemo.html Second Watch my XBRLdemos2005.wmv file at http://www.cs.trinity.edu/~rjensen/video/Tutorials/  The KOSDAQ homepage is at http://www.ubmatrix.com/home/default.asp             Go to http://km.krx.co.kr/      You do not have to install the Korean language pack      Note that it may take some time for the upper menu to appear      Click on the English button in the upper right corner after the menu appears Third Go directly to http://english.kosdaq.com/      Click on the "XBRL Service" on the right side of the screen      Click on a company's logo (ignore any pop ups to install a language pack)      If you do not see a graph on the left side of a company's report,              click on the button/instruction below the graph's border      After you see a graph,              click on the various financial statement line items to the right of the graph             (Your mouse pointer will now be a small bar graph) Go to the bottom of the page and click on "Ratios"      If your pointer is still a small graph,              click on the ratios that you want to see in the graph      Go to the bottom of the page and click on "Comparison"      Options for comparisons are given (they are also demonstrated in my video)      Go to the bottom of the page and read about the Excel Analyzer       See what you can download if you really get interested in the analysis options

October 30, 2005 reply from Deborah Johnson [Finance@WeFightFraud.com]

I followed the instructions you plan to give your students for Monday and found a few bugs you might want to know about.

The Demos link at XBRL.org  is not on the home page. They need to know that this site requires them to navigate to "Showcase" to find the Demo.

http://km.krx.co.kr/   selected English and then XBRL Services, then chose the company. The graph is only available if you agree to download and install additional software on your PC. If they do not have administrator rights, this is not going to be an option for your students. (say on college lab and classroom computers).

The company I selected, LG Micron, had an obvious defect in the financial data being presented for this demonstration. XBRL is clearly not going to minimize any human mistakes, and the printed financials will still have to be carefully scrutinized by management and the auditors. Do the math on the Trade Receivables at Net. Demerits for any student who doesn't find the error. If you go to the bottom of the table and select "Get these financials in XBRL" you may get an XML Parsing Error. This is probably a higher version of XMl required, and again the student would need administrator rights to upgrade the software or install patches and plug ins.

Regards,

Deborah Johnson

October 30, 2005 reply from Bob Jensen

Hi Deborah,

I agree with all your points and thank you for providing some clarifications.  With respect to needing administrative rights to view the graphs (say on college lab computers and on classroom computers), it behooves faculty to ask administrators to install the software that can be downloaded free by clicking below the graph frame for any company in the demo.

If students do not have administrative rights on a college lab or classroom computer, I guess this makes my video tutorial even more valuable since students can see what will happen if they try this on their own computers where they automatically have administrative rights.

Thanks,

Bob

From the Publisher of the AccountingWeb on June 19, 2008

Some friends of ours are currently on vacation in Russia, which got me to thinking, "I wonder what it's like to be an accountant in Russia?" I have no idea. It wasn't all that long ago that International Financial Reporting Standards were adopted by the Russian Finance Ministry, so it's probably been a rather challenging profession as of late! If you have any first-hand knowledge of accounting in the Russian Federation, please e-mail me so we can share it with AccountingWEB readers.

In the meantime, here are some key Russian facts:

• Population: 142 million
• Largest city (and capital): Moscow
• Second largest city:
  St. Petersburg
• Size: the largest country in the world by more than 2.5 million square miles
• Ethnic groups:
  Russian 79.8%,
  Tatar 3.8%,
  Ukrainian 2%,
  other 14.4%

Rob Nance
Publisher
AccountingWEB, Inc.
publisher@accountingweb.com

Bob Jensen's reply to Rob Nance

Hi Rob,

A better question is to ask what accounting became in Russia after the breakup of the Soviet Union --- http://www.worldbank.org/html/prddr/trans/janfeb99/pgs22-25.htm
The system is highly geared to tax reporting and has a long ways to go relative to IFRS.

Accounting in the former Soviet Union was pretty much an exercise in tabulating fiction --- http://www.questia.com/PM.qst?a=o&d=6827120

Accounting was an instrument of the planning and control process that substituted for market-based controls ---
http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-6281.1974.tb00002.x?cookieSet=1&journalCode=abac

Russia now has offices of the Big 4 accounting firms and maybe other Western CPA firms as well. One of my former students accepted a transfer to the PwC office in Moscow. It proved to be a fast-track to becoming a partner in PwC. Russian companies are seeking equity investors throughout the world, and to do so they have to add accounting assurances much like the other companies in the global economy seek assurances.

KPMG has a publication comparing IFRS with Russian GAAP --- http://snipurl.com/russiangaap 
Also see http://www.kpmg.ru/index.thtml/en/services/assurance/IFRS/IFRSpublications/

PwC has an IFRS Transition document at http://www.pwc.com/extweb/service.nsf/docid/90828387207B28F78025717B0038B2AD
Results of a 2006 survey are reported at http://snipurl.com/russiangaapsurvey

Deloitte links to a Russian translation of IFRS as well as providing information on transitioning to IFRS in Russia --- http://www.iasplus.com/country/russia.htm

A illustrative Russian set of financial statements can be found at http://www.dixy.ru/en_invest-report/

Hope this helps!

Bob Jensen

Bob Jensen's threads on GAAP comparisons (with particular stress upon derivative financial instruments accounting rules) are at http://www.trinity.edu/rjensen/caseans/canada.htm
The above site also links to more general GAAP comparison guides between nations.

International Standards from the IASB --- Click Here
IASB homepage--- http://www.iasb.org/Home.htm 

U.S. Standards from the FASB (Free Downloads) --- http://www.fasb.org/public/ 
FASB homepage --- http://www.fasb.org/

Management Accounting Standards from the IMA (Free Downloads) --- http://www.imanet.org/publications_statements.asp#C
IMA homepage --- http://www.imanet.org/

Bob Jensen's summary of accounting theory and controversies --- http://www.trinity.edu/rjensen//theory/00overview/theory01.htm

"Global Finance Leaders Release Comprehensive Proposals to Strengthen the Financial Industry and Financial Markets," Institute for International Finance, July 17, 2008 --- http://www.iif.com/press/press+75.php

The world’s leading financial services firms today released a far-reaching report 1 detailing best practice reforms for the industry. The report represents the global industry’s response to the turmoil in financial markets that was triggered by the U.S. subprime mortgage market crisis in mid-2007. Today’s 200-page report is published by the Institute of International Finance, the association of leading financial services firms with more than 380 members across the world. The report proposes Principles of Conduct together with Best Practice Recommendations on critical issues such as risk management, compensation policies, valuation of assets, liquidity management, underwriting and the rating of structured products as well as boosting transparency and disclosure

Comparison of IFRSs and US GAAP (Educators can provide free copies to students) --- http://www.iasplus.com/dttpubs/0703ifrsusgaap.pdf
Comparisons for other nations --- http://www.iasplus.com/country/compare.htm

From IAS Plus on March 14, 2007 --- http://www.iasplus.com/dttpubs/0703ifrsusgaap.pdf

Deloitte's IFRS Global Office has published a new Comparison of International Financial Reporting Standards and United States GAAP (PDF 208k, 36 pages) as of 28 February 2007. While this comparison is comprehensive, it does not attempt to capture all of the differences that exist or that may be material to a particular entity's financial statements. Our focus is on differences that are commonly found in practice. The significance of the differences enumerated in this pubilcation – and others not included – will vary with respect to individual entities depending on such factors as the nature of the entity's operations, the industry in which it operates, and the accounting policy choices it has made. We are pleased to grant permission for accounting educators and students to make copies for educational purposes.

Main News Site for International Accounting Happenings --- http://www.iasplus.com/index.htm 

KEY GROUPS

EFRAG

Europe

IFAC

IOSCO

US FASB

US SEC

US PCAOB

RESOURCES Past News by Month Reference Materials Statistics Database IFRS in Europe by 2005 UK Web-based IFRS Updates Country/Region Use of IFRSs IAASB Auditing Standards Public Sector Standards

TOOLS 11-Year Calendar Currency Converter Loan Amortisation News Headlines Stock Market Indexes Telephone Codes Unit Conversions World Electric Guide World Phone Guide World Time Clock Worldwide Weather

DELOITTE'S IASPLUS WEBSITE About IASPlus Terms for Use Privacy Policy Abbreviations IAS Plus Spanish IAS Plus German

Paul Pacter and Deloitte provide a statistical database (with data about international accounting) at http://www.iasplus.com/stats/stats.htm

International Financial Reporting Standards (IFRS) Summary --- http://www.iasplus.com/standard/standard.htm

Use of IFRS varies by nation --- http://www.iasplus.com/country/useias.htm 

If you click on the Search tab and enter something like (IFRS AND China) to compare IFRS with the domestic standards of a given nation --- http://www.iasplus.com/index.htm

Question
Will the U.S. adopt all IFRS international standards while the European Union cherry picks which standards it will adopt?

From The Wall Street Journal Accounting Weekly Review on April 27, 2007

"SEC to Mull Letting U.S. Companies Use International Accounting Rules," by David Reilly, The Wall Street Journal, Page: C3 --- http://snipurl.com/WSJ0425

TOPICS: Accounting, Financial Accounting, Financial Accounting Standards Board, Securities and Exchange Commission

SUMMARY: The article describes the SEC's willingness to consider allowing U.S. companies to use USGAAP or International Financial Reporting Standards (IFRS) in their filings. This development stems from the initiative to allow international firms traded on U.S. exchanges to file using IFRS without reconciling to USGAAP-based net income and stockholders' equity as is now required on Form 20F. "SEC Chairman Christopher Cox said the agency remains committed to removing the reconciliation requirement by 2009. Such a move was the subject of an SEC roundtable and is being closely watched by European Union officials." The SEC will accept comments this summer on its proposal to eliminate the reconciliation requirements. If the agency does implement this change, then it will consider allowing U.S. companies the same alternative.

QUESTIONS:
1.) What is a "foreign private issuer" (FPI)? Summarize the SEC's current filing requirements for these entities.

2.) Why is the SEC considering allowing U.S. companies to submit filings under IFRS rather than U.S. GAAP?

3.) Why might the SEC's decision in this matter "spell the demise of USGAAP"?

4.) Define "principles-based standards" and contrast with "rules-based standards." Give an example in either USGAAP or IFRS requirements for each of these items.

5.) "Some experts don't think a move away from U.S. GAAP would necessarily be bad." Who do you think would hold this opinion? Who would disagree? Explain.

6.) Define the term convergence in relation to global standards. Who is working towards this goal?

Reviewed By: Judy Beckman, University of Rhode Island

Jensen Comment
Canada has already decided to adopt the IFRS in place of domestic Canadian standards.

Also see ""Strengthening the Transatlantic Economy," by José Manuel Barroso (European Commission President), April 27, 2007 --- http://www.iasplus.com/europe/0704barroso.pdf

Also don't assume that the European Union automatically adopts each IASB international standard. For example, the EU may not adopt IFRS 8 --- http://www.iasplus.com/standard/ifrs08.htm

"Is IFRS Compatible with U.S.-Style Corporate Governance?" by Tom Selling, The Accounting Onion, December 10, 2007 --- http://accountingonion.typepad.com/theaccountingonion/2007/12/is-ifrs-compati.html

I just finished reading a brief, highly readable and interesting article by a Columbia Law School professor, John C. Coffee, Jr., entitled A Theory of Corporate Scandals: Why the U.S. and Europe Differ.*  The purpose of this post is to piggyback on his framework to also provide an explanation for the difference in basic approaches between U.S. GAAP and IFRS; and most importantly, why political pressure to trash U.S. GAAP and adopt IFRS should be resisted. 

How and Why, According to Coffee, U.S. and European Scandals Differ

Coffee's thesis is that corporate governance of majority-owned corporations (predominant in Europe) should be fundamentally different than corporate governance of corporations that lack a controlling shareholder group (predominant in the U.S.). It's not necessarily because there are fewer incentives to rip off other shareholders, but the feasible means to do so will differ.

Scandals in Europe involving majority-owned corporations usually do not feature an accounting manipulation. First, financial reporting is less important to the majority owners because they rarely sell shares; and if they do, they usually receive a control premium that is uncorrelated with recent earnings (and generally larger than control premia in U.S. transactions).  Second, fraud is more easily accomplished by misappropriation of the private benefits of control: authorization of related-party transactions at advantageous prices, below-market tender offers, are prime examples.  Any trading that takes place between minority owners has less to do with recent earnings reports, and more to do with an assessment of how minority shareholders will be treated by controlling interests. 

In dispersed-ownership corporations, managers do not possess private benefits of control.  Moreover, a significant portion of manager's compensation may be in the form of stock options or other forms of equity.  Therefore, stock price can have a significant effect on a manager's compensation, providing them with strong incentives to manipulate accounting earnings.

The Implications for Accounting

Professor Coffee's thesis is that differences in ownership patterns have important implications for the selection of gatekeepers: auditors, analysts, independent directors, etc.  His observations and recommendations are interesting, but I want to advance a related thesis, namely that different ownership patterns call for different types of accounting regimes. 

It stands to reason that accounting should be difficult to manipulate, if it can be used to rip off shareholders.  Thus, the evolution of U.S. GAAP can be seen as a response to the need for specific rules that minimized the role of management judgment because of their strong self-interest in the reported earnings and financial position.  This has occurred in part because U.S. gatekeepers have shown themselves to often lack sufficient resolve or power to prevent management from under-reserving, overvaluing, or just plain ole making up numbers.  U.S. managers effectively control the "independent" directors and auditors; and prior to Regulation FD, analysts bartered glowing assessment in exchange for tidbits inside information.  Without empowered gatekeepers to prevent accounting fraud, we have had to place our hopes on very inflexible accounting rules, and sheriffs like the SEC and private attorneys to catch the cases where management has attempted to surreptitiously cross the bright line.

Thus, it should be self-evident that IFRS-style accounting, replete with gray areas, would be a gift to U.S. managers.  Outright fraud would be replaced by more subtle means of "earnings management," rendering the SEC and private attorneys much less potent. Is it any wonder why U.S. corporations and their auditors are practically begging to have IFRS available to them? 

In short, it would be a grave mistake to adopt IFRS in the U.S. simply because it seems to work well elsewhere.  As corporate ownership patterns in Europe change, it may well be that IFRS may evolve to look more like U.S. GAAP.  Only after that occurs may it make more sense to have a single worldwide financial reporting regime.      

Imagine if Enron Had Applied IFRS

One of the scapegoats of the Enron scandal was "rules-based"  U.S. GAAP. The libel was that Andrew Fastow was a mad genius, capable of walking an accounting tightrope by creating complex special-purpose entities (SPEs).  But, GAAP wasn't the culprit in the Enron scandal. Frustrated Fastow was only able to get the accounting treatment he needed past the auditors by hiding from them side agreements that unwound critical provisions requiring the new investors to have a sufficient amount of capital at risk in the SPEs. 

The enduring legacy of the libel is the erroneous conventional wisdom that GAAP is responsible for Enron; and what's more, Enron et. al. might not have happened if our financial reporting system were more like IFRS.  More likely, if IFRS had been the basis of accounting for Enron instead of GAAP, it might have taken longer to discover the fraud, or to pin the blame for the fraud where it belonged.

Neither GAAP nor IFRS are principles-based, but GAAP certainly has more rules and bright lines.  At least there seems to be some method to the madness, but it would be nice if more of the rules were based on sound principles. 

-------------------------------

*There are two versions of this paper.  The working paper is available at no charge from the Social Sciences Research Network electronic library at http://ssrn.com/abstract=694581.  The published version is in Oxford Review of Economic Policy, Vol. 21, No. 2 (2005).

 

Bob Jensen's threads on the differences between U.S. versus International GAAP are at http://www.trinity.edu/rjensen/Theory01.htm#FASBvsIASB

iGAAP (International GAAP) 2007 Financial Instruments: IAS 32, IAS 39 and IFRS 7 Explained (Third Edition)
Deloitte & Touche LLP (United Kingdom) has developed iGAAP 2007 Financial Instruments: IAS 32, IAS 39 and IFRS 7 Explained (Third Edition), which has been published by CCH. This publication is the authoritative guide for financial instruments accounting under IFRSs. The 2007 edition expands last year's edition with further interpretations, examples, discussions from the IASB and the IFRIC, updates on comparisons of IFRSs with US GAAP for financial instruments, as well as a new chapter on IFRS 7 Financial Instruments Disclosures including illustrative disclosures. iGAAP 2007 Financial Instruments: IAS 32, IAS 39 and IFRS 7 Explained (628 pages, March 2007) can be purchased through CCH Online or by phone at +44 (0) 870 777 2906 or by email: customer.services@cch.co.uk .
IAS Plus, March 24, 2007 --- http://www.iasplus.com/index.htm

Bob Jensen's tutorials on IAS 39 (Derivative Financial Instruments) are linked at http://www.trinity.edu/rjensen/caseans/000index.htm

CPA Examination candidates and accounting faculty should check out the free database at
http://www.cpa-exam.org/cpa/literature.htm

The Trinity University library has a single-user license (with an academic discount) for PwC’s Comperio --- http://www.pwcglobal.com/comperio
The single-user limitation really has not been problematic for us. Our Library guru wrote some front end code that lets any Trinity faculty member or student go directly into Comperio without having to remember a password

Comperio evolved out of a CD-Rom database that Price Waterhouse  sold under the name “Price Waterhouse Researcher.” Updated CDs were sent to us each quarter in the old days before things were as networked on the Web. Now it’s all Comperio on the Web.

Andersen had a competing CD database called Research Manager. That was bought out after Andersen fell, but I think it is now defunct (I could be wrong about this).

Now Comperio is the main commercial database available other than FARs --- http://www.fasb.org/fars/
I think each student can buy this from Wiley, but there have been numerous complaints about it.

PwC's Comperio Accounting Research Manager

Comperio is the most comprehensive on-line library of financial reporting and assurance literature in the world. Over 1,500 financial executives from around the world use Comperio on a daily basis. Comperio content includes AICPA, DIG, EITF, FASB, IAS, ISB and the SEC as well as pronouncements and standards from Australia, Belgium, Canada, New Zealand and the United Kingdom.

With Comperio, the answers you need are always available - right now, right at your fingertips. There is no software to install - just go to the Comperio website and start researching!

The entire online library can be immediately accessed by browsing a pronouncement or topic directly, or by searching the entire database for key words, topics or terms.

Visit the Comperio product information site at http://www.pwcglobal.com/comperio . You will find the necessary forms to order Comperio today or to request a 30-day free trial.

Andersen's old Accounting Research Manager is now updated and maintained by CCH. The AICPA has accounting research literature in the FARs database.

For national and international accounting rulings and online research, it is best to subscribe for a fee to one of the leading services shown below:

PwC Comperio --- http://www.pwcglobal.com/comperio

CCH Accounting Research Manager --- http://www.accountingresearchmanager.com/ARMMenu.nsf/vwHTML/ARMSplash?OpenDocument

AICPA FARs (marketed by Wiley) --- http://www.fasb.org/fars/

For looking up filings with the SEC, there are two major sources:

EDGAR --- http://www.sec.gov/edgar/quickedgar.htm

PwC EdgarScan --- http://edgarscan.pwcglobal.com/servlets/edgarscan 

It is possible to do comparative company financial analyses using the core earnings databases --- http://www.trinity.edu/rjensen//theory/00overview/theory01.htm#CoreEarnings

Many IFRS and multiple nation standards and reviews are available from Deloitte's IAS Plus --- http://www.iasplus.com/index.htm

Free International Auditing Standards
All documents issued by IFAC and the International Auditing and Assurance Standards Board (IAASB) are now available for immediate download at no charge. Visitors must simply fill out a one-time registration to gain access to the documents. http://www.accountingweb.com/item/96952 

PwC has a new helper comparing U.S. GAAP with international (IFRS) GAAP --- http://www.pwc.com/extweb/pwcpublications.nsf/docid/74d6c09e0a4ee610802569a1003354c8

Download: Similarities and Differences - A comparison of IFRS and US GAAP (2005 update) [PDF file, 469k]

Download: Similarities and Differences - A comparison of IFRS and US GAAP (2004) [PDF file, 314k]

Download: publication order form [PDF file, 212k]

Other publications in the Similarities and Differences series are also available.

Updated in 2005:  Some Key Differences Between IFRs and U.S. GAAP -

Convergence of foreign and domestic accounting rules could catch some U.S. companies by surprise
Although many differences remain between U.S. generally accepted accounting principles (GAAP) and international financial reporting standards (IFRS), they are being eliminated faster than anyone, even Herz or Tweedie, could have imagined. In April, FASB and the IASB agreed that all major projects going forward would be conducted jointly. That same month, the Securities and Exchange Commission said that, as soon as 2007, it might allow foreign companies to use IFRS to raise capital in the United States, eliminating the current requirement that they reconcile their statements to U.S. GAAP. The change is all the more remarkable given that the IASB was formed only four years ago, and has rushed to complete 25 new or revamped standards in time for all 25 countries in the European Union to adopt IFRS by this year. By next year, some 100 countries will be using IFRS. "We reckon it will be 150 in five years," marvels Tweedie. "That leaves only 50 out."
Tim Reason, "The Narrowing GAAP:  The convergence of foreign and domestic accounting rules could catch some U.S. companies by surprise," CFO Magazine December 01, 2005 ---
http://www.cfo.com/article.cfm/5193385/c_5243641?f=magazine_coverstory

Monumental Scholarship (The following book is not online.)
The Early History of Financial Economics 1478-1776
by Geoffrey Poitras (Simon Fraser University) --- http://www.sfu.ca/~poitras/photo_pa.htm 
(Edward Elgar,  Cheltenham, UK, 2000) --- http://www.e-elgar.co.uk/ 

Jack Anderson sent the following message:

A good book on accounting history in the U.S. is

A History of Accountancy in the United States by Gary John Previts and  Barbara Dubis Merino

 

It's available through The Ohio State University Press (see web site

http://www.ohiostatepress.org/cat97/previts.htm )

 

I'm unaware of a good history of international accounting but would like to hear of one.

 

Jack Anderson

 

The FASB's website is at http://www.iasb.org/ 

• The FASB added Concepts and Standards at an unprecedented rate.
• FASB standards have become increasingly complex and cause a great deal of confusion among both preparers and users of financial statements.  The most dramatic example is the almost-incomprehensible FAS 133 on Accounting for Derivative Instruments.  In fairness, however, it should be noted that industry has brought on a lot of its own troubles with almost-incomprehensible financing and employment contracts (many of which are designed for the main purpose of getting around having to book and/or disclose expenses and debt).
• The FASB has focused much more on the balance sheet than on the income statement.  Over one third of the standards deal with industry OBSF schemes.
• The FASB does take costs into consideration as well as benefits of its accounting standards.  For example, after studying investor use of FAS 33 requiring supplemental statements on price-level adjusted statements and current cost statements, the FASB rescinded FAS 33 with FAS 89.
• The FASB also issued a costly and controversial set of Accounting Concepts.  After some dormancy, the FASB is once again adding to these concepts with its first new concepts statement in over 16 years (Present Value Based Measurements and Fair Value).  Trinity University students may read about this at J:\courses\Acct5341\readings\Present Value-Based Measurements and Fair Value.htm.  

The future of the FASB and all national standard setters is cloudy due to the globalization of business and increasing needs for international standards.  The primary body for setting international standards was the International Accounting Standards Committee (IASC) that evolved into the International Accounting Standards Board (IASB) having a homepage at http://www.iasc.org.uk/  For a brief review of its history and the history of its standards, I recommend going to http://www.trinity.edu/rjensen/acct5341/speakers/pacter.htm#003.04.

In 2001, the IASC was restructured into the new and smaller International Accounting Standards Board (IASB).  The majority of the IASB members will be full-time, whereas the members of the IASC were only part-time and did not have daily face-to-face encounters with other Board members or the IASC staff.  The IASB will operate more like the FASB in the U.S.  

In the early years of its existence, the IASC tended to avoid controversial issues and there was nothing to back up its standards (except in the U.S. where lawyers will use almost anything to support litigation brought by investors against corporations).  

Times are changing at the IASC.  It has been restructured and is getting a much greater budget for accounting research.  Most importantly, IASC standards are becoming the standards required by large international stock exchanges (IOSCO).

The Global Reporting Initiative (GRI) was established in late 1997 with the mission of developing globally applicable guidelines for reporting on the economic, environmental, and social performance, initially for corporations and eventually for any business, governmental, or non-governmental organisation (NGO). Convened by the Coalition for Environmentally Responsible Economies (CERES) in partnership with the United Nations Environment Programme (UNEP), the GRI incorporates the active participation of corporations, NGOs, accountancy organisations, business associations, and other stakeholders from around the world business plan --- http://www.globalreporting.org/ 

Jagdish Gangolly recommends the following book:
Dollars & scholars, scribes & bribes: The story of accounting by Gary Giroux # Dame Publications, Inc (1996) # ASIN: B0006R6WQS --- http://snipurl.com/Giroux  

Jim McKinney recommends the following book;
It is not a lot more recent but I would consider the US centric text: A History of Accountancy in the United States: The Cultural Significance of Accounting by Previtz & Merino published in 1998. It is available in paperback.

SHARPEN YOUR UNDERSTANDING OF THE (2005) YEAR'S FINANCIAL REPORTING STANDARDS AND DEVELOPMENTS --- http://accountingeducation.com/index.cfm?page=newsdetails&id=141776

Accounting Research Versus the Accountancy Profession

Perhaps I'm old and tired, but I always think that the chances of finding out what really is going on are so absurdly remote that the only thing to do is to say hang the sense of it and just keep yourself occupied.
Douglas Adams

There are two explanations one can give for this state of affairs here. The first is due to the great English economist Maurice Dobb according to whom the theory of value was replaced in the United States by theory of price. May be, the consequence for us today is that we know the price of everything but perhaps the value of nothing. Economics divorced from politics and philosophy is vacuous. In accounting, we have inherited the vacuousness by ignoring those two enduring areas of inquiry.
Professor Jagdish Gangolly, SUNY Albany

The second is the comment that Joan Robinson made about American Keynsians: that their theories were so flimsy that they had to put math into them. In accounting academia, the shortest path to respectability seems to be to use math (and statistics), whether meaningful or not.
Professor Jagdish Gangolly, SUNY Albany

Rough notes of David Dennis from an informal panel of veteran accounting researchers at the American Accounting Association annual meetings in 2007 --- http://www.trinity.edu/rjensen/Dennis2007.htm

This citation was forwarded by Don Ramsey
"Why business ignores the business schools," by Michael Skapinker, Financial Times, January 7, 2008

Chief executives, on the other hand, pay little attention to what business schools do or say. As long ago as 1993, Donald Hambrick, then president of the US-based Academy of Management, described the business academics' summer conference as "an incestuous closed loop", at which professors "come to talk with each other". Not much has changed. In the current edition of The Academy of Management Journal.

. . .

They have chosen an auspicious occasion on which to beat themselves up: this year is The Academy of Management Journal's 50th anniversary. A scroll through the most recent issues demonstrates why managers may be giving the Journal a miss. "A multi-level investigation of antecedents and consequences of team member boundary spanning behaviour" is the title of one article.

Why do business academics write like this? The academics themselves offer several reasons. First, to win tenure in a US university, you need to publish in prestigious peer-reviewed journals. Accessibility is not the key to academic advancement.

Similar pressures apply elsewhere. In France and Australia, academics receive bonuses for placing articles in the top academic publications. The UK's Research Assessment Exercise, which evaluates university research and ties funding to the outcome, encourages similarly arcane work.

But even without these incentives, many business school faculty prefer to adorn their work with scholarly tables, statistics and jargon because it makes them feel like real academics. Within the university world, business schools suffer from a long-standing inferiority complex.

The professors offer several remedies. Academic business journals should accept fact-based articles, without demanding that they propound a new theory. Professor Hambrick says that academics in other fields "don't feel the need to sprinkle mentions of theory on every page, like so much aromatic incense or holy water".

Others talk of the need for academics to spend more time talking to managers about the kind of research they would find useful.

As well-meaning as these suggestions are, I suspect the business school academics are missing something. Law, medical and engineering schools are subject to the same academic pressures as business schools - to publish in prestigious peer-reviewed journals and to buttress their work with the expected academic vocabulary.

The schism between academic research and the business world: 
The outside world has little interest in research of the business school professors
If our research findings were important, there would be more demand for replication of findings

"Business Education Under the Microscope:  Amid growing charges of irrelevancy, business schools launch a study of their impact on business,"
Business Week, December 26, 2007 --- http://www.businessweek.com/bschools/content/dec2007/bs20071223_173004.htm 

The business-school world has been besieged by criticism in the past few months, with prominent professors and writers taking bold swipes at management education. Authors such as management expert Gary Hamel and Harvard Business School Professor Rakesh Khurana have published books this fall expressing skepticism about the direction in which business schools are headed and the purported value of an MBA degree. The December/January issue of the Academy of Management Journal includes a special section in which 10 scholars question the value of business-school research.

B-school deans may soon be able to counter that criticism, following the launch of an ambitious study that seeks to examine the overall impact of business schools on society. A new Impact of Business Schools task force convened by the Association to Advance Collegiate Schools of Business (AACSB)—the main organization of business schools—will mull over this question next year, conducting research that will look at management education through a variety of lenses, from examining the link between business schools and economic growth in the U.S. and other countries, to how management ideas stemming from business-school research have affected business practices. Most of the research will be new, though it will build upon the work of past AACSB studies, organizers said.

The committee is being chaired by Robert Sullivan of the University of California at San Diego's Rady School of Management, and includes a number of prominent business-school deans including Robert Dolan of the University of Michigan's Stephen M. Ross School of Business, Linda Livingstone of Pepperdine University's Graziado School of Business & Management, and AACSB Chair Judy Olian, who is also the dean of UCLA's Anderson School of Management. Representatives from Google (GOOG) and the Educational Testing Service will also participate. The committee, which was formed this summer, expects to have the report ready by January, 2009.

BusinessWeek.com reporter Alison Damast recently spoke with Olian about the committee and the potential impact of its findings on the business-school community.

There has been a rising tide of criticism against business schools recently, some of it from within the B-school world. For example, Professor Rakesh Khurana implied in his book From Higher Aims to Hired Hands (BusinessWeek.com, 11/5/07) that management education needs to reinvent itself. Did this have any effect on the AACSB's decision to create the Impact of Business Schools committee?

I think that is probably somewhere in the background, but I certainly don't view that as in any way the primary driver or particularly relevant to what we are thinking about here. What we are looking at is a variety of ways of commenting on what the impact of business schools is. The fact is, it hasn't been documented and as a field we haven't really asked those questions and we need to. I don't think a study like this has ever been done before.

Continued in article

Bob Jensen's threads on the growing irrelevance of academic accounting research are at http://www.trinity.edu/rjensen/Theory01.htm#DoctoralPrograms

The dearth of research findings replications --- http://www.trinity.edu/rjensen/Theory01.htm#Replication

Bob Jensen's threads on higher education controversies are at http://www.trinity.edu/rjensen/HigherEdControversies.htm

January 2, 2008 reply from David Albrecht [albrecht@PROFALBRECHT.COM]

Bob,

AACSB chair Judy Olian (dean, UCLA school of biz) is quoted as saying that 39% of Fortune 500 CEOs are graduates of a businesss school.

I am surprised that this is such a low number. Why shouldn't this number be very much higher? Given that corporations are run by professional managers, why wouldn't the college degree that prepares professional managers show up with greater frequency in the profile of the top professional managers?

I don't know how it is possible for this group of deans to design a research study to show the relevance of business school education. Well, I don't know how it would be possible for anyone to design it. Isn't relevance a judgment call?

David Albrecht

January 2, 2008 reply from Bob Jensen

Hi David,

CEOs rise up from many walks of life, especially engineering, economics, law, and the specialties of an industry such as chemistry, medicine, agriculture, etc. CFOs and CAOs are another matter entirely.

As far as research impacts are determined, subjective judgment is certainly a huge factor but there are other indicators. Can executives recall a single article published in The Accounting Review or other leading academic accounting journal upon which academic reputations are built? Can executives name one author who received the AAA Seminal Contributions Award or any other academic award of major academic associations?

One indicator in accounting is practitioner membership in the American Accounting Association. The AAA started out as primarily an association for accounting practitioners and teachers of accounting. For four decades practitioners were heavily involved in the AAA and the longest-running editor of The Accounting Review was a practitioner (Kohler) --- http://snipurl.com/aohkohler 

All this changed with what Jean Heck and I call the "perfect storm" of the 1960s. Since then, practitioner membership steadily declined in the AAA and readership of academic accounting research journals plummeted to virtually zero. Practitioners still send us their money and their recruiters, but leading academic researchers like Joel Demski warn against accounting researchers catching a "vocational virus" and cringe at aiming our research talent toward practical problems of the profession for which we seemingly have no comparative advantage due to our rather useless accountics skills.

You can read much of the history of this schism at http://www.trinity.edu/rjensen/Theory01.htm#AcademicsVersusProfession 

The schism is probably greatest in accounting and the smallest in finance where there practitioners have relied more on research findings and fads in economics and finance journals.

Some universities are more focused on industry than others. Harvard certainly has tried very hard in this regard, but Harvard's case method research just cannot pass the hurdles of the journal referees of our leading accounting research journals.

And even accounting academics are bored with the (yawn) articles appearing in our academic research journals. Ron Dye is probably one of our most esoteric accountics researchers (his degrees are in mathematics and economics even though he's an "accounting professor"). Ron stated the following at http://www.trinity.edu/rjensen/Theory01.htm#AcademicsVersusProfession 

Begin Quote from Ron Dye***************

About the question: by and large, I think it is a mistake for someone interested in pursuing an academic career in accounting not to get a phd in accounting. If you look at the "success" stories, there aren't many: most of the people who make a post-phd transition fail. I think that happens for a couple reasons. 1. I think some of the people that transfer late do it for the money, and aren't really all that interested in accounting. While the $ are nice, it is impossible to think about $ when you are trying to come up with an idea, and anyway, you're unlikely to come up with an idea unless you're really interested in the subject. 2. I think, almost independent of the field, unless you get involved in the field at an early age, for some reason it becomes very hard to develop good intuition for the area - which is a second reason good problems are often not generated by "crossovers."

The bigger thing - not related to the question you raise - but maybe you could add to the discussion is that there are, as far as I can tell, not a lot of new ideas being put forth by anyone in accounting nowadays (with the possible exception of John Dickhaut's neuro stuff). In most fields, the youngsters are supposed to come up with the new problems, techniques, etc., but I see a lot more mimicry than innovation among newly minted phds now.

Anyway, for what it's worth....

Ron
End Quote from Ron Dye****************

_________________

Perhaps the AACSB can make some progress toward bridging the schism. But I leave you with a forthcoming quote in the January 6 edition of Tidbits:

Question "How many professors does it take to change a light bulb?"

Answer "Whadaya mean, "change"?" Bob Zemsky, Chronicle of Higher Education's Chronicle Review, December 2007

"The "Bright Star" of B-School Research: Finance  While other academic fields lie almost fallow — drawing criticism for lack of relevance — examples abound of finance research that makes a difference," by Roy Harris CFO.com, March 27, 2008 --- http://cfo.com/article.cfm/10927537/c_10923636

Our Tuesday article, "Business School for Dummies?" looked at the drive at accrediting group ACCSB to move research in the direction of providing more useful lessons for the business world.

Even as business schools draw fire for producing too little research of real relevance to Corporate America, the area of finance may be the single most notable exception — an area in which theory after theory is used to solve daily business problems.

"Finance is the bright star," says professor Gabriel Hawawini, one member of the AACSB "Impact of Research" task force, which strongly suggested in its recent report pressing for academic studies to do more to fill the needs presented by American business. "If you ask what contributions have been made, you would put finance at the top of the list for models, principles, and theories that are in use today," adds the Hawawini, currently a visiting professor of finance at the University of Pennsylvania's Wharton School.

Continued in article

Question
What research methodology flaws are shared by studies in political science and accounting science?

"Methodological Confusion:  How indictments of The Israel Lobby (by John J. Mearsheimer, Stephen M. Walt, ISBN-13: 9780374177720) expose political science's flaws" by Daniel W. Drezner, Chronicle of Higher Education's Chronicle Review, February 22, 2008, Page B5 --- http://chronicle.com/weekly/v54/i24/24b00501.htm 

Does the public understand how political science works? Or are political scientists the ones who need re-educating? Those questions have been running through my mind in light of the drubbing that John J. Mearsheimer and Stephen M. Walt received in the American news media for their 2007 book,  The Israel Lobby and U.S. Foreign Policy (Farrar, Straus and Giroux, 2007). Pick your periodical — The Economist, Foreign Affairs, The Nation, National Review, The New Republic, The New York Times Book Review, The Washington Post Book World — and you'll find a reviewer trashing the book.

From a political-science perspective, what's interesting about those reviews is that they are largely grounded in methodological critiques — which rarely break into the public sphere. What's disturbing is that the methodologies used in The Israel Lobby and U.S. Foreign Policy are hardly unique to Mearsheimer and Walt. Are the indictments of their book overblown, or do they expose the methodological flaws of the discipline in general?

The most persistent public criticism of Mearsheimer and Walt has been their failure to empirically buttress their argument with interviews. Writing in the Times Book Review, Leslie H. Gelb, president emeritus of the Council on Foreign Relations, criticized their "writing on this sensitive topic without doing extensive interviews with the lobbyists and the lobbied." David Brooks, a columnist for The New York Times, recently seconded that notion: "If you try to write about politics without interviewing policy makers, you'll wind up spewing all sorts of nonsense."

That kind of critique has a long pedigree. For decades public officials and commentators have decried the failure of social scientists to engage more deeply with the objects of their studies. Secretary of State Dean Acheson once objected to being treated as a "dependent variable." The New Republic ran a cover story in 1999 with the subhead, "When Did Political Science Forget About Politics?"

To the general reader, such critiques must sound damning. International-relations scholars know full well, however, that innumerable peer-reviewed articles and university-press books utilize the same kind of empirical sources that appear in The Israel Lobby. Most case studies in international relations rely on news-conference transcripts, official documents, newspaper reportage, think-tank analyses, other scholarly works, etc. It is not that political scientists never interview policy makers — they do (and Mearsheimer and Walt aver that they have as well). However, with a few splendid exceptions, interviews are not the bread and butter of most international-relations scholarship. (This kind of fieldwork is much more common in comparative politics.)

Indeed, the claim that political scientists can't write about policy without talking to policy makers borders on the absurd. The first rule about policy makers is that they always have agendas — even in interviews with social scientists. That does not mean that those with power lie. It does mean that they may not be completely candid in outlining motives and constraints. One would expect that to be particularly true about such "a sensitive topic."

Further, most empirical work in political science is concerned with actions, not words. How much aid has the United States disbursed to Israel? How did members of Congress vote on the issue? Without talking to members of Congress, thousands of Congressional scholars study how the legislative branch acts, by analyzing verifiable actions or words — votes, speeches, committee hearings, and testimony. Statistical approaches allow political scientists to test hypotheses through regression analysis. By Brooks's criteria, any political analysis of, say, 19th-century policy decisions would be pointless, since all the relevant players are dead.

Other methodological critiques are more difficult to dismiss. Walter Russell Mead's dissection of The Israel Lobby in Foreign Affairs does not pull any punches. Mead, a senior fellow at the Council on Foreign Relations, wrote that Mearsheimer and Walt "claim the clarity and authority of rigorous logic, but their methods are loose and rhetorical. This singularly unhappy marriage — between the pretensions of serious political analysis and the standards of the casual op-ed — both undercuts the case they wish to make and gives much of the book a disagreeably disingenuous tone."

Mead enumerates several methodological sins, in particular the imprecise manner in which the "Israel Lobby" is defined in the book. For their part, the book's authors acknowledge that the term is "somewhat misleading," conceding that "the boundaries of the Israel Lobby cannot be identified precisely." It is certainly true that many of the central concepts in international-relations theory — like "power" or "regime" — have disputed definitions. But most political scientists deal with nebulous concepts by explicitly offering their own definition to guide their research. Even if others disagree, at least the definition is transparent. In The Israel Lobby, however, Mearsheimer and Walt essentially rely on a Potter Stewart definition of the lobby: They know it when they see it. That makes it exceedingly difficult for other political scientists to test or falsify their hypotheses.

Many of the reviews of the book highlight two flaws that, disturbingly, are more pervasive in academic political science. The first is the failure to compare the case in question to other cases. For example, Mearsheimer and Walt go to great lengths to outline the "extraordinary material aid and diplomatic support" the United States provides to Israel. What they do not do, however, is systematically compare Israel to similarly situated countries to determine if the U.S.-Israeli relationship really is unique. An alternative, strategic explanation would posit that Israel falls into a small set of countries: longstanding allies bordering one or multiple enduring rivals. The category of states that meet that criteria throughout the time period analyzed by Mearsheimer and Walt is relatively small: Pakistan, South Korea, Taiwan, and Turkey. Compared to that smaller set of countries, the U.S. relationship with Israel does not look anomalous. The United States has demonstrated a willingness to expend blood, treasure, or diplomatic capital to ensure the security of all of those countries — despite the wide variance in the strength of each's "lobby."

Continued in article

Daniel W. Drezner is an associate professor of international politics at the Fletcher School at Tufts University.

Jensen Comment
When I read the above review entitled "Metholological Confusiion" I kept thinking of the thousands of empirical and analytical studies by accounting faculty and students that have similar methodology confusions. How many mathematical/empirical database studies relating accounting events (e.g., a new standard) with capital market behavior also conduct formal interviews with investors, analysts, fund managers, etc. Do analytical researchers conduct formal interviews with real-world decision makers before building their mathematical models? The majority of behavioral accounting studies conducted by professors use students as surrogates for real-world decision makers. This methodology is notoriously flawed and could be helped if the researchers had also interviewed real-world players.

And Drezner overlooked another common flaw shared by both political science and accountics research. If the findings are as important as claimed by authors, why aren't other researchers frantically trying to replicate the results? The lack of replication in accounting science (accountics research) is scandalous --- http://www.trinity.edu/rjensen/Theory01.htm#Replication
Formal and well-crafted interviews with important players (investors, standard setters, CEOs, etc.) constitute possible ways of replicating empirical and analytical findings.

The closest things we have to in-depth contact with real world players in accounting research is research conducted by the standard setters themselves such as the FASB, the IASB, the GASB, etc. Sometimes these are interviews, although more often then not they are comment letters. But accountics researchers wave off such research as anecdotal and seldom even quote the public archives of such interviews and comments. Surveys are frequently published but these tend to be relegated to less prestigious academic research journals and practitioner journals.

Most importantly of all in accountics is that the leading accounting research journals for tenure, promotion, and performance evaluation in academe are devoted to accountics paper. Normative methods, case studies, and interviews are rarely used in studies published in such journals. The following is a quotation from “An Analysis of the Evolution of Research Contributions by The Accounting Review (TAR): 1926-2005,” by Jean L. Heck and Robert E. Jensen, Accounting Historians Journal, Volume 34, No. 2, December 2007, Page 121.

Leading accounting professors lamented TAR’s preference for rigor over relevancy [Zeff, 1978; Lee, 1997; and Williams, 1985 and 2003]. Sundem [1987] provides revealing information about the changed perceptions of authors, almost entirely from academe, who submitted manuscripts for review between June 1982 and May 1986. Among the 1,148 submissions, only 39 used archival (history) methods; 34 of those submissions were rejected. Another 34 submissions used survey methods; 33 of those were rejected. And 100 submissions used traditional normative (deductive) methods with 85 of those being rejected. Except for a small set of 28 manuscripts classified as using “other” methods (mainly descriptive empirical according to Sundem), the remaining larger subset of submitted manuscripts used methods that Sundem [1987, p. 199] classified these as follows:

292          General Empirical

172          Behavioral

135          Analytical modeling

119          Capital Market

  97          Economic modeling

  40          Statistical modeling

  29          Simulation

 

It is clear that by 1982, accounting researchers realized that having mathematical or statistical analysis in TAR submissions made accountics virtually a necessary, albeit not sufficient, condition for acceptance for publication. It became increasingly difficult for a single editor to have expertise in all of the above methods. In the late 1960s, editorial decisions on publication shifted from the TAR editor alone to the TAR editor in conjunction with specialized referees and eventually associate editors [Flesher, 1991, p. 167]. Fleming et al. [2000, p. 45] wrote the following:

The big change was in research methods. Modeling and empirical methods became prominent during 1966-1985, with analytical modeling and general empirical methods leading the way. Although used to a surprising extent, deductive-type methods declined in popularity, especially in the second half of the 1966-1985 period.
 

I think the emphasis highlighted in red above demonstrates that "Methodological Confusion" reigns supreme in accounting science as well as political science.

February 22, 2008 reply from James M. Peters [jpeters@NMHU.EDU]

A couple of years ago, P. Kothari, one of the Editors of JAE and a full professor at MIT, visited the U. of Maryland to present a paper. In my private discussion with him, I asked him to identify what he considered to the settled findings associated with the last 30 years of capital markets research in accounting. I pointed out that somewhere over half of all accounting research since Ball and Brown fit into this category and I was curious as to what the effort had added to Ball and Brown. That is, what conclusions have been drawn that could be considered settled ground so that researchers could move on to other topics. His response, and I quote, was "I understand your point, Jim." He could not identify one issue that researchers had been able to "put to bed" after all that effort.

Jim Peters
New Mexico Highlands University

February 22, 2008 reply from J. S. Gangolly [gangolly@CSC.ALBANY.EDU]

Jim,

P. Kothari's response is to be expected. I have had similar responses from at least two ex-editors of TAR; how appropriate a TLA! But who wants to bell the cats (or call off the naked emperors' bluff)? Accounting academia knows which side of the bread is buttered.

That you needed to flaunt Kothari's resume to legitimise his vacuous response shows the pathetic state of accounting academia.

If accounting academia is not to be reduced to the laughing stock of accounting practice, we better start listening to the problems that practice faces. How else can we understand what we profess to "research"? We accounting academics have been circling our wagons too long as a ploy to keep our wages arbitrarily high.

In as much as we are a profession, any academic on such a committee reduces the whole exercise to a farce.

Jagdish

Bob Jensen's threads on research methods in accounting can be found at http://www.trinity.edu/rjensen/Theory01.htm 

As David Bartholomae observes, “We make a huge mistake if we don’t try to articulate more publicly what it is we value in intellectual work. We do this routinely for our students — so it should not be difficult to find the language we need to speak to parents and legislators.” If we do not try to find that public language but argue instead that we are not accountable to those parents and legislators, we will only confirm what our cynical detractors say about us, that our real aim is to keep the secrets of our intellectual club to ourselves. By asking us to spell out those secrets and measuring our success in opening them to all, outcomes assessment helps make democratic education a reality.
Gerald Graff, "Assessment Changes Everything," Inside Higher Ed, February 21, 2008 --- http://www.insidehighered.com/views/2008/02/21/graff
Gerald Graff is professor of English at the University of Illinois at Chicago and president of the Modern Language Association. This essay is adapted from a paper he delivered in December at the MLA annual meeting, a version of which appears on the MLA’s Web site and is reproduced here with the association’s permission. Among Graff’s books are Professing Literature, Beyond the Culture Wars and Clueless in Academe: How School Obscures the Life of the Mind.

The consensus report, which was approved by the group’s international board of directors, asserts that it is vital when accrediting institutions to assess the “impact” of faculty members’ research on actual practices in the business world.

"Measuring ‘Impact’ of B-School Research," by Andy Guess, Inside Higher Ed, February 21, 2008 ---  http://www.insidehighered.com/news/2008/02/22/impact

Ask anyone with an M.B.A.: Business school provides an ideal environment to network, learn management principles and gain access to jobs. Professors there use a mix of scholarly expertise and business experience to teach theory and practice, while students prepare for the life of industry: A simple formula that serves the school, the students and the corporations that recruit them.

Yet like any other academic enterprise, business schools expect their faculty to produce peer-reviewed research. The relevance, purpose and merit of that research has been debated almost since the institutions started appearing, and now a new report promises to add to the discussion — and possibly stir more debate. The Association to Advance Collegiate Schools of Business on Thursday released the final report of its Impact of Research Task Force, the result of feedback from almost 1,000 deans, directors and professors to a preliminary draft circulated in August.

The consensus report, which was approved by the group’s international board of directors, asserts that it is vital when accrediting institutions to assess the “impact” of faculty members’ research on actual practices in the business world. But it does not settle on concrete metrics for impact, leaving that discussion to a future implementation task force, and emphasizes that a “one size fits all” approach will not work in measuring the value of scholars’ work.

The report does offer suggestions for potential measures of impact. For a researcher studying how to improve manufacturing practices, impact could be measured by counting the number of firms adopting the new approach. For a professor who writes a book about finance for a popular audience, one measure could be the number of copies sold or the quality of reviews in newspapers and magazines.

“In the past, there was a tendency I think to look at the [traditional academic] model as kind of the desired situation for all business schools, and what we’re saying here in this report is that there is not a one-size-fits-all model in this business; you should have impact and expectations dependent on the mission of the business school and the university,” said Richard Cosier, the dean of the Krannert School of Management at Purdue University and vice chair and chair-elect of AACSB’s board. “It’s a pretty radical position, if you know this business we’re in.”

That position worried some respondents to the initial draft, who feared an undue emphasis on immediate, visible impact of research on business practices — essentially, clear utilitarian value — over basic research. The final report takes pains to alleviate those concerns, reassuring deans and scholars that it wasn’t minimizing the contributions of theoretical work or requiring that all professors at a particular school demonstrate “impact” for the institution to be accredited.

“Many readers, for instance, inferred that the Task Force believes that ALL intellectual contributions must be relevant to and impact practice to be valued. The position of the Task Force is that intellectual contributions in the form of basic theoretical research can and have been extremely valuable even if not intended to directly impact practice,” the report states.

“It also is important to clarify that the recommendations would not require every faculty member to demonstrate impact from research in order to be academically qualified for AACSB accreditation review. While Recommendation #1 suggests that AACSB examine a school’s portfolio of intellectual contributions based on impact measures, it does not specify minimum requirements for the maintenance of individual academic qualification. In fact, the Task Force reminds us that to demonstrate faculty currency, the current standards allow for a breadth of other scholarly activities, many of which may not result in intellectual contributions.”

Cosier, who was on the task force that produced the report, noted that business schools with different missions might require differing definitions of impact. For example, a traditional Ph.D.-granting institution would focus on peer-reviewed research in academic journals that explores theoretical questions and management concepts. An undergraduate institution more geared toward classroom teaching, on the other hand, might be better served by a definition of impact that evaluated research on pedagogical concerns and learning methods, he suggested.

A further concern, he added, is that there simply aren’t enough Ph.D.-trained junior faculty coming down the pipeline, let alone resources to support them, to justify a single research-oriented model across the board. “Theoretically, I’d say there’s probably not a limit” to the amount of academic business research that could be produced, “but practically there is a limit,” Cosier said.

But some critics have worried that the report could encourage a focus on the immediate impact of research at the expense of theoretical work that could potentially have an unexpected payoff in the future.

Historically, as the report notes, business scholarship was viewed as inferior to that in other fields, but it has gained esteem among colleagues over the past 50 or so years. In that context, the AACSB has pursued a concerted effort to define and promote the role of research in business schools. The report’s concrete recommendations also include an awards program for “high-impact” research and the promotion of links between faculty members and managers who put some of their research to use in practice.

The recommendations still have a ways to go before they become policy, however. An implementation task force is planned to look at how to turn the report into a set of workable policies, with some especially worried about how the “impact” measures would be codified. The idea, Cosier said, was to pilot some of the ideas in limited contexts before rolling them out on a wider basis.

Jensen Comment
It will almost be a joke to watch leading accountics researchers trying of show how their esoteric findings have impacted the practice world when the professors themselves cannot to point to any independent replications of their own work --- http://www.trinity.edu/rjensen/Theory01.htm#Replication
Is the practice world so naive as to rely upon findings of scientific research that has not been replicated?

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

February 22, 2008 reply from Ed Scribner [escribne@NMSU.EDU]

Bob,

I’d surprised to see much reaction from “accountics” researchers as they are pretty secure, especially since the report takes pains not to antagonize them. Anyway, in the words of Corporal Klinger of the 4077th MASH Unit, “It takes a lot of manure to produce one perfect rose.”

Ed

February 25, 2008 reply from Paul Williams [Paul_Williams@NCSU.EDU]

On 24 Feb 2008 at 14:18, David Albrecht wrote:

>

> I am struck by a seeming incongruity.

>

> On one hand there is no respect for accounting research in B-schools. On the other

> hand, publishing accounting research in peer-reviewed pubs is a requirement for AQ

> status in B-schools.

>

> More and more I am attracted to Ernest Boyer's description of multiple forms of

> scholarships and multiple outlets of scholarship.

 

Re: this conversation.

Ian Shapiro, professor of Political Science at Yale, has recently published a book "The Flight from Reality in the Human Sciences"  (Princeton U. Press, 2005) that assures that the problem is not confined to accounting (though it is more ludicrous a place for a discipline that is actually a practice).  All of the social sciences have succumbed to rational decision theory and methodological purity to the point that academe now largely deals with understanding human behavior only within a mathematically tractible unreality made real in the academy essentially because of its mathematical tractibility.  Jagdish recent post is insightful (and inciteful to the winners of this game in our academy).  The problem the US academy has defined for itself is not solvable.  Optimal information systems?  Information useful for decision making (without any consideration of the intervening "motives" (potentially infinite in number) that convert assessments into actions)?   

 

As Bob has so frequently reminded us replication is the lifeblood of science, yet we never replicate.  But we couldn't replicate if we wanted to because replication is not the point.  Anyone with a passing familiarity with laboratory sciences knows that a fundamental ethic of those sciences is the laboratory journal.  The purpose of the journal is to provide the precise recipe of the experiments so that other scientists can replicate.  All research in accounting (that is published in the "top" journals, at least) is "laboratory research."  But do capital market or principal/agent researchers maintain a log that decribes in minute detail the innumerable decisions that they made along the way in assembling and manipulating their data (as chemists and biologists are bound to do by virtue of the  research ethics of their disciplines) ?  No way.  From any published article, it is nearly impossible to actually replicate one of their experiments because the article is never sufficient documentation.  But, of course, that isn't the point. Producing politically correct academic reputations is what our enterprise is about. Ideology trumps science every time.  We don't want to know the "truth."  Sadly, this suits the profession just fine.  (It's this dream world that permits such nonsensical statements like trading off relevance for reliability -- how can I know how relevant a datum is unless I know something about its reliability?  Isn't the whole idea of science to increase the relevance of data by increasing their reliability?)

Bob Jensen's threads on the sad state of academic accounting research are at http://www.trinity.edu/rjensen/Theory01.htm#DoctoralPrograms

Also see http://www.trinity.edu/rjensen/Theory01.htm#AcademicsVersusProfession

Reviving Journalism Schools and Business Schools
For as long as doomsayers have predicted the decline of civic-minded reportage as we know it, reformers have sought to draft a rewrite of the institutions that train many undergraduate and graduate students pursuing a career in journalism. Criticisms of journalism schools have ranged from questioning whether the institutions are necessary in the first place (since many journalists, and most senior ones, don’t have journalism degrees) to debating the merits of teaching practical skills versus theory and whether curriculums should emphasize broad knowledge or specialization in individual fields . . . The sessions were part of an effort to evaluate the function of journalism schools in an age of new media and the public’s declining faith in the fourth estate: the Carnegie-Knight Initiative on the Future of Journalism Education, which in 2005 enlisted top institutions in the country to bolster their curriculums with interdisciplinary studies and expose students to different areas of knowledge, including politics, economics, philosophy and the sciences. The initiative, funded by the Carnegie Corporation of New York and the John S. and James L. Knight Foundation, also works with journalism schools to incubate selected students working on national reporting projects.
Andy Guess, "Reviving the J-School," Inside Higher Ed, January 10, 2008 --- http://www.insidehighered.com/news/2008/01/10/jschools

There are an increasing number of scholarly videos on this topic at
BigThink:  YouTube for Scholars (where intellectuals may post their lectures on societal issues) --- http://www.bigthink.com/

Some of you may benefit by analyzing similarities and differences between the above tidbit on J-Schools versus the AACSB effort to examine needs for change in B-Schools.

Key AACSB sites include the following:

http://www.aacsb.edu/Resource_Centers/AME/AME report.pdf

http://www.aacsb.edu/publications/metf/metfreportfinal-august02.pdf

http://www.aacsb.edu/publications/dfc/default.asp

http://www.aacsb.edu/wxyz/hp-sdc.asp

http://www.aacsb.edu/publications/ValueReport_lores.pdf

From The Wall Street Journal Accounting Weekly Review on January 11, 2008

Talking B-School: Teaching the Gospel of Management by Ron Alsop The Wall Street Journal Jan 08, 2008 Page: B4 Click here to view the full article on WSJ.com http://online.wsj.com/article/SB119974268053072925.html?mod=djem_jiewr_ac   TOPICS: Accounting, Internal Controls SUMMARY: Professor Charles Zech, director of the Center for the study of Church Management and a professor of economics at Villanova University, discusses their new MBA program. The article mentions internal controls needed in church management practices. CLASSROOM APPLICATION: Familiarity with specific types of MBA programs, general educational issues, and the issues of internal control evident in recent church and clergy scandals can be discussed in an introductory accounting, accounting information systems, or auditing class. QUESTIONS:  1.) You may have seen advertisements for MBA programs targeted to golf course or ski resort management. In general, why are different industries targeted in management education? 2.) Why did Villanova University decide to offer an MBA in church management? In what ways will Villanova target the MBA program? 3.) Not all universities may be able to offer this targeted MBA. Why not? 4.) What is transparency in financial reporting? How do examples given in the article indicate insufficient transparency in church management and reporting practices? 5.) What internal control weaknesses are identified in the article? List each weakness and describe a solution for the weakness. 6.) How do properly functioning internal controls support sufficient transparency in financial reporting? 7.) What is the concept of stewardship? How is it discussed in the objectives of financial reporting in both U.S. and international conceptual frameworks of accounting? 8.) How do the comments in the article make it clear that focusing on stewardship better fits church management than does focusing on other objectives and qualitative characteristics identified in the conceptual framework of accounting?   Reviewed By: Judy Beckman, University of Rhode Island

"Teaching the Gospel of Management Program Aims to Bring Transparency To Church Business Practices," by Ron Alsop, January 8, 2008; Page B4--- http://online.wsj.com/article/SB119974268053072925.html?mod=djem_jiewr_ac

The reputations of many Roman Catholic parishes have been tarnished in recent years, both by the priest sex-abuse scandals and a growing number of embezzlement cases. That has prompted a burgeoning movement to improve the management and leadership skills of church officials through new programs being offered primarily at Catholic universities. M.B.A. Track columnist Ron Alsop talked recently with Charles Zech, director of the Center for the Study of Church Management and a professor of economics at Villanova University's School of Business in Villanova, Pa., about the launch of its master's degree in church management in May and the need for more sophisticated and more transparent business practices in parishes and religious organizations.

WSJ: Why did Villanova decide to create a master's degree in church management?

Dr. Zech: We find that business managers at both the parish and diocesan level often have social work, theology or education backgrounds and lack management skills. While pastors aren't expected to know all the nitty-gritty of running a small business, they at least need enough training in administration to supervise their business managers. Before starting the degree, we ran some seminars in 2006 and 2007 as a trial balloon to see if folks were interested enough to pay for management education. The seminars proved to be quite popular, drawing people from all over the country, including high-level officials from both Catholic dioceses and religious orders.

How have the sexual-abuse scandals and embezzlement cases put a spotlight on poor management and governance practices?

The Catholic Church has some real managerial problems that were brought to light by the clergy abuse scandals. It became quite obvious that the church isn't very transparent and accountable in its finances. Settlements had been made off the books with abuse victims and priests had been sent off quietly for counseling, to the surprise of many parishioners. Then came a string of embezzlement cases. Our center on church management surveyed chief financial officers of U.S. Catholic dioceses in 2005 and found that 85% had experienced embezzlements in the previous five years. One of our recommendations was that parishes be audited once a year by an independent auditor. There clearly are serious questions about internal financial controls at the parish level, and we are now doing research on parish advisory councils and asking questions about such things as who handles the Sunday collection and who has check-writing authority. Does the same person count the collection, deposit the money and then reconcile the checkbook? Obviously, you're just asking for problems if it's the same person; you can imagine the temptations.

Beyond the need for better financial controls, what other management issues should get more attention from church leaders?

Performance management is definitely an important but neglected area. That's partly because it's a very touchy issue. Who is going to appraise the performance of a priest or a church worker who is also a member of the parish? There's great reluctance on the part of the clergy to be appraiser or appraisee. You have to view the parish as a family business and understand that it's like evaluating members of your family.

How will Villanova's church management degree be different from what other universities have started offering?

Some schools combine standard business classes with courses from theology and other departments. But if you're taking a regular M.B.A. finance class, you're learning about Wall Street and other things that aren't really relevant. What we're doing is creating courses specifically for this degree program, so there are both business and faith-based elements in every class. For example, the law course will deal with civil law relative to church law so students understand the possible conflicts. The accounting course will cover internal financial-control issues for churches. And the human-resource management class will include discussion of volunteers, a big part of the labor force for parishes.

Have you encountered any resistance from church officials?

Yes, some people say a church is not a business. But I point out that we still have to be good stewards of our resources -- our financial and human capital -- to carry out God's work on Earth. When you use management terms with bishops, they often get turned off. But when you use the word stewardship, it has more impact because it's in the Bible. Jesus talked about the importance of our being good stewards who take care of our talents and other gifts.

Is the degree restricted to Catholic clergy and lay managers?

The courses will have a Catholic focus because as a Catholic university, our mission is to try to meet the needs of our community. But the degree is certainly not restricted to Catholics. Every church has similar managerial problems. In fact, we're eager for other Christian denominations to become part of the program and provide some valuable contributions to class discussions. A typical course, however, would not apply to other religions because of the different way Christian churches are organized compared with synagogues and other religious institutions.

Why is the degree being offered primarily online, with only a one-week residency on campus?

Since we view the market for church-management education as national and even global, a distance-learning degree will attract clergy and church workers from any part of the world who can't take off for two years to come to Villanova. In fact, we already have heard from a priest in Ireland and a Presbyterian minister in Cameroon interested in enrolling in the program.

The church management degree costs $23,400. How can clergy and church workers afford it?

We expect the vast majority of students to be supported by a diocese or other religious or social service organizations. We will chop 25% off the price for anyone who can get their organization to pay a third of the tuition. That cuts a student's out-of-pocket costs by about half. We're trying to send the message to religious leaders that this is important and that they should invest in management training.

Bob Jensen's threads on controversies in higher education are at http://www.trinity.edu/rjensen/HigherEdControversies.htm

"The Theory Fetish: Too Much of a Good Thing? Management journals demand contributions to theory. But slavish devotion to theory inhibits other valuable research," by Donald C. Hambrick, Business Week, January 13, 2008 --- Click Here 

Recently I was at a brown-bag seminar where a pair of faculty colleagues in our business school's department of management sought advice about a preliminary research idea. We all quickly agreed that their research question was fascinating and would be of great interest to both academics and practicing managers. The only problem: The presenters had no theory.

No theory! Everyone knows that the top scholarly journals in management require without exception that manuscripts make contributions to theory. And so we spent the entire session that day going through our collective mental catalogues of theories. Theories that I'd never heard of were proposed. Things got a little frenzied: "Good God, there must be a theory that we can latch onto," someone said.

Losing the Trees for the Forest

Because these researchers are savvy about academic publishing, their project likely will appear some day in a leading journal. But the straightforward beauty of the original research idea will probably be largely lost. In its place will be what we too often see in our journals and what undoubtedly puts non-scholars off: a contorted, misshapen, inelegant product, in which an inherently interesting phenomenon has been subjugated to an ill-fitting theoretical framework.

Many nice things can be said about theory. Theories help us organize our thoughts, generate coherent explanations, and improve our predictions. But they are not ends in themselves, and in academic management we have allowed obsession with theory to compromise the larger goal of understanding. Most important, perhaps, it prevents the reporting of rich detail about interesting phenomena for which no theory yet exists but which, once reported, might stimulate the search for an explanation.

Happily, our sister disciplines in business education—accounting, finance, and marketing—are not afflicted to the extent that those of us in management are. But the breadth and variety of the subjects that fall under the category of management exceed those of the other business school academic departments; a number of MBA-granting institutions, in fact, call themselves schools of management. If management scholars fail to connect with real-life managers or management scholarship is shrugged off by managers as irrelevant—both of which happen with regularity—the credibility of all business academe suffers.

Management's idolization of theory began after two blue-ribbon reports of the late 1950s, from the Carnegie and Ford foundations, levied withering attacks on business schools for their lack of academic sophistication. As a result, in the 1960s and 1970s schools adopted a new commitment to drawing from basic academic disciplines (e.g., economics and psychology), and to analytic rigor, science, and—above all—theory. Since then, however, other fields have relaxed their single-mindedness about theory, while management scholars have not.

Trapped in Inertia?

To confirm this, I recently analyzed the 120 articles published in 2005 by three leading scholarly management journals—the Academy of Management Journal, the Administrative Science Quarterly, and Organization Science. Every one contained some variation of the word "theory." In contrast, only 78% of the 178 articles published in 2005 in the Journal of Marketing, the Journal of Finance, and Accounting Review contained those words. Moreover, they appeared 18 times, on average, in each management article, but only eight times, on average, in each non-management article. Finally, about two-thirds of the articles in the management journals had section headings that trumpeted "theory," compared with one in five headings in the non-management journals.

I must admit to uncertainty about the reason for this continuing fetish; perhaps we in management academe are simply trapped in our own inertia. But at what a cost! To illustrate, let me take a hypothetical case from another field that has nothing to do with management or business.

Continued in article

Great Minds in Management:  The Process of Theory Development --- http://www.trinity.edu/rjensen//theory/00overview/GreatMinds.htm

"Cornell Theory Center Aids Social Science Researchers," PR Web, June 19, 2006 --- http://www.prweb.com/releases/2006/6/prweb400160.htm

Bob Jensen’s threads on the schism between academic research and the business world --- http://www.trinity.edu/rjensen/Theory01.htm#AcademicsVersusProfession

Question
Given the dire shortages of doctoral students in accountancy, should the requirement for doctoral degrees be eliminated in higher education?

Perhaps I'm old and tired, but I always think that the chances of finding out what really is going on are so absurdly remote that the only thing to do is to say hang the sense of it and just keep yourself occupied.
Douglas Adams

There are two explanations one can give for this state of affairs here. The first is due to the great English economist Maurice Dobb according to whom the theory of value was replaced in the United States by theory of price. May be, the consequence for us today is that we know the price of everything but perhaps the value of nothing. Economics divorced from politics and philosophy is vacuous. In accounting, we have inherited the vacuousness by ignoring those two enduring areas of inquiry.
Professor Jagdish Gangolly, SUNY Albany

The second is the comment that Joan Robinson made about American Keynsians: that their theories were so flimsy that they had to put math into them. In accounting academia, the shortest path to respectability seems to be to use math (and statistics), whether meaningful or not.
Professor Jagdish Gangolly, SUNY Albany

There are two sides to nearly every profession (as opposed to a narrow trade). The first one is the clinical side, and the second one is the research side. But this is not to say that the twain do not meet.

I advocate requiring that most (maybe not all) clinical instructors be grounded solidly in research. Requiring a PhD is a traditional way to get groundings in research. Probably more importantly is that doctoral studies are ways to motivate clinically-minded students to attempt to do research on clinical issues and make important contributions to the practicing profession.

I define “research” as a contribution to new knowledge. Among other things a good doctoral program should make scholars more appreciative of good research and critical of bad/superficial research that does not contribute to much of anything that is relevant, including research that should get Senator William Proxmire's  Golden Fleece Awards. Like urban cowboys, our academic accounting researchers are all hat (mathematical/statistical models) with no cows.

The problem with accountancy doctoral programs is that they’ve become narrowly bounded by accountics (especially econometrics and psychometrics) that in the past three decades have made little progress toward helping the clinical side of our profession of accountancy. This makes our doctoral programs very much unlike those in economics, finance, medicine, science, and engineering where many clinical advances in their disciplines have emerged from studies in doctoral programs.

The problem with higher education in accountancy is not that we require doctoral degrees in our major colleges and universities. The problem is that our doctoral programs shut out research methodologies that are perhaps better suited for making research discoveries that really help the clinical side of our profession. Accountics models just do not deal well with missing variables and nonstationarities that must be allowed for on the clinical side of accountancy. Humanities researchers face many of these same issues and have evolved a much broader arsenal of research methodologies that are verboten in accounting doctoral programs --- (See below).

The related problem is that our leading scholars running those doctoral programs have taken a supercilious view of the clinical side of our profession. Or maybe it’s just that these leaders do not want to take the time and trouble to learn the clinical side of the profession. Once again I repeat the oft-quoted referee of an Accounting Horizons rejection of Denny Beresford’s 2005 submission

I quote from http://www.trinity.edu/rjensen/Theory01.htm#AcademicsVersusProfession

*************
1. The paper provides specific recommendations for things that accounting academics should be doing to make the accounting profession better. However (unless the author believes that academics' time is a free good) this would presumably take academics' time away from what they are currently doing. While following the author's advice might make the accounting profession better, what is being made worse? In other words, suppose I stop reading current academic research and start reading news about current developments in accounting standards. Who is made better off and who is made worse off by this reallocation of my time? Presumably my students are marginally better off, because I can tell them some new stuff in class about current accounting standards, and this might possibly have some limited benefit on their careers. But haven't I made my colleagues in my department worse off if they depend on me for research advice, and haven't I made my university worse off if its academic reputation suffers because I'm no longer considered a leading scholar? Why does making the accounting profession better take precedence over everything else an academic does with their time?
**************

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

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

Statistically there are a few youngsters who came to academia for the joy of learning, who are yet relatively untainted by the vocational virus. I urge you to nurture your taste for learning, to follow your joy. That is the path of scholarship, and it is the only one with any possibility of turning us back toward the academy.
Joel Demski, "Is Accounting an Academic Discipline? American Accounting Association Plenary Session" August 9, 2006 --- http://www.trinity.edu/rjensen//theory/00overview/theory01.htm

Too many accountancy doctoral programs have immunized themselves against the “vocational virus.” The problem lies not in requiring doctoral degrees in our leading colleges and universities. The problem is that we’ve been neglecting the clinical needs of our profession. Perhaps the real underlying reason is that our clinical problems are so immense that academic accountants quake in fear of having to make contributions to the clinical side of accountancy as opposed to the clinical side of finance, economics, and psychology.

Our problems with doctoral programs in accountancy are shared with other disciplines, notably education and nursing schools.
Bob Jensen's threads on controversies in higher education are at http://www.trinity.edu/rjensen/HigherEdControversies.htm

Question
Is accounting an "academic" discipline?

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

Statistically there are a few youngsters who came to academia for the joy of learning, who are yet relatively untainted by the vocational virus. I urge you to nurture your taste for learning, to follow your joy. That is the path of scholarship, and it is the only one with any possibility of turning us back toward the academy.
Joel Demski, "Is Accounting an Academic Discipline? American Accounting Association Plenary Session" August 9, 2006 --- http://www.trinity.edu/rjensen//theory/00overview/theory01.htm

Jensen Comment
Joel's lament is a bit confusing since for the past four decades, virtually all doctoral programs have replaced accounting professional content with mathematics, statistics, econometrics, psychometrics, and sociometrics content to a fault and to a point where very few accountants are interested in applying for accountancy doctoral programs --- http://www.trinity.edu/rjensen//theory/00overview/theory01.htm#DoctoralPrograms

The decline in doctoral program graduates (to less than 100 per year in the United States) combined with the scientific requirements for publication in leading academic accounting research journals resulted in the academy serving the accountancy profession less and less over the past few decades:

http://www.trinity.edu/rjensen//theory/00overview/theory01.htm#DoctoralPrograms

http://www.trinity.edu/rjensen/395wpTAR/03MainDocumentMar2007.htm

It would help if Joel would be more explicit about what types of basic "academic" research studies qualify as "accounting research" and why there is virtually none of it being produced according to his paper and his address to the AAA membership in August 2006. In particular, I would like to know what types of academic "accounting" publications set academic accounting apart from mathematical economics and mathematics disciplines such that these basic research contributions can still be called "accounting" research that is not applied (in the sense of his definition of "academic" research as not being applied).

Following Joel's paper is a paper by the same title "is Accounting an Academic Discipline?" by John C. Fellingham, Accounting Horizons, June 2007, pp. 159-163. John features the following quotation from Henry Rand Hatfield in 1924:

I am sure that all of us who teach accounting in the university suffer from the implied contempt of our colleagues, who look upon accounting as an intruder, a Saul among the prophets, a paria whose very presence detracts somewhat from the sanctity of the academic halls.
Henry Rand Hatfield, "An Historical Defense of Bookkeeping," Journal of Accountancy, 1924.

I consider this quotation to be inappropriate in 2007. Professor Hatfield was referring to the teaching of bookkeeping which is no longer the mundane vocational subject matter of college accounting in the past fifty or more years. I consider most of what we now teach in college accountancy to be very appropriate in service to the accountancy profession. You can read more about accounting education in Hatfield's time in the following historic papers:

Allen, C. E. (1927), "The growth of accounting instruction since 1900," The Accounting Review (June): 150-166 ---
http://maaw.info/TheAccountingReview.htm Click on the "Non USF User Link"

Atkins, P. M. (1928), "University instruction in industrial cost accounting," The Accounting Review,"  (December): 345-363 --- http://maaw.info/TheAccountingReview.htm  Click on the "Non USF User Link"

Atkins, P. M. (1929), "University instruction in industrial cost accounting,"  The Accounting Review (March): 23-32 ---
http://maaw.info/TheAccountingReview.htm  Click on the "Non USF User Link"

I guess what I'm really trying to say is that accountancy is a profession like law is a profession, medicine is a profession, architecture is a profession, engineering is a profession, pharmacy is a profession, etc. Why does the academy need to apologize for teaching to the profession of accountancy when in fact the academy is very proud to serve those other highly esteemed professions. I do not see schools of law and schools of medicine apologizing to the world for nobly serving those professions.

Both Demski and Fellingham made emotional appeals for academic accounting researchers to make noteworthy contributions to the "true academic disciplines" as quoted by Fellingham on Page 163. Not only should this be a goal, but in a sense they are arguing that this should be a primary goal far above the goal of serving the accountancy profession. I fail to note similar appeals being made by professors of law and medicine and engineering. These professions do distinguish between clinical versus research publications and teaching, but in general they do not further glorify their research if it cannot conceivably have some relevance to their professions. Indeed, even the most basic chemical and physiological research in medicine still takes place with an eye toward eventual relevance to human health.

I might also note that both law and medicine also publish some academic research that is not based upon esoteric mathematics and statistics. For example, historical and philosophical research methodologies are still allowed in their most prestigious academic law and science journals, which currently is not the case for leading academic accounting research journals.

By way of example, since Joel Demski took charge of the accounting doctoral program at the University of Florida, every applicant to that doctoral program cannot even matriculate into the program before pre-requisites of advanced mathematics are satisfied.

Students are required to demonstrate math competency prior to matriculating the doctoral program. Each student's background will be evaluated individually, and guidance provided on ways a student can ready themselves prior to beginning the doctoral course work. There are opportunities to complete preparatory course work at the University of Florida prior to matriculating our doctoral program. 
University of Florida Accounting Concentration  --- http://www.cba.ufl.edu/fsoa/docs/phd_AccConcentration.pdf

Why does every candidate have to qualify in advanced mathematics rather than allowing substitutes such as advanced philosophy or advanced legal studies?

I might also add that science and medicine academic journals also still place monumental priorities on replications of research findings. Leading academic accounting research journals will not even publish replications and mostly as a result it is very difficult to find replications of most of the top academic accounting research papers published by so-called leading accounting researchers --- http://www.trinity.edu/rjensen//theory/00overview/theory01.htm#Replication

More of my rants on this can be found in the following links:

http://www.trinity.edu/rjensen//theory/00overview/theory01.htm#AcademicsVersusProfession

http://www.trinity.edu/rjensen//theory/00overview/theory01.htm#DoctoralPrograms

http://www.trinity.edu/rjensen/395wpTAR/03MainDocumentMar2007.htm

Question
Are college students good surrogates for real life studies?
The majority of behavioral experiments in accounting have used students as experimental subjects.

"Too Many Studies Use College Students As Their Guinea Pigs," by Carl Bialik, The Wall Street Journal, August 10, 2007; Page B1--- http://online.wsj.com/article/SB118670089203393577.html?mod=todays_us_marketplace

Many of the numbers that make news about how we feel, think and behave are derived from studying a narrow population: college students. It's cheap for social scientists to tap into the on-campus research pool -- everyone from psychology majors who must participate in studies for course credit to students who respond to posters promising a few bucks if they sign up.

Consider just three studies that have received press in the past month. In one, muscular men were twice as likely as their less well-built brethren to have had more than three sex partners -- at least according to 99 UCLA undergraduates. Another, an examination of six separate studies that tape-recorded college students' conversations, found that women, despite being stereotyped as relatively chatty, spoke just 3% more words each day than men. And in the third, 40 undergraduates at Washington University in St. Louis were 6% more likely to complete verbal jokes and 14% more likely to complete visual jests than 41 older study participants.

College students are "essentially free," says Brian Nosek, a psychology professor at the University of Virginia. "We walk out of our office, and there they are." The epitome of a convenience sample, they have become the basis for what some critics call the "science of the sophomore."

But psychologists may be getting what they pay for. College students aren't representative by age, wealth, income, educational level or geographic location. "What if you studied 7-year-old kids and made inferences about geriatrics?" asks Robert Peterson, a marketing professor at the University of Texas, Austin. "Everyone would say you can't do that. But you can use these college students."

Prof. Peterson scoured the literature for examples of studies that examined the same psychological relationships in students and nonstudents. In almost half of the 63 relationships he examined, there were major discrepancies between students and nonstudents: The two groups either produced contradictory results, or one showed an effect at least twice as great as the other.

In a follow-up study, not yet published, Prof. Peterson demonstrated that even college students are far from homogeneous. With help from faculty at 58 schools in 31 states, he surveyed undergraduate business students across the country and found that they vary widely from school to school. That means a professor studying the relationship between students' attitudes toward capitalism and business ethics at one school could reach a sharply different conclusion than a professor at another school.

"People have always been aware of this issue," Prof. Peterson says, but many have chosen to ignore it. A 1986 paper by David Sears, a UCLA psychology professor, documented the increased use of college students for research in the prior quarter century and explored the potential biases that might introduce. In the meantime, the use of college students has, if anything, risen, researchers say.

Authors of the recent studies on sex, chattiness and humor acknowledge the limitations of their research pool. But they argue that college students do just fine for purposes of studying basic cognitive processes. Others agree. "If you think all people have the same attitudes as introductory psychology students, that's really problematic," says Tony Bogaert, a psychology professor at Brock University in St. Catharines, Ontario. "But if you're looking at cognitive processes, intro psych students probably work OK."

After all, every study is hampered by possible differences between those who volunteer to participate and those who don't, whether they're college students or a broader group.

In any case, the fault often lies not with the researchers, who are careful not to overstate the impact of their findings, but with the news articles suggesting the numbers apply to all humanity. "Even if you only focus on college students, the results are still generalizable to millions of Americans," says David Frederick, a UCLA psychology graduate student and lead author of the study on muscularity and sex partners.

Prof. Nosek, a critic of the science of the sophomore, responds that college students are still developing their personalities and behavior. "There is no other time outside my life as an undergraduate where I thought it would be a good idea to wear all my clothes inside out," he says, or to "stay up for as many hours in a row as I could just to see what happens."

To widen the pool of people answering questions about, say, all-nighters, Prof. Nosek has submitted a proposal to the National Institutes of Health to fund the creation of an international, online research panel. That would build on studies his laboratory has already administered online at ProjectImplicit.net.

Online research has its own problems, but at least it taps into the hundreds of millions of people who are online globally, rather than just the hundreds of people enrolled in Psych 101.

"The scientific reward structure does not benefit someone who puts in the enormous effort" to create a representative research sample, Prof. Nosek says. "The way to change researchers' data habits is to make it easier to collect data in a more generalizable way."

Question
When should professors add practitioners to their courses?

"Mixing Theory and Practice on Defense Policy," by Andy Guess, Inside Higher Ed, August 8, 2007 --- http://www.insidehighered.com/news/2007/08/08/defense

In a class about United Nations regulations on the laws of war, the discussion turned inevitably to Star Trek.

When the U.N. authorizes sanctions against a particular nation, said Ilan Berman, the professor, the institution acts much like the Borg — in the show’s universe, a mechanized force of cyborg mercenaries bent on assimilating all of mankind. The analogy was lost on most of the class, but Berman drove the point home for those who didn’t regularly tune in to syndicated science fiction programs in the early 1990s: Each member nation must act as part of the collective.

The lecture, peppered as it was with the occasional pop culture reference, covered a lot of ground, from the U.S. national security strategy to the justifications for nations’ use of force. The students in the class — five were present on a Monday night in July for the elective — come from a range of backgrounds, several of them working full-time, but all in the program with an eye toward defense policy, whether in the government, consulting or think tanks.

In Washington, those are hardly unorthodox goals. Programs in defense or security studies churn out students every year in the nation’s capital, from well-known and respected institutions such as Johns Hopkins University’s School of Advanced International Studies and Georgetown University’s School of Foreign Service, and also outside the Beltway at places like Harvard (Kennedy) and Princeton (Wilson). The students in Berman’s class, tucked in a conference room on the seventh floor of a corporate office building in Fairfax, Va., are part of a relatively new experiment: What if a state school in Springfield, Mo., operated a satellite campus alongside the established players in defense studies?

So far, enrollments have been growing each year since the unit opened shop in 2005 within commuting distance from the city, sandwiched between a rapidly developing apartment complex and an office park. The Department of Defense and Strategic Studies, a part of Missouri State University, caters to students who want to break into Beltway defense circles with a public university price tag and the advantages of a more practical approach. In doing so, it offers a two-year M.S. degree that requires both coursework and internships.

Having access to actual practitioners in the classroom means, in this case, connections to defense and foreign policy officials in the government. As with others like it, the program has had a long revolving-doors tradition, starting from its original incarnation in the early 1970s at the University of Southern California, where it was founded by a former defense official who served on the SALT I delegation, William R. Van Cleave, and partially funded by the free-market Earhart Foundation. But unlike at similar departments elsewhere, Missouri State’s full-time faculty of three and its nine affiliated lecturers tend to come mainly from positions in Republican administrations and conservative-leaning institutions.

Continued in article

Jensen Comment
Some years back Professor Sharon Lightner (UC at San Diego) put together a really interesting online course for students, practitioners, and accounting standard setters in six different countries where the classes met synchronously.
"An Innovative Online International Accounting Course on Six Campuses Around the World" --- http://www.trinity.edu/rjensen/255light.htm

Question
Does faculty research improve student learning in the classrooms where researchers teach?
Put another way, is research more important than scholarship that does not contribute to new knowledge?

Major Issue
If the answer leans toward scholarship over research, it could monumentally change criteria for tenure in many colleges and universities.

AACSB International: the Association to Advance Collegiate Schools of Business, has released for comment a report calling for the accreditation process for business schools to evaluate whether faculty research improves the learning process. The report expresses the concern that accreditors have noted the volume of research, but not whether it is making business schools better from an educational standpoint.
Inside Higher Ed, August 6, 2007 --- http://www.insidehighered.com/news/2007/08/06/qt

"Controversial Report on Business School Research Released for Comments," AACSB News Release, August 3, 2007 --- http://www.aacsb.edu/Resource_Centers/Research/media_release-8-3-07.pdf

FL (August 3, 2007) ― A report released today evaluates the nature and purposes of business school research and recommends steps to increase its value to students, practicing managers and society. The report, issued by the Impact of Research task force of AACSB International, is released as a draft to solicit comments and feedback from business schools, their faculties and others. The report includes recommendations that could profoundly change the way business schools organize, measure, and communicate about research.

AACSB International, the Association to Advance Collegiate Schools of Business, estimates that each year accredited business schools spend more than $320 million to support faculty research and another half a billion dollars supports research-based doctoral education.

“Research is now reflected in nearly everything business schools do, so we must find better ways to demonstrate the impact of our contributions to advancing management theory, practice and education” says task force chair Joseph A. Alutto, of The Ohio State University. “But quality business schools are not and should not be the same; that’s why the report also proposes accreditation changes to strengthen the alignment of research expectations to individual school missions.”

The task force argues that a business school cannot separate itself from management practice and still serve its function, but it cannot be so focused on practice that it fails to develop rigorous, independent insights that increase our understanding of organizations and management. Accordingly, the task force recommends building stronger interactions between academic researchers and practicing managers on questions of relevance and developing new channels that make quality academic research more accessible to practice.

According to AACSB President and CEO John J. Fernandes, recommendations in this report have the potential to foster a new generation of academic research. “In the end,” he says, “it is a commitment to scholarship that enables business schools to best serve the future needs of business and society through quality management education.”

The Impact of Research task force report draft for comments is available for download on the AACSB website: www.aacsb.edu/research. The website also provides additional resources related to the issue and the opportunity to submit comments on the draft report. The AACSB Committee on Issues in Management Education and Board of Directors will use the feedback to determine the next steps for implementation.

The AACSB International Impact of Research Task Force
Chairs:
Joseph A. Alutto, interim president, and
John W. Berry, Senior Chair in Business, Max M. FisherCollege of Business, The Ohio State University

K. C. Chan, The Hong Kong University of Science and Technology
Richard A. Cosier, Purdue University
Thomas G. Cummings, University of Southern California
Ken Fenoglio, AT&T
Gabriel Hawawini, INSEAD and the University of Pennsylvania
Cynthia H. Milligan, University of Nebraska-Lincoln
Myron Roomkin, Case Western Reserve University
Anthony J. Rucci, The Ohio State University

Teaching Excellence Secondary to Research for Promotion, Tenure, and Pay ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm#TeachingVsResearch

Bob Jensen's threads on higher education controversies are at
http://www.trinity.edu/rjensen/HigherEdControversies.htm

My letter to Kate

Now that the 2007 Annual Meetings are ended and it is public information that finance professor Erik Lie (University of Iowa) won the AICPA/AAA Notable Contributions to Accounting Literature Award, I feel compelled to make my letter to Kate written on May 17 public. This year I served on the Part 2 selection committee that chose Erik Lie from the list of candidates submitted to us by the Part 1 Screening Committee. Professor Lie's contribution was truly notable and deserving of this award for 2007.

But I have serious reservations about the Part 1 Screening Committee's choices over the past two decades. I think it's been a rigged game in which the Part 2 Selection Committee has no choice but to choose an esoteric "accountics" article published in an academic research journal.

My letter to Kate is entirely consistent with the long tidbit below received from Paul Williams on August 10, 2007 after the AAA 2007 Annual Meetings in Chicago. Kate was chair of our 2007 Selection Committee but not the 2007 Screening Committee.

You can read my letter to Kate http://www.trinity.edu/rjensen/2007NotableLiteratureAward.htm

An important aspect of this debate is the timing of the fall off of practitioner interest in academic accounting research. Both public and managerial accountants at one time followed very closely the theory and practice research of academic accountants much like lawyers take an interest in law school research, physicians take an interest in medical research, engineers take an interest in engineering school research, etc. We had it made until the 1960s. Then accounting practitioner interest in our research virtually zeroed out in the ensuing decades. We no longer serve our profession, although we try and try to make a contribution to the economics and finance professions. Joel Demski in a plenary speech in Washington DC called serving the accounting profession a “vocational virus” to avoid so that doing research can be “more fun.” As Judy Rayburn pointed out when she was President Elect of the AAA, the citation records indicate that there is little interest by anybody, including finance and economics professor, in our leading accountics research.

I think the telltale turning point was when accountics professors took over the refereeing of articles in the leading accounting research journals in the 1960s and 1970s. Before then practitioners took a keen interest in both our top journals like The Accounting Review and our sessions/debates at AAA annual meetings. Between 1925 and 1965 practitioners published articles in TAR and had more members in the AAA than did colleges. In fact the longest running editor (Kohler) of TAR was a practitioner --- http://fisher.osu.edu/departments/accounting-and-mis/the-accounting-hall-of-fame/membership-in-hall/eric-louis-kohler/  

Now practitioner participation in the AAA is virtually zero except for PR partners and PR staff employees of large firms. How long has it been since a practitioner published/cited a paper in TAR or Accounting Horizons?

It’s very revealing to compare the titles and authors of papers published in TAR between 1925 and 1965 versus those published 1966-2008. Zeff and Granof claim that leading published research was just more interesting before the 1960s.

You can read more about the “Perfect Storm” of the 1960s that ended practitioner interest in leading academic accounting research at http://www.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm

The FASB now sees little interest in even keeping an academic on the Board. I’m sure Katherine and Tom did their best, but we did not give them enough good material to bring to the Board.

An Analysis of the Contributions of The Accounting Review Across 80 Years: 1926-2005 --- http://www.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm
Co-authored with Jean Heck and forthcoming in the December 2007 edition of the Accounting Historians Journal.

Bob Jensen's threads on the sad state of academic accounting research --- http://www.trinity.edu/rjensen/Theory01.htm#AcademicsVersusProfession

David Dennis organized a discussion panel to address the state of academic research in accounting. I could not be at the AAA meetings this year. But Paul Williams was on the panel and sent out the following message to panel members.

Paul Williams (North Carolina State University) Weighs in Once Again on the Sad State of Accounting Research in the Academy. Paul gave me permission to post his email message to the panel members.

August 10, 2007 message from Paul Williams [Paul_Williams@ncsu.edu]

It is a source of constant frustration that there exists reams of "empirical evidence" that the US academy is as we trouble makers say it is.  For folks who claim to worship empirical evidence there is a great reluctance to consider it.  Jacci Rodgers and I have another paper that you didn't include that was published in The Accounting Historians Journal that dealt with authors during the same period of time as our editors' paper. 

We did a comparison of elite school graduates appearances as authors in TAR (The Accounting Review) with their proportion in the population of North American PhDs (a procedure that was biased in that it overstates the proportion of elite graduates who were in the effective population of people of publishing age).  In Table 3 of that paper we report the proportion of appearance by elite grads and their proportion of the total North American PhD population at the beginnning of each TAR editor's term starting with

Trumball, the first editor to have a published editorial board, the first number is proportion of appearances and the second is proportion of PhDs:

Editor
Trumball:         63.6/63.5

Griffin:             71.3/59.6

Hendrickson:    75/53.7

Keller:              61.1/50.3

Decoster:         63/45.2

Zeff:                 51.9/43.1

Sundem:            47.1/38

Kinney:             50.6/34.7

Abdel-khalik:     56.6/33

 

Through Zeff and Sundems' editorships we start to see the effects of the emergence of the many new doctoral programs that were created during the 1970s.  The dilution of elite school dominance proceeded apace through time as the elite became a smaller proportion of the total population.  I had a paper accepted in TAR by both Zeff and Sundem: both experiences were good.  Both Zeff and Sundem were open-minded and quite helpful during the process; the reviews were constructive. 

But this expected demographically induced trend dramatically reversed itself after Sundem's editorship.  Since that time the elite appearances among authors has hovered, Avogadro's number-like around the mid-60 percent mark -- the proportion that prevailed when Trumball was editor.  All of a sudden the virtues of scholarship that Zeff and Sundem were able to recognize in the work of people not trained at elite schools as conventional economists disappeared.  The ideologues took over by default because of TAR's fear of losing so much reputational ground to JAR and JAE.  TAR became a JAR and JAE clone.  It hasn't changed since. 

So why doesn't Bill McCarthy get enough good systems papers? Perhaps it's because we haven't been terribly interested, for nearly 25 years, in training in U.S. PhD programs people who could do quality systems, or sociological, or historical, or legal, or anthropological work in accounting.  As Jagdish Gangolly noted on the AECM, finance types reproduce like mosquitoes, but it is a struggle for anyone interested in some "causal delta" other than neoclassical economics to find a place to study. 

Today, with the exception of a couple of places, you have to go outside the United States.  Why submit a paper to TAR when the editorial process is not one to be trusted?  Those of us who have been in the AAA a long time have heard these promises of "inclusiveness" before.  They were hot air then, they're hot air now unless the TAR editorial process is willing to take a laxative and publish some papers that may not be the best (there are an awful lot of "main-stream" papers published that aren't very good, either). 

TAR has to signal it isn't telling us another fib and that involves more than just passively sitting around waiting for papers to come.  Trust has been lost and you won't get it back by chastising the mistrustful.  Wouldn't it be refreshing to see someone from the editorial board show up at conferences like IPA, APIRA, CPA, . . . etc. to press the flesh and find out what the rest of the world thinks?

It is perhaps not a coincidence that the only two papers ever published in TAR informed by critical literature (papers by Chua and Hines) were ushered through the review process by Sundem.  Nothing of that kind has ever appeared in TAR since. 

Even JAR published a paper by Peter Miller!

David: kudos on your item 8.  As the U.S. has become the O.E.C.D. country with the most skewed distribution of income and wealth and as our great experiment in democracy appears more and more each day to be less and less robust (see Prem Sikka's work on the extensiveness of accounting corruption), we get a scholarly community primarily fixated on individual career enhancement through the engineering of a linear model with an R-squared of seldom double digits explaining yet some other absurdity about why Nozickian justice is the sine qua non of human  existence.  

I have seen literally  thousands of those models over the years and no two have ever born any resemblance to each other. 

What kind of "models" are really only unique representations of themselves?  Thank you for organizing the panel and allowing me to participate. 

Paul

 Paul Williams

paul_williams@ncsu.edu

(919)515-4436

The Financial Accounting Standards Board recently approached Bloomfield about studying how to create financial accounting standards that will assist investors as much as possible, he quickly turned to the virtual world for answers.

"Theory Meets Practice Online: Researchers and academics are looking to online worlds such as Second Life to shed new light on old economic questions," by Francesca Di Meglio, Business Week, July 24, 2007 --- Click Here 

In fact, many economics researchers, including Bloomfield, professor of accounting at Cornell's Johnson Graduate School of Management, are using the virtual environment to test ideas involving staples of economics such as game theory, the effects of regulation, and issues involving money. Since 1989, Bloomfield has been running experiments in the lab in which he creates small game economies to study narrow issues. But when the Financial Accounting Standards Board recently approached Bloomfield about studying how to create financial accounting standards that will assist investors as much as possible, he quickly turned to the virtual world for answers.

"It would be very difficult to look at the complex issues that FASB is trying to address with eight people in a laboratory playing a very simple economic game," he says. "I started looking for how I could create a more realistic economy with more players dealing with a high degree of complexity. It didn't take me long to realize that people in virtual worlds are already doing just that."

. . .

At Indiana University, researcher Edward Castronova has posed the idea of creating multiple virtual economies to study the effects of different regulatory policies. At Indiana, Castronova is director of the Synthethic Worlds Initiative, a research center to study virtual worlds. "The opportunity is to conduct controlled research experiments at the level of all society, something social scientists have never been able to do before," the center's Web site notes (see BusinessWeek.com, 5/1/06, "Virtual World, Virtual Economies").

A virtual stock market is certainly not the only online entity that opens itself up to research. Marketers are already using the virtual world to test campaigns, packaging, and consumer satisfaction. Pepsi (PEP) famously tracks use of its products in There.com. Architects seek reaction to design. Starwood Hotels (HOT) test-marketed its new loft designs in Second Life (see BusinessWeek.com, 8/23/06, "Starwood Hotels Explore Second Life First").

Continued in article

Bob Jensen's threads on tools and tricks of the trade are at
http://www.trinity.edu/rjensen/000aaa/thetools.htm

Summarizing Academic Accounting Research for Practitioners

April 14, 2007 message from Ron Huefner [rhuefner@acsu.buffalo.edu]

The Journal of Accountancy (AICPA) has begun a new series of articles to review accounting research papers and explain them to practitioners. The April issue has an article on "Mining Auditing Research."

It summarizes about a dozen research articles, mostly from The Accounting Review, but also including articles from JAR, CAR, AOS, and the European Accounting Review.

The link for this article is: <http://aicpa.org/pubs/jofa/apr2007/boltlee.htm> 

This may be useful in bringing research findings into classes

Ron

March 2007 Updates on the Sad State of Accounting Research in Academe --- http://www.trinity.edu/rjensen//theory/00overview/theory01.htm#AcademicsVersusProfession

Nearly two years ago I sent out an "Appeal" for accounting educators, researchers, and practitioners to actively support what I call The Accounting Review (TAR) Diversity Initiative as initiated by last year's American Accounting Association President Judy Rayburn --- http://www.trinity.edu/rjensen/395wpTAR/Web/TAR.htm

In it I noted that a bright ray of hope for changing narrow focus of The Accounting Review (TAR) was the appointment of Bill McCarthy as Associate Editor for purposes of introducing Accounting Information Systems research into TAR.

I now have an expanded paper written in partnership with Jean Heck --- http://www.trinity.edu/rjensen/395wpTAR\03MainDocumentMar2007.htm
The MS Word version is at http://www.trinity.edu/rjensen/395wpTAR\395wp.doc
This paper is forthcoming in the December 2007 edition of the Accounting Historians Journal

March 27, 2007 message from McCarthy, William [mccarthy@BUS.MSU.EDU]

This thread and other AECM posts regarding information technology research in accounting casts a grim picture for people who wish to do computer science related work aimed at the major accounting academic journals. This has been an "us vs. them" problem for most of my 30 years in AIS research.

While it is indeed true that JAR, JAE, and the other private accounting journals remain in the Stone Age as far as accounting technology issues are concerned, there have been significant steps taken by TAR to open up the main AAA journal to this kind of work. Dan Dhaliwal appointed me as an editor with the express purpose of having a person knowledgeable in information systems and computer science research methods available to the AIS research community for manuscript review and decision-making.

Surprisingly, as I have outlined at both the sectional and national AAA meetings, the problem has not been as much with "them" as it has been with "us," at least in the last 15 months or so. Quite simply, the number of AIS submissions to TAR has been alarmingly low. In Washington last August, I set a target of 12-18 for the AIS community for this academic year, a number I thought was modest and achievable. However, it does not look like we will come close to that at our present rate.

*

As I mentioned in Washington, the submission procedure is this:

*

Do the work and make sure it is rigorous according to accounting, IS, and/or computer science standards,

*

Submit the paper and note or show that it deals with an important accounting issue issue by using AIS, MIS or CS methods, and

*

Ask that the paper be assigned to me as the editor most familiar with IS and CS methods.

If you make a convincing case on these points and if the senior editor thinks it is high quality, then I get it, I assign the referees, and I get to make the consolidated judgment.

Paraphrasing the famous Canadian hockey player Wayne Gretzky, the AIS research and the accounting practice communities will miss on 100% of the good ideas that never get submitted to TAR. If we want change the face of accounting research, the time for action is now. Do the work and submit "that" paper. Additionally, send your name off to me as a possible referee, outlining your particular expertise in either methods or specific technologies.

Bill McCarthy,
Michigan State University

mccarthy@bus.msu.edu 
http://www.msu.edu/user/mccarth4 <https://mercury.bus.msu.edu/exchweb/bin/redir.asp?URL=http://www.msu.edu/user/mccarth4>

March 27, 2007 reply from Paul Williams [Paul_Williams@NCSU.EDU]

Bill,

What we may be paying as the price for dragging doctoral education in accounting back to the Stone Age about 40 years ago, is the phenomenon you describe. People have become so disenchanted with TAR that they have found other more comfortable venues for pursuing their work. In spite of public declarations about the new openness, we have heard this before only to have it turn out to be disengenuous PR. I think your appeal here might encourage people to trust you once and submit a paper, BUT it better produce some postitive experiences.

Another issue is "rigor." Everything must be RIGOROUS, but most GOOD IDEAS aren't "rigorous". They are typically fraught with error, but they open new vistas and ways of thinking about things. The history of science is filled with tales of earth changing ideas that were not offered in a RIGOROUS way (we know Mendel fudged his data on sweet peas, so did Milliken and Keynes General Theory... was notoriously cobbled together). We have become so fixated on method and our public appearance as rigorous scientists that all accounting scholarship in the U.S. at least follows the same template. Our idea of rigor is, frankly, naïve, based more on appearance than substance. Robert Heilbroner once remarked that "Mathematics brought great rigor to economics.

Unfortunately it also brought mortis." Bill, you now have some power (?). Take some chances. What is the point of an academic discourse confined only to statistical model building where, simultaneously, replication is emphatically discouraged? Empirical rigor means doing it over and over by independent investigators with rigorous controls. We may not even be doing what we currently do "rigorously."

March 27, 2007 reply from J. S. Gangolly [gangolly@CSC.ALBANY.EDU]

Methodological hangups, fetish about quantitative rigour, phobia about normative research, all have afflicted most disciplines at one time or the other. We in accounting seem to have them all at the same time.

I remembering sitting on a doctoral committee with folks from psychology, and was frightened to discover my own prejudices after hearing a well known (Skinnerian) psychologist fellow committee member asked me to be a bit more understanding of methodologies used by others.

I have found the accounting crowd reward conformity with received wisdom from the self-anointed sages.

Much of my work has been normative, and therefore considered "unsuitable" for publications in better known accounting journals (statement made by editor of one of the top rated accounting journal). I feel driven out of the field years ago into Operations Research, Information Systems, Computing & Information Sciences.

In none of those fields have the journal editors/ referees used any litmus tests. On the other hand, the referees at an AAA section journal, (about 20 years ago) was bold enough to state that my paper was an insult to the excellent work done by others in the field (the paper was later published in a respected journal in IS with few changes; it was the last paper I submitted to any establishment accounting journals).

Bill's message gives me hope in a way I never imagined. As a test balloon, I will submit TAR one of our papers that I had targeted for a CSI journal.

We need a balance between rigour, relevance, and methodological purity. Above all, we need tolerance for work that differs from our own perspective on each of these. We also need a diversity of approaches to the issues in the papers.

Jagdish

Academics Versus the Profession