New Bookmarks
Year 2007 Quarter 4: October 1 - December 31 Additions to
Bob Jensen's Bookmarks
Bob Jensen at
Trinity University
For
earlier editions of New Bookmarks go to
http://www.trinity.edu/rjensen/bookurl.htm
Tidbits Directory ---
http://www.trinity.edu/rjensen/TidbitsDirectory.htm
Click here to search Bob Jensen's web site if you have key words to enter ---
Search Site.
For example if you want to know what Jensen documents have the term "Enron"
enter the phrase Jensen AND Enron. Another search engine that covers Trinity and
other universities is at
http://www.searchedu.com/.

Choose a Date
Below for Additions to the Bookmarks File
December 31, 2007
November 30, 2007
October 31, 2007

December 31, 2007
Bob Jensen's New Bookmarks n December 31, 2007
Bob Jensen at
Trinity University
For earlier editions of Tidbits go to
http://www.trinity.edu/rjensen/TidbitsDirectory.htm
For earlier editions of New Bookmarks go to
http://www.trinity.edu/rjensen/bookurl.htm
Click here to search Bob Jensen's web site if you have key words to enter --- Search Site.
For example if you want to know what Jensen documents have the term "Enron" enter the phrase Jensen AND Enron. Another search engine that covers Trinity and other universities is at
http://www.searchedu.com/.
Bob Jensen's Blogs ---
http://www.trinity.edu/rjensen/JensenBlogs.htm
Current and past editions of my newsletter called New Bookmarks ---
http://www.trinity.edu/rjensen/bookurl.htm
Current and past editions of my newsletter called
Tidbits ---
http://www.trinity.edu/rjensen/TidbitsDirectory.htm
Current and past editions of my newsletter called Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
Bob Jensen's past presentations and lectures
---
http://www.trinity.edu/rjensen/resume.htm#Presentations
Bob Jensen's various threads ---
http://www.trinity.edu/rjensen/threads.htm
(Also scroll down to the table at
http://www.trinity.edu/rjensen/ )
Roles of a ListServ
---
http://www.trinity.edu/rjensen/ListServRoles.htm
Click here to search this Website if you have key words to enter --- Search Site.
For example if you want to know what Jensen documents have the term "Enron" enter the phrase Jensen AND Enron. Another search engine that covers Trinity and other universities is at
http://www.searchedu.com/
Bob Jensen's Home Page is at
http://www.trinity.edu/rjensen/
CPA Examination ---
http://en.wikipedia.org/wiki/Cpa_examination
Wikipedia
has a rather nice summary of accounting software at
http://en.wikipedia.org/wiki/Accounting_software
Bob Jensen’s accounting
software bookmarks are at
http://www.trinity.edu/rjensen/Bookbob1.htm#AccountingSoftware
Bob Jensen's accounting
history summary ---
http://www.trinity.edu/rjensen/Theory01.htm#AccountingHistory
Bob Jensen's accounting
theory summary ---
http://www.trinity.edu/rjensen/Theory.htm
Accountancy Discussion ListServs:
For an elaboration on the reasons you should join a ListServ (usually for
free) go to http://www.trinity.edu/rjensen/ListServRoles.htm
AECM (Educators)
http://pacioli.loyola.edu/aecm/
AECM is an email Listserv list which provides a
forum for discussions of all hardware and software which can be useful
in any way for accounting education at the college/university level.
Hardware includes all platforms and peripherals. Software includes
spreadsheets, practice sets, multimedia authoring and presentation
packages, data base programs, tax packages, World Wide Web
applications, etcRoles
of a ListServ ---
http://www.trinity.edu/rjensen/ListServRoles.htm
|
CPAS-L
(Practitioners)
http://pacioli.loyola.edu/cpas-l/
CPAS-L provides a forum for discussions of all
aspects of the practice of accounting. It provides an unmoderated
environment where issues, questions, comments, ideas, etc. related to
accounting can be freely discussed. Members are welcome to take an
active role by posting to CPAS-L or an inactive role by just
monitoring the list. You qualify for a free subscription if you are
either a CPA or a professional accountant in public accounting,
private industry, government or education. Others will be denied
access. |
Yahoo
(Practitioners)
http://groups.yahoo.com/group/xyztalk
This
forum is for CPAs to discuss the activities of the AICPA. This can be
anything from the CPA2BIZ portal to the XYZ initiative or
anything else that relates to the AICPA. |
AccountantsWorld
http://accountantsworld.com/forums/default.asp?scope=1
This site hosts various discussion groups on such topics as accounting
software, consulting, financial planning, fixed assets, payroll, human
resources, profit on the Internet, and taxation. |
Business Valuation Group
BusValGroup-subscribe@topica.com
This discussion group is headed by Randy Schostag
[RSchostag@BUSVALGROUP.COM] |
Recent Tidbits ---
http://www.trinity.edu/rjensen/TidbitsDirectory.htm
2007
September 5
September 10
September 18
September 24
2007
October 1
October 10
October 17
October 30
2007
November 8
November 15 November
22
November 29
2007
December 6
December 11 December
18
December 26
Tidbits Directory for Earlier Months and Years ---
http://www.trinity.edu/rjensen/TidbitsDirectory.htm
New Bookmarks Directory for Earlier Months and Years
---
http://www.trinity.edu/rjensen/Bookurl.htm
Bob Jensen's Threads ---
http://www.trinity.edu/rjensen/Threads.htm
Humor Between December 1 and December 31, 2007 ---
http://www.trinity.edu/rjensen/book07q4.htm#Humor123107
Humor Between November 1 and November 30, 2007 ---
http://www.trinity.edu/rjensen/book07q4.htm#Humor113007
Humor Between October 1 and October 31, 2007 ---
http://www.trinity.edu/rjensen/book07q4.htm#Humor103107
Humor Between September 1 and September 30, 2007 ---
http://www.trinity.edu/rjensen/book07q3.htm#Humor093007
Links to Documents on Fraud ---
http://www.trinity.edu/rjensen/Fraud.htm
Bob Jensen's search helpers are at
http://www.trinity.edu/rjensen/searchh.htm
Bob Jensen's Bookmarks ---
http://www.trinity.edu/rjensen/bookbob.htm
Bob Jensen's links to free electronic literature, including free online textbooks ---
http://www.trinity.edu/rjensen/ElectronicLiterature.htm
Bob Jensen's links to free online video, music, and other audio ---
http://www.trinity.edu/rjensen/Music.htm
Bob Jensen's documents on accounting theory are at
http://www.trinity.edu/rjensen/theory.htm
Bob Jensen's links to free course materials from major universities ---
http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI
Bob Jensen's links to online education and training alternatives around the world ---
http://www.trinity.edu/rjensen/Crossborder.htm
Bob Jensen's links to electronic business, including computing and networking security, are at
http://www.trinity.edu/rjensen/ecommerce.htm
Bob Jensen's links to education technology and controversies ---
http://www.trinity.edu/rjensen/000aaa/0000start.htm
Bob Jensen's home page ---
http://www.trinity.edu/rjensen/
Bob Jensen's complete set of Enron Updates are at
http://www.trinity.edu/rjensen/FraudEnron.htm#EnronUpdates
Bob Jensen's threads on the Enron scandal are at
http://www.trinity.edu/rjensen/FraudEnron.htm
Large International Accounting Firm History ---
http://en.wikipedia.org/wiki/Big_Four_auditors
Fascinating Statistics
---
http://www.trinity.edu/rjensen/FascinatingStatistics/Statistics.htm
It saddens me
that Sidney Davidson recently died. He was a good friend and a great accounting
professor for many years at the University of Chicago.
His Accounting
Hall of Fame module summarizes some of his many accomplishments ---
http://snipurl.com/sidneydavidson
It also saddens
me that Bob Sprouse also died in 2007. Bob was an accounting professor
and a former Board member of the FASB.
Bob's Accounting
Hall of Fame module ---
Click Here
Integrity is a cornerstone of our
culture and we continue to make great progress in our effort to build a model
ethics and compliance program. This means fostering awareness, trust, and
personal responsibility at every level of the firm. This year, we issued our
first ever ethics and compliance progress report and guidebook. This report,
Ethics and Compliance Report 2007: It Starts with You,
highlights initiatives that we have in place to support
our values-based compliance culture, and features real-life stories of some of
KPMG's partners and employees who faced ethical challenges and how they handled
them. We responded to heightened interest in ethics education and input from
your fellow academics and created our KPMG
Ethical Compass—A Toolkit for Integrity in Business, a three-module
package of classroom materialsto help you present ethics-related topics to your
students.
An Open Letter From Tim Flynn, Chairman and CEO, KPMG LLP
This was part of an email message that I assume was sent to the
academy of accountants.
Once again the link to the Ethics and Compliance Report
2007 is at
http://www.kpmgcampus.com/whoweare/ethics.pdf
Bob Jensen's threads on the triumphs and trials of
KPMG are at
http://www.trinity.edu/rjensen/Fraud001.htm#KPMG
A New Type of Intangible Investment (sort of not yet legal in the U.S.)
--- Litigation
How should it be booked and carried in financial statements?
I say "sort of" since this intangible asset might be buried (as Purchased
Goodwill") in acquisition prices when firms are purchased purchased or merged.
The notion of litigation as a separate asset class
is a novel one. It's hard to imagine fund managers one day allotting a bit of
their portfolio to third-party lawsuits, alongside shares, bonds, property and
hedge funds. But some wealthy investors are starting to dabble in lawsuit
investment, bankrolling some or all of the heavy upfront costs in return for a
share of the damages in the event of a win. The London-managed hedge fund MKM
Longboat last month revealed plans to invest $100million (£50.5million) to
finance European lawsuits. Today a new company, Juridica, floats on AIM, having
raised £80million to make litigation bets.
"The law is now an asset class," The London Times, December 21, 2007 ---
http://business.timesonline.co.uk/tol/business/columnists/article3080766.ece
Jensen Comment
Under U.S. GAAP, intangible assets are generally booked only when purchased and
are not conducive to fair value accounting afterwards. Probably the most serious
problem in both accounting theory and practice is unbooked value (and in many
cases undisclosed) of intangible assets and liabilities. Do the values of human
capital and knowledge capital ring a bell? Does the cost retraining the world's
workforce to use Office software other than Microsoft Office (Word, Excel,
PowerPoint, etc.) ring a bell?
Contingent liabilities (particularly pending lawsuits) are problematic until
the amount of the liability is both reasonably measurable and highly probable.
Until now, contingent litigation assets were not investment assets. Contingent
liabilities were booked as current or past expenses. Now purchased litigation
assets having future value? Horrors!
In the past when a company purchased another company, some of the "goodwill"
value above and beyond the traceable value to net tangible assets could easily
have been the value of future litigation such as when Blackboard acquired WebCT
and WebCT's patents on online education software. Patents and Copyrights may
have value with respect to fending off future competition.
But patents and copyrights may also have value in future litigation regarding
past infringements. Now hedge funds might invest in bringing litigation to
fruition.
Intangible assets and liabilities are, and will forever remain, the largest
problem in accounting theory and practice! In some cases, such as Microsoft
Corporation, booked assets are so miniscule relative to unbooked intangible
assets that the balance sheets are virtually a bad joke.
An enormous problem, besides the fact that current value of intangibles
cannot be counted, current value can change by enormous magnitudes overnight as
new discoveries are made and new legislation is passed, to say nothing of court
decisions. Tangible asset values can also change, but in general they are not as
volatile.
December 25, 2007 reply from Dennis Beresford
[dberesfo@TERRY.UGA.EDU]
Bob,
SFAS 141R (available on the FASB web site)
substantially changes the accounting for both contingent assets and
liabilities in connection with business combinations. In fact, 141R coupled
with SFAS 160 on noncontrolling interests makes major changes to both the
accounting for business combinations and the accounting for consolidation
procedures. While the new rules can't be applied until 2009, anyone teaching
advanced accounting or where ever else these topics are covered should throw
out their old lesson plans and be prepared to enter into an entirely new
world of accounting - not for the better in my humble opinion.
By the way, another interesting thing to read on
the FASB web site is the proposal to reduce the size of the FASB and make
some other changes to improve the standard-setting process. We celebrated
our family Christmas a few days ago because of travel plans and I'm working
on my comment letter to the Financial Accounting Foundation today.
Merry Christmas!
Denny
December 25, 2007 reply from Amy Dunbar
[Amy.Dunbar@BUSINESS.UCONN.EDU]
What I found interesting about 141R is the
discussion in the appendices that showed both the FASB and IASB views and
how the Boards reached convergence.
141R also added a couple paragraphs to FIN 48 that
result in goodwill no longer being adjusted if the contingent tax liability
is increased or decreased. Instead the DR is to tax expense, which makes a
lot more sense to me. If I read the statement correctly, the purchased
assets and liabilities are stated at fair value under a recognition, then
measurement principle. Taxes are exempt from those two principles; instead
FAS 109/FIN 48 apply. What I couldn't tell is if the purchaser still has up
to one year (the maximum measurement period) to get the tax contingent
liability right before the DR goes to tax expense. Can anyone help me?
Amy Dunbar
UConn
From the AccountingWeb on December 27, 2007 ---
http://www.accountingweb.com/blogs/eva_lang_blog.html
On December 4, 2007, the Financial Accounting
Standards Board issued FASB Statements No. 141 (revised 2007), Business
Combinations. The new standard requires the acquiring entity in a business
combination to recognize all (and only) the assets acquired and liabilities
assumed in the transaction; establishes the acquisition-date fair value as
the measurement objective for all assets acquired and liabilities assumed;
and requires the acquirer to disclose to investors and other users all of
the information they need to evaluate and understand the nature and
financial effect of the business combination. The revision of 141 is part of
the FASB's push toward "fair value," or mark-to market accounting.
Financial Week (December 10, 2007) reports
that Dennis Beresford, a former FASB chairman now serving on a Securities
and Exchange Commission advisory committee that is studying the U.S.
financial reporting system says “The rules will be difficult to apply and
will require companies and analysts to relearn a lot of things.” The article
goes on to say that the revisions to 141 “essentially extend the fair-value
requirements to new areas. That will increase the valuation work required of
corporate finance departments, and in some cases jack up the volatility of
reported earnings as various assets and liabilities are marked to market.”
"FASB Issues FASB Statements No. 141(R), Business Combinations and No.
160, Noncontrolling Interests in Consolidated Financial Statements,"
SmartPros, December 6, 2007 ---
http://accounting.smartpros.com/x60031.xml
Jensen Comment
You can download FAS 141(R) from
http://www.fasb.org/st/index.shtml#fas160
December 31, 2007 reply from Gerald Trites
[gtrites@ZORBA.CA]
Warren Buffett referred to "mark to market" as
"mark to myth", a comment that I think is right on the mark.
Bob Jensen's threads on intangible/contingency asset asset and liability
accounting are at
http://www.trinity.edu/rjensen/Theory01.htm#TheoryDisputes
"Fair Value: Bumpy Road from Theory to Practice
American Banker," by Todd Davenport, American Banker, December 28, 2007
---
http://www.americanbanker.com/article.html?id=2007122753FUHMD4
(Link forwarded by Denny Beresford)
To its critics, fair-value
accounting is far from fair and has only a casual relationship with value.
To its supporters, fair-value accounting is a logical response to innovative
and complex financial markets that have outstripped traditional valuation
methods.
Though it has long been a
passionate topic among accounting practitioners, academics, and corporate
financial officers, the larger investing public has thankfully been spared
the details of the debate. But that's changing.
Early this year several
companies — most of them banks, investment banks, and insurers — adopted the
clearest articulation yet of fair value by the Financial Accounting
Standards Board. Hopes for an easy transition to the new standard have run
hard against some of the worst market conditions in recent memory, turning
what might have been a clinical application of the new model into a messy
tangle that has undermined the credibility of those struggling to implement
it and pushed the debate about accounting methods out of the corporate
controller's office and into the marketplace. Even the president of the
United States is weighing in on how banking companies should recognize their
losses, and the Securities and Exchange Commission has launched an
investigation of securities valuation by dealer banks.
Questioning the reliability
of banks' financial statements is not novel sport. The industry's accounting
for, among other things, mergers, loan losses, derivatives, and
off-balance-sheet instruments has fed the skepticism of analysts, investors,
and regulators. As a general matter, the larger and more complex the bank,
the deeper the questions surrounding the accuracy of the financial
statements.
Anyone who isn't convinced
of that skepticism is likely ignoring the market's treatment of large
banking companies. As 2007 draws to a close, the country's three largest
banks — Citigroup Inc., Bank of America Corp., and JPMorgan Chase & Co. —
all trade at under 10 times their earnings over the past year. That explicit
vote of no confidence is as much an expression of concern about banks' asset
valuations as it is about their earnings prospects.
Fair-value accounting, which
in the best of all possible worlds would have ameliorated those concerns,
has only exacerbated them. In the midst of a subprime crisis in which
writedowns of illiquid, opaque financial instruments — including
collateralized debt obligations and asset-backed securities — by global
banking companies now total more than $75 billion, the fundamental question
is what happens next.
Cynicism runs deep, and in
every direction. Some observers wonder whether the new accounting standards
have forced a reckoning that the industry would have papered over in the
past. Others wonder whether banks continue to underestimate the true nature
of their losses, while still others wonder whether the fair-value method has
given banks a new cookie jar from which to feed earnings in the future.
The accounting board "tried
to accommodate everybody's movement into these less transparent, less liquid
asset classes, and they enabled the mess by letting people do that if they
merely assigned values to them — and there is no way to value them," said
Chris Whalen, the managing director at Lord, Whalen & Co.'s Institutional
Risk Analytics. "The great fallacy that we have all committed is allowing
ourselves to get pulled into asset classes that are not liquid, and fair
value means nothing in an asset class that is illiquid — it's only a matter
of debate."
The parade of
fair-value-related writedowns by global banking companies simultaneously
implementing new fair-value standards has led some observers to see
something less than a coincidence. Others claim that the accounting hasn't
changed much, if at all, and frankly doubt that banks would have been able
to hide their subprime-related losses. Truth, like value, is an elusive
standard.
Neri Bukspan, the chief
accountant at Standard & Poor's, said he believes the adoption of the
fair-value standards has influenced the level of writedowns reported by
banking companies.
The standards "crystallized
the vision around fair value" and "put much greater emphasis on the
importance of market attributes and transactions in the market," he said. "I
think it created a greater focus on the relevant data points to which you
look as a reference for the writedowns."
David Morris, a former
controller at JPMorgan Chase and now an accounting consultant, said the
fair-value precepts laid out in the accounting literature before the
adoption of the new standards are similar enough that he sees little impact
from the standards.
"I think the writedowns
would have been about the same and probably would have occurred in the same
time frames," he said. " I don't think the accounting caused the problem.
The problem was in the way the loans were created and underwritten."
And there are those who hew
a middle path.
"It may be that we have so
much more emphasis on fair value and disclosures that the application of 157
and 159 has led to some differences," said Sydney Garmong, an executive in
Crowe, Chizek & Co. LLC's financial institutions group. "But I'm not sure it
would be significantly different," and though "the downward adjustments may
be somewhat larger because of 157 and 159, I just don't think we're talking
night and day."
The
accounting board's drive to fair value is underpinned by
the belief that what a company once paid for an asset is
not nearly as relevant as what the asset is currently
worth. By that reasoning, market value trumps book
value. Leave aside arguments that potentially undermine
that reasoning; the more immediate concern is how to
value assets for which there is no ready, liquid market.
That nettlesome question is one reason why FASB has not
yet implemented a model that would apply fair value to
banks' chief assets: loans.
The FASB
has required the use of fair value for some instruments
in standards and guidance issued over the years, but it
had never consolidated a practical method for applying
it. To fill that void, it issued Financial Accounting
Standard 157, Fair-Value Measurements, in October 2006;
the 158-page standard is essentially a reference book
that tells companies how to apply fair value, but not
where they must apply it.
It
issued a companion statement, FAS 159, Fair Value Option
for Financial Assets and Financial Liabilities, in
February 2007, that has been seen by many observers as
an enticement to get companies to apply fair value to a
wider swath of assets. Under 159, companies have the
latitude to use fair value only for the financial
instruments of their choosing. The discretion is so
complete that companies can make separate designations
for similar securities in the same portfolio.
Though
the standards are only now in effect — companies
following generally accepted accounting principles must
use them in preparing financial statements for periods
beginning after Nov. 15 — the board allowed for early
adoption in the first quarter of 2007. The catch:
Companies that wanted to use the option standard, 159,
also had to adopt the new measurement standard, 157, for
every instrument on the balance sheet required to be
measured at fair value.
The
banking industry did not have a unified response to
either standard, and that is because the "banking
industry" is not nearly as monolithic as it sounds. The
fair-value model works for some business lines better
than it does for others.
Continued in article
"Fair Value: Simple Idea, Complex Path,"
by Todd Davenport, American Banker,
December 31, 2007 ---
http://www.americanbanker.com/article.html?id=20071228XOYSLOCX
It's fair to say that there is more than a little
hostility to the concept of fair value, and the hostility intensifies
depending on the instruments under discussion.
For some bankers, accounting standard-setters'
ongoing search to define "fair value" for traditional loans is almost
heretical. But there are fewer grounds for objecting to the application of
fair value to securities, which, after all, are created primarily to make
illiquid assets liquid.
Companies have used fair value for years. The
Financial Accounting Standards Board's decision to adopt a new standard on
fair value, issued in October of last year, was intended merely to clarify
its use and identify methods for valuing increasingly complex securities
that have poured into the market.
The seizure of markets once presumed to be liquid
has complicated what was to be a no-hassle transition to the new standard,
FAS 157.
"Companies and their auditors are really nervous
about changing values, and they are nervous about whether they could be
second-guessed" on securities valuations, said Dennis Beresford, a former
FASB chairman and now a professor of accounting at the University of Georgia
and the director who chairs Fannie Mae's audit committee. "It's awfully hard
for some people to believe that markets could have changed so quickly."
The organizing principle of FAS 157 is a
three-level liquidity hierarchy for financial instruments. Valuation is
simple enough for Level 1 securities, which are traded actively in liquid
markets with regular, quoted prices. For these securities, fair value is
market value, and the math is straightforward.
Common equities and highly liquid U.S. Treasuries
generally are considered Level 1 securities. For those securities quoted by
bid and ask prices, companies can choose either the midpoint or the point
between them that is "most representative" of fair value.
But the association between fair value and market
value starts to break down with Level 2 securities, which are not quoted
directly or traded actively but have "observable inputs" — market prices of
similar securities, for instance — that can be thrown into models.
Common interest rate swaps, options, and other
derivatives frequently fall in this bucket, as do licensing arrangements and
even buildings. Agency mortgage-backeds, corporate debt, and some
collateralized debt obligations fall into this category, as well.
Level 3 of the fair-value inferno is reserved for
instruments that have "no observable inputs." The value of these instruments
is almost entirely model-driven. They are worth what the company says,
provided it can get its auditor to bless the calculated value.
This bucket, by and large, is the home of mortgage
servicing rights, asset-backed commercial paper, and structured products
like synthetic CDOs.
"The fair-value measurement objective remains the
same, that is, an exit price from the perspective of a market participant
that holds the asset or owes the liability," the standard reads. "Therefore,
unobservable inputs shall reflect the reporting entity's own assumptions
about the assumptions that market participants would use in pricing the
asset or liability (including assumptions about risk)."
That's a lot of assumptions. Even granting the
standard's comprehensible internal logic, figuring out which securities
qualify as what is not always clear. Companies can reach different
conclusions about the level and value of securities that seem similar. Value
depends on the models, which can vary from company to company and produce
wildly varying results, depending on the inputs.
"These values for Level 2 and particularly Level 3
are not as precise as the financial statements might imply," Prof. Beresford
said. "But what they don't tell you, and probably couldn't very accurately,
is tell you what kind of range we're talking about."
It is, of course, the Level 3 instruments that have
gotten the most attention since markets dried up, given that their value is
based largely on internal — if audited — assumptions. Investors have taken a
dim view of these assets; the larger the portion of these assets, the larger
the perceived black hole in the balance sheet.
As of Sept. 30, Citigroup Inc. held $135 billion of
Level 3 assets, JPMorgan Chase & Co. held $55 billion, and Bank of America
Corp. held $28 billion. Spokesmen for the companies would not make
executives available to discuss their use of fair-value accounting.
"Level 3 raises a reasonable question: If an asset
is hard to value, should you be buying it at all?" asked Donald van
Deventer, the CEO of Kamakura Corp., which helps companies and investors
value securities. "The answer is probably no, unless you are really good at
the analytics."
Banking companies could argue reasonably that they
are good at the analytics, and that as financial intermediaries, they must
be expected to hold a variety of instruments, including those not easy to
value. But then the companies must live with the questions that arise from
holding them.
"If an investor, in deciding whether to buy shares
of a particular bank, sees a huge fraction of its assets are Level 3, the
investor may wonder if the assets are worth as much as the bank says they
are," said Darrell Duffie, a professor of finance at Stanford University's
Graduate School of Business. "That's a discipline on the bank. It's helpful
information for the investor making that decision, and banks will be
forewarned not to load up on Level 3 assets if they want to sell at high
multiples in the market."
Most accountants are quick to remind that the
three-level hierarchy was a rough element in the accounting literature even
before the FASB delineated it clearly in FAS 157. Fair value is a central
element of FAS 115, a 1993 standard. Under that standard, securities held in
the trading portfolio — the portfolio in which the largest U.S. banking
companies keep most of their securities — are marked at fair value, with the
aggregate change running through the income statement.
Banking companies that do not have substantial
investment-banking businesses — from large regional ones to community ones —
are more likely to keep their securities in the available-for-sale
portfolio, which also is marked at fair value. Though the unrealized gains
and losses in that portfolio are reflected in GAAP capital (regulatory
capital calculations do not include unrealized gains or losses), they do not
hit the income statement as long as they are relatively insignificant and
reasonably likely to be recovered in future periods.
(Companies lose that safe harbor if losses are
serious enough that recovery becomes unlikely. Zions Bancorp. reported one
of the most recent instances of other-than-temporary impairment. In a
securities filing Dec. 20, the Salt Lake City company, which has not adopted
FAS 157, disclosed a $94 million impairment of CDOs in its
available-for-sale portfolio and said it would record the entire amount as a
charge to fourth-quarter earnings.)
Continued in article
"Fair Value: Trust Is Wild Card in Debate,"
by Todd Davenport, American Banker,
January 2, 2008 ---
http://www.americanbanker.com/article.html?id=200712318ZWKJCBM
The market meltdown in the second half of last year
gave investors plenty of reasons to doubt the accuracy of banks' asset
valuations, and the way the situation has unfolded is telling.
What was seen initially as a liquidity crisis soon
was revealed as a crisis of confidence. There was money to transact, but
investors did not trust what they were being told about the value of the
securities that banks were originating, packaging, and trading.
Representations of value derived by models are only as good as the models
themselves, and investors have learned the hard way that dealers' incentives
are quite different from those of their clients.
"For a long time people looking for values were
relying on quotes from Wall Street with no transactions associated with
them," said Donald van Deventer, the chief executive officer of Kamakura &
Co., which helps companies and investors value securities. "If you take the
business cycle and macroeconomic factors into account to drive default
probabilities up and down, you get dramatically different answers than you
get using the popular method that Wall Street and the rating agencies have
encouraged people to use."
Mr. van Deventer, a former investment banker, said
he has a pretty clear idea why the dealer banks encouraged clients and
internal auditors to use the valuation techniques of their choosing.
"Because it makes more money if you do," he said.
"Anybody who doesn't understand that is just hopelessly naive, and there are
a lot of investors who by self-admission have fallen into that category."
And again, he sees a change under the Financial
Accounting Standards Board's new standard.
"The combination of [FAS] 157 and the current
crisis has meant that unless there is a real trade, the quote has no
credibility, because the quoter has a vested interest in your perception of
value," Mr. van Deventer said.
Cynicism about bankers' valuations is embedded so
deeply that some observers who say banks are being forced only now to
recognize the true value of their illiquid securities also suspect that the
companies could undervalue the securities they once overvalued.
Loan-loss provisions spike so consistently in the
fourth quarter that it is known as the "kitchen sink" quarter. Taking the
losses at the end of the year makes comparisons with next year's earnings
easier, and a plump fourth-quarter provision can lead to smaller bites from
the bottom line in future quarters.
Some skeptics say writedowns afford the same
opportunity; once the big dealer banks realized their writedowns would be
substantial, they arguably had as much incentive to overstate as to
understate. A sophisticated financial institution knows its stock may get
pummeled if it reports a $4 billion writedown; would the market reaction be
any more violent if the writedown was, say, $5 billion, or $6 billion, or $8
billion? Preserving capital ratios is the primary limitation on the
magnitude of writedowns.
The freedom of FAS 159, a companion statement to
FAS 157, would give banks the tools to follow an earnings-management
strategy that would not violate accounting rules. (Principles are another
matter, but that's a debate for another day.)
"A bank can choose which financial instruments it
wants to report at market value," said Darrell Duffie, a professor of
finance at Stanford University's Graduate School of Business. "A bank that
wanted to report lower earnings now and bank any embedded gains later could
mark to market anything that had embedded loss and leave at book value
anything that has an embedded gain to be marked later."
The advantage of fair-value accounting is that it
allows companies to take market gains back through the income statement as
quickly as they incurred the losses. Should models lead them to conclude
that marked-down securities had recovered value, the difference would be
reflected as income.
"Companies, of course, aren't supposed to use the
new standard as a way to manage earnings — they're only supposed to use it
to get a closer approximation of fair value," Prof. Duffie said. "But
accountants will sometimes be led to do what management of a bank wants them
to do."
Nevertheless, he said he supports fair-value
accounting, because the potential for earnings management dissipates the
longer a company has reported under the regime.
In current market conditions, there is one more
strange, almost perverse, effect of the new standard: Companies stand to
profit when the value of their own debt falls. Bank debt, of course, tends
to tumble when the credit cycle worsens, as it is doing now.
Corporate debt is a liability, and companies apply
fair or market value, if available, to that debt. Never mind the principal
value — as the liability's market value falls, it is marked as a pickup in
earnings on the company's income statement. This unusual development, known
as the "own-creditworthiness" doctrine, already has been recognized by some
companies.
On Dec. 21, SunTrust Banks Inc. reported a series
of writedowns and a huge increase in its loan-loss provision. "Market
valuation declines are expected to result in an estimated fourth quarter
2007 pretax writedown of $125 million to $150 million, net of a positive
mark on the company's debt carried at fair value," the Atlanta company said
in a filing with the Securities and Exchange Commission.
Own-creditworthiness does have an internal logic,
but some of its potential consequences raise serious questions. It makes
sense to value liabilities the way the market is valuing them, but the
possibility of recording income from a loss of investor credibility seems
perverse.
It is only one reason the debate over fair value is
not likely to be resolved soon. Bankers may save their biggest fight for
when the FASB articulates a standard that applies fair value to
bread-and-butter loans.
Christopher Whalen, the managing director at Lord,
Whalen LLC's Institutional Risk Analytics, dismisses the notion that fair
value is a step forward for accounting.
"In between when you buy something and when you
sell something, valuing it may be an interesting exercise, but it may not be
one that is practical," he said. "The only time you can value something
dynamically is if it is traded — if you have a visible, public price.
Otherwise, who wants to know?"
Legions of bankers agreed with that expression of
contempt. They cite this summer's events as evidence that markets are not
always rational and occasionally may put values on securities that do not
match what they believe are the securities' economic or intrinsic value. And
wildly moving markets mean income statements will move with them.
To which fair-value adherents say: Tough.
Continued in article
Bob Jensen's threads on fair value accounting are at
http://www.trinity.edu/rjensen/Theory01.htm#FairValue
"The Finer Points of Fair Value," by Thomas A. Ratcliffe, Journal of
Accountancy, December 2007 ---
http://www.aicpa.org/pubs/jofa/dec2007/fair_value.htm
EXECUTIVE SUMMARY |
To adopt FASB Statement no. 159, companies must comply with
the requirements of Statement no. 157, Fair Value
Measurements.
Companies
and their auditors must consider whether the use of fair
value option accounting reflects a “substance over form” decision by
management rather than an effort to gain an accounting result.
FASB
has raised the bar for disclosure required when the fair
value option is in play so that financial statement users will be
able to clearly understand the extent to which the option is
utilized and how changes in fair values are being reflected in the
financial statements.
Companies are encouraged but not required to present the
fair value option disclosures in combination with the fair value
disclosures required in other accounting literature.
The
guidance must be implemented on an instrument-by-instrument
basis and is irrevocable. |
From the FASB: PROPOSED FASB STAFF POSITION No. FAS 157-a
"Application of FASB Statement No. 157 to FASB Statement No. 13 and Its Related
Interpretive Accounting Pronouncements That Address Leasing Transactions" ---
http://www.fasb.org/fasb_staff_positions/prop_fsp_fas157-a.pdf
Objective
1. This FASB Staff Position (FSP)
amends FASB Statement No. 157,
Fair Value Measurements, to exclude FASB Statement No. 13,
Accounting for Leases, and its related interpretive accounting
pronouncements that address leasing transactions.
Background
2. The Exposure Draft preceding
Statement 157 proposed a scope exception for Statement 13 and other
accounting pronouncements that require fair value measurements for leasing
transactions. At that time, the Board was concerned that applying the fair
value measurement objective in the Exposure Draft to leasing transactions
could have unintended consequences, requiring reconsideration of aspects of
lease accounting that were beyond the scope of the Exposure Draft.
3. However, respondents to the
Exposure Draft indicated that the fair value measurement objective for
leasing transactions was generally consistent with the fair value
measurement objective proposed by the Exposure Draft. Others in the leasing
industry subsequently affirmed that view. Based on that input, the Board
decided to include lease accounting pronouncements in the scope of Statement
157.
4. Subsequent to the issuance of
Statement 157, which changed in some respects from the Exposure Draft,
constituents have raised issues stemming from the interaction
Proposed FSP on Statement 157 (FSP
FAS 157-a) 1 FSP FAS 157-a
between the fair value measurement objective in Statement 13 and the fair
value measurement objective in Statement 157.
5. Constituents have noted that
paragraph 5(c)(ii) of Statement 13 provides an example of the determination
of fair value (an exit price) through the use of a transaction price (an
entry price). Constituents also have raised issues about the application of
the fair value measurement objective in Statement 157 to estimated residual
values of leased property. These issues, as well as other issues related to
the interaction between Statement 13 and Statement 157, would result in a
change in lease accounting that requires considerations of lease
classification criteria and measurements in leasing transactions that are
beyond the scope of Statement 157 (for example, a change in lease
classification for leases that would otherwise be accounted for as direct
financing leases).
6. The Board acknowledges that
the term
fair value will be
left in Statement 13 although it is defined differently than in Statement
157; however, the Board believes that lease accounting provisions and the
longstanding valuation practices common within the leasing industry should
not be changed by Statement 157 without a comprehensive reconsideration of
the accounting for leasing transactions. The Board has on its agenda a
project to comprehensively reconsider the guidance in Statement 13 together
with its subsequent amendments and interpretations.
Bob Jensen's threads on fair value accounting are at
http://www.trinity.edu/rjensen/Theory01.htm#FairValue
"Common blunders: Personal finance resolutions for 2008," by Carrie
Schwab Pomerantz, Town Hall, January 1, 2008 ---
Click Here
Bob Jensen's personal finance helpers are at
http://www.trinity.edu/rjensen/Bookbob1.htm
Forensic Accounting
There’s a rather nice module on Forensic Accounting at
http://en.wikipedia.org/wiki/Forensic_Accounting
This includes links to a journal and career opportunities.
The link to the following article was forwarded by Charles
Wankel [wankelc@VERIZON.NET]
"Account for more than hill of beans," The Bay
City Times Via The Saginaw News, December 16, 2007 ---
Click Here
When Kojo Quartey went to college to learn
accounting 25 years ago, many considered the job a steady, unexciting
career.
But financial scandals in recent years at Enron,
WorldCom and other companies have transformed the field, says Quartey, dean
of Davenport University's Donald W. Maine School of Business.
''When I was an accounting student, we were all
number crunchers. In this day and age, it's a much more exciting field,'' he
said.
Many accountants today are seeking specialized
training to work as detectives who can sniff out financial fraud. They call
themselves forensic accountants.
Davenport, a Grand Rapids-based university with
branches at 5300 Bay in Kochville Township and at 3930 Traxler Court in Bay
County's Monitor Township, has two online offerings in the growing field.
One is a new bachelor's degree in business administration in accounting
fraud investigation and the other is a forensic accounting examiner
certificate available to postgraduates.
Forensic accountants undergo training to mind the
books while keeping an eye out for crime.
Demand for accountants who have such training is
skyrocketing, Quartey told a group of Bay and Arenac county high school
counselors.
In addition to traditional accounting, forensic
accountants may learn from law enforcement experts about how to detect
fraud, and from psychologists about how to interview people to detect lying,
Quartey said.
Irene Bembenista teaches classes at Davenport
required for the forensic examiner certificate.
''It's not just how to do an audit, but what are
some of the clues that would indicate something more is going on? And ideas
about where to further investigate,'' said Bembenista, Davenport's associate
business school dean.
Bembenista said 10 years ago, people did not
generally recognize forensic accounting as a college career path.
A federal law enacted in 2002 to reform accounting
has brought the investigation field into its own. It's also created job
opportunities because it requires accountants at public entities to maintain
a separation of duties, Bembenista said.
''Accountants aren't allowed to do double duties,
like taxes and audit the company at the same time,'' she said.
''And businesses are very interested in accountants
with a fraud (detection) background, because they are looking out for the
well-being of the organization.''
The starting salary for an accounting fraud
investigator is $48,000 to $60,000 a year, and certified forensic examiners
can earn more than $100,000 a year, Davenport says compensation studies
indicate.
Davenport has about two dozen students enrolled in
the forensic accounting certificate curriculum, Quartey said. The next term
begins in January, and more information is available on the Internet at
www.davenport.edu
Bob Jensen's threads on forensic accounting are at
http://www.trinity.edu/rjensen/fraud.htm
Bob Jensen's threads on accountancy careers are at
http://www.trinity.edu/rjensen/fraud.htm
What's Your Fraud IQ? ---
http://www.aicpa.org/pubs/jofa/dec2007/fraud_iq.htm
1. According
to ACFE’s 2006 Report to the Nation on
Occupational Fraud and Abuse, the typical
organization loses what percentage of its annual
revenue to fraud?
a. 1%
b. 5%
c. 10%
d. 20%
2. The most common method of concealing inventory
theft is:
a. Misstating inventory counts
b. Padding the physical inventory
c. Falsifying journal entries
d. Altering shipping and receiving
documentation
3. To prevent
the forged endorsement of a check, which of the
following is MOST critical?
a. The check preparer should not be
able to modify the vendor addresses
b. Signed checks should not be
returned to the preparer
c. The duties of receiving and
delivering signed checks should rotate
4. The most
basic and important control for detecting cash
larceny from a deposit is to:
a. Monitor the deposit slip receipt
for alterations
b. Compare monthly bank statements
to the organization’s end-of-the-month report
c. Reconcile the receipt copy of
the daily deposit slip with the organization’s daily
receipts
d. None of the above
5. All of
the following are methods of preventing overstated
expense reimbursements EXCEPT:
a. Reviewing expense reimbursements
per employee looking for individuals whose travel
and entertainment expenses appear to be out of line
b. Spot-checking expense reports
with vendors
c. Prohibiting the reimbursement of
any expenses supported by a photocopied receipt
without first verifying that the expense is
legitimate
d. Reimbursing air travel expenses
based only on itineraries supplied by travel
agencies
6. Which of
the following schemes might be used to increase a
company’s income in the current year?
a. Understating liabilities
b. Capitalizing expenses
c. Improperly recording returns and
allowances
d. All of the above
7. Which of
the following scenarios would represent a departure
from the prescribed method of obtaining a
confirmation during a financial statement audit?
a. The auditor prepares the
confirmation letter and allows the client to inspect
the letter before the client mails it
b. The client mails the
confirmation letter and a return envelope addressed
to the auditor
c. Both a and b
d. Neither represents a departure
from the prescribed procedure
8. A
fictitious accounts receivable scheme almost always
involves which of the following?
a. Fictitious inventory
b. Fictitious sales
c. Fictitious credit memos
d. Both b and c
9. Company
XYZ has a controlling relationship over Firm C. This
relationship must be disclosed in the notes to
non-consolidated financial statements even if no
transactions have occurred between the two
companies.
a. True
b. False
10. A key
indicator of fictitious revenues can be found
through a comparison of the increase in sales to the
change in which of the following accounts?
a. Cost of goods sold
b. Advertising expense
c. Shipping expense
d. Both a and c |
|
Answers ---
http://www.aicpa.org/pubs/jofa/dec2007/fraud_iq.htm
Bob Jensen's fraud updates are at
http://www.trinity.edu/rjensen/FraudUpdates.htm
"Distance learning: The world of online training for
accountants," AccountingWeb, December 2007 ---
http://www.accountingweb.com/cgi-bin/item.cgi?id=103948
From Smart Stops on the Web,
Journal of Accountancy, November 2007 ---
http://www.aicpa.org/pubs/jofa/nov2007/smart_stops.htm
CONTINUING EDUCATION |
|
THE CPA
TOOLBOX
www.cpemarket.com
This Smart Stop is part of the National Association of State Boards
of Accountancy’s
www.nasbatools.com, which offers “tools for accountancy
compliance.” CPAs can search CPE course providers, the National
Registry of CPE Sponsor courses and quality assurance service
courses, plus click on “Pilot Test CPE Courses” to try out courses
for free. There’s also access to instructor resumes and in-house
course providers. Click on the state you’re licensed in to find
updated information on mandated continuing education requirements
and links to your state’s board of accountancy.
CREDITS ON THE GO
www.cchpodcast.com/partners/cchPodcast
Check this site for free CPE podcasts, available as streaming audio
or downloadable to your computer or audio player. Click on “Course
Catalog” to download available podcasts and their supplementary PDFs,
including a study guide and final exam questions. When you’re ready
to take the exam, enroll and purchase the credits—your exam grading
and certification is available immediately. Be sure to check if your
state’s board of accountancy accepts these CCH self-study courses by
clicking the “CPE Accreditation” link.
ASSESS YOURSELF
www.cpa2biz.com/CPE
Just starting your continuing education requirements? Test your
skills and training needs with the site’s “Competency
Self-Assessment Tool,” free for AICPA members, then search CPE
courses by topic, level, job area or format, including CD-ROM and
DVD. Check back often to see the month’s top sellers and new
releases or to download catalogs for the “CPE Direct” program and
“Staff Training Series.”
THE ROAD TO CPE COMPLIANCE
www.cpetracking.com
Can’t keep up with your CPE hours? Launched in 2006, this site keeps
accounting professionals and firms up-to-date on CPE hours and
compliance. Registered users can record CPE credits, which are then
compared to the requirements from each state’s board of accountancy
and regulatory agencies. The service also provides status reports by
jurisdiction and reporting period, as well as access to all of your
CPE records in one location.
|
Most accountancy associations,
firms, and many colleges also offer CPE courses.
Bob Jensen's threads on online training and education
are at
http://www.trinity.edu/rjensen/Crossborder.htm
Also see the bookmarks at
http://www.trinity.edu/rjensen/Bookbob1.htm#010304OnlineAccountingCPEandTraining
From The Wall Street Journal Accounting Weekly Review
on November 30, 2007
Global Accounting Effort Gains a Step
by David
Reilly and Kara Scannell
The Wall Street Journal
Nov 16, 2007
Page: A4
Click here to view the full article on WSJ.com ---
http://online.wsj.com/article/SB119515473521294535.html?mod=djem_jiewr_ac
TOPICS: Accounting,
Financial Accounting, Financial Reporting, GAAP,
International Accounting Standards, SEC
SUMMARY: The
SEC voted 4-0 to drop a requirement that foreign companies
with U.S. listings reconcile their results to U.S.
accounting rules. Regulators are hoping to eventually create
a single, global set of accounting rules that could
potentially benefit investors and companies world-wide. One
concern is that a uniform set of global accounting rules
could be undermined by differing views over who those rules
are supposed to serve: investors, companies, or governments.
CLASSROOM
APPLICATION: This article notes that GAAP is not a set
of international accounting standards, but that it applies
to U.S. companies and those foreign companies who list in
the U.S. Also discussed are some of the issues surrounding a
possible movement towards uniform international accounting
standards.
QUESTIONS:
1.) What is the SEC? What is it area of enforcement?
2.) What rule has the SEC recently changed? Why do you think
the SEC made the change?
3.) What is GAAP? What companies must follow GAAP? Why is it
important to have GAAP, and for companies to utilize it?
4.) What are the benefits for having standard international
accounting standards? What are the problems associated with
having one uniform set of accounting standards for all
companies in the world?
5.) What parties want foreign companies to reconcile
financial statements with U.S. standards? What are their
concerns? Do you agree with their concerns?
6.) What are the various constituents served by financial
reporting around the world? Which countries cater to each of
these groups of constituents? How does each particular focus
affect the financial statements?
7.) Is a single, global accounting system possible? Why or
why not? What is hindering it? What could be done to make it
work?
Reviewed By: Linda Christiansen, Indiana University
Southeast
|
Overhaul Proposed in Accounting Standards Board
The Financial Accounting Foundation, the body that
decides who will set accounting rules in the United States, plans on Tuesday to
propose an overhaul aimed at enabling the Financial Accounting Standards Board
to act faster while increasing the power of its chairman, Robert H. Herz. The
proposals being put out for comment Tuesday would reduce the size of the FASB to
five members from seven, and give the chairman the power to decide whether to
place issues on the board’s agenda.
Floyd Norris, The New York Times, December 18, 2007 ---
http://www.nytimes.com/2007/12/18/business/18audit.html?_r=1&ref=business&oref=slogin
Bob Jensen's threads on accounting standards setting are at
http://www.trinity.edu/rjensen/Theory01.htm#MethodsForSetting
Question
What are CDOs?
Should they be booked?
CDO ---
Click Here
From The Wall Street Journal Accounting Weekly Review
on November 30, 2007
Citi's $41 Billion Issue: Should It Put CDOs On the Balance
Sheet?
by David
Reilly
The Wall Street Journal
Nov 26, 2007
Page: C1
Click here to view the
full article on WSJ.com
---
http://online.wsj.com/article/SB119604238679603556.html?mod=djem_jiewr_ac
TOPICS: Accounting,
CDO, Collateralized Debt Obligations, Consolidated Financial
Statements, Consolidations, Financial Accounting,
Reconsideration Events
SUMMARY: Does
Citigroup need to bring $41 billion in potentially shaky
securities onto its balance sheet? Opinions are divided,
reflecting a wider debate over how to interpret accounting
rules on off-balance-sheet treatment for some financing
vehicles.
CLASSROOM
APPLICATION: This article offers a good basis for
discussion of CDOs, possible consolidation of CDOs, and the
balance sheet presentation of CDOs based on the rules
related to "reconsideration events."
QUESTIONS:
1.) What are CDOs? What are the recent problems connected
with CDOs? What is the cause of these problems? In general,
why are they especially a concern for Citigroup?
2.) What is the specific issue facing Citigroup, as detailed
in the article?
3.) What are the accounting rules regarding consolidation of
CDOs? How do banks avoid having to consolidate?
4.) Why is there controversy over the how the losses should
be booked by the bank? What is the potentially vague part of
the rules?
5.) What position does Citigroup take? What position are
some accounting experts taking? Is either side getting
support from other parties? If so, from whom?
6.) With what position do you agree? How did you reach this
conclusion? Please offer support from your answer.
Reviewed By: Linda Christiansen, Indiana University
Southeast
RELATED
ARTICLES:
Why Citi Struggles to Tally Losses
by Carrick Mollenkamp and David Reilly
Nov 05, 2007
Page: C1
The Nine Lives of CDOs
by
Nov 26, 2007
Page: C10
Goldman Says Citigroup Faces $15 Billion CDO Write-Downs
by Kimberly A. Vlach
Nov 20, 2007
Online Exclusive
|
"Citi's $41 Billion Issue: Should It Put CDOs On the
Balance Sheet?" by David Reilly, The Wall Street Journal, November 26,
2007; Page C1 ---
http://online.wsj.com/article/SB119604238679603556.html?mod=djem_jiewr_ac
A $41 billion question mark is hanging over
Citigroup Inc.
That is the amount, in a worst-case scenario, of
potentially shaky securities the bank would need to bring onto its balance
sheet. Citi has already taken billions of dollars of such securities onto
its balance sheet and expects to take big write-downs on those holdings.
The fate of the $41 billion rests on the outcome of
a debate going on in accounting circles over what constitutes a
"reconsideration event." Those who say Citi needs to put these securities,
known as collateralized debt obligations, onto its balance sheet argue that
because Citi acted over the summer to backstop some of them, its
relationship with them changed, prompting a reconsideration event.
At the moment, it seems unlikely Citigroup will be
forced to bring the assets onto its books. The bank doesn't believe such a
reconsideration event is in order. A spokeswoman says Citigroup is confident
its "financial statements fully comply with all applicable rules and
regulations."
But the division of opinion reflects debate within
accounting circles over just how to interpret rules that govern
off-balance-sheet treatment for some financing vehicles. That, in turn,
underscores what many consider to be a failure of these rules to ensure that
investors in the companies that create these vehicles are adequately
informed of the risks posed by them.
In recent months, investors have been shocked to
learn that many banks were exposed to big losses because of their
involvement with vehicles that issued commercial paper and purchased risky
assets such as mortgage securities. The troubles facing one kind of
off-balance-sheet entity, known as structured investment vehicles, have even
prompted Citigroup and other major banks to organize a rescue fund.
But CDO vehicles created by Citigroup have proved
to be a more immediate threat. The bank's announcement this month that it
expects to take $8 billion to $11 billion in write-downs in the fourth
quarter largely stems from its exposure to CDO assets. Citigroup was one of
the biggest arrangers of CDOs -- products that pool debt, often mortgage
securities, and then sell slices with varying degrees of risk.
If Citigroup had to include an additional $41
billion in CDO assets on its books, that could potentially spur a further $8
billion in write-downs, above and beyond those already signaled, according
to a report earlier this month by Howard Mason, an analyst at Sanford C.
Bernstein. Such losses could further weaken Citigroup's capital position,
threatening its dividend or forcing the bank to raise money.
The issue for Citigroup is when, and if, it has to
reconsider consolidation of the CDO vehicles it sponsors.
Like other banks, Citigroup structured these
vehicles so they wouldn't be included on its books. The vehicles are created
as corporate zombies that ostensibly aren't owned or controlled by anyone.
In that case, accounting rules say consolidation of such vehicles is
determined by who holds the majority of risks and rewards connected to them.
To deal with that, banks sell off the riskiest
pieces of the vehicles. This ensures they don't shoulder a majority of the
risk and so don't have to consolidate the vehicles. The assessment of who
absorbs the majority of losses is made when the vehicles are created.
Over time, though, rising losses within a vehicle
can lead a sponsor to shoulder more risk, or even a majority of it. That can
also happen if a sponsor takes on additional interests in the vehicle by
buying up the short-term IOUs it issues.
That is what happened to Citigroup. Over the
summer, the bank was forced to buy $25 billion in commercial paper issued by
its CDO vehicles because investors were no longer interested in the paper.
Citigroup already had an $18 billion exposure to these vehicles through
other funding it had provided.
This combined $43 billion exposure means that if
CDO losses climb high enough, the bank could be exposed to more than half
the losses, according to Bernstein's Mr. Mason. That would seem to argue for
Citigroup's consolidating all $84 billion of its CDO assets originally held
in off-balance-sheet vehicles.
But the accounting rules don't say that sponsors of
these vehicles have to reassess on any regular basis the question of who
bears the majority of risk of loss. Such "reconsideration events" occur when
there is a change in the "governing documents or contractual arrangements"
related to these vehicles, the rules say.
Citigroup believes that because it hasn't changed
the documents or contracts related to the vehicles, it shouldn't have to
reconsider its relationship to them, according to people familiar with the
bank's thinking.
But some accounting experts point out that the rule
also says a reconsideration event occurs when an institution acquires
additional interests in the vehicle. "If a bank is being forced to step in
and be a bigger holder of the commercial paper, to me that's pretty black
and white that it's a reconsideration event," says Ed Trott, a retired
member of the Financial Accounting Standards Board, the body that wrote the
accounting rule.
An influential accounting-industry group, the
Center for Audit Quality, also seems to lean toward this view. In a paper
issued last month, the center said the purchase of commercial paper is an
example of a change in the contractual arrangements governing these
vehicles. This "may also result in a reconsideration event," the paper said.
But Citigroup believes its purchase of the CDO
vehicles' commercial paper is different, because it had taken on the
obligation to provide such assistance when the vehicles were created. This
means the bank was acting within the contractual arrangements governing the
vehicles, not changing them, according to the people familiar with
Citigroup's thinking.
Some accounting experts agree. "If all that's
happening is one set of [paper holders] is going out and another is coming
in, that's not a reconsideration event," says Stephen Ryan, an accounting
professor at New York University. "I don't think you reconsider moment by
moment; an event is not just bad luck happening."
Bob Jensen's threads on accounting theory are at
http://www.trinity.edu/rjensen/Theory01.htm
Leading Democrats Do Not Seem to Agree on Corporate Tax Rates
If you watch the constant stream of political advertisements in New Hampshire
these days, all Democratic Party presidential candidates want to tax
corporations harder but old Charlie, who really wields the power, thinks
otherwise.
From The Wall Street Journal Accounting Weekly Review on December 6,
2007
Review & Outlook: Corporate Tax War
The
Awll Street Journal
by WSJ Opinion Page Editors
Dec 04, 2007
Page: A20
Click here to view the full article on WSJ.com ---
http://online.wsj.com/article/SB119673397691112663.html?mod=djem_jiewr_ac
TOPICS: Accounting,
Personal Taxation, Tax Laws, Taxation
SUMMARY: This
Fall, House Democrat Charlie Rangel proposed "...to cut the
U.S. corporate income tax] rate to 30.5% from 35%." This WSJ
opinion page article argues that, " As a new study makes
clear, such a reduction would give a lift to the U.S.
economy when it really needs it...[and concludes that] if
America is going to remain the developed world's leading job
creator and economic engine, corporate tax rates are going
to have to fall -- and by more than even Mr. Rangel has
suggested."
CLASSROOM
APPLICATION: Use this article to integrate political and
economic issues into tax policy discussion.
QUESTIONS:
1.) What entity prepared this report assessing the
association between corporate income tax rates and economic
performance? Why does this entity undertake such analyses?
2.) What measures were used to identify the relationships
between corporate tax rates and economic health? In your
answer, be sure to define statutory income tax rates and
effective income rates and to identify specific measures of
economic health.
3.) Summarize the main points of the discussion. With what
political party typical supports this viewpoint?
4.) Is it surprising to you that a Democrat proposes to cut
the corporate income tax rate? Explain your answer.
5.) How do personal income taxes also contribute to the
issues discussed in this article?
6.) This opinion page piece clearly presents just one side
of the debate on raising or lowering income tax rates.
Identify one counter-argument to those presented in the
piece.
Reviewed By: Judy Beckman, University of Rhode Island
RELATED
ARTICLES:
Democrats' Tax Measure Could Delay Energy Bill
by John J. Fialka
Dec 05, 2007
Page: A5
|
"Corporate Tax War," The Wall Street Journal, December 4, 2007; Page
A20
Word is that the Bush Administration will soon
propose a cut in the U.S. corporate income tax, following House Democrat
Charlie Rangel's proposal this fall to cut the rate to 30.5% from 35%. As a
new study makes clear, such a reduction would give a lift to the U.S.
economy when it really needs it.
The study, from the National Bureau of Economic
Research, looked at corporate taxes in 85 countries from 1996 to 2005.
Economists from the World Bank and Harvard University calculated the
effective business tax rate for each country, because some nations have so
many tax loopholes that the rate paid by companies can be one-half to
one-third the statutory tax rate. The study found that corporate taxes have
a statistically significant negative effect on economic performance.
High business taxes were found to reduce a nation's
domestic capital investment, the amount of foreign investment into that
country, and its overall growth in GDP. The authors conclude that "corporate
taxation reduces the return on capital and thus discourages investment" and
"reduces the cash flow of the firm" in such a way as to reduce the after-tax
capital available for reinvestment.
The researchers also found that high corporate
levies reduce entrepreneurship, which drives new industries and job growth.
In many nations the corporate tax rate is paid both by large corporations
and small businesses. In the U.S., small businesses are often organized
under Subchapter S of the tax code and thus pay the personal income tax
rate. However the tax is imposed, the study found, "a 10 percentage point
rise in a nation's effective corporate tax rate causes a decline in the
number of firms by 1.8 per 100 people (the average is 5 per 100
population)."
The clear implication is that raising the U.S.
personal income tax rates would also stunt small business entrepreneurship.
Yet this is precisely what all of the Democratic Presidential candidates,
and even Mr. Rangel, propose. In Mr. Rangel's case, the benefits of his cut
in the corporate tax for big business to 30% would be offset by the damage
he'd do by raising the top marginal tax rate on individuals and small
businesses to as high as 44%. The NBER research suggests this could
discourage hundreds of thousands of small businesses from being formed in
the next few years.
This study supports research earlier this year by
economist Kevin Hassett of the American Enterprise Institute, which found
that high business taxes also result in lower wages for workers. The higher
rate means less capital investment in making workers productive, which
translates into smaller pay checks.
What American CEOs understand, but most in the
media and political class so far refuse to acknowledge, is that the U.S. is
far behind the rest of the world in reducing corporate tax rates. The U.S.
corporate income tax rate is the world's second highest after Japan's among
developed nations. Even Mr. Rangel's proposed reduction would leave the U.S.
well above the OECD average of 25%. In recent years, Germany, France, the
United Kingdom, Vietnam, Poland and Singapore, among many other nations,
have either cut or proposed to cut their business tax rates. These lower
rates are attracting more investment and capital, and they pose a threat to
America's economic competitiveness if Washington fails to act.
The NBER study is a reminder of how out-of-touch
America's current political debate is with global economic trends. American
politicians are proposing new barriers to trade, as well as new obstacles to
capital formation, even as the rest of the world is welcoming more of both.
The study is also a reminder that because workers don't see a tax does not
mean that they don't feel its impact. If America is going to remain the
developed world's leading job creator and economic engine, corporate tax
rates are going to have to fall -- and by more than even Mr. Rangel has
suggested.
You can read much more about corporate taxes at
http://en.wikipedia.org/wiki/Corporate_Income_Tax
Congratulations to Andrea Locke from New Zealand
A New Zealand accounting student has scored the the
highest mark in the world on the financial reporting exam run by the Association
of Certified Chartered Accountants (ACCA), beating more than 20,000 other
people. Less than half of those who sit it pass the financial reporting exam.
Twenty-seven-year-old Andrea Locke, of Arrowtown, NZ and originally from
England, scored 95 percent on the three-hour exam. She is studying for by
correspondence. Forty-five percent passed the exam, which was given in June.
AccountingWeb, December 6, 2007 ---
http://www.accountingweb.com/cgi-bin/item.cgi?id=104318
XBRL and the SEC in December 2007
"SEC releases taxonomy for GAAP financial reports,"
AccountingWeb, December 6, 2007 ---
The Securities and Exchange Commission's Office of
Interactive Disclosure is heralding the release for public comment of
computer labels that will help companies make their financial disclosures
more useful for investors. The labels are already supported by at least nine
software companies whose products will enable public companies to make
quarterly and annual financial reports available in interactive data form
instead of text form. Interactive data concepts allow companies to present
their financial information in an electronic format that investors,
analysts, and others can use to more easily locate and analyze desired
information. The interactive data is encoded in a format known as eXtensible
Business Reporting Language (XBRL), which allows companies to map their
financial information to a set of computer codes that represent U.S. GAAP
accounting standards. This standardized list of codes used to represent U.S.
GAAP is known as a taxonomy.
The SEC's Office of Interactive Disclosure, created
in October to lead the transformation to interactive financial reporting by
public companies, encourages broad public review of the taxonomy and the
corresponding instructions about how to create a financial statement in XBRL.
"We've been saying that interactive data is on the
brink of transforming the review and analysis of financial information for
the benefit of investors and public companies alike," said David Blaszkowsky,
Director of the SEC's Office of Interactive Disclosure. "With the release of
this taxonomy today, investors can now begin to visually see the progress
being made, and so will every public company that uses GAAP. Interactive
data is no longer merely an up-and-comer, it's becoming reality. We
encourage both users and preparers of financial information to participate
in this public review so we can advance interactive data to be recognized
as, not only amazing technology, but a superior way of doing business and
making faster, cheaper, and more informed investment decisions."
The SEC launched its interactive data filing
initiative in April 2005 to make filings more accessible and understandable
to the common investor. A test group of public companies have since been
voluntarily submitting XBRL documents as exhibits to periodic reports and
Investment Company Act filings. Through feedback from these voluntary XBRL
filers and a global collaboration of technologists, the XBRL US project team
created tags for a financial reporting taxonomy that covers every U.S. GAAP
accounting concept — virtually every fact that a company might want to
report on its financial statements and in its footnotes.
The SEC will use the initial financial statements
prepared using the new taxonomy to help it update its electronic filing
system to seamlessly accept and render the filings.
"We have gone a long way since we started this in
2005. The voluntary pilot program started out when there was nothing like
the fully-fledged taxonomies that we are going to release to the public on
Wednesday," SEC Chairman Christopher Cox told a media briefing in Vancouver
earlier this week.
"That's really what got us from a slow jog to right
now, a full gallop," he said following a presentation to the 16th annual
XBRL International Conference.
A free taxonomy review tool is publicly available
on the Internet at usgaap.xbrl.us along with other information, including
the nine software companies whose products are compatible with the new draft
taxonomy. The public comment period ends on April 5, 2008.
Once the testing period ends, regulators expect to
be ready to propose that U.S. companies begin filing financial reports in
XBRL format.
"A lot is going to depend on the acceptance phase
that we are now entering for the U.S. GAAP taxonomies," Cox told Reuters
news.
"If that all works the way it's supposed to then
we'll have some opportunities to introduce it more broadly. If there are
suggestions from people who are using it that are going to take time to
meet, then that will influence our thinking."
Some U.S. companies, including General Electric,
Microsoft, and United Technologies Corp., are already using XBRL
voluntarily, and international acceptance has been strong, with several
countries, including Japan, China, and the Netherlands, embracing the
format.
Informative podcasts available
XBRL US, Inc., the nonprofit consortium dedicated
to the adoption of XBRL, initiated its first two podcasts featuring
important stakeholders. The programs featured Jeff Diermeier, CFA, president
and CEO of CFA Institute, and Barry Melancon, president and CEO of the
American Institute of Certified Public Accountants. Podcasts can be
downloaded to a handheld device or simply listened to online at http://xbrl.us.
The series of 10-minute interviews will feature
industry experts presenting their view on interactive data or covering a
specific topic related to XBRL. The series is designed to address key
stakeholder viewpoints but will also feature timely and sometimes
controversial topics related to the use of interactive data in different
reporting situations.
Diermeier kicked off the webcast series, reflecting
the fact that Wall Street is the ultimate stakeholder in the XBRL movement.
CFA Institute, a global professional association that is well known for its
administration of the Chartered Financial Analyst(R) (CFA(R)) and
Certificate in Investment Performance Measurement (CIPM) curriculum and exam
programs, recently became a member of XBRL US and has been conducting a
roadshow series to educate its members about interactive data. It has also
surveyed its members about their awareness
Continued in article
December 8, 2007 message from Roger Debreceny
[Roger@DEBRECENY.COM]
XBRL International has held
its semi-annual meeting in Vancouver this week. Some key elements of the
meeting were:
-
As many on AECM will know, the new (see what $5m
will buy) US GAAP XBRL taxonomy is on its way. It has moved from
internal review within the XBRL community to public review. See
www.xbrl.us and
http://usgaap.xbrl.us/ for the draft taxonomy.
You can sign up to review the taxonomy, code financials etc. The quality
of the taxonomy is central to the adoption of XBRL by the SEC.
-
An interesting set of ideas from Peter Wallison of
the AEI on the role of XBRL in capital markets presented as a keynote at
the meeting is at http://www.aei.org/publications/filter.all,pubID.27191/pub_detail.asp
-
There are two new MP3 podcasts on XBRL at
www.xbrl.us .. Mark Bolgiano, CEO of XBRL US,
interviews AICPA President Barry Melancon and CFA Institute President
Jeff Diermeier.
Later, all presentations will be available at
http://archive.xbrl.org/.
Presentations from earlier XBRL International
conferences are available on the archive.
Roger
..................................................................
Roger Debreceny
Shidler College
Distinguished Professor of Accounting
School of Accountancy
Shidler College of
Business
University of Hawai`i at
Mānoa
2404 Maile Way, Honolulu,
HI 96822, USA
roger@debreceny.com
rogersd@hawaii.edu
Office: +1 808 956 8545
Cell: +1 808 393 1352
www.debreceny.com
December 8, 2007 message from Saeed Roohani
[sroohani@COX.NET]
1-We now have: XBRL for Dummies – A Reference for
the Rest of Us, ISBN: 978-0-470-22874-6 Published by Wiley. This is a quick
course on XBRL without getting too technical.
2-US GAAP Taxonomy project is completed for public
review http://xbrl.us/USGAAPreview/Pages/default.aspx Academics with any
interest in financial accounting, auditing, or XBRL are strongly encouraged
to go to the web site and evaluate this product. The use of archival data
about public companies will be impacted by this US. GAAP taxonomy, most
likely we all have a dog in this fight. Although a lot of tools and guidance
provided by the website, you might need additional skills/training for this
evaluation. Charlie Hoffman charles.hoffman@ubmatrix.com , also father of
XBRL, has offered to provide such training for academics and I will be happy
to coordinate it; please let me know.
Saeed Roohani
Bryant University
Bob Jensen's threads on XBRL are at
http://www.trinity.edu/rjensen/XBRLandOLAP.htm
Bob Jensen's video demos of XBRL are at
http://www.cs.trinity.edu/~rjensen/video/Tutorials/
Majority of Companies Produce Unreliable Financial Forecast, Potentially
Hurting Share Prices
The KPMG study of 544 global executives found that
78 percent of the companies surveyed reported forecasting errors of more than 5
percent. Although other factors are undoubtedly at play, companies with
unreliable and inaccurate forecasting had a six percent drop on average in share
price over the past three years, according to the survey findings. Similarly,
the survey also found that companies that kept forecast fluctuations below the
five percent mark realized a 46 percent rise in share price over the same
three-year period, compared to a 34 percent increase among the companies that
had more than a five percent margin of error in their forecasts.
SmartPros, December 14, 2007 ---
http://accounting.smartpros.com/x60077.xml
Bob Jensen's threads on pro forma reporting are at
http://www.trinity.edu/rjensen/Theory01.htm#ProForma
A Blue State Singing the Blues
California Takes Fiscal-Stress Test
by Jim
Carlton
The Wall Street Journla
Dec 19, 2007
Page: A4
Click here to view the full article on WSJ.com ---
http://online.wsj.com/article/SB119802732770738273.html?mod=djem_jiewr_ac
TOPICS: Advanced
Financial Accounting, Governmental Accounting
SUMMARY: "In
all, 15 states face either deficits or lower-than-expected
revenues stemming in part from the subprime crisis,
according to the National Association of State Budget
Officers." California has an approximately $100 billion
general fund and faces a "budget deficit during the next two
year of $10 billion to $14 billion....State agencies have
been notified to prepare for cuts that could total as much
as 10% each."
CLASSROOM
APPLICATION: This article can lead to a class discussion
on governmental accounting.
QUESTIONS:
1.) What is a "general fund of a state governmental entity"?
What are its major sources of revenues?
2.) How large is the general fund of the State of
California? What are its major expenditures?
3.) What is a "budget deficit"? Is the State of California
currently operating in a deficit? Explain your answer.
4.) How were general fund budget deficits resolved in recent
years under Governor Schwarzenegger's administration?
5.) In general terms, what is included in the general fund's
statement of revenues, expenditures, and changes in net
assets? How would this statement appear if the California
budget crisis is again resolved with a bond issuance?
Reviewed By: Judy Beckman, University of Rhode Island
|
"California Takes Fiscal-Stress Test: New Taxes, Cuts in Services Among
Plans Considered To Avoid Big Budget Deficit," by Jim Carlton, The Wall
Street Journal, December 19, 2007; Page A4 ---
http://online.wsj.com/article/SB119802732770738273.html?mod=djem_jiewr_ac
California's ballooning budget deficit will test
Gov. Arnold Schwarzenegger as he balances raising taxes and cutting
services.
Mr. Schwarzenegger last week said he would declare
a fiscal emergency in the state, which faces a projected $14.5 billion gap
over two years, convening legislators next month to consider cuts to an
array of services. Many state officials say the projected budgetary gap is
so vast that new taxes may be required to balance the budget. That is likely
to set off a new round of partisan wrangling, and test Mr. Schwarzenegger's
mettle. Many legislators in the Republican minority say they won't sign off
on any taxes; many Democrats say there may be no other choice.
"For us, I'm very clear: Taxes are not an option,"
says Michael Villines, the Assembly Republican leader.
California's projected budget shortfall during the
next two years is precipitated in part by the subprime-mortgage collapse,
which is also wreaking havoc in other states as borrowers default or curb
their spending to cope with higher rates on adjustable-rate loans. Florida
faces an additional $1 billion budgetary shortfall in 2008 after addressing
a $1.1 billion deficit this year. Arizona estimates at least an $800 million
deficit in the current fiscal year. In all, 15 states face either deficits
or lower-than-expected revenues stemming in part from the subprime crisis,
according to the National Association of State Budget Officers.
No governor faces a more formidable challenge than
Mr. Schwarzenegger, who rode into office in 2003 after his Democratic
predecessor became ensnared in a California budget crisis. As recently as
June, California had a $4.1 billion reserve set aside for emergencies,
thanks to several years of a booming housing market and sharp increases in
personal income tied to a strong stock market.
At the same time, California housing sales have
cooled as rates on adjustable mortgages have climbed. California tops the
country in foreclosure filings, with Central Valley and Southern California
cities among the hardest hit. State officials say a spending pullback by
cash-strapped borrowers has resulted in a sharp slowdown in the revenues the
state gets on taxable sales, which account for nearly one-third of
California's approximate $100 billion general fund.
With taxable sales growth slowing to 1.3% in the
second quarter from as high as 7.4% in 2005, those revenues for the current
fiscal year are now projected to be as much as $624 million lower than
expected, according to estimates by California Legislative analyst Elizabeth
Hill. California is more reliant on sales and income taxes than other
states, in part because of property-tax limits voters imposed under
Proposition 13 in 1978.
As a result, Gov. Schwarzenegger on Friday
projected that California faced a budget deficit during the next two years
of $10 billion to $14 billion; people familiar with the situation say the
shortfall is expected to be $14.5 billion. State agencies have been notified
to prepare for cuts that could total as much as 10% each. The governor's
budget advisers note the state's general economic condition remains healthy,
with job growth continuing despite the housing problems.
Mr. Schwarzenegger faces a tough road in resolving
the shortfall. California is one of only a few states where two-thirds of
legislators, rather than a simple majority, have to sign off on any tax
increase.
With Republicans in the statehouse effectively
blocking most new taxes, lawmakers in recent years have relied on ballot
measures to get more money. Indeed, after ousting Gov. Gray Davis in a
recall election four years ago, Mr. Schwarzenegger resolved the last budget
crisis by getting California voters in 2004 to pass $15 billion in bonds.
Mr. Schwarzenegger faces other challenges, too.
Some of the governor's fellow Republicans are chafing over his support for a
state Assembly bill passed Monday that would create the nation's largest
universal health-care plan. Since Assembly Republicans have indicated they
wouldn't approve any additional taxes to fund the plan, the bill was written
so it would have to go before voters next year to approve the $14.4 billion
in financing with new levies on tobacco products, hospitals and employers.
Even some Democrats are leery of the health bill.
Don Perata, a Democrat and president of the state Senate, which also has to
sign off on the bill, says he wouldn't call for a vote by his members until
after the fiscal impact of the health plan can be better assessed.
Meanwhile, powerful interest groups are poised to
defend big recipients of state funding, such as education. Fully 40% of the
state's approximate $100 billion-a-year general-fund budget goes to schools
from kindergarten through community college. "Nobody wants to start there,"
says Craig Cornett, budget director for Assembly Speaker Fabian Núñez.
Continued in article
"The Fallout from FAS 133: Should Congress Change Tax Law to Match New
Accounting Standards?" by Ira Kawaller and John J. Ensminger: ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=256752
Suggested Citation
Kawaller, Ira G. and Ensminger, John J., "The Fallout from
FAS 133: Should Congress Change Tax Law to Match New
Accounting Standards?" . Regulation, Vol. 23, No. 4
Available at SSRN:
http://ssrn.com/abstract=256752 or
DOI: 10.2139/ssrn.256752
|
|
Bob Jensen's threads on FAS 133 are at
http://www.trinity.edu/rjensen/caseans/000index.htm
This is a neat little caselet for Intermediate Accounting
Then you can unleash the confusion with the Jensen links that follow
From The Wall Street Journal Accounting Weekly Review on December 7,
2007
Investment-Grade Firms Find It Cheaper to Sell Debt
by Romy
Varghese
The Wall Street Journal
Dec 05, 2007
Page: C2
Click here to view the full article on WSJ.com ---
http://online.wsj.com/article/SB119678132030913165.html?mod=djem_jiewr_ac
TOPICS: Accounting,
Bond Prices, Bonds, Debt
SUMMARY: "Highly-rated
companies...are finding it is now cheaper to sell new debt
in the corporate bond market than before the summer credit
crunch....Corporate issuers typically pay rates based on
Treasury yields plus risk premiums." Yields on treasurys
have fallen as prices have risen due to investors' demand
for these safe debt securities in the current credit
markets. Furthermore, Treasury market participants have
already priced an expected interest rate reduction, also due
to current market conditions, from the Federal Reserve
Board.
CLASSROOM
APPLICATION: Use this article to discuss the economic
conditions surrounding issuance of corporate debt.
QUESTIONS:
1.) What is a risk premium? How are corporate bond issuances
priced using interest rates on U.S. Treasury securities and
a risk premium?
2.) What is the relationship between the interest rate
associated with debt and the price of the debt, or the
proceeds from debt issuance received by the issuing company?
3.) Define the terms coupon rate, effective interest rate,
and bond yield.
4.) What factors have led to the current situation for
corporate debt issuances, identified in the current Lehman
U.S. Investment-Grade Corporate Index average of 5.7% versus
6.1% in June, 2007?
5.) How does the situation for high-grade corporate issuers
differ from those with less favorable balance sheets and
debt ratings?
Reviewed By: Judy Beckman, University of Rhode Island
|
"Investment-Grade Firms Find It Cheaper to Sell Debt," by Romy Varghese,
The Wall Street Journal, December 5, 2007; Page C2
---
http://online.wsj.com/article/SB119678132030913165.html?mod=djem_jiewr_ac
Sometimes, skyrocketing risk premiums on corporate
debt aren't so daunting.
That's the case for highly rated companies, which
-- unlike their counterparts with riskier credit profiles -- are finding it
is now cheaper to sell new debt in the corporate bond market than before the
summer credit crunch.
This is occurring even as investment-grade
companies have been hit by fears that the subprime mortgage problem will
hurt their bottom lines, particularly financial firms that already have been
forced to write down billions in mortgage-related exposure.
To be sure, such companies have had to offer hefty
risk premiums on their debt to entice investors, who are worried about
subprime contagion impacting the financial resources of these borrowers. But
the Federal Reserve's two rate cuts and accompanying sharp drop in yields on
Treasurys have offset the increase in risk premiums.
Corporate issuers typically pay rates based on
Treasury yields plus risk premiums. Yields on investment-grade corporate
debt, as measured by the Lehman U.S. Investment-Grade Corporate Index, now
average 5.7%, according to Joseph DiCenso, Lehman Brothers senior
fixed-income strategist. In June, before the onset of the credit crunch,
they were higher, at 6.1%, he said.
"The market's been choppy, but [total] yield costs
are really attractive" for borrowers, said Tom Murphy, sector leader for
investment grade corporate bonds at RiverSource Investments in Minneapolis.
Last week, General Electric Co., holding the
top-notch rating of triple-A, sold 10-year bonds at 1.4 percentage points
over Treasurys. "That's really wide" when compared to its existing debt that
was trading around 1.2 percentage points in the secondary market, said
Michael Kastner, head of fixed-income at Sterling Stamos Capital Management
in New York.
Still, this deal is 0.6 percentage point cheaper
for GE than one done the same time last year, he said. Although the risk
premium is higher, it is offset by the lower yield on the 10-year Treasury.
However, this doesn't mean borrowers in good
standing won't feel the pinch of risk aversion if it continues.
The market has yet to return to normalcy, said John
Olert, managing director at Fitch Ratings. "You certainly don't see any
meaningful benefit in the long-term right now," he said.
It would be "virtually impossible" for Treasury
yields to rally enough to offset the increased risk premiums for
speculative-grade issuers, Mr. DiCenso said. The average yield is 9.53%;
higher than the June average yield of 8.22%.
Meanwhile, Treasurys continue to maintain their low
yields. On Tuesday, the 10-year rose 1/32, or $0.3125 per $1,000 face value,
to yield 3.890%, little changed from the 3.893% on Monday. The yield was
more than 5% in June. The 30-year bond rose 4/32 to push down the yield to
4.346%, from 4.353% on Monday. Diane Vazza, managing director at Standard &
Poor's Ratings Services, said the current strong showing in Treasurys is due
to participants already pricing in a rate cut.
China Plans Bond Sale to Finance Wealth Fund
China's Ministry of Finance plans to sell 750
billion yuan ($101.3 billion) of 15-year bonds next week to finance the
recently launched $200 billion sovereign-wealth fund.
Sale of the bonds Monday will bring the ministry
closer to completing the financing of China Investment Corp., or CIC. The
sovereign-wealth fund hopes eventually to play a role on the global
financial stage.
Jensen Comment and Links
Here are some extensions on how to hedge interest rate risk (fair value versus
cash flow hedges).
One question I'm often asked is why companies that have no cash flow risk
on bond investments/debt will create cash flow risk by hedging fair value?
Do you know how to respond to the above question?
Compare the Example 2 versus Example 5 Excel Workbooks at
http://www.cs.trinity.edu/~rjensen/Calgary/CD/FAS133AppendixB/
You can also watch the Example 5 video at
http://www.cs.trinity.edu/~rjensen/video/acct5341/
Then if you really want to delve into (or get confused by) the
technicalities of risk premiums and benchmark interest rate hedging under FAS
138, go
http://www.cs.trinity.edu/~rjensen/138bench.htm
"SEC's technology limits hurt efforts against insider trading,
congressional auditors find," MIT's Technology Review, December 17,
2007 ---
http://www.technologyreview.com/Wire/19959/?nlid=758
Deficiencies in its computer system hamper the
Securities and Exchange Commission's efforts to ferret out insider trading
and other securities-law violations, congressional auditors found in a
report issued Monday.
The Government Accountability Office, Congress'
investigative arm, found that the SEC receives many referrals from the
exchanges' internal inspectors concerning suspected insider trading.
However, the agency's computer systems for receiving such investigative
referrals and tracking cases don't allow its investigators to electronically
search all the referral information, the report said.
As a result, it said, that ''may limit SEC's
ability to monitor unusual market activity, make decisions about opening
investigations and allow management to assess case activities.''
Sen. Charles Grassley of Iowa, who requested the
GAO study, said that if the SEC investigators can't easily search the data,
''it's like working with one hand tied behind their backs.''
''It's a no-brainer that the (SEC) ought to be at
least looking at this information and have a computer system that can spot
trends and let investigators review the data as effectively and efficiently
as possible,'' Grassley, the senior Republican on the Senate Finance
Committee, said in a statement.
Grassley also asked SEC Chairman Christopher Cox in
a letter why the agency does not use the internal audits made by the
exchanges' inspectors to plan and conduct its own investigations, as noted
in the GAO report.
SEC spokesmen didn't immediately return telephone
calls seeking comment.
Cox, in a letter to the GAO included in the report,
noted its suggestion that technological changes be made in the SEC's
computer systems to give the agency's investigators electronic access to the
referrals from the exchanges.
''We agree that additional information-technology
changes such as these may help the (SEC) enforcement staff to effectively
analyze trends, manage current caseloads and focus areas of investigation,''
Cox wrote. ''We will assess the feasibility of the recommended system
improvements.''
"IRS Issues Fall 2007 Statistics of Income Bulletin," SmartPros,
December 3, 2007 ---
http://accounting.smartpros.com/x59998.xml
The Internal Revenue Service
today released the fall 2007 issue of the Statistics of Income Bulletin,
featuring data from 134.4 million individual income tax returns filed for
tax year 2005.
U.S. taxpayers
reported $7.4 trillion of adjusted gross income less deficit in tax year
2005, up 9.3 percent from tax year 2004 when 132.2 million returns were
filed.
Certain types of income posted strong gains between 2004 and 2005. Net
capital gains climbed 41 percent and taxable interest rose 29.5 percent,
while net partnership and S corporation income gained 27.3 percent.
Taxable income
totaled $5.1 trillion in tax year 2005, up 10 percent from the prior year.
Total income tax increased for a second straight year, rising 12.4 percent
to $934.8 billion. Between tax years 2003 and 2004, total income tax rose
11.2 percent, the first increase in 4 years.
The alternative
minimum tax (AMT) grew 33.7 percent between 2004 and 2005 to $17.4 billion.
Four million taxpayers paid the AMT in 2005, compared to almost 3.1 million
in tax year 2004.
This edition of the
quarterly Bulletin also includes articles about:
- Growth trends
in partnerships: Between tax years 2004 and 2005, the number of
partnerships rose 8.5 percent to about 2.76 million. The number of
partners increased just 4.2 percent to about 16.21 million in tax year
2005. Meanwhile, income rose at a much faster rate. Total partnership
net income climbed 42 percent to $546.2 billion in tax year 2005.
- Municipal bond
issuance: State and local governmental entities issued about $475
billion of tax-exempt bonds in calendar year 2005, up 11.9 percent from
the prior year. Governmental bonds accounted for about three-quarters of
the total, while private-activity bonds represented the remainder.
- A look at
private foundations: The number of private foundations that filed Form
990-PF remained nearly the same between tax years 2003 and 2004,while
the number of nonexempt charitable trusts treated as private foundations
that filed the return increased by 12 percent. In tax year 2004, private
foundations distributed $27.6 billion in contributions, gifts, and
grants and other outlays for charitable purposes, while nonexempt
charitable trusts distributed $314 million.
- Recent data on
charities: For tax year 2004, nonprofit charitable organizations exempt
from income tax under Internal Revenue Code Section 501(c)(3) filed more
than 276,000 information returns, an increase of 5 percent from 2003.
These organizations held more than $2.0 trillion in assets, a real
increase of 5 percent from the previous year and 52 percent over the
past decade.
- Corporate
foreign tax credits: For tax year 2003, U.S. corporations claimed $50
billion in foreign tax credits. Corporations that claimed a foreign tax
credit paid $140.5 billion in worldwide income taxes on $424.5 billion
in worldwide taxable income.
- Historical
data: The final article in the issue describes the availability and
expansion of SOI's published corporate data between 1917 and today and
presents some corporate data highlights within a historical context.
The Bulletin also
includes historical data on income, deductions and tax reported on returns
filed by individuals, corporations and unincorporated businesses, with
selected data.
Continued in article
IRS Homepage (The best U.S. Government agency web site
on the Internet)
http://www.irs.gov/
IRS Site Map ---
http://www.irs.gov/sitemap/index.html
FAQs and answers ---
http://www.irs.gov/faqs/index.html
IRS Tax Interactive
http://www.irs.gov/individuals/page/0,,id%3D15552,00.html
The IRS youth education web site on taxation (an IRS joint development
project with the American Bar Association)
http://www.irs.ustreas.gov/prod/taxi/abouttaxi.html
Taxpayer Advocate Service ---
http://www.irs.gov/advocate/index.html
Will you get hit by the Alternative Minimum Tax?
The AMT Assistant from the IRS ---
http://apps.irs.gov/app/amt/
Bob Jensen's taxation helpers are at
http://www.trinity.edu/rjensen/Bookbob1.htm#010304Taxation
Question
What are some of the most popular tactics for front loading income?
Hint: One of the most popular is "Gain on Sale" Accounting.
Bonus
The article below by Greenberg revealed to me where Don Vickery ended up. I
think Don's last stop was Arizona State -West before becoming Editor-in-Chief of
Gradient.
My hat's off to Don. It takes courage to enter the real world.
The SEC dropped its investigation of Gradient Analytics in February 2007 ---
http://www.gradientanalytics.com/news/GA_PR_SECDropsInvestigation.pdf
You can read Gradient's response to the Sixty Minutes (CBS) television
exposé ---
Click Here
From The Wall Street Journal Accounting Weekly Review on December 14,
2007
This Game Theory Is Cautionary Tale
by Herb Greenberg
The Wall Street Journal
Dec 08, 2007
Page: B3
Click here to view the full article on WSJ.com ---
http://online.wsj.com/article/SB119708095744018036.html?mod=djem_jiewr_ac
TOPICS: Accounting,
FASB, Financial Accounting Standards Board, GAAP, Generally accepted
accounting principles
SUMMARY: Some
companies might be reporting losses and charges that are artificially low,
says Donn Vickrey, of Gradient. That is something to keep in mind if you're
bargain hunting among the most beaten down financial-services companies. He
says much of this is a result of the companies meeting "the bare minimum
letter of GAAP, but not adhering to the spirit of GAAP."
CLASSROOM APPLICATION: This
article presents the opportunity for a very interesting discussion of the
ways a company can manipulate its earnings and other financial numbers while
technically staying within the rules of GAAP (but still 'playing games'). It
offers specific examples of some of these activities.
QUESTIONS:
1.) What is GAAP? Why was it established? How does requiring GAAP help the
users of the financial statements?
2.) Is GAAP objective or subjective? Why? Please explain why this is
important to realize.
3.) How could these accounting practices impact investors? How can investors
protect themselves?
4.) Are Mr. Vickery's criticisms well-known among investors? Among
accountants? Why or why not? Is anyone doing anything to limit these
practices?
5.) Why is accounting manipulation said to be occurring so often recently?
What events or conditions make this seem to be an option for companies?
6.) Please give some examples of the types of tactics that Mr. Vickery is
publicizing. Are these allowed under GAAP or are the companies violating
required standards? Please explain your answer.
7.) Is it easy, challenging, or impossible for investors to detect these
particular increases or decreases in account balances? Please offer some
reasoning for your answer.
8.) Who, if anyone, is in the best position to detect and/or prevent these
reporting "games?"
9.) What does the reporter mean by "hidden losses?" What does he mean by
"low quality income?"
Reviewed By: Judy Beckman, University of Rhode Island
Reviewed By: Linda Christiansen, Indiana University Southeast
"This Game Theory Is Cautionary Tale," by Herb Greenberg, The Wall Street
Journal, December 8, 2007; Page B3 ---http://online.wsj.com/article/SB119708095744018036.html?mod=djem_jiewr_ac
The reality of Generally Accepted Accounting
Principles, or GAAP, is that they give companies just enough rope to hang
themselves and their investors, if they so please. Much of GAAP is so
subjective that you could drive side-by-side snow plows through the gray
areas.
That is something to keep in mind if, with the
latest wave of write-offs, you believe it is time to start bargain hunting
among the most beaten down financial-services companies tied to the mortgage
blowup. The time may very well be right, but a recent report by Gradient
Analytics warns that financial-reporting practices of some of these
companies yesterday and today could still come back to bite investors
tomorrow.
Gradient, a Scottsdale, Ariz., research firm that
caters to mutual funds and hedge funds, was early to spot accounting issues
at Krispy Kreme Doughnuts, Biovail and Children's Place Retail Stores, among
others, and their stocks subsequently tumbled.
"I think for a number of years they played games,"
Don Vickrey, a
former accounting professor who co-founded and is now editor-in-chief of
Gradient says about the financial-services companies.
By "playing games" he means a tendency during the
mortgage boom "to report numbers that were artificially high." There were a
variety of ways to do that, all of them completely legitimate and blessed by
the gods of financial accounting rules -- otherwise known as the Financial
Accounting Standards Board.
One of the most-popular tactics was front-loading
income and cash flows through what is known as "gain on sale" accounting, as
loans were packaged and sold to other investors. The amount recognized
largely reflected what the company expects to receive at some point in the
future, based on predictions of such things as delinquencies, prepayments
and interest rates. It is totally discretionary; the more conservative the
predictions, the lower the gain.
Just as companies may have been reporting numbers
that were too high, Mr. Vickrey believes some might now be reporting losses
and charges that are artificially low, hoping they will somehow get bailed
out before the situation worsens.
This is being done, he believes, by such things as
deferring recognition of losses; transferring mortgages that are likely to
default from one part of the balance sheet to another, where management has
more discretion in determining the seriousness of the loss; somehow
concealing "the aftereffects" of aggressive gain-on-sale accounting, and
reliance on interest income from negatively amortized mortgages -- those in
which the amount owed rises if payments don't cover all the interest due,
which in this environment at best appears dicey.
Much of this, he says, involves meeting "the bare
minimum letter of GAAP, but not adhering to the spirit of GAAP."
Among the five biggest companies involved in
mortgage securities, Gradient believes Washington Mutual and Countrywide
Financial have been the most aggressive, with Washington Mutual edging out
Countrywide as having "the most risk for a material misstatement."
Washington Mutual didn't respond to requests for comment.
Countrywide said its accounting is appropriate and
it has taken steps to reduce risk.
Gradient warns that Washington Mutual may not be
properly valuing loans it is holding for investment purposes. As a result,
reserves for future losses may be too low.
While the company boosted its loss provision in the
third quarter, the Gradient report says "the increase appears to be too
little too late as the allowance for loan losses has failed to keep pace
with the increase in nonperforming loans."
Meanwhile, in recent years, interest from
negatively amortized mortgages leapt as a percentage of interest income to
7.2% for the first nine months of this year from 1.8% in the same period two
years ago. Not only is that income unsustainable, Gradient says, but more
prone to write-offs, especially if there are increased delinquencies and
defaults.
Then there's the high level of gain-on-sale income
in prior years "that may signal additional risks to come."
Washington Mutual, the report says, ranked second
behind only Countrywide in terms of its reliance on gain-on-sale.
Countrywide has been on Gradient's screen for four years because of a
variety of earnings-quality issues.
As with Washington Mutual, Gradient now wonders
whether there could be "hidden losses" among loans held by Countrywide for
investment. While reserves as a percentage of nonperforming loans have been
rising, hitting 63.4% as of Sept. 30, Gradient says they still lag behind
peers, including Washington Mutual. Countrywide disagrees, and says that
"when all of the relevant factors are considered, our 'reserves' are
comparable to our competitors."
Like Washington Mutual, Gradient says Countrywide
suffers from "low quality income" related to negative-amortized loans.
"Unfortunately," the report says, in trying to determine its exposure,
"Countrywide does not provide as much detail as other firms we surveyed."
While the stocks of these companies and others have
fallen considerably, Mr. Vickrey believes "a lot remains to be revealed."
Can't wait.
Another example of how to front load income under GAAP
Mr. Wallison is correct about their motivations:
"holding mortgages is profitable -- much more so than creating pools of
mortgages and selling . . . to investors." However, much of that reported profit
is illusory. Generally accepted accounting principles (GAAP) do a poor job of
reflecting economic reality in this case. While they do have a funding cost
advantage, most of their reported profit is simply "phantom income," that is,
front-loaded income. By funding mortgages with a mix of short-term bullet bonds
and longer-term callable bonds, GAAP front-loads income. There is fixed coupon
income from the mortgages over 30 years, but the cost of funding rises over time
as the shorter-term, lower-cost debt matures.
Jerry Hartzog, "Fannie and Freddie's 'Phantom Income'," The Wall Street
Journal, October 6, 2007; Page A19 ---
http://online.wsj.com/article/SB119162496214550640.html?mod=todays_us_page_one
Bob Jensen's threads on how to cheat with revenue accounting are at
http://www.trinity.edu/rjensen/ecommerce/eitf01.htm
From The Wall Street Journal on Accounting Weekly Review on December
14, 2007
Deloitte Receives $1 Million Fine
by Judith
Burns
The Wall Street Journal
Dec 11, 2007
Page: C8
Click here to view the full article on WSJ.com ---
http://online.wsj.com/article/SB119734046614120346.html?mod=djem_jiewr_ac
TOPICS: Accounting,
Audit Firms, Auditing, Big Four, PCAOB, Public Accounting,
Public Accounting Firms
SUMMARY: The
PCAOB, the nation's audit watchdog, recently fined Deloitte
& Touche $1 million and censured the firm over its work
checking the books of a San Diego-based pharmaceutical. This
is the first PCAOB enforcement case against a Big Four
accounting firm.
CLASSROOM
APPLICATION: This article can serve as a basis of
discussion of audit firm responsibility and the enforcement
process. It also discusses the PCAOB and a little of its
history and enforcement, as well as provides information for
discussion of Deloitte's response.
QUESTIONS:
1.) What firm recently agreed to a fine imposed by the PCAOB?
What was the reason for the fine? Is this firm a large,
medium, or small firm?
2.) What is the PCAOB? What is its purpose? When was it
created? What caused the creation of the PCAOB?
3.) What is Deloitte's response to the fine? How does the
firm defend itself against the allegations? What do you
think of the firm's comments and actions?
4.) What does it mean that Deloitte settled this case
"without admitting or denying claims?" Why would that be a
good tactic to take? How could it hurt the firm/
5.) Is the PCAOB's main focus enforcement? Why or why not?
What other responsibilities does the organization have?
6.) Relatively speaking, is this a substantial or minor fine
for the firm? Will fines like this change the behavior of
the firms? Why or why not?
SMALL
GROUP ASSIGNMENT:
Examine the PCAOB's website? What information is offered
there? What information are you interested in as an
accounting student? What might interest you as an investor?
What would interest a businessperson? Does the website offer
extensive information or is it general information? What
information is offered regarding enforcement? Is the website
a good resource for accountants? Why or why not? Is it a
valuable resource for businesspeople? Please explain your
answers. Offer specific examples of value offered on the
website? What would you like to see detailed or offered on
the website that is not included? What did you learn from
this website that you have not seen elsewhere?
Reviewed By: Linda Christiansen, Indiana University
Southeast
|
"Deloitte Receives $1 Million Fine," by Judith Burns, The
Wall Street Journal, December 11, 2007; Page C8 ---
http://online.wsj.com/article/SB119734046614120346.html?mod=djem_jiewr_ac
In its first-ever enforcement case
against a Big Four accounting firm, the nation's audit watchdog fined
Deloitte & Touche LLP $1 million and censured the firm over its work
checking the books of a San Diego-based pharmaceutical company.
Deloitte settled the matter without
admitting or denying claims brought by the Public Company Accounting
Oversight Board that one of the firm's former audit partners failed to
perform appropriate and adequate procedures in a 2004 audit of
Ligand Pharmaceuticals Inc.
Deloitte signed off on Ligand's books, finding they
fairly presented the firm's results and complied with U.S. generally
accepted accounting principles, or U.S. GAAP.
Ligand later restated financial results for 2003
and other periods because its recognition of revenue on product shipments
didn't comply with U.S. GAAP.
Ligand's restatement slashed its reported revenue
by about $59 million and boosted its net loss in 2003 by more than 2½ times,
the oversight board said.
First-Ever Case
The PCAOB's action against Deloitte marked the
first time since it was created in 2003 by the Sarbanes-Oxley
corporate-reform legislation that it has taken action against one of the Big
Four accounting firms -- Deloitte, PricewaterhouseCoopers LLP, KPMG LLP and
Ernst & Young LLP.
The PCAOB previously took enforcement actions
against 14 individuals and 10 firms, according to a spokeswoman, although
they all involved smaller firms.
Oversight-board Chairman Mark Olson told reporters
yesterday after a speech to the American Institute of Certified Public
Accountants that the board isn't looking to bring a lot of enforcement
actions but said "it is reasonable to expect that there will be others"
against Big Four firms.
Mr. Olson said in an earlier statement that the
board's disciplinary measures are needed to ensure public confidence isn't
undermined by firms or individual auditors who fail to meet "high standards
of quality and competence."
Competence was lacking in the 2003 Ligand audit,
according to the regulatory body. The oversight board said former auditor
James Fazio didn't give enough scrutiny to Ligand's reported revenue from
sales of products that customers had a right to return, even though Ligand
had a history of substantially underestimating such returns.
Deloitte's Response
In a statement yesterday, Deloitte said it is
committed to ongoing efforts to improve audit quality and "fully supports"
the role of the accounting-oversight board in those efforts.
"Deloitte, on its own initiative, established and
implemented changes to its quality control policies and procedures that
directly address the PCAOB's concerns," the company said.
It added that it is confident that Deloitte's audit
policies and procedures "are among the very best in the profession and that
they meet or exceed all applicable standards."
New York-based Deloitte began auditing Ligand in
2000 and resigned in August 2004.
Mr. Fazio, who resigned from Deloitte in October
2005, agreed to be barred from public-company accounting for a minimum of
two years, the PCAOB said. Mr. Fazio's lawyer couldn't be reached to
comment.
The oversight board also faulted Mr. Fazio for not
adequately supervising others working on the audit and faulted Deloitte for
leaving him in place even though some managers had determined he should be
removed and ultimately asked him to resign from the firm.
Mr. Fazio remained on the job despite the fact that
questions about his performance had been raised in the fall of 2003, the
oversight board said.
In addition, the oversight board said Deloitte had
assigned a greater-than-normal risk to Ligand's 2003 audit but failed to
ensure that the partners assigned to the work had sufficient experience to
handle it.
"Deloitte Agrees to Pay $38 Million to Ex-Delphi Investors,"
SmartPros, December 31, 2007
A U.S. Securities and Exchange Commission
investigation found that Delphi manipulated its earnings from 2000 to
2004, using several illegal schemes to boost its earnings, including the
concealment of a $237 million transaction in 2000 with GM involving
warranty costs.
Deloitte & Touche, now part of the privately
held Deloitte Touche Tohmatsu, served as Delphi's outside accountant.
The agreement requires approval by Detroit U.S.
District Judge Gerald Rosen and completes a $325 million settlement of
investor claims over the accounting issue, lawyers for the investors
said. Delphi agreed to pay about $205 million, with Delphi's insurers
and banks paying the rest.
"It's about holding the gatekeepers
accountable," said attorney Stuart Grant of Grant & Eisenhofer, one of
four law firms representing public employee pension funds and other
Delphi investors in the class action suit. "We're forcing the
accountants ... to say, 'I am my brother's keeper.'"
Continued in article
Bob Jensen's threads on Deloitte are at
http://www.trinity.edu/rjensen/Fraud001.htm#Deloitte
Question
Does it pay to evade taxes and, if so, why don't more people do it?
"Why so Little Tax Evasion?" by Nobel Laureate Gary Becker, The
Becker-Posner Blog, November 25, 2007 ---
http://www.becker-posner-blog.com/
All the rich countries are successful in raising
sizable amounts of revenue from taxes with only a rather little tax evasion.
Tax avoidance is the use of legal means to reduce taxes, whereas tax evasion
uses illegal means. The federal government of the US raises almost 20
percent of American GDP through taxes on personal and business income,
capital gains, estates, and the sale of gasoline and some other goods. The
estimates from the 2001 IRS National Research Program indicate that the
percent of income not reported is quite low for wages and salaries, but
rises to over 50 percent for farm income, and about 40 percent for business
income. Income tax payments overall are under reported by about 13 percent.
What determines the degree of tax evasion?
If taxpayers responded only to the expected cost of
evading taxes, evasion would be far more widespread. The reason is that only
about 7 percent of all tax returns are audited (over a 7 year period), and
typically the penalty on under reported income is only about 20 percent of
the taxes owed. Virtually no one is sent to jail simply for evading taxes
unless that evasion is on a very large scale, or involves massive fraud. If
a person were to evade $1,000 in taxes, his expected gain would be
0.93x$1000 -0.07x$200 (=$1000/5) = $916. On these considerations alone, he
should not hesitate to evade paying the $1,000, and presumably much more.
To be sure, the expected gain is not the right
criterion since most taxpayers would be risk averse regarding audits and
punishments, especially if there is some chance of much greater than the
average punishment or likelihood of an audit. However, if the expected gain
from evading $1,000 were $916, the degree of risk aversion would have to be
huge, far higher than the risk aversion that is embodied in pricing of
assets, for risk to explain why there is so little tax evasion.
This is not to say that possible punishments have
no affect on the amount of tax evasion. Compliance rates are much higher
when governments have independent evidence on a person's income since then
the probability of audit when he under reports his income is much higher
than when they do not have this information. For example, income from
independent consulting to companies is better reported than tips on
earnings, or than the incomes of farmers and other small business owners
because employers report how much they paid to independent consultants,
whereas no one reports how much they paid in tips, or how much they bought
from a local store. A PhD study in progress at the University of Chicago by
Oscar Vela also shows that persons in occupations where integrity is a more
important determinant of success, such as law or medicine, are less likely
to evade taxes. Presumably, any publicity that an individual in these
occupations was convicted of tax evasion would damage his reputation and
earnings.
Vela finds that considerations of reputation, along
with more traditional variables in the tax evasion literature do help
explain how much evasion occurs for different types of income. These
variables include the likelihood of audits that varies for different classes
of taxpayers, punishments for those audited, marital status (not
surprisingly, married persons are less likely to evade taxes), the marginal
tax rate, and the ease with which governments can match reported incomes
with independent evidence on incomes, such as from 1040 and 1099 tax forms,
Note that tax avoidance as well as tax evasion
tends to rise as the marginal tax rate increases. That is, with higher tax
rates, individuals and businesses are both more likely not to report some of
their income to the tax authorities, and also to search harder for ways to
reduce how much of their income they are obligated to report. This implies,
for example, that flattening the income tax structure would increase the
amount of personal income reported to tax authorities because both the
amount of evasion and the avoidance of the personal income tax would be
reduced.
However, audits, punishments, and the other
deterrence variables mentioned in the previous paragraphs do not fully
explain why there is not much more tax evasion. I believe it is necessary to
recognize that most people believe they have a duty, moral or otherwise, to
report their taxable income more or less honestly. I intentionally say "more
or less honestly" because a little cheating on taxes is usually considered
to be ok, as long as it does not go too far. Individuals might not pay
social security taxes on their payments to workers who clean their houses,
and they might pay a mason in cash because he then gives them a lower price,
but these same persons would be very reluctant to engage in large-scale tax
evasion.
Similarly, most people do not believe it is moral
to steal money even when there is little chance they will be found out, and
they feel obligated to obey many other laws, even when that entails
inconvenience and cost to themselves. There would be considerably more crime
if individuals only obeyed laws when the expected cost of being caught,
adjusted for risk, exceeded the benefits from disobeying these laws. To some
extent, people obey many laws, including tax laws, because most other
persons are doing the same. If so, their behavior might change radically if
they lost confidence that others would pay their taxes and obey other laws.
Clearly, morality about obeying laws does not apply
to all types of taxes, or all laws-people often cross a street when the
light is red, do not stop at stop signs when riding their bikes, and do not
report much of their tips. Moreover, in many countries of Latin America,
Africa, and Russia and other parts of Eastern Europe, individuals do not
even feel much obligation to pay ordinary income and other taxes. They evade
except when they expect the chances of being caught are high, as with
businesses paying value added taxes. These countries are unable to raise
substantial amounts from taxes on personal incomes or businesses except when
marginal tax rates are low. Instead they rely greatly on value added and
other more difficult to evade taxes.
"Why so Little Tax Evasion?" Richard Posner, The Becker-Posner Blog,
November 25, 2007 ---
http://www.becker-posner-blog.com/
Becker presents persuasive evidence that the amount
of tax evasion varies, as one would expect in a rational-choice model of
taxpaying, with variance in the private costs and private benefits of
evasion. I am inclined to believe that the private costs are higher than he
suggests, which if true would mean that more tax compliance can be
attributed to rational fear of punishment than he suggests and less to
taxpayers' feeling a moral duty to pay taxes. For example, the civil
penalties for tax evasion are quite severe (the fraud penalty is 100 percent
of the amount of taxes evaded), and anyone charged with civil or criminal
tax evasion will incur heavy legal and accounting expenses in defending
against the charge. Although the audit rate is low, it is not random, but
rather is higher for those taxpayers who are in the best position to evade
taxes without being caught or whose tax returns raise a red flag because of
unusually high deductions or other suspicious circumstances. And once one
has been caught evading taxes, one can expect the rate of future audits of
one's returns to be high. While it is true that underpayment of taxes is
rarely prosecuted criminally, even when deliberate, criminal prosecution is
likely if the tax evader takes steps to conceal the evasion, as by never
filing a tax return, keeping phony books, or forging evidence of deductions.
Moreover, the government does occasionally prosecute even small fry.
. . .
The general question that Becker raises of the
moral costs of committing crime is a fascinating one. I would be inclined to
search as hard as possible for nonmoral costs before concluding that
morality is a major motivator of behavior, especially with regard to crimes,
like tax evasion, that do not have an identifiable victim. In the case of
many crimes, the benefits to most people of perpetrating them would be so
slight (and often zero or even negative) that sanctions play only a small
role in bringing about compliance; enforcement costs needn't be high in
order to deter when nonenforcement benefits are low. Some examples: the
demand for crack cocaine among white people (including cocaine addicts)
appears to be very small. Both altruism and fear deter most people from
attempting crimes of violence, quite apart from expected punishment costs.
The vast majority of men do not have a sexual interest in prepubescent
children. Well-to-do people often have excellent substitutes for crime: any
person of means can procure legal substitutes for illegal drugs (for
example, Prozac for cocaine, Valium for heroin). Fear of injury deters most
people from driving recklessly or while drunk. People who have no taxable
income are incapable of evading income tax. People who do have taxable
income can obtain benefits from evading it, but the costs of evasion are, as
I have emphasized, nonnegligible, so there is widespread compliance along
with a good deal of evasion. I would therefore expect differences across
countries in tax evasion to be related more to differences in penalties,
collection methods, and so forth than to differences in morality. Americans
may exhibit higher tax compliance than Italians, but Americans are not a
more moral people than Italians.
Continued in article
Jensen Comment
I inclined to think that more people evade taxes than Becker and Posner suggest,
although this evasion has declined due to added reporting of revenues,
particularly 1099 forms for miscellaneous and investment income. Increasingly,
without formal audits, the IRS is sending out bills for underreported 1099
income. In the United States, the IRS
estimated in 2007 that Americans owed $345 billion more than they paid, or about
14% of federal revenues for FY2007. But these estimates are very soft numbers
based largely on intense audits of a miniscule proportion of taxpayers filing
returns ---
http://en.wikipedia.org/wiki/Tax_Evasion
You can learn a lot about taxation at
http://en.wikipedia.org/wiki/Tax
Also see
http://en.wikipedia.org/wiki/Income_tax
Bob Jensen's tax helpers are at
http://www.trinity.edu/rjensen/Bookbob1.htm#010304Taxation
Legalizing Same-Sex Marriage Could Bring a Tax
Windfall to States ---
http://www.accountingweb.com/cgi-bin/item.cgi?id=104293
Small Business Helpers from Smart Stops on the Web
Journal of Accountancy, December 2007 ---
http://www.aicpa.org/pubs/jofa/dec2007/smart_stops.htm
“A”
FOR ADVICE
www.sba.gov/services
Whether you’re a CPA with small
business or sole proprietor clients or you’re interested
in leading your own firm, the Small Business
Administration is here to help. This Smart Stop offers
free online training in business planning and
management, marketing and advertising, federal taxes,
compliance and cyber security. Prepare for the future
with guidance on disaster planning, contract
opportunities and loan eligibility. Looking for a more
personal experience? Use the site to locate the nearest
Small Business Development Center or Women’s Business
Center.
PLANNING FOR THE FUTURE
www.finance.cch.com/tools/calcs.asp
With plenty of day-to-day
responsibilities, it’s hard for small business owners to
step back and look at the big picture: their financial
future. Take some time to use CCH’s Financial Planning
Toolkit, which provides resources on commercial loans,
working capital and profit margins, as well as dozens of
calculators for debt management, investments, tax and
personal finance. Click on “Planning Guide” and
“Planning Tools” for guidance on risk management, taxes,
retirement and estate planning, including “Ages and
Stages Approach to Investing” and “Tax Year and
Accounting Methods.”
GET SMART
www.tutorials.com
This site delivers how-tos for
life and work right to your desktop. You can purchase
courses that help you master a computer program, build a
Web site or learn how to negotiate successfully. Its
skills training offerings include series of courses on
sales and organizational development, personal finance
and Internet marketing. Free offerings include
step-by-step guides ranging from the everyday—how to
clean your computer or how to remove spyware—to the
workday—how to identify your customers or choose office
|
|
Human Resource Calculators (cost of employee turnover, productivity losses,
relocation losses, etc.) ---
http://www.hrworld.com/calculators/badhire/
The home page for human resource management is at
http://www.hrworld.com/
Bob Jensen's links to calculators ---
http://www.trinity.edu/rjensen/Bookbob3.htm#080512Calculators
Bob Jensen's small business helpers are at
http://www.trinity.edu/rjensen/Bookbob1.htm#SmallBusiness
"Ex-CEO Agrees To Give Back $620 Million:
UnitedHealth, SEC Settle With McGuire On Options Backdating," by Vanessa
Fuhrmans and James Bandler, The Wall Street Journal, December 7, 2007;
Page A1 ---
http://online.wsj.com/article/SB119697535545316199.html?mod=todays_us_page_one
In one of the largest
executive-pay givebacks in history, former UnitedHealth Group Inc. Chief
Executive William McGuire has agreed to forfeit about $620 million in
stock-option gains and retirement pay to settle civil and federal-government
claims related to stock-option backdating.
The settlement comes a year after the
options-backdating scandal led to Dr. McGuire's ouster from the Minnetonka,
Minn., company, one of the largest U.S. health insurers. Dr. McGuire had
been among the most successful and highest-paid executives in the U.S.
Stock options allow executives to buy stock at a
fixed price, generally the market price on the day the options were granted.
In the scandal, dozens of companies pretended that options were granted at
an earlier date than they actually were. They picked dates when the stock
price was at a low point, allowing executives to reap outsize gains. More
than 80 corporate officials have lost their jobs in the scandal.
Brian Foley, a compensation consultant in White
Plains, N.Y., said he believes Dr. McGuire's $620 million repayment
represents the largest giveback related to executive-compensation abuses in
history. "You have to applaud the sheer magnitude," Mr. Foley said. "On the
other hand, he still walks away with a lot."
Dr. McGuire retains about 24 million stock options
that currently could be cashed in for a gain of roughly $800 million, on top
of about $530 million in pay he pocketed while running UnitedHealth from
1991 to 2006.
Continued in article
The HealthSouth Settlement Does Not Include Ernst & Young
From The Wall Street Journal Accounting Weekly Review on November 10,
2006
TITLE: UnitedHealth Expects Probe to Result in 'Greater' Charges
REPORTER: Steve Stecklow and Vanessa Fuhrmans
DATE: Nov 09, 2006
PAGE: B1
LINK:
http://online.wsj.com/article/SB116299996219517252.html?mod=djem_jiewr_ac
TOPICS: Accounting, Accounting Changes and Error Corrections, Sarbanes-Oxley
Act, Securities and Exchange Commission, Stock Options
SUMMARY: "UnitedHealth Group Inc. said it would have to take charges
related to its backdated stock options that will be 'significantly greater'
than its previous estimates and expects the charges to impact more than 10
years of previously reported earnings."
QUESTIONS:
1.) Describe the options backdating scandal that has developed since March,
2006. If you are unfamiliar with the issue, you may click on the link for
"Perfect Payday: Complete coverage" on the left hand side of the on-line
article.
2.) For how long has options backdating been going on at UnitedHealth?
Have the accounting requirements remained the same throughout that period of
time? Summarize the required accounting and other financial reporting
practices for executive and employee stock options over the last 10 years.
3.) Suppose that, once UnitedHealth finishes its review, the restatement
of earnings nearly doubles to $500 million and that the restatement applies
equally to each of the preceding 10 years. What accounting entry must be
made to correct this $500 million error? What will be the ultimate impact on
each year's earnings and on stockholders' equity at the end of each year?
How will this correction be disclosed? In your answer, cite the accounting
standards which require the treatment you present.
4.) Click on "Read the full text" of UnitedHealth's Nov. 8 filing with
the SEC on the right-hand side of the on-line article. What Form number did
UnitedHealth file? Summarize the implications of the depth of the options
backdating problem found at this company.
5.) Refer to the related article. What role does the Public Accounting
Oversight Board fill in assisting accountants to audit companies' accounting
for stock options?
Reviewed By: Judy Beckman, University of Rhode Island
--- RELATED ARTICLES ---
TITLE: Guidelines Set for How to Audit Stock Options
REPORTER: Siobhan Hughes
PAGE: A10 ISSUE: Oct 18, 2006
LINK:
http://online.wsj.com/article/SB116114078518696161.html?mod=djem_jiewr_ac
"HealthSouth Agrees to $445 Million Settlement,"
AccountingWeb, October 2, 2006 ---
http://www.accountingweb.com/cgi-bin/item.cgi?id=102629
HealthSouth Corp. announced on Wednesday that it
will pay $445 million to settle several lawsuits that were filed against the
company and some of its former directors after an accounting scandal.
HealthSouth will pay $215 million in common stock
and warrants, and its insurance carriers will pay $230 million in cash, the
company said. Also, federal securities class-action plaintiffs will get 25
percent of any future judgments obtained by or on behalf of HealthSouth
regarding certain claims against fired CEO Richard Scrushy, former auditors
Ernst & Young, and the company’s former investment bank, UBS. Each party
remains a defendant in the derivative actions and the federal securities
class actions.
A judge must approve the settlement, which is
nearly the same as a preliminary settlement that was reached in February.
"This settlement represents another significant
milestone in HealthSouth's recovery and is a powerful symbol of the progress
we have made as a company," said HealthSouth President and CEO Jay Grinney.
HealthSouth, the Birmingham, Ala.-based rehabilitation and medical services
chain, does not admit any wrongdoing in the settlement, nor does any other
settling defendant, the company said.
The settlement does not include Ernst & Young, UBS,
Scrushy or any former HealthSouth officer who entered a guilty plea or was
convicted of a crime in connection with the company's financial reporting
activities ending in March 2003.
Scrushy and more than a dozen top executives were
accused of recording as much as $2.7 billion in bogus revenues on the
company's books over six years. UBS and Ernst & Young have denied knowing
about the fraud. Last year, Scrushy was acquitted of all criminal charges in
the fraud. He was convicted of conspiracy, bribery and mail fraud charges in
a separate government corruption trial.
Traditional double-entry bookkeeping is becoming the
Latin of business school
December 4 message from Ed Scribner
[escribne@NMSU.EDU]
http://tinyurl.com/24h88e
<snip>
[A new book called] Crack the Books [features]
double-entry bookkeeping, not only for the general public but for those
practitioners who have qualified with a less-than-perfect appreciation of
its importance. … … some contemporary thinking argues that, in an IT age,
the teaching of debits and credits is a waste of training time. For
instance, Rick Elam of the AICPA has stated that “traditional double-entry
bookkeeping is becoming the Latin of business school - interesting to study
and useful from a historical perspective, but not in demand in everyday
practice.”
Despite such criticisms, June firmly believes
double-entry accounting remains crucial. Taking the language analogy, she
maintains it offers the key foundation. “Although Latin and double-entry
accounting have been derided as immaterial for everyday business, both
provide a knowledge platform. Even though few people speak Latin today, it’s
the basis for many western European languages, including English, French,
Spanish and Italian. Having a firm grounding in Latin can only enhance your
ability to master these languages. Similarly, accounting IT is rooted in
double-entry accounting. It provides the bedrock for understanding the
workings of virtually all accounting information systems.”
For June and Cecil, double-entry accounting is not
an artificial, historic construct but the natural representation of business
events. The fundamentals of accounting are the same whether a manual or
computerized system is used. “A Euro amount is assigned to each impacted
account; the processing system aggregates all those transactions that affect
particular accounts. When processing is complete, balances are determined
and presented as financial statements.”
<snip>
Crack the Books: Accounting for Non-Accountants will be available in
Eason’s and all good bookshops in the New Year. It can also be ordered at
www.icai.ie
Career helpers for cubicle workers ---
http://cuberules.com/
Bob Jensen's career helpers are at
http://www.trinity.edu/rjensen/Bookbob1.htm#careers
December 7, 2007 message from Bruce Mizrach
[mm-9939-6545129@bepress.com]
The Berkeley Electronic Press, together with editor Bruce Mizrach
(Rutgers), is pleased to announce a new issue of Studies in Nonlinear Dynamics &
Econometrics (SNDE). To view any of the articles in question, simply click on
the links below (full citations and abstracts follow at bottom of message).
Massimiliano De Santis "Movements in the Equity Premium: Evidence from a
Time-Varying VAR".
http://www.bepress.com/snde/vol11/iss4/art1
Deepankar Basu and Robert M. de Jong "Dynamic Multinomial Ordered Choice
with an Application to the Estimation of Monetary Policy Rules".
http://www.bepress.com/snde/vol11/iss4/art2
Maximo Camacho and Gabriel Perez Quiros "Jump-and-Rest Effect of U.S.
Business Cycles".
http://www.bepress.com/snde/vol11/iss4/art3
Antonis Michis and Theofanis Sapatinas "Wavelet Instruments for
Efficiency Gains in Generalized Method of Moment Models".
http://www.bepress.com/snde/vol11/iss4/art4
Frédérique Bec and Alexia Bastien "The Transmission of Aggregate Supply
and Aggregate Demand Shocks in Japan: Has There Been a Structural Change?".
http://www.bepress.com/snde/vol11/iss4/art5
To submit your next paper, visit
http://www.bepress.com/snde and click Submit.
Among the well-known authors whose work has appeared in SNDE are: Anthony C.
Atkinson, Jess Benhabib, William Cleveland, Ray C. Fair, J. Doyne Farmer,
Eric Ghysels, James Hamilton, Bruce Hansen, Alan Kirman, Blake LeBaron,
Charles Nelson, Kazuo Nishimura, Ruey Tsay, Howell Tong, Halbert White, and
Arnold Zellner.
All papers by junior faculty members will be eligible for The Kenneth
Arrow Prize for Junior Economists, and all papers by senior authors will be
eligible for The Kenneth Arrow Prize for Senior Economists. See
http://www.bepress.com/arrow.html
for additional details.
_______________________
CITATIONS & ABSTRACTS OF PUBLISHED ARTICLES
Massimiliano De Santis (2007) "Movements in the Equity Premium: Evidence
from a Time-Varying VAR", Studies in Nonlinear Dynamics & Econometrics: Vol.
11: No. 4, Article 1.
http://www.bepress.com/snde/vol11/iss4/art1
ABSTRACT:
Previous literature has recognized the importance of regime changes in
the calculation of ex-ante equity premia. However, the methodologies used to
estimate equity premia only allow for very restrictive forms of regime
transitions. This paper addresses the issue by postulating an evolving model
for the law of motion of dividend growth, consumption growth and
dividend-price ratio. Model parameters are then used to compute conditional
and unconditional U.S. equity premia. We substantially extend and confirm
previous work on the declining equity premium, and uncover important
macroeconomic factors driving the equity premium. We find that the equity
premium has declined, particularly from 1950 to 1971 and from 1988 to 2000.
Our results point to changing consumption volatility as an important priced
factor. We find that volatility of consumption growth is a good indicator of
economic uncertainty and, as such, its changes are reflected in expected
returns, and are priced by the market. We also find that not accounting for
parameter time variation induces large pricing errors, as too little
variation in dividend yields is attributed to changes in expected dividend
growth.
Deepankar Basu and Robert M. de Jong (2007) "Dynamic Multinomial Ordered
Choice with an Application to the Estimation of Monetary Policy Rules",
Studies in Nonlinear Dynamics & Econometrics: Vol. 11: No. 4, Article 2.
http://www.bepress.com/snde/vol11/iss4/art2
ABSTRACT:
We present a novel specification of a dynamic multinomial ordered choice
model, where the latent variable is a function of strictly stationary
exogenous variables and lags of the choice variable. We prove that such a
model with weakly dependent errors will have a strictly stationary solution
which is L-2 near epoch dependent. We also derive consistency and asymptotic
normality of the maximum likelihood estimator for a probit specification of
the model. We illustrate a possible application of the model by estimating a
discrete version of a robust "difference" monetary policy rule for the
period 1990:2006 at a monthly frequency.
Maximo Camacho and Gabriel Perez Quiros (2007) "Jump-and-Rest Effect of
U.S. Business Cycles", Studies in Nonlinear Dynamics & Econometrics: Vol.
11: No. 4, Article 3.
http://www.bepress.com/snde/vol11/iss4/art3
ABSTRACT:
One of the most familiar empirical stylized facts about output dynamics
in the United States is the positive autocorrelation of output growth. This
paper shows that positive autocorrelation can be better captured by shifts
between business cycle states rather than by the standard view of
autoregressive coefficients. The result is extremely robust to different
nonlinear alternative models and applies not only to output but also to the
most relevant macroeconomic variables.
Antonis Michis and Theofanis Sapatinas (2007) "Wavelet Instruments for
Efficiency Gains in Generalized Method of Moment Models", Studies in
Nonlinear Dynamics & Econometrics: Vol. 11: No. 4, Article 4.
http://www.bepress.com/snde/vol11/iss4/art4
ABSTRACT:
We propose a simple computational method in the context of generalized
method of moments for improving the efficiency of regression coefficient
estimates. The gains in efficiency arise by incorporating additional moment
conditions in the estimation framework based on maximal overlap wavelet
packet transforms of the continuous explanatory variables. A major advantage
of the proposed method is that it does not require additional exogenous
auxiliary information but relies on wavelet packet transforms of the
existing continuous explanatory variables. Based on existing theory, we
provide theoretical arguments for the proposed methodology, for both linear
and non-linear models, and demonstrate its advantages with both an empirical
application concerning two brand demand models and a Monte Carlo simulation
study.
Frédérique Bec and Alexia Bastien (2007) "The Transmission of Aggregate
Supply and Aggregate Demand Shocks in Japan: Has There Been a Structural
Change?", Studies in Nonlinear Dynamics & Econometrics: Vol. 11: No. 4,
Article 5.
http://www.bepress.com/snde/vol11/iss4/art5
ABSTRACT:
Despite expansionary fiscal and monetary policies, the Japanese real
economy has been stagnating since the bubble bursting in the early nineties.
Within a multivariate setup, this paper proposes to test for and date a
possible structural shift in the response of Japanese macroeconomic
fluctuations to aggregate supply and aggregate demand shocks. The
econometric methodology directly derives from Andrews (1993) and Bai,
Lumsdaine and Stock (1998) theoretical results. Our empirical study from
monthly post-1980 observations reveals i) a significant structural break in
the end of 1991, and ii) a sharp decrease in the influence of demand shocks
on Japanese output fluctuations after this date.
Ways to Attract the Best People Into Accountancy
Careers
December 4, 2007 message from
ellen.glazerman@ey.com
As you're probably aware, in June of this year
Treasury Secretary Paulson established an Advisory Committee on the Auditing
Profession to develop recommendations as to what can be done to sustain this
profession, whose work is so critical to investor confidence in the capital
markets. The Committee is examining ways to attract the best people to the
profession, address concentration and competitive issues, and promote the
long-term health of the private-sector auditing function.
At the Committee's meeting yesterday in Washington,
D.C., our Chairman and CEO, Jim Turley, presented testimony on behalf of
Ernst & Young (a link is attached below). I thought you would be interested
in his thoughts on some of the major issues facing the profession, including
recruiting, and the world's financial markets - and of course I would be
interested in your comments on these issues.
Here is a link to a printed copy of the testimony:
Jim Turley's ACAP Treasury Testimony
Best Regards,
Ellen
Ellen J. Glazerman
Executive Director,
Ernst & Young Foundation Americas
Director, University Relations
Ernst & Young LLP
5 Times Square, 6th Floor
New York, NY 10036
(Office)212-773-5686
(Fax): 866-855-4960
ellen.glazerman@ey.com
"The Accounting Cycle: Poor Performance of
Credit Rating Agencies," by J. Edward Ketz, SmartPros, December 2007
---
http://lyris.smartpros.com/t/204743/5562870/4383/0/
Soon after Merrill Lynch disclosed its $8.4 billion write-down because of
problems with collateralized debt obligations (CDOs) and other financial
instruments relating to subprime mortgages, the credit rating agencies
started downgrading the securities. But, this is like the proverbial soldier
who watches a raging battle from afar; when the war is over, he proceeds to
bayonet the wounded.
Merrill Lynch and other banks got into the CDO
business several years ago. The CDOs received an imprimatur from agencies
such as Moody's, Standard & Poor's, and Fitch. Some CDOs were even evaluated
as investment grade securities. The analysts at Moody's, Standard & Poor's,
and Fitch apparently ignored the risks involved in the subprime mortgage
market as well as the risks in real estate prices.
This segment generated lots of money for Merrill
Lynch and the other banks. The CDO business brought in millions and millions
of revenues. This line of business was at least as profitable for the bond
rating agencies, too, as their ratings produced massive amounts of money.
Not surprisingly, problems developed because the
financial institutions were lending funds to marginal borrowers, those with
less-than-stellar credentials for loan applicants. When some of these
riskier borrowers defaulted on their mortgages, the CDOs started losing
value. The credit rating agencies did nothing; presumably, they felt that
the CDOs still had investment grade status.
With the losses by Merrill Lynch out in the open,
everybody knows not only that the CDOs have less fair value, but also that
the credit raters aren't earning their keep. Unfortunately, members of
Congress believe that they should hold investigations on the matter. I say
unfortunate because such a move would be a waste of time, energy, and money.
Recall the downfall of Enron and the high credit
ratings that Enron received from the credit rating agencies. These agencies
did not downgrade Enron's debt until after the 2001 third quarter results
became public and Enron's stock price started its nosedive. When Congress
passed the Sarbanes-Oxley Act in 2002, section 702(b) required the SEC to
conduct a study of credit rating agencies to determine why these credit
rating agencies did not act as useful watchdogs and warn the public about
Enron's true situation. It accomplished little at the time; if Congress
holds hearings now, nothing new will be learned. Until policy makers focus
on the institution of credit ratings and follow the cash, they waste their
time with investigations.
Moody's and the other agencies make money by
charging the business entities who are issuing debt. It doesn't take a
genius to see the conflict of interest. The credit agencies lean on the
issuer for more money or risk receiving a poor rating. Payment not only
entitles one to a good rating, but also it gives one the privilege of not
receiving a downgrade unless bad news becomes public.
The SEC barely mentions this institutional feature
in its "Report on the Roles and Function of Credit Rating Agencies in the
Operation of the Securities Markets."
This essay, written in January, 2003, practically
ignores the problem. On page 41, the SEC report states, "The practice of
issuers paying for their own ratings creates the potential for a conflict of
interest." The SEC goes on to review comments by the large rating agencies
themselves on how they manage this potential conflict of interest.
The comments are pathetic. First, the SEC and the
managers at credit rating agencies mangle the English language when they
refuse to identify conflicts of interest for what they are. My dictionary
defines conflict of interest as "the circumstance of a public officeholder,
corporate officer, etc., whose personal interests might benefit from his or
her official actions or influence." The term does not mean that they
actually do benefit, but calls attention to the possibility. Calling such
circumstances "potential conflicts of interests" merely attempts to push
ethics aside. I can understand this behavior by the managers, but I don't
comprehend the words of the SEC staff.
Second, the comments rely heavily on the assertions
of the credit rating agencies themselves. Managers of these agencies claim
there is no problem, and of course the SEC should listen to them and accept
every word as truth. Yeah, right!
Third, on page 42 of the report, the SEC promises
to explore whether these credit rating agencies "should implement procedures
to manage potential conflicts of interest that arise when issuers [pay] for
ratings." Either the SEC did not keep its promise or such actions are
inadequate. Clearly, the credit rating agencies have not responded any
differently to the CDO problem than they did with Enron's circumstances.
Policy makers can reduce the problems by reducing
the very real conflict of interests that perniciously raises its ugly head
from time to time. The solution is to prohibit credit rating agencies to
receive any funds from the issuers. If the ratings have any merit, then
investors will be willing to pay for them.
This essay reflects the opinion of the author and not necessarily the
opinion of The Pennsylvania State University.
Bob Jensen's threads on hiding debt with CDOs are at
http://www.trinity.edu/rjensen/Theory01.htm#CDO
Bob Jensen's threads on credit rating industry frauds
are at
http://www.trinity.edu/rjensen/FraudRotten.htm#CreditRatingAgencies
Human Resource Calculators (cost of employee turnover, productivity losses,
relocation losses, etc.) ---
http://www.hrworld.com/calculators/badhire/
Bob Jensen's links to calculators ---
http://www.trinity.edu/rjensen/Bookbob3.htm#080512Calculators
Humor Between December 1 and December 31, 2007 ---
http://www.trinity.edu/rjensen/book07q4.htm#Humor123107
Humor Between November 1 and November 30, 2007 ---
http://www.trinity.edu/rjensen/book07q4.htm#Humor113007
Humor Between October 1 and October 31, 2007 ---
http://www.trinity.edu/rjensen/book07q4.htm#Humor103107
Humor Between September 1 and September 30, 2007 ---
http://www.trinity.edu/rjensen/book07q3.htm#Humor093007
Humor Between December 1 and December 31,
2007
Forwarded by Team Carper
AFTER BEING MARRIED FOR 40 YEARS, I TOOK A CAREFUL LOOK AT MY WIFE ONE DAY
AND SAID, "HONEY, 40 YEARS AGO WE HAD A CHEAP APARTMENT, A CHEAP CAR, SLEPT ON A
SOFA BED AND
WATCHED A 10-INCH BLACK AND WHITE TV, BUT I GOT TO SLEEP EVERY NIGHT WITH A
HOT 25-YEAR-OLD GAL.
NOW I HAVE A $2,500,000.00 HOME, A $45,000.00 CAR, NICE BIG BED AND PLASMA
SCREEN TV,
BUT I'M SLEEPING WITH A 65-YEAR-OLD WOMAN. IT SEEMS TO ME THAT YOU'RE NOT
HOLDING UP YOUR SIDE OF THINGS."
MY WIFE IS A VERY REASONABLE WOMAN. SHE TOLD ME TO GO OUT AND FIND A HOT
25-YEAR-OLD GAL,
AND SHE WOULD MAKE SURE THAT I WOULD ONCE AGAIN BE LIVING IN A CHEAP
APARTMENT, DRIVING
A CHEAP CAR, SLEEPING ON A SOFA BED AND WATCHING A 10-INCH BLACK AND WHITE
TV.
AREN'T OLDER WOMEN GREAT? THEY REALLY KNOW HOW TO SOLVE A MID-LIFE CRISIS.
Forwarded by Team Carper
KNOW THE SYMPTOMS.....PLEASE READ! Thank goodness there's a name for this
disorder. Somehow I feel better, even though I have it!!
Recently, I was diagnosed with A.AA.D.D. - Age Activated Attention Deficit
Disorder. This is how it manifests:
I decide to water my garden.
As I turn on the hose in the driveway, I look over at my car and decide it
needs washing.
As I start toward the garage, I notice mail on the porch table that I brought
up from the mail box earlier.
I decide to go through the mail before I wash the car.
I lay my car keys on the table, put the junk mail in the garbage can under
the table, and notice that the can is full.
So, I decide to put the bills back on the table and take out the garbage
first.
But then I think, since I'm going to be near the mailbox when I take out the
garbage anyway, I may as well pay the bills first.
I take my check book off the table, and see that there is only one check
left.
My extra checks are in my desk in the study, so I go inside the house to my
desk where I find the can of Coke I'd been drinking.
I'm going to look for my checks, but first I need to push the Coke aside so
that I don't accidentally knock it over.
The Coke is getting warm, and I decide to put it in the refrigerator to keep
it cold.
As I head toward the kitchen with the Coke, a vase of flowers on the counter
catches my eye--they need water.
I put the Coke on the counter and discover my reading glasses that I've been
searching for all morning.
I decide I better put them back on my desk, but first I'm going to water the
flowers.
I set the glasses back down on the counter, fill a container with water and
suddenly spot the TV remote. Someone left it on the kitchen table.
I realize that tonight when we go to watch TV, I'll be looking for the
remote, but I won't remember that it's on the kitchen table, so I decide to put
it back in the den where it belongs, but first I'll water the flowers.
I pour some water in the flowers, but quite a bit of it spills on the floor.
So, I set the remote back on the table, get some towels and wipe up the
spill.
Then, I head down the hall trying to remember what I was planning to do.
At the end of the day:
the car isn't washed
the bills aren't paid
there is a warm can of Coke sitting on the counter
the flowers don't have enough water,
there is still only 1 check in my check book,
I can't find the remote,
I can't find my glasses,
and I don't remember what I did with the car keys.
Then, when I try to figure out why nothing got done today, I'm really baffled
because I know I was busy all day, and I'm really tired.
I realize this is a serious problem, and I'll try to get some help for it,
but first I'll check my e-mail....
Do me a favor. Forward this message to everyone you know, because I don't
remember who I've sent it to.
Computer Stupidity ---
http://www.rinkworks.com/stupid/cs_abuse.shtml
Forwarded by Dick Haar
Only in America ......do drugstores make the sick walk all the way to the
back of the store to get their prescriptions while healthy people can buy
cigarettes at the front.
Only in America .......do people order double cheeseburgers, large fries, and
a diet coke.
Only in America ......do banks leave both doors open and then chain the pens
to the counters.
Only in America ......do we leave cars worth thousands of dollars in the
driveway and put our useless junk in the garage.
Only in America ......do we buy hot dogs in packages of ten and buns in
packages of eight.
Only in America ......do they have drive-up ATM machines with Braille
lettering.
EVER WONDER ....
Why the sun lightens our hair,but darkens our skin ?
Why women can't put on mascara with their mouth closed?
Why don't you ever see the headline "Psychic Wins Lottery"?
Why is "abbreviated" such a long word?
Why is it that doctors call what they do "practice"?
Why is lemon juice made with artificial flavor, and dishwashing liquid made
with real lemons?
Why is the man who invests all your money called a broker?
Why is the time of day with the slowest traffic called rush hour?
Why isn't there mouse-flavored cat food?
Why didn't Noah swat those two mosquitoes?
Why do they sterilize the needle for lethal injections?
You know that indestructible black box that is used on airplanes? Why don't
they make the whole plane out of that stuff?!
Why don't sheep shrink when it rains?
Why are they called apartments when they are all stuck together?
If flying is so safe, why do they call the airport the terminal?
Forwarded by Gene and Joan,
Some are facts and some are urban legends.
If you've nothing else to do, check out each one at
http://www.snopes.com/
*****************************************************************************
The liquid inside young coconuts can be used as a substitute for Blood
plasma.
*****************************************************************************
No piece of paper can be folded in half more than seven (7) times. Oh go
ahead...I'll wait...~
*****************************************************************************
Donkeys kill more people annually than plane crashes or shark attacks.
*****************************************************************************
You burn more calories sleeping than you do watching television.
*****************************************************************************
Oak trees do not produce acorns until they are fifty (50) years of age or
older.
******************************************
***********************************
The first product to have a bar code was Wrigley's gum.
*****************************************************************************
The King of Hearts is the only king WITHOUT A MOUSTACHE
********************
*********************************************************
American Airlines saved $40,000 in 1987 by eliminating one (1) olive from
each salad served in first-class.
*****************************************************************************
Venus is the only planet that rotates clockwise. (Since Venus is normally
associated with women,what does this tell you!)
****************************************************** ****************
Apples, not caffeine, are more efficient at waking you up in the morning.
*****************************************************************************
Most dust particles in your house are made from DEAD SKIN!
*****************************************************************************
The first owner of the Marlboro Company died of lung cancer. </ SPAN> So did
the first " Marlboro Man."
*****************************************************************************
Walt Disney was afraid OF MICE!
*****************************************************************************
PEARLS MELT IN VINEGAR!
*****************************************************************************
The three most valuable brand names on earth: Marlboro, Coca Cola, and
Budweiser, in that order.
*****************************************************************************
It is possible to lead a cow upstairs... but, not downstairs.
*****************************************************************************
A duck's quack doesn't echo, and no one knows why. (urban legend ---
http://www.snopes.com/critters/wild/duckecho.asp )
*****************************************************************************
Dentists have recommended that a toothbrush be kept at least six (6) feet
away from a toilet to avoid airborne particles resulting from the flush. (I keep
my toothbrush in the living room now!)
*****************************************************************************
Richard Millhouse Nixon was the first U.S. president whose name contains all the
letters from the word "criminal." (who thinks up this stuff???) The second?
William Jefferson Clinton
(Please don't tell me you're SURPRISED!!!)
*****************************************************************************
And the best for last.....
Turtles can breathe through their butts. (I know some people that breathe out
but not in, don't YOU?)
*****************************************************************************
Did George Carlin write a list of hurricane rules ---
http://www.snopes.com/katrina/soapbox/carlin.asp
Forwarded by Paula
he U.S.S. Constitution (Old Ironsides), as a combat vessel, carried 48,600
gallons of fresh water for her crew of 475 officers and men. This was sufficient
to last six months of sustained operations at sea. She carried no evaporators
(i.e. fresh water distillers!).
However, let it be noted that according to her ship's log, "On July 27, 1798,
the U.S.S. Constitution sailed from Boston with a full complement of 475
officers and men, 48,600 gallons of fresh water, 7,400 cannon shot, 11,600
pounds of black powder and 79,400 gallons of rum."
Her mission: "To destroy and harass English shipping."
Making Jamaica on 6 October, she took on 826 pounds of flour and 68,300
gallons of rum.
Then she headed for the Azores , arriving there 12 November. She provisioned
with 550 pounds of beef and 64,300 gallons of Portuguese wine.
On 18 November, she se t sail for England . In the ensuing days she defeated
five British men-of-war and captured and scuttled 12 English merchant ships,
salvaging only the rum aboard each.
By 26 January, her powder and shot were exhausted. Nevertheless, although
unarmed she made a night raid up the Firth of Clyde in Scotland . Her landing
party captured a whisky distillery and transferred 40,000 gallons of single malt
Scotch aboard by dawn. Then she headed home.
The U.S.S. Constitution arrived in Boston on 20 February, 1799, with no
cannon shot, no food, no powder, no rum, no wine, no whisky, and 38,600 gallons
of water.
Courtroom Testimony ---
http://www.amigamccc.org/journal/0709cour.htm
Partying Accountants (video links forwarded by David Albrecht)
Seinfeld Accountant ---
http://www.youtube.com/watch?v=ekp9dmXM7Qs&feature=related
The Accountant ---
http://www.youtube.com/watch?v=UePRIzW___s&feature=related
Bob Jensen's threads on accounting humor are at
http://www.trinity.edu/rjensen/FraudEnron.htm#Humor
Why I Will Never Have a Girlfriend (mathematical
reasoning) ---
http://en.nothingisreal.com/wiki/Why_I_Will_Never_Have_a_Girlfriend
Forwarded by Valerie
In wine there is
wisdom, in beer there is freedom, in water there is bacteria.
In a number of carefully controlled trials, scientists have demonstrated that if
we drink 1 litre of water each day, at the end of the year we would have
absorbed more than 1 kilo of Escherichia coli,(E. coli) - bacteria found in
feces. In other words, we are consuming 1 kilo of poop.
However, we do NOT
run that risk when drinking wine & beer (ortequila, rum, whiskey or other
liquor) since alcohol has to go through a purification process of boiling,
filtering and/or fermenting.
So remember:
Water = Poop
Wine = Health
Therefore, it's
better to drink wine and talk stupidly, than to drink water and be full of shit.
There is no need to thank me for this valuable information. I'm doing it as a
public service.
Forwarded by Auntie Bev
Colonoscopy
All the organs of the body were having a meeting, trying to decide who was
the one in charge.
'I should be in charge,' said the brain , 'Because I run all the body's
systems, so without me nothing would happen.'
'I should be in charge,' said the blood , 'Because I circulate oxygen all
over so without me you'd all waste away.'
'I should be in charge,' said the stomach,' Because I process food and give
all of you energy.'
'I should be in charge,' said the legs, 'because I carry the body wherever it
needs to go.'
'I should be in charge,' said the eyes, 'Because I allow the body to see
where it goes.'
'I should be in charge,' said the rectum, 'Because I'm responsible for waste
removal.'
All the other body parts laughed at the rectum And insulted him, so in a
huff, he shut down tight. Within a few days, the brain had a terrible headache,
the stomach was bloated, the legs got wobbly, the eyes got watery, and theblood
Was toxic. They all decided that the rectum should be the boss . The Moral of
the story? Even though the others do all the work...
The asshole is usually in charge
Top ten worst Christmas cracker jokes ever (these are tricky) ---
http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2007/12/19/njoke119.xml
Forwarded by Auntie Bev
The Demographics of American Newspapers
The Demographics of American Newspapers
1. The Wall Street Journal is read by the people who run the country
2. The Washington Post is read by people who think they run the
country.
3. The New York Times is read by people who think they should run the country
and who are very good at crossword puzzles.
4. USA Today is read by people who think they ought to run the country but
don't really understand The New York Times. They do, however, like their
statistics shown in pie charts.
5. The Los Angeles Times is read by people who wouldn't mind running the
country -- if they could find the time -- and if they didn't have to leave
SouthernCalifornia to do it.
6. The Boston Globe is read by people whose parents used to run the country
and did a poor job of it , thank you very much.
7. The New York Daily News is read by people who aren't too sure who's
running the country and don't really care as long as they can get a seat on the
train.
8. The New York Post is read by people who don't care who is running the
country as long as they do something really scandalous, preferably while
intoxicated.
9. The Miami Herald is read by people who are running another country but
need the baseball scores.
10. The San Francisco Chronicle is read by people who aren't sure if there is
a country or that anyone is running it; but if so, they oppose all that they
stand for. There are occasional exceptions if the leaders are handicapped
minority feminist atheist dwarfs who also happen to be illegal aliens from any
other country or galaxy, provided of course, that they are not Republicans.
11. The National Enquirer is read by people trapped in line at the grocery
store.
12. The Oregonian is read by people who have recently caught a fish and need
something in which to wrap it.
Forwarded by Auntie Bev
An old, tired-looking dog wandered into the yard. I could tell from his
collar and well-fed belly that he had a home. He followed me into the house,
down the hall, and fell asleep in a corner.
An hour later, he went to the door, and I let him out. The next day he was
back, resumed his position in the hall, and slept for an hour. This continued
for several weeks. Curious, I pinned a note to his collar: "Every afternoon your
dog comes to my house for a nap." The next day he arrived with a different note
pinned to his collar: "He lives in a home with ten children -- he's trying to
catch up on his sleep. Can I come with him tomorrow?"
This is a repeat, but what the heck?
It's the holiday season.
Christmas Carols for Those Over the Edge
01. Schizophrenia --- Do You Hear What I Hear?
02. Multiple Personality Disorder --- We Three Kings Disoriented Are
03. Dementia --- I Think I'll be Home for Christmas If I Can Find
Where Our Home Is?
04. Narcissism--- Hark the Herald Angels Are Singing About Me
05. Manic--Deck the Halls and Walls and House and Lawn and Streets
and
Stores and Office and Town and Cars and Buses and ...
06. Paranoid --- Santa Claus is Coming to
Town to Get Me
07. Borderline Personality Disorder --- You Better Watch Out, I'm
Gonna Cry, I'm Gonna Pout, Maybe I'll Tell You Why
08. Personality Disorder---Thoughts of Roasting on an Open Fire
09. Attention Deficit Disorder --- Silent Night, Holy oooh look at
the
Froggy - Can I have a Chocolate Why is France so Far Away?
10. Obsessive Compulsive Disorder --- Jingle Bells, Jingle Bells,
Jingle Bells, Jingle Bells, Jingle Bells, Jingle Bells, Jingle Bells, Jingle
Bells, Jingle Bells, Jingle Bells, Jingle Bells, Jingle Bells, Jingle Bells,
Jingle Bells.
11. Family Visitation at
Rehab --- What Child is This?
12. San Francisco
Syndrome --- I Saw Daddy Kissing Santa Claus.
Forwarded by Dick Haar
Law
of Mechanical Repair
After your hands become coated with grease, your nose will begin
to itch or you'll have to pee.
Law
of the Workshop
Any tool, when dropped, will roll or slide to the least
accessible location.
Law of Probability
The probability of being watched is directly proportional to
the stupidity of your act.
Law of the Telephone
If you dial a wrong number, you never get a busy signal.
Law of the Alibi
If you tell the boss you were late for work because you had a
flat tire, the very next morning you will have a flat tire.
Variation Law
If you change lines (or traffic lanes), the one you were in will
start to move faster than the one you are in now (works every
time).
Law of the
Bath
When the body is fully immersed in water, the telephone rings.
Law of Close Encounters
The probability of meeting someone you know increases
dramatically when you are with someone you don't want to be seen
with.
Law of the Result
When you try to prove to someone that a machine won't work, it
will.
Law of Biomechanics
The severity of the itch is inversely proportional to your
ability to reach and scratch it.
Law of the Theater
At any event, the people whose seats are furthest from the aisle
will arrive last.
Law of Coffee
As soon as you sit down to a cup of hot coffee, your boss will
ask you to do something which will last until the coffee is
cold.
Murphy's Law of Lockers
If there are only two people in a locker room, they will have
adjacent lockers.
Law of Rugs/Carpets
The chances of an open-faced jelly sandwich landing face down on
a floor covering are directly correlated to the newness and cost
of the carpet/rug.
Law of Location
No matter where you go, there you are.
Law of Logical Argument
Anything is possible if you don't know what you are talking
about.
Brown's Law
If the shoe fits, it's ugly.
Oliver's Law
A
closed mouth gathers no feet.
Wilson's Law
As soon as you find a product that you really like, they will
stop making it. (this one is true every time!)
Doctors' Law
If you don't feel well, make an appointment to see a doctor, and
by the time you get there you'll feel better. Don't make an
appointment and you'll remain sick
The year is 1907. One hundred years ago. What a difference a
century makes!
Here are some statistics for the Year 1907 :
************ ********* ********* ******
The average life expectancy was 47 years.
Only 14 percent of the homes had a bathtub.
Only 8 percent of the homes had a telephone.
There were only 8,000 cars and only 144 miles of paved roads.
The maximum speed limit in most cities was 10 mph.
The tallest structure in the world was the Eiffel Tower!
The average wage in 1907 was 22 cents per hour.
The average worker made between $200 and $400 per year .
A competent accountant could expect to earn $2000 per year, A dentist $2,500
per year, a veterinarian between $1,500 and $4,000 per year, and a mechanical
engineer about $5,000 per year.
More than 95 percent of all births took place at HOME .
Ninety percent of all doctors had NO COLLEGE EDUCATION! Instead, they attended
so-called medical schools, many of which were condemned in the press AND
the government as "substandard. "
Sugar cost four cents a pound.
Eggs were fourteen cents a dozen.
Coffee was fifteen cents a pound.
Most women only washed their hair once a month, and used
Borax or egg yolks for shampoo.
Canada passed a law that prohibited poor people from entering into their country
for any reason.
Five leading causes of death were:
1. Pneumonia and influenza 2. Tuberculosis 3. Diarrhea 4. Heart disease 5.
Stroke
The American flag had 45 stars.
The population of Las Vegas , Nevada, was only 30!!!!
Crossword puzzles, canned beer, and ice tea hadn't been invented yet.
There was no Mother's Day or Father's Day.
Two out of every 10 adults couldn't read or write.
Only 6 percent of all Americans had graduated from high school.
Marijuana, heroin, and morphine were all available over the counter at the
local corner drugstores. Back then pharmacists said, "Heroin clears the
complexion, gives buoyancy to the mind, regulates the stomach and bowels, and
is, in fact, a perfect guardian of health." ( Shocking? DUH! )
Eighteen percent of U.S. households had at least one full-time servant or
domestic help.
There were about 230 reported murders in the ENTIRE ! U.S.A. !
Now I forwarded this from someone else without typing it myself, and sent it to
you and others all over Canada & U.S.A
Possibly the world, in a matter of seconds!
Try to imagine what it may be like in another 100 years.
Will it be for the better? I think I prefer graduating from high school in 1956
rather than 2056! People 100 years old probably prefer being born in 1907.
Forwarded by Paula
These appeared in earlier editions of New Bookmarks, but
they're worth repeating.
Just before the funeral
services,
the undertaker came up to the
very elderly widow and asked,
"How
old was your husband?" "98," she
replied.
"Two
years older than me"
"So you're 96," the undertaker
commented.
She responded, "Hardly worth
going home, is it?
|
Reporters interviewing a
104-year-old woman:
"And what do you think
is the best thing
about being 104?" the
reporter asked.
She simply replied, "No
peer pressure."
|
The nice thing about being
senile is
you
can hide your own Easter eggs.
|
I've
sure gotten old!
I've
had two bypass surgeries, a hip
replacement,
new
knees, fought prostate cancer
and diabetes
I'm
half blind,
can't hear anything quieter than
a jet engine,
take
40 different medications that
make
me dizzy, winded, and subject to
blackouts.
Have
bouts with dementia.
Have
poor circulation;
hardly feel my hands and feet
anymore.
Can't remember if I'm 85 or 92.
Have
lost all my friends. But, thank
God,
I
still have my driver's license.
|
I feel like my body has gotten
totally out of shape,
so I
got my doctor's permission to
join a
fitness club and start
exercising.
I
decided to take an aerobics
class for seniors.
I
bent, twisted, gyrated, jumped
up and down,
and perspired for an hour. But,
by the
time I got my leotards on,
the
class was over.
|
An
elderly woman decided to prepare
her will and
told her preacher she had two
final requests.
First, she wanted to be
cremated, and second,
she
wanted her ashes scattered over
Wal-Mart.
"Wal-Mart?" the preacher
exclaimed.
"Why Wal-Mart?"
"Then I'll be sure my daughters
visit me twice a week"
|
My
memory's not as sharp as it used
to be.
Also, my memory's not as sharp
as it used to be.
|
Know how to prevent sagging?
Just eat till the wrinkles fill
out.
|
It's
scary when you start making the
same noises
as
your coffee maker.
|
These days about half the stuff
in
my shopping cart says,
"For fast relief."
|
THE SENILITY PRAYER :
Grant me the senility to
forget the people
I never liked anyway,
the good fortune to run
into the ones I do, and
the eyesight to tell the
difference.
|
Now, I think you're supposed to share this
with 5 or 6, maybe 10 others. Oh heck, give
it to a bunch of your friends if you can
remember who they are!
Always Remember This:
You don't stop laughing because you grow
old,
You grow old because you stop
laughing.
Forwarded by Dick Haar
An interview with an 80-year-old woman
The local news station was interviewing an 80-year-old lady because she had
just gotten married -- for the fourth time.
The interviewer asked her questions about her life, about what it felt like
to be marrying again at 80, and then about her new husband's occupation.
"He's a funeral director," she answered.
"Interesting," the newsman thought.
He then asked her if she wouldn't mind telling him a little about her first
three husbands and what they did for a living.
She paused for a few moments, needing time to reflect on all those years.
After a short time, a smile came to her face and she answered proudly,
explaining that she¢d first married a banker when she was in her early 20's,
then a circus ringmaster when in her 40's, later on a preacher when in her 60's,
and now in her 80's, a funeral director.
The interviewer looked at her, quite astonished, and asked why she had
married four men with such diverse careers.
She smiled and explained, "I married one for the money, two for the show,
three to get ready, and four to go."
Courses for Men (taught by women) and Women (taught by
men) ---
http://www.jamesshuggins.com/h/hum1/courses_men_women.htm
And you think you've got a deviated septum!
The Pug Factory ---
http://files.meetup.com/126468/pug factory.jpg
Forwarded by Auntie Bev
Why did the chicken cross the road?
DR. PHIL: The problem we have here is that this chicken won't realize that he
must first deal with the problem on 'THIS' side of the road before it goes after
the problem on the 'OTHER SIDE' of the road. What we need to do is help him
realize how stupid he's acting by not taking on his 'CURRENT' problems before
adding 'NEW' problems.
OPRAH : Well, I understand that the chicken is having problems, which is why
he wants to cross this road so bad. So instead of having the chicken learn from
his mistakes and take falls, which is a part of life, I'm going to give this
chicken a car so that he can just drive across the road and not live his life
like the rest of the chickens.
GEORGE W. BUSH : We don't really care why the chicken crossed the road. We
just want to know if the chicken is on our side of the road, or not. The chicken
is either against us, or for us. There is no middle ground here.
COLIN POWELL : Now to the left of the screen, you can clearly see the
satellite image of the chicken crossing the road...
ANDERSON COOPER - CNN: We have reason to believe there is a chicken, but we
have not yet been allowed to have access to the other side of the road.
JOHN KERRY : Although I voted to let the chicken cross the road, I am now
against it! It was the wrong road to cross, and I was misled about the chicken's
intentions. I am not for it now, and will remain against it.
NANCY GRACE : That chicken crossed the road because he's GUILTY! You can see
it in his eyes and the way he walks.
PAT BUCHANAN: To steal the job of a decent, hardworking American.
MARTHA STEWART : No one called me to warn me which way that chicken was
going. I had a standing order at the Farmer's Market to sell my eggs when the
price dropped to a certain level. No little bird gave me any insider
information.
DR SEUSS : Did the chicken cross the road? Did he cross it with a toad? Yes,
the chicken crossed the road, but why it crossed I've not been told.
ERNEST HEMINGWAY: To die in the rain. Alone.
JERRY FALWELL: Because the chicken was gay! Can't you people see the plain
truth?' That's why they call it the 'other side.' Yes, my friends, that chicken
is gay. And if you eat that chicken, you will become gay too. I say we boycott
all chickens until we sort out this abomination that the liberal media white
washes with seemingly harmless phrases like 'the other side. That chicken should
not be crossing the road. It's as plain and as simple as that.
GRANDPA : In my day we didn't ask why the chicken crossed the road. Somebody
told us the chicken crossed the road, and that was good enough.
BARBARA WALTERS: Isn't that interesting? In a few moments, we will be
listening to the chicken tell, for the first time, the heart warming story of
how it experienced a serious case of molting, and went on to accomplish its life
long dream of crossing the road.
JOHN LENNON : Imagine all the chickens in the world crossing roads together,
in peace.
ARISTOTLE: It is the nature of chickens to cross the road.
BILL GATES: I have just released eChicken2007, which will not only cross
roads, but will lay eggs, file your important documents, and balance your check
book. Internet Explorer is an integral part of eChicken. This new platform is
much more stable and will never cra...#@&&^(C% ........ reboot.
ALBERT EINSTEIN : Did the chicken really cross the road, or did the road move
beneath the chicken?
BILL CLINTON: I did not cross the road with THAT chicken. What is your
definition of chicken?
AL GORE : I invented the chicken!
COLONEL SANDERS: Did I miss one?
DICK CHENEY : Where's my gun?
AL SHARPTON: Why are all the chickens white? We need some black chickens.
Forwarded by Lynn
A mother is driving a little girl to her friend's house for a play date.
'Mommy,' the little girl asks, 'how old are you?'
'Honey, you are not supposed to ask a lady her age,' the mother replied.
'It's not polite.'
'OK', the little girl says, 'How much do you weigh?'
'Now really,' the mother says, 'those are personal questions and are really
none of your business.'
Undaunted, the little girl asks, 'Why did you and Daddy get a divorce?'
'That is enough questions, young lady, honestly!'
The exasperated mother walks away as the two friends begin to play.
'My Mom won't tell me anything about her,' the little girl says to her
friend.
'Well,' says the friend, 'all you need to do is look at her drivers license.
It is like a report card, it has everything on it.'
Later that night the little girl says to her mother, 'I know how old you are,
you are 32.'
The mother is surprised and asks, 'How did you find that out?
'I also know that you weigh 140 pounds.'
The mother is past surprised and shocked now. 'How in heaven's name did you
find that out?'
'And,' the little girl says triumphantly,'I know why you and daddy got a
divorce.'
'Oh really?' the mother asks. 'Why?'
'Because you got an F in sex.
Hint:
All this information is on her mother's drivers license.
Forwarded by Paula
(On September 17, 1994, Alabama's Heather Whitestone was selected as Miss
America 1995.)
Question: If you could live forever, would you and why?
Answer: "I would not live forever, because we should not live forever,
because if we were supposed to live forever, then we would live forever, but we
cannot live forever, which is why I would not live forever," --
Miss Alabama in the 1994 Miss USA contest .
``````````````````````````````````
"Whenever I watch TV and see those poor starving kids all over the world, I
can't help but cry. I mean I'd love to be skinny like that, but not with all
those flies and death and stuff." --
Mariah Carey
````````````
"Smoking kills. If you're killed, you've lost a very important part of your
life," --
Brooke Shields, during an interview to become Spokesperson for federal
anti-smoking campaign .
`````````````````````````````````````````````````
"I've never had major knee surgery on any other part of my body," --
Winston Bennett, University? of Kentucky basketball forward .
`````````````````````````````````````````````
"Outside of the killings, Washington has one of the lowest crime rates in the
country," --
Mayor Marion Barry, Washington, DC .
````` ``````````````````````
"I'm not going to have some reporters pawing through our papers. We are the
president." --
Hillary Clinton commenting on the release of subpoenaed documents.
````````````````````````````````````````````````````
"That lowdown scoundrel deserves to be kicked to death by a jackass, and I'm
just the one to do it," --A congressional candidate in Texas .
````````````````````````````
"Half this game is ninety percent mental." --Philadelphia Phillies manager,
Danny Ozark
``````````````````````````````````
"It isn't pollution that's harming the environment. It's the impurities in
our air and water that are doing it." --
Al Gore, Vice President
And ...
"We are ready for an unforeseen event that may or may not occur." -- Al Gore,
VP
```````````````````
"I love California . I practically grew up in Phoenix ." --
Dan Quayle
``````````
"We've got to pause and ask ourselves: How much clean air do we need ?" --
Lee Iacocca
```````````
"The word "genius" isn't applicable in football. A genius is a guy like
Norman Einstein." ---
Joe Theisman, NFL football quarterback & sports analyst.
````````````````````````````````````````````
"We don't necessarily discriminate. We simply exclude certain types of
people." --
Colonel Gerald Wellman, ROTC Instrutor .
````````````````````````````````
"If we don't succeed, we run the risk of failure." --
Bill Clinton, President
````````````````
"Traditionally, most of Australia 's imports come from overseas." --
Keppel Enderbery
````````````````
"Your food stamps will be stopped effective March 1992 because we received
notice that you passed away. May God bless you. You may reapply if there is a
change in your circumstances." --
Department of Social Services, Greenville , South Carolina
````````````````````````````````````````````
"If somebody has a bad heart, they can plug this jack in at night as they go
to bed and it will monitor their heart throughout the night. And the next
morning, when they wake up dead, there'll be a record." --
Mark S. Fowler, FCC Chairman
Forwarded by Paula
Sometimes
newspaper editors state the obvious
-
If strike isn't settled quickly it may
last a while
-
War dims hope for peace
-
Smokers are productive, but death cuts
efficiency
-
Cold wave linked to temperatures
-
Child's death ruins couple's holiday
-
Blind woman gets new kidney from dad she
hasn't seen in years
-
Man is fatally slain
-
Something went wrong in jet crash, experts
say
-
Death causes loneliness, feeling of
isolation
Grammar often
botches other headlines
-
Squad helps dog bite victim
-
Dealers will hear car talk at
noon
-
Enraged cow injures farmer with ax
-
Lawmen from Mexico barbecue
guests
-
Miners refuse to work after death
-
Two sisters reunite after eighteen years
at checkout counter
Some become
unintentionally suggestive
-
Queen Mary having bottom scraped
-
Prostitutes appeal to Pope
-
Panda mating fails - veterinarian takes
over
-
NJ judge to rule on nude beach
-
Dr. Ruth to talk about sex with newspaper
editors
Forwarded by Paula
This is an article
submitted to a 1999 Louisville
Sentinel contest to find
out who had the wildest
Christmas dinners.
This won first prize.
CHRISTMAS WITH LOUISE
As a joke, my brother
used to hang a pair of panty
hose over his fireplace
before Christmas. He said
all he wanted was for
Santa to fill them. What they
say
about Santa checking the list twice must be true
because every Christmas
morning, although Jay's
kids' stockings were
overflowed, his poor pantyhose
hung sadly empty.
One year I decided to
make his dream come true.
I put
on sunglasses and went in search of an
inflatable love doll.
They don't sell those things
at WalMart
. I had to go to an adult bookstore downtown.
If you've never been in an
X-rated store, don't
go.
You'll only confuse yourself. I was there
an
hour saying things like,
"What does this do? You're
kidding me!
Who would buy that?" Finally, I made
it
to the inflatable doll
section.
I wanted to buy a
standard, uncomplicated doll
that
could also substitute as a passenger in my
truck so I could use the
car pool lane during rush
hour.
Finding what I wanted
was difficult. Love Dolls
come in many different
models. The top of the
line,
according to the side of
the box, could do things
I'd only seen in a book on
animal husbandry. I
settled for Lovable Louise.
She was at the bottom of
the price scale.
To call Louise a doll took a huge
leap
of imagination.
On Christmas Eve and
with the help of an old
bicycle pump, Louise came
to life.
My sister-in-law was in on
the plan and let me in
during the wee morning
hours. Long after Santa had
come and gone, I filled
the dangling pantyhose with
Louise's pliant legs and
bottom. I also ate some
cookies and drank what
remained of a glass of milk
on a nearby tray.
I went home, and giggled for a
couple of hours.
The next morning my
brother called to say that
Santa had been to his
house and left a present that
had made him VERY happy
but had left the dog
confused.
She would bark, start to walk away, then
come back and bark some
more.
We all agreed that Louise
should remain in her
panty hose so the rest of
the family could admire
her when they came over
for the traditional
Christmas dinner.
My grandmother noticed
Louise the moment she
walked in the door.
"What the heck is that?" she
asked.
My brother quickly
explained, "It's a doll."
"Who would play with
something like that?"
Granny snapped.
I had several candidates
in mind, but kept my
mouth shut.
"Where are her clothes?"
Granny continued.
"Boy, that turkey sure
smells nice Gran" Jay said,
to steer her into the
dining room.
But Granny was relentless.
"Why doesn't she have
any
teeth?"
Again, I could have
answered, but why would I?
It
was Christmas and no one
wanted to ride in the
back
of the ambulance saying,
"Hang on Granny, hang on!"
My grandfather, a
delightful old man with poor
eyesight, sidled up to me
and said, "Hey, who's the
naked gal by the
fireplace?"
I told him she was Jay's
friend.
A few minutes later I
noticed Grandpa by the
mantel, talking to Louise.
Not just talking, but
actually flirting.
It was then that we realized this
might be Grandpa's last
Christmas at home.
The dinner went well.
We made the usual small
talk
about who had died, who
was dying, and who should be
killed, when suddenly
Louise made a noise like my
father in the bathroom in
the morning. Then she
lurched
from the panty hose, flew around the room
twice, and fell in a heap
in front of the sofa.
The cat screamed.
I passed cranberry sauce through
my nose, and Grandpa ran
across the room, fell to
his knees, and began
administering mouth-to-mouth
resuscitation.
My brother fell back over his chair
and wet his pants.
Granny threw down her
napkin, stomped out of the
room,
and sat in the car.
It was indeed a
Christmas to treasure and
remember.
Later in my brother's
garage, we conducted a
thorough examination to
decide the cause of Louise's
collapse.
We discovered that Louise had suffered
from
a hot ember to the back of her right thigh.
Fortunately, thanks to a
wonder drug called duct
tape,
we restored her to perfect health!
Forwarded by Amy Dunbar
From
http://immobilienblasen.blogspot.com/2007/12/investment-banking-lexicon-post-credit.html
Love the
Christmas party one!
An investment banking lexicon: The post-credit
squeeze edition
Investment-speak is a universal language. From maximising shareholder value
to full and fair offers, bankers are well versed in the art of keeping their
clients happy.
But four months into the credit crisis and their words have taken on a new
meaning. Here is an explanation.
SUBPRIME
Pre-squeeze: Poor cut of beef
Post-squeeze: On the national education curriculum
COVENANT-LITE
Pre-squeeze: Please pay back the money (no rush)
Post-squeeze: Please get approval for all expenses above £50
COMPETITIVE
AUCTION
Pre-squeeze: 50 buy-out firms submit first-round bids
Post-squeeze: The Malaysians are looking
EMI
Pre-squeeze: Coveted transaction
Post-squeeze: Distressed debt play
STAN O’NEAL
Pre-squeeze: $50m for successfully delivering shareholder value
Post-squeeze: $50m for destroying shareholder value
DEBT
AVAILABLE FOR BUY-OUT
Pre-squeeze: $10bn
Post-squeeze: Z$300,000bn
ATTRACTIVE
INVESTMENT OPPORTUNITY
Pre-squeeze: Growing faster than the competition
Post-squeeze: Not falling quite as quickly as the competition
INFRASTRUCTURE
Pre-squeeze: Goldman launches billion-dollar fund
Post-squeeze: Heathrow queues get longer
MULTIPLES
Pre-squeeze: 8 x pro forma ebitda
Post-squeeze: 4 x historic earnings
DUE
DILIGENCE
Pre-squeeze: There is a hole in the pension book
Post-squeeze: Due diligence to look diligent
BANK’S
CHRISTMAS PARTY
Pre-squeeze: Bollinger, Château Lafite, Nobu catering
Post-squeeze: Glass of Chianti, dry roasted peanuts
PIPELINE IS
FULL
Pre-squeeze: Real deals by stretched bankers
Post-squeeze: Stretched deals by virtual bankers
EMERGING
MARKETS
Pre-squeeze: Risky, high-yield play
Post-squeeze: Safe haven
STRATEGIC
REVIEW
Pre-squeeze: We will take the highest offer
Post-squeeze: Fire sale
Forwarded by Moe
THE GOLDEN PHONE.
A man in Topeka , Kansas decided to write a book about Churches around the
country. He started by flying to San Francisco and started working east from
there.
Going to a very large church, he began taking photographs and making notes.
He spotted a golden telephone on the vestibule wall and was intrigued with a
sign, which read 'Calls: $10,000 a minute.'
Seeking out the pastor he asked about the phone and the sign. The pastor
answered that this golden phone is, in fact, a direct line to heaven and if he
pays the price he can talk directly to God.
The man thanked the pastor and continued on his way. As he continued to visit
churches in Seattle , Dallas, St. Louis, Chicago, Milwaukee, and around the
United States, he found more phones, with the same sign, and the same answer
from each pastor.
Finally, he arrived in Massachusetts. Upon entering a church in Boston, MA ..
........Behold - he saw the usual golden telephone.
But THIS time, the sign read "Calls: .35 cents."
Fascinated, he asked to talk to the pastor, "Reverend, I have been in cities
all across the country and in each church I have found this golden telephone and
have been told it is a direct line to Heaven and that I could talk to God, but
in the other churches the cost was $10,000 a minute. Your sign reads only .35
cents a call. Why? Why?"
The pastor, smiling benignly, replied :
"Son, you're in Boston, Massachusetts now, home of the Boston Red Sox, the
Patriots, Celtics, Bruins and Boston College ! "
You're in God's Country, It's a local call.
( American by Birth - A BOSTON SPORT FAN by the grace of GOD ! )
Humor Between December 1 and December 31, 2007 ---
http://www.trinity.edu/rjensen/book07q4.htm#Humor123107
Humor Between November 1 and November 30, 2007 ---
http://www.trinity.edu/rjensen/book07q4.htm#Humor113007
Humor Between October 1 and October 31, 2007 ---
http://www.trinity.edu/rjensen/book07q4.htm#Humor103107
Humor Between September 1 and September 30, 2007 ---
http://www.trinity.edu/rjensen/book07q3.htm#Humor093007
And that's the way it was on December 31, 2007 with a little help from my friends.
Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
Facts about the earth in real time ---
http://www.worldometers.info/
Jesse's Wonderful Music for Romantics (You have to scroll down to the titles) ---
http://www.jessiesweb.com/
International Accounting News (including the U.S.)
AccountingEducation.com and Double Entries ---
http://www.accountingeducation.com/
Upcoming international accounting conferences ---
http://www.accountingeducation.com/events/index.cfm
Thousands of journal abstracts ---
http://www.accountingeducation.com/journals/index.cfm
Deloitte's International Accounting News ---
http://www.iasplus.com/index.htm
Association of International Accountants ---
http://www.aia.org.uk/
Wikipedia has a rather nice summary of accounting software at
http://en.wikipedia.org/wiki/Accounting_software
Bob Jensen’s
accounting software bookmarks are at
http://www.trinity.edu/rjensen/Bookbob1.htm#AccountingSoftware
Bob Jensen's accounting
history summary ---
http://www.trinity.edu/rjensen/Theory01.htm#AccountingHistory
Bob Jensen's accounting
theory summary ---
http://www.trinity.edu/rjensen/Theory.htm
Free Harvard Classics ---
http://www.bartleby.com/hc/
Free Education and Research Videos from Harvard University ---
http://athome.harvard.edu/archive/archive.asp
I highly recommend TheFinanceProfessor (an absolutely fabulous and totally free newsletter from a very smart finance professor, Jim Mahar from St. Bonaventure University) ---
http://www.financeprofessor.com/
Bob Jensen's bookmarks for accounting newsletters are at
http://www.trinity.edu/rjensen/bookbob1.htm#News
News Headlines for Accounting from TheCycles.com ---
http://www.thecycles.com/business/accounting
An unbelievable number of other news headlines categories in TheCycles.com are at
http://www.thecycles.com/
Jack Anderson's Accounting Information Finder ---
http://www.umsl.edu/~anderson/accsites.htm
Gerald Trite's great set of links ---
http://www.zorba.ca/bookmark.htm
The Finance Professor ---
http://www.financeprofessor.com/about/aboutFP.html
Walt Mossberg's many answers to questions in technology ---
http://ptech.wsj.com/
How stuff works ---
http://www.howstuffworks.com/
Household and Other Heloise-Style Hints ---
http://www.trinity.edu/rjensen/bookbob3.htm#Hints
Bob Jensen's video helpers for MS Excel, MS Access, and other helper videos are at
http://www.cs.trinity.edu/~rjensen/video/
Accompanying documentation can be found at
http://www.trinity.edu/rjensen/default1.htm and
http://www.trinity.edu/rjensen/HelpersVideos.htm
Click on
www.syllabus.com/radio/index.asp for a complete list of interviews with established leaders, creative thinkers and education technology experts in higher education from around the country.
Professor Robert E. Jensen (Bob)
http://www.trinity.edu/rjensen
190 Sunset Hill Road
Sugar Hill, NH 03586
Phone: 603-823-8482
Email:
rjensen@trinity.edu
November 30, 2007
Bob Jensen's New Bookmarks Between
November 1 and November 30, 2007
Bob Jensen at
Trinity University
For earlier editions of Tidbits go to
http://www.trinity.edu/rjensen/TidbitsDirectory.htm
For earlier editions of New Bookmarks go to
http://www.trinity.edu/rjensen/bookurl.htm
Click here to search Bob Jensen's web site if you have key words to enter --- Search Site.
For example if you want to know what Jensen documents have the term "Enron" enter the phrase Jensen AND Enron. Another search engine that covers Trinity and other universities is at
http://www.searchedu.com/.
Bob Jensen's Blogs ---
http://www.trinity.edu/rjensen/JensenBlogs.htm
Current and past editions of my newsletter called New Bookmarks ---
http://www.trinity.edu/rjensen/bookurl.htm
Current and past editions of my newsletter called
Tidbits ---
http://www.trinity.edu/rjensen/TidbitsDirectory.htm
Current and past editions of my newsletter called Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
Bob Jensen's past presentations and lectures
---
http://www.trinity.edu/rjensen/resume.htm#Presentations
Bob Jensen's various threads ---
http://www.trinity.edu/rjensen/threads.htm
(Also scroll down to the table at
http://www.trinity.edu/rjensen/ )
Roles of a ListServ
---
http://www.trinity.edu/rjensen/ListServRoles.htm
Click here to search this Website if you have key words to enter --- Search Site.
For example if you want to know what Jensen documents have the term "Enron" enter the phrase Jensen AND Enron. Another search engine that covers Trinity and other universities is at
http://www.searchedu.com/
Bob Jensen's Home Page is at
http://www.trinity.edu/rjensen/
CPA Examination ---
http://en.wikipedia.org/wiki/Cpa_examination
Wikipedia
has a rather nice summary of accounting software at
http://en.wikipedia.org/wiki/Accounting_software
Bob Jensen’s accounting
software bookmarks are at
http://www.trinity.edu/rjensen/Bookbob1.htm#AccountingSoftware
Bob Jensen's accounting
history summary ---
http://www.trinity.edu/rjensen/Theory01.htm#AccountingHistory
Bob Jensen's accounting
theory summary ---
http://www.trinity.edu/rjensen/Theory.htm
Accountancy Discussion ListServs:
For an elaboration on the reasons you should join a ListServ (usually for
free) go to http://www.trinity.edu/rjensen/ListServRoles.htm
AECM (Educators)
http://pacioli.loyola.edu/aecm/
AECM is an email Listserv list which provides a
forum for discussions of all hardware and software which can be useful
in any way for accounting education at the college/university level.
Hardware includes all platforms and peripherals. Software includes
spreadsheets, practice sets, multimedia authoring and presentation
packages, data base programs, tax packages, World Wide Web
applications, etcRoles
of a ListServ ---
http://www.trinity.edu/rjensen/ListServRoles.htm
|
CPAS-L
(Practitioners)
http://pacioli.loyola.edu/cpas-l/
CPAS-L provides a forum for discussions of all
aspects of the practice of accounting. It provides an unmoderated
environment where issues, questions, comments, ideas, etc. related to
accounting can be freely discussed. Members are welcome to take an
active role by posting to CPAS-L or an inactive role by just
monitoring the list. You qualify for a free subscription if you are
either a CPA or a professional accountant in public accounting,
private industry, government or education. Others will be denied
access. |
Yahoo
(Practitioners)
http://groups.yahoo.com/group/xyztalk
This
forum is for CPAs to discuss the activities of the AICPA. This can be
anything from the CPA2BIZ portal to the XYZ initiative or
anything else that relates to the AICPA. |
AccountantsWorld
http://accountantsworld.com/forums/default.asp?scope=1
This site hosts various discussion groups on such topics as accounting
software, consulting, financial planning, fixed assets, payroll, human
resources, profit on the Internet, and taxation. |
Business Valuation Group
BusValGroup-subscribe@topica.com
This discussion group is headed by Randy Schostag
[RSchostag@BUSVALGROUP.COM] |
Recent Tidbits ---
http://www.trinity.edu/rjensen/TidbitsDirectory.htm
2007
November 8
November 15 November
22
November 29
2007
October 1
October 10
October 17
October 30
Tidbits Directory for Earlier Months and Years ---
http://www.trinity.edu/rjensen/TidbitsDirectory.htm
New Bookmarks Directory for Earlier Months and Years
---
http://www.trinity.edu/rjensen/Bookurl.htm
Bob Jensen's Threads ---
http://www.trinity.edu/rjensen/Threads.htm
Humor Between November 1 and November 30, 2007 ---
http://www.trinity.edu/rjensen/book07q4.htm#Humor113007
Humor Between October 1 and October 31, 2007 ---
http://www.trinity.edu/rjensen/book07q4.htm#Humor103107
Links to Documents on Fraud ---
http://www.trinity.edu/rjensen/Fraud.htm
Bob Jensen's search helpers are at
http://www.trinity.edu/rjensen/searchh.htm
Bob Jensen's Bookmarks ---
http://www.trinity.edu/rjensen/bookbob.htm
Bob Jensen's links to free electronic literature, including free online textbooks ---
http://www.trinity.edu/rjensen/ElectronicLiterature.htm
Bob Jensen's links to free online video, music, and other audio ---
http://www.trinity.edu/rjensen/Music.htm
Bob Jensen's documents on accounting theory are at
http://www.trinity.edu/rjensen/theory.htm
Bob Jensen's links to free course materials from major universities ---
http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI
Bob Jensen's links to online education and training alternatives around the world ---
http://www.trinity.edu/rjensen/Crossborder.htm
Bob Jensen's links to electronic business, including computing and networking security, are at
http://www.trinity.edu/rjensen/ecommerce.htm
Bob Jensen's links to education technology and controversies ---
http://www.trinity.edu/rjensen/000aaa/0000start.htm
Bob Jensen's home page ---
http://www.trinity.edu/rjensen/
Bob Jensen's complete set of Enron Updates are at
http://www.trinity.edu/rjensen/FraudEnron.htm#EnronUpdates
Bob Jensen's threads on the Enron scandal are at
http://www.trinity.edu/rjensen/FraudEnron.htm
Large International Accounting Firm History ---
http://en.wikipedia.org/wiki/Big_Four_auditors
Accounting Software
Updates for 2007
Wikipedia has a
rather nice summary of accounting software at
http://en.wikipedia.org/wiki/Accounting_software
Microsoft releases Office Accounting 2008 ---
http://www.accountingweb.com/cgi-bin/item.cgi?id=104218
"Users Grade Tax Software,"
by Stanley Zarowin, Journal of Accountancy, October 2007 ---
http://www.aicpa.org/pubs/jofa/oct2007/tax_software.htm
Newer software tools (in 2007) for
financial analysis ---
http://www.aicpa.org/pubs/jofa/nov2007/financial_analysis.htm
THE PRODUCTS
ACCPAC CFO (Comprehensive
Financial Optimizer) is designed for small and
medium-size enterprises and can help make
business-planning decisions by modeling the impact
of various options. This is accomplished by
demonstrating the what-if outcomes of small changes.
A roll forward feature prepares budgets or forecast
reports in minutes. The program also generates a
financial scorecard of key financial information and
indicators.
Customized Financial Analysis
by BizBench provides financial benchmarking to
determine how a company compares to others in its
industry by using the Risk Management Association (RMA)
database. It also highlights key ratios that need
improvement and year-to-year trend analysis. A
unique function, Back Calculation, calculates the
profit targets or the appropriate asset base to
support existing sales and profitability. Its DuPont
Model Analysis demonstrates how each ratio affects
return on equity.
Financial Analysis CS reviews
and compares a client’s financial position with
business peers or industry standards. It also can
compare multiple locations of a single business to
determine which are most profitable. Users who
subscribe to the RMA option can integrate with
Financial Analysis CS, which then lets them provide
aggregated financial indicators of peers or industry
standards, showing clients how their businesses
compare.
iLumen regularly collects a
client’s financial information to provide ongoing
analysis. It also provides benchmarking information,
comparing the client’s financial performance with
industry peers. The system is Web-based and can
monitor a client’s performance on a monthly,
quarterly and annual basis. The network can upload a
trial balance file directly from any accounting
software program and provide charts, graphs and
ratios that demonstrate a company’s performance for
the period. Analysis tools are viewed through
customized dashboards.
PlanGuru by New Horizon
Technologies can generate client-ready integrated
balance sheets, income statements and cash-flow
statements. The program includes tools for analyzing
data, making projections, forecasting and budgeting.
It also supports multiple resulting scenarios. The
system can calculate up to 21 financial ratios as
well as the breakeven point. PlanGuru uses a
spreadsheet-style interface and wizards that guide
users through data entry. It can import from Excel,
QuickBooks, Peachtree and plain text files. It comes
in professional and consultant editions. An add-on,
called the Business Analyzer, calculates benchmarks.
ProfitCents by Sageworks is
Web-based, so it requires no software or updates. It
integrates with QuickBooks, CCH, Caseware, Creative
Solutions and Best Software applications. It also
provides a wide variety of businesses analyses for
nonprofits and sole proprietorships. The company
offers free consulting, training and customer
support. It’s also available in Spanish.
ProfitSystem fx Profit Driver
by CCH Tax and Accounting provides a wide range of
financial diagnostics and analytics. It provides
data in spreadsheet form and can calculate
benchmarking against industry standards. The program
can track up to 40 periods. |
|
Free General Ledger Software (Accounting) ---
http://www.responsive.co.nz/
Profiles of Software Systems and Tools
---
http://www.p2pays.org/ref%5C01%5C00047/00047d.htm
RiverGuide provides in-depth
profiles, comparisons, and reviews of accounting software products, and
would be a valuable resource for users of your site ---
http://www.riverguideinc.com/construction/
Accounting Software Ratings
May 2, 2007 message from Jessica Valdes
I am writing on behalf of
CTSGuides.com, which is a site that lists accounting software
reviews and ratings. We only list qualified companies that are
upstanding and reputable. This will be a good resource to add to
your site for accounting companies that are in search of vendors who
offer accounting software. I would like to know if you'd be
interested in adding our link to your site.
Please review this information and let me know if you are interested
in such a relationship with our company. If I have contacted you in
the past, my apologies.
Title - Accounting Software Reviews and Ratings
URL -
http://www.ctsguides.com/accounting-software.asp
Description - Free
portal of reviews and ratings of accounting software to help
companies consider options for selecting new software.
Thanks and best regards!
Jessica Valdes
jessica@ctsguides.com
CTSGuides.com
"Top Technologies for
Accounting Pros Announced," SmartPros, June 11, 2007 ---
http://accounting.smartpros.com/x57964.xml
Bob Jensen's
threads on accounting software are at
http://www.trinity.edu/rjensen/Bookbob1.htm#AccountingSoftware
Continuing
Education for Accountants
From Smart Stops on
the Web, Journal of Accountancy, November 2007 ---
http://www.aicpa.org/pubs/jofa/nov2007/smart_stops.htm
CONTINUING EDUCATION |
|
THE CPA TOOLBOX
www.cpemarket.com
This Smart Stop is part of the National Association of State
Boards of Accountancy’s
www.nasbatools.com, which offers “tools for accountancy
compliance.” CPAs can search CPE course providers, the
National Registry of CPE Sponsor courses and quality
assurance service courses, plus click on “Pilot Test CPE
Courses” to try out courses for free. There’s also access to
instructor resumes and in-house course providers. Click on
the state you’re licensed in to find updated information on
mandated continuing education requirements and links to your
state’s board of accountancy.
CREDITS ON THE GO
www.cchpodcast.com/partners/cchPodcast
Check this site for free CPE podcasts, available as
streaming audio or downloadable to your computer or audio
player. Click on “Course Catalog” to download available
podcasts and their supplementary PDFs, including a study
guide and final exam questions. When you’re ready to take
the exam, enroll and purchase the credits—your exam grading
and certification is available immediately. Be sure to check
if your state’s board of accountancy accepts these CCH
self-study courses by clicking the “CPE Accreditation” link.
ASSESS YOURSELF
www.cpa2biz.com/CPE
Just starting your continuing education requirements? Test
your skills and training needs with the site’s “Competency
Self-Assessment Tool,” free for AICPA members, then search
CPE courses by topic, level, job area or format, including
CD-ROM and DVD. Check back often to see the month’s top
sellers and new releases or to download catalogs for the
“CPE Direct” program and “Staff Training Series.”
THE ROAD TO CPE COMPLIANCE
www.cpetracking.com
Can’t keep up with your CPE hours? Launched in 2006, this
site keeps accounting professionals and firms up-to-date on
CPE hours and compliance. Registered users can record CPE
credits, which are then compared to the requirements from
each state’s board of accountancy and regulatory agencies.
The service also provides status reports by jurisdiction and
reporting period, as well as access to all of your CPE
records in one location.
|
|
Most accountancy associations,
firms, and many colleges also offer CPE courses.
Bob Jensen's threads for online
training in general are at
http://www.trinity.edu/rjensen/Crossborder.htm#Training
New IRS standard mileage rate climbs above 50 cents per mile
The Internal Revenue Service has issued the 2008
optional standard mileage rates used to calculate the deductible costs of
operating an automobile for business, charitable.
AccountingWeb, November 30, 2007 ---
http://www.accountingweb.com/cgi-bin/item.cgi?id=104277
Bob Jensen's taxation helpers are at
http://www.trinity.edu/rjensen/Bookbob1.htm#010304Taxation
KPMG student survey shows money not top factor in job choice
When choosing their first employer, college business
students want career opportunities, not salary and benefits, according to a
survey conducted by KPMG LLP, the audit, tax and advisory firm.
AccountingWeb, November 30, 2007 ---
http://www.accountingweb.com/cgi-bin/item.cgi?id=104276
Bob Jensen's career helpers are at
http://www.trinity.edu/rjensen/Bookbob1.htm#careers
Question
What do you know about the flat tax?
Are you for it or against it without knowing much about it?
See
http://en.wikipedia.org/wiki/Flat_Tax
Jensen
Comment
I have to admit that I have some concerns in this regard, especially a problem
we don't hear much about. At the moment wealthy and upper middle class Americans
are willing to sacrifice high returns and take on higher investment risk by
investing in tax-exempt (in terms of U.S. income tax) bonds/notes of American's
schools, local government, and state government. These non-profit organizations
thereby raise capital at considerably lower interest costs than individuals and
business firms. If a truly flat tax replaces the income tax, how would these
non-profit organizations such as schools avoid having oppressive increases in
costs of capital to a point where quality of education, quality of roads,
quality of municipal services, etc. are severely threatened? What incentives
would investors have for continuing to invest in these nonprofit organizations?
It would seemingly take an astronomical amount of Federal dollars to make up the
difference and adjust for risk differentials in debt of municipalities and
schools. Would the Feds then have to micromanage to a point where Washington DC
decides if Lone Rock, Iowa gets a new school and if so, how much will be spent
on Lone Rock's new school. We might, thereby, have more people working for the
Federal Government than in the entire private sector. Or do we already have
that?
Southwest
airlines provides great case material for accounting and finance professors who
teach hedging and accounting for derivative financial instruments.
Southwest airlines reported net earnings slightly below
$500 million in 2005 and 2007.
Is it possible for an airline to make more from buying fuel than from selling
seats?
Note that
Southwest was hedging price risk and not speculating?
Why didn't other airlines hedge fuel prices long term?
Southwest Airlines owns long-term contracts to buy most of its fuel through
2009 for what it would cost if oil were $51 a barrel. The value of those hedges
soared as oil raced above $90 a barrel, and they are now worth more than $2
billion. Those gains will mostly be realized over the next two years. Other
major airlines passed on buying all but the shortest-term insurance against high
fuel prices...
Jeff Bailey,
"An Airline Shrugs at Oil Prices," The New York Times, November 29, 2007
---
Click Here
In particular
instructors might focus on hedges that cost zero initially such as forwards,
futures, and swaps as opposed to commodity options.
Then questions
should be asked about when Southwest is happy it hedged long-term versus unhappy
it hedged fuel prices long-term.
Why didn’t the other airlines do the same thing?
Then ask what
the journal entries are for some of the hedging contracts: futures contracts
versus forward contracts versus swaps versus options.
In particular
instructors might ask how hedges qualifying for FAS 133 and IAS 39 hedge
accounting keep unrealized earnings out of net earnings until hedges are net
settled. What are the journal entries when they are net settled?
Note that the journal entries when hedges are net settled vary for futures
versus forwards versus swaps versus options!
For example,
what is the most common way to speculate (as opposed to hedge) with bounded
risk?
Why are these derivatives generally less popular for hedging after FAS 133 and
IAS 39?
I provide
examples in at the following links”
http://www.cs.trinity.edu/~rjensen/Calgary/CD/JensenPowerPoint/
http://www.cs.trinity.edu/~rjensen/Calgary/CD/FAS133AppendixB/
http://www.cs.trinity.edu/~rjensen/Calgary/CD/ExamMaterial/
My tutorials for
FAS 133 and IAS 39 accounting are linked at
http://www.trinity.edu/rjensen/caseans/000index.htm
Some video
tutorials are available at
http://www.cs.trinity.edu/~rjensen/video/acct5341/fas133/camtasia-GoToWindowsMedia/
Standard Setting and Securities Markets: U.S. Versus Europe
November 29, 2007 message from Pacter, Paul (CN - Hong Kong)
[paupacter@DELOITTE.COM.HK]
Some similarities to Chair of SEC, but some
important differences. SEC has direct regulatory powers over securities
markets, entities that offer securities in those markets, broker/dealers in
securities, auditors, and others. SEC can impose penalties on those it
regulates.
In Europe there is no pan-European securities
regulator equivalent to the SEC with direct regulatory powers similar to the
SEC's. Rather, there are 27 securities regulators (one from each member
state) who have that power. Here's a link to the list:
http://www.cesr-eu.org/index.php?page=members_directory&mac=0&id=
There is a coordinating body of European securities
regulators called CESR (the Committee of European Securities Regulators
(http://www.cesr-eu.org/)
but CESR's role is advisory, not regulatory.
When the European Parliament adopts legislation
(such as securitieslegislation) the legislation first has to be transposed
(legally adopted) into the national laws of the Member States. Commissioner
McCreevy's role is to propose policies and propose legislation to adopt
those policies in Europe, oversee implementation of the legislation in the
27 Member States (plus 3 EEA countries), and (through both persuasion and
some legal authority) try to ensure consistent and coordinated
implementation. The Commissioner also has outreach and liaison
responsibilities outside the European Union. Because there is no
pan-European counterpart to the SEC Chairman, Commissioner McCreevy
generally handles top level policy liaison between the SEC and Europe.
Like the Chair of the SEC, EU Commissioners are
political appointees.
Paul Pacter
Bob Jensen's threads on accounting standard setting are at
http://www.trinity.edu/rjensen/Theory01.htm#MethodsForSetting
Key differences between U.S. and International Standards ---
http://www.trinity.edu/rjensen/Theory01.htm#FASBvsIASB
"Millionaire" Foiled in Attempted Bank Heist
A man was arrested in Clearwater, South Carolina,
trying to open a bank account with a bogus $1 million bill. The man allegedly
handed the counterfeit bill to a teller and asked to open a new account. The
teller refused to open the account and called the police.
AccountingWeb, November 30, 2007 ---
http://www.accountingweb.com/cgi-bin/item.cgi?id=104281
Jensen Comment
I wonder if he'd have gotten away with it using ten bills where each has a
picture of Woodrow Wilson.Answer
The high-denomination bills were issued in a small size in 1929, along with the
$1 through $100 denominations. Their designs were as follows ---
http://en.wikipedia.org/wiki/Large_denomination_bills_in_U.S._currency
Question
Now that the dollar has been so devalued perhaps we should print million dollar
bills.
Whose picture should be on a million dollar U.S. bill?
Perhaps a million dollar bill should carry the picture of the wealthiest
president in history.
Who should it be? Hoover? JFK?
Buying power of the dollar over time must be considered---
http://en.wikipedia.org/wiki/U.S._Dollar#Time-relative_value
The set of possibilities is shown below:
George Washington ·
John
Adams ·
Thomas Jefferson ·
James Madison ·
James Monroe ·
John Quincy Adams ·
Andrew Jackson ·
Martin Van Buren ·
William Henry Harrison ·
John
Tyler ·
James K. Polk ·
Zachary Taylor ·
Millard Fillmore ·
Franklin Pierce ·
James Buchanan ·
Abraham Lincoln ·
Andrew Johnson ·
Ulysses S. Grant ·
Rutherford B. Hayes ·
James A. Garfield ·
Chester A. Arthur ·
Grover Cleveland ·
Benjamin Harrison ·
Grover Cleveland ·
William McKinley ·
Theodore Roosevelt ·
William Howard Taft ·
Woodrow Wilson ·
Warren G. Harding ·
Calvin Coolidge ·
Herbert Hoover ·
Franklin D. Roosevelt ·
Harry S. Truman ·
Dwight D. Eisenhower ·
John F. Kennedy ·
Lyndon B. Johnson ·
Richard Nixon ·
Gerald Ford ·
Jimmy Carter ·
Ronald Reagan ·
George H. W. Bush ·
Bill Clinton ·
George W. Bush
When do market investors become market makers?
When "quants" become market makers instead of market players, it throws fair
value accounting into a turmoil.
November 23, 2007 message from Amy Dunbar
[Amy.Dunbar@BUSINESS.UCONN.EDU]
The
subprime crisis has captured my attention, and on the chance that others
on this listserv are interested in this area, I am sending this email
about the paper, What Happened to the Quants in August 2007? I assumed
the hedge funds went down because of subprime investments, but it
appears that was just one of many possible causes. I would love to hear
what others think, particularly about the possibility of regulatory
reform (mentioned at the end below) ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1015987
The paper has 9011
abstract views and 4447 downloads. Looks like a lot of people are
interested in the hedge fund losses.
The paper is
fascinating. Its objective is to suggest reasons for the hedge fund
losses during the week of Aug 6, 2007. The funds were quantitative,
market-neutral funds. No major losses were reported in other hedge-fund
sectors. The paper compares August 1998 (think LTCM collapse) with
August 2007, and concludes the following:
In
August 1998, default of Russian government debt caused a flight to
quality that ultimately resulted in the demise of LTCM and many
other fixed-income arbitrage funds. This series of events caught
even the most experienced traders by surprise because of the
unrelated nature of Russian government debt and the broadly
diversified portfolios of some of the most successful fixed-income
arbitrage funds. Similarly, the events of August 2007 caught some of
the most experienced quantitative equity market-neutral managers by
surprise. But August 2007 may be far more significant because it
provides the first piece of evidence that problems in one corner of
the financial system - possibly the sub-prime mortgage sector and
related credit markets – can spill over so directly to a completely
unrelated corner: long/short equity strategies. This is precisely
the kind of ”shortcut" described in the theory of mathematical
networks that generates the “small-world phenomenon" of Watts (1999)
in which a small random shock in one part of the network can rapidly
propagate throughout the entire network.
The authors hypothesize an unwind of a large
long/short equity portfolio, most likely a quantitative equity
market-neutral portfolio.
Likely
factors contributing to the magnitude of the losses of this apparent
unwind were: (a) the enormous growth in assets devoted to long/short
equity strategies over the past decade and, more recently, to
various 130/30 and other active-extension strategies; (b) the
systematic decline in the profitability of quantitative equity
market-neutral strategies, due to increasing competition,
technological advances, and institutional and environmental changes
such as decimalization, the decline in retail order flow, and the
decline in equity-market volatility; (c) the increased leverage
needed to maintain the levels of expected returns required by
hedge-fund investors in the face of lower profitability; (d) the
historical liquidity of U.S. equity markets and the general lack of
awareness (at least prior to August 6, 2007) of just how crowded the
long/short equity category had become; and (e) the unknown size and
timing of new sub-prime-mortgage-related problems in credit markets,
which created a climate of fear and panic, heightening the risk
sensitivities of managers and investors across all markets and style
categories.
They also note that
the
timing of these losses - shortly after month-end of a very
challenging month for many hedge-fund strategies - is also
suggestive. The formal process of marking portfolios to market
typically takes several business days after month-end, and August
7-9 may well be the first time managers and investors were forced to
confront the extraordinary credit-related losses they suffered in
July, which may have triggered the initial unwind of their more
liquid investments, e.g., their equity portfolios, during this
period.
Question: FAS 115 requires investment
securities (actually only trading and available-for-sale
securities) to be marked to market, but what is
the driving force behind marking to market on a monthly basis?
Reporting to investors in the fund?
Do
the losses of August 2007 signal a breakdown in the basic economic
relationships that yield attractive risk/reward profiles for such
strategies, or is August 2007 an unavoidable and integral aspect of
those risk/reward profiles? An instructive thought experiment is to
consider a market-neutral portfolio strategy in which U.S. equities
with odd-numbered CUSIP identifiers are held long and those with
even-number CUSIPs are held short. Suppose such a portfolio strategy
is quite popular and a
number
of large hedge funds have implemented it. Now imagine that one of
these large hedge funds decides to liquidate its holdings because of
some liquidity shock. Regardless of this portfolio's typical
expected return during normal times, in the midst of a rapid and
large unwind, all such portfolios will experience losses, with the
magnitudes of those losses directly proportional to the size and
speed of the unwind. Moreover, it is easy to see how such an unwind
can generate losses for other types of portfolios, e.g., long-only
portfolios of securities with prime-number CUSIPs, dedicated
shortsellers that short only those securities with CUSIPs divisible
by 10, etc. If a portfolio is of sufficient size, and it is based on
a sufficiently popular strategy that is broadly implemented, then
unwinding even a small fraction of it can cascade into a major
market dislocation.
. . .
However,
a successful investment strategy should include an assessment of the
risk of ruin, and that risk should be managed appropriately.
Moreover, the magnitude of tail risk should, in principle, be
related to a strategy's expected return given the inevitable
trade-off between risk and reward. Therefore, it is disingenuous to
assert that “a strategy is successful except in the face of
25-standard-deviation events." Given the improbability of such
events, we can only conclude that either the actual distribution of
returns is extraordinarily leptokurtic, or the standard deviation is
time-varying and exhibits occasional spikes.
In
particular, as Montier (2007) observed, risk has become “endogenous"
in certain markets - particularly those that are recently flush with
large inflows of assets - which is one of the reasons that the
largest players can no longer assume that historical estimates of
volatility and price impact are accurate measures of current risk
exposures. Endogeneity is, in fact, an old economic concept
illustrated by the well-known theory of imperfect competition: if an
economic entity, or group of coordinated entities, is so large that
it can unilaterally affect prices by its own actions, then the
standard predictions of microeconomics under perfect competition no
longer hold. Similarly, if a certain portfolio strategy is so
popular that its liquidation can unilaterally affect the risks that
it faces, then the standard tools of basic risk models such as
Value-at-Risk and normal distributions no longer hold. In this
respect, quantitative models may have failed in August 2007 by not
adequately capturing the endogeneity of their risk exposures. Given
the size and interconnectedness of the hedge-fund industry, we may
require more sophisticated analytics to model the feedback implicit
in current market dynamics.
The authors commented several times on the lack
of transparency in the hedge fund market. I found the authors’ comments
on the need for possible regulatory reform interesting.
Given
the role that hedge funds have begun to play in financial markets -
namely, significant providers of liquidity and credit - they now
impose externalities on the economy that are no longer negligible.
In this respect, hedge funds are becoming more like banks. The fact
that the banking industry is so highly regulated is due to the
enormous social externalities banks generate when they succeed, and
when they fail. But unlike banks, hedge funds can decide to withdraw
liquidity at a moment's notice, and while this may be benign if it
occurs rarely and randomly, a coordinated withdrawal of liquidity
among an entire sector of hedge funds could have disastrous
consequences for the viability of the financial system if it occurs
at the wrong time and in the wrong sector.
November 23, 2007 reply from Bob Jensen
Hi Amy,
Why do bankers resist expanding FAS 159 into required accounting for all
financial instruments?
Misleading Financial Statements:
Bankers Refusing to Recognize and Shed "Zombie Loans"
One worrying lesson for bankers and regulators
everywhere to bear in mind is post-bubble Japan. In the 1990s its leading
bankers not only hung onto their jobs; they also refused to recognise and
shed bad debts, in effect keeping “zombie” loans on their books. That is one
reason why the country's economy stagnated for so long. The quicker bankers
are to recognise their losses, to sell assets that they are hoarding in the
vain hope that prices will recover, and to make markets in such assets for
their clients, the quicker the banking system will get back on its feet.
The Economist, as quoted in Jim Mahar's blog on November 10, 2007 ---
http://financeprofessorblog.blogspot.com/
But there are questions in theory about fair value accounting!
Bob Jensen's threads on fair value accounting are at
http://www.trinity.edu/rjensen/Theory01.htm#FairValue
I personally think the driving forces behind FAS 115 were tendencies of
banks to not recognize those "zombie" investments and adequately disclose
highly likely losses. Firstly I might note that FAS 115 adjusts
available-for-sale (AFS) securities to fair value without impacting earnings
volatility except in the case of securities traders. According to Paragraph
86 of FAS 115, the FASB wanted to require fair value accounting for all
financial securities but got hung up on debt instruments (such as mortgage
debt) that more commonly are not AFS and more difficult to
mark-to-market (i.e. debt is often more difficult to value due to not being
traded with unique covenants and is more likely to be HTM,
held-to-maturity). The FASB justification for FAS 115 can be found in
Paragraphs 39-43, although the elaborations in Paragraphs 86-100 are
enlightening. IFRS requirements are similar, although penalties for
violating HTM classification are somewhat more onerous.
An interesting November 12 video on the “cascade theory” of what might be
termed quantitative models, like lemmings, cascading over a cliff ---
http://www.ft.com/cms/bfba2c48-5588-11dc-b971-0000779fd2ac.html?_i_referralObject=593529134&fromSearch=n
In that sense the comparison of the LTCM disaster in 1998 with the August
2007 downfall seems to hold some water. Although the big losers in both
instances were big and sophisticated investors who’re well aware of the
unique risks of unregulated hedge funds, the externalities affecting Main
Street (read that CREF investors) are very real. The LTCM fiasco could well
have brought down equity markets in all of Wall Street ---
http://www.trinity.edu/rjensen/FraudRotten.htm#LTCM
One of the hardcopy journals I read cover-to-cover each week is The
Economist on October 25, 2007. The following is one of my favorite
readable papers among the thousands of articles written about this
controversy ---
http://www.economist.com/finance/displaystory.cfm?story_id=10026288
WHEN markets wobbled in August, almost all the
media attention was focused on the credit crunch and the links to
American mortgage loans. But at exactly the same time, another crisis
was occurring at the core of the stockmarket.
This crisis stemmed from the obscure world of
quantitative, or quant-based, finance, which uses computer models to
find attractive stocks and to identify overpriced shares. Suddenly, in
August, the models went wrong.
The incident revealed a problem at the heart of
the financial system. In effect, the quant groups were acting as
marketmakers, trading so often (some are aiming for transaction times in
terms of milliseconds) that they set prices for everyone else. But
unlike traditional marketmakers, quant funds are not obliged to make
markets come rain or shine. And unlike marketmakers, they use a lot of
leverage. This means that instead of providing liquidity in a crisis,
the quants added to instability. There is a lesson there.
In a way, the crisis stemmed from the quants'
success. Many firms, such as the American hedge fund Renaissance
Technologies, had done fantastically well and had been able to charge
hefty fees. But if one firm can hire top mathematicians and use the
latest technology, so can others. An arms race developed, with some
trading faster and faster—even siting their computers closer to the
exchanges in order to cut the time it took orders to travel down the
wires.
And as the computers sifted through the data,
some strategies became overcrowded. A paper* by Amir Khandani and Andrew
Lo of the Massachusetts Institute of Technology back-tested a proxy for
a typical strategy, involving buying the previous day's losing stocks
and selling the winners. Such a strategy would have delivered a daily
return of 1.38% before (substantial) costs in 1995 but the return fell
steadily to 0.15% a day last year.
In the face of declining returns, the authors
reckon, the natural response of managers would have been to increase
leverage. But that, of course, increased their vulnerability when things
went wrong.
Both the MIT academics and a paper by Cliff
Asness of AQR Capital Management, a leading quant group, agree that
August's problems probably began when a diversified, or multi-strategy,
hedge fund experienced losses in the credit markets. The fund sought to
reduce its exposures but its credit positions were impossible to sell.
So it cut its quant positions instead, since that merely involved
selling highly liquid stocks.
However, that selling pressure caused other
quant funds to lose money as their favoured stocks fell in price. Those
that were leveraged were naturally forced to reduce their positions as
well. These waves of selling played havoc with the models. Quant
investors thought they were aware of the risks of their strategy and had
built diversified portfolios to avoid it. But the parts of the portfolio
that were previously uncorrelated suddenly fell in tandem.
In theory, quant funds could have been bold and
borrowed more; after all, the stocks they thought were cheap had become
even cheaper. The traders who took on the positions of Long-Term Capital
Management (LTCM), after the hedge fund failed in 1998, ended up making
money. But the example of LTCM, which went bust before it could be
proved right, argued in favour of a more cautious approach. “We could
have rolled the dice but that would have risked the business,” said one
quant-fund manager. “I don't know of anyone that did so.”
Avoiding that trap simply led quant investors
into another. On August 10th, the stocks that quants had favoured
suddenly rebounded. Those who had cut their positions most could not
benefit from the rally. That category clearly included Goldman Sachs's
Global Alpha hedge fund, which lost a remarkable 23% on the month.
If it were just a few hedge funds, backed by
rich people, losing money, it might not matter. But the funds had become
too important: rather than adding stability, as marketmakers are
supposed to do, they added volatility.
Quants will adjust their models and clients
will become more discerning; AQR's. Mr Asness says his firm will look
harder for “unique” factors, that is, not used by other fund managers.
But regulators should also reflect that markets are less stable than
they assumed. The presence of leveraged traders such as quants at their
heart means conditions can now turn, at the flick of a switch, from
stability to panic.
Bob Jensen's threads on fair value accounting are at
http://www.trinity.edu/rjensen/Theory01.htm#FairValue
When "quants" become market makers instead of market players, it throws fair
value accounting into a turmoil.
Complicated Accounting Rules for Loan Commitments
November 26, 2007 message from Amy Dunbar
[Amy.Dunbar@BUSINESS.UCONN.EDU]
I am
trying to figure out how the table that discloses gains/losses on Level
III assets relates to the writedowns reported in the 10-Qs for the third
quarter for the large banks and broker-dealers that early adopted FAS
157.
On
9-17-2007, the WSJ on C2 reported the following:
“Lehman, a big player in the bond market hit hard by the recent trouble
in the "subprime" business of issuing risky mortgages that has shaken
the broader stock market, set the tone in terms of markdowns, taking a
$700 million loss on assets that have fallen in value in recent months.”
I
looked at Lehman’s 10-Q for the third quarter ending 8-31-2007, and
found the following in MD&A, p 54:
http://www.lehman.com/shareholder/10k10q/pdf/lbhi_10q_3q07.pdf
Net
revenues for our Fixed Income component of our Capital Markets business
segment decreased 47% and 19% for
the
2007 three and nine months, respectively. Our Capital Markets—Fixed
Income businesses were the most
affected by the market dislocations, risk re-pricing and de-levering
that swept through the global capital markets
during
our third quarter. The adverse changes in the credit markets and
continued correction in certain asset-backed
security market segments impacted our valuations for certain inventory
assets and lending commitments. We
recorded very substantial valuation reductions, most significantly on
leveraged loan commitments and residential
mortgage-related positions. These losses were partly offset by large
valuation gains relating to economic hedges and
liabilities. The impact of these valuation adjustments was a net
reduction to revenues in Capital Markets—Fixed Income of approximately
$700 million.
Question 1:
Is it
possible to determine specifically which assets were written down?
Footnote 4 discloses Levels I, II, and III assets/liabilities and
another table that shows realized/unrealized gains associated with only
Level III assets. I cannot tie the 700 to any number in that table. Is
that because the writedown is to assets other than Level III assets?
Question 2:
Are
loan commitments recorded at the time of commitment or when the loan is
executed? I don’t understand how an unrealized loss on a loan
commitment is booked? DR loss CR loan commitment reserve for a loan
that hasn’t been executed?
Question 2:
Lehman
doesn’t showing a column for netting in the Levels I, II, and III
assets. (For example, see Goldman Sachs and other broker-dealers who
adopted FAS 157.) Why is that? Also, does the netting primarily affect
Level II assets? For example, JPMorgan shows the following for Levels I,
II, and III assets:
306,966 Level 1 |
926,649 Level 2 |
53,875
Level 3 |
-682,295
Netting |
605,195
Total |
Only
the Level 2 assets could absorb the netting. I looked at the Journal of
Accountancy article on FAS 157 (November 2007), but I still couldn’t
figure it out.
I
would appreciate any guidance.
Amy Dunbar
Department of Accounting
School of Business
University of Connecticut
2100
Hillside Road, Unit 1041
Storrs, CT 06269-1041
land line: 860-742-0672
cell: 860-208-2737
November 28, 2007 reply from Bob Jensen
Hi Amy,
My answer to your Question 2 above is given at
http://www.trinity.edu/rjensen/TheoryOnFirmCommitments.htm
It would appear that your suggested journal entry is appropriate for an
unhedged and an unbooked loan commitment. I think your entry only applies to
losses and not gains in value. It roots clear back to the Principle of
Conservatism in ARB 43 and would be used only in the case of relatively
large and seriously probable losses. Under newer international standards,
most loan commitments are booked.
The journal entry would differ if the unbooked loan commitment was
hedged. It would also differ if the loan commitment was booked initially
(whether or not it was also hedged). There are new rules for booking versus
not booking loan commitments under SAB 105, FAS 133, FAS 149, and IAS 39.
I'm sorry that I'm of no help on your Questions 1 and 3. And if I
thoroughly confused you and everybody else when answering your Question 2, I
genuinely apologize. It's easy to mess up with FAS 133 and all its
complicated amendments like FAS 138, FAS 149, and FAS 155. To this we add
IAS 39 where differences from FAS 133 apply in this case.
Bob
From Smart Stops on the Web, Journal of Accountancy, November 2007 ---
http://www.aicpa.org/pubs/jofa/nov2007/smart_stops.htm
GENERAL INTEREST |
|
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www.sec.gov/info/accountants/ocafaqaudind080607.htm
The SEC’s Office of the Chief Accountant (OCA) recently updated its
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to frequently asked questions is divided into 10 categories,
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disclosures, and prohibited and non-audit services. However, the OCA
advises that they not be taken as rules, regulations or official
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you want to submit additional questions. Further guidance on the
SEC’s auditor independence rules can be found on the Center for
Audit Quality’s “Resources” page at
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From Smart Stops on the Web, Journal of Accountancy, October 2007 ---
http://www.aicpa.org/pubs/jofa/oct2007/smart_stops.htm
TAX |
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quality of customer service), to the picky (adding lines to forms)
to the technical (expanding the third-party authorization On The Web
time frame). Want to join the panel? There’s information on becoming
a member in the FAQ section.
KNOW THE LAW
http://tax.cchgroup.com/legislation
Turn to this site for coverage of new tax legislation and analysis
of its impact on taxpayers and tax professionals, plus comments on
proposed tax law reform. Click on the “Full CCH Coverage Here” links
for access to “Tax Briefing” PDFs, which include in-depth analyses
of the legislations’ tax credits, deductions and effective dates.
The site also offers “Quick Tax Facts” PDFs for several pieces of
legislation, including the Small Business and Work Opportunity Act
of 2007; Tax Relief and Health Care Act of 2006; and the Pension
Protection Act of 2006. |
Bob Jensen's tax
helpers are at
http://www.trinity.edu/rjensen/Bookbob1.htm#010304Taxation
GENERAL INTEREST |
|
FEDERAL FOCUS
www.sec.gov/spotlight.shtml
Visit this site for a rundown of hot topics on the SEC’s
radar—including internal control reporting divisions, XBRL
initiatives and IFRS. You can access transcripts and webcasts of
roundtable discussions on mutual recognition, the proxy process and
hedge funds, as well as information on the SEC’s new Advisory
Committee on Improvements to Financial Reporting (see “Seeking
Clarity,” page 30). You also can revisit older topics such as
auditor independence and corporate officer statements that have been
retired to the “Archive” page (www.sec.gov/spotlight/spotarchive.htm).
PART OF THE
COMMUNITY
www.questamente.com
This Stop provides an online network for Hispanic entrepreneurs and
business professionals. The job board, where you can post a resume
or advertise a position, lets you search by location, job type,
salary and languages required. The “Library” features weekly
articles on working smarter and interviews with successful business
owners. Members can read the site’s blog—offered in English and
Spanish—or post social-networking profiles, then add friends
interested in discussing business matters. Click on the “Office
Party” tab to chat live with other Hispanic professionals.
THE JOB BANK
www.jobsinthemoney.com
Find a new job or fill an open position at this Smart Stop for
accounting, banking, finance and wealth management professionals.
Users can search targeted job postings while employers and
recruiters can browse for potential candidates by career level and
accounting specialty. Click on “Career News and Advice” for original
articles—including career news, advice and tips for marketing
yourself—from the site’s editors, or check back daily for new posts
on the CareerWire Blog (http://jobsinthemoney.blogspot.com),
such as “Recruiters Hunt in Association Directories” and “Ace the
Interview at Age 50+.”
A BUSINESS MIND
www.fromgregshead.com
This award-winning site from Gregory Price, CPA/CITP, CISA, CFE,
director of consulting solutions at Pannell Kerr Forster of Texas
P.C., features “insight, information and commentary on accounting
and technology trends,” including coverage of professional
conferences and software. On Fridays, Price posts installments from
“PKF Texas—The Entrepreneur’s Playbook,” a series of best practices
and tips from his BusinessMakers Radio Show. Audio files can be
found on the Entrepreneur’s Playbook page of the PKF Texas Web site
(www.pkftexas.com/pkf/The_Entrepreneur%27s_Playbook.asp?). |
It would really be a service to both academe and the accounting profession
if an academic association or a university commenced to provide a "virtual
classroom" much like the following that is available for psychology:
AllPsych Online: The Virtual Psychology Classroom ---
http://allpsych.com/
Bob Jensen's links to free online tutorials in other disciplines are at
http://www.trinity.edu/rjensen/Bookbob2.htm
The Fall 2007 Edition of Accounting Education News (AEN from the
American Accounting Association) ---
http://aaahq.org/pubs/AEN/2007/Fall2007.pdf
Two important things to note:
In his first American Accounting Association President's Message, Gary
Previts mentions the Plumlee report on the dire shortage of accountancy doctoral
students and provides a link to the AAA's new site providing resources for
research and experimentation on "Future Accounting Faculty and Programs
Projects" ---
http://aaahq.org/temp/phd/index.cfm
Note especially the Accounting PhD Program Info link with a picture) and the PhD
Project link (at the bottom):
Welcome to the
preliminary posting of a new resource for the
community participating in and supporting accounting
programs, students, faculty, and by that connection
practitioners of accounting. We plan to build this
collection of resources for the broad community
committed to a vital future for accounting education.
This page is an initial step to creating a place where
we can come together to gather resources and share data
and ideas.
New Research Projects by the AAA on the Trends and
Characteristics of Accounting Faculty, Students,
Curriculum, and Programs
Part I:
Future of Accounting Faculty Project (Report
December, 2007)
Part II: Future of Accounting Programs Project
Part I
will describe today's accounting academic workforce,
via demographics, work patterns, productivity, and
career progression of accounting faculty, as well as
of faculty in selected peer disciplines using data
from the national survey of postsecondary faculty (NSOPF)
to establish trends, and a set of measures will be
combined to benchmark the overall status of
accounting against (approximately) 150 fields. This
project will provide context and data to identify
factors affecting the pipeline and workplace.
Part II
will focus on expanding understanding of the
characteristics of accounting faculty, students, and
accounting programs, and implications of their
evolving environment. The need for the Part I
project illustrates how essential it is for the
discipline and profession of accounting that we
establish a more standard and comprehensive process
for collecting, analyzing, and reporting data about
accounting students, doctoral students, faculty,
curriculum, and programs.
More Resources
on the Changing Environment for Faculty:
The Reshaping of America's Academic Workforce
David W. Leslie, TIAA-CREF Institute Fellow
The College of William and Mary
TIAA Institute Research Dialogue Series, 2007
Jim Hasselback's* 2007 Analysis of Accounting
Faculty Birthdates
*Copyrighted – requests for use to J. R. Hasselback
- Among U.S.
Accounting Academics -- 53.4% are 55 or older
From the
Integrated Postsecondary Education System (IPEDS)
- 34.8% of all
full-time faculty in the U.S. are
non-tenure-track -- nearly 2 in 5 of all
full-time appointments
- Between 1993
and 2003 the proportion of all new full-time
hires into "off-track" appointments increased
each year from 50% to nearly 3 in 5 (58.6%)
- Reported in J.
Schuster & M. Finkelstein (Fall, 2006). "On the
Brink: Assessing the Status of the American
Faculty," Thought & Action 51-62.
Supply and
Demand for Accounting PhDs
American Accounting Association PhD Supply/Demand
Resource Page
A collection of resources, links, and reports related to
the pipeline of future Accounting faculty. Highlights
include:
- Report of the AAA/APLG
Committee to Assess the Supply and Demand of
Accounting PhDs
- Link to the
Doctoral Education Resource Center of AACSB
International (Association to Advance Collegiate
Schools of Business)
- AICPA's Journal of
Accountancy's article "Teaching for the Love of It"
Deloitte
Foundation Accounting Doctoral Student Survey
Survey Results (Summer, 2007)
Data collected by survey of attendees of the 2007
AAA/Deloitte J. Michael Cook Doctoral Consortium
The PhD Project
and Accounting Doctoral Students Association
The PhD Project is an information clearinghouse
created to increase the diversity of business school
faculty by attracting African Americans, Hispanic
Americans and Native Americans to business doctoral
programs and by providing a network of peer support.
In just 12 short years, the PhD Project has been the
catalyst for a dramatic increase in the number of
minority business school faculty—from 294 to 842,
with approximately 380 more candidates currently
immersed in doctoral studies.
The PhD Project Accounting Doctoral Students
Association is a voluntary association offering
moral support and encouragement to African-American,
Hispanic-American, and Native American Accounting
Doctoral Students as their pursue their degrees and
take their places in the teaching and research
profession, and serve as mentors to new doctoral
students.
PhD Project Surveys of Students, Professors, and
Deans
Results of a survey among students to understand the
impact of minority professors on minority and
non-minority students.
Accounting Firms
Supporting the AAA and Accounting Programs, Faculty, and
Students
Related
Organizations Sharing Interest in Accounting Faculty and
Programs
|
|
Professor Dan Deines at Kansas State University has a handful of
Outstanding Educator Awards, including one from the AICPA. Beginning on Page 5
of the Fall 2007 edition of AEN, Dan discusses the Taylor Research and
Consulting Group study of accounting education commissioned by the AICPA in
2002. The study identifies barriers to students that prevent many top students
from majoring in accounting. Dan then describes a pilot program initiated by KSU
in reaction to the Taylor Report. I think accounting educators outside KSU may
attend some of the pilot program events.
Bob Jensen's threads on the shortage of doctoral students in accountancy can
be found at
http://www.trinity.edu/rjensen/theory01.htm#DoctoralPrograms
Human resource-related issues for the profession
November 28, 2007 message from Paul Polinski
[paulp_is@YAHOO.COM]
The Treasury Advisory Committee on the Auditing
Profession is holding an open meeting on December 3rd (which may also be
webcast). The attached pdf file has an outline that details its agenda.
Of special interest to the accounting academy
(*not* just auditing faculty) is the section starting on page 9, section
2.4: Consider the state of accounting education and CPA licensing
requirements.
The Committee have identified accounting faculty
and curricula as a top priority in addressing the human resource-related
issues for the profession. The Committee is taking comments on their web
site
http://www.treasury.gov/offices/domestic-finance/acap/
on a continuing basis as the issues and
recommendations are proposed, discussed, and debated. Although the
committee's name includes "Auditing," the discussion will consider the
entirety of the accounting curriculum, not just that which is
auditing-related.
I encourage everyone to keep up with the Committee
and to actively participate.
Paul
Bob Jensen's threads on accountancy careers are at
http://www.trinity.edu/rjensen/Bookbob1.htm#careers
Radical Changes on the Way in Financial Reporting
Five General Categories of Aggregation
"The Sums of All Parts: Redesigning Financials: As part of radical
changes to the income statement, balance sheet, and cash flow statement, FASB
signs off on a series of new subtotals to be contained in each," byMarie
Leone, CFO Magazine, November 14, 2007 ---
http://www.cfo.com/article.cfm/10131571?f=rsspage
In another large step towards the most dramatic
overhaul of financial statements in decades, the Financial Accounting
Standards Board Wednesday laid out a series of subtotal figures that
companies would be required to include on their balance sheets, income
statements and cash flow statements.
The new look for financials will break all three
statements into five general categories: business, discontinued operations,
financing, income taxes, and equity (if needed). Each of those groupings
will carry its own total. In addition, the business, financing, and income
tax categories will be segmented into even more narrow sections, each of
which will include a subtotal. For example, the business category will be
broken down into operating assets, operating liabilities and a subtotal; and
investing assets, investing liabilities, and a second subtotal.
(Although FASB will not officially release its
proposal until the second quarter of 2008, it has made public some initial
peeks at the proposed format.)
The addition of totals and subtotals is an
extension of FASB's broader principle on disaggregating financial statement
line items. It is the board's belief that separating line items into their
components gives investors, creditors, analysts and other financial
statement users a better view of a company's financial health. For example,
the new format should make it easier for an investor to see how much cash a
company generates by selling its products versus how much it generates by
selling-off a business unit or through financial investments made by the
corporate treasurer.
FASB staffers say buy- and sell-side analysts
typically scrutinize financial statements by breaking them down into
categories similar to the ones the board is proposing.
In keeping with its promise to strip accounting
standards of complexity, the board also agreed to issue two overarching
principles in its draft document on financial statement presentation. One
principle instructs preparers to keep the category order consistent in each
of the three financial statements. For example, if income tax is the last
category shown in on the balance sheet, then it should also be the final
category on the cash flow and income statement. "We're not going to tell you
what order [to use], just that you should use the same order in all three
statements," noted FASB Chairman Robert Herz during the meeting.
In addition, the board wants companies to "clearly
distinguish" between operating assets and operating liabilities, as well as
short-term assets and liabilities and their long-term counterparts. But the
board is not going to prescribe how that should be done. Regarding the issue
of common sums, "the only requirement will be that totals and subtotals are
segmented by activities," noted board member George Batavick, "the rest will
be principles."
Updating the look and functionality of financial
statements is one of the joint projects that FASB is working on with the
International Accounting Standards Board as the two organizations work to
converge U.S. and global accounting rules. On Thursday, IASB will discuss
the common totals issue and is expected to release its recommendations.
FASB expects the draft proposal to spark a healthy
debate among users and preparers, and staffers are planning for a four- to
six-month comment period to follow its release. One issue that will have to
be thrashed out, for example, is whether discontinued operations should be
relegated to its own category, or run through the income statement or
financing activities.
To avoid any last-minute confusion with the
Securities and Exchange Commission, Herz asked the FASB accountants working
on the project to "touch base with the SEC staff just to get their input."
Herz noted that last time the two groups discussed disaggregation
principles, Scott Taub, not James Kroeker, was the SEC's deputy chief
accountant.
Jensen Comment
Now is especially the time for accounting researchers to look into leading edge
alternatives for visualizing data. My threads on that topic are at
http://www.trinity.edu/rjensen/352wpVisual/000DataVisualization.htm
Bob Jensen's threads on accounting theory are at
http://www.trinity.edu/rjensen/theory.htm
No Bottom Line
Question
Is a major overhaul of accounting standards on the way?
Hint
There may no longer be the tried and untrusted earnings per share number to
report!
Comment
It would be interesting to see a documentation of the academic research, if any,
that the FASB relied upon to commence this blockbuster initiative. I recommend
that some astute researcher commence to probe into the thinking behind this
proposal.
"Profit as We Know It Could Be Lost With New Accounting
Statements," by David Reilly, The Wall Street Journal, May 12, 2007; Page
A1 ---
http://online.wsj.com/article/SB117893520139500814.html?mod=DAT
Pretty soon the bottom line may not be, well, the
bottom line.
In coming months, accounting-rule makers are
planning to unveil a draft plan to rework financial statements, the bedrock
data that millions of investors use every day when deciding whether to buy
or sell stocks, bonds and other financial instruments. One possible result:
the elimination of what today is known as net income or net profit, the
bottom-line figure showing what is left after expenses have been met and
taxes paid.
It is the item many investors look to as a key
gauge of corporate performance and one measure used to determine executive
compensation. In its place, investors might find a number of profit figures
that correspond to different corporate activities such as business
operations, financing and investing.
Another possible radical change in the works:
assets and liabilities may no longer be separate categories on the balance
sheet, or fall to the left and right side in the classic format taught in
introductory accounting classes.
ACCOUNTING OVERHAUL
Get a glimpse of what new financial statements
could look like, according to an early draft recently provided by the
Financial Accounting Standards Board to one of its advisory groups. The
overhaul could mark one of the most drastic changes to accounting and
financial reporting since the start of the Industrial Revolution in the 19th
century, when companies began publishing financial information as they
sought outside capital. The move is being undertaken by accounting-rule
makers in the U.S. and internationally, and ultimately could affect
companies and investors around the world.
The project is aimed at providing investors with
more telling information and has come about as rule makers work to one day
come up with a common, global set of accounting standards. If adopted, the
changes will likely force every accounting textbook to be rewritten and
anyone who uses accounting -- from clerks to chief executives -- to relearn
how to compile and analyze information that shows what is happening in a
business.
This is likely to come as a shock, even if many
investors and executives acknowledge that net income has flaws. "If there
was no bottom line, I'd want to have a sense of what other indicators I
ought to be looking at to get a sense of the comprehensive health of the
company," says Katrina Presti, a part-time independent health-care
contractor and stay-at-home mom who is part of a 12-woman investment club in
Pueblo, Colo. "Net income might be a false indicator, but what would I look
at if it goes away?"
The effort to redo financial statements reflects
changes in who uses them and for what purposes. Financial statements were
originally crafted with bankers and lenders in mind. Their biggest question:
Is the business solvent and what's left if it fails? Stock investors care
more about a business's current and future profits, so the net-income line
takes on added significance for them.
Indeed, that single profit number, particularly
when it is divided by the number of shares outstanding, provides the most
popular measure of a company's valuation: the price-to-earnings ratio. A
company that trades at $10 a share, and which has net profit of $1 a share,
has a P/E of 10.
But giving that much power to one number has long
been a recipe for fraud and stock-market excesses. Many major accounting
scandals earlier this decade centered on manipulation of net income. The
stock-market bubble of the 1990s was largely based on investors' assumption
that net profit for stocks would grow rapidly for years to come. And the
game of beating a quarterly earnings number became a distraction or worse
for companies' managers and investors. Obviously it isn't known whether the
new format would cut down on attempts to game the numbers, but companies
would have to give a more detailed breakdown of what is going on.
The goal of the accounting-rule makers is to better
reflect how businesses are actually run and divert attention from the one
number. "I know the world likes single bottom-line numbers and all of that,
but complicated businesses are hard to translate into just one number," says
Robert Herz, chairman of the Financial Accounting Standards Board, the U.S.
rule-making body that is one of several groups working on the changes.
At the same time, public companies today are more
global than local, and as likely to be involved in services or lines of
business that involve intellectual property such as software rather than the
plants and equipment that defined the manufacturing age. "The income
statement today looks a lot like it did when I started out in this
profession," says William Parrett, the retiring CEO of accounting firm
Deloitte Touche Tohmatsu, who started as a junior accountant in 1967. "But
the kind of information that goes into it is completely different."
Along the way, figures such as net income have
become muddied. That is in part because more and more of the items used to
calculate net profit are based on management estimates, such as the value of
items that don't trade in active markets and the direction of interest
rates. Also, over the years rule makers agreed to corporate demands to
account for some things, such as day-to-day changes in the value of pension
plans or financial instruments used to protect against changes in interest
rates, in ways that keep them from causing swings in net income.
Rule makers hope reformatting financial statements
will address some of these issues, while giving investors more information
about what is happening in different parts of a business to better assess
its value. The project is being managed jointly by the FASB in the U.S. and
the London-based International Accounting Standards Board, and involves
accounting bodies in Japan, other parts of Asia and individual European
nations.
The entire process of adopting the revised approach
could take a few years to play out, so much could yet change. Plus, once
rule makers adopt the changes, they would have to be ratified by regulatory
authorities, such as the Securities and Exchange Commission in the U.S. and
the European Commission in Europe, before public companies would be required
to follow them.
As a first step, rule makers expect later this year
to publish a document outlining their preliminary views on what new form
financial statements might take. But already they have given hints of what's
in store. In March, the FASB provided draft, new financial statements at the
end of a 32-page handout for members of an advisory group. (See an example.)
Although likely to change, this preview showed an
income statement that has separate segments for the company's operating
business, its financing activities, investing activities and tax payments.
Each area has an income subtotal for that particular segment.
There is also a "total comprehensive income"
category that is wider ranging than net profit as it is known today, and so
wouldn't be directly comparable. That is because this total would likely
include gains and losses now kept in other parts of the financial
statements. These include some currency fluctuations and changes in the
value of financial instruments used to hedge against other items.
Comprehensive income could also eventually include
short-term changes in the value of corporate pension plans, which currently
are smoothed out over a number of years. As a result, comprehensive income
could be a lot more difficult to predict and could be volatile from quarter
to quarter or year to year.
As for the balance sheet, the new version would
group assets and liabilities together according to similar categories of
operating, investing and financing activities, although it does provide a
section for shareholders equity. Currently, a balance sheet is broken down
between assets and liabilities, rather than by operating categories.
Such drastic change isn't likely to happen without
a fight. Efforts to bring now-excluded figures into the income statement
could prompt battles with companies that fear their profit will be subject
to big swings. Companies may also balk at the expense involved.
"The cost of this change could be monumental," says
Gary John Previts, an accounting professor at Case Western Reserve
University in Cleveland. "All the textbooks are going to have to change,
every contract and every bank arrangement will have to change." Investors in
Europe and Asia, meanwhile, have opposed the idea of dropping net profit as
it appears today, David Tweedie, the IASB's chairman, said in an interview
earlier this year.
Analysts in the London office of UBS AG recently
published a report arguing this very point -- that even if net income is a
"simplistic measure," that doesn't mean it isn't a valid "starting point in
valuation" and that "its widespread use is justification enough for its
retention."
Such opposition doesn't surprise many accounting
experts. Net income is "the basis for bonuses and judgments about what a
company's stock is worth," says Stephen A. Zeff, an accounting professor at
Rice University. "I just don't know what the markets would do if companies
stopped reporting a bottom line somewhere." In the U.S., professional
investors and analysts have taken a more nuanced view, perhaps because the
manipulation of numbers was more pronounced in U.S. markets.
That said, net profit has been around for some
time. The income statement in use today, along with the balance sheet,
generally dates to the 1940s when the SEC laid out regulations on financial
disclosure. But many companies have included net profit in one form or
another since the 1800s.
In its fourth annual report, General Electric Co.
provided investors with a consolidated balance sheet and consolidated
profit-and-loss account for the year ended Jan. 31, 1896. The company, whose
board at the time included Thomas Edison, generated "profit of the year" --
what today would be called net income or net profit -- of $1,388,967.46.
For the moment, net profit will probably exist in
some form, although its days are likely numbered. "We've decided in the
interim to keep a net-income subtotal, but that's all up for discussion,"
the FASB's Mr. Herz says.
Bob Jensen's summary of accounting theory is at
http://www.trinity.edu/rjensen/Theory01.htm
The nice thing about standards is that you have so
many to choose from. Furthermore, if you do not like any of them, you can just
wait for next year's model.
Tanenbaum, "Computer Networks"
Item 8 in a November 6, 2007 message from Tracey E. Sutherland
[traceysutherland@aaahq.org]
8. AICPA--CPA EXAMINATION SURVEY
http://www.cpa-exam.org/lrc/CBTe.html
Through an Invitation to Comment, the AICPA
Examinations Team is seeking input from accounting educators on proposed CPA
Examination improvements, a multi-year project of the AICPA Board of
Examiners (BOE). Invitation to Comment materials – a description of the
planned improvements and a questionnaire – are available at the above
website. The deadline for the receipt of completed questionnaires is
DECEMBER 31, 2007.
Jensen Comment
This is a good time to vent criticisms that the CPA examination is rooted in
part to outdated textbook material due to a requirement that exam questions be
linked to outdated textbooks. According to recent messaging on the AECM, this is
particularly problematic in the really outdated questions in Accounting
Information Systems. It is also true in terms of recent standards FAS 133-159
where many of the textbooks are serious behind the times.
I suggest that you state that authoritative
literature available to the public on topics poorly covered in outdated or
superficial textbooks be primary references for CPA examination questions.
Now is a good time for some AECM lurkers to do something proactive.
November 8, 2007 reply from Tracey
Sutherland [tracey@aaahq.org]
Tracey is the Executive Director of the American Accounting Association
Hello Bob,
Thanks for notes on AEN to AECMers. Just FYI the
Part I project below report on the status of the accounting faculty
workforce will be completed before Christmas -- it should be an interesting
analysis of our micro-climate within the larger context of the academy that
our principle investigator David Leslie developed for the TIAA-CREF research
report linked below (Reshaping of America's Academic Workforce). Preliminary
draft indicates there will be some pertinent similarities and differences
for the accounting discipline. Will keep you posted. Dan is doing
journeyman's labor on the possibilities for an AP course in accounting as
one of the avenues to changing the nature of accounting as taught in high
schools -- lots of politics and complications there but a useful effort at
building more understanding of the issue on both sides.
Best regards, Tracey
"FAS 157: Auditors are ready to assign fair value to financial assets,"
AccountingWeb, November 2007 ---
http://www.accountingweb.com/cgi-bin/item.cgi?id=104246
When credit markets all but dried up as a result of
the sub-prime mortgage crisis in the late summer, auditors of investment and
commercial banks that elected to adopt Financial Accounting Standard 157, Fair Value Measurements, earlier than the effective date of November
15th were called upon to play a key role in determining the market value of
mortgage-backed assets when few were being traded. Many of these banks had
to report huge write-downs in the third quarter from declining assets
values. But auditors of public companies have made it clear in
three recently published white papers
from their newly formed Center for Audit Quality that despite the severity
of the current market crunch, they intend to apply the fair value standard
consistently, and market problems will not influence their professional
judgment about the quality of valuation models and assumptions used by
banks.
Continued in article
Jensen Comment
The following standards are especially pertinent to fair value accounting:
FAS 105, 107, 115, 130, 133, 141, 142, 155, 157, 159
FAS 157 is mainly a definitional standard. The key standard to date is FAS
159 that allows companies to cherry pick which contracts are to be carried at
fair value and which are to be carried at amortized historical cost. To me FAS
159 is a terrible standard that can lead to all sorts of subjective
manipulation, earnings management, and aggregation of apples and door knobs in
summations of assets, liabilities, and earnings components. I think the FASB
viewed FAS 159 as a politically-expedient way to expand fair value accounting
into financial statements without having to fight the huge political battle with
banks and other corporations who aggressively oppose required fair value
accounting for all financial and derivative financial instruments.
Why do bankers resist expanding FAS 159 into required accounting for all
financial instruments?
Misleading Financial Statements:
Bankers Refusing to Recognize and Shed "Zombie Loans"
One worrying lesson for bankers and regulators
everywhere to bear in mind is post-bubble Japan. In the 1990s its leading
bankers not only hung onto their jobs; they also refused to recognise and
shed bad debts, in effect keeping “zombie” loans on their books. That is one
reason why the country's economy stagnated for so long. The quicker bankers
are to recognise their losses, to sell assets that they are hoarding in the
vain hope that prices will recover, and to make markets in such assets for
their clients, the quicker the banking system will get back on its feet.
The Economist, as quoted in Jim Mahar's blog on November 10, 2007 ---
http://financeprofessorblog.blogspot.com/
But there are questions in theory about fair value accounting!
Bob Jensen's threads on fair value accounting are at
http://www.trinity.edu/rjensen/Theory01.htm#FairValue
Sixty-seven percent of American employees are living
paycheck to paycheck, according to results released this week from the 2007
"Getting Paid In America" survey. The online survey by the American Payroll
Association asked respondents how difficult it would be to meet their current
financial obligations if their paycheck were delayed for a week. An overwhelming
31,640 of more than 47,000 respondents said they'd find it difficult to meet
their financial obligations if their paycheck were delayed. This is a 2 percent
increase from 2006 . . .
AccountingWeb, September October
2006, 2007 ---
http://www.accountingweb.com/cgi-bin/item.cgi?id=104038
Illustrated Cash Flow For Dummies ---
http://www.thetaoofmakingmoney.com/2007/11/05/540.html
Link forwarded by Jim Mahar
Questions
How can the IRS tax earnings for services not rendered?
There may be an incentive for faculty to begin early retirement at the end
of the calendar year rather than at the end of the academic year in May or June.
My second question concerns the annual limit on wages (that just moved up to
$102,000) subject to Social Security taxes. Suppose a professor received an
academic year salary of $150,000 in 2008 plus a tenure buyout of $300,000 for
early retirement at age 56 (actually there's no obligation to retire before
reaching 100 years of age or later). If her/his "wages" aggregate to $450,000
wouldn't the Social Security tax still be limited to the first $102,000? (Linda
Pfingst later reminded me that the Medicare tax has no such capped-wages
limitation.)
"University Owes Social Security Taxes for Tenured-Faculty Buyouts, Court
Says," by Goldie Blumenstyk, The Chronicle of Higher Education, November
5, 2007 ---
Click Here
A federal appeals court has ruled against the
University of Pittsburgh’s argument that buyout payments to tenured
professors who take early retirement are not subject to Social Security
taxes. The court, in a 2-to-1 ruling, said the payments are taxable.
The ruling centered heavily on the judges’
interpretation of tenure.
The university had contended that such payments
were not taxable as “wages” because they were given in exchange for the
professors’ relinquishing their tenure rights. Pitt sought a refund for the
$2-million in taxes that it paid from 1996 to 2001.
But the Internal Revenue Service denied that
request, and when the university sued, a U.S. district-court judge, Donetta
Ambrose, ruled for the university as a matter of law. The federal government
appealed that decision, paving the way for the ruling last week in which a
three-judge panel of the U.S. Court of Appeals for the Third Circuit sided
with the government.
“Because tenure is a form of compensation for past
services to the university, payments offered as a substitute for tenure are
compensation and therefore taxable as wages,” two of the judges said in the
majority opinion.
In a dissent, Judge Anthony J. Scirica disagreed
with the interpretation of tenure as merely a version of seniority but,
rather, as the second part of an employment relationship with its own
rights. As such, said Judge Scirica, “payments for the relinquishment of
property right in tenure at the university were not remuneration for
employment and were not subject” to taxation.
As the opinion notes, the case marked the third
time that a federal appeals court had taken up the question since 2001. In
one instance the court found that such payments were taxable, and in
another, that they were not.
November 6, 2007 reply from Becky Miller
[itsyourmom@HOTMAIL.COM]
This series of cases really go to the issue of
whether or not payments in cancellation of tenure rights are wages under
Section 3121 of the Code or consideration for cancellation of a property
right. Once you get to wages for 3121, you hit both the FICA and the
Medicare taxes.
As to the dissenting opinion, I am curious as to
what rights exist in an employment arrangement that would trigger income
other than compensation. I seem to recall some old tax theory about the
fruit and the tree. Here the person is the tree and any consideration
offered for their labor would be the fruit. I have to admit that I have a
difficult time building a consistent theoretical argument that this is
something other that wages.
As to the question of subjecting payments for
service NOT rendered to FICA and Medicare tax, that, also has a long
tradition. For example, sick pay and vacation pay are subject to these
taxes.
Becky
Becky Miller 22339
510 Street Pine Island, MN 55963
November 7, 2007 reply from Bob Jensen
Hi Becky,
Interesting that
you should use a tree and fruit analogy.
Many, if not
most, tenure buyouts are an effort by a college to rid itself of a
fruitcake. In other words, the college no longer wants the services of a
fruitcake professor.
It’s interesting that the IRS wants to tax the tenure buyout as “wages
for services” when in fact the college is buying the professor out to rid
itself of her/his services.
What’s a
fruitcake professor?
Fruitcake professors come in different varieties. Some are showing signs of
dementia. Some have a problem of moral turpitude that’s becoming an
embarrassment to the college (I know of one senior professor of political
science who pulled a condom out of his drawer and propositioned a female
student who, to his unpleasant surprise, turned out to be the wife of a
member of the Board of Trustees). Some fruitcakes are really lousy, and
often negligent, teachers to a point where the college no longer wants them
assigned to classes. A Chair in a leading School of Accountancy told me that
she stopped assigning classes to a very senior accounting professor (even
though he still received full pay) because he’d become just plain mean to
women students in his classes. Presumably he thought that women were taking
over the CPA profession and was not at all happy about it.
Since it's so
difficult to terminate a tenured professor, colleges generally prefer
buyouts that are cheaper than litigation costs and/or avoid a lot of
negative publicity for the college and the fruitcake.
Bob Jensen
Bob Jensen's taxation helpers are at
http://www.trinity.edu/rjensen/Bookbob1.htm#010304Taxation
Foreign Companies Listed in U.S. Securities Markets May Now Use
International Accounting Standards
The Securities and Exchange Commission has unanimously
approved rule amendments under which financial statements from foreign private
issuers in the U.S. will be accepted without reconciliation to U.S. Generally
Accepted Accounting Principles only if they are prepared using International
Financial Reporting Standards (IFRS) as issued by the International Accounting
Standards Board.
"SEC relieves foreign companies of U.S. GAAP filing requirements,"
AccountingWeb, November 2007 ---
http://www.accountingweb.com/cgi-bin/item.cgi?id=104239
The XBRL U.S. consortium
completed its U.S. GAAP taxonomy, a key step necessary for the
full implementation of interactive data technology for financial reporting. The
Financial Accounting Foundation and critical stakeholder groups including
analysts, public company preparers and software providers are reviewing the
draft taxonomy before it is released for public review, said the SEC, which has
contributed funding to the project. For more information, visit
www.xbrl.org/us/taxonomies or
www.sec.gov/spotlight/xbrl.htm. ---
http://www.aicpa.org/pubs/jofa/nov2007/highlights.htm
From Smart Stops on the
Web, Journal of Accountancy, October 2007 ---
http://www.aicpa.org/pubs/jofa/oct2007/smart_stops.htm
FEDERAL FOCUS
www.sec.gov/spotlight.shtml
Visit this site for a rundown of hot topics on the SEC’s radar—including
internal control reporting divisions, XBRL initiatives and IFRS. You can access
transcripts and webcasts of roundtable discussions on mutual recognition, the
proxy process and hedge funds, as well as information on the SEC’s new Advisory
Committee on Improvements to Financial Reporting (see “Seeking
Clarity,” page 30). You also can revisit older topics such as auditor
independence and corporate officer statements that have been retired to the
“Archive” page (www.sec.gov/spotlight/spotarchive.htm).
"Interactive Data - Building XBRL into Accounting Information Systems," by
Jerry Trites ---
http://www.cica.ca/index.cfm/ci_id/27401/la_id/1.htm
Bob Jensen's threads on XBRL are embedded in the file at
http://www.trinity.edu/rjensen/XBRLandOLAP.htm
Bob Jensen's XBRL video tutorials are at
http://www.cs.trinity.edu/~rjensen/video/Tutorials/
Some Cutting Edge (and some not so new) Practice-Based Research for the
Accountancy Profession
"Management Accounting Research for the C-Suite: Consider findings from
cutting-edge research to take your company to the next level," by Cynthia
Bolt-Lee, Journal of Accountancy, November 2007 ---
http://www.aicpa.org/pubs/jofa/nov2007/management_accounting.htm
This second installment in a series of columns on
accounting research summarizes results from the field of management and cost
accounting. The 2006 through June 2007 issues of five top-tier journals in
management and cost accounting research were examined. Those publications
included, alphabetically, Accounting, Organizations and Society; The
Accounting Review; Contemporary Accounting Research; the Journal of
Accounting Research; and Management Science.
These summaries explain the implications of a wide
range of research and give CPAs the opportunity to apply the results in
day-to-day activities. Readers interested in more detail should review the
full text of each article to explore the hypothesis, research process,
statistical analysis, supporting theories and conclusions.
Continued in article
"SEC STAFF PUBLISH THEIR OBSERVATIONS IN THE REVIEW OF EXECUTIVE COMPENSATION
DISCLOSURE," SEC News Release, November 21, 2007 ---
http://accountingeducation.com/index.cfm?page=newsdetails&id=145831
The Securities and Exchange Commission staff have
published a report discussing the principal themes that emerged from its
initial review of the disclosure of 350 public companies for compliance with
the Commission’s new and enhanced rules for executive compensation and
related disclosure.
After completing the first stage of these reviews,
the staff sent individualized comments to the companies. Two principal
themes emerged from these reviews. First, companies should provide more
focused disclosure of how and why they made specific executive compensation
decisions. Second, the manner of presentation is important, and companies
can use it to provide more direct, specific, clear and understandable
executive compensation disclosure.
John White, Director of the Division of Corporation
Finance, stated, “Since the new principles-based rules became effective in
late 2006, public companies have provided their investors with the clearest
and most complete disclosure ever regarding how much they pay their
executives and directors. Our individualized comments and our observations
should help companies enhance their future executive compensation disclosure
and better explain their compensation policies and decisions.” Several
members of the Commission’s staff will provide further context to the staff
report in public appearances this week. Chairman Cox will present the
keynote address at the Center for Plain Language’s Symposium on Plain
Language: Public Policy and Good Business on Oct. 12, 2007.
Bob Jensen's threads on outrageous executive compensation are at
http://www.trinity.edu/rjensen/FraudConclusion.htm#OutrageousCompensation
Question
Is Second Life catching on in academe?
November 15, 2007 message from David Albrecht
[albrecht@PROFALBRECHT.COM]
I attended a session on Second Life today. My
university has purchased an island and has erected a few buildings along
with a huge sand box. Along with other Web 2.0 technologies, faculty are
told that second life has many educational possibilities?
Does it open up anything for accounting? Does
anyone currently use it? How should it be used?
Dave Albrecht
Bowling Green State University
November 15, 2007 from Bob Jensen
Hi David,
Steve Hornik at the University of Central Florida uses Second Life for
accounting courses. He also has a YouTube video about his applications.
Go to
http://www.trinity.edu/rjensen/000aaa/thetools.htm#SecondLife
His last email indicates that he's perhaps become a bit discouraged with
it, although I don't want to put words in his mouth. You should contact him
directly.
Bob Jensen
November 21, 2007 message from David Albrecht
[albrecht@PROFALBRECHT.COM]
This relates to a question I recently asked.
David Albrecht
CPAs Find an Island on Second Life (Nov. 21, 2007)
By Michael Cohn, Editor-in-Chief, WebCPA
Accounting firms are starting to go virtual and
setting up shop on Second Life.
A few weeks ago, I wrote about how futurist
Edie Weiner recently predicted that accountants might need to start
keeping track of money in Second Life's virtual currency, Linden dollars
(see Accounting in Linden Dollars). I received a note in response to
that column from Tom Hood, CEO of the Maryland Association of CPAs,
pointing out that the association has already created a CPA Island in
Second Life along with a Second Life Association of CPAs.
The first accounting firm to go live on the
virtual world was Baltimore-based KAWG&F. CPA Island includes a "chillin'
grounds" for new and young professionals to network. There is also a
Firm of the Future office that shows off leading-edge concepts for CPA
firms, as well as an exhibition hall aimed at educators. MACPA is in the
process of expanding its presence on Second Life even further and is at
work on CPA Island 2.
Firms need to reach out through venues like
Second Life to attract young clients and recruit young accountants who
are spending more and more of their time online, both at the office and
during their leisure hours. Virtual worlds like Second Life have been
attracting all manner of businesses, ranging from computer companies
like Dell and Sun Microsystems to retailers like American Apparel to
virtual real estate developers who specialize in creating homes on SL.
Why not CPA firms too?
Continued at:
http://www.webcpa.com/article.cfm?articleid=26011
November 22,
2007 reply from Bob Jensen
Hi David,
The FASB is
also interested. You can read the following at
http://www.trinity.edu/rjensen/000aaa/thetools.htm#SecondLife
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
November 23, 2007 reply from Steven Hornik [shornik@BUS.UCF.EDU]
Robert Bloomfiled
has been conducting panel sessions in Second Life where discussions
have ranged from the taxing virtual economies, financing activities
and last week a discussion with Edward Castronova (all done withint
Second Life). On Nov. 26th, the discussion will be on
Higher Education in Second
Life. You can view arhcived videos of these from SLCN.TV at
http://www.slcn.tv/programs/metaversed
For those unfamiliar with SL this gives you an
idea of one it's best features, bringing people together from all
over the world to discuss ideas, compare the cost of doing this via
SL as opposed to attending a conference!
_____________________________
Dr. Steven Hornik
University of Central Florida
College of Business Administration
(407) 823-5739
November 30, 2007 message from Carolyn Kotlas
[kotlas@email.unc.edu]
CALL FOR PAPERS ON ACADEMICS IN VIRTUAL
ENVIRONMENTS
INNOVATE, edited by James Morrison, UNC-Chapel Hill
Professor Emeritus, is a peer-reviewed e-journal that began publication with
the October/November 2004 issue. The journal covers cutting-edge research
and practice in the field of using information technology tools to enhance
teaching and learning. Readers can also comment on articles, share material
with colleagues and friends, and participate in open forums.
Innovate is soliciting manuscripts for a special
issue on academics in virtual environments. This issue focuses on the use of
Multi-User Virtual Environments (MUVEs) as an enhancement to education. A
MUVE combines graphics and audio with the ability to communicate with
multiple users in real time within the context of a 3-D virtual environment.
MUVEs are not necessarily considered games, as programs like Second Life and
There have no end goal or objective.
For more information go to
http://www.innovateonline.info/index.php?view=special_issues
and click on the Academics in Virtual Environments
paragraph.
To submit a manuscript go to
http://www.innovateonline.info/index.php?view=submit.
Bob Jensen's threads on edutainment and learning in
virtual worlds are at
http://www.trinity.edu/rjensen/000aaa/thetools.htm
Neutrality Concept in Accounting Standard Setting
In
Concepts
Statement No. 2, the FASB asserts it should not issue a standard for the
purpose of achieving some particular economic behavior. Among other things, this
statement implies that the board should not set accounting standards in an
attempt to bolster the economy or some industry sector. Ideally, scorekeeping
should not affect how the game is played. But this is an impossible ideal since
changes in rules for keeping score almost always change player behavior. Hence,
accounting standards cannot be ideally neutral. The FASB, however, actively
attempts not to not take political sides on changing behavior that favors
certain political segments of society. In other words, the FASB still operates
on the basis that fairness and transparency in the spirit of neutrality override
politics. However, there is a huge gray zone that, in large measure, involves
how companies, analysts, investors, creditors, and even the media react to new
accounting rules. Sometimes they react in ways that are not anticipated by the
FASB.
Questions
Is there a problem with how GAAP covers one's Fannie?
Would fair value accounting help in this situation?
"Fannie Execs Defend Accounting Change Friday,"
by Marcy Gordon, Yahoo News, November 16, 2007 ---
http://biz.yahoo.com/ap/071116/fannie_mae_accounting.html
Fannie Mae executives on
Friday defended a change in the way the mortgage lender discloses losses on
home loans amid concern from analysts that it could mask the true impact of
the credit crisis on its bottom line.
The chief financial officer and other executives of
the government-sponsored company, which reported a $1.4 billion
third-quarter loss last week, held a conference call with Wall Street
analysts to explain the recent change.
Analysts peppered the executives with questions in
a skeptical tone. The way Fannie discloses its mortgage losses, addressed in
an article published online by Fortune, raises extra concern among analysts
given that Fannie Mae was racked by a $6.3 billion accounting scandal in
2004 that tarnished its reputation and brought government sanctions against
it.
Moreover, the skepticism from Wall Street comes as
Fannie seeks approval from the government to raise the cap of its investment
portfolio.
The chief financial officer, Stephen Swad, said in
the call that some of the $670 million in provisions for credit losses on
soured home loans that Fannie Mae wrote off in the third quarter likely
would be recovered.
"We book what we book under (generally accepted
accounting principles) and we provide this disclosure to help you understand
it," Swad said.
Shares of Fannie Mae fell $4.30, or 10 percent, to
$38.74 on Friday, following a 10 percent drop the day before.
"Fannie Shares Continue Plunge," by Mike Barris,
The Wall Street Journal, November 16, 2007 ---
http://online.wsj.com/article/SB119522620923495790.html
Shares of Fannie Mae skidded further Friday, after
falling 10% Thursday amid worries over the way the mortgage giant reports
credit losses and a gloomy outlook for the housing market.
The latest decline in the company's share price
came as Chief Financial Officer Stephen Swad on Friday attempted to
alleviate investor concerns about the company's credit losses.
In morning trading, Fannie shares were at $41.30,
down $1.75, or 4%. The shares had fallen as much as 14% early in the day
before recovering somewhat. Shares of Fannie's counterpart, Freddie Mac,
also fell, down $1.98, or 4.8%, to $39.91.
Thursday's drop came after Fortune magazine's Web
site reported a change in the method Fannie uses to report credit losses.
Last week, the nation's biggest investor in
home-mortgage loans reported that its credit losses in the year's first nine
months equaled 0.04% of the company's $2.8 trillion of mortgages and related
securities owned or guaranteed, up from 0.018% a year earlier. That was in
line with the company's forecast.
But the company changed its method of presenting
the figure, excluding unrealized losses on
certain loans that were marked down to reflect current market conditions.
Including those unrealized losses, the rate for this year's first nine
months was 0.075%, up from 0.023% a year before.
Fannie officials said the change was made to
separate realized losses from ones that haven't been realized and depend on
fluctuating market values for loans. A report from J.P. Morgan Chase & Co.
analyst George Sacco said the new method is similar to that used by Freddie
Mac. Fannie officials noted that both the realized and unrealized losses
were reflected in the earnings reported last week.
Fannie's stock had already been falling for a few
weeks amid worries about how hard Fannie would be hurt by rising mortgage
defaults. At an investment conference Thursday in New York, Wells Fargo &
Co.'s chief executive, John Stumpf, predicted more pain for mortgage lenders
in the year ahead as falling home prices cut the value of collateral, saying
the nationwide decline in housing is the worst since the Great Depression.
Thursday, Fannie shares dropped $4.78, or 10%, to
$43.04.
On Friday, Mr. Swad tried to explain further how
the company was accounting for potential losses.
Last week, Fannie Mae reported roughly $670 million
in credit losses in the third quarter related to certain charge-offs
recorded when delinquent loans were purchased from mortgage-backed
securities trusts. Mr. Swad explained Friday that portions of the credit
losses would likely be recovered.
Though these third quarter losses were charged off,
they are not considered realized losses, Mr. Swad said, because the loans
backing these securities could still be "cured." Mr. Swad said the company
was "required to take a charge when the market estimate is below our
purchase price." The company's experience, he added, "has shown that the
majority of these loans don't result in any realized losses." But he
declined to be more specific about what percentage of the loans would
eventually "cure."
Fannie last week released earnings for the first
three quarters of the year. It reported an additional unrealized loss of
$955 million in the value of private-label securities backed by subprime and
Alt-A mortgages through the end of the third quarter. This was in addition
to $376 million the company had previously accounted as a loss for these
securities this year.
November 16, 2007 reply from Dennis Beresford
[dberesfo@TERRY.UGA.EDU]
For the record, there was no "accounting change" as
per this headline. A headline of "Fannie Mae follows GAAP" probably wouldn't
be quite as sexy but it would be 100% accurate. The company's clear
explanation of what it is required to do under GAAP is covered in the
conference call that is available on Fannie Mae's web site for those
accounting aficionados who want to learn more about AICPA Statement of
Position 03-03 that requires companies repurchasing loans to record them at
fair value. So the answer to your question is that fair value accounting
apparently only complicated analysts' understanding in this case.
Denny Beresford
November 17, 2007 reply from Bob Jensen
Hi Denny,
Your comment sheds a lot of light on this apparent gap between analyst
expectations and GAAP rules in this case. The SEC, FASB, and the IASB are
pushing hard and steady toward fair value accounting with FAS 155, 157, and
159 just being intermediary steps along the way. At least in this case,
however, required fair value accounting is allegedly contributing to the
plunge in Fannie Mae’s share values.
This is another example of the unpredictability of the Neutrality Concept
in standard setting. You point out (see below) that FASB seriously considers
neutrality for every new standard and interpretation with the goal of having
scorekeeping not affect how the game is played, but in athletics and
business it is virtually impossible to change how something is scored
without affecting policies and strategies. For example, when long shots in
basketball commenced to earn three points rather than two points it
fundamentally changed the game of basketball.
Perhaps this is all an example of what you, in 1989,
termed "relevant financial information may bring about damaging
consequences." (see a quote from your article below). It would have been
interesting if the media reporters in 2007 had cited your 1989 article in
this beating Fannie Mae is now taking by adhering to GAAP.
Bob Jensen
"How well does the FASB consider the consequences of its
work?" by Dennis Beresford, All Business, March 1, 1989 ---
http://www.allbusiness.com/accounting/methods-standards/105127-1.html
Neutrality is the quality that distinguishes
technical decision-making from political decision-making. Neutrality is
defined in FASB Concepts Statement 2 as the absence of bias that is intended
to attain a predetermined result. Professor Paul B. W. Miller, who has held
fellowships at both the FASB and the SEC, has written a paper titled:
"Neutrality--The Forgotten Concept in Accounting Standards Setting." It is
an excellent paper, but I take exception to his title. The FASB has not
forgotten neutrality, even though some of its constituents may appear to
have. Neutrality is written into our mission statement as a primary
consideration. And the neutrality concept dominates every Board meeting
discussion, every informal conversation, and every memorandum that is
written at the FASB. As I have indicated, not even those who have a mandate
to consider public policy matters have a firm grasp on the macroeconomic or
the social consequences of their actions. The FASB has no mandate to
consider public policy matters. It has said repeatedly that it is not
qualified to adjudicate such matters and therefore does not seek such a
mandate. Decisions on such matters properly reside in the United States
Congress and with public agencies.
The only mandate the FASB has, or wants, is to
formulate unbiased standards that advance the art of financial reporting for
the benefit of investors, creditors, and all other users of financial
information. This means standards that result in information on which
economic decisions can be based with a reasonable degree of confidence.
A fear of information
Unfortunately, there is sometimes a fear that
reliable, relevant financial information may bring about damaging
consequences. But damaging to whom? Our
democracy is based on free dissemination of reliable information. Yes, at
times that kind of information has had temporarily damaging consequences for
certain parties. But on balance, considering all interests, and the future
as well as the present, society has concluded in favor of freedom of
information. Why should we fear it in financial reporting?
Continued in article
Bob Jensen's threads on standard setting are at
http://www.trinity.edu/rjensen/Theory01.htm
Bob Jensen's threads on Accrual Accounting and
Estimation are at
http://www.trinity.edu/rjensen/Theory01.htm#AccrualAccounting
Bob Jensen's threads on fair value accounting are at
http://www.trinity.edu/rjensen/Theory01.htm#FairValue
Bob Jensen's threads on Fannie Mae's enormous problem
(the largest in history that led to the firing of KPMG from the audit and a
multiple-year effort to restate financial statemetns) with applying FAS 133 ---
http://www.trinity.edu/rjensen/caseans/000index.htm#FannieMae
There's a shelf of financial bestsellers whose
titles now sound absurd: Ravi Batra's The Great Depression of 1990; James
Glassman's Dow 36,000; Harry Figgie's Bankruptcy 1995: The Coming Collapse of
America and How to Stop It. There’s BusinessWeek’s 1979 description of "the
death of equities as a near permanent condition,
Michael Lewis, "The Evolution of an
Investor," Blaine-Lourd Profile, December 2007 ---
http://www.portfolio.com/executives/features/2007/11/19/Blaine-Lourd-Profile#page3
As quoted by Jim Mahar in his Finance Professor Blog at
http://financeprofessorblog.blogspot.com/
As a group, professional money managers control more
than 90 percent of the U.S. stock market. By definition, the money they invest
yields returns equal to those of the market as a whole, minus whatever fees
investors pay them for their services. This simple math, you might think, would
lead investors to pay professional money managers less and less. Instead, they
pay them more and more...Nobody knows which stock is going to go up. Nobody
knows what the market as a whole is going to do, not even Warren Buffett. A
handful of people with amazing track records isn’t evidence that people can game
the market. Nobody knows which company will prove a good long-term investment.
Even Buffett’s genius lies more in running businesses than in picking stocks.
But in the investing world, that is ignored. Wall Street, with its army of
brokers, analysts, and advisers funneling trillions of dollars into mutual
funds, hedge funds, and private equity funds, is an elaborate fraud.
Michael Lewis, "The Evolution of an
Investor," Blaine-Lourd Profile, December 2007 ---
http://www.portfolio.com/executives/features/2007/11/19/Blaine-Lourd-Profile#page3
As quoted by Jim Mahar in his Finance Professor Blog at
http://financeprofessorblog.blogspot.com/
"GM Will Book $39 Billion Charge Write-Down of Tax
Credits Indicates That Profits Won't Come in Near Term," by John D. Stoll,
The Wall Street Journal, November 7, 2007; Page A3 ---
http://online.wsj.com/article/SB119438884709884385.html?mod=todays_us_page_one
General Motors Corp. will take a $39 billion,
noncash charge to write down deferred-tax credits, a signal that it expects
to continue to struggle financially despite significant restructuring and
cost cutting in the past two years.
The deferred-tax assets stem from losses and could
be used to offset taxes on current or future profits for a certain number of
years.
In after-hours trading, GM fell 2.9% to $35.14.
Before the disclosure, its shares finished at $36.16, up 16 cents, or less
than 1%, in New York Stock Exchange composite trading.
GM, the world's largest auto maker in vehicle
sales, was to report third-quarter financial results today. The company,
which was stung by big losses in 2005 and 2006, said the write-down was
triggered by three main issues: a string of adjusted losses in core North
American operations and Germany over the past three years, weakness at its
GMAC Financial Services unit, and the long duration of tax-deferred assets.
GM had appeared to be making progress in stemming
its losses. Its global automotive operations were profitable in the first
half of the year. It recently signed a labor deal with the United Auto
Workers that allows it to establish an independent trust to absorb its
approximately $50 billion in hourly retiree health-care liabilities. The
move promises to significantly reduce GM's cash health-care expenses and
combine with other labor-cost cuts in creating a more profitable North
American arm.
If it returns to steady profits, GM could remove
the valuation allowance and reclaim some or all of the $39 billion in
deferred credits.
For now, the massive charge promises to devastate
GM's headline financial results for the third quarter, and for the year,
likely leading to the worst annual loss in its 99-year history. Although the
charge is an accounting loss that doesn't involve cash, it is still a
staggering sum. By comparison, the company reported a total of $34 billion
in net income from 1996 to 2004.
GM will partially offset the charge with a gain of
more than $5 billion related to the sale of its Allison Transmission unit.
The charge follows more than $12 billion in losses
since the beginning of 2005. GM has been scrambling to cut the size of its
U.S. operation amid shrinking market share, rising costs and a rapidly
globalizing auto industry. Its restructuring has been complicated by a
slowdown in U.S. demand for automobiles and losses at GMAC.
The lending giant lost $1.6 billion in the third
quarter, the biggest quarterly setback since at least the 1960s. It made
money on auto lending and insurance but was dragged down by a $1.8 billion
setback at ResCap, its residential-mortgage business and a big player in
subprime loans. GM's exposure is limited because it sold 51% of GMAC to
Cerberus Capital Management LP last year. In the past, GMAC delivered
dividends to GM, including more than $9 billion in the decade before the
GMAC sale.
The write-down isn't expected to affect GM's
liquidity position, which stood at $27.2 billion as of June 30. GM has been
selling noncore assets in recent years to pad its bank account. In addition,
GM Chief Financial Officer Frederick "Fritz" Henderson said the write-down
won't preclude it from using loss carry-forwards or other deferred-tax
assets in the future. It is unclear whether GM's plunge deeper into negative
shareholder-equity status will affect it's borrowing capabilities or credit
rating.
The latest disclosure underscores the challenge
Chief Executive Officer Richard Wagoner faces in seeking a full-scale
turnaround as GM hangs on to its No. 1 global-sales ranking over Toyota
Motor Corp. by a thread. Delphi Corp., GM's top supplier, has failed in
attempts to emerge from bankruptcy protection, so GM must wait indefinitely
on cost savings it hopes to gain from a reorganized Delphi. Also, U.S.
automobile demand has withered to the lowest point in a decade, and, as oil
futures continue to escalate, pressure on high-profit trucks and SUVs
remains firm.
Denny Beresford provided a link to another reference ---
Click Here
November 7, 2008 reply from Amy Dunbar
[Amy.Dunbar@BUSINESS.UCONN.EDU]
>So they think it is more likely than not that they
will receive zero tax benefit from their tax loss carryforwards!
Hmmmmm, I doubt that is what GM thinks. As the news
release stated, "In making such judgments, significant weight is given to
evidence that can be objectively verified. A company's current or previous
losses are given more weight than its future outlook, and a recent
three-year historical cumulative loss is considered a significant factor
that is difficult to overcome." FAS 109, P 23 states, "Forming a conclusion
that a valuation allowance is not needed is difficult when there is negative
evidence such as cumulative losses in recent years."
As an aside, the more-likely-than-not standard in
FAS 109 existed before FIN 48 adopted the standard. FIN 48 doesn't talk
about objective evidence wrt the MLTN standard.
FIN 48, 6, states, "An enterprise shall initially
recognize the financial statement effects of a tax position when it is more
likely than not, based on the technical merits, that the position will be
sustained upon examination. As used in this Interpretation, the term more
likely than not means a likelihood of more than 50 percent; the terms
examined and upon examination also include resolution of the related appeals
or litigation processes, if any. The more-likely than- not recognition
threshold is a positive assertion that an enterprise believes it is entitled
to the economic benefits associated with a tax position. The determination
of whether or not a tax position has met the more-likely-than-not
recognition threshold shall consider the facts, circumstances, and
information available at the reporting date.
FIN 48, 7, states, "In assessing the
more-likely-than-not criterion as required by paragraph 6 of this
Interpretation: a. It shall be presumed that the tax position will be
examined by the relevant taxing authority that has full knowledge of all
relevant information. b. Technical merits of a tax position derive from
sources of authorities in the tax law (legislation and statutes, legislative
intent, regulations, rulings, and case law) and their applicability to the
facts and circumstances of the tax position. When the past administrative
practices and precedents of the taxing authority in its dealings with the
enterprise or similar enterprises are widely understood, those practices and
precedents shall be taken into account. c. Each tax position must be
evaluated without consideration of the possibility of offset or aggregation
with other positions."
In an appendix, FIN 48, B46, states, "In
considering the subsequent recognition of tax positions that do not
initially meet the more-likely-than-not recognition threshold and the
subsequent measurement of tax positions, the Board initially considered
whether specific external events should be required to effect a change in
judgment about the recognition of a tax position or the measurement of a
recognized tax position. The Board concluded in the Exposure Draft that a
change in estimate is a judgment that requires evaluation of all available
facts and circumstances, not a specific triggering event. Some respondents
to the Exposure Draft stated that the evidence supporting a change in
judgment should be objectively verifiable and that a triggering event is
normally required to subsequently recognize a tax benefit."
Since this language wasn't put in the standard, I
wonder if one could argue that the two MLTN standards are different. It
would be interesting to be a fly on the wall as some of the debate goes on
about uncertain tax positions.
Amy Dunbar
Also see "Accounting for Uncertainty" ---
http://www.aicpa.org/pubs/jofa/oct2007/uncertainty.htm
From The Wall Street Journal Accounting Weekly Review on November 9,
2007
GM Will Book $39 Billion Charge
The Wall Street Journal
by John D.
Stoll
Nov 07, 2007
Page: A3
Click here to view the full article on WSJ.com ---
http://online.wsj.com/article/SB119438884709884385.html?mod=djem_jiewr_ac
TOPICS: Advanced
Financial Accounting, Income Taxes
SUMMARY: "General
Motors Corp. will take a $39 billion, noncash charge to
write down deferred tax assets, "...a signal that it expects
to continue to struggle financially despite significant
restructuring and cost cutting in the past two years."
CLASSROOM
APPLICATION: Use to cover accounting for deferred tax
assets and a related valuation account.
QUESTIONS:
1.) Define the terms deferred tax assets, deferred tax
liabilities, net operating loss carryforwards, and deferred
tax credits.
2.) Which of the above three items has General Motors
recorded for a total of $39 billion? In your answer, comment
on the opening statement in the article that GM will
write-down its "deferred tax credits."
3.) What is a valuation allowance against deferred tax
assets? When must such an allowance be recorded under
generally accepted accounting standards? Use GM's situation
as an example in your answer.
4.) GM states that its $39 billion write down was impacted
by three factors. Explain how each of these factors bears on
the determination of a valuation allowance against deferred
tax assets. Be specific.
5.) The author writes, "If it returns to steady profits, GM
could remove the valuation allowance and reclaim some or all
of the $39 billion in deferred credits," and that the
write-down does not preclude GM from future use of its net
operating loss carryforwards and deferred tax assets.
Explain these statements, including the entries that will be
recorded if the deferred tax assets are used in the future.
Reviewed By: Judy Beckman, University of Rhode Island
RELATED
ARTICLES:
GM Statement on Noncash Charge
by General Motors, via PRNewswire
Nov 06, 2007
Online Exclusive
|
Bob Jensen's threads on accounting theory are at
http://www.trinity.edu/rjensen/Theory01.htm
Bob Jensen's threads on FIN 48 are at
http://www.trinity.edu/rjensen/Theory01.htm#FIN48
"Decoding Business Profitability," by Lyn Denend
quoting Mark Soliman, Stefan Reichelstein, and Madhav Rajan, Stanford
Business Magazine, November 2007 ---
http://www.gsb.stanford.edu/news/bmag/sbsm0711/kn-decoding.html
For years, return on
investment (ROI) and related financial accounting ratios have been widely
used as key measures of business profitability. Now three Business School
accounting professors have written an award-winning paper that shows the
economic interpretation of the ROI metric requires more careful analysis.
For more than 40
years, business professionals and academics have relied on ROI
to infer a company’s economic rate of return, which is usually
conceptualized as the internal rate of return of a
firm’s investment projects. Many recognized that financial
accounting is subject to biases that could skew the magnitude of
the ROI ratio, but they tended to believe these effects would
average out over time, thereby enabling parity between ROI and
real economic return. On the other hand, when companies such as
those in the oil industry have been accused of abusing their
market power, as evidenced by excessive accounting
profitability, they tried to explain away high accounting
returns by claiming that standard metrics do not adequately
measure real economic returns.
“There wasn’t a
precise mathematical understanding of the issue,” said
Madhav Rajan, a professor of managerial accounting who
collaborated on the study with Stefan Reichelstein,
who also specializes in managerial accounting, and Mark
Soliman, a financial accountant.
The threesome
developed a model that enabled them to examine analytically and
empirically how a firm’s ROI was affected by two central
variables: accounting conservatism and growth in new
investments. They considered accounting to be conservative if it
resulted in book values that were understated because
investments were written off faster than they should be, given
the under-lying pattern of project cash flows. Direct expensing
of intangible investments is a prime example of such
conservatism.
The researchers
found that accounting conservatism and past growth in
investments jointly determined how ROI compared to the
underlying economic profitability of a business. Given
conservative accounting, higher growth tended to depress ROI, a
decline that was accentuated by more conservative accounting
rules. On the other hand, more conservative accounting increased
ROI only if the rate of past growth in new investments was below
some critical value, with the opposite effect emerging for
growth rates above that critical value. To test the theoretical
predictions of the model, the researchers used a data sample of
43,680 firm-year observations from 1982 to 2002.
The result is a
tool for “decoding the economic profitability of a firm given
the accounting profitability reported in the ROI number,”
Reichelstein said. Contrary to earlier examples and numerical
illustrations in textbooks and the relevant literature, “we now
have a much more systematic grasp of the linkage between
accounting and economic return.”
Both investors
and managers can use the tool, “From a management perspective,
it’s perfectly possible that one of your divisions has an ROI of
15 percent while another one has an ROI of 10 percent,”
Reichelstein said. “You shouldn’t jump to the conclusion that
the one giving you 15 percent is the one that’s adding more
value to the business.” By applying the model, taking into
account how rapidly both divisions have been growing and which
has assets that may be more subject to a conservatism,
management can more accurately determine the real economic
profitability of both business groups.
The research,
which earned best paper awards when presented at two
international accounting conferences, is published as
“Conser-vatism, Growth, and Return on Investment,” in the
September 2006 issue of the Journal of Accounting, Auditing,
and Finance.
November 2, 2007 reply from Nichols, Don
[D.Nichols@TCU.EDU]
I think that the Stanford Business Magazine has an
incorrect citation. The article was published in Conservatism, Growth, and
Return on Investment: Review of Accounting Studies, September, 2007.
Don Nichols
Bob Jensen's threads on return on investment (ROI)
are at
http://www.trinity.edu/rjensen/roi.htm
Misleading Financial Statements:
Bankers Refusing to Recognize and Shed "Zombie Loans"
One worrying lesson for bankers and regulators
everywhere to bear in mind is post-bubble Japan. In the 1990s its leading
bankers not only hung onto their jobs; they also refused to recognise and shed
bad debts, in effect keeping “zombie” loans on their books. That is one reason
why the country's economy stagnated for so long. The quicker bankers are to
recognise their losses, to sell assets that they are hoarding in the vain hope
that prices will recover, and to make markets in such assets for their clients,
the quicker the banking system will get back on its feet.
The Economist, as quoted in Jim Mahar's blog on November 10, 2007 ---
http://financeprofessorblog.blogspot.com/
After the Collapse of Loan Markets Banks
are Belatedly Taking Enormous Write Downs
BTW one of the important stories that are coming out is
the fact that this is affecting all tranches of the debt as even AAA rated debt
is being marked down (which is why the rating agencies are concerned). The
San Antonio Express News reminds us that conflicts of interest exist here
too.
Jime Mahar, November 10, 2007 ---
http://financeprofessorblog.blogspot.com/
Jensen Comment
The FASB and the IASB are moving ever closer to fair value accounting for
financial instruments. FAS 159 made it an option in FAS 159. One of the main
reasons it's not required is the tremendous lobbying effort of the banking
industry. Although many excuses are given resisting fair value accounting for
financial instruments, I suspect that the main underlying reasons are those
"Zombie" loans that are overvalued at historical costs on current financial
statements.
Daniel Covitz and Paul Harrison of the
Federal Reserve Board found no evidence of credit agency conflicts of interest
problems of credit agencies, but thier study is dated in 2003 and may not apply
to the recent credit bubble and burst ---
http://www.federalreserve.gov/Pubs/feds/2003/200368/200368pap.pdf
In September 2007 some U.S. Senators
accused the rating agencies of conflicts of interest
"Senators accuse rating agencies of conflicts of interest in market turmoil,"
Bloomberg News, September 26, 2007 ---
http://www.iht.com/articles/2007/09/26/business/credit.php
Also see
http://www.nakedcapitalism.com/2007/05/rating-agencies-weak-link.html
Bob Jensen's threads on fair value accounting are at
http://www.trinity.edu/rjensen/Theory01.htm#FairValue
Bob Jensen's Rotten to the Core threads are at
http://www.trinity.edu/rjensen/FraudRotten.htm
Creative Accounting at Freddie Mac and the SEC
Unhappiness Over This Creativity
"The Accounting Cycle Freddie Mac's Scandal and the
SEC's Judgment," by: J. Edward Ketz, SmartPros, November 2007 ---
http://accounting.smartpros.com/x59491.xml
The financial reporting lies
in the statements of Federal Home Loan Mortgage Corporation (Freddie Mac)
came to light in 2003. The Securities and Exchange Commission recently
issued a litigation release that attempts to put the affair behind us.
Unfortunately, the SEC still cannot meet its goal of meting out punishment
against the bad guys and only the bad guys.
The SEC issued
Litigation Release No. 20304 on Sept. 27. The SEC
alleges that the corporation engaged in an accounting fraud from 2000 to
2002. The manipulation of earnings occurred by incorrectly accounting for
various derivative instruments of the firm as well as manipulating the
accounting for loan origination costs and reserves for losses. Freddie Mac
will pay a $50 million fine. The four executives who conceived and executed
this fraud were also punished. Their fines ranged from $65,000 to $250,000;
they paid out disgorgement amounts that ranged from $29,227 to $150,000.
More details are laid out in the
SEC complaint in this matter.
The fascinating thing about this accounting scandal
is that it involved the understating of net income. In particular, the SEC
contrasts the reported income with the restated net income (in billions of
dollars):
Year |
Reported Net Income |
Restated Net Income |
Difference |
2000 |
$2.547 |
$3.666 |
$ 1.119
|
2001 |
4.147 |
3.158 |
(0.989)
|
2002 |
5.764 |
10.090 |
4.326 |
This fraud creates three problems for investors and
creditors:
The first consequence of the fraud is that it
misleads capital providers with respect to the firm; the investment
community will not think it as deserving as other organizations. The economy
suffers a misallocation of resources.
The second consequence of the fraud is that it
supplies the corporate executives with incentives to engage in insider
trading. The market thinks the business entity has the lower income and may
bid down the stock price and the bond prices. The managers who are partaking
in the fraud know that the earnings stream is actually higher and can profit
from this knowledge illegally.
The third consequence is that the market may
misestimate the risk of the corporation and, in this case, that seems to
provide the motivation for the accounting fraud. Corporate managers wanted
to portray a picture of a steady, reliable company that was ever growing in
resources and income. That picture was phony inasmuch as the true income
stream is far more volatile than the reported earnings would indicate.
This case is fascinating for another reason. The
SEC continues to give miscreants a slap on the wrist while hitting the
innocents with a massive fine. Yes, I said that the SEC continues to dote on
the bad guys by only slapping their wrist. The largest fine plus
disgorgement is only $400,000. For the salaries and stock options and
perquisites that these guys got while working at Freddie Mac, the fines plus
disgorgement amounts to a speeding ticket for those mortals with at most
six-digit incomes. The fines are trivial. If the SEC wants to dissuade
managers from committing accounting frauds, then they must impose meaningful
and enormous fines and prison sentences. Petty and insubstantial fines imply
that the SEC no longer cares for investors and creditors. And managers at
other entities surely take notice.
Continued in article
Jensen Comment
In the early days of FAS 133, Freddie Mac was not understating income. It did in
fact do a terrible job of implementing accounting for derivative financial
instruments, and Freddie has lots and lots of derivatives mostly for hedging
interest rate risk ---
http://www.trinity.edu/rjensen/caseans/000index.htm#FreddieMac
A Free Harvard Business Review Archives Article
"Why Budgeting Systems Fail: One Management
System is Not Enough," by
Péter Horváth and Ralf
Sauter, Harvard Business Review, September-October 2004 ---
http://marketing.adaptiveplanning.com/forms/HBRwhybudgetingfails
Accounting Theory: The Vexing Problem of
Contingent Liabilities and Environmental Risk
From The Wall Street Journal Accounting Weekly Review
on November 2, 2007
BP Settles Charges, Submits to Watchdogs
by Ann
Davis, Amir Efrati, Matthew Dalton and Guy Chazan
The Wall Street Journal
Oct 26, 2007
Page: A3
Click here to view the full article on WSJ.com ---
http://online.wsj.com/article/SB119332810057671536.html?mod=djem_jiewr_ac
TOPICS: Advanced
Financial Accounting, Contingent Liabilities, Environmental
Cleanup Costs
SUMMARY: "[British
Petroleum] BP PLC put a host of legal threats behind it with
far-reaching federal settlements yesterday [10/24/2007] and
$373 million in fines and restitution...The British energy
firm agreed to plead guilty to environmental crimes and
agreed to a three-year probation connected to a fatal
accident in Texas and an oil spill in Alaska." The article
describes the expected impact on BP PLC's operations; the
questions in this review focus on the company's Form 20-F
contingent liability disclosures, including environmental
and other contingent liabilities.
CLASSROOM
APPLICATION: Environmental liabilities and other
contingencies are discussed in this article.
QUESTIONS:
1.) The article states that BP PLC (British Petroleum) "put
a host of legal threats behind it" through a settlement with
U.S. government authorities and fines. Summarize the legal
issues facing the company and the settlement that was
reached.
2.) In general, where can you find information about the
likely financial impact of legal and environmental issues
facing any company? Describe the authoritative literature
requiring disclosure of this information.
3.) BP PLC uses the term "provisions" in their corporate
balance sheet, rather than "contingent liabilities." What is
the meaning of the term "provisions"?
4.) Specifically investigate the extent of the legal and
environmental issues facing BP PLC by examining their annual
report filed on Form 20-F with the Securities and Exchange
Commission, available at:
http://www.sec.gov/Archives/edgar/data/313807/000115697307000346/b848881-20f.htm#p85
How extensive are the liabilities associated with these
issues, as measured on December 31, 2006?
5.) Examine footnote 40 to further investigate these
liabilities. What are the 3 major categories of provisions
for estimated liabilities recorded by BP PLC? How do they
estimate the amounts recorded for these liabilities?
6.) Which category of provisions do you think will be
impacted by the settlement, based on the disclosures in the
December 31, 2006, year end financial statements and the
description of the settlement in the article?
Reviewed By: Judy Beckman, University of Rhode Island
|
Bob Jensen's threads on accounting for intangibles and
contingencies are at
http://www.trinity.edu/rjensen/Theory01.htm#TheoryDisputes
The Grassley is Greener: An Added Tax on Each Employed Skilled
Immigrant
Last week Mr. Grassley, the Iowa Republican, slipped an
amendment into a spending bill that would tax businesses that hire skilled
immigrants an additional $3,500 per visa to a total of $5,000 each. According to
the National Foundation for American Policy, this represents a $3.1 billion tax
increase over five years on some of America's fastest growing companies.
Companies employing foreign professionals who are here on H-1B visas already pay
$1,500 per individual. The fee was originally set at $500 in 1998, but at least
past increases have also included a rise in the number of available visas. When
Mr. Grassley floated this tax back in April, it would have been part of a Senate
bill that lifted the H-1B visa cap by 50,000 and put in place an escalator
provision that allowed market demand to determine future increases.
"The Grassley Visa Tax," The Wall Street Journal, November 2, 2007; Page
A12 ---
http://online.wsj.com/article/SB119397030162580100.html
Before reading this tidbit,
you may want to read about creative accounting and
earnings management at
http://en.wikipedia.org/wiki/Earnings_management
From Jim Mahar's blog on
November 5, 2007 ---
http://financeprofessorblog.blogspot.com/
Does short-term
debt lead to more "earnings management"?
In
another paper from the FMAs,
Gupta and Fields
look at whether more short term
debt leads to more "earnings management."
Does short-term debt lead to more "earnings management"?
Short answer: YES.
Longer answer:
Intuitively the idea behind the paper is that if a firm
has to go back to the capital markets, they do not want
to do so when times are bad. Of course, sometimes times
are bad. In those times, management may be tempted to
"manage" earnings so that things do not appear as bad as
they may be.
The findings? Sure enough, managers seemingly manage
their firm's earnings more when the firm has more short
term debt.
A few look-ins:
From the Abstract (this is the best summary of the
entire paper):
"...results indicate that (i) firms with more
current debt are more susceptible to managing
earnings, (ii) this relation is stronger for firms
facing debt market constraints (those without
investment grade debt) and (iii) auditor
characteristics such as auditor quality and tenure
help diminish this relation...."
Which fits intuition. Why?
* The more the constraints, the more incentive the
management has to manage earnings since if they do not,
they may not be able to refinance.
* Auditors would frown upon this behavior and the
stronger the auditor, the less likely it is that the
manager would manage earnings.
How does this "earnings management" manifest itself? The
most common way (although not the only way) that
managers manipulate earnings is through the use of
accruals . Thus, the authors examine this and find:
"A one
standard-deviation increase in short-term debt
(total current liabilities) increases discretionary
accruals by 1.69% and increase total accruals by
2.28%. Our evidence supports the idea that debt
maturity significantly impacts the tendency of firms
to manage earnings."
Which is a
really interesting finding!
Bob Jensen's threads on fraud are at
http://www.trinity.edu/rjensen/Fraud.htm
Bob Jensen's thread on cooking the books are at
http://www.trinity.edu/rjensen/fraud001.htm#Cooking
(The above module has been neglected by me. It is somewhat dated in terms of
earnings restatements and there are broken links to old sites.)
Bob Jensen's threads on accounting theory are at
http://www.trinity.edu/rjensen/Theory01.htm
New York Sues Firm for Rigging Home Appraisals
New York Attorney General Andrew Cuomo has initiated a
lawsuit against a real estate appraisal unit of the Fortune 500 company First
American Corp. He says the appraiser colluded with Washington Mutual to inflate
home values.
Chris Arnold, NPR, November 1, 2007 ---
http://www.npr.org/templates/story/story.php?storyId=15858178
Bob Jensen's fraud updates are at
http://www.trinity.edu/rjensen/FraudUpdates.htm
"NORTEL NETWORKS PAYS $35 MILLION TO SETTLE FINANCIAL FRAUD CHARGES,"
AccountingEducation.com, November 22, 2007 ---
http://accountingeducation.com/index.cfm?page=newsdetails&id=145832
The Securities and Exchange Commission recently
filed civil fraud charges against Nortel Networks Corporation and its
principal operating subsidiary Nortel Networks Limited (Nortel) alleging
that Nortel engaged in accounting fraud from 2000 through 2003 to close gaps
between its true performance, its internal targets and Wall Street
expectations. Nortel is a Canadian manufacturer of telecommunications
equipment.
Without admitting or denying the Commission's
charges, filed in the U.S. District Court for the Southern District of New
York, Nortel has agreed to settle the Commission's action by consenting to
be permanently enjoined from violating the antifraud, reporting, books and
records and internal control provisions of the federal securities laws and
by paying a $35 million civil penalty, which the Commission will seek to
place in a Fair Fund for distribution to affected shareholders. Nortel also
has agreed to report periodically to the Commission's staff on its progress
in implementing remedial measures and resolving an outstanding material
weakness over its revenue recognition procedures.
"This is an important fraud case involving conduct
from 2000 through 2003," said Linda Thomsen, Director of the Commission's
Division of Enforcement. "Since that time, under new leadership, Nortel has
undertaken significant efforts to address the wrongdoing, remedy the harm
and implement a remediation plan to prevent recurrence of the misconduct."
Christopher Conte, an Associate Director of the
Commission's Division of Enforcement, stated, "The settlement reached today
reflects the seriousness of the company's past activity. Nortel's fraud was
long-running, intentional and pervasive."
According to the Commission's complaint, from late
2000 through January 2001, Nortel made changes to its revenue recognition
policies that were not in conformity with U.S. Generally Accepted Accounting
Principles (GAAP). The changes were made to fraudulently accelerate revenue
into 2000 to meet its publicly announced revenue targets for the fourth
quarter of 2000 and for that year. The complaint alleges that Nortel also
selectively reversed certain revenue entries during the 2000 year-end
closing process when its acceleration efforts pulled in more revenue than
necessary to meet its targets. These actions, the complaint alleges,
inflated Nortel's fourth quarter and fiscal year 2000 revenues by
approximately $1.4 billion.
The complaint further alleges that Nortel had
improperly established, and was improperly maintaining, over $400 million in
excess reserves by the time it announced its fiscal year 2002 financial
results. According to the complaint, these reserve manipulations erased
Nortel's fourth quarter 2002 pro forma profit and allowed it to report a
loss instead so that Nortel would not show a profit earlier than it had
previously forecast to the market. The complaint alleges that in the first
and second quarters of 2003, Nortel improperly released approximately $500
million in excess reserves to boost its earnings and fabricate a return to
profitability. These efforts turned Nortel's first quarter 2003 loss into a
reported profit under GAAP, and largely erased its second quarter loss while
generating a pro forma profit. According to the complaint, in both quarters
Nortel's inflated earnings allowed it to pay tens of millions of dollars in
so called "return to profitability" bonuses, largely to a select group of
senior managers.
In settling the matter, the Commission acknowledges
Nortel's substantial remedial efforts and cooperation. After Nortel
announced its first restatement, the Audit Committee of Nortel's Board of
Directors launched an independent investigation which later uncovered the
improper accounting. Nortel's Board took extensive remedial action that
included promptly terminating employees responsible for the wrongdoing,
restating its financial statements four times over four years, replacing its
senior management, and instituting a comprehensive remediation program
designed to ensure proper accounting and reporting practices. Nortel also
shared the results of its independent investigation with the Commission.
As part of the settlement, Nortel agrees to report
to the Commission staff every quarter until it fully implements its
remediation program, and the company and its outside auditor agree that the
existing material weakness has been resolved.
Nortel is a KPMG client. You can read more about KPMG at
http://www.trinity.edu/rjensen/Fraud001.htm#KPMG
Bob Jensen's fraud updates are at
http://www.trinity.edu/rjensen/FraudUpdates.htm
International CPA Firms Want One Set of Standards --- The IASB Standards
"Mind the GAAP," by James S. Turley, The Wall Street Journal, November
9, 2007; Page A18 ---
http://online.wsj.com/article/SB119457514915987494.html
I manage a firm with a presence in over 140
countries, and from my perspective it is clear that the fluidity of the
world's capital markets is outstripping the reach and constraints of
national regulatory approaches. The pace of change in capital markets begs
for bold action. The willingness of the U.S. and other nations to embrace
International Financial Reporting Standards and give up GAAP provides a
glimpse of the prospect for more international collaboration -- rather than
stand-alone national approaches -- in other areas of capital market
regulation.
True, it can be difficult for national
representatives to relinquish direct control and embrace international
collaboration, and the transition will have its share of hurdles. Many U.S.
companies are not ready to make the change, and they have legitimate
concerns about the degree to which judgments about international standards
will be respected by regulators and the courts.
In many countries, the shift to international
standards is already underway. While English may be the dominant global
language of business, IFRS -- not U.S. GAAP -- is becoming the dominant
language for financial reporting. Today, more than 100 countries either
require or permit IFRS as their accounting standard or base their own local
standards on it. Canada shifts in 2011, while Brazil, Chile, India, Israel
and Korea are among the countries that have also set a date for a move to
IFRS.
Robert Herz, chairman of the Financial Accounting
Standards Board, recently suggested establishing a target date or dates for
transitioning to IFRS, following a series of IFRS improvements. To take his
suggestion a step further, the U.S. should reject a wait-and-see approach,
go beyond the possibility of a switch and declare that it will adopt IFRS as
of a date certain for all public companies filing in the U.S.
Such a move would enable U.S. companies to begin
preparing now and would provide impetus to confront needed legal and
regulatory changes that would accompany the shift. It would motivate
universities to train tomorrow's accountants in IFRS and promote similar
moves by other jurisdictions to embrace these international standards
instead of modifying them for local use. This would also help countries
establish and work toward the improvement of a single standard, rather than
devoting their energy to tweaking national standards to make them look more
like IFRS.
At Ernst & Young, we will weigh in with strong
support for the SEC to set a certain date for a shift to IFRS. As SEC
Chairman Christopher Cox has said, "Having a set of globally accepted
accounting standards is critical to the rapidly accelerating global
integration of the world's capital markets."
Mr. Turley is chairman and CEO of Ernst & Young.
Key differences between IFRS and FASB standards are discussed at
http://www.trinity.edu/rjensen/Theory01.htm#FASBvsIASB
Comparisons for other nations ---
http://www.iasplus.com/country/compare.htm
The best blog for tracking what's happening in this regard is at
http://www.iasplus.com/index.htm
November 4, 2007 message from David Albrecht
[albrecht@PROFALBRECHT.COM]
I think this is a must read, but then I'm a
financial reporting guy.
David Albrecht Bowling Green
Someone to Watch over Me: IASB Asks for an Overseer The International
Accounting Standards Board wants someone to watch over it. Alan
Rappeport, CFO.com | US November 02, 2007
The International Accounting Standards Board contends that it needs a
committee to oversee its actions and make sure that it represents the
public interest. IASB Chairman David Tweedie told CFO.com editors on
Thursday that the board will officially announce its plan for putting
together such a group, and give further details next week.
The creation of such a committee could help quell the anxiety felt
within some European countries and companies that the new global
accounting standards being developed jointly by IASB and the U.S.-based
Financial Accounting Standards Board don't represent their interests.
Currently, IASB's European constituents are proposing local or
industry-specific exceptions to International Financial Reporting
Standards, known as "carve-outs."
"They feel slightly disenfranchised ... [wondering] what this group
is doing floating around in global space just sticking laws onto us?"
Tweedie said.
Although he didn't say specifically how such a monitoring system
might work, the IASB chairman said it could function similarly to the
SEC's oversight of FASB. The committee could maintain equanimity over
the varying interests represented on the standards board and could act
as an "endorsement mechanism" or a "second check" to ensure that it
operates in the public interest, according to Tweedie.
Continued at
http://www.cfo.com/printable/article.cfm/10086117/c_2984368?f=options
November 4, 2007 message from David Albrecht
[albrecht@PROFALBRECHT.COM]
Oh, the beauty of it. US GAAP for years has been
set up with the FASB overseen by the SEC. Recently, we saw the creation of
the PCAOB to oversee the auditors, and the PCAOB is overseen by the SEC. The
SEC, established by law with commissioners appointed by the President,
oversees both the FASB and the PCAOB.
Internationally, the band wagon is rolling
unstoppably along behind the IASB. Now the IASB wants an overseer. My guess
is that sometime soon we will see the crying out need for an international
group to oversee the auditors, the PCAOBI (Public Company Accounting
Oversight Board International, pronounced pah-KOBI Bryant, with the Bryant
silent). Why not? The large firms are international, and they dominate the
audit markets in most countries. I doubt that any governmental oversight
group will ever have much control over them. Right now, governmental
oversight is diffused, spread from country to country. Shouldn't
international audit firms applying international accounting rules have
international oversight?
And who will be the oversight group for IASB and
PCAOBI? And from where springs the authority to have any real power? The
FASB plugs into the SEC's power outlet, so does the PCAOB. Would the IASB
like to? It certainly is having difficulty maintaining control over its own
rules in the face of EU carveouts. I suspect the carveouts will last a
while, because the EU has its own power supply independent of the US. So,
whose power supply will the IASB plug into, the SEC or the EU? Are there
alternatives?
Right now I guess we could say that the IASB is
operating on broadcast power. It got a huge kick in popularity when the EU
adopted its rules. With the carveouts I see the EU exerting its power, and
if the IASB wishes to continue using EU's power, it had better fall in line
and plug directly into the EU. But that won't go over so well with the rest
of the world. The US has its own power supply and there are power generators
in other parts of the world.
My background is in political science, My original
take on accounting rule harmonization was that irrevocable ceding of
authority needs to be agreed to, or else rule harmonization would be as
ineffective as the United Nations. The United Nations has never been
effective because nations don't cede any real authority to it. It takes too
much trust.
Here, I think, is where the excrement will hit the
rotary blade. Accounting rules make a difference, a supposition borne out
around the world, time and time again, by governments exerting control over
them. Does the US trust the EU? Does China or Japan trust the EU? No. Does
anybody trust the EU? No. But then, does the EU trust anybody else? No.
Nobody trusts anybody.
Hence springs the IASB's search for its own power
outlet. It won't find one because there isn't one.
Militarily, the US and Europe combined to form
NATO, and arguably NATO has been more effective than the UN in peacekeeping.
Something similar needs to be created for IASB to plug into.
In other words, I don't see true harmonization
until the world's securities markets are brought under the control of an
International Securities Market Group (perhaps called the International
Securities & Exchange Commission), resulting from international treaty. I
think that the discussion needs to expand to securities markets because I
don't that sufficient power can be collected for only the IASB proposal for
a power supply only for accounting rules. What about the auditors? What
about the securities markets?
But NATO hasn't been very effective, as some of its
countries still act unilaterally (I won't even talk about the UN). Nobody
will irrevocably cede its authority. Nor will it happen here with accounting
rules. There just isn't enough trust.
Consequently I think the new IASB idea will fly
about the time that swine and pachyderms fly. However, if it does get off
the ground, then I don't think it will ever be very effective.
David Albrecht
Bowling Green
November 26, 2007 message from Miklos A. Vasarhelyi
[miklosv@andromeda.rutgers.edu]
HSBC in $45bn SIV bailout
By Paul J Davies
The New York Times
Published: November 26 2007 12:59 | Last updated: November 26 2007 12:59
HSBC has unveiled plans to take $45bn of
mainly complex debt investments onto its balance sheet to end uncertainty
surrounding its structured investment vehicles in the latest sign of the
pressure banks are experiencing as a result of the credit squeeze.
The UK-listed bank said its decision to bail out its structured investment
vehicles (SIVs) would provide certainty for investors in the funds, for HSBC
shareholders and for the bank and could help support the broader market by
removing the threat of a fire sale of the assets its vehicle held.
However, its decision to go it alone could
be a blow for the US banks attempting to push through a US Treasury backed
plan to create the so-called super SIV by taking a large potential
collaborator out of the game.
HSBC was a relative late-comer to the multi-billion dollar investment game
that has been hobbled by this summer’s financial crisis, but it now hopes to
pioneer an escape route from the mire in which so many banks are stuck.
Stuart Gulliver, chief of its investment banking arm, said on Monday he
believed HSBC’s restructuring plan for its $45bn (£22bn) in SIVs, the first
of which it launched in the summer of 2005, would “set a benchmark and
restore a degree of confidence to the SIV sector”.
These vehicles have had little good news since western financial markets
began to look increasingly gummed up in August. There has been only one
successful restructuring to date and almost half a once-$400bn-plus market
now faces downgrades from rating agencies.
SIVs look to profit from the difference between cheap short-term funding in
the commercial paper markets and the higher returns on financial company
debt and complex debt products. But they have seen funding dry up and the
value of their assets fall as investors fled from anything possibly tainted
by the US subprime mortgage market.
HSBC has decided that the funding issues in the broad SIV sector are not
going to be resolved for some time. Without action, its two vehicles – known
as Cullinan and Asscher – would be likely to breach the common SIV covenants
that would force a firesale of its holdings.
The threat of such firesales is part of the vicious circle helping to still
further depress the values of the common assets all SIVs hold.
“The market needs these decisive steps to restore faith,” HSBC said on
Monday. “It will help the market because our SIVs’ assets are no longer
hanging over it, they’re off the table.”
The bank insists its move also helps its shareholders, mainly because it
provides certainty at no great cost, arguing: “What is the alternative? If
you’re going to let these vehicles go, what is the litigation risk from [SIV]
investors? That is untested.”
While the bank will take $45bn of SIV assets on to its balance sheet, the
junior investors who bear the risk of the first losses from those assets are
expected to remain in place in two new vehicles – albeit probably having
taken some kind of loss in the restructuring and earning a lower return.
The ongoing presence of these investors means the bank expects no material
impact on its earnings and only a limited impact on its regulatory capital
base.
The alternative for junior investors in the two SIVs is to retain holdings
in vehicles that HSBC said it could not guarantee would be able to raise
funding. By implication, the bank will do little else to support any rump
SIVs or investors holding out in them.
EDITOR’S CHOICE
Normally I avoid forwarding of advertising messages, especially for expensive
products that appear to be overpriced. But this may be of interest to many of
you to order for your library or on your library's free interlibrary-loan
service.
November 6, 2007 message from Amy Cole
[amy.cole@researchandmarkets.com]
I enclose details of our latest US Accounting
Report.
Our Accountancy in the United States industry
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Report Index:
CHAPTER 1 Market Overview 1.1 Market Definition 1.2
Research Highlights 1.3 Market Analysis
CHAPTER 2 Market Value
CHAPTER 3 Market Segmentation I
CHAPTER 4 Market Segmentation II
CHAPTER 5 Five Forces Analysis 5.1 Buyer Power 5.2
Supplier Power 5.3 New Entrants 5.4 Substitutes 5.5 Rivarly
CHAPTER 6 Leading Companies 6.1 Deloitte Touche
Tohmatsu 6.2 Ernst & Young International 6.3 KPMG International
CHAPTER 7 Market Forecasts 7.1 Market Value
Forecast
CHAPTER 8 Macroeconomic Indicators
CHAPTER 9 Appendix 9.1 Methodology 9.2 Industry
Associations 9.3 Related Our Research
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Ordering - Three easy ways to place your order:
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Thank you for your consideration.
Best Regards,
Amy Cole Senior Manager Research and Markets Ltd
amy.cole@researchandmarkets.com
Subscribe: Click on
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Humor Between November 1 and November 30, 2007
Saturday Night Live Clips from the 1980s ---
http://www.youtube.com/watch?v=pDv7GLz1qyw
John McCain sings Barbara Streisand ---
http://www.youtube.com/watch?v=XQeU4uvm40g
Gilda Radner -- Nadia Comaneci ---
http://www.youtube.com/watch?v=m9uNsHrkr3g
Gilda Radner - Emily Litela: Substitute Teacher ---
http://www.youtube.com/watch?v=afi2xeM5ZSI
Gilda Radner - Lets Talk Dirty To The Animals ---
http://www.youtube.com/watch?v=0SVmQMPaLMQ
A Tribute to the Incredible Gilda Radner ---
http://www.youtube.com/watch?v=scSpb6Q949o
Britney Spears singing Everytime at saturday night live ---
http://www.youtube.com/watch?v=LMccA6IxDdM
I want them to play Britney Spears at my funeral. This
way I won't feel so bad about being dead, and everyone there will know there is
something worse than Death.
Gary Numan
Saturday Night Live , Lohan / Hilary Duff / Avril Lavigne ---
http://www.youtube.com/watch?v=m0bS3w8admY
Paul McCartney Saturday Night Live May 17, 1980 ---
http://www.youtube.com/watch?v=9aOR-3WpTag
Stompin' Tom Connors - Sudbury Saturday Night (Live 2005) ---
http://www.youtube.com/watch?v=Dw7rzpvDvS0
How to be a Good Wife ---
http://www.snopes.com/language/document/goodwife.asp
With Pictures
In a politically correct age, they seem like outrageous
anachronisms. And there is no doubt these adverts - many taken from the first
half of the last century - reveal just how much women used to be caricatured as
downtrodden housewives or hair-brained office girls. Now, a new book - You
Mean A Woman Can Open It?: The Woman's Place In The Classic Age Of Advertising
- brings together images which would surely cause a howl of protest if they were
released today.
"The outrageously politically incorrect adverts from the time equality forgot,"
London Daily Mail, November 28, 2007 ---
Click Here
Accountants Like Their Figures
November 28, 2007 message from Linda A. Kidwell
[LKidwell@uwyo.edu]
Bumper Stickers for the Elderly ---
http://www.trinity.edu/rjensen/tidbits/2007/Bumperstickers02.htm
Funny Signs ---
http://eightsolid.com/24-very-strange-funny-signs/
Computer Stupidities ---
http://www.rinkworks.com/stupid/cs_paranoia.shtml
Forwarded by a Neighbor
The Maid asked for a raise.
The Madam was very upset about
this and asked: "Now Maria, why do you want an increase?"
Maria: "Well Madam, there are
three reasons why I want an increase. The first is that I iron
better than you."
Madam: "Who said you iron
better than me?"
Maria: "The Master said so."
Madam: "Oh."
Maria: "The second reason is
that I am a better cook than you."
Madam: "Nonsense, who said you
were a better cook than I?"
Maria: "The Master did."
Madam: "Oh."
Maria: "My third reason is that
I am a better lover than you."
Madam (very upset now): "Did
the Master say so as well?"
Maria: "No Madam, the gardener
did
..."
Forwarded by James Don
I don't know if you have seen these before--they have been circulating for a
while. If you have not seen them I thought you might get a laugh out of them.
These sentences are reported to have actually appeared in church bulletins or
were announced in church services:
(Summer, 2006 Release)
--------------------------
The Fasting & Prayer Conference includes meals.
--------------------------
The sermon this morning: 'Jesus Walks on the Water.'
The sermon tonight: 'Searching for Jesus.'
--------------------------
Ladies, don't forget the rummage sale. It's a chance to get rid of those
things not worth keeping around the house.
Bring your husbands.
--------------------------
Remember in prayer the many who are sick of our community. Smile at someone
who is hard to love. Say 'Hell' to someone who doesn't care much about you.
--------------------------
Don't let worry kill you off - let the Church help.
--------------------------
Miss Charlene Mason sang 'I will not pass this way again,' giving obvious
pleasure to the congregation.
--------------------------
For those of you who have children and don't know it, we have a nursery
downstairs.
--------------------------
Next Thursday there will be tryouts for the choir.
They need all the help they can get.
--------------------------
Irving Benson and Jessie Carter were married on October 24 in the church. So
ends a friendship that began in their school days.
--------------------------
A bean supper will be held on Tuesday evening in the church hall. Music will
follow.
--------------------------
At the evening service tonight, the sermon topic will be 'What Is Hell?'
Come early and listen to our choir practice.
--------------------------
Eight new choir robes are currently needed due to the addition of several new
members and to the deterioration of some older ones.
Scouts are saving aluminium cans, bottles and other items to be recycled.
Proceeds will be used to cripple children.
--------------------------
Please place your donation in the envelope along with the deceased person you
want remembered.
--------------------------
The church will host an evening of fine dining, super entertainment and
gracious hostility.
--------------------------
Potluck supper Sunday at 5:00 PM - prayer and medication to follow.
--------------------------
The ladies of the Church have cast off clothing of every kind.
They may be seen in the basement on Friday afternoon.
--------------------------
This evening at 7 PM there will be a hymn singing in the park across from the
Church. Bring a blanket and come prepared to sin.
--------------------------
Ladies Bible Study will be held Thursday morning at 10 AM. All ladies are
invited to lunch in the Fellowship Hall after the B. S. is done.
--------------------------
The pastor would appreciate it if the ladies of the congregation would lend
him their electric girdles for the pancake breakfast next Sunday.
--------------------------
Low Self Esteem Support Group will meet Thursday at 7 PM. Please use the back
door.
--------------------------
The eighth-graders will be presenting Shakespeare's Hamlet in the Church
basement Friday at 7 PM. The congregation is invited to attend this tragedy.
--------------------------
Weight Watchers will meet at 7 PM at the First Presbyterian Church. Please
use large double door at the side entrance.
--------------------------
The Associate Minister unveiled the church's new tithing campaign slogan last
Sunday: 'I Upped My Pledge - Up Yours.'
Forwarded by Auntie Bev
Once again, The Washington Post has published the winning submissions
to its yearly neologisms, in which readers are asked to supply alternate
meanings for common words.
The winners are:
1. Coffee (n.), the person upon whom one coughs.
2. Flabbergasted (adj.), appalled over how much weight you have gained.
3. Abdicate (v.), to give up all hope of ever having a flat stomach.
4. Esplanade (v.), to attempt an explanation while drunk.
5. Willy-nilly (adj.), impotent.
6. Negligent (adj.), describes a condition in which you absentmindedly answer
the door in your nightgown.
7. Lymph (v.), to walk with a lisp.
8. Gargoyle (n.), olive-flavored mouthwash.
9. Flatulence (n.) emergency vehicle that picks you up after you are run over
by a steamroller.
10. Balderdash (n.), a rapidly receding hairline.
11. Testicle (n.), a humorous question on an exam.
12. Rectitude (n.), the formal, dignified bearing adopted by proctologists.
13. Pokemon (n), a Rastafarian proctologist.
14. Oyster (n.), a person who sprinkles his conversation with Yiddishisms.
15. Frisbeetarianism (n.), The belief that, when you die, your Soul flies up
onto the roof and gets stuck there.
16. Circumvent (n.), an opening in the front of boxer shorts worn by Jewish
men.
The Washington Post's Style Invitational also asked readers to take any word
from the dictionary, alter it by adding, subtracting, or changing one letter,
and supply a new definition.
Here are this year's winners:
1. Bozone (n.): The substance surrounding stupid people that stops bright
ideas from penetrating. The bozone layer, unfortunately, shows little sign of
breaking down in the near future.
2. Foreploy (v): Any misrepresentation about yourself for the purpose of
getting laid.
3. Cashtration (n.): The act of buying a house, which renders the subject
financially impotent for an indefinite period.
4. Giraffiti (n): Vandalism spray-painted very, very high.
5. Sarchasm (n): The gulf between the author of sarcastic wit and the person
who doesn't get it.
6. Inoculatte (v): To take coffee intravenously when you are running late.
7. Hipatitis (n): Terminal coolness.
8. Osteopornosis (n): A degenerate disease.
9. Karmageddon (n): Its like, when everybody is sending off all these really
bad vibes, right? And then, like, the Earth explodes and it's like, a serious
bummer.
10 Decafalon (n.): The grueling event of getting through the day consuming
only things that are good for you.
11. Glibido (v): All talk and no action.
12. Dopeler effect (n): The tendency of stupid ideas to seem smarter when
they come at you rapidly.
13. Arachnoleptic fit (n.): The frantic dance performed just after you've
accidentally walked through a spider web.
14. Beelzebug (n.): Satan in the form of a mosquito that gets into your
bedroom at three in the morning and cannot be cast out.
15. Caterpallor (n.): The color you turn after finding half a grub in the
fruit you're eating.
And the pick of the literature:
16. Ignoranus (n): A person who's both stupid and an a-hole.
Forwarded by Gene and Joan
DIVORCE VS. MURDER
A nice, calm and respectable lady went into the pharmacy, walked up to the
pharmacist, looked straight into his eyes, and said, "I would like to buy some
cyanide."
The pharmacist asked, "Why in the world do you need cyanide?"
The lady replied, "I need it to poison my husband."
The pharmacist's eyes got big and he exclaimed, "Lord have mercy! I can't
give you cyanide to kill your husband. That's against the law! I'll lose my
license! They'll throw both of us in jail! All kinds of bad things will happen.
Absolutely not! You CANNOT have any cyanide!"
The lady reached into her purse and pulled out a picture of her husband in
bed with the pharmacist's wife.
The pharmacist looked at the picture and replied, "Well now, that's
different. You didn't tell me you had a prescription."
Forwarded by Paula
Forget Rednecks, here is what Jeff Foxworthy has to say about folks from
Texas ...
You May Live In Texas IF:
If someone in a Lowe's store offers you assistance and they don't work there,
you may live in Texas
If you've worn shorts and a parka at the same time, you may live in Texas .
If you've had a lengthy telephone conversation with someone who dialed a
wrong number, you may live in Texas .
If "Vacation" means going anywhere south of Dallas for the weekend, you may
live in Texas .
If you measure distance in hours, you may live in Texas
If you know several people who have hit a deer more than once, you may live
in Texas .
If you install security lights on your house and garage, but leave both
unlocked, you may live in Texas .
If you carry jumper cables in your car and your wife knows how to use them,
you may live in Texas .
If the speed limit on the highway is 55 mph -- you're going 80 and everybody
is passing you, you may live in Texas
If you find 60 degrees "a little chilly", you may live in Texas .
Forwarded by Dick Haar
Political Correctness is a doctrine, fostered by a delusional, illogical,
liberal minority and rabidly promoted by an unscrupulous mainstream media, which
holds forth the proposition that it is entirely possible to pick up a t _ _d by
the clean end.
Teachers' Notes in Report Cards
Forwarded by Gene and Joan
These are supposedly actual comments made on students' report cards by
teachers In the New York City public school system. All teachers
were purportedly reprimanded. Who knows? But they're funny anyway. They might
also have been comments on RateMyProfessor ---
http://www.ratemyprofessors.com/index.jsp
01 Since my last report, your child has reached rock bottom and has started
to dig.
02. I would not allow this student to breed.
03. Your child has delusions of adequacy.
04. Your son is depriving a village some where of an 'idiot'.
05. Your son sets low personal standards, and then consistently fails to
achieve them.
06. The student has a "full six-pack" but lacks the plastic thing to hold it
all together.
07. This child has been working with glue too much.
08. When your daughter's IQ reaches 50, she should sell.
09. The gates are down, the lights are flashing, but the train isn't coming.
10. If this student were any more stupid, he'd have to be watered ---
Twice a week.
11. It's impossible to believe the sperm that created this child, beat out
1,000,000 others .
12. The wheel is turning, but the hamster is definitely dead.
Forwarded by Moe
Four Worms and a Lesson
A minister decided that a visual demonstration would add emphasis to his
Sunday sermon.
Four worms were placed into four separate jars.
The first worm was put into a container of alcohol. The second worm was put
into a container of cigarette smoke. The third worm was put into a container of
chocolate syrup. The fourth worm was put into a container of good clean soil.
At the conclusion of the sermon, the Minister reported the following results:
The first worm in alcohol - Dead.
The second worm in cigarette smoke - Dead.
Third worm in chocolate syrup - Dead.
Fourth worm in good clean soil - Alive.
So the Minister asked the congregation -
What can you learn from this demonstration?
Maxine was sitting in the back, quickly raised her hand and said,
"As long as you drink, smoke and eat chocolate, you won't have worms!"
Forwarded by Paula
To all you dog lovers out there and those who understand the difference
between Yankees and Southerners...
A Translation Of Yankee Dogs To Southern Dawgs
(Yankee) German Shepherd Dog
(Southern) Poh-leece Dawg.
(Yankee) Poodle
(Southern) Circus Dawg.
(Yankee) St. Bernard
(Southern) "Thank Gawd, Here Comes The Whiskey Dawg."
(Yankee) Doberman Pinscher
(Southern-2 versions) Bad Dawg, or Dobimin Pinches.
(Yankee) Beagle
(Southern) Rabbit Dawg.
(Yankee) Rottweiler
(Southern) Bad Dawg AND Mean As Heck Dawg. Good dawg to guard the still.
(Yankee) Yellow Lab
(Southern) Ol' Yeller Dawg.
(Yankee) Black Lab
(Southern) Duck fetchin' Dawg.
(Yankee) Greyhound
(Southern) Greased Lightnin' Dawg.
(Yankee) Malinois
(Southern) Another kind of Poh-leece Dawg.
(Yankee) Blue Ticks, Red Bones, etc.
(Southern) Prize Coon Dawgs.
(Yankee) Pekinese
(Southern) Mop Dawg.
(Yankee) Chinese Crested
(Southern) Nekkid Dawg.
(Yankee) Dachshund (
Southern) Wienie Dawg.
(Yankee) Siberian Husky
(Southern) Sled-Pullin' Dawg.
(Yankee) Bouvier, Komondor
(Southern) "What The Heck Kinda Dawg Is That?"
(Yankee) Great Dane, Mastiff
(Southern) Danged BIG Dawg.
(Yankee) Any dog that raids the hen house (Southern) Egg-Suckin' Dawg.
(Yankee) Any lazy dog
(Southern) Good fer nothin' Dawg.
(Yankee) Any dog that's dead & buried & gone to Rainbow Bridge
(Southern) Best danged Dawg I ever had.
Forwarded by Auntie Bev
Reporters
interviewing a 104-year-old woman: 'And what do you think is the best thing
about being 104?' the reporter asked. She simply replied, 'No peer pressure.'
_______________________________
The nice thing about being senile is you can hide your own Easter eggs
.
__________________________________________________________
I've sure gotten old! I've had two bypass surgeries, a hip replacement, new
knees, fought prostate cancer and diabetes. I'm half blind, can't hear anything
quieter than a jet engine, take 40 different medications that make me dizzy,
winded, and subject to blackouts. Have bouts with dementia. Have poor
circulation; hardly feel my hands and feet anymore. Can't remember if I'm 85 or
92. Have lost all my friends. But, thank God, I still have my driver's license.
________________________________
I feel like my body has gotten totally out of shape, so I got my doctor's
permission to join a fitness club and start exercising. I decided to take an
aerobics class for seniors. I bent, twisted, gyrated, jumped up and down, and
perspired for an hour. But, by the time I got my leotards on, the class was
over.
_______________________________
An elderly woman decided to prepare her will and told her preacher she had two
final requests. First, she wanted to be cremated, and second, she wanted her
ashes scattered over Wal-Mart.
'Wal-Mart?' the preacher exclaimed. 'Why Wal-Mart?'
'Then I'll be sure my daughters visit me twice a week.'
____________________________________________________________
My memory's not as sharp as it used to be. Also, my memory's not as sharp as it
used to be.
________________________________
Know how to prevent sagging? Just eat till the wrinkles fill out.
_______________________________
It's scary when you start making the same noises as your coffee maker.
______________________________
These days about half the stuff in my shopping cart says, 'For fast relief.'
______________________________
Remember: You don't stop laughing because you grow old, You grow old because you
stop laughing.
________________________________
--- THE SENILITY PRAYER : Grant me the senility to forget the people I never
liked anyway, the good fortune to run into the ones I do, and the eyesight to
tell the difference.
Celebrities Without Makeup (video) ---
http://www.evtv1.com/player.aspx?itemnum=7335
Celebrities With Two Names ---
http://www.trinity.edu/rjensen/tidbits/2007/CelebrityNames.htm
Maxine's Living will forwarded by
Paula
Last night my girlfriend and I were sitting in the den and I said to her, “I
never want to live in a vegetative state, dependent on some machine and fluids
from a bottle to keep me alive. That would be no quality of life at all. If that
ever happens, just pull the plug.”
So she got up, unplugged the computer, and threw out my wine.
Forwarded by a neighbor
The tribal wisdom of
the Dakota Indians, passed on from generation to generation says that "When
you discover that you are riding a dead horse, the best strategy is to
dismount."
However, in government, education, and in corporate America, more
advanced strategies are often employed, such as:
1. Buying a stronger whip.
2. Changing riders.
3. Appointing a committee to study the horse.
4. Arranging to visit other countries to see how other cultures
ride dead horses.
5. Lowering the standards so that dead horses can be included.
6. Reclassifying the dead horse as living-impaired.
7. Hiring outside contractors to ride the dead horse.
8. Harnessing several dead horses together
9. Providing additional funding and/or training to increase dead
horse's performance.
10. Rewriting the expected performance requirements for all horses.
And of course...
Promoting the dead horse to a management position.
And that's the way it was on November 30, 2007 with a little help from my friends.
Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
Facts about the earth in real time ---
http://www.worldometers.info/
Jesse's Wonderful Music for Romantics (You have to scroll down to the titles) ---
http://www.jessiesweb.com/
International Accounting News (including the U.S.)
AccountingEducation.com and Double Entries ---
http://www.accountingeducation.com/
Upcoming international accounting conferences ---
http://www.accountingeducation.com/events/index.cfm
Thousands of journal abstracts ---
http://www.accountingeducation.com/journals/index.cfm
Deloitte's International Accounting News ---
http://www.iasplus.com/index.htm
Association of International Accountants ---
http://www.aia.org.uk/
Wikipedia has a rather nice summary of accounting software at
http://en.wikipedia.org/wiki/Accounting_software
Bob Jensen’s
accounting software bookmarks are at
http://www.trinity.edu/rjensen/Bookbob1.htm#AccountingSoftware
Bob Jensen's accounting
history summary ---
http://www.trinity.edu/rjensen/Theory01.htm#AccountingHistory
Bob Jensen's accounting
theory summary ---
http://www.trinity.edu/rjensen/Theory.htm
Free Harvard Classics ---
http://www.bartleby.com/hc/
Free Education and Research Videos from Harvard University ---
http://athome.harvard.edu/archive/archive.asp
I highly recommend TheFinanceProfessor (an absolutely fabulous and totally free newsletter from a very smart finance professor, Jim Mahar from St. Bonaventure University) ---
http://www.financeprofessor.com/
Bob Jensen's bookmarks for accounting newsletters are at
http://www.trinity.edu/rjensen/bookbob1.htm#News
News Headlines for Accounting from TheCycles.com ---
http://www.thecycles.com/business/accounting
An unbelievable number of other news headlines categories in TheCycles.com are at
http://www.thecycles.com/
Jack Anderson's Accounting Information Finder ---
http://www.umsl.edu/~anderson/accsites.htm
Gerald Trite's great set of links ---
http://www.zorba.ca/bookmark.htm
The Finance Professor ---
http://www.financeprofessor.com/about/aboutFP.html
Walt Mossberg's many answers to questions in technology ---
http://ptech.wsj.com/
How stuff works ---
http://www.howstuffworks.com/
Household and Other Heloise-Style Hints ---
http://www.trinity.edu/rjensen/bookbob3.htm#Hints
Bob Jensen's video helpers for MS Excel, MS Access, and other helper videos are at
http://www.cs.trinity.edu/~rjensen/video/
Accompanying documentation can be found at
http://www.trinity.edu/rjensen/default1.htm and
http://www.trinity.edu/rjensen/HelpersVideos.htm
Click on
www.syllabus.com/radio/index.asp for a complete list of interviews with established leaders, creative thinkers and education technology experts in higher education from around the country.
Professor Robert E. Jensen (Bob)
http://www.trinity.edu/rjensen
190 Sunset Hill Road
Sugar Hill, NH 03586
Phone: 603-823-8482
Email:
rjensen@trinity.edu

October 31, 2007
Bob Jensen's New Bookmarks between October
1 and October 31, 2007
Bob Jensen at
Trinity University
For earlier editions of Tidbits go to
http://www.trinity.edu/rjensen/TidbitsDirectory.htm
For earlier editions of New Bookmarks go to
http://www.trinity.edu/rjensen/bookurl.htm
Click here to search Bob Jensen's web site if you have key words to enter --- Search Site.
For example if you want to know what Jensen documents have the term "Enron" enter the phrase Jensen AND Enron. Another search engine that covers Trinity and other universities is at
http://www.searchedu.com/.
Bob Jensen's Blogs ---
http://www.trinity.edu/rjensen/JensenBlogs.htm
Current and past editions of my newsletter called New Bookmarks ---
http://www.trinity.edu/rjensen/bookurl.htm
Current and past editions of my newsletter called
Tidbits ---
http://www.trinity.edu/rjensen/TidbitsDirectory.htm
Current and past editions of my newsletter called Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
Bob Jensen's past presentations and lectures
---
http://www.trinity.edu/rjensen/resume.htm#Presentations
Bob Jensen's various threads ---
http://www.trinity.edu/rjensen/threads.htm
(Also scroll down to the table at
http://www.trinity.edu/rjensen/ )
Roles of a ListServ
---
http://www.trinity.edu/rjensen/ListServRoles.htm
Click here to search this Website if you have key words to enter --- Search Site.
For example if you want to know what Jensen documents have the term "Enron" enter the phrase Jensen AND Enron. Another search engine that covers Trinity and other universities is at
http://www.searchedu.com/
Bob Jensen's Home Page is at
http://www.trinity.edu/rjensen/
CPA Examination ---
http://en.wikipedia.org/wiki/Cpa_examination
Accountancy Discussion ListServs:
For an elaboration on the reasons you should join a ListServ (usually for
free) go to http://www.trinity.edu/rjensen/ListServRoles.htm
AECM (Educators)
http://pacioli.loyola.edu/aecm/
AECM is an email Listserv list which provides a
forum for discussions of all hardware and software which can be useful
in any way for accounting education at the college/university level.
Hardware includes all platforms and peripherals. Software includes
spreadsheets, practice sets, multimedia authoring and presentation
packages, data base programs, tax packages, World Wide Web
applications, etcRoles
of a ListServ ---
http://www.trinity.edu/rjensen/ListServRoles.htm
|
CPAS-L
(Practitioners)
http://pacioli.loyola.edu/cpas-l/
CPAS-L provides a forum for discussions of all
aspects of the practice of accounting. It provides an unmoderated
environment where issues, questions, comments, ideas, etc. related to
accounting can be freely discussed. Members are welcome to take an
active role by posting to CPAS-L or an inactive role by just
monitoring the list. You qualify for a free subscription if you are
either a CPA or a professional accountant in public accounting,
private industry, government or education. Others will be denied
access. |
Yahoo
(Practitioners)
http://groups.yahoo.com/group/xyztalk
This
forum is for CPAs to discuss the activities of the AICPA. This can be
anything from the CPA2BIZ portal to the XYZ initiative or
anything else that relates to the AICPA. |
AccountantsWorld
http://accountantsworld.com/forums/default.asp?scope=1
This site hosts various discussion groups on such topics as accounting
software, consulting, financial planning, fixed assets, payroll, human
resources, profit on the Internet, and taxation. |
Business Valuation Group
BusValGroup-subscribe@topica.com
This discussion group is headed by Randy Schostag
[RSchostag@BUSVALGROUP.COM] |
Recent Tidbits ---
http://www.trinity.edu/rjensen/TidbitsDirectory.htm
2007
July 2
July 7
July 16
July 23
2007
August 1
August 9
August 16
August 26
2007
September 5
September 10
September 18
September 24
2007
October 1
October 10
October 17
October 30
Tidbits Directory for Earlier Months and Years ---
http://www.trinity.edu/rjensen/TidbitsDirectory.htm
New Bookmarks Directory for Earlier Months and Years ---
http://www.trinity.edu/rjensen/Bookurl.htm
Bob Jensen's Threads ---
http://www.trinity.edu/rjensen/Threads.htm
Humor Between October 1 and October 31, 2007 ---
http://www.trinity.edu/rjensen/book07q4.htm#Humor103107
Humor Between September 1 and September 30, 2007 ---
http://www.trinity.edu/rjensen/book07q3.htm#Humor093007
Humor Between July 1 and August 31, 2007 ---
http://www.trinity.edu/rjensen/book07q3.htm#Humor083107
Links to Documents on Fraud ---
http://www.trinity.edu/rjensen/Fraud.htm
Bob Jensen's search helpers are at
http://www.trinity.edu/rjensen/searchh.htm
Bob Jensen's Bookmarks ---
http://www.trinity.edu/rjensen/bookbob.htm
Bob Jensen's links to free electronic literature, including free online textbooks ---
http://www.trinity.edu/rjensen/ElectronicLiterature.htm
Bob Jensen's links to free online video, music, and other audio ---
http://www.trinity.edu/rjensen/Music.htm
Bob Jensen's documents on accounting theory are at
http://www.trinity.edu/rjensen/theory.htm
Bob Jensen's links to free course materials from major universities ---
http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI
Bob Jensen's links to online education and training alternatives around the world ---
http://www.trinity.edu/rjensen/Crossborder.htm
Bob Jensen's links to electronic business, including computing and networking security, are at
http://www.trinity.edu/rjensen/ecommerce.htm
Bob Jensen's links to education technology and controversies ---
http://www.trinity.edu/rjensen/000aaa/0000start.htm
Bob Jensen's home page ---
http://www.trinity.edu/rjensen/
Bob Jensen's complete set of Enron Updates are at
http://www.trinity.edu/rjensen/FraudEnron.htm#EnronUpdates
Bob Jensen's threads on the Enron scandal are at
http://www.trinity.edu/rjensen/FraudEnron.htm
Congratulations to Kathy Eddy and Gary Previts
The American Institute of Certified Public Accountants
(AICPA) this week awarded Kathy Eddy, CPA, former Chairman, and Professor Gary
John Previts, CPA, PhD, former member of its governing Council and Board of
Directors, the 2007 Gold Medal for Distinguished Service. The award recognizes
those individuals whose influence on accounting as a whole is especially notable
in comparison to other profession leaders. It is the highest award granted by
the AICPA.
Accounitng Education, October 25, 2007 ---
http://accountingeducation.com/index.cfm?page=newsdetails&id=145711
Jensen Comment
Gary Previts is a noted accounting historian and a professor of accounting at
Case Western. He is the current President of the American Accounting Association
---
http://weatherhead.case.edu/faculty/faculty.cfm?id=5309
My wife is grateful for the prayer books he frequently sends to her.
Question
Accountants talk a lot about "intangibles" and accountant inability to usefully
measure intangibles of companies. Economists also talk about intangibles and
economist inability build successful models incorporating intangibles and
externalities that give rise to troublesome non-convexities in mathematical
optimization.
What is the World Bank's definition that gives rise to a claim that "the
average American has access to over $418,000 in intangible wealth, while the
stay-at-home Mexican's intangible wealth is just $34,000?"
"The Secrets of Intangible Wealth: For once the World Bank says
something smart about the real causes of prosperity," by Ronald Bailey,
Reason Magazine, October 5, 2007 ---
http://www.reason.com/news/show/122854.html
A Mexican migrant to the U.S. is five times more
productive than one who stays home. Why is that?
The answer is not the obvious one: This country has more machinery or tools
or natural resources. Instead, according to some remarkable but largely
ignored research—by the World Bank, of all places—it is because the average
American has access to over $418,000 in intangible wealth, while the
stay-at-home Mexican's intangible wealth is just $34,000.
But what is intangible wealth, and how on earth is it measured? And what
does it mean for the world's people—poor and rich? That's where the story
gets even more interesting.
Two years ago the World Bank's environmental economics department set out to
assess the relative contributions of various kinds of capital to economic
development. Its study, "Where is the Wealth of Nations?: Measuring Capital
for the 21st Century," began by defining natural capital as the sum of
nonrenewable resources (including oil, natural gas, coal and mineral
resources), cropland, pasture land, forested areas and protected areas.
Produced, or built, capital is what many of us think of when we think of
capital: the sum of machinery, equipment, and structures (including
infrastructure) and urban land.
But once the value of all these are added up, the economists found something
big was still missing: the vast majority of world's wealth! If one simply
adds up the current value of a country's natural resources and produced, or
built, capital, there's no way that can account for that country's level of
income.
The rest is the result of "intangible" factors—such as the trust among
people in a society, an efficient judicial system, clear property rights and
effective government. All this intangible capital also boosts the
productivity of labor and results in higher total wealth. In fact,
the World Bank finds, "Human capital and the value of institutions (as
measured by rule of law) constitute the largest share of wealth in virtually
all countries."
Once one takes into account all of the world's natural resources and
produced capital, 80% of the wealth of rich countries and 60% of the wealth
of poor countries is of this intangible type. The bottom line: "Rich
countries are largely rich because of the skills of their populations and
the quality of the institutions supporting economic activity."
What the World Bank economists have brilliantly done is quantify the
intangible value of education and social institutions. According to their
regression analyses, for example, the rule of law explains 57 percent of
countries' intangible capital. Education accounts for 36 percent.
The rule-of-law index was devised using several hundred individual variables
measuring perceptions of governance, drawn from 25 separate data sources
constructed by 18 different organizations. The latter include civil society
groups (Freedom House), political and business risk-rating agencies
(Economist Intelligence Unit) and think tanks (International Budget Project
Open Budget Index).
Switzerland scores 99.5 out of 100 on the rule-of-law index and the U.S.
hits 91.8. By contrast, Nigeria's score is a pitiful 5.8; Burundi's 4.3; and
Ethiopia's 16.4. The members of the Organization for Economic Cooperation
and Development—30 wealthy developed countries—have an average score of 90,
while sub-Saharan Africa's is a dismal 28.
The natural wealth in rich countries like the U.S. is a tiny proportion of
their overall wealth—typically 1 percent to 3 percent—yet they derive more
value from what they have. Cropland, pastures and forests are more valuable
in rich countries because they can be combined with other capital like
machinery and strong property rights to produce more value. Machinery,
buildings, roads and so forth account for 17% of the rich countries' total
wealth.
Overall, the average per capita wealth in the rich Organization for Economic
Cooperation Development (OECD) countries is $440,000, consisting of $10,000
in natural capital, $76,000 in produced capital, and a whopping $354,000 in
intangible capital. (Switzerland has the highest per capita wealth, at
$648,000. The U.S. is fourth at $513,000.)
By comparison, the World Bank study finds that total wealth for the low
income countries averages $7,216 per person. That consists of $2,075 in
natural capital, $1,150 in produced capital and $3,991 in intangible
capital. The countries with the lowest per capita wealth are Ethiopia
($1,965), Nigeria ($2,748), and Burundi ($2,859).
In fact, some countries are so badly run, that they actually have negative
intangible capital. Through rampant corruption and failing school systems,
Nigeria and the Democratic Republic of the Congo are destroying their
intangible capital and ensuring that their people will be poorer in the
future.
In the U.S., according to the World Bank study, natural capital is $15,000
per person, produced capital is $80,000 and intangible capital is $418,000.
And thus, considering common measure used to compare countries, its annual
purchasing power parity GDP per capita is $43,800. By contrast, oil-rich
Mexico's total natural capital per person is $8,500 ($6,000 due to oil),
produced capital is $19,000 and intangible capita is $34,500—a total of
$62,000 per person. Yet its GDP per capita is $10,700. When a Mexican, or
for that matter, a South Asian or African, walks across our border, they
gain immediate access to intangible capital worth $418,000 per person. Who
wouldn't walk across the border in such circumstances?
The World Bank study bolsters the deep insights of the late development
economist Peter Bauer. In his brilliant 1972 book Dissent on
Development, Bauer wrote: "If all conditions for development other than
capital are present, capital will soon be generated locally or will be
available . . . from abroad. . . . If, however, the conditions for
development are not present, then aid . . . will be necessarily unproductive
and therefore ineffective. Thus, if the mainsprings of development are
present, material progress will occur even without foreign aid. If they are
absent, it will not occur even with aid."
The World Bank's pathbreaking "Where is the Wealth of Nations?" convincingly
demonstrates that the "mainsprings of development" are the rule of law and a
good school system. The big question that its researchers don't answer is:
How can the people of the developing world rid themselves of the kleptocrats
who loot their countries and keep them poor?
Ronald Bailey is Reason's science correspondent. His most recent book,
Liberation Biology: The
Scientific and Moral Case for the Biotech Revolution, is available from
Prometheus Books.
Also see "Our Intangible Riches: World Bank economist Kirk Hamilton
on the planet's real wealth," Reason Magazine, August/September 2007
---
http://www.reason.com/news/show/120764.html
Also see
http://econlog.econlib.org/archives/2005/12/intangible_weal_1.html
The entire World Bank study (184 pages) can be downloaded free from
http://siteresources.worldbank.org/INTEEI/214578-1110886258964/20748034/All.pdf
Bob Jensen's threads on intangibles from the standpoint of accounting theory
and practice are at
http://www.trinity.edu/rjensen/Theory01.htm#TheoryDisputes
Intangibles ---
http://en.wikipedia.org/wiki/Intangibles
Externalities ---
http://en.wikipedia.org/wiki/Externalities
Trivia Question
The fact that open source and free Office Software is getting closer and closer
to quality of MS Office (Word, Excel, PowerPoint, etc.) software is still not
really threatening Microsoft's worldwide monopoly for its relatively expensive
MS Office software. What is the main intangible that gives MS Office products
such value in world markets?
Jensen's Opinion
I think the main intangible here is the cost of retraining over 90% of the
computer users of the world. Related to this is the difficulty students and
"white-collar workers" will encounter if they do not know how to use MS Office
software when seeking employment. Whereas most of drivers can drive rental cars
of most any manufacturer, computer users who cannot "drive" Excel, Word,
PowerPoint, etc. face tremendous barriers that give rise to the main intangible
asset of Microsoft Corporation. Organizations spent billions in training that
gave rise to billions in intangible assets of Microsoft. What's interesting is
the fact that Microsoft's main intangible asset came from the dollars spent by
customers rather than Microsoft itself.
From SmartPros on October 29, 2007
In his inaugural speech, Randy Fletchall, a partner with
Ernst & Young LLP, spoke of the responsibilities of the CPA
profession and its contributions to society. He addressed
the need to recruit more diverse individuals and young
people into the profession and, just as important, encourage
them to stay once they have entered it.
Full story and link to speech ---
http://accounting.smartpros.com/x59575.xml
|
|
Bob Jensen's threads on CPA professionalism are at
http://www.trinity.edu/rjensen/Fraud001.htm#Professionalism
From The Wall Street Journal Accounting Weekly Review on October 26,
2007
Inside Wal-Mart's Bid to Slash State Taxes
The Wall Street Journal
by Jesse Drucker
Oct 23, 2007
Page: A1
Click here to view the full article on WSJ.com ---
http://online.wsj.com/article/SB119309882278867779.html?mod=djem_jiewr_ac
TOPICS: Tax
Avoidance, Tax Evasion, Tax Laws, Tax Planning, Tax
Shelters, Taxation
SUMMARY: Wal-Mart's effective
state tax rate is approximately half the average state tax
rate on corporate income according to information presented
in a graph associated with this article. "Big companies
hardly ever discuss how outside accountants, lawyers and
investment bankers help them cut their tax bills. But Ernst
& Young's contributions to Wal-Mart's state-tax minimization
project are outlined in a raft of documents filed in recent
months in North Carolina state court. The material, which
includes company emails and memos, provides a rare window
into accountants' role in generating tax-reduction ideas at
one major company. In court papers, Wal-Mart has said that
some transactions implemented by Ernst & Young were intended
to cut taxes, but also to more efficiently manage its real
estate and potentially help raise capital. The case in North
Carolina state court stems from an arrangement involving
establishing a real-estate investment trust and transferring
real estate assets to that entity. The REIT is not taxed as
long as 90% of its income is paid out to shareholders, in
this case, Wal-Mart itself. Wal-Mart then deducted the
rental payments for the real estate, and the result is
avoidance of tax on a significant portion of income.
CLASSROOM APPLICATION: Courses
in taxation may use the article to add coverage of state tax
issues with great detail provided in the article. Auditing
courses may use the article to discuss business risk
implications from two different units of a public accounting
firm and to discuss changes in the types of services that
may be provided by a public accounting firm to an audit
client.
QUESTIONS:
1.) From what documents did the author of this article base
his report? Why were those documents filed in North Carolina
state courts?
2.) The real-estate investment trust strategy described in
the summary to this review and in the article is being
challenged by North Carolina and other states as an abusive
tax shelter. What is the basis for that characterization? In
your answer, comment on the notion of a "business purpose
test."
3.) What is an "engagement letter"? How might the scope of
the work described in this letter impact the business
purpose test described above?
4.) The author writes that "compared with many other large
multinational companies, Wal-Mart has a small presence in
foreign countries with low tax rates, reducing opportunities
to shift income overseas for tax purposes." How do companies
"shift income" among operations in different locations?
5.) Ernst & Young served as both Wal-Mart's auditors and its
advisor on the tax issues described in this article. How
does this arrangement impact an auditor's work?
6.) Suppose you are a partner with E&Y in audit and
assurance services. What are your concerns about statements
made in documents submitted to Wal-Mart such as the one
which is quoted in the article that "this is a very
aggressive strategy with considerable risk."
7.) What are "cookie-cutter tax shelters [that were] mass
marketed by accounting and law firms"? How do these plans
differ from "individually-tailored tax-cutting strategies"?
Reviewed By: Judy Beckman, University
of Rhode Island
|
From The Wall Street Journal Accounting Weekly Review on October 26,
2007
American Express Sets Aside More for Losses
The
Wall Street Journal
by Lingling Wei
Oct 23, 2007
Page: A2
Click here to view the full article on WSJ.com ---
http://online.wsj.com/article/SB119308492308067458.html?mod=djem_jiewr_ac
TOPICS: Accounting, Allowance
For Doubtful Accounts, Bad Debts
SUMMARY: American Express and
other card-issuing firms have increased loan loss reserves
in the third quarter ended 9/30/2007 as they have seen
increases in write-off and delinquency rates. American
Express Company's third-quarter profit increased 10% over
third-quarter 2006 results after increasing provisions for
loan losses on its U.S. card business by 44% in that same
time period. Analysts are downgrading their views on the
stocks of card-issuing companies both because of potentially
deteriorating credit and expected reduction in use of charge
and credit cards due to reduced consumer spending.
CLASSROOM APPLICATION: This is
an excellent article to frame discussion of allowances for
uncollectible accounts.
QUESTIONS:
1.) Summarize the accounting for estimated uncollectible
accounts. In your answer, define the terms used for account
titles as well as the terms "provisions" and "reserves" used
in the article.
2.) American Express indicated that factors which
contributed to the 44% increase in bad debt expense included
increasing write-off and delinquency rates. Specifically
explain how these two items impact the determination of the
allowance for doubtful accounts and bad debt expense. In
your answer, also define the phrase "aging of accounts
receivable."
3.) "Although American Express historically has been best
known for its charge cards...the company has seen strong
growth in its credit-card portfolio..." How does this change
in business strategy affect the estimate for uncollectible
accounts?
4.) Consider again American Express's changed business
strategy. How does that strategy impact analysts' views of
its business, for example, the view expressed by Lehman
Brothers analyst Bruce Harting?
Reviewed By: Judy Beckman, University
of Rhode Island
|
Lynn Brewer versus Sherron Watkins Whistleblowers at Enron
October 14, 2007 message from
dberesfo@uga.edu
Bob,
There was a terrific story in Friday's edition of
USA that unmasks a phony whistle blower at Enron who has established an
"ethics institute." Sorry I'm out of town and don't have the link but I'm
sure you can find it easily. Cynthia Cooper, who was a real hero in
uncovering the WorldCom fraud, is coming out with a book in early December
that is a grat read.
Denny
October 15. 2007 reply from Bob Jensen
Thanks
Denny.
Lynn Brewer
was never enough of a player to even mention in my threads on the Enron
scandal ---
http://www.trinity.edu/rjensen/FraudEnron.htm
I’m glad
Brewer and her book are being discredited ---
http://www.trinity.edu/rjensen/FraudEnronBrewer.htm
Fortunately she was not a fourth woman on the cover of Time Magazine in 2002
(see below)
Here's what USA Today did to Lynn Brewer:
Halloween Hangman (interactive video, hit the buttons) ---
http://www.dedge.com/flash/hangman/hangman.swf
I hope Lynn
Brewer is added to
Jude Werra's
"Liars Index" (See Below for “Executives Making It by Faking It”)
But then again Lynn Brewer even lied about being an executive at Enron
I’m
sure you know that Sherron Watkins was an executive VP whistleblower at
Enron who had more dirty words in her vocabulary than a rap star. The
failure of Arthur Andersen’s top brass to act on her disclosures about
Fastow’s SPE frauds became a huge embarrassment all the way to the top of
Andersen.
"Time Names Whistle-Blowers as Persons of
the Year 2002", Reuters, December 22, 2002 ---
http://www.reuters.com/newsArticle.jhtml?type=topNews&storyID=1948721
Time Magazine named a trio of women
whistle-blowers as its Persons of the Year on Sunday, praising their roles
in unearthing malfeasance that eroded public confidence in their
institutions.
Two of the women, Sherron Watkins, a vice
president at Enron Corp., and Cynthia Cooper of WorldCom Inc., uncovered
massive accounting fraud at their respective companies, which both went
bankrupt.
The third, Coleen Rowley, is an agent for the
Federal Bureau of Investigation. In May, she wrote a scathing 13-page memo
to FBI Director Robert Muller detailing how supervisors at a Minneapolis,
Minnesota field office brushed aside her requests to investigate Zacarias
Moussaoui, the so-called "20th hijacker" in the Sept. 11th attacks, weeks
before the attacks occurred.
"It came down to did we want to recognize a
phenomenon that helped correct some of the problems we've had over the last
year and celebrate three ordinary people that did extraordinary things,"
said Time managing editor Jim Kelly.
Other people considered by the magazine, which
hits stores on Monday, included President Bush, al Qaeda leader Osama bin
Laden, Vice President Dick Cheney and New York attorney general Eliot
Spitzer.
Bush was seen by some as the front-runner,
especially after he led his party to a mid-term electoral upset in November
that cemented the party's majority in Congress.
However, Kelly said "some of (Bush's) own goals:
the capture of Osama bin Laden, the unseating of Saddam Hussein, the revival
of a sluggish economy, haven't happened yet. There was a sense of bigger
things to come, and it might be wise to see how things played out," he
added.
Watkins, 43, is a former accountant best known
for a blunt, prescient 7-page memo to Enron chairman Kenneth Lay in 2001
that uncovered questionable accounting and warned that the company could
"implode in a wave of accounting scandals."
Her letter came to light during a post-mortem
inquiry conducted by Congress after the company declared bankruptcy.
Cooper undertook a one-woman crusade inside
telecommunications behemoth WorldCom, when she discovered that the company
had disguised $3.8 billion in losses through improper accounting.
When the scandal came to light in June after the
company declared bankruptcy, jittery investors laid siege to global stock
markets.
FBI agent and lawyer Rowley's secret memo was
leaked to the press in May. Weeks before Sept. 11, Rowley suspected
Moussaoui might have ties to radical activities and bin Laden, and she asked
supervisors for clearance to search his computer.
Her letter sharply criticized the agency's
hidebound culture and its decision-makers, and gave rise to new inquiries
over the intelligence-gathering failures of Sept. 11.
Bob Jensen's threads on the Enron and Worldcom scandals are at
---
http://www.trinity.edu/rjensen/FraudEnron.htm
Bob Jensen's
threads on whistle blowing are at
http://www.trinity.edu/rjensen/FraudConclusion.htm#WhistleBlowing
Woman Stole $2.89 Million, Bought Clothes, Shoes, Jewelry Former CFO Stole
Money Over Eight Years
A Greenville County woman is going to prison after
pleading guilty to stealing millions from her employer to finance her shopping
addiction. Brenda Rivard pleaded guilty to eight counts of breach of trust and
two counts of credit card fraud. The crimes took place between January 1998 and
December 2005 when Rivard was CFO of Lube USA. Rivard stole the money by
transferring more funds than necessary into the payroll account. She would then
spend the excess money by writing herself checks from the payroll account. She
also spent about $180,000 using the corporate American Express card on personal
items, most notably purchased from Nieman Marcus. Lube USA is a privately-owned
company headquartered in Japan that was formed in 1987. The company makes
lubricating equipment for the manufacturing industry. The Greenville company is
a distributor of the company. Prosecutor Sylvia Harrison said, "She then
falsified the bank statements that were sent back to Japan. They had no idea
that she was taking this money." . . . To recoup their losses, Lube USA found
liquidators to buy the clothing, jewelry, purses and shoes. Rivard was also able
to return one piece of jewelry for a refund, and she paid some restitution by
taking a second mortgage on her home.
WYFF Greenville, October 31, 2007 ---
http://www.wyff4.com/news/14463172/detail.html
Bob Jensen's fraud updates are at
http://www.trinity.edu/rjensen/FraudUpdates.htm
"Ex-CPA convicted of not paying taxes," by Bill Rankin The Atlanta
Journal-Constitution , October 31, 2007 ---
http://www.ajc.com/metro/content/printedition/2007/10/31/irs1031.html
Sherry Peel Jackson, a former IRS revenue agent and
certified public accountant, told a federal jury Tuesday she was sure she
did not have to file income tax returns.
But after less than 30 minutes of deliberations,
the jury convicted Jackson of failing to file income tax returns from 2000
through 2004. The Stone Mountain woman faces a maximum of four years in
prison. She will be sentenced early next year.
Jackson, 45, did not fit the typical profile of a
criminal defendant. She worked as a revenue agent from 1988 to 1995 and then
as an accountant.
But in July 2000, Jackson testified, she began to
question whether she had to pay income taxes. By the following year, she
decided she was not going to file a tax return.
Sitting at the witness stand, with large books of
federal regulations and the tax code in front of her, Jackson said she could
not find any section of the tax code that held her liable for income taxes.
"I'd done a lot of research and I was just about
sure," she testified. "I did not have to file an income tax return."
During cross-examination, assistant U.S. Attorney
Richard Langway read Section 1 of the tax code to Jackson, who is married. A
tax is imposed on "every married individual," Langway read, asking Jackson
how she could not be an individual.
"I couldn't find the definition of 'individual,' "
Jackson replied.
Lowell H. Becraft Jr., one of Jackson's attorneys,
told jurors they should not convict her of willfully disobeying the law
because Jackson had a "good faith" reason to believe she did not have to
file taxes. He reminded the jury Jackson attended Tuskegee University in
Alabama and the University of Georgia, raised a family and lived the life of
an ordinary American.
"You may have never heard of this before," Becraft
said. "To you, it may sound wild. It may sound crazy. ... But she believes
she's not required to file tax returns."
Langway called Jackson's reasoning "cockamamie" and
"absurd."
"She's an 'individual' —- she knows that," Langway
said. "You should disbelieve everything she said."
Bob Jensen's fraud updates are at
http://www.trinity.edu/rjensen/FraudUpdates.htm
Question
Are accounting education curricula meeting the information technology
preferences of large firms that employ the largest proportion of top gradating
students, most of whom are in college for five years because of the 150-credit
requirement to sit for the CPA examination?
Answer
Ed Scribner forwarded the following reference:
"Technology generation upgrades: Are educators and employers on the same page?"
AccountingWeb, October 16, 2007 ---
Click Here
The article is a reprint of a paper published in the Pennsylvania CPA Journal by
Susan C. Borkowski, Rose Marie L. Bukics, and
Jeannie Welsh
Jensen Comment
The general conclusion is that educators and employers are not on the same page,
especially AIS instructors. Employers generally seek higher level knowledge of
ERP systems, large database systems such as Oracle, and systems control issues.
Instructors tend to teach from traditional textbooks that are out of date and
provide little input for competency in the higher level knowledge areas.
For example, read about ERP systems at
http://en.wikipedia.org/wiki/ERP
Read about database systems at
http://en.wikipedia.org/wiki/Database
The paper does not delve into reasons and excuses for this incongruence
between expected and provided AIS/IT skills of graduating accounting majors. For
example, serious teaching of ERP requires instructors who have hands on
experience with ERP systems. Finding instructors with such skills is about are
probable as winning a Megabucks lottery. In fact finding instructors with AIS
skills in general is very difficult. Most are teaching AIS after bootstrapping
themselves with some lower-level textbooks and playing around with Quickbooks,
Great Plains, Peachtree, or some other relatively easy to use accounting
software.
Many AIS courses end up wanting or having to contain MS Excel and MS Access
because the curriculum did not provide sufficient content in prerequisite MIS
courses for AIS courses. The general conclusion of the article is as follows:
We all recognize that IT continues to grow in its
use and applications, and is constantly changing. This presents a continual
challenge for educators to deliver the very best students, with the very
best skill sets, to the marketplace. To solve this conundrum, accounting
firms and educators need to maintain close and frequent consultation to make
sure everyone is on the same page with respect to providing the right
exposure to the right technology.
I don't think the problem is so much knowing what employers want as it is in
finding and affording instructors who can deliver the courses that employers
wish we had in colleges.
There are a few, very few, programs that dogood jobs with such things as ERP
and database systems. I have a badly out of date page on this at
http://www.trinity.edu/rjensen/245glosap.htm
Especially note the email messages at the bottom of the document.
October 23, 2007 reply from Ed Scribner
[escribne@NMSU.EDU]
Bob,
Despite prominent mention of IT controls, ERP, and
several other things in the article, the authors stress advanced Excel
skills above all, saying that “all the practitioners we interviewed” said if
new hires came in knowing Excel, they could “hit the ground running” and
focus on learning firm-specific technology.
Although I have a hard time viewing Excel as an
accounting system, the AIS course always seems to take the heat for any
perceived shortage of Excel coverage (or any other computer-related skill
such as the use of audit software). Not surprisingly, the only syllabi the
authors examine are AIS syllabi. (In fairness, they did ask an open-ended
question on where in the curriculum students acquire Excel expertise). I
don’t think the one AIS course that most schools offer to undergraduates
should be depended on “for all that computer stuff.”
Ed Scribner
New Mexico State University
Las Cruces, NM, USA
October 23, 2007 reply from JP Morgan
[brian.a.mahoney@JPMCHASE.COM]
As a "consumer" of accounting students, advanced
EXCEL skills are a prerequisite for a graduate hoping to land a job in our
department. If a graduate had advanced ACCESS skills under her/his belt,
they could write their own ticket in any tax department that must handle a
large volume of data. Further, they would be gold to accounting and
consulting firms.
By the way, here is a brain teaser for graduate tax
students who want to develop their ACCESS and/or EXCEL skills. Have them
develop a system for doing the tax accounting for equity straddles. Include
a mix of qualified and non-qualified covered call options.
Regards,
Brian
Brian A. Mahoney, CPA, MST, MATh
Vice President J.P. Morgan Worldwide Securities Services
73 Tremont Street - Floor 8 Boston, MA 02108
Phone#:617-557-8602 Fax#:617-607-9190
October 23, 2007 reply from Dan Stone, Univ. of Kentucky
[dstone@UKY.EDU]
Interesting thread on the content of AIS courses. I
just finished prepping and delivering a CPA review course module related to
Information Technology (IT). This content is now ~ 25% of the "Business
Environment & Concepts" section of the CPA exam.
Much of the IT content of the CPA exam is based in
1980ish technology (some examples: detailed questions on batch processing
methods, indexed sequential access storage methods). Very little of this
content relates to ERP and database systems. It is an interesting exercise
to contrast the IT CPA exam content with the AICPA's annual top 10
technology issues list. There is, in my reading, essentially no overlap
here. Emerging and current IT practice issues in professional accounting
seem quite distant from the CPA exam content.
Perhaps one reason for this outdated IT content on
the CPA exam is that CPA exam questions are created and submitted by
volunteers. It seems unlikely that volunteers would be at the cutting edge
of IT issues in accounting.
So perhaps the "retro" IT CPA exam content is
another reason why IT in AIS courses lags current needs and technologies?
And perhaps the current process of generating CPA exam questions (by
volunteers) doesn't partially explain the "retro" IT content on the CPA
exam?
Cheers,
Dan Stone Univ. of Kentucky
October 23, 2007 reply from Glen L Gray
[glen.gray@CSUN.EDU]
There are two semi-related points here:
(1) Excel. If you surveyed real world accountant in
any discipline (audit, tax, bookkeeping, etc.) if they use Excel as part of
their job, something close to 100% would say yes. That would lead me to
conclude the last place to teach Excel is in an AIS class. Instead, Excel
should be embedded in the financial accounting, managerial accounting, tax,
and audit classes.
(2) ERP and other advanced IS topics. Sometimes
students are smarter than we think--at least when it comes to understanding
the market. If I (a professor type) stand in front of accounting students
and say you guys should really know an ERP package, IT controls, a CAATs
program, and how to write an SQL query or at least an Access query; and then
they go a meet-the-firms night and talk to practitioners and the students
asks if it is important to have those skills; I predict 8 out of 10 partners
will say something like "Oh, we have have a separate group that does that
stuff. You might want to ask them." That statement carries much more weight
than my speech with the students.
I've had this discussion many times with Big 4
partners who have an interest in IT. They tell me we should teach more heavy
duty IT stuff. I say that is not the message my students hear from your
recruiters. The partner then shrugs his shoulders and says I know.
Glen L. Gray, PhD, CPA
Accounting & Information Systems,
COBAE California State University,
Northridge Northridge, CA 91330-8372
818.677.3948
818.677.2461 (messages)
http://www.csun.edu/~vcact00f
October 24, 2007 reply from Randy Kuhn
[jkuhn@BUS.UCF.EDU]
As a “practitioner” for 10 years, I managed an SAP
configuration group for a $3 billion division of Siemens that consisted
entirely of accounting and finance majors. Not a single one of us walked in
the door with any experience with an ERP package straight out of college. As
a manager, I could only dream of such a case and how quickly a student could
be brought up to speed to our particular uses if he/she had even only been
exposed to some of the core principles of ERPs.
While a manager in Big Four public accounting I was
in that “other” group that dealt with IT issues. Unfortunately, Glen’s
experience with on campus recruiting tends to be the norm. There are so few
IT audit managers in the marketplace that they rarely can visit campus.
Their busy season auditing internal controls and IT systems starts in the
early third quarter when the audit and tax folks are on campus recruiting so
rarely is there anyone with an IT slant talking to students. Personally, I
believe the issue at hand is the fact that the mainstream groups,
particularly financial auditors, resist learning anything about technology
and then turn around and complain there are not enough folks in the firm
that know IT to perform an adequate audit. A base level of IT knowledge
should be incorporated into the toolset of financial auditors, starting with
the AIS course in college. They are the ones that ultimately make the
decision (with advice from IT auditors) whether an IT weakness is material
or not and must be reported to the world. Frankly, they cannot just audit
around the “black box” anymore. Due to a severe lack of IT audit staff, I
frequently used staff from financial audit and tax on my audit support
engagements. As they were familiar with basic segregation of duties, I would
teach them a little about security access in the accounting system and have
them audit access rights. Then I would slip in some basic business process
IT controls like three-way matching configuration. That freed up my IT audit
staff (usually meaning me) to focus on more technical areas like firewall
configuration. All in all, I do feel confident this generation of students
feels much more at ease with technology and are more than willing to be
learn and use basic IT skills.
Finally, I have to agree with Glen about Excel. The
AIS course should not be a “get to know Excel” exercise. Every aspect of
accounting in practice uses Excel and the skill should be incorporated into
the core curriculum allowing AIS to focus on broader IT issues. You really
cannot be an effective accountant without knowledge of Excel, particularly
when every other person in the department is using the software.
-Randy Kuhn, CPA, CISA, MBA, PhD (one day in the
future)
October 25, 2007 reply from Barbara Scofield
[scofield@GSM.UDALLAS.EDU]
I have a colleague who told me she submitted CPA
questions on IT and she was required to provide a tie for each question and
answer to a current textbook. The point was that by requiring a textbook
presence of the topic, the content was reasonable to expect students to
know. So, textbooks will continue to provide outdated content because it is
on the CPA exam and the CPA exam will continue to test outdated content
because it is in the textbook.
Hopefully someone will respond with first hand
information.
Barbara W. Scofield, PhD, CPA
Director, Financial Accounting Concentration and Associate Professor of
Accounting
College of Business
University of Dallas
1845 E. Northgate Ave.
Irving, TX 75062
972-721-5034 (office)
817-275-7730 (home)
972-721-4007 (fax)
scofield@gsm.udallas.edu
October 25, 2007 reply from Mackey, James
[mackey@CSUS.EDU]
Hi Barbara:
You are right on. We are in a death spiral. The
textbook authors respond to the professional examination and now the
professional examination responds to the textbook authors. What a mess!
jim mackey
Microsoft Corporation Financial Performance Pivot Tables
November 1, 2007 message from Eileen Taylor
[eileen_taylor@NCSU.EDU]
I'm looking for class materials that teach Excel
2007.
I usually go through an Excel tutorial in class
that covers a variety of topics including: Pivot tables, VLOOKUP, forms,
sorting, filtering, etc.
Given the change to Excel 2007, I thought it would
be a good time to update my tutorial. Does anyone have an Excel
2007-compatible tutorial that they wouldn't mind sharing? Alternatively,
perhaps someone has an online resource.
Thanks, Eileen
Eileen Z. Taylor, PhD
Assistant Professor,
Department of Accounting
North Carolina State University
Campus Box 8113, Nelson Hall
Raleigh, NC 27695-8113
919-513-2476
eileen_taylor@ncsu.edu
November 1, 2007 reply from Bob Jensen
Hi Eileen,
I don't have Excel 2007 installed on my computer.
However, your students might gain from the video
tutorials listed in the following site:
http://www.cs.trinity.edu/~rjensen/video/acct5342/
They might also benefit from the Microsoft Pivot
Tables for both the entire history of financial performance of Microsoft
Corporation (since its inception to its 2007 annual report) and the "What
if" Microsoft pro forma interactive pivot tables that can be downloaded from
the following site:
http://www.cs.trinity.edu/~rjensen/EdTech/MicrosoftPivots/
You might also note the Financial Analysis
PowerPoint file at the following site:
http://www.cs.trinity.edu/~rjensen/EdTech/PowerPoint/
I'm looking forward to the completion of your
listserv project with Uday.
Bob Jensen
Spreadsheet mistakes News Stories ---
http://www.eusprig.org/stories.htm
Public reports of
spreadsheet errors collated by the
European Spreadsheet
Risks Interest Group (EuSpRIG). The stories are
added as discovered and so are not in chronological order. We try to list only
verified stories with a quantified error or documented impact. At the bottom of
the page are some miscellaneous news items. And of course we cannot list the
unpublished reports!
October 25, 2007 message from Roger Debreceny [Roger@DEBRECENY.COM]
My colleague, Ray Panko, is one of the leading researchers in the area of
spreadsheet risk and errors. His pages at
http://panko.shidler.hawaii.edu/ssr/
are a very useful resource on this area. Check out his recent working paper
and the earlier paper that was published in the Communications of the AIS.
The PwC white paper on spreadsheet risks, published
in 2004 (based in part on Ray's research, btw) has become an unofficial
bible in the IT assurance community. Many IT auditors use this to guide
their audit plans.
For larger corporations, there would be tens of
thousands of spreadsheets involved in some aspect of the close considering
branches, divisions and the like. A standard audit might look at some tiny
proportion of those spreadsheets -- of course, this is all subject to
materiality and only a handful of those spreadsheets could give rise to
material misstatements. But we know that error rates in spreadsheets are
very high -- when I was a regional controller with 20 something subsidiaries
and doing the close with Lotus 123 Release 1A (yes, I know -- that was in
the last millenium) I had built such complex formulae and macros, I very
much doubt I could have audited my own spreadsheets let alone have an
external auditor audit the suite of spreadsheets.
In the intervening 20 years, things have got better
in some respects and worse in others .. there are now tools to allow
auditing of spreadsheets and monitoring of network drives for spreadsheets
(I'll come back to this in a moment). But with more and more analysts and
accountants within firms that can and do write in VBA and with much enhanced
spreadsheet functionality, the complexity of spreadsheets has become
increasingly risky, from a control perspective. I wonder just how many mark
to model and mark to market calculations are done in spreadsheets?
Getting control over spreadsheets is just like any
risk analysis and control problem in the IT world .. we first need to know
the extent of the problem.
When IT auditors work on this, they will first scan
all the hard disks in the firm (SCANXLS is one such tool) -- the answers are
usually astounding.
Then triage the problem. Replace the highest risk
spreadsheets (say 10%) with applications running under proper change
management control. For the next band (say another 10%), risk assess and
quality control the individual spreadsheet -- perhaps moving the spreadsheet
under proper change managemetn control although this is exceedingly
difficult in an end-user environment.
And for the balance, hope that there are not too
many egregious errors. Of course, this has to be supplemented by proper
policies and procedures that govern the use of spreadsheets in critical
areas.
A useful document that touches on this is the
ITGI's Control Objectives for SOX -- but we are certainly short of good
guidance in this area.
Roger D
Lessons Not Learned from Enron
Bad SPE Accounting Rules are Still Dogging Us
From The Wall Street Journal Accounting Weekly Review on October 19,
2007
Call to Brave for $100 Billion Rescue
by David
Reilly
The Wall Street Journal
Oct 16, 2007
Page: C1
Click here to view the full article on WSJ.com
TOPICS: Advanced
Financial Accounting, Securitization
SUMMARY: This
article addresses a proposed bailout plan for $100 billion
of commercial paper to maintain liquidity in credit markets
that have faced turmoil since July 2007, and the fact that
this bailout "...raises two crucial questions: Why didn't
investors see the problems coming? And how could they have
happened in the first place?" The author emphasizes that
post-Enron accounting rules "...were supposed to prevent
companies from burying risks in off-balance sheet vehicles."
He argues that the new rules still allow for some
off-balance sheet entities and that "...the new rules in
some ways made it even harder for investors to figure out
what was going on."
CLASSROOM
APPLICATION: The bailout plan is a response to risks and
losses associated with special purpose entities (SPEs) that
qualified for non-consolidation under Statement of Financial
Accounting Standards 140, Accounting for Transfers and
Servicing of financial Assets and Extinguishments of
Liabilities, and Financial Interpretation (FIN) 46(R),
Consolidation of Variable Interest Entities.
QUESTIONS:
1.) Summarize the plan to guarantee liquidity in commercial
paper markets as described in the related article. In your
answer, define the term structured investment vehicles (SIVs).
2.) The author writes that SIVs "...don't get recorded on
banks books...." What does this mean? Present your answer in
terms of treatment of qualifying special purpose entities (SPEs)
under Statement of Financial Accounting Standards 140,
Accounting for Transfers and Servicing Financial Assets and
Extinguishments of Liabilities.
3.) The author argues that current accounting standards make
it difficult for investors to figure out what was going on
in markets that now need bailing out. Explain this argument.
In your answer, comment on the quotations from Citigroup's
financial statements as provided in the article.
4.) How might reliance on "principles-based" versus
"rules-based" accounting standards contribute to solving the
reporting dilemmas described in this article?
5.) How might the use of more "principles-based standards"
potentially add more "fuel to the fire" of problems
associated with these special purpose entities?
Reviewed By: Judy Beckman, University of Rhode Island
RELATED
ARTICLES:
Call to Brave to $100 Billion Rescue: Banks Seek
Investors for Fund to Shore Up Commercial Paper
by Carrick Mollenkamp, Deborah Solomon and Craig Karmin
The Wall Street Journal
Oct 16, 2007
Page: C1
Plan to Save Banks Depends on Cooperation of Investors
by David Reilly
The Wall Street Journal
Oct 15, 2007
Page: C1
|
Bob Jensen's threads on SPE scandals and the subsequent FASB
Interpretation 46(R) can be found at
http://www.trinity.edu/rjensen//theory/00overview/speOverview.htm
Bob Jensen's threads on accounting theory are at
http://www.trinity.edu/rjensen/theory01.htm
Question
How are auditors dealing with fair market value accounting and credit market
issues?
From The Wall Street Journal Accounting Weekly Review on October 19,
2007
With New, United Voice, Auditors Stand Ground on How to Treat
Crunch
by David
Reilly
The Wall Street Journal
Oct 17, 2007
Page: C1
Click here to view the full article on WSJ.com
TOPICS: Audit
Quality, Auditing, Auditing Services, Auditor Independence,
Auditor/Client Disagreements, Banking, Fair Value Accounting
SUMMARY: The
article discusses three papers issued by the Center for Audit
Quality on the recent issues in credit markets. The topics
included the use of market prices for hard-to-trade securities
and issues of banks' exposure to losses in off-balance-sheet
entities. Organization of the Center for Audit Quality is
discussed, along with reaction to the purpose of this entity
from Lynn Turner, former Chief Accountant at the SEC, and an
academic researcher at the University of Tennessee, Joseph
Carcello.
CLASSROOM
APPLICATION: The article may be used to discuss the current
credit market issues in an auditing class as well as a financial
reporting class.
QUESTIONS:
1.) Based on discussions in the article and on information at
its web site (see http://thecaq.aicpa.org/) discuss the purpose
and organization of the Center for Audit Quality.
2.) What is self-regulation of the auditing profession? When did
auditors lose the ability to self-regulate?
3.) Some reactions described in this article are positive about
the role that is being played by the Center for Audit Quality,
while others are negative. Which view do you hold? Support your
position.
4.) Summarize concerns with the complexity of financial
reporting guidance in the U.S. How might the work from the
Center for Audit Quality contribute to that complexity? How
might its work alleviate the issue of complexity in reporting
standards?
Reviewed By: Judy Beckman, University of Rhode Island
RELATED
ARTICLES:
Auditors to Street: Use Market Price
by David Reilly and Randall Smith
The
Wall Street Journal
Sep 18, 2007
Page: C2
|
Bob Jensen's threads on fair value accounting are at
http://www.trinity.edu/rjensen/theory01.htm#FairValue
Also see
http://www.cs.trinity.edu/~rjensen/Calgary/CD/FairValue/
"Executives: Making It by Faking It: Wisconsin headhunter Jude
Werra's "Liars Index" of faked résumé claims hit a five-year high in the first
half of 2007," Business Week, by Joseph Daniel McCool, Business Week,
October 4, 2007 ---
Click Here
. . . Jude Werra. The president of Brookfield
(Wis.)-based Jude M. Werra & Associates has spent the better part of 25
years documenting executive résumé fraud, credentials inflation, and the
misrepresentation of executive educational credentials. It's something that
has kept Werra pretty busy over the years, given the prevalence of such
management-level chicanery and the fact that so many ambitious and
transition-minded individuals have convinced themselves that it's their
credentials—real or otherwise—that matter most.
Stopping at Nothing to Get to the Top Werra's
semiannual barometer of executive résumé deception—his very own "Liars
Index"—hit a five-year high, based on his review of résumés he received
during the first half of 2007. He figures that about 16% of executive
résumés contain false academic claims and/or material omissions relating to
educational experience. That was up five percentage points from the levels
he witnessed between July and December of last year.
And when you account for the fudging of claims of
experience unrelated to academic degrees earned, it's easy to see why
executive headhunters generally acknowledge that as many as one-third of
management-level résumés contain errors, exaggerations, material omissions,
and/or blatant falsehoods.
Some people will stop at almost nothing to get to
where they want in their career. Still, Werra wonders why otherwise
experienced executives would inflate their credentials or otherwise mislead
with their résumé, in light of the potential career-ending consequences.
Checking References Isn't Enough Given the alarming
levels to which they do attempt to mislead, he constantly reminds hiring
organizations that it's critical that they verify what they read on résumés,
even at the executive level. What's even more alarming—and more prevalent
than people falsifying their backgrounds and qualifications—is the number of
hiring organizations who fail to conduct a rigorous background check on
their new management recruits. Far too many organizations figure that
checking a few references is enough.
And even the most thorough reference checks won't
uncover false claims that predate those references' own professional
interactions with the individual executive. It's quite possible that a
fabrication of one's education, certifications, and experience is what got
the executive his first management job many years ago, leaving the trail
cold unless it's reopened during the course of a diligent background check.
When it comes to executive-level hiring that's
going to cost the organization into the high six figures, at minimum, when
you factor in headhunting fees, the new executive's salary, and benefits, it
becomes a matter of caveat emptor.
Let the Hiring Company Beware And while it may be
tempting to believe that an executive recruiter will uncover any issues
during the courtship process, it's ultimately up to the hiring organization
to know exactly who it is that's being hired. Sure, misrepresentation will
cost the unscrupulous executive, but it can also wreak havoc on a company's
brand, workforce, and external relations teams.
Beyond the boundaries of checking claims made by an
individual on his or her résumé, the hiring organization can trust that
engaging the services of a professional background-screening consultant will
pay off. These consultants often come with significant experience in law
enforcement, and they can help uncover such things as criminal convictions,
unpaid child support, and other hidden issues that should influence the
hiring decision.
A thorough background check is an important
insurance policy for the recruiting process, and headhunters will tell you
that your organization risks getting burned if an executive it hires has, at
any time in his or her past, decided to assume the risks of playing with
fire.
Given the high cost of a bad executive hire,
today's organizations simply can't afford not to do their homework.
An example of how to front load income under GAAP
Mr. Wallison is correct about their motivations:
"holding mortgages is profitable -- much more so than creating pools of
mortgages and selling . . . to investors." However, much of that reported profit
is illusory. Generally accepted accounting principles (GAAP) do a poor job of
reflecting economic reality in this case. While they do have a funding cost
advantage, most of their reported profit is simply "phantom income," that is,
front-loaded income. By funding mortgages with a mix of short-term bullet bonds
and longer-term callable bonds, GAAP front-loads income. There is fixed coupon
income from the mortgages over 30 years, but the cost of funding rises over time
as the shorter-term, lower-cost debt matures.
Jerry Hartzog, "Fannie and Freddie's 'Phantom Income'," The Wall Street
Journal, October 6, 2007; Page A19 ---
http://online.wsj.com/article/SB119162496214550640.html?mod=todays_us_page_one
Bob Jensen's threads on accounting revenue reporting issues are at
http://www.trinity.edu/rjensen/ecommerce/eitf01.htm
A Double Standard: Companies are still playing games with executive
stock option expense reporting
Sen. Carl Levin, D.-Mich., introduced legislation
Friday to bar companies from reporting tax deductions for stock option expenses
to the Internal Revenue Service that far exceed what they disclose to
shareholders as expenses. A Senate investigation this summer found that U.S.
public companies between December 2004 and June 2005 legally avoided billions of
dollars in taxes by claiming $43 billion more in tax deductions for options
awards than the compensation for options recorded on their books. His bill would
require the corporate tax deduction for stock option compensation equal stock
option expenses reported to the Securities and Exchange Commission.
"Senator Aims to Cut Option Deductions," SmartPros, October 1, 2007 ---
http://accounting.smartpros.com/x59266.xml
"Toll of the stock options scandal heavy in 2006:
More prosecutions are expected to be brought next year," by Marcy Gordon,
SeattlePi, December 27, 2006 ---
http://seattlepi.nwsource.com/business/297346_stockoptions27.html
Eighteen chief executives swept out. More than 100 public companies under
federal investigation and more than $5 billion in profits erased by
restatements. Indictments so far: five former top executives at two companies,
Brocade Communications Systems Inc. and Comverse Technology Inc. The toll of the
stock options timing affair -- corporate America's scandal of the year -- has
been heavy. Federal officials say more prosecutions will be brought in 2007 over
manipulation of the timing of stock option grants to enrich top company
executives.
The
toll of the stock options timing affair -- corporate America's scandal of the
year -- has been heavy. Federal officials say more prosecutions will be brought
in 2007 over manipulation of the timing of stock option grants to enrich top
company executives.
Nearly
every business day, more companies report federal or internal investigations.
New lawsuits by shareholders are filed. More businesses disclose that because
past option grants may have distorted their financial results, they may have to
restate earnings.
Next
year could well bring more restatements, and companies' stock could be stripped
from public trading because reviews of options grants made them late in filing
their quarterly financial reports.
The
Justice Department will "continue to be engaged for perhaps years to come, as we
work these cases out," U.S. Attorney Kevin Ryan, who heads a task force in
Northern California pursuing options timing cases, said recently at a gathering
of attorneys. "The final chapter hasn't been written yet."
Many
of the companies ensnared in the scandal are in Silicon Valley's high-tech
industry, where stock options for employees created legions of millionaires in
the dot-com era.
The
prized perks allow executives and employees to buy shares of their company's
stock in the future at a set price. If the stock rises before the options are
exercised, the employee can buy the stock at the predetermined, lower price,
then sell it at the higher, current price -- and pocket the difference.
Among
the wide swath of companies caught up in internal or government investigations:
Apple Computer Inc., Barnes & Noble Inc., Caremark Rx Inc., Issaquah-based
Costco Wholesale Corp., Seattle-based F5 Networks, Gap Inc., The Home Depot
Inc., McAfee Inc., Monster Worldwide Inc., Restoration Hardware Inc., Staples
Inc. and UnitedHealth Group Inc.
Some
prominent executives at blue-chip companies have lost their jobs in the affair,
including former UnitedHealth CEO William McGuire, who engineered the company's
ascent from a regional health insurer into the nation's second-largest.
Continued in article
Bob Jensen's threads on employee stock option accounting are at
http://www.trinity.edu/rjensen/theory/sfas123/jensen01.htm
Winners of KPMG's Integrity/Ethics Videos Contest ---
http://www.kpmgcampus.com/whoweare/ethics.shtml
AccountingWeb invites professors to submit/obtain questions for a Weekly
AccountingWeb Quiz ---
http://www.accountingweb.com/cgi-bin/item.cgi?id=104117
AccountingWEB is pleased to announce its weekly
accounting quiz, now appearing in the Student Zone area of the AccountingWEB
site. Just click Student Zone at the left of any AccountingWEB page (or
click the Student Zone link at the bottom of this story) to access the
weekly quiz and to be eligible for great prizes!
Accounting professors from across the country are
participating in Test Your Knowledge, submitting their favorite quiz
questions to see if they can stump the AccountingWEB audience. Each Monday,
a new quiz will appear. The winners from the previous week will be announced
in each Tuesday's Weekly Business Bite, a free news wire to which you can
subscribe.
The top ten winners each week will receive
AccountingWEB t-shirts. In the event that more than 10 participants get all
the questions correct, a drawing will be held among the winners to select
the 10 t-shirt recipients.
Only one entry is allowed per person, per quiz,
however you can enter the new quiz each week, even if you are a winner of a
previous quiz.
So dust off your accounting rules and enter this
week's quiz TODAY!
Note that AccountingWeb now has a "Student Zone" at
http://www.accountingweb.com/news/student_channel.html
There's also a "Lecture Hall" at
http://www.accountingweb.com/lecture_hall/index.html
AccountingWeb Humor ---
http://www.accountingweb.com/humor/humor.html
A useful set of accounting links is provided at
http://www.accountingweb.com/links/index.html
I added these to my bookmarks at
http://www.trinity.edu/rjensen/Bookbob1.htm
Jensen Comment
Accounting instructors may want to add some of these questions to their test
banks. Or they may want their students to take these weekly quizzes as part of a
course (possibly only for non-credit practice and fun).
Recently I added some of my old theory exam questions and problems (heavy on
FAS 133 and IAS 39) under "Exam Material" at
http://www.cs.trinity.edu/~rjensen/Calgary/CD/
Most of my questions and problems are probably too specialized for an
AccountingWeb Quiz. But they may help advanced students learn more about theory.
CPA Firms Have a Stake in Stoneridge Investment Partners LLC v.
Scientific-Atlanta Inc
"Can Shareholders Sue Third Parties?" by Nick Timiraos, The Wall Street
Journal, October 6, 2007; Page A19 ---
http://online.wsj.com/article/SB119163353051650981.html?mod=todays_us_page_one
Wall Street's attention turns to the Supreme Court
this coming week when it considers whether shareholders can sue third
parties accused of aiding a U.S. corporation that defrauds its investors.
The case, Stoneridge Investment Partners LLC v.
Scientific-Atlanta Inc., pits defrauded investors of a cable company against
two of the company's suppliers and could be worth billions of dollars to
U.S. businesses by defining the liability of third parties -- accountants,
bankers, lawyers or suppliers.
Stoneridge presents the biggest
securities-litigation court clash in a generation. The case may also
determine the fate of Enron Corp. investors' $40 billion lawsuit against the
failed company's bankers.
The Securities and Exchange Commission sided with
investors and warned that a ruling against them could make it harder for
shareholders to recoup losses from securities frauds. But the Department of
Justice, at President Bush's urging, supported businesses in a brief that
cited the chilling effect a deluge of litigation would have on investment in
U.S. companies.
Here's a closer look:
What prompted the lawsuit? Charter Communications
Inc. used transactions with two suppliers, Scientific-Atlanta and Motorola
Inc., in a manner that inflated the cable provider's revenue. That helped
land three senior Charter executives in jail and prompted lawsuits against
both Charter and the suppliers. Stoneridge, a Charter investor, says the
suppliers should be held liable for being involved in the scheme, but the
suppliers say they didn't directly deceive the market and had no say in how
Charter accounted for the transactions.
Last year, the Eighth Circuit Court of Appeals
dismissed Stoneridge's claims against the suppliers, citing "potentially
far-reaching duties and uncertainties for those engaged in day-to-day
business dealings." Meanwhile, the SEC reached a settlement with
Scientific-Atlanta and Motorola of $20 million and $25 million,
respectively, for similar transactions they made with another cable company.
The Supreme Court ruled in a 1994 case that only
primary actors directly involved in making fraudulent statements could be
held liable in private class-action lawsuits. Six of the current justices
were on the court then, and they split evenly.
What implications could the ruling have on U.S.
markets? On the plaintiffs side are the SEC, prominent congressional leaders
of both parties, more than 30 state attorneys general, labor unions and
several state pension funds who warn that, should they lose, third parties
will face little consequence no matter how reprehensible their conduct.
The Justice Department, the U.S. Chamber of
Commerce, and groups representing 600 banks and financial-services firms
have taken the opposite side. They argue that the SEC, which can still sue
third parties to recover investors' losses, provides enough of a check
against wrongdoing.
How has securities-litigation risk increased? The
number of class-action securities lawsuits has decreased in each of the past
four years, but the value of settlements nearly tripled last year, excluding
the Enron settlement, according to data from Stanford Law School's
Securities Class Action Clearinghouse. Companies have paid nine to 10 times
more to investors in private class-action lawsuits than they have to federal
regulators.
How has the court treated similar cases? Last term,
the Roberts Court made rulings in favor of businesses that limited damages
and shielded corporations from the costs of litigation or made it harder to
bring lawsuits against companies.
* * * Facts
• In their Supreme Court filing, 33 state
attorneys general sided with investors and referenced the Enron scandal
55 times.
• A win for Stoneridge Investment Partners
could be ironic: one of its funds remains heavily invested in Cisco
Systems Inc., the parent company of Scientific-Atlanta.
• Nearly one-third of all securities lawsuits
were filed against the high-tech sector last year, making it the
most-frequently sued industry group.
• Kansas became the first state to pass a
comprehensive securities law in 1911, called a "blue-sky law" because
nothing backed up fraudulent schemes except miles of blue sky.
• Fourteen cases settled for amounts of $100
million or more last year, compared with nine cases in 2005 and seven
cases in 2004. Settlements against Enron ($7.2 billion), WorldCom ($6.2
billion) and Cendant ($3.5 billion) account for nearly half of all "megasettlements,"
or lawsuits in excess of $100 million.
More than 180 stock options backdating scandals have been investigated.
Back dated options awards are equivalent to betting on yesterday's football
games
"$117.5 Million Settlement Reported in Options Case," The New York Times,
October 15, 2007 ---
http://www.nytimes.com/reuters/technology/reuters-options.html?_r=1&oref=slogin
The software maker Mercury Interactive has agreed
to pay $117.5 million to settle an investor lawsuit over the company’s stock
options award practices, a lawyer for the plaintiffs said today.
The settlement with Mercury, now owned by
Hewlett-Packard, is believed to be the biggest in any stock options
backdating case to date, said Joel Bernstein, an attorney at the firm of
Labaton Sucharow LLP, who represents investors in the lawsuit.
Many investor lawsuits have resulted from the
options scandal in corporate America, in which more than 180 companies have
been investigated by authorities or have conducted internal inquiries into
whether they manipulated grants to make them more valuable for top
executives.
In one legal settlement last month, Rambus agreed
to pay $18 million to resolve an investor lawsuit related to its accounting
for option grants.
The Mercury settlement, which was reached in
principle among the parties but is still subject to court approval, would
resolve a lawsuit filed in August 2005.
H.P. said in a statement that it had agreed to a
settlement but did not provide details.
Continued in article.
Bob Jensen's threads on FAS 123(R) are at
http://www.trinity.edu/rjensen/theory/sfas123/jensen01.htm
"Accounting for Uncertainty (FIN 48)," by Damon M. Fleming and Gerald
E. Whittenburg, Journal of Accountancy, October 2007 --- ---
http://www.aicpa.org/pubs/jofa/oct2007/uncertainty.htm
FASB Interpretation no. 48 (FIN 48), Accounting for
Uncertainty in Income Taxes, sets the threshold for recognizing the benefits
of tax return positions in financial statements as “more likely than not”
(greater than 50%) to be sustained by a taxing authority. The effect is most
pronounced where the uncertainty arises in the timing, amount or validity of
a deduction.
Thresholds applicable to tax practitioners have
been revised from a “realistic possibility” to “more likely than not” that a
tax position will be sustained, as set forth in the U.S. Troop Readiness,
Veterans’ Care, Katrina Recovery, and Iraq Accountability Appropriations Act
of 2007 that was signed into law in May.
A third threshold, that a tax position possesses a
“reasonable basis” in tax law, has been regarded as reflecting 25%
certainty. In addition, taxpayers are subject to penalties if an
understatement of liability is caused by a position that lacks “substantial
authority,” a threshold for which no percentage of certainty has been
established but has been regarded as between the reasonable-basis and
more-likely-than-not standards.
Being familiar with the different thresholds for
the reporting of uncertain tax positions can help CPAs effectively advocate
for their clients’ tax positions and be impartial in financial reporting.
Bob Jensen's threads on FIN 48 are at
http://www.trinity.edu/rjensen/Theory01.htm#FIN48
"Assessing Fraud Risk," by Joseph T. Wells and John D. Gill,
Journal of Accountancy, October 2007 ---
http://www.aicpa.org/pubs/jofa/oct2007/fraud_risk.htm
Every organization faces some risk of fraud from
within. Fraud exposure can be classified into three broad categories: asset
misappropriation, corruption and fraudulent financial statements.
Answering the following 15 questions is a good
starting point for sizing up a company’s vulnerability to fraud and creating
an action plan for lessening the risks. The questions are based on
information from the 2007 edition of the Fraud Examiners Manual published by
the Association of Certified Fraud Examiners.
1. Do one or two key employees appear to dominate
the company?
If control is centered in the hands of a few key
employees, those individuals should be under heightened scrutiny for
compliance with internal controls and other policies and procedures.
2. Do any key employees appear to have a close
association with vendors?
Employees with a close relationship to a vendor
should be prohibited from approving transactions with that vendor.
Alternatively, transactions between these parties should be reviewed on a
regular basis for compliance with internal controls.
3. Do any key employees have outside business
interests that might conflict with their job duties?
Take the example of a 32-year-old sales
representative who started a software company using his employer’s time,
equipment and facilities. The software company he worked for discovered that
the employee demonstrated his own products to the company’s customers.
Ultimately, the employee diverted $500,000 in business away from his
employer.
The example illustrates why key employees should
provide annual financial disclosures that list outside business interests.
Many companies, particularly publicly traded companies, require such
disclosures. Interests that conflict with the organization’s interests
should be prohibited. Organizations should implement an explicit policy that
forbids employee business activities that directly compete with the
operations of the organization.
Employees who have something to hide may lie or
omit key facts on the disclosure form, but requiring the step still has
advantages, such as making it easier to fire workers who fail to reveal
potential conflicts. If an employer can show that an employee had such an
interest and failed to disclose it on an annual reporting form, the employee
can be fired simply for failing to follow company policy.
4. Does the organization conduct pre-employment
background checks to identify previous dishonest or unethical behavior?
Organizations should conduct pre-employment
background checks before offering employment to any key applicant. The scope
of a background check varies by position, but a general list to consider
includes: criminal records and convictions; Social Security number
verification; credit history; previous employment; employment references;
personal references; education verification; professional license
verification; driver’s license verification and driving history check; and
civil records and judgments. Employers should ensure that legal requirements
are met for the use of and access to the information.
For companies that have failed to do background
checks, post-hire screenings may be appropriate in some cases, but should be
conducted on the advice of legal counsel. A number of legal issues come into
play when employers consider screening workers who are already on the job.
5. Does the organization educate employees about
the importance of ethics and anti-fraud programs?
All employees should receive training on the ethics
and anti-fraud policies of the organization. The employees should sign an
acknowledgement that they have received the training and understand the
policies.
6. Does the organization provide an anonymous way
to report suspected violations of the ethics and anti-fraud policies?
Organizations should provide employees, vendors and
customers with a confidential system for reporting suspected violations of
the ethics and anti-fraud policies. According to the 2006 ACFE Report to the
Nation on Occupational Fraud and Abuse, frauds are most commonly detected by
a tip. The greatest percentage of those tips comes from employees of the
victim organization.
In one instance, an anonymous tip received by a
fraud hotline thwarted a fraud scheme that had drained approximately
$580,000 from a business. The caller reported that the company’s accounts
payable manager was approving fictitious invoices from his own outside
company. The tip clued in company management to the scheme and brought an
abrupt end to the manager’s windfall. The fraudster was terminated and
arrested. The company ultimately recouped most of its losses.
7. Is job or assignment rotation mandatory for
employees who handle cash receipts and accounting duties?
Job or assignment rotation should be considered for
employees who work with cash receipts and accounting duties. The frequency
of the rotation depends on the individual’s responsibilities and the number
of people available for the revolving duties.
8. Has the company established positive pay
controls with its bank by supplying the bank with a daily list of checks
issued and authorized for payment?
One method for a company to help prevent check
fraud is to establish positive pay controls by supplying its banks with a
daily list of checks issued and authorized for payment. Banks verify items
presented for payment against the company’s list and reject items that don’t
appear on the list.
The use of those controls foiled a fraud attempt by
an employee and his accomplice, who worked for a check-printing company. The
accomplice printed blank checks with the account number belonging to the
perpetrator’s employer. The perpetrator then wrote more than $100,000 worth
of forgeries on the counterfeit checks.
When the checks were presented to the bank for
payment, they did not appear on the organization’s list of expected
payments. The bank refused to cash them. The organization was notified, and
the fraudsters were arrested.
9. Are refunds, voids and discounts evaluated on a
routine basis to identify patterns of activity among employees, departments,
shifts or merchandise?
Companies should routinely evaluate those
transactions to search for patterns of activity that might signal fraud.
10. Are purchasing and receiving functions separate
from invoice processing, accounts payable and general ledger functions?
Segregation of duties is an important control. The
failure to segregate these duties allowed one large, publicly traded company
to be duped by a member of its managerial staff. The individual managed a
remote location of the company and was authorized to order supplies and
approve vendor invoices for payment. For more than a year, the manager
routinely added personal items and supplies for his own business to orders
made on behalf of his employer. The orders often included a strange mix of
items. For instance, technical supplies and home furnishings were purchased
in the same order.
In addition to ordering personal items, the
employee changed the delivery address for certain supplies so they were
shipped directly to his home or side business. Because the manager was in a
position to approve his own purchases, he could get away with such blatantly
obvious frauds. The scheme cost his employer approximately $300,000 in
unnecessary purchases.
11. Is the employee payroll list periodically
reviewed for duplicate or missing Social Security numbers?
Organizations should check the employee payroll
list periodically for duplicate or missing Social Security numbers that may
indicate a ghost employee or overlapping payments to current employees.
12. Are there policies and procedures addressing
the identification, classification and handling of proprietary information?
To help prevent the theft and misuse of
intellectual property, the company should implement policies and procedures
addressing the identification, classification and handling of proprietary
information.
13. Do employees who have access to proprietary
information sign nondisclosure agreements?
All employees who have access to proprietary
information should sign nondisclosure agreements. It is easier to sue for
breach of a nondisclosure agreement than it is to sue for theft of
information. Nondisclosure agreements afford companies legal options for the
use of nonpublic information, not simply for information that is considered
a trade secret.
In most states, companies without nondisclosure
agreements may be limited to suing for theft of trade secret information.
14. Is there a company policy that addresses the
receipt of gifts, discounts and services offered by a supplier or customer?
Organizations should implement a policy that sets
ground rules about employees accepting gifts, discounts and services offered
by a supplier or customer. If no explicit policy is in place, employees may
find themselves in ambiguous situations without clear ethical guidelines.
For example, a city commissioner negotiated a land
development deal with a group of private investors. After the deal was
approved, the commissioner and his wife were rewarded by one of the
investors with an all-expenses-paid international vacation.
While the promise of the trip may have influenced
the commissioner’s negotiations, this would be difficult to prove. However,
had a clear policy regarding the receipt of gifts been implemented and
enforced, the commissioner would have known that accepting the free vacation
was a violation of the rules. The ambiguity of the situation would have been
avoided.
15. Are the organization’s financial goals and
objectives realistic?
Closely monitor compliance with internal controls
over financial reporting if the financial goals and objectives appear to be
unrealistic. Establish realistic financial goals and objectives for the
organization. Common justifications for financial statement fraud include a
desire to obtain bonuses linked to goals or frustration with objectives that
were unachievable through normal means.
Joseph T. Wells, CPA, CFE, is founder and chairman of the Association
of Certified Fraud Examiners and a contributing editor to the JofA. His
e-mail address is jwells@acfe.com
John D. Gill, J.D., CFE, is research director for the Association of
Certified Fraud Examiners. His e-mail address is
jgill@acfe.com
Bob Jensen's Fraud Updates are at
http://www.trinity.edu/rjensen/FraudUpdates.htm
Free Retail Software Comparisons
October 11, 2007 message from Houston Neal
[houston@softwareadvice.com]
Hi Bob,
I just came across your Trinity University website
and think it looks great. You present links to several different accounting
software websites that are complementary to ours.
I am with the website Retail Software Advice
(www.softwareadvice.com/retail.)
We are a free resource that helps retailers find the right software for
their businesses. It would likely be a good fit with your accounting,
finance, and business section bookmarks.
Would you be willing to post a link to us? We would
really appreciate it. Please feel free to email or call with any questions.
Thank you,
Houston Neal
-------------------------------------------
Software Advice
Email:
houston@softwareadvice.com
Phone: 815-919-9403
Web:
www.softwareadvice.com
-------------------------------------
Bob Jensen's threads on software are at the following two sites:
http://www.trinity.edu/rjensen/Bookbob1.htm#AccountingSoftware
http://www.trinity.edu/rjensen/Bookbob4.htm
Software Updates and Reviews ---
http://www.versiontracker.com/windows/
Software Reviews ---
http://www.gotoreviews.com/
Question
When is fraud discovery good for cash flow?
"Profits Aren’t Real, but the Refund Is," by Kyle Whitmire, The New York
Times, October 21, 2007 ---
http://www.nytimes.com/2007/10/21/business/21suits.html?ref=business
HealthSouth, the Alabama-based chain of
rehabilitation hospitals, announced a $440 million tax refund from the I.R.S.
last week. The refund was for money that the company overpaid for an
accounting error — that is, if you call a $2.7 billion fraud an error. The
company paid those taxes on profits that were not real.
Federal investigators exposed the huge accounting
fraud at the company in 2003. More than a dozen executives pleaded guilty to
participating in the scheme, although the HealthSouth chief executive,
Richard M. Scrushy, was acquitted on similar charges in 2005. (Mr. Scrushy
is currently in prison on an unrelated federal bribery conviction.)
During Mr. Scrushy’s trial, his former chief
financial officers explained that the fraud occurred because even though
HealthSouth was profitable, there was pressure to show more profits to meet
Wall Street’s expectations. When the company’s actual earnings were not
enough to make tax payments on fabricated profits, the company had to borrow
money to make up the difference.
Since the fraud became public, HealthSouth has
wrestled with debt caused by the repercussions from the fraud. At the
beginning of this year, the company was about $3.6 billion in debt. Since
then, HealthSouth has paid down about $1 billion of that, and the tax rebate
will reduce the debt further, the company said last week. KYLE
"Scrushy Is Convicted in Bribery Case: Prosecutors Savor Victory Over
HealthSouth Ex-CEO After '05 Fraud Acquittal," by Valerie Bauerlein, The Wall
Street Journal, June 30, 2006; Page A3 ---
http://online.wsj.com/article/SB115160751950694468.html?mod=todays_us_page_one
HealthSouth was an Ernst & Young client ---
http://www.trinity.edu/rjensen/Fraud001.htm#Ernst
Tax Whistleblower 7623: More Trouble for Ernst & Young Tax Shelter
Clients
The Ferraro Law Firm has submitted the first known $1
billion Tax Whistleblower submission to the newly created IRS Whistleblower
Office. The IRS specifically created the Whistleblower Office to assist in
identifying and capturing uncollected tax revenue from individuals and
corporations typically assisted by clever law firms, accounting firms and banks.
Tax whistleblower cases under section 7623 are a
new arrow in the Commissioner's quiver to close the tax gap, which the GAO
estimates to be approximately $345 billion each year.
The submission involves a Fortune 500 company that entered into a series of
transactions to improperly reduce its taxes by over $1 billion. The company was
represented by Ernst & Young LLP, an established law firm and multiple
name-brand banks. The identity of the whistleblower is strictly confidential to
protect the individual and the identities of the law firm, banks and company are
confidential at this stage to aid in the evaluation of the submission. This
submission comes after an E&Y employee pled guilty to one count of conspiracy to
commit tax fraud, and four E&Y tax partners have been indicted for their role in
the sale of fraudulent tax shelters. "The tax law is not always black and white
and taxpayers are all too often more than willing to use an extreme
interpretation that drastically reduces taxes. There is not necessarily an
element of fraud and people at these companies know the weak spots in their
positions," said founding partner, James L. Ferraro. Given the recent
modifications made to section 7623 of the Internal Revenue Code, the potential
award in this case could exceed $300 million.
Accounting Education, October 25, 2007 ---
http://accountingeducation.com/index.cfm?page=newsdetails&id=145675
"Former Ernst & Young Clients Sue Over Tax Shelters," AccountingWeb,
April 12, 2006 ---
http://www.accountingweb.com/cgi-bin/item.cgi?id=102027
Bob Jensen's threads on whistle blowing are at
http://www.trinity.edu/rjensen/FraudConclusion.htm#WhistleBlowing
Bob Jensen's threads on Ernst & Young are at
http://www.trinity.edu/rjensen/Fraud001.htm#Ernst
How to funnel subsidies to a few politically connected
October 29, 2007 message from David Cay Johnston
[davidcay@mac.com]
Professor Jensen,
You have cited some of my work at your web pages
and so I wanted to make you aware of my forthcoming book FREE LUNCH, which
follows on the work in PERFECTLY LEGAL, a national best seller, winner of
the Investigative Book of the Year award and widely used as a college text
in accounting, business and law schools.
FREE LUNCH examines money flows that would not be
captured by following the flow of funds across government and corporate
books. It shows entire industries that derive all of their profits from
these subtle and sometimes hidden subsidies and how policies that supposedly
opened markets to competition and "deregulated" thwarted the market, induced
higher prices and funneled money from the many to the few. For example, I
show how a single major company gets a half billion dollars a year in free
labor which is delivered in a way that, unintentionally, benefits criminals.
I hope you will take an interest in FREE LUNCH,
which will be out Dec. 27, and consider it for your students.
Allbests,
David Cay Johnston Reporter The New York Times
212.556.3605 office 585.473.8704 home office
davidcay@nytimes.com
davidcay@mac.com
**********************************
Free Lunch: How the Wealthiest Americans Enrich Themselves at Government
Expense (and Stick You With the Bill) Coming Dec. 27 from Portfolio Books
Perfectly Legal: The Covert Campaign to Rig Our Tax
System to Benefit the Super Rich and Cheat Everybody Else NYTimes Bestseller
2004 Book of the Year medal awarded by Investigative Reporters & Editors
(IRE)
Bob Jensen's fraud updates are at
http://www.trinity.edu/rjensen/FraudUpdates.htm
Bob Jensen's "Rotten to the Core" threads are at
http://www.trinity.edu/rjensen/FraudRotten.htm
"Fraud Affects Four Out of Five Companies," SmartPros,
September 27, 2007 ---
http://accounting.smartpros.com/x59230.xml
Four out of five companies have suffered from
corporate fraud in the past three years, according to a survey from risk
consulting firm Kroll.
New technologies, new investors and expansion into
new overseas markets have opened the door to different forms of fraud, the
report concludes. In some sectors, more than a fifth of companies have lost
more than $1m.
“As our society has become more reliant on
information technology, increased globalization and greater
interconnectedness, certain exposures have expanded right along with them,”
according to Jules Kroll, founder of the company. “Dramatically new
exposures such as ID theft, various IT crimes, and false reporting by asset
managers were rarely seen 25 years ago.”
The report draws on a survey by the Economist
Intelligence Unit of 900 senior executives worldwide. It reveals:
Theft of physical assets or stock, which was
experienced by 34 percent of surveyed respondents, is particularly
widespread. In addition, a fifth of companies suffered from information
theft, self-dealing, financial mismanagement, internal financial fraud,
procurement fraud, or corruption and bribery.
The average cost due to fraud to large companies
–with annual revenues of more than $5bn – was more than $20m, with about 1
in 10 losing more than $100m. More than a fifth of all companies in some
sectors had lost more than $1m – healthcare, pharmaceuticals and
biotechnology; construction, engineering and infrastructure; and financial
services.
Theft, loss of or attack on information are the
biggest concerns to companies when asked how they assess their future risk,
with 20 percent of respondents describing themselves as highly vulnerable.
More than 30 percent believe that IT complexity has increased their exposure
to fraud.
Continued in article
Bob Jensen's fraud updates are at
http://www.trinity.edu/rjensen/FraudUpdates.htm
A Listing
of Some Hedge Accounting Restatements for 2005 (see Page 3 of the online
version)
"Lost in the Maze Problems with hedge accounting caused a wave of restatements
in 2005: Are FASB's rules too hard to follow, or are companies simply too
lax?" by Linda Corman, CFO Magazine, May 2005 ---
http://www.cfo.com/article.cfm/6874855/1/c_8435337
Alternative approaches to testing hedge effectiveness under SFAS No. 133 ---
http://www.allbusiness.com/accounting/methods-standards/209328-1.html
Scroll down to "Ineffectiveness" under the I-terms at
http://www.trinity.edu/rjensen/acct5341/speakers/133glosf.htm#I-Terms
From The Wall Street Journal Accounting Weekly
Review on October 5, 2007
Virtuous Losses
by WSJ
Editors; Review & Outlook Page
The Wall Street Journal
Oct 02, 2007
Page: A16
Click here to view the full article on WSJ.com
TOPICS: Accounting,
Accounting Theory, Advanced Financial Accounting, Bonds,
Debt, Impairment
SUMMARY: The
editors laud UBS AG and Citigroup "for their
announcements...that they'll soon take big writedowns for
their mortgage bets." They react this way on the premise
that "one question haunting the markets during the subprime
meltdown has been where the financial bodies are buried."
Similar reactions are evident for UBS and Citigroup
shareholders; the companies' share prices both rose
following the announcements. The editors conclude by
offering evidence that credit markets are stabilizing and
state that "by being forthright now, the banks can aid the
process of bringing buyers back to the debt markets."
CLASSROOM
APPLICATION: This article can be used to cover
write-downs due to impairment losses on mortgage assets as
well as to discuss debtholders as users of financial
markets. The situation also could be described as a "big
bath" write-down to clean house now while times are bad in
credit markets in general and, at least for UBS, while
corporate leadership is new.
QUESTIONS:
1.) In the opinion page article, the editors argue that
"marking asset to market is...better for the financial
system as a whole, rather than hiding losses on the balance
sheet and hoping for a rebound." What does this statement
mean? In your answer, define the terms "historical cost" and
"mark to market." Also, address the notion that a loss could
be included in a balance sheet account.
2.) Refer to the related articles. What are the assets on
which losses were taken at UBS and Citigroup?
3.) Some might argue that the losses being recorded by
Citigroup and UBS AG constitute a "big bath" to pave the way
for improving reported results in the future. How does a
current writedown help to improve reported results in the
future? What current circumstances at each of these firms
and in the general economy might allow for taking this
approach to writedowns?
4.) Refer again to the opinion page article's conclusion
that reporting losses now "can aid the process of bringing
buyers back to the debt markets." Should financial reporting
have a specific outcome, such as improving numbers of credit
market participants, as its objective? Support your answer.
Reviewed By: Judy Beckman, University of Rhode Island
|
Question
Why am I not laughing? Is it because I taught accounting for 40 years?
Actually the fact that a lowered credit rating can lead to a realized
gain should make sense even to a finance professor. Consider the following
scenario:
- I sell a bond and record a liability for $100,000 that matures in
ten years.
- My credit rating gets lowered the next day.
- I buy back the bond for $90,000 (the market value of the bond
declines because of my lowered credit rating)
- I've made a $10,000 cash profit in one day because of a lowered
credit rating
- I wonder if a finance professor can comprehend that this is a gain.
- I wonder if Moody's can understand that this is a very high quality
earnings since its cash in the bank.
Now what if I don't sell the bond but adopt the fair value accounting
option for financial instruments under FAS 159. I did not realize a cash
profit if I still owe $100,000 when the bond eventually matures. But the
reason I report an unrealized holding gain follows the same logic as if I
bought back the bond today. That's what the "fair value option" under FAS
159 is all about.
If Moody's does not treat unrealized holding gains and losses as
high-quality, core earnings, more power to them.
Finance students who've taken four courses in accounting may not laugh
because they understand why sometimes credit rating gains are high quality
and sometimes low quality will not laugh because they understand why. But
they may not understand why their finance professor is laughing.
Bob Jensen's tutorials on fair value accounting are at the following
two links:
Question
Will “Minsky Moments” become “Minsky Accounting?”
As both the FASB in the U.S. and the IASB international standards boards
march ever onward toward "fair value" accounting by replacing historical
costs with current values (mark-to-market accounting), it will plunge
corporate accountants and their CPA auditors ever deeper into current value
estimation. Financial statements will become increasingly volatile and
fictional with market movements. It is becoming clear that the efficient
markets hypothesis that drives much of the theory behind fair value
accounting is increasingly on shaky ground.
Especially problematic are moments in time like now (2007) when the
bubble burst on
subprime mortgage borrowing and investing that has caused tremors
throughout the world of banking and investing and risk sharing. And once
again, the ghost of long departed John Maynard Keynes seems to have risen
from the grave. There's material for a great
Stephen
King horror novel here.
It is time for accounting standard setters who set such new standards as
FAS 157 and FAS 159 to dust off some old economics books and seriously
consider whether they understand the theoretical underpinnings of new and
pending fair value standards moving closer to show time. You can read more
fair value accounting controversies in my work-in-process PowerPoint file
called 10FairValue.ppt at
http://www.cs.trinity.edu/~rjensen/Calgary/CD/JensenPowerPoint/
Aside from
badly mixing my metaphors here, the fundamental problem is that unrealized
fair values painting rosy financial performance (as the speculative roller
coaster rises with breath taking thrill toward the crest) become unrealized
losses as the roller coaster swoops downward toward “Minsky Moments.” It's a
fundamental problem in fair value accounting because an enormous portion of
reported earnings on the way up become sheer Minsky mincemeat (before
investments are sold and liabilities are not settled) and diabolical garbage
on the way down. In other words in these boom/bust market cycles, financial
statements (certified by independent auditors under new fair value
accounting standards) become increasingly hypothetical fantasy replacing
accustomed facts rooted in transactional accounting.
Fair value standard setters are plunging accounting into the realm of
economic theory that is itself less uncertain than astrology. It's time to
rethink some of that Chicago School economic theory that we've taken for
granted because of all the Nobel Prizes awarded to Chicago School
economists.
Question
Did
John
Maynard Keynes rise from the grave?
"In Time of Tumult, Obscure Economist Gains Currency: Mr. Minsky
Long Argued Markets Were Crisis Prone; His 'Moment' Has Arrived," by Justin Lahart, The Wall Street Journal, August 18, 2007; Page A1 ---
http://online.wsj.com/article/SB118736585456901047.html?mod=todays_us_page_one
The recent market turmoil is rocking investors
around the globe. But it is raising the stock of one person: a
little-known economist whose views have suddenly become very popular.
Hyman Minsky, who died more than a decade ago, spent much of his
career advancing the idea that financial systems are inherently
susceptible to bouts of speculation that, if they last long enough, end
in crises. At a time when many economists were coming to believe in the
efficiency of markets, Mr. Minsky was considered somewhat of a radical
for his stress on their tendency toward excess and upheaval.
Today, his views are reverberating from New
York to Hong Kong as economists and traders try to understand what's
happening in the markets. The Levy Economics Institute of Bard College,
where Mr. Minsky worked for the last six years of his life, is planning
to reprint two books by the economist -- one on John Maynard Keynes, the
other on unstable economies. The latter book was being offered on the
Internet for thousands of dollars.
Christopher Wood, a widely read Hong Kong-based
analyst for CLSA Group, told his clients that recent cash injections by
central banks designed "to prevent, or at least delay, a 'Minsky
moment,' is evidence of market failure."
Indeed, the Minsky moment has become a
fashionable catch phrase on Wall Street. It refers to the time when
over-indebted investors are forced to sell even their solid investments
to make good on their loans, sparking sharp declines in financial
markets and demand for cash that can force central bankers to lend a
hand.
Mr. Minsky, who died in 1996 at the age of 77,
was a tall man with unruly hair who wore unpressed suits. He approached
the world as "one big research tank," says Diana Minsky, his daughter,
an art history professor at Bard. "Economics was an integrated part of
his life. It wasn't isolated. There wasn't a sense that work was
something he did at the office."
She recalls how, on a trip to a village in
Italy to meet friends, Mr. Minsky ended up interviewing workers at a
glove maker to understand how small-scale capitalism worked in the local
economy.
Although he was born in Chicago, Mr. Minsky
didn't have many fans in the "Chicago School" of economists, who
believed that markets were efficient. A follower of the economist John
Maynard Keynes, he died just before a decade of financial crises in
Asia, Russia, tech stocks, corporate credit and now mortgage debt, began
to lend credence to his ideas.
Following those periods of tumult, more
investors turned to the investment classic "Manias, Panics, and Crashes:
A History of Financial Crises," by
Charles Kindleberger, a professor at the Massachusetts Institute
of Technology who leaned heavily on Mr. Minsky's work.
Mr. Kindleberger showed that financial crises
unfolded the way that Mr. Minsky said they would. Though a loyal
follower, Mr. Kindleberger described Mr. Minsky as "a man with a
reputation among monetary theorists for being particularly pessimistic,
even lugubrious, in his emphasis on the fragility of the monetary system
and its propensity to disaster."
At its core, the Minsky view was
straightforward: When times are good, investors take on risk; the longer
times stay good, the more risk they take on, until they've taken on too
much. Eventually, they reach a point where the cash generated by their
assets no longer is sufficient to pay off the mountains of debt they
took on to acquire them. Losses on such speculative assets prompt
lenders to call in their loans. "This is likely to lead to a collapse of
asset values," Mr. Minsky wrote.
When investors are forced to sell even their
less-speculative positions to make good on their loans, markets spiral
lower and create a severe demand for cash. At that point, the Minsky
moment has arrived.
"We are in the midst of a Minsky moment,
bordering on a Minsky meltdown," says Paul McCulley, an economist and
fund manager at Pacific Investment Management Co., the world's largest
bond-fund manager, in an email exchange.
The housing market is a case in point, says
Investment Technology Group Inc. economist Robert Barbera, who first met
Mr. Minsky in the late 1980s. When home buyers were expected to have a
down payment of 10% or 20% to qualify for a mortgage, and to provide
income documentation that showed they'd be able to make payments, there
was minimal risk. But as home prices rose, and speculators entered the
market, lenders relaxed their guard and began offering loans with no
money down and little or no documentation.
Once home prices stalled and, in many of the
more-speculative markets, fell, there was a big problem.
"If you're lending to home buyers with 20% down
and house prices fall by 2%, so what?" Mr. Barbera says. If most of a
lender's portfolio is tied up in loans to buyers who "don't put anything
down and house prices fall by 2%, you're bankrupt," he says.
Several money managers are laying claim to
spotting the Minsky moment first. "I featured him about 18 months ago,"
says Jeremy Grantham, chairman of GMO LLC, which manages $150 billion in
assets. He pointed to a note in early 2006 when he wrote that investors
had become too comfortable that financial markets were safe, and
consequently were taking on too much risk, just as Mr. Minsky predicted.
"Guinea pigs of the world unite. We have nothing to lose but our
shirts," he concluded.
It was Mr. McCulley at Pacific Investment,
though, who coined the phrase "Minsky moment" during the Russian debt
crisis in 1998.
Continued in article
Bob Jensen's fair value PowerPoint show ---
http://www.cs.trinity.edu/~rjensen/Calgary/CD/JensenPowerPoint/
August 18, 2007 reply from J. S. Gangolly
[gangolly@CSC.ALBANY.EDU]
Bob,
I thought we could all enjoy the following Keynes
quotes:
1. "Capitalism is the astounding belief that the
most wickedest of men will do the most wickedest of things for the greatest
good of everyone."
2. How prophetic he was:
"The day is not far off when the economic problem
will take the back seat where it belongs, and the arena of the heart and the
head will be occupied or reoccupied, by our real problems / the problems of
life and of human relations, of creation and behavior and religion."
3. How wonderfully Keynes anticipated stuff in
games played by Bayesian players and stuff in self-fulfilling equilibria
(which yielded three "Nobel" prizes), all without introducing any
mathematics or economic mumbo jumbo:
"Successful investing is anticipating the
anticipations of others."
4. The accountics folks might enjoy the following:
"The difficulty lies not so much in developing new
ideas as in escaping from old ones."
"If economists could manage to get themselves
thought of as humble, competent people on a level with dentists, that would
be splendid."
"When the facts change, I change my mind. What do
you do, sir?"
5. This should thrill tax folks:
"The avoidance of taxes is the only intellectual
pursuit that still carries any reward."
Jagdish
August 20, 2007 reply from Paul Williams
[Paul_Williams@NCSU.EDU]
Apparently no economist ever dies -- they just
come in and out of fashion. In George Akerlof's presidential address to
the AEA in January 2006 ("The Missing Motivation in Macroeconomics") he
concludes: "This lecture has shown that the early Keynesians got a great
deal of the working of the economic system right in ways that are denied
by the five neutralities (assumptions of the positivists).
As quoted from Keynes earlier, they based their
models on "our knowledge of human nature and from the detailed facts of
experience."" Thus the recent interest in "norms" by Shyam Sunder and
the urgency to provide "econonmic" explanations for "norms." So the very
FIRST plenary speaker at the, Joe Henrich, at the Chicago 2007 AAA
meeting, regaled us with his "evidence" that market integrated societies
produce people who are more trusting and fair- minded because people
from Missouri divide the spoils in a game that no one ever plays in
their real lives more equitably than a hunter- gatherer from New Guinea
for whom the game may have an entirely different meaning than someone
from St.Louis (a synchresis, perhaps).
Given that the integration of societies by
"markets" represents the blink of an eye in evolutionary time (even for
humans) one might consider that perhaps what makes Missourians different
from hunter- gatherers is that they come from a Christian tradition that
predates market integration by a couple thousand years (a tradition of
Christian agape?).
Linguists have long remarked that language is
impossible without trust (how else can I believe that words mean what I
am told they mean or how do I avoid starvation at birth unless I "trust"
my mother? We are born trusting). Yet we get this facile rendering with
regression equations of Adam Smith's argument stood completely on its
head. For Smith markets were a possibility only within a society that
was already integrated (in Smith's case by the kirk's dispositon of a
stern Calvanist morality).
Mike Royko (the columnist for the Chicago
Tribune) once opined that he had finally figured out economic theory, to
wit, "Economics says that almost anything can happen, and it usually
does." The end of history? I bet not.
Question
Where can you find facts about taxation?
October 7, 2007 message from JOHN STANCIL
[jstancil@VERIZON.NET]
I realize that the IRS is pretty tight with its
data, even in aggregated form. However, does anyone know if there is an
internet source where you can obtain certain tax facts – such as the amount
of charitable contributions claimed on individual returns, the dollar amount
of earned income credit, the amount of productive activity deductions taken
on a year to year basis?
Any help would be appreciated.
John Stancil
Florida Southern College
October 8, 2007 reply from Bob Jensen
When in doubt, always start with Wikipedia ---
http://en.wikipedia.org/wiki/Taxation
It goes without saying that you must be suspicious of questionable items in
any Wikipedia module. However, the above link is quite good on this topic.
As with most Wikipedia modules, both the Reference (Notes) links and the
Discussion sections are very important.
The Notes section (near the bottom) in this case leads to OECD sites
such as the National Accounts site ---
http://www.oecd.org/topicstatsportal/0,2647,en_2825_495684_1_1_1_1_1,00.html
The Discussion tab (near the top) leads to an extensive table of
contents of discussions.
Here are a few other sites to check out:
Bob Jensen’s statistical data links ---
http://www.trinity.edu/rjensen/Bookbob1.htm#EconStatistics
FirstGov ---
http://www.fedworld.gov/firstgov.html
Great IRS site links (not necessarily data table links):
FAQs and answers ---
http://www.irs.gov/faqs/index.html
Tax Fraud Alerts from the IRS ---
http://www.irs.gov/compliance/enforcement/article/0,,id=121259,00.html
Tax Scams ---
http://www.trinity.edu/rjensen/FraudReporting.htm#TaxScams
Bob Jensen's taxation helpers ---
http://www.trinity.edu/rjensen/Bookbob1.htm#010304Taxation
PwC Internal Audit Study Reveals Trends
"Internal Audit 2012" identifies major trends that
will likely shape the world of internal audit over the next five years. The
study, which was based on interview and survey data from chief audit executives
of Fortune 250 companies, found that the controls-focused approach that has
dominated internal auditing is expected to diminish in relevance over the coming
years. The central finding of the study is that over the next five years,
internal audit leaders must re-define the function's value proposition. Based on
the study, PwC has determined that a "risk-centric" internal audit model would
provide assurance on the effectiveness of risk management in addition to
controls assurance. This additional level of assurance would help internal audit
align itself more closely with the organization's maturing risk management
capabilities. The study also highlighted five trends that will have the greatest
impact on the internal audit profession in the coming years -- globalization,
changes in risk management, advances in technology, talent and organizational
issues, and changing internal audit roles.
SmartPros, October 1, 2007 ---
http://accounting.smartpros.com/x59262.xml
The PwC study is available at
http://www.pwc.com/Extweb/service.nsf/docid/294811129CD098E98525662F004E8CC3
CFO Bonuses Tied to SOX Material Weaknesses
October 31, 2007 message from David Albrecht
[albrecht@PROFALBRECHT.COM]
Sometimes I come across an article that makes me
go, "Hmmm, I didn't know that. Very interesting." That's my comment about
this
Material Weakness: A Pain in the Bonus
When a company's material-weakness disclosures
rise, the CFO's bonus falls, according to a new study. Alan Rappeport,
CFO.com | US October 30, 2007
While the pay of chief executive officers may be
based on bold metrics like their companies' bottom lines, CFO compensation
requires a more intricate calculus. For finance chiefs, the key factor these
days is internal controls.
A new study by Udi Hoitash, Rani Hoitash and Karla
Johnstone, accounting professors at Rutgers University, Bentley College, and
the University of Wisconsin at Madison, argues that CFO compensation in a
post-Sarbanes-Oxley world hinges strongly on material weaknesses of internal
controls, accounting expertise, and a CFO's relationship with the board.
Since Sarbox was enacted in 2002, companies have
sought CFOs with more technical experience, particularly in accounting and
auditing. Because of the more demanding set of skills needed to be a CFO,
their pay has increased. According to the study, the average finance chief
earns a base salary of $316,932 and an average bonus of $222,764. Charged
with certifying accurate financials, CFOs who knowingly make mistakes can be
fined millions of dollars and face prison. The greater responsibility comes
with bigger rewards, but also more painful penalties for mistakes.
Observing 635 CFOs in 2005, the authors find that
when a company's material-weakness disclosures increase, finance chiefs feel
a pain in their bonuses. The effect is made worse if the CFO has previous
experience as an internal auditor. Although internal-audit experience is
prized in the new regulatory world, it also comes with greater expectations.
"These results imply that boards and compensation
committees hold higher expectations for CFOs with greater expertise and
internal corporate reputation relative to other CFOs," the study said.
continued in article at:
http://www.cfo.com/article.cfm/10053429?f=alerts
David Albrecht
From The Wall Street Journal Accounting Weekly Review on October 12, 2007
Bond Tumult Is Jostling Auction-Rate Securities
by Randall
Smith and Shefali Anand
The Wall Street Journal
Oct 05, 2007
Page: C2
Click here to view the full article on WSJ.com ---
http://online.wsj.com/article/SB119150645315848868.html?mod=djem_jiewr_ac
TOPICS: Advanced
Financial Accounting, Investment Banking
SUMMARY: Auction-rate
securities are used by corporations and other investors to "earn
a bit more money on their spare cash than a traditional
money-market account would offer." The August market for these
securities dried up as investors took "paper losses" on some of
these securities they previously thought of as very safe.
"Almost half of auction-rate esecurities are backed by bonds
from municipalities....[and] student loans accounted for an
additional 27%.... Some of the $2.5 billion in issues
underwritten by Deutsche Bank experienced failed auctions within
a month or two of first being issued, saddling investors with
short-term paper losses....When an auction fails, investors will
either not be able to sell the securities at all or [will be
required to sell] at a loss."
CLASSROOM
APPLICATION: This article follows another effect of the
recent turmoil in credit markets. Questions ask students to
identify where these assets would be classified (either as cash
equivalents or as marketable securities) and to identify the
appropriate accounting for the losses on these short-term
investments.
QUESTIONS:
1.) Based on the description in the article, what are
auction-rate securities? For what purposes do corporations use
these short-term investments?
2.) How do you think that holders of these short-term
investments should classify them in their corporate balance
sheets? In your answer, define the phrases "cash and cash
equivalents," marketable securities, and investments.
3.) How did the turmoil in credit markets affect the ability of
holders of auction-rate securities to sell these short-term
investments? Given the purpose of these short-term investments,
why do you think that problem caused some panic in this market?
4.) The article mentions Xethanol Corporation experiencing a
loss on these securities. Was this a realized loss or an
unrealized loss? How will this loss be accounted for?
5.) Access Xethanol Corporation's 10-Q filing with the SEC for
the quarter ended June 30, 2007, filed on August 14, 2007. How
much of these types of investments did the company hold at June
30, 2007? Describe the company's disclosures about these
securities, including specifying the footnote. (Hint: you may
access the SEC filing by clicking on the company name in the
on-line version of the article to bring up the WSJ on-line
company information, then clicking on SEC filings on the
left-hand side of the web page, then selecting the appropriate
filing.)
6.) Based on the disclosures made, do you think the company
expected to liquidate their investment in August, 2007?
7.) Access the company's Form 8-K filing with the SEC on
September 21, 2007. Why did the company experience the $1.5
million loss described in this filing and in the WSJ article?
What is a Form 8-K filing and why did the company decide to file
this item with the SEC?
Reviewed By: Judy Beckman, University of Rhode Island
|
From The Wall Street Journal Accounting Weekly Review on October 5,
2007
Seeking Sweet Savings
by Julie
Jargon
The Wall Street Journal
Oct 02, 2007
Page: B1
Click here to view the full article on
WSJ.com
TOPICS: Accounting,
Cost Accounting, Cost Management, Research & Development
SUMMARY: H.J.
Heinz has been facing increasing costs of ingredients in its
ketchup: tomatoes, due to farming costs, and corn syrup, due to
increasing world demand for ethanol and grain-fed meats. Heinz
has been unable to increase prices sufficiently to cover these
cost increases. In response, the company is focusing R&D efforts
on producing sweeter and thicker tomatoes (and to improving its
machinery to handle the thicker tomatoes) in order to reduce the
need for syrup in its ketchup. Note: the company comments on the
research and development costs in Item 2 of the MD&A and under
Operating Results by Segment in its 10Q filed with the SEC on
August 24, 2007
CLASSROOM
APPLICATION: The article provides an excellent description
that can be used to support teaching accounting for research and
development with a product that students will readily
understand. As well, the article covers measures of costs, and
the topic of costs driving R&D efforts, that can be used for a
management or cost accounting course.
QUESTIONS:
1.) "At Heinz, overall costs for ingredients rose 4.7% in the
quarter ending Aug. 1." In general, how are costs of ingredients
monitored in a cost accounting system?
2.) Cite the specific costs that have increased in the case of
Heinz's production of ketchup. Describe how each of these costs
would be, or might not be, evident in Heinz's cost accounting
system.
3.) How has the monitoring of costs driven research and
development activities at the company? In your answer, define
the terms research and development with reference to appropriate
authoritative literature.
4.) From the article, list examples of activities that can be
categorized as research and as development; at least one example
from each category must be given.
5.) Heinz increased its R&D budget by 40% over three years and
used some of the funds to "purchase more land adjacent to its
Stockton research farm." Under authoritative accounting
literature, how must this purchase of land be accounted for?
Reviewed By: Judy Beckman, University of Rhode Island
RELATED
ARTICLES:
Heinz Posts 5.8% Rise in Net Income on New Product Sales,
Marketing
by Mike Barris
Aug 24, 2007
|
WSJ Video of the World Bank's Ranking of the Best and Worst Places to Do
Business ---
Click Here
Top Nations out of 178 Countries That Welcome Foreign Operations:
- Singapore
- New Zealand
- United States (would have been higher except for an excessively
complicated tax code better known as the CPA Full Employment Act)
Low Ranking Countries Highlighted in the Videos:
- Argentina (113% corporate profit tax rate unless you cheat)
- Brazil (takes an average of 2,600 hours to fill in tax forms)
- Venezuela and Bolivia (cannot fire even the most lazy, worthless, and
drug addicted workers)
Allegedly it's as bad as trying to fire a U.S.
Civil Service employee.
"Doing Business 2008: Making a Difference," International Finance Corporation
---
http://ifc.org/ifcext/media.nsf/Content/Doing_Business_2008
If you’re into
accounting theory, you may like Ira’s reply at the bottom of this message.
Question
What's your opinion regarding the Shortcut Method allowed in FAS 133 but not in
IAS 39?
If companies meet the strict tests for the Shortcut Method in FAS 133, they can
avoid period-to-period hedge effectiveness testing for interest rate swaps. The
FASB is now considering changing these tests. I would prefer that the FASB
eliminate the Shortcut Method entirely.
October 4, 2007 message from Attorney XXXXX
Bob Jensen:
As your website(s) keep coming up as an "authority"
in the subject area of FAS 133, you might want to pre-date (September 21,
2007) and submit to FASB any comment letter of substance on DIG
Implementation Issue E23 - revising the cash-flows short-cut method per
website invitation:
http://www.fasb.org/
New—FASB Issues Proposal to Clarify the "Shortcut
Method" of Hedge Accounting (Posted: 07/24/07) News Release
Although I submitted "late," mine was still
"accepted" and posted as #35 on the list - http://www.fasb.org/ocl/fasb-getletters.php?project=ISSUE-E23
I'm also hoping Ira Kawaller of
www.kawaller.com
also submits something as both his and your names keep
coming up on Google-searches on the subject.
I'm only an independent consultant working on a
project, and as such, I submitted a single-issue item snafu I've been
experiencing in the general area - perhaps yours could be more extensive.
Second message on October 5, 2007
Ira, Bob, et. al.:
In addition to potential late submissions on
the FASB website (below original e-mail), do either of you know of, or
can suggest any, commercial software to set-in-place and track a plain
vanilla Cash-Flows Macro Interest Rate Swap showing the long-haul
method?
I'm consulting at a sub-prime mortgage
management firm and they want to roll-up $1/2 Billion of their variable
debt to a single fixed-interest cash-flow hedge - as a Macro Interest
Rate Swap. While they already have a counter-party whose software they
might be using, but I'm sort-of shopping-around for them as well.
Due to the uncertainties surrounding the
short-cut method, we're going long-haul (at this point!). As the verdict
is pending on the short-cut method (see Morgan Stanley's E23 Comment -
http://www.fasb.org/ocl/ISSUE-E23/51580.pdf
where they "ceased" all their short cut hedge
programs, as well as KPMG's, where even-if short-cut is used, long-haul
would still be needed to track ineffectiveness -
http://www.fasb.org/ocl/ISSUE-E23/51585.pdf ),
and since it's only a "basic" cash-flows
interest-rate swap, we figure on moving ahead and using the long-haul
method to track the entirety of it.
I know we can't have our cake and eat it too -
i.e. once a "fixed" rate is established by the hedge, it too can "sink"
in the market, where we can't simultaneously hedge the cash-flows risk
and the fair-value risk of the completed hedge - but I'll leave that to
the macro-economists to figure-out.
Suggestions or comments welcome - please feel
free to forward to others who might be able to help, even commercial
vendors, so I know what prices the long-haul tracking will cost (I know!
I know! - it'll probably be more costly than the ineffectiveness that's
being tracked anyway - but we're just trying to play-by-the-rules in an
uncertain regulatory environment!).
Regards,
XXXXX
October 7, 2007 reply from Bob Jensen
Hi Albert,
I’m not sure I can add
much more to the Shortcut method that the FASB has not already
considered. Actually, I would like to do away with the Shortcut method
since it applied only to interest rate swaps and does not conform to IAS
39.
Your request for
information about software inspired me to update my somewhat neglected
module on software under the S-terms at
http://www.trinity.edu/rjensen/acct5341/speakers/133glosf.htm#S-Terms
(Scroll down to “Software.”
I discuss ineffectiveness testing under
the I-terms at
http://www.trinity.edu/rjensen/acct5341/speakers/133glosf.htm#I-Terms
A
bit of a review is provided at
http://www.cfoeurope.com/displayStory.cfm/1736487
Alternative approaches to testing hedge effectiveness under SFAS No. 133
--- z
http://www.allbusiness.com/accounting/methods-standards/209328-1.html
A Listing of
Some Hedge Accounting Restatements for 2005 (see Page 3 of the online
version)
"Lost in
the Maze Problems with hedge accounting caused a wave of restatements in
2005: Are FASB's rules too hard to follow, or are companies simply too
lax?" by Linda Corman, CFO Magazine,
May 2005 ---
http://www.cfo.com/article.cfm/6874855/1/c_8435337
Alternative approaches to testing hedge effectiveness under SFAS No. 133
---
http://www.allbusiness.com/accounting/methods-standards/209328-1.html
Derivatives One has some basic free tools ---
http://www.derivativesone.com/kb/hedge_effectiveness.aspx
There are a number of commercial vendors of FAS 133 and IAS 39
compliance software. A sampling is shown below:
FinancialCAD ---
http://www.financialcad.com/
FinancialCAD provides software and services that support the valuation
and risk management of financial securities and derivatives that is
essential for banks, corporate treasuries and asset management firms.
FinancialCAD’s industry standard financial analytics are a key component
in FinancialCAD solutions that are used by over 25,000 professionals in
60 countries.
Also see
http://www.cfo.com/article.cfm/3002428/c_3046496
COMSOL ---
http://www.comsol-online.com/content.php?si=317&id=134
INNSINC ---
http://www.inssinc.com/?issadsrc=google&gclid=CO38pY7f_I4CFTaoGgodgyqT2w
FUTRAK workstation offers all of the features necessary to significantly
reduce the time required to manage your hedging activities, provide
management with all the control tools necessary to comply with SarbOx
404, satisfy auditors with documentary evidence needed to justify your
company's use of derivative hedge accounting, and eliminate earnings
volatility.
Also see
http://www.bobsguide.com/guide/news/21544.html
Hedge Trackers ---
http://www.hedgetrackers.com/whatweoffer/toolsandsoftware.htm
TPG Software ---
http://www.tpgsoftware.com/CustServiceCenter/Docs/Windows/DerivativeGenius_files/DerivativeGenius.htm
MBRM ---
http://www.mbrm.com/
Allegro (especially good for energy companies) ---
http://www.allegrodev.com/solutions_app_riskMgmt.asp?c=positions
Sunguard Bancware ---
http://www.sungard.com/bancware/menus/brochures/bancwarealmbrochure.pdf
Treasury Compliance ---
http://www.fas133.com/search/search_article.cfm?page=11&areaid=362
October 8, 2007 reply from IRA KAWALLER
[kawaller@kawaller.com]
Jensen Note: Ira has been a member of the FASB's Derivative Implementation
Group (DIG) since its inception.
Bob -
I’m a bit surprised that you favor disallowing
shortcut.
I don’t have a problem with that perspective for
cash flow hedges, but I do for fair value hedges.
The problem for FV hedges is that long haul doesn’t
work. Over the life of fixed rate debt – typically issued at par and being
redeemed at par, the change in FV over the life of the debt is zero. The
results of a swap, on the other hand will be whatever the sum of the cash
flows happens to be – but certainly not zero. The only way FV hedges can
work is if you ignore swap settlements, but that’s crazy. The fact is, swaps
don’t offset the changes in the FV of the debt they’re used to hedge unless
the swaps are sized on a duration basis. That’s what bond portfolio managers
do, but it’s not what corporate treasurers do. For hedges that are designed
to synthesize variable rate debt, a one-to-one sizing is appropriate, but
unless you use shortcut, there’s little chance that you’ll be able to pass
retrospective effectiveness tests.
Hope all is well.
Ira Kawaller
718-694-6270
www.kawaller.com
Bob Jensen's threads on the Shortcut Method are under the S-terms at
http://www.trinity.edu/rjensen/acct5341/speakers/133glosf.htm#S-Terms
(Scroll down to "Shortcut Method")
Bob Jensen's FAS 133 and IAS 39 tutorials are at the following two sites:
http://www.trinity.edu/rjensen/caseans/000index.htm
http://www.cs.trinity.edu/~rjensen/Calgary/CD/
I still say do away with the
Shortcut Method until the IASB allows it in IAS 39.
Of course banks and other corporations in the U.S. would hit the ceiling
Humor Between October 1 and October 31, 2007
Forwarded by Paula
An 80-year old man goes for a physical. All of his tests come back with
normal results. The doctor says, "Chuck, everything looks great! How are you
doing mentally and emotionally? Are you at peace with God?"
Chuck replies, "God and I are tight. He knows I have poor eyesight, so he's
fixed it so when I get up in the middle of the night to go to the bathroom,
POOF! the light goes on. When I'm done, POOF! the light goes off."
"WOW, that's incredible," the doctor says.
A little later in the day, the doctor calls Chuck's wife. "Ethel," he says,
"George is doing fine! But, I had to call you as I am in awe of his relationship
with God. Is it true that when he gets up during the night, POOF! the light goes
on in the bathroom and when he's done POOF! the light goes off?"
"Oh, my God!" Ethel exclaims, "He's peeing in the refrigerator again!"
Old Quips from Paula
LOGIC
Two blondes living in Oklahoma were sitting on a bench talking, and one
blonde says to the other, "Which do you think is farther away... Florida or the
moon?" The other blonde turns and says "Helloooooooooo, can you see Florida
?????"
CAR TROUBLE
A blonde pushes her BMW into a gas station. She tells the mechanic it died.
After he works on it for a few minutes, it is idling smoothly. She says, "What's
the story?" He replies, "Just crap in the carburetor" She asks, "How often do I
have to do that?"
SPEEDING TICKET
A police officer stops a blonde for speeding and asks her very nicely if he
could see her license. She replied in a huff, "I wish you guys would get your
act together. Just yesterday you take away my license and then today you expect
me to show it to you!"
RIVER WALK
There's this blonde out for a walk. She comes to a river and sees another
blonde on the opposite bank. "Yoo-hoo!" she shouts, "How can I get to the other
side?" The second blonde looks up the river then down the river and shouts back,
"You ARE on the other side."
AT THE DOCTOR'S OFFICE
A gorgeous young redhead goes into the doctor's office and said that her body
hurt wherever she touched it. "Impossible!" says the doctor. "Show me." The
redhead took her finger, pushed on her left shoulder and screamed, then she
pushed her elbow and screamed even more. She pushed her knee and screamed;
likewise she pushed her ankle and screamed. Everywhere she touched made her
scream. The doctor said, "You're not really a redhead, are you? "Well, no" she
said, "I'm actually a blonde." "I thought so," the doctor said. "Your finger is
broken."
KNITTING
A highway patrolman pulled alongside a speeding car on the freeway. Glancing
at the car, he was astounded to see that the blonde behind the wheel was
knitting! Realizing that she was oblivious to his flashing lights and siren, the
trooper cranked down his window, turned on his bullhorn and yelled, "PULL OVER!"
"NO!" the blonde yelled back, "IT'S A SCARF!"
BLONDE ON THE SUN
A Russian, an American, and a Blonde were talking one day. The Russian said,
"We were the first in space!" The American said, "We were the first on the
moon!" T he Blonde said, "So what? We're going to be the first on the sun!" The
Russian and the American looked at each other and shook their heads. "You can't
land on the sun, you idiot! You'll burn up!" said the Russian. To which the
Blonde replied, "We're not stupid, you know. We're going at night!"
IN A VACUUM
A blonde was playing Trivial Pursuit one night. It was her turn. She rolled
the dice and she landed on Science & Nature. Her question was, "If you are in a
vacuum and someone calls your name, can you hear it?" She thought for a time and
then asked, "Is it on or off?"
Some new answers forwarded by Paula
Why did the chicken cross the road?
DR. PHIL: The problem we have here is that this chicken won't realize that he
must first deal with the problem on "THIS" side of the road before it goes after
the problem on the "OTHER SIDE" of the road. What we need to do is help him
realize how stupid he's acting by not taking on his "CURRENT" problems before
adding new problems.
OPRAH: Well I understand that the chicken is having problems, which is why he
wants to cross this road so bad. So instead of having the chicken learn from his
mistakes and take falls, which is a part of life, I'm going to give this chicken
a car so that he can just drive across the road and not live his life like the
rest of the chickens.
GEORGE W BUSH: We don't really care why the chicken crossed the road. We just
want to know if the chicken is on our side of the road, or not. The chicken is
either against us, or for us. There is no middle ground here.
COLIN POWELL: Now to the left of the screen, you can clearly see the
satellite image of the chicken crossing the road...
ANDERSON COOPER - CNN: We have reason to believe there is a chicken, but we
have not yet been allowed to have access to the other side of the road.
JOHN KERRY: Although I voted to let the chicken cross the road, I am now
against it! It was the wrong road to cross, and I was misled about the chicken's
intentions. I am not for it now, and will remain against it.
NANCY GRACE: That chicken crossed the road because he's GUILTY! You can see
it in his eyes and the way he walks.
PAT BUCHANAN: To steal the job of a decent, hardworking American.
MARTHA STEWART: No one called me to warn me which way that chicken was going.
I had a standing order at the Farmer's Market to sell my eggs when the price
dropped to a certain level. No little bird gave me any insider information.
DR SEUSS: Did the chicken cross the road? Did he cross it with a toad? Yes,
the chicken crossed the road, but why it crossed I've not been told.
ERNEST HEMINGWAY: To die in the rain. Alone.
JERRY FALWELL: Because the chicken was gay! Can't you people see the plain
truth in front of your face? The chicken was going to the "other side." That's
why they call it the "other side." Yes, my friends, that chicken is gay. And if
you eat that chicken, you will become gay too. I say we boycott all chickens
until we sort out this bomination that the liberal media whitewashes with
seemingly harmless phrases like "the other side." That chicken should not be
crossing the road. It's as plain and simple as that!
GRANDPA: In my day we didn't ask why the chicken crossed the road. Somebody
told us the chicken crossed the road, and that was good enough.
BARBARA WALTERS : Isn't that interesting? In a few moments, we will be
listening to the chicken tell, for the first time, the heart warming story of
how it experienced a serious case of molting, and went on to accomplish its life
long dream of crossing the road
JOHN LENNON: Imagine all the chickens in the world crossing roads together,
in peace.
ARISTOTLE: It is the nature of chickens to cross the road.
BILL GATES: I have just released eChicken2006, which will not only cross
roads, but will lay eggs, file your important documents, and balance your check
book. Internet Explorer is an integral part of eChicken. This new platform is
much more stable and will never cra...#@&&^( C \ .... reboot .
ALBERT EINSTEIN: Did the chicken really cross the road, or did the road move
beneath the chicken?
BILL CLINTON: I did not cross the road with THAT chicken. What is your
definition of chicken?
AL GORE: I invented the chicken!
COLONEL SANDERS: Did I miss one?!
Forwarded by Barb
A good piece of chocolate has about 200 calories. As I enjoy two
servings per night, and a few more on weekends, I consume 3,500 calories of
chocolate in a week, which equals one pound of weight per week.
Therefore...
In the last 3 1/2 years, I have had a chocolate caloric intake of about 180
pounds. I weigh only 165 pounds, so without chocolate, I would have wasted away
to nothing about three months ago!
I owe my life to chocolate.
AccountingWeb Humor ---
http://www.accountingweb.com/humor/humor.html
Windows Error Messages Forwarded by Auntie Bev ---
http://www.trinity.edu/rjensen/ErrorMessages.htm

Forwarded by Auntie Bev
Reporters
interviewing a 104-year-old woman: 'And what do you think is the best thing
about being 104?' the reporter asked. She simply replied, 'No peer pressure.'
_______________________________
The nice thing about being senile is you can hide your own Easter eggs
.
__________________________________________________________
I've sure gotten old! I've had two bypass surgeries, a hip replacement, new
knees, fought prostate cancer and diabetes. I'm half blind, can't hear anything
quieter than a jet engine, take 40 different medications that make me dizzy,
winded, and subject to blackouts. Have bouts with dementia. Have poor
circulation; hardly feel my hands and feet anymore. Can't remember if I'm 85 or
92. Have lost all my friends. But, thank God, I still have my driver's license.
________________________________
I feel like my body has gotten totally out of shape, so I got my doctor's
permission to join a fitness club and start exercising. I decided to take an
aerobics class for seniors. I bent, twisted, gyrated, jumped up and down, and
perspired for an hour. But, by the time I got my leotards on, the class was
over.
_______________________________
An elderly woman decided to prepare her will and told her preacher she had two
final requests. First, she wanted to be cremated, and second, she wanted her
ashes scattered over Wal-Mart.
'Wal-Mart?' the preacher exclaimed. 'Why Wal-Mart?'
'Then I'll be sure my daughters visit me twice a week.'
____________________________________________________________
My memory's not as sharp as it used to be. Also, my memory's not as sharp as it
used to be.
________________________________
Know how to prevent sagging? Just eat till the wrinkles fill out.
_______________________________
It's scary when you start making the same noises as your coffee maker.
______________________________
These days about half the stuff in my shopping cart says, 'For fast relief.'
______________________________
Remember: You don't stop laughing because you grow old, You grow old because you
stop laughing.
________________________________
--- THE SENILITY PRAYER : Grant me the senility to forget the people I never
liked anyway, the good fortune to run into the ones I do, and the eyesight to
tell the difference.
Forwarded by Paula
An extremely modest man was in the hospital for a series of tests, the last
of which had left his bodily systems extremely upset. Upon making several false
alarm trips to the bathroom, he decided the latest episode was another false
alarm and stayed put. He suddenly filled his bed with diarrhea and was
embarrassed beyond his ability to remain rational. In a complete loss of
composure he jumped out of bed, gathered up the bed sheets and threw them out
the hospital window.
A drunk was walking by the hospital when the sheets landed on him. He started
yelling, cursing, and swinging his arms violently trying to get the unknown
things off, and ended up with the soiled sheets in a tangled pile at his feet.
As the drunk stood there, unsteady on his feet, staring down at the sheets, a
hospital security guard, barely containing his laughter, and who had watched the
whole incident, walked up and asked, "What the heck is going on here?"
The drunk, still staring down, replied, "I think I just beat the crap out of
a ghost!"
Happy Halloween!
Forwarded by Paula
Two delicate blossoms of Southern femininity, one from Mississippi and the
other from Texas, were conversing on the porch swing of a large white-columned
mansion.
The Mississippian said, "When my first child was born, my husband built this
beautiful mansion for me." The Texan lady commented, "Well, isn't that nice?"
The lady from Mississippi continued, "When my second child was born, my
husband bought me that fine Cadillac automobile you see parked in the drive."
Again, the Texas lady commented, "Well, isn't that nice?"
The first woman boasted, "Then, when my third child was born, my husband
bought me this exquisite diamond bracelet."
Yet again, the Texas lady commented, "Well, isn't that nice?"
The first woman then asked her companion, "What did you husband buy for you
when you had your first child?"
The Texas lady replied, "My husband sent me to charm school."
"Charm school!" the first woman cried. "Land sakes, child, what on Earth
for?"
The Texas lady responded, "So that instead of saying, 'who gives a crap,' I
learned to say, 'Well, isn't that nice?'"
Forwarded by Bob Overn
An Iowa farmer got in his pickup and drove to a neighboring farm
and knocked at the door. A young boy, about 9, opened the door.
"Is yer Dad home?" the farmer asked.
"No sir, he ain't," the boy replied. "He went into town."
"Well said the farmer, "is yer Mom here?"
"No, sir, she ain't here neither. She went into town with Dad."
"How about your brother, Howard? Is he here?"
"He went with Mom and Dad."
The farmer stood there for a few minutes, shifting from one foot to the other
and mumbling to himself.
"Is there anything I can do fer ya?" the boy asked politely. "I knows where
all the tools are, if you want to borry one . . . Or maybe I could take a
message fer Dad."
"Well," said the farmer uncomfortably, "I really wanted to talk to yer
Dad. It's about your brother Howard getting my daughter, Melissa Mae, pregnant."
The boy considered for a moment. "You would have to talk to Pa about that he
finally conceded. "If it helps you any, I know that Pa charges $50 for the bull
and $25 for the hog, but, I really don't know how much he gets fer Howard."
Bob Hope quips forwarded by Paula
May 29, 1903 - July 27, 2003
ON TURNING 70 "You still chase women, but only downhill".
ON TURNING 80 "That's the time of your life when even your birthday suit
needs pressing."
ON TURNING 90 "You know you're getting old when the candles cost more than
the cake."
ON TURNING 100 " I don't feel old. In fact I don't feel anything until noon .
Then it's time for my nap."
ON GIVING UP HIS EARLY CAREER, BOXING "I ruined my hands in the ring ... The
referee kept stepping on them."
ON NEVER WINNING AN OSCAR "Welcome to the Academy Awards or, as it's called
at my home, 'Passover'."
ON GOLF "Golf is my profession. Show business is just to pay the green fees."
ON PRESIDENTS " I have performed for 12 presidents and entertained only six."
ON WHY HE CHOSE SHOWBIZ FOR HIS CAREER " When I was born, the doctor said to
my mother, 'Congratulations. You have an eight-pound ham'."
ON RECEIVING THE CONGRESSIONAL GOLD MEDAL "I feel very humble, but I think I
have the strength of character to fight it."
ON HIS FAMILY'S EARLY POVERTY "Four of us slept in the one bed. When it got
cold, mother threw on another brother."
ON HIS SIX BROTHERS "That's how I learned to dance. Waiting for the
bathroom."
ON HIS EARLY FAILURES " I would not have had anything to eat if it wasn't for
the stuff the audience threw at me."
ON GOING TO HEAVEN "I've done benefits for ALL religions. I'd hate to blow
the hereafter on a technicality."
Forwarded by Dick Haar
A wonderful Message by George Carlin:
The paradox of our time in history is that we have taller buildings but
shorter tempers, wider Freeways , but narrower viewpoints. We spend more, but
have less, we buy more, but enjoy less. We have bigger houses and smaller
families, more conveniences, but less time. We have more degrees but less sense,
more knowledge, but less judgment, more experts, yet more problems, more
medicine, but less wellness.
We drink too much, smoke too much, spend too recklessly, laugh too little,
drive too fast, get too angry, stay up too late, get up too tired, read too
little, watch TV too much , and pray too seldom.
We have multiplied our possessions, but reduced our values. We talk too much,
love too seldom, and hate too often.
We've learned how to make a living, but not a life. We've added years to life
not life to years. We've been all the way to the moon and back, but have trouble
crossing the street to meet a new neighbor. We conquered outer space but not
inner space. We've done larger things, but not better things.
We've cleaned up the air, but polluted the soul. We've conquered the atom,
but not our prejudice. We write more, but learn less. We plan more, but
accomplish less. We've learned to rush, but not to wait. We build more computers
to hold more information, to produce more copies than ever, but we communicate
less and less.
These are the times of fast foods and slow digestion, big men and small
character, steep profits and shallow relationships. These are the days of two
incomes but more divorce, fancier houses, but broken homes. These are days of
quick trips, disposable diapers, throwaway morality, one night stands,
overweight bodies, and pills that do everything from cheer, to quiet, to kill.
It is a time when there is much in the showroom window and nothing in the
stockroom. A time when technology can bring this letter to you, and a time when
you can choose either to share this insight, or to just hit delete...
Remember; spend some time with your loved ones, because they are not going to
be around forever. Remember, say a kind word to someone who looks up to you in
awe, because that little person soon will grow up and leave your side.
Remember, to give a warm hug to the one next to you, because that is the only
treasure you can give with your heart and it doesn't cost a cent.
Remember, to say, 'I love you' to your partner and your loved ones, but most
of all mean it. A kiss and an embrace will mend hurt when it comes from deep
inside of you.
Remember to hold hands and cherish the moment for someday that person will
not be there again. Give time to love, give time to speak! AND give time to
share the precious thoughts in your mind.
AND ALWAYS REMEMBER:
Life is not measured by the number of breaths we take, but by the moments
that take our breath away.
If you don't send this to at least 8 people....Who cares?
George Carlin
And that's the way it was on October 31, 2007 with a little help from my friends.
Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm
Facts about the earth in real time ---
http://www.worldometers.info/
Jesse's Wonderful Music for Romantics (You have to scroll down to the titles) ---
http://www.jessiesweb.com/
International Accounting News (including the U.S.)
AccountingEducation.com and Double Entries ---
http://www.accountingeducation.com/
Upcoming international accounting conferences ---
http://www.accountingeducation.com/events/index.cfm
Thousands of journal abstracts ---
http://www.accountingeducation.com/journals/index.cfm
Deloitte's International Accounting News ---
http://www.iasplus.com/index.htm
Association of International Accountants ---
http://www.aia.org.uk/
Free Harvard Classics ---
http://www.bartleby.com/hc/
Free Education and Research Videos from Harvard University ---
http://athome.harvard.edu/archive/archive.asp
I highly recommend TheFinanceProfessor (an absolutely fabulous and totally free newsletter from a very smart finance professor, Jim Mahar from St. Bonaventure University) ---
http://www.financeprofessor.com/
Bob Jensen's bookmarks for accounting newsletters are at
http://www.trinity.edu/rjensen/bookbob1.htm#News
News Headlines for Accounting from TheCycles.com ---
http://www.thecycles.com/business/accounting
An unbelievable number of other news headlines categories in TheCycles.com are at
http://www.thecycles.com/
Jack Anderson's Accounting Information Finder ---
http://www.umsl.edu/~anderson/accsites.htm
Gerald Trite's great set of links ---
http://www.zorba.ca/bookmark.htm
The Finance Professor ---
http://www.financeprofessor.com/about/aboutFP.html
Walt Mossberg's many answers to questions in technology ---
http://ptech.wsj.com/
How stuff works ---
http://www.howstuffworks.com/
Household and Other Heloise-Style Hints ---
http://www.trinity.edu/rjensen/bookbob3.htm#Hints
Bob Jensen's video helpers for MS Excel, MS Access, and other helper videos are at
http://www.cs.trinity.edu/~rjensen/video/
Accompanying documentation can be found at
http://www.trinity.edu/rjensen/default1.htm and
http://www.trinity.edu/rjensen/HelpersVideos.htm
Click on
www.syllabus.com/radio/index.asp for a complete list of interviews with established leaders, creative thinkers and education technology experts in higher education from around the country.
Professor Robert E. Jensen (Bob)
http://www.trinity.edu/rjensen
190 Sunset Hill Road
Sugar Hill, NH 03586
Phone: 603-823-8482
Email:
rjensen@trinity.edu
