New Bookmarks
Year 2014 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/.

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

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

 

Choose a Date Below for Additions to the Bookmarks File

2014

December 31

November 30

October 31

 

December 31, 2014

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

Bob Jensen at Trinity University 


For earlier editions of Fraud Updates go to http://www.trinity.edu/rjensen/FraudUpdates.htm
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 
Bookmarks for the World's Library --- http://www.trinity.edu/rjensen/bookbob2.htm 

Click here to search Bob Jensen's web site if you have key words to enter --- Search Box in Upper Right Corner.
For example if you want to know what Jensen documents have the term "Enron" enter the phrase Jensen AND Enron. Another search engine that covers Trinity and other universities is at 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 Pictures and Stories
http://www.trinity.edu/rjensen/Pictures.htm

 

All my online pictures --- http://www.cs.trinity.edu/~rjensen/PictureHistory/

David Johnstone asked me to write a paper on the following:
"A Scrapbook on What's Wrong with the Past, Present and Future of Accountics Science"
Bob Jensen
February 19, 2014
SSRN Download:  http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2398296 




There Are Way Too Many ‘Best Of 2014′ Lists ---
http://fivethirtyeight.com/features/there-are-way-too-many-best-of-2014-lists/
Also see the "cruel exclusions" ---
http://chronicle.com/blogs/conversation/2014/12/29/the-cruel-exclusions-of-the-literary-establishment/?cid=wb&utm_source=wb&utm_medium=en

7 Ways Michelle Obama Positively Influenced Education in 2014 ---
http://www.huffingtonpost.com/matthew-lynch-edd/7-ways-michelle-obama-pos_b_6417060.html

Companies paid record sums to settle bribery probes in 2014
http://blogs.wsj.com/cfo/2015/01/06/companies-paid-record-sums-to-settle-bribery-probes-in-2014/?mod=djemCFO_h

The Worst Science Blunders Of 2014 ---
http://www.businessinsider.com/the-worst-science-fail-moments-2014-12

2014 finishes as 4th coldest year on record for Illinois ---
http://www.freerepublic.com/focus/f-news/3244041/posts

These Are The Most Egregious Examples Of Government Waste In 2014 ---
http://www.businessinsider.com/the-most-egregious-examples-of-government-waste-in-2014-2014-12

10 TED talks that defined 2014
Plus the 20 most popular TED talks of all time
---
http://www.businessinsider.com/top-10-ted-talks-2014-12

The 20 Most Popular TED Talks Of All Time ---
http://www.businessinsider.com/most-popular-ted-talks-2014-10

10 Of The Most Ridiculous TED Talks of All Time ---
http://www.businessinsider.com/ridiculous-ted-talks-2014-8?op=1#ixzz3BJVOOTac

25 of the Most Ridiculous Media Quotations of in 2014 ---
http://townhall.com/columnists/johnhawkins/2015/01/03/the-25-most-obnoxious-quotes-of-2014-n1938140?utm_source=thdaily&utm_medium=email&utm_campaign=nl&newsletterad=

2014 Legal Education Year in Review ---
http://taxprof.typepad.com/taxprof_blog/2014/12/nlj-legal-education-.html

Library Scientists Pick the Best Ten Stories That Shaped 2014 ---
http://lisnews.org/ten_stories_that_shaped_2014

The Best Brain Pickings Articles of the Year ---
http://www.brainpickings.org/2014/12/30/best-of-2014/

From The New Yorker's John Cassidy
Twelve Geopolitical Lessons for 2015 ---
http://www.newyorker.com/news/john-cassidy/twelve-lessons-2015

The 10 Most Popular TaxProf Blog Posts Of 2014 (mostly non-tax posts) ---
http://taxprof.typepad.com/taxprof_blog/2015/01/the-10-most-popular-.html

The Top 10 Tax Cases (And Rulings) Of 2014 ---
http://taxprof.typepad.com/taxprof_blog/2015/01/the-top-ten-tax-cases.html

The Top 12 Legal Education Stories Of 2014 ---
http://taxprof.typepad.com/taxprof_blog/2015/01/the-top-12.html

48 Of The The Most Important Scientific Discoveries Of 2014 ---
http://www.businessinsider.com/2014s-most-important-discoveries-2015-1

Time Magazine's Choices for the 2014 Top 10 Apps ---
http://time.com/3582114/top-10-apps/?xid=newsletter-brief

The 20 Most Beautiful Apps Of The Year ---
http://www.businessinsider.com/the-20-most-beautiful-apps-of-the-year-2014-12

The 5 Most Popular K-12 Educational Apps of 2014 ---
http://thejournal.com/articles/2014/12/17/the-top-5-apps-of-2014.aspx?=THEMOB

The 10 Most-Popular Wired Campus Articles of 2014 (Chronicle of Higher Education) ---
http://chronicle.com/blogs/wiredcampus/10-most-popular-wired-campus-articles-of-2014/55381?cid=at&utm_source=at&utm_medium=en

ReadWrite's Best Stories of 2014 ---
http://readwrite.com/2014/12/31/readwrite-best-stories-2014

The Best Wired Stories of 2014 ---
http://www.wired.com/2014/12/best-wired-stories-2014/

The most painful customer service moments of 2014, and how you can avoid them in 2015 ---
http://www.zoho.com/support/blog/the-most-painful-customer-service-moments-of-2014-and-how-you-can-avoid-them-in-2015.html

For 2014 what is likely to be the worst performing stock in the Dow Jones index?
http://www.businessinsider.com/ibm-stock-about-to-hit-an-embarrassing-milestone-2014-12 \

The Tech Trends You Can’t Ignore in 2015 ---
https://mail.google.com/mail/u/1/#inbox/14abf57a69453384

The Best Wired Stories of 2014 ---
http://www.wired.com/2014/12/best-wired-stories-2014/

The Sad Internet: 2014 in Review ---
https://www.yahoo.com/tech/the-sad-internet-2014-in-review-106557156229.html

2014 David Pogue Awards ---
https://www.yahoo.com/tech/the-2014-pogue-awards-good-evening-and-welcome-105621974869.html

Here Are The 10 Big Market Stories That'll Dominate 2015 ---
http://www.businessinsider.com/goldman-top-market-themes-for-2015-2014-11

Six brands that may not make it through 2015 ---
http://finance.yahoo.com/news/6-brands-may-not-2015-103000752.html

Laptop Market Shares in Q3 of 2014 ---
http://www.macrumors.com/2014/11/07/apple-mac-us-pc-record/

Experts Predict The Cybercrime Of 2015 ---
http://www.businessinsider.com/beyond-phishing-experts-predict-the-cybercrime-of-2015-2014-12

12 Big Geopolitical Events We Think Will Happen In 2015 ---
http://www.businessinsider.com/12-geopolitical-predictions-about-2015-2014-12

Predictions: 10 Things That Will Rock the Tech Market in 2015 ---
https://www.yahoo.com/tech/predictions-10-things-that-will-rock-the-tech-106006071234.html

The Top Technology Failures of 2014 (MIT) ---
http://www.technologyreview.com/news/533546/the-top-technology-failures-of-2014/?utm_campaign=newsletters&utm_source=newsletter-daily-all&utm_medium=email&utm_content=20141231

Best of 2014: Google's Secretive DeepMind Startup Unveils a "Neural Turing Machine" ---
http://www.technologyreview.com/view/533741/best-of-2014-googles-secretive-deepmind-startup-unveils-a-neural-turing-machine/?utm_campaign=newsletters&utm_source=newsletter-daily-all&utm_medium=email&utm_content=20141230

The weirdest political stories of 2014 (Yahoo) ---
http://news.yahoo.com/the-weirdest-political-stories-of-2014-191919116.html

Nate Silver 5:38 Blog:  33 Weirdest Charts From 2014 ---
http://fivethirtyeight.com/datalab/our-33-weirdest-charts-from-2014/

Going Concern Editors' Picks 2014 (accountancy) ---
http://goingconcern.com/post/going-concern-editors-picks-2014

2014 in Energy: Dire Warnings, Slow Progress, and a Fusion Boast ---
http://www.technologyreview.com/news/533666/2014-in-energy-dire-warnings-slow-progress-and-a-fusion-boast/?utm_campaign=newsletters&utm_source=newsletter-daily-all&utm_medium=email&utm_content=20150102

Embarrassing Moments in Tech 2014 ---
https://www.yahoo.com/tech/embarrassing-moments-in-tech-2014-the-high-105632798859.html
Also see
http://readwrite.com/2014/12/31/2014-worst-moments-in-tech

Comparisons of Commodity Price Changes in 2014 ---
http://www.businessinsider.com/2014-futures-performance-2014-12
All you have to do today is buy some coffee and hamburger in order to choke on the price increases.
I paid way too much to fill my big heating oil tank (for this winter) in May. Sigh! That was a price speculation that failed.
Note how the price of cattle increased while the price of cattle feed declined in 2014, illustrating the lag effect of having farmers sell off their herds a few years ago during the Midwest drought. This year rain was plentiful in the Midwest, but the cattle herds do not return as quickly as the crops that feed them. There's still a shortage of feeder cattle.
Because grain farmers tend to hedge prices in advance of harvest time they did not lose as much as the price-change chart suggests.
Note that bonds increase in price as interest rates plunge. Many banks hedge (often with swaps) against big changes in interest rates so they are not deep into interest rate speculations.

2014 in Numbers: Huge Valuations, Shocking Security Stats, and a Big Climate Deal (MIT) --- Click Here
http://www.technologyreview.com/news/533681/2014-in-numbers-huge-valuations-shocking-security-stats-and-a-big-climate-deal/?utm_campaign=newsletters&utm_source=newsletter-daily-all&utm_medium=email&utm_content=20141229

USA Population Trends in 2014 ---
http://www.businessinsider.com/demographic-trends-have-created-two-americas-2014-12
Note how many blue states in terms of population are red states in terms of politics and vice versa
http://en.wikipedia.org/wiki/Red_states_and_blue_states

Best of 2014: How Google "Translates" Pictures into Words Using Vector Space Mathematics ---
http://www.technologyreview.com/view/533756/best-of-2014-how-google-translates-pictures-into-words-using-vector-space-mathematics/?utm_campaign=newsletters&utm_source=newsletter-daily-all&utm_medium=email&utm_content=20150102

2014 in Computing: Breakthroughs in Artificial Intelligence --- Click Here
http://www.technologyreview.com/news/533686/2014-in-computing-breakthroughs-in-artificial-intelligence/?utm_campaign=newsletters&utm_source=newsletter-daily-all&utm_medium=email&utm_content=20141229

Time Magazine:  The Top 10 Gadgets of 2014 ---
http://time.com/3582115/top-10-gadgets-2014/?xid=newsletter-brief

Top Five 2014 Wearable Devices ---
http://readwrite.com/2014/12/26/top-wearables-2014-smartwatches-fitness-trackers-vr

The CPA technology gift guide:  Consider these products ---
http://www.journalofaccountancy.com/issues/2014/dec/cpa-technology-gift-guide.html

Time Magazine:  The Best Inventions of 2014 ---
http://time.com/3594971/the-25-best-inventions-of-2014/?xid=newsletter-brief

Yahoo Tech's Choices for the 2014 Top 10 Gadgets ---
https://www.yahoo.com/tech/the-10-most-wanted-tech-c1417549586539/photo-iphone-6-photo-1417549459482.html

Jensen Comment
Some of these inventions are cool and very expensive. I find the MS Surface tablet computer not so expensive and not very cool. I'll take a laptop over a tablet any day of the week.

One of the many things I don't like are the mini ports that are just too fragile along with the mini plugs that plug into them Thin is nice in people. It's not nice in computers. I recommend using a USB port replicator (under $10) on your tablet computer such that you only have one mini plug to contend with for USB devices. But I don't like the other mini connectors such as the mini-power connector.

I like mini skirts but not mini ports on thin tablet computers.

These Are 17 Of Our Favorite Gadgets From The 1990s ---
http://www.businessinsider.com/tech-gadgets-from-the-1990s-2014-12

The Best Art, Design, and Photography Books of the Year ---
http://www.brainpickings.org/2014/12/08/best-art-design-photography-books-2014/

"The Year's Best Books on Psychology, Philosophy, and How to Live Meaningfully," by Maria Popova, Brain Pickings, December 22, 2014 ---
ttp://www.brainpickings.org/2014/12/01/best-psychology-philosophy-books-2014/

"The 14 Best Books,"  by Maria Popova, Brain Pickings, December 1, 2014 ---
http://www.brainpickings.org/2014/12/22/best-books-2014/

America's Best And Worst Banks 2015 ---
http://www.forbes.com/sites/kurtbadenhausen/2014/12/22/full-list-americas-best-and-worst-banks-2015/

The 10 Most Interesting Dating Studies Of 2014 ---
http://www.businessinsider.com/most-interesting-dating-studies-of-2014-2014-12

2014's Best National Geographic Photos ---
http://www.businessinsider.com/annual-national-geographic-photo-contest-2014-2014-12

The Most Incredible Wildlife Photos Of 2014 ---
http://www.businessinsider.com/best-animal-pictures-of-the-year-2014-12

15 Awesome Photos From Sony's 2015 World Photography Awards ---
http://www.businessinsider.com/15-awesome-photos-from-sonys-2015-world-photography-awards-2014-12

The 49 Most Mesmerizing Sports Photos Of 2014 ---
http://www.businessinsider.com/most-mesmerizing-sports-photos-2014-12

The Most Incredible Photos The Air Force Took In 2014 ---
http://www.businessinsider.com/the-air-forces-2014-in-photos-2015-1

The Most Jaw-Dropping Science Pictures Of 2014 ---
http://www.businessinsider.com/best-science-pictures-of-the-year-2014-12

The 10 Coolest Archaeological Discoveries Made In 2014 --- |
http://www.businessinsider.com/10-coolest-archeological-discoveries-of-2014-2014-12

Top Ten Harvard Kennedy School Web Stories of 2014 ---
http://www.hks.harvard.edu/news-events/news/articles/2014-top-ten-web-stories

The 52 Strangest Photos Of 2014 ---
http://www.businessinsider.com/strangest-photos-2014-2014-12

The Biggest Career Crashes Of 2014 ---
http://www.businessinsider.com/biggest-career-crashes-2014-12?op=1

The Best Games of 2014 ---
http://www.wired.com/2014/12/best-games-of-2014/

Some Hillarious Pranks of 2014 ---
http://guff.com/the-absolute-best-pranks-ever/15

The 20 Best Video Games of 2014 (yawn) ---
https://www.yahoo.com/tech/the-20-best-video-games-c1419375659120.html

Watch the 10 Most Popular YouTube Videos of the Year 2014 (Yahoo Tech) ---
https://www.yahoo.com/tech/watch-the-10-most-popular-youtube-videos-of-the-104776395799.html

The Worst Movies of 2014 ---
https://tv.yahoo.com/news/worst-movies-2014-colin-farrell-211600971.html

The 15 Highest-Grossing Movies Of 2014 ---
http://www.businessinsider.com/highest-grossing-movies-2014-2014-12
That does not make them the best movies of 2014. Children's movies do well even if they're awful because when dads pick up their kids for a weekly visit they have to do something for entertainment.

The 15 Best Movies of 2014 ---
http://www.businessinsider.com/top-movies-2014-2014-12

The 15 Best-Reviewed Movies of 2014 ---
http://www.businessinsider.com/top-movies-2014-2014-12

The 15 best songs of 2014 ---
http://www.vox.com/2014/12/30/7463577/songs-of-the-year

Best Classical Albums Of 2014 ---
http://www.npr.org/blogs/deceptivecadence/2014/12/11/370067981/best-classical-albums-of-2014

The Drunkest Countries In The World  ---
http://www.businessinsider.com/countries-that-drink-the-most-2015-1

The 50 Coolest New Businesses In America ---
http://www.businessinsider.com/coolest-new-businesses-in-america-2014-12

The 15 Best Business Books Of 2014 ---
http://www.businessinsider.com/best-business-books-of-2014-2014-12

The 10 Most Important Sustainable Business Stories from 2014 (Harvard Business Review) ---
https://hbr.org/2014/12/the-10-most-important-sustainable-business-stories-from-2014?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date

The Five Foot Shelf of Great Works, Towards a Required Reading List for Business ---
http://professorelam.typepad.com/my_weblog/2014/12/the-five-foot-shelf-of-great-works-towards-a-required-reading-list-for-business.html
No great works in accounting here

The Great Transformation - 33 Top Quotes from Global Peter Drucker Forum 2014 ---
http://www.slideshare.net/vladimirvulic/33-top-quotes-from-global-peter-drucker-forum-2014

100 Years of Price Changes ---
http://news.yahoo.com/glimpse-expenses-100-years-ago-140000459.html

A Lot of Bull:  History of Bear and Bull Markets in the USA ---
http://www.businessinsider.com/illustration-of-bull-and-bear-markets-2014-12

SSRN's Top 10,000 Downloads (Ranked) ---
http://hq.ssrn.com/rankings/Ranking_display.cfm?TRN_gID=10

The Guardian's Choice of the 100 Greatest Novels of All Time ---
http://www.theguardian.com/books/2003/oct/12/features.fiction


Perhaps television viewers are shunning political programming outliers.
NBC covers both ends of the political spectrum with MSNBC and CNBC, both of which are tanking in terms of viewer interest. If I were to investigate some of the reasons I would look for boring repetitions of commentators saying the same things over and over and then over again.

CNBC to stop using Nielsen for ratings
http://www.wsj.com/articles/cnbc-to-stop-using-nielsen-for-ratings-1420520556

MSNBC Closes 2014 In Last Place ---
http://www.breitbart.com/big-journalism/2014/12/30/msnbc-closes-2014-in-last-place-hemorrhaging-viewers/

CNBC and MSNBC are fighting back with non-political programming in some prime time slots.
For example, CNBC is now giving primetime coverage to exposes of business frauds? CNBC?
And MSNBC now features hidden camera thrillers (not comedy) in things like police chases and shoot outs that make the cops look abused. MSNBC?


Business Insider recently posted a list of handy math tricks, and among them is a quick way to estimate how long it will take to double an investment with a given rate of return ---
http://www.businessinsider.com/why-the-rule-of-72-works-2014-12


It's easier to move a cemetery than to affect a change in curriculum.
Woodrow Wilson

I watched the Pathways Commission videos from the 2014 annual meetings and was impressed ---
http://commons.aaahq.org/hives/8d320fc4aa/summary
These videos may only be available to members of the American Accounting Association.

Jensen Comment
I worried that the Pathways Commission initiatives would turn to flubber and die in future years. If anything the momentum is growing stronger with top leaders in accounting education, research, and practice carrying forward with practical strategies that have a real chance for doing what is almost impossible in higher education --- bring about change in something other than technology.

What was sown is what is being reaped
After five decades of narrow-minded econometric and psychometric training and education in North American accounting doctoral programs we have generations of accounting faculty who are not ready to handle change. Many of our mathematicians, statisticians, and economists that we graduated were really not very good at accounting and not at all interested in clinical accounting research. They became super at applying the General Linear Model (GLM) to purchased databases like CRSP, Compustat, and Audit Analytics. Some could run simplistic behavioral experiments pretending MBA students were executives. But in comparison to schools of medicine, engineering, and law, schools of accounting did not produce Ph.D. graduates interested in solving the clinical problems of our profession.
Clinical Research --- http://en.wikipedia.org/wiki/Clinical_research

This point was driven home in 2011 by Harvard's Bob Kaplan ---
Accounting Scholarship that Advances Professional Knowledge and Practice
Robert S. Kaplan
The Accounting Review, March 2011, Volume 86, Issue 2, 


 

Recent accounting scholarship has used statistical analysis on asset prices, financial reports and disclosures, laboratory experiments, and surveys of practice. The research has studied the interface among accounting information, capital markets, standard setters, and financial analysts and how managers make accounting choices. But as accounting scholars have focused on understanding how markets and users process accounting data, they have distanced themselves from the accounting process itself. Accounting scholarship has failed to address important measurement and valuation issues that have arisen in the past 40 years of practice. This gap is illustrated with missed opportunities in risk measurement and management and the estimation of the fair value of complex financial securities. This commentary encourages accounting scholars to devote more resources to obtaining a fundamental understanding of contemporary and future practice and how analytic tools and contemporary advances in accounting and related disciplines can be deployed to improve the professional practice of accounting. �2010 AAA

Added Jensen Comment
Simplistic solutions like appointing clinical researchers as editors of TAR, JAR, CAR, and the JAE will not bring about change because no clinical research manuscripts will be forthcoming from generations of faculty not trained or educated in clinical research. Another problem that we know from schools of medicine, engineering, and law is that solid clinical research is very, very expensive. Higher education research in accountancy is just not funded for expensive clinical research.

And turning thousands of economists produced by accounting doctoral programs over the last 50 years into genuine scholars in the professions of auditing, tax, financial accounting, information systems, and managerial accounting. I mean scholars that that are sought after by accounting firms because of the professional expertise of those scholars. Instead schools of accounting are taking on adjunct teachers of accounting from the profession to cover topics like the ERP model, insurance accounting, and advanced taxes because the tenured accounting faculty does not have the expertise for such topics.

The bad news is that changes promoted by the Pathways Commission will very slowly implemented. But given the current momentum of leaders of the academy and the the profession eventual change is becoming increasingly possible.

Do watch the 2014 Pathways Commission videos to seem what I mean about "momentum."
http://commons.aaahq.org/hives/8d320fc4aa/summary

"Accounting for Innovation," by Elise Young, Inside Higher Ed, July 31, 2012 ---
http://www.insidehighered.com/news/2012/07/31/updating-accounting-curriculums-expanding-and-diversifying-field

Accounting programs should promote curricular flexibility to capture a new generation of students who are more technologically savvy, less patient with traditional teaching methods, and more wary of the career opportunities in accounting, according to a report released today by the Pathways Commission, which studies the future of higher education for accounting.

In 2008, the U.S. Treasury Department's  Advisory Committee on the Auditing Profession recommended that the American Accounting Association and the American Institute of Certified Public Accountants form a commission to study the future structure and content of accounting education, and the Pathways Commission was formed to fulfill this recommendation and establish a national higher education strategy for accounting.

In the report, the commission acknowledges that some sporadic changes have been adopted, but it seeks to put in place a structure for much more regular and ambitious changes.

The report includes seven recommendations:

According to the report, its two sponsoring organizations -- the American Accounting Association and the American Institute of Certified Public Accountants -- will support the effort to carry out the report's recommendations, and they are finalizing a strategy for conducting this effort.

Continued in article

Bob Jensen's threads on how accountics scientists should change:

How Accountics Scientists Should Change: 
"Frankly, Scarlett, after I get a hit for my resume in The Accounting Review I just don't give a damn"
http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm
One more mission in what's left of my life will be to try to change this
http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm

What is currently wrong with accountancy doctoral programs in North America ---
http://www.trinity.edu/rjensen/Theory01.htm#DoctoralPrograms


"Accounting Trickery Has Boosted S&P 500 Profits By 86%," by Tyler Durden, Business Insider, December 26, 2014 ---
http://www.businessinsider.com/blackrock-sp-500-profits-boosted-by-accounting-2014-12

We have previously observed that while pundits are happy to focus on non-GAAP earnings which over the past several years have become a total farce, the reality is that GAAP EPS for the S&P in 2014 will be 1.3% lower than a year ago, and that as a result of crashing energy company profits, 2015 GAAP EPS will be lower still, meaning that contrary to the propaganda, the US will see two consecutive years of declining wage growth. That said, not even we expected to read the following shocker revealing just how naked the corporate profitability emperor truly is, and coming from the world's largest asset manager on top of everything.

Presenting the stunning punchline from Blackrock's 2015 Investment Outlook:

Corporate earnings are a key risk. Analysts predict double-digit growth in 2015, yet such high expectations will be tough to meet. Companies have picked the low-hanging fruit by slashing costs since the financial crisis. How do you generate 10% earnings-per-share growth when nominal GDP growth is just 4%?

It becomes tempting to take on too much leverage, use financial wizardry to reward shareholders or even stretch accounting principles. S&P 500 profits are 86% higher than they would be if accounting standards of the national accounts were used, Pelham Smithers Associates notes. And the gap between the two measures is widening, the research firm finds.

So assuming 126 non-GAAP 2015 S&P PE, this means the real EPS is... 67, which in turn means that the real forward P/E as of this moment is over 30! Then again, judging by the buying frenzy being unleashed in the S&P, it is time to BTFATH with both hands and on margin, because as long as nobody admits the truth, one must buy, buy, buy.

Jensen Comment
It's amazing how the world still focuses on earnings metrics when the IASB and FASB have given even defining earnings in their quest for fair value accounting that co-mingles unrealized changes in value with realized revenues.

Bob Jensen's threads on creative accounting ---
http://www.trinity.edu/rjensen/Theory02.htm#Manipulation


I think Joe Hoyle took a break from blogging during the Fall 2014 semester.
He's back with
http://joehoyle-teaching.blogspot.com/2014/12/six-questions-to-think-about-as-you.html

This will be my 201st entry on this blog. That is roughly 190 more than I expected to write when I first began. Over the years, the blog has had 130,000 page views and was recently named one of the top 50 blogs in accounting for 2014. ( http://www.accounting-degree.org/50-best-accounting-blogs-of-2014/ ) Unfortunately, it was the only blog on the list that dealt with education. I would honestly love to be reading 50 different blogs about teaching and learning. At that point, I think college education could really begin to improve. So, start a blog. Share your opinions. Share your questions. Share your doubts. Share your frustrations. We need more of that. You will never be able to estimate how much the blogging process can improve your own teaching until you start typing and posting.

As always, I want to pass along my great appreciation to everyone who forwards messages to colleagues about my various thoughts and ideas on this blog. Any success here is dependent entirely on the many kind people who read these essays and discuss them around their own faculty coffee rooms.

 

Jensen Comment
I congratulate Joe having his blog named in Top 50 Blogs in Accounting cited above the rating agency doing this ranking is highly biased --- its "Accounting Degree Review" Website is a for-profit university promotional site that ignores better and cheaper alternatives in the non-profit sector of accounting and business education ---
http://www.accounting-degree.org/most-affordable-online-masters-degrees-in-accounting/

Almost any professor in the field of business would probably disagree with the rankings of the top accounting programs by the Accounting Degree Review (especially in terms of affordability) at
http://www.accounting-degree.org/most-affordable-online-masters-degrees-in-accounting/

The Accounting Degree Review's choices of the "Most Affordable Online Master’s Degrees in Accounting" are certainly not the most affordable. Compare the cost of those for-profit programs with the top Accounting Programs ranked by more respectable ranking agencies.

Top Accounting Undergraduate Programs Ranked by US News (most now have masters in accounting programs as well)---
http://colleges.usnews.rankingsandreviews.com/best-colleges/rankings/business-accounting

AACSB-accredited programs that also have specialized accounting accreditations as well ---
http://www.aacsb.edu/en/accreditation/accounting/

Top Accounting MBA in Accounting Specialty Programs Ranked by US News
http://grad-schools.usnews.rankingsandreviews.com/best-graduate-schools/top-business-schools/accounting-rankings

If we were to just rank the accounting doctoral programs in terms of research performance the rankings might be quite different from the rankings shown above for MBA specialty  and Master of Accounting Programs ---
http://www.byuaccounting.net/rankings/univrank/rankings.php 

US News Best Undergraduate Business Programs ---
http://colleges.usnews.rankingsandreviews.com/best-colleges/rankings/business-accounting
Many of these top programs are much more affordable than those chosen by The Accounting Degree Review.

Guide to Online Community Colleges --- http://www.affordablecollegesonline.org/online-colleges/community-colleges/
Jensen Comment
Online community college courses are good for things like training certificates and associate degrees. However, for students wanting four-year and graduate online courses, there are usually better alternatives such as the ones listed below.

From US News in 2014
Best Online Degree Programs (ranked)
---
http://www.usnews.com/education/online-education

Best Online Undergraduate Bachelors Degrees --- http://www.usnews.com/education/online-education/bachelors/rankings
Central Michigan is the big winner

Best Online Graduate Business MBA Programs --- http://www.usnews.com/education/online-education/mba/rankings
Indiana University is the big winner

Best Online Graduate Education Programs --- http://www.usnews.com/education/online-education/education/rankings
Northern Illinois is the big winner

Best Online Graduate Engineering Programs --- http://www.usnews.com/education/online-education/engineering/rankings
Columbia University is the big winner

Best Online Graduate Information Technology Programs ---
http://www.usnews.com/education/online-education/computer-information-technology/rankings
The University of Southern California is the big winner

Best Online Graduate Nursing Programs --- http://www.usnews.com/education/online-education/nursing/rankings
St. Xavier University is the big winner

US News Degree Finder --- http://www.usnews.com/education/online-education/features/multistep-oe?s_cid=54089
This beats those self-serving for-profit university biased Degree Finders

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

Question
What accredited law schools offer online tax LL.M. degrees?

Answer (these degrees typically take three years to complete for full-time students unless students already have law degrees)
http://taxprof.typepad.com/taxprof_blog/2014/09/nine-law-schools.html

Selected Online Masters of Accounting and Masters of Taxation Programs ---
http://www.trinity.edu/rjensen/CrossBorder.htm#MastersOfAccounting
Time between enrollment and graduation depends a great deal on meeting prerequisite requirements in accountancy, and business core (including economics and ethics). I'm biased in recommending such degrees from only AACSB-accredited business programs, although not necessarily AACSB-accredited accounting programs. Some of the most prestigious AACSB-accredited universities do not have the added accountancy specialized accreditation.

 

Finally, At Long Last, Why did it take so long?
"Standing Up to 'Accreditation Shopping'," by Scott Jaschik, Inside Higher Ed, July 1, 2010 ---
http://www.insidehighered.com/news/2010/07/01/hlc 

Critics of for-profit higher education have of late drawn attention to what they see as a pattern of "accreditation shopping" in which for-profit entities purchase financially struggling nonprofit colleges, and then hold on to the regional accreditation that the nonprofit colleges had for years, even as the new owners expand or radically change the institutions' missions.

One accreditor is saying "not so fast." The Higher Learning Commission of the North Central Association of Colleges and Schools has recently rejected two "change of control" requests to have accreditation continue with the purchases of nonprofit colleges (Dana College, in Nebraska, and Rochester College, in Michigan) by for-profit entities. Further, the accreditor insisted on a series of stipulations to approve the continued accreditation of Iowa's Waldorf College -- stipulations that will effectively keep the near-term focus of the college on its residential, liberal arts mission.

The rejection of the accreditation continuation for Dana led the college's board to announce Wednesday that its purchasers no longer consider the deal viable. As a result, the sale will not take place and the college, founded in 1884, will shut down. There will be no operations for the 2010-11 academic year.

The decisions by the Higher Learning Commission (HLC) have been based on a new set of policies the accreditor approved that require that the mission remain similar after a purchase if the new owner wants the accreditation to carry over. A new owner who wants to change an institution's mission still has the right to apply as a candidate for initial accreditation, but that process takes longer and is one that many purchasers of colleges want to avoid.

Sylvia Manning, president of the HLC, said that the new policy was designed to prevent the use of a struggling college's accreditation to launch entirely new institutions. "This practice that has been called 'accreditation shopping' -- that's something we are very much opposed to. Accreditation is not like a liquor license."

The HLC does not release details on its decisions, although it announces them in general terms and plans to announce its decision on Dana today. A letter delivered to the college Wednesday was leaked to The Lincoln Journal Star. Manning declined to confirm the details in the letter that were quoted by the newspaper, but other sources verified its authenticity.

Dana, a Lutheran liberal arts institution, announced in March that it was being purchased by a new for-profit company. The new owners at the time said that they were going to be focused on building up the college in its present form -- and that they were committed to keeping the college's tenure system, an unusual move in for-profit higher ed.

The HLC letter, as described in the Lincoln newspaper, suggested that the investors had in mind a much more dramatic shift in Dana's mission than they indicated at the time the purchase was announced. According to the Lincoln newspaper, the HLC rejected the idea of maintaining accreditation because of "an inability to demonstrate sufficient continuity of the college's mission and educational programs," in part due to an interest in offering online programs that would represent a shift from the college's "residential liberal arts programs."

Continued in article

Bob Jensen's links to distance education and training programs ---
http://www.trinity.edu/rjensen/CrossBorder.htm 
 


"The Myth of Rigorous Accounting Research," by Paul F. Williams, Accounting Horizons, December 2014 ---
http://aaajournals.org/doi/full/10.2308/acch-50880

In this brief paper, I provide an argument that the rigor that allegedly characterizes contemporary mainstream accounting research is a myth. Expanding on arguments provided by West (2003), Gillies (2004), and Williams (1989), I show that the numbers utilized extensively to construct the statistical models that are the central defining feature of rigorous accounting research are, in many cases, not adequate to the task. These numbers are operational numbers that cannot be construed as measures or quantities of any kind of stable property. Constructing elaborate calculative models using operational numbers leads to equations whose results are not clearly decipherable. The rigorous nature of certain preferred forms of accounting research is, thus, largely a matter of appearance and not a substantive quality of the research mode that we habitually label “rigorous.” Thus, the policy recommendations implied by the results of rigorous accounting research may be viewed with considerable skepticism.

. . .

The Form of Rigorous Accounting Research

The distinct type of research that receives accolades for being rigorous is familiar to anyone who is acquainted with the top three academic accounting journals: Journal of Accounting Research (JAR), Journal of Accounting and Economics (JAE), and The Accounting Review (TAR). The fundamental premises underlying this rigorous research are enumerated by McCloskey (1985, 6–7):

  1. Prediction and control is the point of science.
  2. Only the observable implications (or predictions) of a theory matter to its truth.
  3. Observability entails objective, reproducible experiments; mere questionnaires interrogating human subjects are useless, because humans might lie.
  4. If and only if an experimental implication of a theory proves false is the theory proved false.
  5. Objectivity is to be treasured; subjective “observation” (introspection) is not scientific knowledge, because the subjective and the objective cannot be linked.
  6. Kelvin's Dictum: “When you cannot express it in numbers, your knowledge is of a meager and unsatisfactory kind.”
  7. Introspection, metaphysical belief, aesthetics, and the like may well figure in the discovery of an hypothesis, but cannot figure in its justification; justifications are timeless, and the surrounding community of science irrelevant to their truth.
  8. It is the business of methodology to demarcate scientific reasoning from nonscientific, positive from normative.
  9. A scientific explanation of an event brings the event under a covering law.
  10. Scientists—for instance, economic scientists—ought not to have anything to say as scientists about the oughts of value, whether of morality or art.7
Consistent with this characterization of paradigmatic social science, academic papers in the leading accounting journals consist almost exclusively in the presentation of elaborate statistical models—what Abbott (2004) calls statistical causal analyses. Those that are not statistical models are analytical models of accounting phenomena relying on the calculus of differentiation and integration and, also, the methodology of standard neoclassical economics. Rigorous accounting research is now that which reflects the aforementioned premises of what constitutes good scientific behavior.

 

To confirm this characterization of rigorous research, the 135 papers published in JAR, JAE, and TAR during 2011 were examined.8 Five of the papers were analytic,9 13 were papers that involved behavioral experiments utilizing ANOVA/ANCOVA designs, one utilized path analysis (a linear modeling), and 116 (86 percent of all articles) produced some form of linear statistical model (e.g., probit, logit). Of the 135 papers, 78 percent pertained to a finance-related topic. Fourteen were management in nature, 11 were auditing in nature, and three were “other.” Of all the papers (regardless of topic), 96 percent involved some kind of linear, statistical causal analysis. The end product of these scholarly efforts is a statistical (mathematical) model conforming to Sen's (1988) engineering approach to economics. These statistical models presume some predictive purpose. Such models must be constructed in the belief that were outcomes of future independent variables entered into the models, the calculative results of the models would produce values for the dependent variable that approximate the actual future value of that variable. Without that belief, it is hard to argue that these models have any power to explain some phenomenon. Without some belief that the relationships expressed in the equations of the model are temporally stable, each model becomes substantially an anecdote.10 Thus, accounting research that qualifies as rigorous by its publication in the premier journals is a process of constructing putatively predictive linear, mathematical models, i.e., algorithmic forms of knowledge of accounting phenomena. The 116 (86 percent of all papers) regression papers published in 2011 utilized an average of 20 variables (dependent and explanatory) in their models; an average of nine variables (43 percent of all variables) were taken from the financial statements of actual firms (mostly from the Compustat database). The frequency of such accounting measures (some taken directly from the financial statements, some based on arithmetic operations performed on financial statement numbers, including further regressions on accounting numbers) ranged from one to 27 in a single regression model. The average number of such variables per equation was seven, while the total number of variables, on average, was 13. In many cases, accounting or accounting-derived numbers represented the dependent variable. That is, the phenomenon being explained is represented via accounting operations so that an accounting number stands in for the real-world phenomenon being explained. Accounting scholars engaged in conducting rigorous research act as if these accounting numbers are particularly useful for analyzing and evaluating accounting phenomena in a rigorous manner. However, there is good reason to believe that the supposition that accounting numbers are useful for rigorous research is invalid. Ironically, it is current accounting policy making based on the same suppositions as rigorous accounting research (Williams and Ravenscroft 2014) that makes the usefulness of accounting data for performing rigorous accounting research implausible. This is so for two related reasons: the operational nature of accounting numbers (i.e., they are not quantities) and the “clock problem.”

THE OPERATIONAL STATUS OF ACCOUNTING NUMBERS The first problem is the status of accounting numbers as operational numbers, which makes their status as “quantities” suitable for mathematical manipulations problematic. While accountants have described accounting as a “measurement discipline; accountants measure things” (Ijiri 1975; Mock 1976), what it is that is measured, or even whether it can be measured, is not clear. Stamp (1993, 272)11 observes: Thus despite the common use of the terms “measure” or “measurement” in accounting, it seems to this author that there is no operation whatsoever in accounting that could be described as “measurement,” in the sense used by physicists, or biologists, or geologists, and so on. To measure in science (and, actually, in the everyday sense described above) necessarily involves the physical operation of comparison of the quantity being measured with some standard. (emphasis added) When the American Institute of Certified Public Accountants (AICPA) attempted to formalize the objectives of accounting, Beaver and Demski (1974, 180) criticized them, noting that “the term income determination is used as if it were some unambiguous, monolithic concept (such as true earnings) devoid of any measurement error.” What Beaver and Demski (1974) illustrated, perhaps without intending such, is that income is a particular type of concept, the kind of concept of which the conceptual language of accounting is largely comprised. Dworkin (2011) identifies three types of concepts that humans employ. According to him, some of the concepts we use are criteria, i.e., “we use the same criteria in identifying instances” (Dworkin 2011, 158). As an example, Dworkin (2011) offers the concept of an equilateral triangle—any triangle with sides of equal length. By measuring the sides with a measuring device (a ruler), we can establish with a high degree of confidence whether a triangle meets the criterion. A second type of concept is natural kind, i.e., “things that have a fixed identity in nature, such as a chemical compound or an animal species, and that people share a natural-kind concept when they use that concept to refer to the same natural kind” (Dworkin 2011, 159). The third type of concept is interpretive, a type Dworkin (2011, 160) describes thus:12

We share these concepts … not because we agree in their application once all other pertinent facts are agreed upon, but rather by manifesting an understanding that their correct application is fixed by the best interpretation of the practices in which they figure.

The role of “interpretation” in human understanding is ubiquitous. Dworkin (2011, 163) states the all pervasiveness of interpretive activity thusly:

Our account of the concepts that structure an intellectual domain is itself an interpretation of that domain, a device for making sense of the inquiry, reflection, arguments, and strategies that mark the domain. So in one sense all concepts are interpretive; because we must interpret the practice of “baldness” to decide that that concept is both criterial and vague, we might say that it is an interpretive fact that it is both.

The concepts that make up the everyday language of accounting are not natural kinds (Searle 1995; Lee 2006), but interpretive all the way down.

For example, accounting depends upon two fundamental concepts: “asset” and “liability,” which make up the accounting identity Assets = Liabilities + Net Assets, the balance sheet equation upon which the entire structure of accounting rests. The concept of “asset” has undergone radical change over the decades as the concept has been interpreted and re-interpreted through changing historical contexts.13 Williams (2003, 134) traces the change in meaning of asset from the late nineteenth century, when it first came to be used widely by accountants: “Toward the end of the 19th century the term assets, which was understood in commerce and law as meaning property available for the payment of debts, began to appear prominently in the accounting literature.” So when “asset” entered the accounting lexicon in a prominent way, the term applied to things with a cash value that could be used to settle debts; i.e., an asset depended upon the interpretive concept of “debts” and what it took to settle them. An asset was conceived as satisfying the criteria of being a separable property that could provide cash14 for settling money-denominated claims. In that incarnation, an asset could be represented numerically by a sales price available at the moment of representation. Consider how radically different our current concept of “asset” is: anything that provides probable future economic benefits (FASB 1980). This conceptualization of asset precludes nothing from being an asset; the criterion “future economic benefit” makes “assetness,” like Dworkin's (2011) “baldness,” more ambiguous and increases the potential for disagreement over whether something actually qualifies as an asset. The current concept also presumes that representation of the present relies on representations of the future, since without knowing about future economic benefits, it is not possible to identify what is an asset now. The time frame for knowing what is an asset and what one of its potential quantitative representations should be has been radically changed. Instead of “if it is worth something in money terms now, it is an asset now,” it is “if it is worth anything in money terms at any time in the future, it is an asset now.” “Asset” as a concept is of a social and not a natural kind, and undergoes re-interpretations that are influenced by social and political changes.15

The problematic for rigorous accounting research addressed in this essay is that asset, so central to accounting, is a concept that eludes any kind of measurement, i.e., there is no metric that provides a quantitative representation of “assetness.” If we could agree that two “things” meet the criteria of assets (and there is no guarantee this will be the case), then it is not possible to determine quantitatively which of the two is more asset-like than the other. Asset is a categorical concept and no more than a categorical concept requiring judgment about which there can be substantial disagreements. We could weigh the two assets and determine which is heavier or compare what they originally cost and determine which was more costly to acquire at the time of acquisition, but there is no metric that allows measurement of the relative amounts of “assetness” possessed by the two assets. They either are or are not assets. Once identified as an asset, all assets are equal so far as their “assetness” is concerned. To the extent that assets are “measurable,” they are so only in terms of other properties, arbitrarily chosen, that they possess, e.g., weight, volume, carbon footprint, cost, “fair value,” but not in terms of a unit of measure endemic to the concept.16 So measurement of assets, liabilities, and, by derivation, everything else contained in financial statements is an arbitrary choice of properties to be “measured.” This makes scientific investigation of accounting much more difficult, since the “science” itself and any meaning attributed to the results of scientific investigation will depend on what arbitrary measures of asset one chooses. And these choices are not scientific judgments, but value judgments.17 Physicists confronted with “time” as a variable in their mathematical models of the natural world face some constraint on how they choose to measure the concept—the concept leads them to choose measurement methods that are constrained by the concept itself and its place in physics theory. Nature will not provide physicists, carte blanche, choice in how to measure time. Asset as a concept does not constrain how we might choose to “measure” it, since it is not a scientific concept (assets do not exist in nature), but one inherited from historical human practices of civic administration and law and, more recently, theories of financial economics.

Thus, accounting can be construed as measurement only in the sense of assigning numbers to an object where there is considerable discretion in what numbers are to be assigned. What is the quantity represented by those numbers is subject to considerable ambiguity because the choice of metric is arbitrary and subject to wide variation in application of measurement “technique.” If we reach a state where the numbers assigned to different assets and different liabilities are arbitrarily different from each other depending on which particular asset and liability we are considering, then the prospect that those numbers are quantities of anything about which we can coherently speak is rather remote. Accounting numbers are not quantities corresponding to physical reality, but numerical representations of interpretive concepts about which there is often significant disagreement. The problematic for rigorous accounting research lies in the ambiguity of just what is the quantity represented by accounting numbers and the implications that has for what the results of archival research can mean.

. . .

CONCLUSION

In Fall 2011, physicists at CERN and the Gran Sasso National Laboratory conducted an experiment that appeared to demonstrate that light speed is not the maximum speed attainable in the universe, contrary to Einstein's claim in the Special Theory of Relativity. Energized neutrinos were accelerated to the point where they appeared to cover the distance between Geneva and Gran Sasso 60 nanoseconds faster than light speed (Powell 2011).29 Sixty nanoseconds is a very, very small quantity (60 billionths of a second). The clock designed to measure such small quantities must indeed be a very precise instrument.30 Accounting numbers, on the other hand, are not so precise because they are operational numbers, not quantities. The rigor attributed to rigorous accounting research comes from the claim that it most closely resembles what the physicists at CERN are doing. But it is analogous to physics mainly in appearance. It is ironic that such research has no policy implications: “Such analysis cannot, however, in and of itself imply or dictate a preference for one reporting practice over another” (Beaver and Demski 1974, 176). The lack of a consistent referent contributes to the fact that although rigorous accounting research is based on Sen's (1988) engineering approach, the success of this model falls far short of the success of actual engineering models. The failure to yield significant replicable findings raises doubts about its exclusive status as the sine qua non of accounting scholarship, as well as the certainty of claims based on such research.31 Rescher (2009, 102) notes that one obstacle to rational prediction is “Fuzziness—data indetermination.” Accounting numbers' operational character makes them inherently fuzzy. Rescher (2009) notes a consequence of our believing that rigorous accounting research is actually rigorous. He notes that in certain cases, extreme precision is essential, and particularly in those cases we characterize as chaotic (Rescher 2009, 59), and the economic world with which accounting deals is just such a chaotic case (Keen 2001; Taleb 2004, 2007; Orrell 2007; Pilkey and Pilkey-Jarvis 2007; Williams and Ravenscroft 2014). According to Rescher (2009, 60):

The precision needed to go from speculation to calculation is simply beyond our reach in such cases. As far as we are concerned, the matter will be a thing of pure chance. We cannot effectively come to know the details of it. In drastic matters, quasi-quantities will impel us into ignorance. (emphasis added)

Given the data and logic problems of current archival research, some greater attention to precision (see Ball 2013, footnote 20) seems in order. In addition, the likely intractability of the data problems suggests this research methodology is not the only path to accounting understanding. It seems we have yet to reach a state of scholarly maturity in accounting that we can afford the categorical dismissal of other methodologies simply on the grounds that they do not appear rigorous enough because they eschew the currently preferred methodology.

In any field of scholarly pursuit, to claim for oneself rigor is to claim for oneself scholarly virtue. However, to claim for oneself exclusive ownership of rigor requires, it seems, much greater certainty about what you are doing than currently exists. Making such a claim denies to others the attribution of scholarly virtue. This smacks of disrespect for other citizens of the academic community. Rigor is actually a process of becoming, not a destination, once arrived at, to be possessed, defended, and occupied forever and ever. Anthony Hopwood (2007, 1,365) began his AAA Presidential Address by observing, “I think there is a growing sense of unease about the state and direction of accounting research.” Hopwood (2007, 1,372) attributed this trouble in the academy to “strong intellectual biases and prejudices.” The consequence of the hegemony of these biases and prejudices “is that accounting is currently left with a research community whose members are, in my view, too conservative, too intellectually constrained, too conformist, and insufficiently excited by and involved with the changing practice or regulation of the craft” (Hopwood 2007). Hopwood (2007) correctly observed that the problem is not one that resides within the members of the research community, but with the community itself, i.e., the institutions that make up that community. The luxury of patience afforded by Kuhnian paradigms in the natural sciences—old paradigms die when their proponents die—is not available to accounting. This is so because the paradigm of rigorous accounting research has been institutionalized and institutions do not die of natural causes. Over time, North American doctoral programs have become more homogeneous, turning out new scholars trained only in the methodology of rigorous accounting research. In spite of the procedural changes at the AAA that give greater voice to its members, the key posts of association journal editors, directors of publications, directors of research, Doctoral Consortium faculty and New Faculty Consortium faculty continue to be selected mainly from the ranks of successful rigorous accounting researchers. Institutions are indeed much more difficult to change. As Hopwood (2007, 1,374) noted, “The difficulties that we face are ones that are deeply embedded in complex institutional structures. Change will not be easy, but it will be more likely to occur if we maintain a dialogue and debate.”

One obvious suggestion for improvement is to acknowledge that accounting is a practice and is, therefore, inherently multi-disciplinary. That suggests a kind of Habermasian (1987) community in which no voice is suppressed and all claims are exposed to critique and defended by “good” reasons, not power. Accounting has a history, and history is a discipline with its own brand of rigorous scholarship. Accounting is about accountability (Soll 2014), so it is about ethics and sociology, which also have brands of rigorous scholarship. Accounting is about law and politics, and law has its own brand of scholarly rigor. So it seems logical that reasonable folks would, therefore, acknowledge the relevance of multiple kinds of scholarship, each of which can give insights into accounting. However, as an observer of the American academy for nearly 40 years, it is difficult for me to be sanguine about such a seemingly reasonable approach. Accounting as a discipline with intellectual ambitions has gotten increasingly narrow and restrained over the past 40 years, in spite of the nearly ceaseless advocacy for multiple perspectives and some minimal level of mutual respect.

This essay is intended as one type of response to Hopwood's (2007) call for dialogue and debate, but it is not dialogue or debate with rigorous accounting research, since having a dialogue or debate with an institution is fruitless. It is, however, an attempt at dialogue and debate with those people who may read it and be persuaded by the argument that rigorous accounting research, by its own alleged standards, is not as rigorous as claimed and, therefore, realize they are free to choose some other way without fear they have abandoned all hope of doing rigorous scholarship. If just one person has the revelation that the claims to rigor ring a bit hollow and decides to pursue some other avenue within the discipline, then this dialogue and debate has been productive. Although perhaps too slowly, institutions can be changed via people withdrawing their support for them and that happens, usually, one person at a time.

Jensen Comment
There are two sometimes differing criteria in accounting research as well as science in general. One criterion is rigor that Paul treats quite well in the above paper. The other is relevance that is alluded to only briefly in the above paper. Accountics science published in leading academic accounting research journals is relevant to doctoral students and faculty seeking publication in those journals. The mathematical and statistical models are poured over for ideas on both extensions of the published research and applications of the models to other data sets and hypotheses.

The problem is that relevance in the above context creates a "cargo cult" first noted by Richard Feyman in physics and noted in various science disciplines, notably the social sciences.

"How Sociologists Made Themselves Irrelevant," by Orlando Patterson, Chronicle of Higher Education's Chronicle Review, December 1, 2014 ---
http://chronicle.com/article/How-Sociologists-Made/150249/?cid=at&utm_source=at&utm_medium=en

Metaphorical Meaning of the Phrase "Cargo Cult Science" ---
http://en.wikipedia.org/wiki/Cargo_cult#Metaphorical_uses_of_the_term

The term "cargo cult" has been used metaphorically to describe an attempt to recreate successful outcomes by replicating circumstances associated with those outcomes, although those circumstances are either unrelated to the causes of outcomes or insufficient to produce them by themselves. In the former case, this is an instance of the post hoc ergo propter hoc fallacy.

The metaphorical use of "cargo cult" was popularized by physicist Richard Feynman at a 1974 Caltech commencement speech, which later became a chapter in his book Surely You're Joking, Mr. Feynman!, where he coined the phrase "cargo cult science" to describe activity that had some of the trappings of real science (such as publication in scientific journals) but lacked a basis in honest experimentation.

Later the term cargo cult programming developed to describe computer software containing elements that are included because of successful utilization elsewhere, unnecessary for the task at hand.

Questions
Why does the business world ignore business school academic research including accountics research?
What other academic researchers have become "irrelevant?"

Answer

The authors blamed business schools’ scientifically rigorous research into arcane areas – studies whose theories didn’t have to be proved to work in the real world, only to the academic journals in which they hoped to get published (and, they maintained, on which tenure depended).

The same irrelevancy of academic researchers is taking place in sociology and anthropology.

"How Can Accounting Researchers Become More Innovative? by Sudipta Basu, Accounting Horizons, December 2012, Vol. 26, No. 4, pp. 851-87 ---
http://aaajournals.org/doi/full/10.2308/acch-10311 


 

We fervently hope that the research pendulum will soon swing back from the narrow lines of inquiry that dominate today's leading journals to a rediscovery of the richness of what accounting research can be. For that to occur, deans and the current generation of academic accountants must give it a push.�
Michael H. Granof and Stephen A. Zeff (2008)


 

Rather than clinging to the projects of the past, it is time to explore questions and engage with ideas that transgress the current accounting research boundaries. Allow your values to guide the formation of your research agenda. The passion will inevitably follow �
Joni J. Young (2009)

. . .

Is Academic Accounting a “Cargo Cult Science”?

In a commencement address at Caltech titled “Cargo Cult Science,” Richard Feynman (1974) discussed “science, pseudoscience, and learning how not to fool yourself.” He argued that despite great efforts at scientific research, little progress was apparent in school education. Reading and mathematics scores kept declining, despite schools adopting the recommendations of experts. Feynman (1974, 11) dubbed fields like these “Cargo Cult Sciences,” explaining the term as follows:

In the South Seas there is a Cargo Cult of people. During the war they saw airplanes land with lots of good materials, and they want the same things to happen now. So they've arranged to make things like runways, to put fires along the sides of the runways, to make a wooden hut for a man to sit in, with two wooden pieces on his head like headphones and bars of bamboo sticking out like antennas—he's the controller—and they wait for the airplanes to land. They're doing everything right. The form is perfect. It looks exactly the way it looked before. But it doesn't work. No airplanes land. So I call these things Cargo Cult Science, because they follow all the apparent precepts and forms of scientific investigation, but they're missing something essential, because the planes don't land.

Feynman (1974) argued that the key distinction between a science and a Cargo Cult Science is scientific integrity: “[T]he idea is to give all of the information to help others judge the value of your contribution; not just the information that leads to judgment in one particular direction or another.” In other words, papers should not be written to provide evidence for one's hypothesis, but rather to “report everything that you think might make it invalid.” Furthermore, “you should not fool the layman when you're talking as a scientist.”

Even though more and more detailed rules are constantly being written by the SEC, FASB, IASB, PCAOB, AICPA, and other accounting experts (e.g., Benston et al. 2006), the number and severity of accounting scandals are not declining, which is Feynman's (1969) hallmark of a pseudoscience. Because accounting standards often reflect standard-setters' ideology more than research into the effectiveness of different alternatives, it is hardly surprising that accounting quality has not improved. Even preliminary research findings can be transformed journalistically into irrefutable scientific results by the political process of accounting standard-setting. For example, the working paper results of Frankel et al. (2002) were used to justify the SEC's longstanding desire to ban non-audit services in the Sarbanes-Oxley Act of 2002, even though the majority of contemporary and subsequent studies found different results (Romano 2005). Unfortunately, the ability to bestow status by invitation to select conferences and citation in official documents (e.g., White 2005) may let standard-setters set our research and teaching agendas (Zeff 1989). Academic Accounting and the “Cult of Statistical Significance”

Ziliak and McCloskey (2008) argue that, in trying to mimic physicists, many biologists and social scientists have become devotees of statistical significance, even though most articles in physics journals do not report statistical significance. They argue that statistical tests are typically used to infer whether a particular effect exists, rather than to measure the magnitude of the effect, which usually has more practical import. While early empirical accounting researchers such as Ball and Brown (1968) and Beaver (1968) went to great lengths to estimate how much extra information reached the stock market in the earnings announcement month or week, subsequent researchers limited themselves to answering whether other factors moderated these effects. Because accounting theories rarely provide quantitative predictions (e.g., Kinney 1986), accounting researchers perform nil hypothesis significance testing rituals, i.e., test unrealistic and atheoretical null hypotheses that a particular coefficient is exactly zero.15 While physicists devise experiments to measure the mass of an electron to the accuracy of tens of decimal places, accounting researchers are still testing the equivalent of whether electrons have mass. Indeed, McCloskey (2002) argues that the “secret sins of economics” are that economics researchers use quantitative methods to produce qualitative research outcomes such as (non-)existence theorems and statistically significant signs, rather than to predict and measure quantitative (how much) outcomes.

Practitioners are more interested in magnitudes than existence proofs, because the former are more relevant in decision making. Paradoxically, accounting research became less useful in the real world by trying to become more scientific (Granof and Zeff 2008). Although every empirical article in accounting journals touts the statistical significance of the results, practical significance is rarely considered or discussed (e.g., Lev 1989). Empirical articles do not often discuss the meaning of a regression coefficient with respect to real-world decision variables and their outcomes. Thus, accounting research results rarely have practical implications, and this tendency is likely worst in fields with the strongest reliance on statistical significance such as financial reporting research.

Ziliak and McCloskey (2008) highlight a deeper concern about over-reliance on statistical significance—that it does not even provide evidence about whether a hypothesis is true or false. Carver (1978) provides a memorable example of drawing the wrong inference from statistical significance:

What is the probability of obtaining a dead person (label this part D) given that the person was hanged (label this part H); this is, in symbol form, what is P(D|H)? Obviously, it will be very high, perhaps 0.97 or higher. Now, let us reverse the question. What is the probability that a person has been hanged (H), given that the person is dead (D); that is, what is P(H|D)? This time the probability will undoubtedly be very low, perhaps 0.01 or lower. No one would be likely to make the mistake of substituting the first estimate (0.97) for the second (0.01); that is, to accept 0.97 as the probability that a person has been hanged given that the person is dead. Even though this seems to be an unlikely mistake, it is exactly the kind of mistake that is made with interpretations of statistical significance testing—by analogy, calculated estimates of P(D|H) are interpreted as if they were estimates of P(H|D), when they clearly are not the same.

As Cohen (1994) succinctly explains, statistical tests assess the probability of observing a sample moment as extreme as observed conditional on the null hypothesis being true, or P(D|H0), where D represents data and H0 represents the null hypothesis. However, researchers want to know whether the null hypothesis is true, conditional on the sample, or P(H0|D). We can calculate P(H0|D) from P(D|H0) by applying Bayes' theorem, but that requires knowledge of P(H0), which is what researchers want to discover in the first place. Although Ziliak and McCloskey (2008) quote many eminent statisticians who have repeatedly pointed out this basic logic, the essential point has not entered the published accounting literature.

In my view, restoring relevance to mathematically guided accounting research requires changing our role model from applied science to engineering (Colander 2011).16 While science aims at finding truth through application of institutionalized best practices with little regard for time or cost, engineering seeks to solve a specific problem using available resources, and the engineering method is “the strategy for causing the best change in a poorly understood or uncertain situation within the available resources” (Koen 2003). We should move to an experimental approach that simulates real-world applications or field tests new accounting methods in particular countries or industries, as would likely happen by default if accounting were not monopolized by the IASB (Dye and Sunder 2001). The inductive approach to standard-setting advocated by Littleton (1953) is likely to provide workable solutions to existing problems and be more useful than an axiomatic approach that starts from overly simplistic first principles.

To reduce the gap between academe and practice and stimulate new inquiry, AAA should partner with the FEI or Business Roundtable to create summer, semester, or annual research internships for accounting professors and Ph.D. students at corporations and audit firms.17 Accounting professors who have served as visiting scholars at the SEC and FASB have reported positively about their experience (e.g., Jorgensen et al. 2007), and I believe that such practice internships would provide opportunities for valuable fieldwork that supplements our experimental and archival analyses. Practice internships could be an especially fruitful way for accounting researchers to spend their sabbaticals.

Another useful initiative would be to revive the tradition of The Accounting Review publishing papers that do not rely on statistical significance or mathematical notation, such as case studies, field studies, and historical studies, similar to the Journal of Financial Economics (Jensen et al. 1989).18 A separate editor, similar to the book reviews editor, could ensure that appropriate criteria are used to evaluate qualitative research submissions (Chapman 2012). A co-editor from practice could help ensure that the topics covered are current and relevant, and help reverse the steep decline in AAA professional membership. Encouraging diversity in research methods and topics is more likely to attract new scholars who are passionate and intrinsically care about their research, rather than attracting only those who imitate current research fads for purely instrumental career reasons.

The relevance of accounting journals can be enhanced by inviting accomplished guest authors from outside accounting. The excellent April 1983 issue of The Accounting Review contains a section entitled “Research Perspectives from Related Disciplines,” which includes essays by Robert Wilson (Decision Sciences), Michael Jensen and Stephen Ross (Finance and Economics), and Karl Weick (Organizational Behavior) that were based on invited presentations at the 1982 AAA Annual Meeting. The thought-provoking essays were discussed by prominent accounting academics (Robert Kaplan, Joel Demski, Robert Libby, and Nils Hakansson); I still use Jensen (1983) to start each of my Ph.D. courses. Academic outsiders bring new perspectives to familiar problems and can often reframe them in ways that enable solutions (Tullock 1966).

I still lament that no accounting journal editor invited the plenary speakers—Joe Henrich, Denise Schmandt-Besserat, Michael Hechter, Eric Posner, Robert Lucas, and Vernon Smith—at the 2007 AAA Annual Meeting to write up their presentations for publication in accounting journals. It is rare that Nobel Laureates and U.S. Presidential Early Career Award winners address AAA annual meetings.20 I strongly urge that AAA annual meetings institute a named lecture given by a distinguished researcher from a different discipline, with the address published in The Accounting Review. This would enable cross-fertilization of ideas between accounting and other disciplines. Several highly cited papers published in the Journal of Accounting and Economics were written by economists (Watts 1998), so this initiative could increase citation flows from accounting journals to other disciplines.

HOW CAN WE MAKE U.S. ACCOUNTING JOURNALS MORE READABLE AND INTERESTING?

Even the greatest discovery will have little impact if other people cannot understand it or are unwilling to make the effort. Zeff (1978) says, “Scholarly writing need not be abstruse. It can and should be vital and relevant. Research can succeed in illuminating the dark areas of knowledge and facilitating the resolution of vexing problems—but only if the report of research findings is communicated to those who can carry the findings further and, in the end, initiate change.” If our journals put off readers, then our research will not stimulate our students or induce change in practice (Dyckman 1989).

Michael Jensen (1983, 333–334) addressed the 1982 AAA Annual Meeting saying:

Unfortunately, there exists in the profession an unwarranted bias toward the use of mathematics even in situations where it is unproductive or useless. One manifestation of this is the common use of the terms “rigorous” or “analytical” or even “theoretical” as identical with ‘‘mathematical.” None of these links is, of course, correct. Mathematical is not the same as rigorous, nor is it the same as analytical or theoretical. Propositions can be logically rigorous without being mathematical, and analysis does not have to take the form of symbols and equations. The English sentence and paragraph will do quite well for many analytical purposes. In addition, the use of mathematics does not prevent the commission of errors—even egregious ones.

Unfortunately, the top accounting journals demonstrate an increased “tyranny of formalism” that “develops when mathematically inclined scholars take the attitude that if the analytical language is not mathematics, it is not rigorous, and if a problem cannot be solved with the use of mathematics, the effort should be abandoned” (Jensen 1983, 335). Sorter (1979) acidly described the transition from normative to quantitative research: “the golden age of empty blindness gave way in the sixties to bloated blindness calculated to cause indigestion. In the sixties, the wonders of methodology burst upon the minds of accounting researchers. We entered what Maslow described as a mean-oriented age. Accountants felt it was their absolute duty to regress, regress and regress.” Accounting research increasingly relies on mathematical and statistical models with highly stylized and unrealistic assumptions. As Young (2006) demonstrates, the financial statement “user” in accounting research and regulation bears little resemblance to flesh-and-blood individuals, and hence our research outputs often have little relevance to the real world.

Figure 1 compares how frequently accountants and members of ten other professions are cited in The New York Times in the late 1990s (Ellenberg 2000). These data are juxtaposed with the numbers employed in each profession during 1996 using U.S. census data. Accountants are cited less frequently relative to their numbers than any profession except computer programmers. One possibility is that journalists cannot detect anything interesting in accounting journals. Another possibility is that university public relations staffs are consistently unable to find an interesting angle in published accounting papers that they can pitch to reporters. I have little doubt that the obscurantist tendencies in accounting papers make it harder for most outsiders to understand what accounting researchers are saying or find interesting.

Accounting articles have also become much longer over time, and I am regularly asked to review articles with introductions that are six to eight pages long, with many of the paragraphs cut-and-pasted from later sections. In contrast, it took Watson and Crick (1953) just one journal page to report the double-helix structure of DNA. Einstein (1905) took only three journal pages to derive his iconic equation E = mc2. Since even the best accounting papers are far less important than these classics of 20th century science, readers waste time wading through academic bloat (Sorter 1979). Because the top general science journals like Science and Nature place strict word limits on articles that differ by the expected incremental contribution, longer scientific papers signal better quality.21 Unfortunately, accounting journals do not restrict length, which encourages bloated papers. Another driver of length is the aforementioned trend toward greater rigor in the review process (Ellison 2002).

My first suggestion for making published accounting articles less tedious and boring is to impose strict word limits and to revive the “Notes” sections for shorter contributions. Word limits force authors to think much harder about how to communicate their essential ideas succinctly and greatly improve writing. Similarly, I would encourage accounting journals to follow Nature and provide guidelines for informative abstracts.22 A related suggestion is to follow the science journals, and more recently, The American Economic Review, by introducing online-only appendices to report the lengthy robustness sections that are demanded by persnickety reviewers.23 In addition, I strongly encourage AAA journals to require authors to post online with each journal article the data sets and working computer code used to produce all tables as a condition for publication, so that other independent researchers can validate and replicate their studies (Bernanke 2004; McCullough and McKitrick 2009).24 This is important because recent surveys of science and management researchers reveal that data fabrication, data falsification, and other violations in published studies is far from rare (Martinson et al. 2005; Bedeian et al. 2010).

I also urge that authors report results graphically rather than in tables, as recommended by numerous statistical experts (e.g., Tukey 1977; Chambers et al. 1983; Wainer 2009). For example, Figure 2 shows how the data in Figure 1 can be displayed more effectively without taking up more page space (Gelman et al. 2002). Scientific papers routinely display results in figures with confidence intervals rather than tables with standard errors and p-values, and accounting journals should adopt these practices to improve understandability. Soyer and Hogarth (2012) show experimentally that even well-trained econometricians forecast more slowly and inaccurately when given tables of statistical results than when given equivalent scatter plots. Most accounting researchers cannot recognize the main tables of Ball and Brown (1968) or Beaver (1968) on sight, but their iconic figures are etched in our memories. The figures in Burgstahler and Dichev (1997) convey their results far more effectively than tables would. Indeed, the finance professoriate was convinced that financial markets are efficient by the graphs in Fama et al. (1969), a highly influential paper that does not contain a single statistical test! Easton (1999) argues that the 1990s non-linear earnings-return relation literature would likely have been developed much earlier if accounting researchers routinely plotted their data. Since it is not always straightforward to convert tables into graphs (Gelman et al. 2002), I recommend that AAA pay for new editors of AAA journals to take courses in graphical presentation.

I would also recommend that AAA award an annual prize for the best figure or graphic in an accounting journal each year. In addition to making research articles easier to follow, figures ease the introduction of new ideas into accounting textbooks. Economics is routinely taught with diagrams and figures to aid intuition—demand and supply curves, IS-LM analysis, Edgeworth boxes, etc. (Blaug and Lloyd 2010). Accounting teachers would benefit if accounting researchers produced similar education tools. Good figures could also be used to adorn the cover pages of our journals similar to the best science journals; in many disciplines, authors of lead articles are invited to provide an illustration for the cover page. JAMA (Journal of the American Medical Association) reproduces paintings depicting doctors on its cover (Southgate 1996); AAA could print paintings of accountants and accounting on the cover of The Accounting Review, perhaps starting with those collected in Yamey (1989). If color printing costs are prohibitive, we could imitate the Journal of Political Economy back cover and print passages from literature where accounting and accountants play an important role, or even start a new format by reproducing cartoons illustrating accounting issues. The key point is to induce accountants to pick up each issue of the journal, irrespective of the research content.

I think that we need an accounting journal to “fill a gap between the general-interest press and most other academic journals,” similar to the Journal of Economics Perspectives (JEP).25 Unlike other economics journals, JEP editors and associate editors solicit articles from experts with the goal of conveying state-of-the-art economic thinking to non-specialists, including students, the lay public, and economists from other specialties.26 The journal explicitly eschews mathematical notation or regression results and requires that results be presented either graphically or as a table of means. In response to the question “List the three economics journals (broadly defined) that you read most avidly when a new issue appears,” a recent survey of U.S. economics professors found that Journal of Economics Perspectives was their second favorite economics journal (Davis et al. 2011), which suggests that an unclaimed niche exists in accounting. Although Accounting Horizons could be restructured along these lines to better reach practitioners, it might make sense to start a new association-wide journal under the AAA aegis.

 

CONCLUSION

I believe that accounting is one of the most important human innovations. The invention of accounting records was likely indispensable to the emergence of agriculture, and ultimately, civilization (e.g., Basu and Waymire 2006). Many eminent historians view double-entry bookkeeping as indispensable for the Renaissance and the emergence of capitalism (e.g., Sombart 1919; Mises 1949; Weber 1927), possibly via stimulating the development of algebra (Heeffer 2011). Sadly, accounting textbooks and the top U.S. accounting journals seem uninterested in whether and how accounting innovations changed history, or indeed in understanding the history of our current practices (Zeff 1989).

In short, the accounting academy embodies a “tragedy of the commons” (Hardin 1968) where strong extrinsic incentives to publish in “top” journals have led to misdirected research efforts. As Zeff (1983) explains, “When modeling problems, researchers seem to be more affected by technical developments in the literature than by their potential to explain phenomena. So often it seems that manuscripts are the result of methods in search of questions rather than questions in search of methods.” Solving common problems requires strong collective action by the social network of accounting researchers using self-governing mechanisms (e.g., Ostrom 1990, 2005). Such initiatives should occur at multiple levels (e.g., school, association, section, region, and individual) to have any chance of success.

While accounting research has made advances in recent decades, our collective progress seems slow, relative to the hard work put in by so many talented researchers. Instead of letting financial economics and psychology researchers and accounting standard-setters choose our research methods and questions, we should return our focus to addressing fundamental issues in accounting. As important, junior researchers should be encouraged to take risks and question conventional academic wisdom, rather than blindly conform to the party line. For example, the current FASB–IASB conceptual framework “remains irreparably flawed” (Demski 2007), and accounting researchers should take the lead in developing alternative conceptual frameworks that better fit what accounting does (e.g., Ijiri 1983; Ball 1989; Dickhaut et al. 2010). This will entail deep historical and cross-cultural analyses rather than regression analyses on machine-readable data. Deliberately attacking the “fundamental and frequently asked questions” in accounting will require innovations in research outlooks and methods, as well as training in the history of accounting thought. It is shameful that we still cannot answer basic questions like “Why did anyone invent recordkeeping?” or “Why is double-entry bookkeeping beautiful?”


Bravo to Professor Basu for having the guts address the Cargo Cult in this manner! Bravo to Paul Williams for honestly arguing that Lady Godiva in accounting research is really naked.

"Making Business School Research More Relevant," by James C. Wetherbe Jon Eckhardt, Harvard Business School Blog, December 24, 2014 ---
Click Here
https://hbr.org/2014/12/making-business-school-research-more-relevant?utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date&cm_ite=DailyAlert-122514+%281%29&cm_lm=rjensen%40trinity.edu&referral=00563&cm_ven=Spop-Email&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date

 

In a landmark 2005 Harvard Business Review article, USC business professors Warren Bennis and James O’Toole argued that the skills imparted by most business schools were not relevant to students and their eventual employers. The authors blamed business schools’ scientifically rigorous research into arcane areas – studies whose theories didn’t have to be proved to work in the real world, only to the academic journals in which they hoped to get published (and, they maintained, on which tenure depended). Do management professors “believe that the regard of their peers is more important than studying what really matters to executives who can put their ideas into practice?” Bennis and O’Toole wrote. “Apparently so.”

Nearly 10 years after the article was published, we believe this problem is even more acute, and that as such business schools need to get serious about making research more relevant to business. The best way do that is to emulate the world of medical research: conduct research and then put it into practice with real companies.

The rise of rigorous research in business schools has fostered an unfortunate paradox: business schools have become increasingly disconnected from practice. The reason is that business school faculty are almost exclusively rewarded on two metrics. First, they are rewarded for the number of scientific papers that they write that are published in prestigious journals that are exclusively controlled by, and read by, other academics. Second, they are rewarded by their citation count—the number of times their articles are cited by articles from other professors.

These incentives play a powerful role in how business schools are ranked. In fact, professors are often terminated during tenure evaluation if they do not perform well on these two dimensions. These incentives mean business professors spend most of their time searching for research topics they think will interest other business professors, conducting that research, and attending academic conferences to promote their work to other professors and increase citation counts. Professors who attend industry conferences or immerse themselves in the practice of business decrease the chances of performing well on publication and cite counts.

The result of this scholarly activity is a closed system. Business faculty create a body of knowledge that is scientifically novel, interesting, and important. But far too often, the research doesn’t address the real problems of entrepreneurs, managers, investors, marketers, and business leaders.

While many business professors view putting research into practice as incompatible with modern research universities, they only need to look across their campuses to academic medical centers to see that this view is outdated. Medical schools understand that patients are not well served by research driven solely by biologists, chemists, psychologists, and other research faculty who never treat patients.

Academic medical centers integrate research with practice through what the medical community refers to as “translational research.” Translational research takes scientific research conducted in the lab and makes it useful to people. Fully integrated translational research faculty are tenured professors who practice medicine and use the latest scientific techniques to answer questions about those techniques from practicing physicians. In addition, they often coauthor research papers with basic scientists and collaborate on clinical initiatives with clinical faculty.

The work of translational medical scientists means the knowledge production engines of medical schools advance basic science, applied science, and the practice of medicine. Why should business research and business professors be any different?

Five changes would initiate a new era of highly relevant business school research:

To be sure, corporate funding of medical research for some time has been accused of biasing findings in favor of for-profit interests. Corporate-funded business school research has the potential for conflicts of interest as well. But the way to resolve them is through full disclosure of funding sources and high research standards. The academic journal referrees of any business study should look closely at whether its findings and research methodology could have been biased. For their part, researchers must specifically explain how their methodology eliminated such bias.

Getting business professors to change their research agenda requires deans who embrace fundamental institutional change. While such change is never easy, the good news is that business schools have a strong scientific capability to build upon. They only need to apply that capability to issues that are much more relevant to the organizations that will employ their graduates.

Bob Jensen's threads on the how accountics scientists need to change ---
"Frankly, Scarlett, after I get a hit for my resume in The Accounting Review I just don't give a damn"
http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm
One more mission in what's left of my life will be to try to change this
http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm

There are other disciplines where academic researchers have lost their relevance.

Anthropology Without Science: A new long-range plan for the American Anthropological Association that omits the word �science� from the organization's vision for its future has exposed fissures in the discipline ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm#AntropologyNonScience

"How Sociologists Made Themselves Irrelevant," by Orlando Patterson, Chronicle of Higher Education's Chronicle Review, December 1, 2014 ---
http://chronicle.com/article/How-Sociologists-Made/150249/?cid=at&utm_source=at&utm_medium=en

Early in 2014, President Obama announced a new initiative, My Brother’s Keeper, aimed at alleviating the problems of black youth. Not only did a task force appointed to draw up the policy agenda not include a single professional sociologist, but I could find no evidence that any sociologist was even consulted in the critical first three months of the group’s work, summarized in a report to the president, despite the enormous amount of work sociologists have done on poverty and the problems of black youth.

Sadly, this situation is typical because sociologists have become distant spectators rather than shapers of policy. In the effort to keep ourselves academically pure, we’ve also become largely irrelevant in molding the most important social enterprises of our era.

Continued in article

How Accountics Scientists Made Themselves Irrelevant:  In the effort to keep ourselves academically pure ---
The Cargo Cult of Accounting Research
How Accountics Scientists Should Change: 
"Frankly, Scarlett, after I get a hit for my resume in The Accounting Review I just don't give a damn"
http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm
One more mission in what's left of my life will be to try to change this
http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm

 


"18 Free Online Business Courses That Will Boost Your Career," by John A. Byrne, Business Insider, December 18, 2014 ---
http://www.businessinsider.com/best-free-online-business-courses-in-january-2014-12

. . .

To learn more about these courses — and register for them — click on the links below.

Gamification / Wharton / January 26

Globalization of Business Enterprise / IESE / January 19

Entrepreneurship 101 and Entrepreneurship 102 / MIT / January 9

ContractsX: From Trust to Promise to Contract / Harvard / January 8

Technology Entrepreneurship / Stanford / January 6

Asset Pricing – Part One / University of Chicago / January 18

Innovation and Commercialization / MIT / January 13

Grow To Greatness: Smart Growth For Private Businesses – Part II / University of Virginia / January 12

Financial Analysis of Entrepreneurial Ideas / Babson College / January or February

Time to Reorganize! Understand Organizations, Act, and Build a Meaningful World / HEC Paris / January 13

Game Theory II: Advanced Applications / Stanford / January 11

U.Lab: Transforming Business, Society, and Self / MIT / January 7

Make An Impact: Sustainability for Professionals / University of Bath / January 12

Managing People: Engaging Your Workforce / University of Reading / January 12

Decision Making in a Complex and Uncertain World / University of Groningen / January 19

Project Management for Business Professionals / January 26

Subsistence Marketplaces / University of Illinois / January 26

DQ 101: Introduction to Decision Quality / Strategic Decisions Group / January 15

More from John A. Byrne:

This article originally appeared at LinkedIn. Copyright 2014. Follow LinkedIn on Twitter.

Read more: https://www.linkedin.com/pulse/best-mooc-courses-business-john-a.-byrne#ixzz3MLx1WEeQ


"What Are MOOCs Good For? Online courses may not be changing colleges as their boosters claimed they would, but they can prove valuable in surprising ways," by Justin Pope, MIT's Technology Review, December 15, 2014 ---
http://www.technologyreview.com/review/533406/what-are-moocs-good-for/?utm_campaign=newsletters&utm_source=newsletter-daily-all&utm_medium=email&utm_content=20141215

A few years ago, the most enthusiastic advocates of MOOCs believed that these “massive open online courses” stood poised to overturn the century-old model of higher education. Their interactive technology promised to deliver top-tier teaching from institutions like Harvard, Stanford, and MIT, not just to a few hundred students in a lecture hall on ivy-draped campuses, but free via the Internet to thousands or even millions around the world. At long last, there appeared to be a solution to the problem of “scaling up” higher education: if it were delivered more efficiently, the relentless cost increases might finally be rolled back. Some wondered whether MOOCs would merely transform the existing system or blow it up entirely. Computer scientist Sebastian Thrun, cofounder of the MOOC provider Udacity, predicted that in 50 years, 10 institutions would be responsible for delivering higher education.

Then came the backlash. A high-­profile experiment to use MOOCs at San Jose State University foundered. Faculty there and at other institutions rushing to incorporate MOOCs began pushing back, rejecting the notion that online courses could replace the nuanced work of professors in classrooms. The tiny completion rates for most MOOCs drew increasing attention. Thrun himself became disillusioned, and he lowered Udacity’s ambitions from educating the masses to providing corporate training.

But all the while, a great age of experimentation has been developing. Although some on-campus trials have gone nowhere, others have shown modest success (including a later iteration at San Jose State). In 2013, Georgia Tech announced a first-of-its-kind all-MOOC master’s program in computer science that, at $6,600, would cost just a fraction as much as its on-campus counterpart. About 1,400 students have enrolled. It’s not clear how well such programs can be replicated in other fields, or whether the job market will reward graduates with this particular Georgia Tech degree. But the program offers evidence that MOOCs can expand access and reduce costs in some corners of higher education.

Meanwhile, options for online courses continue to multiply, especially for curious people who aren’t necessarily seeking a credential. For-profit Coursera and edX, the nonprofit consortium led by Harvard and MIT, are up to nearly 13 million users and more than 1,200 courses between them. Khan Academy, which began as a series of YouTube videos, is making online instruction a more widely used tool in classrooms around the world.

Continued in article

Jensen Comment
I always hate to see the Khan Academy, YouTube Channels, MOOCs, and Distance Education for fees and credits mingled together in the same article. MOOCs are usually filmed versions of live courses at prestigious universities. They are free by definition, although fees might be charged by third parties for taking competency examinations for credits ---
http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI

"The MOOC Where Everybody Learned:  And they learned just as much as MIT students who had taken a similar course on the campus, according to a new study." by Steve Kolowich, Chronicle of Higher Education, September 16, 2014 ---
http://chronicle.com/blogs/wiredcampus/the-mooc-where-everybody-learned/54571?cid=at&utm_source=at&utm_medium=en

EdX --- http://en.wikipedia.org/wiki/EdX
"6 Big Takeaways From the EdX Global Forum," by Joshua Kim, Inside Higher Ed, November 23, 2014 ---
https://www.insidehighered.com/blogs/technology-and-learning/6-big-takeaways-edx-global-forum

Distance education courses are usually fee-based online courses for credit. In many instances at major universities some sections of courses are taught live on campus and others are taught live online ---
http://www.trinity.edu/rjensen/CrossBorder.htm

Khan Academy and YouTube Channels offer free tutorials. Learners can cherry pick topics and watch basic and advanced learning videos that vary in length form a few minutes to longer but usually much less than an hour for each module. These were never intended to be anything more than self-learning alternatives for highly motivated students. Some leading universities like the University of Wisconsin now over limited choices for taking competency examinations for college credit, but the distance between a few learning videos and college credit is a very long distance indeed.

More than 100 colleges have set up channels on YouTube --- http://www.youtube.com/edu
Many universities offer over 100 videos, whereas Stanford offers a whopping 583
Search for words like “accounting”

"The 12 Most Popular Free Online Courses (MOOCs) For Professionals," by Maggie Zhang, Business Insider, July 8, 2014 ---
 http://www.businessinsider.com/free-online-courses-for-professionals-2014-7

01. Wesleyan University's "Social Psychology"

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

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

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

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

06. Stanford University's "Startup Engineering"

07. Yale University's "Financial Markets"

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

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

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

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

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

Read more: http://www.businessinsider.com/free-online-courses-for-professionals-2014-7#ixzz37LiJgQ57

For Members of the American Accounting Association
One of the best sessions at the AAA's 2014 Annual Meetings was the the session
7.02 The Impact of MOOCs and Online Courses on Accounting...
A video of this entire session is now available to AAA members ---
http://commons.aaahq.org/posts/4a2206f6ab
There were three panelists including a leading technical speaker from EdX and a professor who teaches accounting in Wharton's MOOCs of virtually all of its MBA core courses (for free to the world).
The speakers are outstanding, but the videos do not show the PowerPoint screens. This is a bit frustrating, but the speakers generally described what was on each PowerPoint slide.

AAA members who did not attend the above session really missed what was one of the best technical sessions at the 2014 Annual Meetings.

Other videos of sessions are linked at
http://commons.aaahq.org/hives/8d320fc4aa/summary
I also highly recommend watching the video of Jimmy Wales' Plenary Session. Jimmy is the founder and CEO of Wikipedia. Wikipedia for most of us is the most important site in the world for instant learning from an unbelievable number of crowd-sourced encyclopedia modules. When I say unbelievable I mean an UNBELIEVABLE number of topics covered in over 200 languages. Nearly five million of these topics are in English. Jimmy reported that Wikipedia has over 500 million visitors per month. The population of the USA is only about 300 million people.
http://en.wikipedia.org/wiki/Wikipedia

Wikipedia (Listeni/ˌwɪkɨˈpdiə/ or Listeni/ˌwɪkiˈpdiə/ WIK-i-PEE-dee-ə) is a free-access, free content Internet encyclopedia, supported and hosted by the non-profit Wikimedia Foundation. Anyone who can access the site[6] can edit almost any of its articles. Wikipedia is the sixth-most popular website[5] and constitutes the Internet's largest and most popular general reference work.[7][8][9]

Jimmy Wales and Larry Sanger launched Wikipedia on January 15, 2001. Sanger[10] coined its name,[11] a portmanteau of wiki (from the Hawaiian word for "quick")[12] and encyclopedia. Although Wikipedia's content was initially only in English, it quickly became multilingual, through the launch of versions in different languages. All versions of Wikipedia are similar, but important differences exist in content and in editing practices. The English Wikipedia is now one of more than 200 Wikipedias, but remains the largest one, with over 4.6 million articles. As of February 2014, it had 18 billion page views and nearly 500 million unique visitors each month.[13] Wikipedia has more than 22 million accounts, out of which there were over 73,000 active editors globally as of May 2014.[2]

Studies tend to show that Wikipedia's accuracy is similar to Encyclopedia Britannica, with Wikipedia being much larger. However, critics have worried that Wikipedia exhibits systemic bias, and that its group dynamics hinder its goals. Most academics, historians, teachers and journalists reject Wikipedia as a reliable source of information for being a mixture of truths, half truths, and some falsehoods,[14] and that as a resource about controversial topics, Wikipedia is notoriously subject to manipulation and spin.[15] Wikipedia's Consensus and Undue Weight policies have been repeatedly criticised by prominent scholarly sources for undermining freedom of thought and leading to false beliefs based on incomplete information.[16][17][18][19]

Continued in article

Jensen Comment
One of the great sources for accuracy arises when professors assign graduate students to correct and otherwise improve Wikipedia modules. One of the most important uses of Wikipedia is for people seeking to learn about medical ailments, treatments, and medications. Among the great happenings in Wikipedia is the truly active role medical schools play in perfecting these medical modules since errors and misleading statements in those modules can be particularly damaging to hundreds of millions of users of those modules.

Of course, users of any encyclopedia or most any other academic source must always remain skeptical. The hired editors must spend an undue amount of time on controversial topics, particularly political topics. These editors often warn people to be skeptical when encountering particular modules. These editors also resist allowing the public to delete criticisms that in the eyes of editors are justified. Virtually all of the 73,000+ editors do not want Wikipedia to become too much of a public relations database. I applaud them for their dedication and hard work.

Bob Jensen's threads on MOOCs and open sharing learning materials in general ---
http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI

Bob Jensen's links to the library links of the world ---
http://www.trinity.edu/rjensen/bookbob2.htm

 

How To Use Excel Pivot Tables To Analyze Massive Data Sets ---
http://www.businessinsider.com/excel-pivot-tables-analyze-big-data-2014-12

Jensen Comment
I don't think Microsoft continues to accompany its financial statements with pivot tables for analysis of the financial history of Microsoft. However, an archivist named Bob Jensen provides your students with some of those pivot tables from early years ---
http://www.cs.trinity.edu/~rjensen/MicrosoftInvestorRelationPivots/
My Camtasia videos may not play on your computer since Microsoft deleted an audio codec in Windows 7 and higher. But you can still download the pivot tables.

There should be a lot of videos in YouTube on how to create and analyze pivot tables and charts in general.


December 19. 2014 Department of Education Letter
Q&A Regarding Competency-Based College Credits
(and merit badges of competence)
http://ifap.ed.gov/dpcletters/GEN1423.html

Bob Jensen's threads on competency-based education.
http://www.trinity.edu/rjensen/Assess.htm#ConceptKnowledge
Note that there are two very different types of programs --- those that require courses versus those that require no courses. For example, Western Governors University requires course credits where distance education course instructors do not assign grades in a traditional manner. Instead grading is based on competency-based performance examinations are required.

At the other extreme a few universities like the University of Wisconsin now have selected programs where students can earn college credits based upon competency-examination scores without course sign ups. These programs are considered the first steps toward what is increasingly known as a transcript of merit badges that may eventually replace traditional degree programs such as masters degrees in the professions such as medical professions.

In a sense residency programs in medical schools are already have "merit badges" based upon upon experience and competency (licensing) examinations to become ophthalmologists, cardiologists, urologists, neurologists, etc.

Video:  A Scenario of Higher Education in 2020

November 14, 2014 message from Denny Beresford

Bob,

The link below is to a very interesting video on the future of higher education – if you haven’t seen it already. I think it’s very consistent with much of what you’ve been saying.

Denny

http://www.youtube.com/watch?v=5gU3FjxY2uQ

November 15, 2014 reply from Bob Jensen

Hi Denny,

Thank you for this link. I agree with many parts of this possible scenario, and viewers should patiently watch it through the Google Epic in 2020.

But this is only one of many possible scenarios, and I definitely do not agree with the predicted timings. None of the predictions for the future will happen in such a short time frame.

It takes a long time for this video to mention the role of colleges as a buffer between living as a protected kid at home and working full time on the mean streets of life. And I don't think campus living and learning in the future will just be for the "wealthy." We're moving toward a time when campus living will be available more and more to gifted non-wealthy students. But we're also moving toward a time when campus living and learning may be available to a smaller percentage of students --- more like Germany where campus education is free, but only the top 25% of the high school graduates are allowed to go to college. The other 75% will rely more and more on distance education and apprenticeship training alternatives.

Last night (November 14) there was a fascinating module on CBS News about a former top NFL lineman (center) for the Rams who in the prime of his career just quit and bought a 1,000 acre farm in North Carolina using the millions of dollars he'd saved until then by playing football.

What was remarkable is that he knew zero about farming until he started learning about it on YouTube. Now he's a successful farmer who gives over 20% of his harvest to food banks for the poor.

This morning I did a brief search and discovered that there are tons of free videos on the technical aspect of farming just as there are tons of videos that I already knew about on how to be a financial analyst trading in derivative financial instruments.

My point is that there will be more and more people who are being educated and trained along the lines of the video in your email message to me.
 http://www.youtube.com/watch?v=5gU3FjxY2uQ 
The education and training will be a lifelong process because there is so much that will be available totally free of charge. We will become more and more like Boy-Girl Scouts earning our badges.

College degrees will be less and less important as the certification badges (competency achievements) mentioned in the video take over as chevrons of expertise and accomplishment. Some badges will be for hobbies, and some badges will be for career advancement.

These are exciting times for education and training. We will become more and more like the Phantom of the Library at Texas A&M without having to live inside a library. This "Phantom" Aggie was a former student who started secretly living and learning in the campus library. Now the world's free "library" is only a few clicks away --- starting with Wikipedia and YouTube and moving on to the thousands of MOOCs now available from prestigious universities ---
http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI 

Also see the new-world library alternatives at
http://www.trinity.edu/rjensen/bookbob2.htm

Thanks Denny

Bob


Slide Rule --- http://en.wikipedia.org/wiki/Slide_rule
History of the Slide Rule --- http://en.wikipedia.org/wiki/Slide_rule#History

Calculator --- http://en.wikipedia.org/wiki/Calculator
History of the Calculator --- http://en.wikipedia.org/wiki/Calculator#History

"Here's the impossibly complicated way calculators used to look," by Sarah Lewin, PRI, December 18, 2014 ---
http://www.pri.org/stories/2014-12-18/heres-impossibly-complicated-way-calculators-used-look

Mark Glusker had heard rumors about the mechanical calculator, a Monroe PC-1421that it was one the most complicated devices of the sort ever built; that it was powerful but notoriously difficult to keep running; that it was at the pinnacle of an effort to compete with the first electronic calculators.

“It’s kind of a holy grail machine for me,” says Glusker, a mechanical engineer and collector of early calculators. “When you’d read the specifications, you’d think, ‘That’s just crazy.’” And once he finally got his hands on the 40-pound behemoth from a retiring professor at the University of Iowa, it proved just as intricate as he’d imagined.

“There’s so much going on inside there,” says photographer Kevin Twomey, who photographed the PC-1421 and other calculators in Glusker's collection. “These chains, levers and gears were almost reminding me of how ligaments and joints are working together."

The Monroe PC-1421, with a price tag of $1,175, at the top end for a mechanical calculator, debuted in 1964 — right as electronic calculators were overtaking mechanical ones. To stay relevant, manufacturers constantly fought to improve the speed of their machines. For instance, while early mechanical calculators required an operator to turn a crank by hand in order to add, subtract, multiply, and divide, later models like the PC-1421 turned automatically with a motor.

Continued in article

Jensen Comment
When I was an undergraduate you were not fully dressed unless you had a complicated slide rule fastened to your belt. There were a lot of things that could be done with those slide rules, but I only used them for simple arithmetic and logarithmic calculations.

When I worked as a staff accountant in the Denver office of Ernst & Ernst, we had a few desk calculators that were fun to watch. There was a floating bar on the top that went rata-tat-tat as it moved in jumping motions from left to right while doing arithmetic. These were Monroe calculators much like the what is pictured at
http://hpgarland.blogspot.com/2008/08/monroe-calculators.html

Bob Jensen's threads on computing history ---
http://www.trinity.edu/rjensen/bookbob2.htm#---ComputerNetworking-IncludingInternet


"Masculinity, Testosterone, and Financial Misreporting," by Yuping Jiai, Laurence Van Lentz, and Yachang Zeng, Journal of Accounting Research, Journal of Accounting Research, December 14, 2014 ---
http://onlinelibrary.wiley.com/doi/10.1111/1475-679X.12065/abstract

ABSTRACT
We examine the relation between a measure of male CEOs’ facial masculinity and financial misreporting. Facial masculinity is associated with a complex of masculine behaviors (including aggression, egocentrism, riskseeking, and maintenance of social status) in males. One possible mechanism for this relation is that the hormone testosterone influences both behavior and the development of the face shape. We document a positive association between CEO facial masculinity and various misreporting proxies in a broad sample of S&P1500 firms during 1996–2010. We complement this evidence by documenting that a CEO's facial masculinity predicts his firm's likelihood of being subject to an SEC enforcement action. We also show that an executive's facial masculinity is associated with the likelihood of the SEC naming him as a perpetrator. We find that facial masculinity is not a measure of overconfidence. Finally, we demonstrate that facial masculinity also predicts the incidence of insider trading and option backdating.

. . .

We collect a sample of pictures of 1,136 CEOs from S&P1500 companies in 2009. We compute a facial structure metric, the facial width-to-height ratio (fWHR), by measuring the distance between cheekbones and the height of the upper face of each CEO from his 2 picture. We then trace the full employment history of each CEO to construct a panel dataset of 3,909 firm-years during the 1996–2010 period. We use a composite measure of the likelihood of accounting manipulation developed by Dechow et al. [2011] to identify firms that are likely to have materially misstated accounting reports. In our main set of analyses, we examine the relation between a given CEO’s fWHR and the likelihood of having material accounting misstatements. We find that the likelihood for a substantial risk of misreporting is up to 98 percent higher for CEOs with above-median fWHR, representing more masculine faces, than for CEOs with below-median fWHR. We conduct several additional analyses to probe whether our main findings indicate intentional misreporting by the CEO.

SSRN Download --- http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2265510

Jensen Comment
Some accountics science research that begs for replication probably will not get replication. There are all sorts of doubts that I have about this study. For example, testosterone varies with age. Pictures vary with age relative to the date of the picture. Many of us still use our high school graduation pictures on our resumes. More seriously, there are all sorts of variations in what CEOs knew about accounting manipulations and errors such as when the restatements are mainly caused by happenings in a part of the company not closely watched by the CEO such as a subsidiary in China.

Do you think the PCAOB will come out with new rules for investing more in manly audits?

This was a study of men. Since women have varying amounts of testosterone it would be interesting to know if it shows up in their faces in ways other than facial hair that's easily taken away for photographs. Are there other ways testosterone manifests itself in the faces of women CEOs?

A common mistake accountics scientists make is to declare statistical significance for outcomes that are not substantively different. This is because accountics scientists generally work with large samples where a difference of epsilon is deemed statistically significant.

The Cult of Statistical Significance: How Standard Error Costs Us Jobs, Justice, and Lives ---
http://www.cs.trinity.edu/~rjensen/temp/DeirdreMcCloskey/StatisticalSignificance01.htm

I'm not certain this is a problem in the Jiai et al. (2014) study. Sample sizes are large but not very large relative to most accountics science research. But I would certainly consider this a potential problem in that study.


Jensen Comment
Electric car drivers must one day stop getting a free ride or nearly free ride in terms of road taxes. One answer is to tax cars on the basis of miles driven rather than gallons consumed. One obvious problem with that, however, is that some of those miles may be out of state. Who should get the money? Dividing up the tax for miles driven between states seems like an accounting nightmare.

A GPS electronic device might estimate the miles driven in one state. But it seems impractical to have 48 or 49 devices on every car. Alternately the same device might compute the mileage for every state, although such a tamper-proof device might be quite costly to buy, install, and monitor.

"Minnesota May Start Taxing Drivers," CBS Minnesota, December 25, 2014 ---
http://minnesota.cbslocal.com/2014/12/25/minnesota-may-start-taxing-drivers/

Gas prices are finally falling, but those savings might not last long.

At least 18 states, including Minnesota, are considering taxing drivers based on distance.

Gas prices aren’t the only reason for the idea, since newer cars get better gas mileage.

Oregon has a pilot project that will start next year to test the idea. They’re having 5,000 volunteers pay 1.5 cents per mile instead of the 30-cents-per-gallon tax.

An electronic device attached to their vehicle will report how far they drive in state.

Minnesota is one of four other states trying something similar. Hennepin and Ramsey counties both approved “wheelage taxes” last year.

Statewide, Gov. Mark Dayton has been considering a number of different ways to fix roads and bridges with less gas-tax revenue.


Most financial swaps are interest rate swaps, with the vanilla swap being exchanges of variable rate interest cash flow streams for fixed rate interest cash flow streams streams or vice versa ---
http://en.wikipedia.org/wiki/Interest_rate_swap
Interest rate swap accounting rules are covered in FAS 133 in the USA and IAS 39 (soon to be IFRS 9) internationally.

Credit default swaps are less common and became problematic for companies like AIG when the economy collapsed in 2007 ---
http://en.wikipedia.org/wiki/Credit_default_swap
CDS sellers like AIG are not required to maintain capital reserves to cover CDS obligations. This market is not regulated to the degree that insurance companies must maintain reserves to cover life and casualty losses.

A credit default swap is a form of insurance against default by means of a swap. See Paragraphs 190 and 411d of FAS 133. See Risks.

Somewhat confusing is Paragraph 29e on Page 20 of FAS 133 that requires any cash flow hedge to be on prices or interest rates rather than credit worthiness.  For example, a forecasted sale of a specific asset at a specific price can be hedged for spot price changes under Paragraph 29e.  The forecasted sale's cash flows may not be hedged for the credit worthiness of the intended buyer or buyers.  Example 24 in Paragraph 190 on Page 99 of the original FAS 133 discusses a credit-sensitive bond.  Because the bond's coupon payments were indexed to credit rating rather than interest rates, the embedded derivative could not be isolated and accounted for as a cash flow hedge.

There are various extensions of CDS contracts such as CDS futures.

"Is There a Future for Credit Default Swap Futures?" Ritholtz Blog, December 24, 2014 ---
http://www.ritholtz.com/blog/2014/12/is-there-a-future-for-credit-default-swap-futures/

Last year, IntercontinentalExchange (ICE) launched a credit default swap index futures contract. In the first two weeks there were spurts of interest in it, but soon it became evident that the new product was unable to generate sufficient demand. Given their short life span in the credit default swaps (CDS) market, the question becomes why were these futures contracts launched in the first place? And, assuming that they were created in response to a real need of market participants, will we see a revival of swap futures in the future?

Flight to Futures: Energy and Interest Rate Swap Markets as a Harbinger The Dodd-Frank Wall Street Reform Act overhauled the swaps market and mandated central clearing, trading, and reporting of swaps. These new regulatory requirements, combined with higher capital requirements, have increased the costs of trading swaps. In response, market operators have begun to move swaps trading into futures. Swaps are customized, bilateral contracts that exchange two streams of cash flows. The exchange traded futures are a promise to provide something (such as a physical commodity or shares in the S&P 500) at a pre-determined date in the future. The new hybrids, swap futures, promise to deliver a swap (or its cash equivalent) at maturity. Although these contracts provide exposure similar to swap contracts, they benefit from reduced margin requirements because they are traded on futures exchanges.

The first provider to jump on the bandwagon was ICE. When the Commodity Futures Trading Commission (CFTC) announced on October 12, 2012, who would be treated as a swaps dealer for regulatory purposes, ICE took all the energy swaps and options that had been trading on its electronic marketplace—more than 800 contracts—and used them to create futures contracts that could trade on its futures exchange. ICE’s conversion of swaps and options into futures meant users of those products wouldn’t need to count that activity towards their CFTC registration. Other exchanges took similar steps, and in December 2012, CME Group began offering deliverable U.S. dollar interest rate swap futures, and ERIS Exchange also began offering a cash-settled U.S. dollar interest rate swap futures.

Given the successful adoption of these hybrid contracts in the energy and interest rate markets and the stricter regulatory environment, the CDS market seemed ripe for “futurization” as well.

How did CDX swap futures work? ICE decided to launch a futures contract referencing the Markit CDX North America Investment Grade index (or the CDX.NA.IG index). Unlike the CDX index, which provides credit protection on a basket of firms, the CDX swap futures traded the expected future price of the CDX index. Due to the nature of the CDS contracts and the inherent risk of credit deterioration, the CDX.NA.IG index is “rolled” into a new series every six months, as illiquid and low credit constituents are replaced by more relevant firms. As the soon to be off-the-run series index is rolled to a new on-the-run series, liquidity migrates to the on-the-run index (see the chart below). The changing composition of the index complicates the construction of a futures contract on the CDX index. To circumvent the inherent difficulty of pricing a contract that is contingent on credit events in the underlying reference entities prior to the maturity date, ICE decided to construct the contract as a “when-issued” futures contract. Rather than referencing the on-the-run CDX index, the futures contract referenced the will-be on-the-run index, which has not yet been issued and whose constituents have not yet been determined (the final composition of the index is confirmed only one day prior to the launch of a new series).

Continued in article

Financial WMDs (Credit Derivatives) on Sixty Minutes (CBS) on August 30, 2009 ---
http://www.cbsnews.com/video/watch/?id=5274961n&tag=contentBody;housing
The free download will only be available for a short while. I downloaded this video (a little over 5 Mbs) using a free updated version of RealMedia --- Click Here
http://www.real.com/dmm/superpass?pcode=cj&ocode=cj&cpath=aff&rsrc=1275588_10303897_SPLP

 

Steve Kroft examines the complicated financial instruments known as credit default swaps and the central role they are playing in the unfolding economic crisis. The interview features my hero Frank Partnoy. I don't know of anybody who knows derivative securities contracts and frauds better than Frank Partnoy, who once sold these derivatives in bucket shops. You can find links to Partnoy's books and many, many quotations at http://www.trinity.edu/rjensen/FraudRotten.htm#DerivativesFrauds

For years I've used the term "bucket shop" in financial securities marketing without realizing that the first bucket shops in the early 20th Century were bought and sold only gambles on stock pricing moves, not the selling of any financial securities. The analogy of a bucket shop would be a room full of bookies selling bets on NFL playoff games.
See "Bucket Shop" at http://en.wikipedia.org/wiki/Bucket_shop_(stock_market)

 

I was not aware how fraudulent the credit derivatives markets had become. I always viewed credit derivatives as an unregulated insurance market for credit protection. But in 2007 and 2008 this market turned into a betting operation more like a rolling crap game on Wall Street.

 

Note that the article below was dated before the 2007 banking collapse
"What’s a Couple of Hundred Trillion When You’re Talking Derivatives?" by Floyd Norris, The New York Times, September 23, 2006 --- http://www.nytimes.com/2006/09/23/business/23charts.html

Everett McKinley Dirksen, the Senate Republican leader in the 1950’s, is supposed to have said, “A billion here and a billion there, and pretty soon you’re talking real money.” What would he have thought of derivatives today?

The International Swaps and Derivatives Association, a trade group, reported this week that the outstanding nominal value of swaps and derivatives at the end of June was $283.2 trillion.

Compare that with the combined gross domestic product of the United States, the European Union, Canada, Japan and China, which is about $34 trillion. The total value of all homes in the United States is about the same amount.

To be sure, notional value is an exaggerated term as it greatly overstates the amount at risk in many contracts. But the growth rate is real, and in the fastest-growing area of swaps — credit default swaps — notional value is closer to the amount at risk, because such swaps promise to make up the losses if a borrower defaults on the notional amount.

The value of outstanding credit default swaps doubles every year — a trend that must eventually stop — and now equals $26 trillion. That is about the same as the total amount of bond debt in the United States, and corporate debt, on which most credit swaps are traded, comes to just $5.2 trillion.

The credit derivatives cover the risks of default by individual companies, and offer insurance against default for bond indexes and specified bond portfolios.

The growth of the market has forced the swaps and derivatives association to change the way its credit swaps work. It used to be that if a company defaulted, the writer of a credit swap would have to pay par value for the bond he had guaranteed, and could then sell the bond to reduce his losses.

But in some cases defaults led to bond rallies, as those who had purchased credit swaps scrambled to get bonds to deliver. Now traders can choose cash settlements, with the amounts to be paid determined through auctions.

Until 1997, the association provided separate numbers on currency and interest rate contracts, but innovations blurred the distinction between those categories, and now it publishes a combined total. At the end of June, the figure was $250.8 trillion, up 25 percent over the previous 12 months.

Growth in that market slowed markedly early in this decade, as worldwide markets cooled, and there was even one annual decline, from mid-2000 to mid-2001. But growth picked up in 2002 as economies began to recover.

The volume outstanding of equity derivatives is rising by about 30 percent a year, and now totals $5.6 trillion. It could go farther, with world stock market capitalization now about $41 trillion, according to Standard & Poor’s.

Robert Pickel, the chief executive of the association, said that the growth in derivatives enables “more and more firms to benefit from these risk management tools.” On the other hand, the situation allows more and more traders to load up on risk if they choose, and hedge funds have become major derivatives traders.

The combination of large unregulated hedge funds trading ever larger amounts of unregulated derivatives in nontransparent markets makes some people nervous. But so far, anyway, little is being done to change the situation, and nothing devastating has happened to markets.

Continued in article

Danger:  What if everybody uses the same formula? 
Banker David Li's computerized financial formula has fueled explosive growth in the credit derivatives market. Now, hundreds of billions of dollars ride on variations of the model every day.  When a credit agency downgraded General Motors Corp.'s debt in May, the auto maker's securities sank. But it wasn't just holders of GM shares and bonds who felt the pain. Like the proverbial flap of a butterfly's wings rippling into a tornado, GM's woes caused hedge funds around the world to lose hundreds of millions of dollars in other investments on behalf of wealthy individuals, institutions like university endowments -- and, via pension funds, regular folk.
Mark Whitehouse, "How a Formula Ignited Market That Burned Some Big Investors:  Credit Derivatives Got a Boost From Clever Pricing Model; Hedge Funds Misused It Inspiration," The Wall Street Journal, September 12, 2005; Page A1 --- http://online.wsj.com/article/0,,SB112649094075137685,00.html?mod=todays_us_page_one

 

Jensen Comment
One of the main differences between a "financial instrument" versus a "derivative financial instrument" is that the notional is generally not at risk in a "derivative financial instrument." For example if Company C borrows $600 million from Bank B in a financial instrument, the notional amount ($600 million) is at risk immediately after the notional is transferred to Company C. On the other hand, if Company C and Company D contract for an interest rate swap on a notional of $600 million using Bank B as an intermediary, the $600 million notional never changes hands. Only the swap payments for the differences in interest rates are at risk and these are only a small fraction of the $600 million notional. Sometimes the swap payments are even guaranteed by the intermediary, thereby eliminating credit risk.

So where's the risk of a derivative financial instrument that caused all the fuss beginning in the 1980s and led to the most complex accounting standards ever written (FAS 133 in the U.S. and IAS 39 internationally)?

Often there is little or no risk if the derivative contracts are held to maturity. The problem is that derivatives are often settled before maturity at huge gains to one party and huge losses to the counterparty. For example, if Company C swaps fixed-rate interest payments on $600 million (having current value risk with no cash flow variation risk) for variable-rate interest payments on $600 million (having cash flow variation risk but no market value variation risk), Company C has taken on enormous cash flow risk that may become very large if interest rates change greatly in a direction not expected by Company C. If Company C wants to settle its swap contract before maturity it may have to pay an enormous amount of money to do so either to counterparty Company D or to some other company who will take the swap off the hands of Company C. The risk is not the $600 million notional; Rather the risk is in the shifting value of the swap contract itself which can be huge even if it is less than the $600 million notional amount.

Perhaps derivative financial instrument risk is even better illustrated by futures contracts. Futures contracts are traded on organized exchanges such as the Chicago Board of Trade. If Company A speculates in oil futures on January 1, there is no exchange of cash on a 100,000 barrel notional that gives Company A the right to sell oil at a future date (say in one year) at a forward price (say $100 per barrel) one year from now. As a speculation, Company A has gambled by hoping to buy 100,000 barrels of oil one year from now for less than $100 per barrel and sell it for the contracted $100 price.

But futures contracts are unique in that they are net settled in cash each day over the entire one year contract period. If the spot price of oil is $55 on January 12 and $60 on January 13, Company A must provide $500,000 = ($60-$55)(100,000 barrels) to the counterparty on January 13 even though the futures contract itself does not mature until December 31. If Company A has not hedged its position, its risk can become astounding if oil prices dramatically rise. Company A's futures contract had zero value on January 1 (futures contracts rarely have value initially except in the case of options contracts), but the value of the futures contract may become an enormous asset or an enormous liability each each day thereafter depending upon oil spot price movements relative to the forward price ($100) that was contracted.

Hence, derivative contracts may have enormous risks even though the notionals themselves are not at risk. Prior to FAS 133 these risks were generally not booked or even disclosed. In the 1980s newer types of derivative contracts emerged (such as interest rate swaps) in part because it was possible to have enormous amounts of off-balance-sheet debt that did not even have to be disclosed, let alone booked, in financial statements. Astounding frauds transpired that led to huge pressures on the SEC and the FASB to better account for derivative financial instruments.

Most corporations adopted policies of not speculating in derivatives by allowing derivatives to be used only to hedge risk. However, such policies are very misleading since there are two main types of risk --- cash flow risk versus value risk. It is impossible to simultaneously hedge both types of risk, and hedging one type increases the risk of the other type. For example, a company that swaps fixed for floating rate interest payments increases cash flow risk by eliminating value risk (which it may want if it plans to settle debt prior to maturity). The counterparty that swaps floating rate interest payments for fixed rate payments eliminates cash flow risk by taking on value risk. It is impossible to hedge both cash flow and value risk simultaneously.

Hence, to say that a corporation has a policy allowing hedging but not speculating in derivative financial instruments is nonsense. A policy to only hedge cash flow risk may create enormous value risk. A policy to only hedge value risk may create enormous cash flow risk.

As the NYT article above points out that derivative financial instruments are increasingly popular in world commerce. As a result risk exposures have greatly increased even if all contracts were used for hedging purposes only. The problem is that a hedge only reduces or eliminates one type of risk at the "cost" of increasing the other type of risk. Derivative contracts increase one type or the other type of risk the instant they are signed.  Hedging shifts risk but does not eliminate risk per se.

You can read more about scandals in derivative financial instruments contracting (such as one company's "trillion dollar bet" that nearly toppled Wall Street and Enron's derivative scandals) at http://www.trinity.edu/rjensen/FraudRotten.htm#DerivativesFrauds

From The Wall Street Journal Accounting Weekly Review on June 13, 2008

 

 
SEC, Justice Scrutinize AIG on Swaps Accounting
by Amir Efrati and Liam Pleven
The Wall Street Journal

Jun 06, 2008
Page: C1
Click here to view the full article on WSJ.com ---
http://online.wsj.com/article/SB121271786552550939.html?mod=djem_jiewr_AC
 

TOPICS: Advanced Financial Accounting, Auditing, Derivatives, Fair Value Accounting, Internal Controls, Mark-to-Market Accounting

SUMMARY: The SEC "...is investigating whether insure American International Group Inc. overstated the value of contracts linked to subprime mortgages....At issue is the way the company valued credit default swaps, which are contracts that insure against default of securities, including those backed by subprime mortgages. In February, AIG said its auditor had found a 'material weakness' in its accounting. Largely on swap-related write-downs...AIG has recorded the two largest quarterly losses in its history."

CLASSROOM APPLICATION: Financial reporting for derivatives is at issue in the article; related auditing issues of material weakness in accounting for these contracts also is covered in the main article and the related one.

QUESTIONS: 
1. (Introductory) What are collateralized debt obligations (CDOs)?

2. (Advanced) What are credit default swaps? How are these contracts related to CDOs?

3. (Advanced) Summarize steps in establishing fair values of CDOs and credit default swaps.

4. (Introductory) What is a material weakness in internal control? Does reporting write-downs of such losses as AIG has shown necessarily indicate that a material weakness in internal control over financial reporting has occurred? Support your answer.
 

Reviewed By: Judy Beckman, University of Rhode Island
 

RELATED ARTICLES: 
AIG Posts Record Loss, As Crisis Continues Taking Toll
by Liam Pleven
May 09, 2008
Page: A1
 


"SEC, Justice Scrutinize AIG on Swaps Accounting," by Amir Efrati and Liam Pleven, The Wall Street Journal,  June 6, 2008; Page C1 ---
http://online.wsj.com/article/SB121271786552550939.html?mod=djem_jiewr_AC

The Securities and Exchange Commission is investigating whether insurer American International Group Inc. overstated the value of contracts linked to subprime mortgages, according to people familiar with the matter.

Criminal prosecutors from the Justice Department in Washington and the department's U.S. attorney's office in Brooklyn, New York, have told the SEC they want information the agency is gathering in its AIG investigation, these people said. That means a criminal investigation could follow.

In 2006, AIG, the world's largest insurer, paid $1.6 billion to settle an accounting case. Its stock has been battered because of losses linked to the mortgage market. The earlier probe led to the departure of Chief Executive Officer Maurice R. "Hank" Greenberg.

Officials for AIG, the SEC, the Justice Department and the U.S. attorney's office declined to comment on the new probe. A spokesman for AIG said the company will continue to cooperate in regulatory and governmental reviews on all matters.

At issue is the way the company valued credit default swaps, which are contracts that insure against default of securities, including those backed by subprime mortgages. In February, AIG said its auditor had found a "material weakness" in its accounting.

Largely on swap-related write-downs, which topped $20 billion through the first quarter, AIG has recorded the two largest quarterly losses in its history. That has turned up the heat on management, including CEO Martin Sullivan.

AIG sold credit default swaps to holders of investments called collateralized-debt obligations, or CDOs, backed in part by subprime mortgages. The buyers were protecting their investments in the event of default on the underlying debt. In question is how the CDOs were valued, which drives both the value of the credit default swaps and the amount of collateral AIG must "post," or essentially hand over, to the buyer of the swap to offset the buyer's credit risk.

AIG posted $9.7 billion in collateral related to its swaps, as of April 30, up from $5.3 billion about two months earlier.

Law Blog: Difficulties in Valuation 'Best Defense'

 

How Do You Use Credit Default Swaps (CDS) To Create "Synthetic Debt"? ---
http://www.trinity.edu/rjensen/acct5341/speakers/133glosf.htm 

There's been a lot of talk in recent months about "synthetic debt". I just read a pretty good explanation of synthetics in Felix Salmon's column, so I thought I'd give a brief summary of what it is, how it's used, and why.

First off, let's start with Credit Default Swaps (CDS). A CDS has a lot of similarities to an insurance policy on a bond (it's different in that the holder of the CDS needn't own the underlying bond or even suffer a loss if the bond goes into default).

The buyer (holder) of a CDS will make yearly payments (called the "premium"), which is stated in terms of basis points (a basis point is 1/100 of one percent of the notional amount of the underlying bond). The holder of the CDS gets paid if the bond underlying the CDS goes into default or if other stated events occur (like bankruptcy or a restructuring).

So, how do you use a CDS to create a synthetic bond? here's the example from Salmon's column:

Let's assume that IBM 5-year bonds were yielding 150 basis points over treasuries. In addition, Let' s assume an individual (or portfolio manager) wanted to get exposure to these bonds, but didn't think it was a feasible to buy the bonds in the open market (either there weren't any available, or the market was so thin that he's have to pay too high a bid-ask spread). Here's how he could use CDS to accomplish the same thing:
 

·         First, buy $100,000 of 5-year treasuries and hold them as collateral

·         Next, write a 5-year, $100,000 CDS contract

·         he's receive the interest on the treasuries, and would get a 150 basis point annual premium on the CDS
 

So, what does he get from the Treasury plus writing the CDS? If there's no default, the coupons on the Treasury plus the CDS premium will give him the same yearly amount as he would have gotten if he's bought the 5-year IBM bond, And if the IBM bond goes into default, his portfolio value would be the value of the Treasury less what he would have to pay on the CDS (this amount would be the default losses on the IBM bond). So in either case (default or no default), his payoff from the portfolio would be the same payments as if he owned the IBM bond.

So why go through all this trouble? One reason might be that there's not enough liquidity in the market for the preferred security (and you'd get beaten up on the bid-ask spread). Another is that there might not be any bonds available in the maturity you want. The CDS market, on the other hand, is very flexible and extremely liquid.

One thing that's interesting about CDS is that (as I mentioned above), you don't have to hold the underlying asset to either buy or write a CDS. As a result, the notional value of CDS written on a particular security can be multiple times the actual amount of the security available.

I know of at least one hedge fund group that bought CDS as a way of betting against housing-sector stocks (particularly home builders). From what i know, they made a ton of money. But CDS can also be used to hedge default risk on securities you already hold in a portfolio.


To read Salmon's column, click here, and to read more about CDS, click here

 

You can download the CD containing my slide shows and videos on how to account for derivative financial instruments at http://www.cs.trinity.edu/~rjensen/Calgary/CD/


Senator Bernie Sanders who describes himself as an socialist has a great wish list for the USA. He left out one thing --- how to pay for all of this!
http://www.americanthinker.com/articles/2014/12/bernie_sanderss_12point_socialist_plan_for_america.html

As Vermont's senator, here are 12 initiatives that I will be fighting for which can restore America's middle class.

1. We need a major investment to rebuild our crumbling infrastructure: roads, bridges, water systems, waste water plants, airports, railroads and schools..... A $1 trillion investment in infrastructure could create 13 million decent paying jobs and make this country more efficient and productive

Why does this sound so familiar?  Because it is!  Remember the Obama stimulus plan?  That too was a trillion-dollar investment in our "crumbling infrastructure" (the favorite amorphous buzzword for government spending).  How many millions of permanent jobs were created from that?  I think the exact number was... zero.

2. The United States must lead the world in reversing climate change and make certain that this planet is habitable for our children and grandchildren. We must transform our energy system away from fossil fuels and into energy efficiency and sustainable energies.... and we need to greatly accelerate the progress we are already seeing in wind, solar, geothermal, biomass and other forms of sustainable energy.

Good news!  Our planet is currently habitable for our children and grandchildren.  Nothing further needs be done!  However, if we move away from fossil fuels to cutting-edge Don Quixote technologies from the 1900s, like windmills, our children and grandchildren will be paying enormous costs for energy and will have no energy at all when the wind isn't blowing (for windmills) and when the sun isn't shining (for solar).

3. We need to develop new economic models to increase job creation and productivity. Instead of giving huge tax breaks to corporations which ship our jobs to China and other low-wage countries, we need to provide assistance to workers who want to purchase their own businesses by establishing worker-owned cooperatives.

This has been tried in many countries.  Israel used to have cooperatives called "Kibbutzes."  I say "used to" because most of them went bankrupt.  When people were not rewarded more for working harder, and people were rewarded for not working at all, the system went broke.

4. Union workers who are able to collectively bargain for higher wages and benefits earn substantially more than non-union workers. Today, corporate opposition to union organizing makes it extremely difficult for workers to join a union. We need legislation which makes it clear that when a majority of workers sign cards in support of a union, they can form a union.

Union workers in places like Detroit have good jobs at good wages with good benefits...the ones who still have jobs, that is.  Many lost their jobs because the wages unions demanded for unskilled labor caused the auto companies to collapse – not once, but several times.

5. The current federal minimum wage of $7.25 an hour is a starvation wage. We need to raise the minimum wage to a living wage.

Every time you raise the minimum wage, the poor suffer, because more jobs disappear, and the products produced by minimum-wage labor become more expensive.  The minimum wage is supposed to be a training wage, where people go to get their first step on the ladder leading upward.  Those who learn are promoted and get higher wages.  Those who don't...well...

6. Women [sic] workers today earn 78 percent of what their male counterparts make. We need pay equity in our country -- equal pay for equal work.

Will we start this policy in the White House?  In the offices of Democratic Senate and House staffers?  Will we hire committees of thousands of bureaucrats to go into every company and judge the work of every employee to decide what is "equal work"?  Because that is the only way such a policy could be put into effect.

7. Since 2001 we have lost more than 60,000 factories in this country, and more than 4.9 million decent-paying manufacturing jobs. We must end our disastrous trade policies (NAFTA, CAFTA, PNTR with China, etc.)

I think what Senator Sanders is saying here is that he supports tariffs.  It's funny, though, that he doesn't say tariffs.  Tariffs acquired a bad reputation after they helped lead to the Great Depression.

8. In today's highly competitive global economy, millions of Americans are unable to afford the higher education they need in order to get good-paying jobs. Quality education in America, from child care to higher education, must be affordable for all.

Is Senator Sanders going to require colleges and universities to make sure that all their professors are working 40-hour work weeks in the classroom?  Is he going to audit the costs of universities, find out how much the teaching component costs, and then require universities to lower tuition accordingly?  If so, I congratulate Senator Sanders for taking on the liberal college money-making establishment!

9. The function of banking is to facilitate the flow of capital into productive and job-creating activities. Financial institutions cannot be an island unto themselves, standing as huge profit centers outside of the real economy. Today, six huge Wall Street financial institutions have assets equivalent to 61 percent of our gross domestic product - over $9.8 trillion.... They are too powerful to be reformed. They must be broken up.

If banks are profit centers, how do they make profits?  The only way I can think of is by investing in the economy, real estate, industries, and businesses.  These activities create jobs.

10. The United States must join the rest of the industrialized world and recognize that health care is a right of all, and not a privilege. Despite the fact that more than 40 million Americans have no health insurance, we spend almost twice as much per capita on health care as any other nation. We need to establish a Medicare-for-all, single-payer system.

Health care is a right in many countries, such as Cuba and North Korea.  However, having a right to health care is not the same as receiving health care.  In a single-payer system, the incentive to innovate and create medicines is lost, and the demand for medical care will far outstrip supply.

11. Millions of seniors live in poverty and we have the highest rate of childhood poverty of any major country. We must strengthen the social safety net, not weaken it. Instead of cutting Social Security, Medicare, Medicaid and nutrition programs, we should be expanding these programs.

The more we spend, the better off these people will be – so he says.  But where will this money come from?  We currently have over 18 trillion dollars in debt, and that doesn't even count unfunded obligations to Social Security and other programs.  If we incur more debt, and our economy collapses, as is happening in countries like Greece and Portugal, the poor will suffer even more.  The best anti-poverty program is a free-market economy, which creates jobs.  A job is the best "safety net."

12. At a time of massive wealth and income inequality, we need a progressive tax system in this country which is based on ability to pay.

Now Senator Sanders is quoting Karl Marx!  "From each according to his ability, to each according to his need."  But we already have a progressive tax system in America.  If you combine federal and state taxes, in some states, like California and New York, "the rich" pay over 50% in taxes.  Does Senator Sanders think an even higher rate will inspire job-creators to work even harder?

Senator Sanders will be 75 years old in 2016.  His campaign ideas are only slightly older.

 


The Most Corrupt and the least Corrupt Nations of the World ---
http://www.businessinsider.com/most-corrupt-countries-in-the-world-2014-12

Question
What is probably the main reason the USA is not among the Top 35 nations in terms of low corruption?

Answer
The interaction of the public and private sectors in fraudulent procurements of goods and services and financing. For example, there are billions of examples of kickbacks and bribery from the upper reaches of the Pentagon procurement down procurements in small counties and towns and school districts throughout the USA where hundreds and hundreds of millions of dollars change hands under the table. Among the classic piñatas for municipality frauds are bond sales.

Exhibit A
"SEC Tightens Policing of Municipal Debt Market: Agency Seeks to Ban Some Local Officials for Their Involvement in Alleged Fraud," by Andrew Ackerman, The Wall Street Journal, December 19, 2014 ---
http://www.wsj.com/articles/sec-tightens-policing-of-municipal-debt-market-1419019536?mod=WSJ_LifeStyle_LatestHeadlines 

WASHINGTON—U.S. securities regulators, ratcheting up their policing of the $3.7 trillion market for state and local debt, are seeking to ban local officials from the market for their involvement in alleged fraud.

The Securities and Exchange Commission this year has sought to bar three officials in suburban Chicago and Detroit from future municipal-bond transactions, citing their roles in misleading investors in prior bond sales. A federal judge has issued a preliminary agreement to one of the requests.

Attempts to bar individual municipal officials are the latest sign of the SEC’s efforts to crack down on what it views as stale or misleading investor disclosures for municipal-bond investors. The move is significant, securities attorneys said, in part because the SEC hasn’t previously sought such prohibitions.

Unlike brokers and advisers whom regulators routinely bar from their respective industries for wrongdoing, the agency doesn’t have authority to directly regulate municipal officials and instead polices much of the market using broad antifraud authority.

“It’s an indication of how zealous they are in their enforcement actions in the state and local government market,” said Paul Maco, a partner at Bracewell & Giuliani LLP, who previously served as the SEC’s municipal-bond chief.

In seeking to bar individual municipal officials, the SEC has relied on a catchall provision of the securities laws that allows them to seek “any equitable relief that may be appropriate or necessary for the benefit of investors.” SEC officials say censuring individual municipal officials is a better alternative than imposing fines on local governments, because any fines would be borne broadly by taxpayers.

“In the municipal securities area, where the SEC has very limited enforcement authority, it is critically important to pursue cases that will deter future violations without harming innocent taxpayers,” said Daniel Gallagher, a Republican SEC commissioner. “In this context, actions against culpable individuals provide maximum deterrence.”

Last month, the SEC sought to bar the former mayor and former city administrator of Allen Park, Mich., as part of a suit against the city, for failing to inform investors of the city’s deteriorating financial condition. The city had sold $31 million of bonds to finance a now-failed movie studio.

Gary Burtka, the former mayor, and Eric Waidelich, the former city administrator, agreed to settle the SEC charges and consented to being barred from future municipal-bond transactions. A federal judge has yet to sign off on the settlements. Attorneys for Mr. Burtka didn’t respond to requests for comment. An attorney for Mr. Waidelich declined to comment.

Separately, the SEC earlier this year sued Harvey, Ill., and its former comptroller, Joseph Letke, having found the city diverted about $1.7 million of bond proceeds originally to be used for the construction of a Holiday Inn hotel—for “improper, undisclosed uses.” The city agreed to settle the charges but Mr. Letke, whom the SEC alleged received about $269,000 in undisclosed payments from the bond proceeds, has refused to settle.

Continued in article

Exhibit B
"Jury Convicts Former Detroit City Treasurer, Pension Officials of Conspiring to Defraud Pensioners Through Bribery"
U.S. Attorney's Office
December 8, 2014
http://www.fbi.gov/detroit/press-releases/2014/jury-convicts-former-detroit-city-treasurer-pension-officials-of-conspiring-to-defraud-pensioners-through-bribery

Bob Jensen's Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm


Replication in Accountics Science Research or Lack Thereof

Steve Kachelmeier called my attention to this article that can be rented for $6 at
http://onlinelibrary.wiley.com/doi/10.1111/1911-3846.12102/full
Steve wants me to stress that he's not even read the above paper in its entirety and is not (yet) taking a position on replication.
 
Steve did not mention that without citation the 2014 article makes some of the same points Steve made in July 2011.

"Introduction to a Forum on Internal Control Reporting and Corporate Debt," by Steven J. Kachelmeier, The Accounting Review, Vol. 86, No. 4, July 2011 pp. 1129–113 (not free online) ---
http://aaapubs.aip.org/getpdf/servlet/GetPDFServlet?filetype=pdf&id=ACRVAS000086000004001129000001&idtype=cvips&prog=normal
 

One of the more surprising things I have learned from my experience as Senior Editor of The Accounting Review is just how often a ‘‘hot topic’’ generates multiple submissions that pursue similar research objectives. Though one might view such situations as enhancing the credibility of research findings through the independent efforts of multiple research teams, they often result in unfavorable reactions from reviewers who question the incremental contribution of a subsequent study that does not materially advance the findings already documented in a previous study, even if the two (or more) efforts were initiated independently and pursued more or less concurrently. I understand the reason for a high incremental contribution standard in a top-tier journal that faces capacity constraints and deals with about 500 new submissions per year. Nevertheless, I must admit that I sometimes feel bad writing a rejection letter on a good study, just because some other research team beat the authors to press with similar conclusions documented a few months earlier. Research, it seems, operates in a highly competitive arena.
 


My criticisms of lack of replication in accountics research still stand:
 
        •       Replication is not a priority in accountics science like it is in real science. Journal editors do not encourage replications even to the extent of encouraging and publishing commentaries where scholars can mention they replicated the studies.

 
        •       Replications that do take place, usually when newer research extends the original studies, are long-delayed sort of like being after thoughts when research for extensions take place, usually years later. In other words, there's little interest in replicating until researchers elect to conduct extension research.

 
        •       I've not encountered failed replications in accountics science. Many examples exist in real science where original findings are thrown into doubt because other scientists could not independently reproduce the findings. The Hunton and Gold paper was not withdrawn because it could not be replicated. I was not an insider to the real reasons for the withdrawal, but I suspect it was withdrawn because insiders commenced to suspect that Jim was fabricating data.

 
        •       Most archival replications simply use the same purchased data (e.g., CompuStat or AuditAnalytics) without error checking the data. In reality errors are common in these purchased databases. But if replications are made using the same data there is no chance of detecting errors in the data.
 
I really miss Steve on the AECM. He always sparked interesting debates and made great criticisms of my tidbits critical of accountics scientists.

 

December 18, 2014  reply from Steve Kachelmeier

Bob Jensen wrote:

Replications in Accountics Science or Lack Thereof

Steve Kachelmeier called my attention to this article that can be rented for $6 at
http://onlinelibrary.wiley.com/doi/10.1111/1911-3846.12102/full
Steve wants me to stress that he's not even read the above paper in its entirety and is not (yet) taking a position on replication.

Kachelmeier clarifies:

The full citation is as follows: Salterio, Steven E. "We Don't Replicate Accounting Research -- Or Do We?" Contemporary Accounting Research, Winter 2014, pp. 1134-1142.

Bob also wrote that I wanted him to stress that I'm "not (yet) taking a position on replication." That's not what I wrote in my email to Bob. What I wrote to Bob is that I'm not taking a position on Salterio's article, which I have not yet read in its entirety. Based on a brief scanning, however, Salterio does appear to provide intriguing evidence from a search for the word "replication" (or its derivatives) in the accounting literature that replications in accounting are more common than we tend to believe. If that statement provokes AECM readers' interest, I encourage you to take a look at Salterio's article and draw your own conclusions.

Best,

Steve K.

Bob Jensen's threads on replication or lack thereof in accountics science are at
http://www.trinity.edu/rjensen/TheoryTAR.htm


The illustrated guide to a Ph.D.
By Computer Scientist Matt Might
http://matt.might.net/articles/phd-school-in-pictures/


XBRL Tags
"U.S. GAAP taxonomy for 2015 available," by Jack Hagel, Journal of Accountancy, December 18, 2014 ---
http://www.journalofaccountancy.com/news/2014/dec/2015-gaap-taxonomy-xbrl-201411529.html 

Bob Jensen's threads on OLAP and XBRL ---
http://www.trinity.edu/rjensen/XBRLandOLAP.htm


PwC's Year End 2014 Review of Financial Reporting Challenges ---
http://www.pwc.com/us/en/cfodirect/publications/in-depth/2014-year-end-accounting-reporting-consideration.jhtml?display=/us/en/cfodirect/publications/in-depth&j=655117&e=rjensen@trinity.edu&l=936760_HTML&u=23703185&mid=7002454&jb=0

From PwC on December 18, 2014:  The SEC's Disclosure Effectiveness Project ---
http://www.pwc.com/en_US/us/cfodirect/assets/pdf/point-of-view-public-company-disclosure-model.pdf 

EY:  Boards complete redeliberations of the definition of a lease
But a new leasing standard will not emerge until much later in 2015
http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2911_Leases_18December2014/$FILE/TothePoint_BB2911_Leases_18December2014.pdf

Jensen Comment
I'm not certain that the accounting standard setters will ever satisfactorily resolve how to deal with the issue of short-term lease renewals while lessors are shortening the lease obligation contracts to avoid booking of lease liabilities.

Bob Jensen's threads on lease accounting are at
http://www.trinity.edu/rjensen/Theory02.htm#Leases


A huge problem with fair value accounting is that it creates misleading earnings volatility by aggregating unrealized changes in value with realized revenues. The confusion is compounded by the complicated way that some changes in fair value are taken to Net Income whereas other changes in fair value are taken to Other Comprehensive Income to avoid closing it to Net Income.

A baby step in reducing net income volatility caused by changes in fair value.
From PwC in December 2014
Collateralized financing entities-FASB provides new measurement alternative ---
http://www.pwc.com/us/en/cfodirect/publications/in-depth/us2014-11-collateralized-financing-entries.jhtml?display=/us/en/cfodirect/publications/in-depth&j=658743&e=rjensen@trinity.edu&l=942397_HTML&u=23768515&mid=7002454&jb=0

The FASB recently issued new guidance with respect to the measurement of collateralized financing entities, or CFEs. Collateralized loan obligations and other securitization vehicles are example of CFEs.

Historically, many entities adopted the fair value option for measuring the CFE’s individual financial assets and financial liabilities, which resulted in measurement differences. These measurement differences created volatility in a reporting entity’s income statement. The objective of the new guidance is to minimize the volatility in the parent’s income statement resulting from the remeasurement of a consolidated CFE’s financial assets and financial liabilities owned by third parties.

The new guidance allows entities the option to use the more observable of the fair value of the financial assets or the fair value of the financial liabilities of the CFE to measure both. The new alternative is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015 for public business entities. For all other entities, the guidance is effective for fiscal years ending after December 15, 2016, and interim periods beginning thereafter. Early adoption is permitted as of the beginning of an annual period.

From the CPA Newsletter on December 1, 2014

PCAOB receives wide range of feedback on fair value proposal
http://www.complianceweek.com/blogs/accounting-auditing-update/ideas-for-guidance-on-auditing-estimates-draws-mixed-reviews#.VHyI_MlS7rx
The Public Company Accounting Oversight Board is receiving varying levels of support during the comment period for its ideas on changing guidance on auditing fair value measurements and accounting estimates. Some commenters said the standard didn't need to be changed while other suggestions ranged from a single comprehensive new standard to involving the Securities and Exchange Commission so there is a response broader than just an auditing standard. Compliance Week/Accounting & Auditing Update blog (11/26)

Jensen Comment
Problems of appraisal professionalism include the following:

  1. Assets and liabilities are so specialized in terms of valuation estimation. Appraisals of debentures is quite unlike appraisals of commodities. Appraisals of options is quite unlike appraisals of interest rate swaps. Appraisals of housing development real estate is quite unlike appraisals cattle or even land having oil and mineral reserves.
     

  2. There is notorious subjectivity in most appraisal tasks, especially subjectivity built upon widely varying assumptions.
     

  3. Assets and liabilities are often very unique even within a given classification. For example, the estimating value of development property ofExit 132 of an interstate highway may be totally unlike estimating the value of development property off Exits 131 .133, and 167. Estimation of a McDonald's debenture may be quite unlike estimating an Intel debenture.
     

  4. The appraisal professions vary widely as to fraud history and barriers to entry (e.g., certification examinations), experience requirements, and notorious histories of fraud. For example, most real estate bubbles and recoveries bring out the worst in terms of real estate appraisals of loan values of homes and businesses. The bottom line is that the appraisal professions are not as respected as the professions of accounting, law, and medicine. Yeah even law!
     

  5. The same appraisal firm gave me widely varying estimates of my home based upon the purpose of the appraisal. The appraisal when I wanted to take out a mortgage was much higher than the subsequent appraisal when I wanted to lower my property taxes. The appraisal firm aimed to please me. Go figure!

"How Do Auditors Use Valuation Specialists When Auditing Fair Values?" by Emily E. Griffith, SSRN, May 30, 2014 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2460970 

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

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

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

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

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

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

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

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

Bob Jensen's threads on fair value accounting controversies ---
http://www.trinity.edu/rjensen/Theory02.htm#FairValue


From PwC
IFRS News at the End of 2014
http://www.pwc.com/us/en/cfodirect/publications/ifrs-news/december-2014-january-2015.jhtml?display=/us/en/cfodirect/publications/ifrs-news&j=658743&e=rjensen@trinity.edu&l=942397_HTML&u=23768517&mid=7002454&jb=0


From the CFO Journal's Morning Ledger on December 23, 2014

Alstom to pay $772 million to settle bribery charges ---
http://www.wsj.com/articles/alstom-to-pay-772-million-to-settle-bribery-charges-1419264599
French engineering giant Alstom SA has pleaded guilty to criminal bribery charges and agreed to pay a record $772 million to resolve the case in the U.S courts. U.S. prosecutors said Monday that Alstom had paid tens of millions of dollars in a “widespread” bribery scheme to win energy contracts around the globe. The penalty comes after more than six years of investigations into Alstom from law enforcement in 10 countries. The company and its subsidiaries’ admitted to paying out more than $75 million in bribes over a period longer than a decade, to help secure more than $4 billion in Alstom projects in countries including Indonesia, Egypt, Saudi Arabia and the Bahamas. “It was astounding in its breadth, its brazenness and its world-wide consequences,” said James Cole, U.S. deputy attorney general.


From the CFO Journal's Morning Ledger on December 19, 2014

IASB amends disclosure guidance to trim glut
http://blogs.wsj.com/cfo/2014/12/18/iasb-amends-disclosure-guidance-to-trim-glut/?&mod=djemCFO_h
The International Accounting Standards Board on Thursday announced amendments to its guidelines for financial statements in a bid to cut out irrelevant details companies include in their financial disclosures. The amendments are part of a global effort to make financial statements easier to read.


From the CFO Journal's Morning Ledger on December 19, 2014

Property mogul Nicholas Schorsch has been accused of compelling staff to alter financial results at his firm, American Realty Capital Properties Inc. The accusations come in a lawsuit by the company’s ex-chief accounting officer, Lisa McAlister, who alleged that Mr. Schorsch instructed her and former Chief Financial Officer Brian Block to move figures in the company’s second-quarter results to cover up errors from the first quarter.

According to the suit, Ms. McAlister repeatedly expressed concern about the directive to fellow executives and others, including in an email to Grant Thornton LLP, the real-estate-investment trust’s audit firm, but her concerns were ignored.

American Realty disclosed on Oct. 29 that it had made an error in its first-quarter financial results and had intentionally concealed the error with misstatements in the second quarter. American Realty stock consequently dived, erasing almost $4 billion from the firm’s market value and hammering Mr. Schorsch’s $30 billion real-estate empire.


From the CFO Journal's Morning Ledger on December 18, 2014

BofA whistleblower to get nearly $58 million
http://www.wsj.com/articles/bofa-whistleblower-to-get-nearly-58-million-filing-1418858087
Edward O’Donnell, the former Countrywide Financial Corp. executive who filed a whistleblower lawsuit against his former firm, will collect nearly $58 million. The U.S. Attorney’s Office in Manhattan used Mr. O’Donnell’s allegations as the basis of its $16.65 billion lawsuit against Bank of America Corp., which acquired Countrywide.

Bob Jensen's threads on whistleblowing ---
http://www.trinity.edu/rjensen/FraudConclusion.htm#WhistleBlowing


From the CFO Journal's Morning Ledger on December 17, 2014

A federal regulator has warned that financial risk is finding its way back into the U.S banking system, in a similar vein to the years preceding the 2008 crisis. The corporate backsliding comes as financial institutions seek higher-return investments to counter currently low interest rates.

In its annual report out Tuesday, the Office of the Comptroller of the Currency said U.S. banks are relaxing loan-underwriting standards in a manner akin to the run up to the financial meltdown. The national bank watchdog said the largest U.S. lenders have loosened requirements for corporate loans and consumer borrowing such as credit cards and auto loans for three years in a row. In addition to low interest rates, competition from nonbank lenders has exacerbated a return to risky behavior, the WSJ’s Alan Zibel and Ryan Tracy report.

Officials at the OCC warned a similar trend of gradual easing in lending standards took place in the early 2000s, noting similarities between the 2014 survey measuring underwriting standards through June 30, and one issued in 2006. OCC officials said they didn’t believe current lending standards are too loose, but wanted to highlight specific areas of lending where they believe banks could be on a risky path that could lead to losses.


From the CFO Journal's Morning Ledger on December 15, 2014

SEC: PCAOB Accounting board is dragging its feet
http://www.wsj.com/articles/sec-accounting-board-is-dragging-feet-1418605107
The SEC is clashing with federal auditing regulators over their priorities, suggesting they haven’t moved quickly enough to enact rules on how auditors do their jobs. Thee senior SEC officials publicly took issue with the Public Company Accounting Oversight Board last week, suggesting that it has been slow to deliver new rules that would govern the nuts and bolts of how accounting firms conduct audits.

Changing PCAOB Audit Inspection Report Priorities
From the CFO Journal's Morning Ledger on December 16, 2014

Corporate accountants would be wise to make sure that their books are crystal clear about environmental risks, international tax and the estimated value of corporate investment portfolios. A director of the Public Company Accounting Oversight Board (PCAOB) pointed to those areas as topics of special focus when the audit watchdog begins its next inspection of annual audits of U.S. traded corporations, CFO Journal’s Noelle Knox reports. Big data and cybersecurity will also be potential red flags.

The director, Helen Munter, sounded her warning at the American Institute of CPAs conference in Washington after inspectors found more deficiencies in audited annual reports this year. The PCAOB uncovered weaknesses in 39% of audits inspected in the latest evaluations of the Big Four firms, up from 37% the year before.

The deficiencies don’t necessarily mean that companies’ filings were incorrect, but rather that auditors didn’t do the proper work to justify their opinions. And the PCAOB is itself finding itself subject to criticism for alleged foot-dragging in its processes for revising its standards for auditors. Several audit performance issues have been on the PCAOB’s agenda for years, including an update to the rules on auditing companies’ use of fair-value measurements and other accounting estimates.

From the CFO Journal's Morning Ledger on December 16, 2014

SEC explains the approach it is taking to COSO, internal controls
http://r.smartbrief.com/resp/gpeCBYbWhBCMeGjiCidKtxCicNiKfL?format=standard
The Securities and Exchange Commission will not penalize companies that continue to use the old COSO framework in their year-end 2014 internal control reporting, but the agency expects companies to move to the new framework toward the end of the transition period, according to comments made by SEC Deputy Chief Accountant Nili Shah at the AICPA's national conference. Other SEC officials warned companies to make sure that they grasp the difference between actual accounting errors and the control deficiencies that lead to mistakes. Compliance Week (12/16)

Jensen Comment
One of the major reasons large audit firms are cited for audit deficiencies (sometimes in nearly half the sampled audits to inspect) is for cost cutting such as not doing sufficient detail testing of transactions and account balances.

Bob Jensen's threads on professionalism and independence in auditing firms ---
http://www.trinity.edu/rjensen/Fraud001c.htm


"Rev. Al Sharpton's Key Tax Tips...From Lois Lerner," Forbes, December 20, 2014 ---
http://www.forbes.com/sites/robertwood/2014/12/20/rev-al-sharptons-key-tax-tips-from-lois-lerner/

In Tell it to the Reverend Al, the New York Post says Rev. Sharpton still owes New York State $916,000 from tax liens filed against him between 2008 and 2010. In all, Mr. Sharpton is said to have $4.5 million of tax liens. He claims he paid them, but state officials say otherwise. This isn’t the first time his records do not line up. Indeed, on two prior occasions he suffered inconvenient fires that destroyed records.

It’s a little like the crash of Lois Lerner’s hard drive. Those fires destroyed Mr. Sharpton’s financial records just as he was about to turn them over to officials. And records are key to tax disputes. As Mr. Sharpton works though his tax problems with or without records, he appears to have a suit made of Teflon, even when it comes to taxes.

In 1993, he pleaded guilty to a misdemeanor for failure to file a state tax return. His Raw Talent operation which he uses for speaking engagements has reportedly also had tax problems. But beyond these smidgens, Mr. Sharpton has never faced criminal tax-related charges. There is no question he has had trouble keeping his finances straight. He has been marvelously successful in explaining that he is simply in over his head.

Not every taxpayer is so lucky. In fact, he is so unusual in that respect that perhaps Mr. Sharpton should be dispensing tax advice. A New York Times report claims the Reverend and his for-profit businesses owe millions. Both he and his advocacy organization, the National Action Network may be strapped. But it is hard to reach that conclusion from the outside.

Some of his financial woes stem from poor divisions between business and personal, a common tax problem among entrepreneurs. Reports suggest that everything is paid for by the entities, not Mr. Sharpton. That may extend to clothes, his daughters’ private school tuition, etc. If so, Rev. Sharpton is blurring one of the most important lines in the tax law. Many tax disputes come down to the fundamental divide between business and personal.

Continued in article

"Questions About Sharpton’s Finances Accompany His Rise in Influence," by Russ Buettne, The New York Times, November 18, 2014 ---
http://www.nytimes.com/2014/11/19/nyregion/questions-about-al-sharptons-finances-accompany-his-rise-in-influence.html?_r=0

. . .

Obscured in his ascent, however, has been his troubling financial past, which continues to shadow his present.

Mr. Sharpton has regularly sidestepped the sorts of obligations most people see as inevitable, like taxes, rent and other bills. Records reviewed by The New York Times show more than $4.5 million in current state and federal tax liens against him and his for-profit businesses. And though he said in recent interviews that he was paying both down, his balance with the state, at least, has actually grown in recent years. His National Action Network appears to have been sustained for years by not paying federal payroll taxes on its employees.

With the tax liability outstanding, Mr. Sharpton traveled first class and collected a sizable salary, the kind of practice by nonprofit groups that the United States Treasury’s inspector general for tax administration recently characterized as “abusive,” or “potentially criminal” if the failure to turn over or collect taxes is willful.

Mr. Sharpton and the National Action Network have repeatedly failed to pay travel agencies, hotels and landlords. He has leaned on the generosity of friends and sometimes even the organization, intermingling its finances with his own to cover his daughters’ private school tuition.

He has been in the news as much as ever this year, becoming a prominent advocate on behalf of the families of Eric Garner, a Staten Island man who died in police custody, and Michael Brown, the unarmed black teenager who was killed by a white police officer in Ferguson, Mo. He also has a daily platform through his show on MSNBC.

Behind the scenes, he has consulted with the mayor and the president on matters of race and civil rights and even the occasional high-level appointment. He was among a small group at the White House when Mr. Obama announced his nomination of Loretta E. Lynch, the United States attorney for the Eastern District of New York, to become the next attorney general.Mr. Sharpton’s newly found insider status represents a potential financial boon for him, furnishing him with new credibility and a surge in donations. His politician-heavy birthday party, at one of New York City’s most expensive restaurants, was billed as a fund-raiser to help his organization. Mr. Obama also spoke at the organization’s convention in April, its primary fund-raising event.

But the recent troubles of Rachel Noerdlinger, Mr. Sharpton’s closest aide for many years and more recently a top official in the de Blasio administration, served as a reminder of Mr. Sharpton’s fraught history and how easily it can spill over into the corridors of power in which he now travels.

Ms. Noerdlinger took a leave of absence from her post on Monday, after the arrest of her teenage son on trespassing charges. The decision capped weeks of scrutiny after news accounts revealed that she had failed to disclose a live-in boyfriend with an extensive criminal record on a background questionnaire when she became the top adviser to Mr. de Blasio’s wife, Chirlane McCray. The omission was unrelated to Mr. Sharpton, but it is the kind of paperwork oversight that has been a trademark of his nonprofit, where Ms. Noerdlinger built her career.

Mr. Sharpton acknowledged his financial troubles in recent telephone interviews. He said all of the debts were being paid, thanks to vastly increased revenues from donors. And he pointed out that he had lent the organization money himself, while at times not taking a salary.

“You can say I’m not a great administrator,” he said. “You can’t say that I’m not committed.”

Often Strident Language

Mr. Sharpton got his start preaching in Brooklyn churches at age 4. As a young man, he worked at the side of the soul singer James Brown, where he met a backup singer, Kathy, who would become his wife. By the 1980s, however, he was becoming increasingly involved in fiery activism on behalf of black people hurt by the police or members of other racial groups, sometimes making outlandish accusations. He accused an upstate New York prosecutor, Steven A. Pagones, of being part of a group of white men whom he said had abducted and raped the teenager Tawana Brawley, an allegation that a grand jury report showed had been fabricated.

He often used strident language that many saw as inflaming racial tensions. During rallies at the Slave Theater in Brooklyn, he characterized black people who disagreed with him as “yellow niggers" and called white people “crackers.” After a car in a prominent Hasidic rabbi’s motorcade jumped a curb in the Crown Heights section of Brooklyn and killed a 7-year-old black boy in 1991, Mr. Sharpton referred to the neighborhood’s Hasidic Jews as “diamond merchants.” In 1995, he referred to a Harlem businessman who wanted to expand his store into a space that had been occupied by black-owned business as a “white interloper.”

Problems keeping his personal and professional affairs in order have threatened Mr. Sharpton’s rise from the streets for decades.In 1990, he was acquitted of felony charges that he stole $250,000 from his youth group. Then in 1993 he pleaded guilty to a misdemeanor for failing to file a state income tax return. Later, the authorities discovered that one of Mr. Sharpton’s for-profit companies, Raw Talent, which he used as a repository for money from speaking engagements, was also not paying taxes, a failure that continued for years.

In 1998, Mr. Sharpton lost a defamation suit brought by Mr. Pagones and was ordered to pay a judgment of $65,000. He said he did not have enough money to pay all at once, and after years of a slow trickle of money from wage garnishments, Mr. Sharpton was forced to testify under oath about his finances.

He said he had no assets, save for a watch and a ring. Everything else, including some of his suits, was owned by a for-profit business, Revals Communications, he said. He testified that he put nearly all of his $73,000 in take-home pay from the National Action Network into Revals, which in turn paid many of his expenses, including his daughters’ private school tuition and some of the rent on his house. Even though state law prohibits nonprofits from making loans to officers, Mr. Sharpton said National Action Network had also once lent him money to cover his daughters’ tuition.

Continued in article


"The Worst of Auditing 2014," by Adruenne Gonzolez, Going Concern, December 15, 2014 ---
http://goingconcern.com/post/going-concern-presents-worst-auditing-2014

Another day, another "year in review best of" list. Except this list is actually the "worst of" 2014.

It's been an exciting year for auditing. PCAOB inspection rates were some of the worst to date, and then there was that whole thing where an audit partner was banging the Chief Accounting Officer at the client's. No biggie, just another day in auditing!

Let's take a look at our Worst Of for 2014.

Those Who Know, Know BDO Got Their AS5 Kicked in Latest PCAOB Inspection Report
As we just stated, it's been a pretty bad year for audit firms inspected by the PCAOB. But as far as PCAOB inspection reports are concerned, BDO has the distinction of coming in as the absolute worst with an audit failure rate of 65%. Did the world end due to this failure rate? Well, no. But it sure was a sucky moment for the folks at BDO.

Ventas Fires EY as Auditor Over Independence Violation
A funny thing happened with an audit client this year. Apparently, an EY partner was screwing the Chief Accounting Officer and when it comes to independence, that's like the last thing the audit partner wants to do. We'll have you know we do have the name of the audit partner in question but in respect for her privacy since her own grunts weren't lined up waiting to throw her under the bus and ruin her life more than it was already ruined by banging the CAO at the client, we made the decision not to out her. We do hear she's a wine aficionado, though, and would like to send a virtual glass of vino to her for following her heart instead of her profession's code of conduct. At the end of the day, Ventas found a new auditor, the CAO "separated himself" from his duties, the audit partner left the firm, and the world kept spinning.

The Name of EY's New Audit Tool Implies Audits Belong in the Louvre
While we're on the topic of EY audits, let's talk about EY's rebranding of the oddly named GAMx. When it comes to audits, the last thing you want to think about is creativity but that's exactly what EY did when they announced EY Canvas in August of this year. EY let the grunts name this one, and EY Canvas was what they came up with. Why? We'll let EY tell you. "We like to think of an audit engagement as a painting that our people at EY create on a blank canvas. EY Canvas is a surface where our teams can paint a picture, encompassing the entire audit process. It is adaptable to whatever size is needed on the client needs, and in the end, it is an accounting work of art, available for inspection."

McGladrey Reminds Audit Staff to Stay Billable This Busy Season
Not all firms end up in the pages of Going Concern with their pleas to stay billable, but this year McGladrey did. The mantra is bill, bill, and then bill some more. And make sure you get those timesheets in or else the world just may stop spinning. You'll be eating a lot of crap this holiday season but hours better not be among it. At least according to the email that went out.

KPMG Vice Chair Thinks the Future of Audit Includes 100 Percent Testing
We have just one thing to say about this: 100 percent testing. How the hell does that work? Does that mean assurance is no longer reasonable but absolute since the audit firm has tested every single little transaction and run it through the magical computer? Who knows. We're betting on flying cars before we see this in wide use.

 

 

Jensen Comment
The Year 2014 was a pretty good year for audit firms relative to their disasters in 2013.
Here are a few that Adrienne did not mention:

"Deloitte ordered to pay another $33-million in Livent negligence case," by Janet McFarland, Globe and Mail, July 15, 2014 ---
 http://www.theglobeandmail.com/report-on-business/industry-news/the-law-page/deloitte-ordered-to-pay-another-33-million-in-livent-negligence-case/article19613388/

Deloitte Will Pay Up $85 Million for  Negligent Auditing in Canada
"Livent creditors win key ruling, awarded $85-million," by Janet McFarland, Globe and Mail, April 6, 2014 ---
http://www.theglobeandmail.com/report-on-business/livent-creditors-awarded-85-million-due-to-auditors-negligence/article17845004/

"Ernst & Young Settles Over Audits of Sino-Forest, Second Chinese Company:   E&Y to Pay $7.2 Million to Settle Allegations By the Ontario Securities Commission," by Ben Dummett, The Wall Street Journal, September 30, 2014 ---
http://online.wsj.com/articles/ernst-young-settles-over-audits-of-sino-forest-another-company-1412101002

"Ernst & Young Sued Over Georg Schaeffler Tax Probe," by Patricia Hurtado, Bloomberg Businessweek, February 26, 2014 ---
http://www.bloomberg.com/news/2014-02-25/ernst-young-sued-over-georg-schaeffler-tax-probe.html 

Grant Thornton Partner Obtains Full Membership in Club Fed
A former partner at Grant Thornton was sentenced to 4-1/2 years in prison on Wednesday for stealing nearly $4 million from the accounting firm. Craig Haber, 60, had pleaded guilty in August to a charge of mail fraud stemming from what prosecutors say was an eight-year scheme to divert client payments to a personal bank account ---

http://in.reuters.com/article/2014/03/12/grantthornton-theft-idINL2N0M92EV20140312

"PCAOB Gives Grant Thornton Record Failure Rate," by Tammy Whitehouse, Compliance Week, January 9, 2014 ---
http://www.complianceweek.com/pcaob-gives-grant-thornton-record-failure-rate/article/328793/

"KPMG Audits Had 46% Deficiency Rate in PCAOB Inspection," Michael Rapoport, The Wall Street Journal, October 24, 2014 ---
http://online.wsj.com/articles/kpmg-audits-had-46-deficiency-rate-in-pcaob-inspection-1414093002?mod=djem_jiewr_AC_domainid

"SEC Charges KPMG With Violating Auditor Independence Rules," SEC Press Release, January 24, 2014 ---
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540667080#.UuKm27ROlQx

"Defunct Physicians United Plan owners file $500M lawsuit against accountants (McGladrey)," by Abraham Aboraya, BizJournals.com, October 8, 2014 ---
http://www.bizjournals.com/orlando/blog/2014/10/defunct-physicians-united-plan-owners-file-500m.html?surround=etf&ana=e_article

"A China Fraud Dissected: Part 1 Milton Webster, AgFeed Audit Committee Member and Whistleblower," by Francine McKenna, re:TheAuditors, February 26, 2014 ---
http://retheauditors.com/2014/02/26/a-china-fraud-dissected-part-1-milton-webster-agfeed-audit-committee-member-and-whistleblower/

McGladrey LLP, also resigned on March 7
The SEC’s AgFeed Complaint: No Restatement Means No Sarbanes-Oxley Clawback
," by Francine McKenna, re:TheAuditors, March 23, 2014 ---
http://retheauditors.com/2014/03/23/the-secs-agfeed-complaint-no-restatement-means-no-sarbanes-oxley-clawback/

Hertz Restatements due to Inadequate Internal Controls and Faulty Audit by PricewaterhouseCoopers
"Ethics and Compliance Failures Underlie Hertz’s Restatement of Financial Statements," by Steven Mintz, Ethics Sage, November 26, 2014 ---
http://www.ethicssage.com/2014/11/ethics-and-compliance-failures-underlie-hertzs-restatement-of-financial-statements-.html

"U.S. Audit Regulator Scrutinizing PwC Over Caterpillar Tax Advice:  PCAOB Reviewing Whether Tax Advice Creates Conflict With Audit of Company," by Michael Rapoport, The Wall Street Journal, November 18, 2014 ---
http://online.wsj.com/articles/u-s-audit-regulator-scrutinizing-pwc-over-caterpillar-tax-advice-1416350375

'PwC to face U.S. lawsuit over Colonial Bank collapse - court ruling,"  by Dena Aubin, Reuters, September 10, 2014 ---
http://www.reuters.com/article/2014/09/10/pricewaterhousecoopers-colonial-bancgrp-idUSL1N0RB0VF20140910?irpc=932

"Annie's, Inc. - Why Did PwC Abandon This BNNY?" by Anthony H. Catanach, Jr., Grumpy Old Accountants, July 10, 2014 ---
http://grumpyoldaccountants.com/blog/2014/7/10/annies-inc-why-did-pwc-abandon-this-bnny

"Next Up On The “Operation Broken Gate” Agenda? Could Be PwC and Thomson Reuters," by Francine McKenna, reTheAuditors, February 3, 2014 ---
http://retheauditors.com/2014/02/03/next-up-on-the-operation-broken-gate-agenda-could-be-pwc-and-thomson-reuters/

"PwC must face $1 billion lawsuit over MF Global collapse," by Jonathan Stempel, Reuters, July 9, 2014 ---
http://www.reuters.com/article/2014/07/09/us-pricewaterhouse-mfglobal-lawsuit-idUSKBN0FE2IR20140709

"Judge Suspends Chinese Units of Auditors," by Michael Rapoport, The Wall Street Journal, January 23, 2014 ---
http://online.wsj.com/news/articles/SB10001424052702303448204579337183810731744?mod=djem_jiewr_AC_domainid

 

Jensen Comment
There are teaching cases accompanying many of the references above ---
http://www.trinity.edu/rjensen/Fraud001.htm


Jensen Note
Schertz is a suburb of San Antonio in Bexar County. Professor Dennis Elam is an accounting professor and blogger from Texas A&M University at San Antonio ---
http://professorelam.typepad.com/my_weblog/

"Where Were the Auditors?" by Dennis Elam, December 18, 2014 ---
http://professorelam.typepad.com/my_weblog/2014/12/where-were-the-auditors.html

Michael Dennehy embezzled $1.7 million form Bexar Waste from 2008 to 2014. As an accounts payable clerk he wrote himnself checks and deposited them to personal accounts.  A stamp forged the proper signature and names were changed for payeesin Quick Books. 

Bexar Waste is garbage collection service based in Schertz.  In my opinon the firm is in need of improved internal controls a serious outside auditor who would at least perform a review of the books

What other simple methods could have prevented an ongoing fraud like this?

After posting this news item early this morning I received, no surprise, this via my Internal Audit Membership.

PCAOB to detail internal control audit checklist.

The PCAOB is still dissatisfied with the quality of many audits it inspects. While Bexar Waste is a small privately held company, that story highlights the importance of internal controls. 

As I have thought the Bexar Waste case over, it occurs to me that whoever was in charge must not have  known the company very well. If your accounts went missing $1.7 Million over five years, would you notice, that is 340K a year!  I would think that is a significant number in a firm that size. 

Bob Jensen's Fraud Updates --- http://www.trinity.edu/rjensen/FraudUpdates.htm


Jensen Comment
After correcting for some arithmetic this might make a fun module for an ethics course or a movie script.

"An Ethical Story" by Dennis Elam, December 22, 2014 ---
http://professorelam.typepad.com/my_weblog/2014/12/an-ethical-story.html

A few years ago robbers entered a bank in a small town. One of them shouted: "Don't move! The money belongs to the bank. Your lives belong to you.” Immediately all the people in the bank laid on the floor quietly and without panic.

This is an example of how the correct wording of a sentence can make everyone change their view of the world.

. While running from the bank the youngest robber (who had a college degree) said to the oldest robber (who had barely finished elementary school): "Hey, maybe we should count how much we stole." The older man replied: "Don’t be stupid. It's a lot of money so let's wait for the news on TV to find out how much money was taken from the bank"

This is an example of how life experience is more important than a degree..

After the robbery, the manager of the bank said to his accountant: "Let's call the cops and tell them how much has been stolen." "Wait”, said the Accountant, "before we do that, let's add the $800,000 we took for ourselves a few months ago and just say that it was stolen as part of today’s robbery."

This is an example of taking advantage of an opportunity.

The following day it was reported in the news that the bank was robbed of $ 3 million. The robbers counted the money, but they found only $1 million so they started to grumble. "We risked our lives for $1 million, while the bank's management robbed two million dollars without blinking? Maybe it’s better to learn how to work the system, instead of being a simple robber." ​​

This is an example of how knowledge can be more useful than power !!!

Moral of the Story : Give a person a gun, and he can rob a bank. Give him a bank, and he can rob everyone.

Bob Jensen's Fraud Updates --- http://www.trinity.edu/rjensen/FraudUpdates.htm


"EY launches multi-million pound claim against KPMG," Economia, December 15, 2014 ---
http://economia.icaew.com/news/december-2014/ey-launch-multimillion-pound-claim-against-kpmg

The collapse of a £300m hedge fund has sparked a legal battle between the Big Four rivals

EY, acting as liquidator of the collapsed Scottish property fund Heather Capitals, has launched a multimillion pound claim against KPMG, the fund's former auditor.

KPMG has said that it will "vigorously defend" the action from its fellow Big Four member. A spokesperson for KPMG, said, “We believe the claim has no merit. We stand by the quality of our work." EY declined to comment.

EY was appointed liquidators of the Scottish property hedge fund after it collapsed spectacularly in 2010. At the time EY partner and liquidator Paul Duffy told investors it was unlikely they would recover any losses.

The Wall Street Journal has reported EY's claim to be worth around £100m.

Heather Capital was launched by Scottish lawyer Gregory King and run from Gibraltar. According to the WSJ, EY alleged in court filings that many of the loans made by Heather to property developers were “a fabrication and a sham”. In its 2006 and 2007 accounts KPMG identified suspicious loans that Heather had made to Gibraltar-based companies, some of which were linked to King. The report said KPMG did not know what the money had been lent out for.

- See more at: http://economia.icaew.com/news/december-2014/ey-launch-multimillion-pound-claim-against-kpmg#sthash.Wl0SkH4e.dpuf

The collapse of a £300m hedge fund has sparked a legal battle between the Big Four rivals

EY, acting as liquidator of the collapsed Scottish property fund Heather Capitals, has launched a multimillion pound claim against KPMG, the fund's former auditor.

KPMG has said that it will "vigorously defend" the action from its fellow Big Four member. A spokesperson for KPMG, said, “We believe the claim has no merit. We stand by the quality of our work." EY declined to comment.

EY was appointed liquidators of the Scottish property hedge fund after it collapsed spectacularly in 2010. At the time EY partner and liquidator Paul Duffy told investors it was unlikely they would recover any losses.


The Wall Street Journal has reported EY's claim to be worth around £100m.

Heather Capital was launched by Scottish lawyer Gregory King and run from Gibraltar. According to the WSJ, EY alleged in court filings that many of the loans made by Heather to property developers were “a fabrication and a sham”. In its 2006 and 2007 accounts KPMG identified suspicious loans that Heather had made to Gibraltar-based companies, some of which were linked to King. The report said KPMG did not know what the money had been lent out for.


Relativism --- http://en.wikipedia.org/wiki/Relativism

. . .

The fact that the various species of descriptive relativism are empirical claims, may tempt the philosopher to conclude that they are of little philosophical interest, but there are several reasons why this isn't so. First, some philosophers, notably Kant, argue that certain sorts of cognitive differences between human beings (or even all rational beings) are impossible, so such differences could never be found to obtain in fact, an argument that places a priori limits on what empirical inquiry could discover and on what versions of descriptive relativism could be true. Second, claims about actual differences between groups play a central role in some arguments for normative relativism (for example, arguments for normative ethical relativism often begin with claims that different groups in fact have different moral codes or ideals). Finally, the anthropologist's descriptive account of relativism helps to separate the fixed aspects of human nature from those that can vary, and so a descriptive claim that some important aspect of experience or thought does (or does not) vary across groups of human beings tells us something important about human nature and the human condition.

Normative relativism concerns normative or evaluative claims that modes of thought, standards of reasoning, or the like are only right or wrong relative to a framework. ‘Normative’ is meant in a general sense, applying to a wide range of views; in the case of beliefs, for example, normative correctness equals truth. This does not mean, of course, that framework-relative correctness or truth is always clear, the first challenge being to explain what it amounts to in any given case (e.g., with respect to concepts, truth, epistemic norms). Normative relativism (say, in regard to normative ethical relativism) therefore implies that things (say, ethical claims) are not simply true in themselves, but only have truth values relative to broader frameworks (say, moral codes). (Many normative ethical relativist arguments run from premises about ethics to conclusions that assert the relativity of truth values, bypassing general claims about the nature of truth, but it is often more illuminating to consider the type of relativism under question directly.)

Continued in article

"Making the Case for Moral Education in our Schools:  Right versus wrong is not Relative or Situational but based on Concrete Moral Virtues," by Steven Mintz, Ethics Sage, December 16, 2014 ---
http://www.ethicssage.com/2014/12/making-the-case-for-moral-education-in-our-schools.html

Jensen Comment
The problem is that it's often possible to rationalize exceptions to moral edicts. For example, murder is immoral but many of us justify murder in the case of self defense or when a bad guy kills a hostage and then points the gun toward other hostages. Or we justify murder in the case of mental illness or immaturity. For example, a child under ten years of age is not generally punished in an adult courtroom. Some mentally ill murderers do not get death sentences or "life without parole" sentences doled out to other murderers.

Researchers from one nation like the USA have difficulty accepting morality differences in other cultures such as when a culture allows a father to have incestuous relations with his very young children. Or when a culture frowns on incest but allows marriage and sex with females who are not yet matured.

Missionaries are often criticized for imposing their religious faith and morality in cultures with different religions and morals.

My point is that morality is a very complicated issue for our students at most any level. This does not justify taking ethics out of the curriculum, but it perhaps does justify having students understand how relativism affects morality.

Also academic scholars do not all agree on morality. For example, some scholars think that any difference in income or wealth is immoral. Other scholars, like me, think that our lives would be far worse all wealth and income were to be distributed equally.

What may be more important is for students to learn that situational or relative ethics are often the cause of lapses in ethics by our graduates who learned a lot about ethics when they were in our schools. For example, "follow-the-herd" is something we try to make our students (sometimes unsuccessfully) resist.

 For example, I suspect that virtually all the 100+ students who recently cheated in a political science course at Harvard knew full well that cheating is wrong. But many justified (relativism in action) that the cheating was less wrong since it would not affect their grades in the class (virtually all the students were assured of A grades). They simply cheated to lighten their work load on an assignment. Harvard officials did not accept relativism in this case and expelled 60+ of the students from Harvard University. What I never discovered is why the other cheaters were also not expelled.
http://www.trinity.edu/rjensen/Plagiarism.htm
Search on the word "Harvard"

My main point is that I agree with Professor Mintz that we should teach morality in our schools. I do not agree with his assumption of global "Concrete Moral Values" in all cultures or even within a given culture under certain exceptional circumstances.


"10 Ways "Banking Sector Ethics" Can Stop Being An Oxymoron," Forbes, December 22, 2014 ---
http://www.forbes.com/sites/iese/2014/12/22/10-ways-banking-sector-ethics-can-stop-being-an-oxymoron/

Jensen Comment
These are band aids. The best thing to do is to bring back the original Glass–Steagall Act ---
http://en.wikipedia.org/wiki/Glass%E2%80%93Steagall_Legislation

PS
Isn't an oxymoron limited to two words?


New York Mag’s Boy Genius Investor Made It All Up ---
http://observer.com/2014/12/exclusive-new-york-mags-boy-genius-investor-made-it-all-up/


From EY on December 16, 2014
Highlights of the 2014 AICPA National Conference on Current SEC and PCAOB Developments ---
http://www.ey.com/Publication/vwLUAssetsAL/AICPACompendium_CC0405_15December2014/$FILE/AICPACompendium_CC0405_15December2014.pdf

Our compendium summarizes comments of representatives of the Securities and Exchange Commission (SEC), the Public Company Accounting Oversight Board (PCAOB), the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) at last week’s 2014 AICPA National Conference on Current SEC and PCAOB Developments in Washington, D.C.

 

The highlights included:

 

 

For further information on related topics, see our AccountingLink site.

 


"FASB considering revenue recognition delay to reduce uncertainty," by Ken Tysiac, Journal of Accountancy, December 9, 2014 ---
http://journalofaccountancy.com/News/201411487.htm

Bob Jensen's threads on some of the early encounters with the hang up issues ---
http://www.trinity.edu/rjensen/ecommerce/eitf01.htm 


Usually With the Blessings of Their Deficient Audit Firms:  The PCAOB concludes that all large audit firms frequently conduct deficient audits
"Big Companies Can’t Stop Cooking Their Books," The Economist, December 13, 2014 ---
http://www.businessinsider.com/why-big-companies-cant-stop-cooking-their-books-2014-12

No endorsement carries more weight than an investment by Warren Buffett. He became the world's second-richest man by buying safe, reliable businesses and holding them for ever. So when his company increased its stake in Tesco to 5% in 2012, it sent a strong message that the giant British grocer would rebound from its disastrous attempt to compete in America.

But it turned out that even the Oracle of Omaha can fall victim to dodgy accounting. On September 22nd Tesco announced that its profit guidance for the first half of 2014 was £250m ($408m) too high, because it had overstated the rebate income it would receive from suppliers. Britain's Serious Fraud Office has begun a criminal investigation into the errors. The company's fortunes have worsened since then: on December 9th it cut its profit forecast by 30%, partly because its new boss said it would stop "artificially" improving results by reducing service near the end of a quarter. Mr Buffett, whose firm has lost $750m on Tesco, now calls the trade a "huge mistake".

No sooner did the news break than the spotlight fell on PricewaterhouseCoopers (PwC), one of the "Big Four" global accounting networks (the others are Deloitte, Ernst & Young (EY) and KPMG). Tesco had paid the firm £10.4m to sign off on its 2013 financial statements. PwC mentioned the suspect rebates as an area of heightened scrutiny, but still gave a clean audit.

PwC's failure to detect the problem is hardly an isolated case. If accounting scandals no longer dominate headlines as they did when Enron and WorldCom imploded in 2001-02, that is not because they have vanished but because they have become routine. On December 4th a Spanish court reported that Bankia had mis-stated its finances when it went public in 2011, ten months before it was nationalised. In 2012 Hewlett-Packard wrote off 80% of its $10.3 billion purchase of Autonomy, a software company, after accusing the firm of counting forecast subscriptions as current sales (Autonomy pleads innocence). The previous year Olympus, a Japanese optical-device maker, revealed it had hidden billions of dollars in losses. In each case, Big Four auditors had given their blessing.

And although accountants have largely avoided blame for the financial crisis of 2008, at the very least they failed to raise the alarm. America's Federal Deposit Insurance Corporation is suing PwC for $1 billion for not detecting fraud at Colonial Bank, which failed in 2009. (PwC denies wrongdoing and says the bank deceived the firm.) This June two KPMG auditors received suspensions for failing to scrutinise loan-loss reserves at TierOne, another failed bank. Just eight months before Lehman Brothers' demise, EY's audit kept mum about the repurchase transactions that disguised the bank's leverage.

The situation is graver still in emerging markets. In 2009 Satyam, an Indian technology company, admitted it had faked over $1 billion of cash on its books. North American exchanges have de-listed more than 100 Chinese firms in recent years because of accounting problems. In 2010 Jon Carnes, a short seller, sent a cameraman to a biodiesel factory that China Integrated Energy (a KPMG client) said was producing at full blast, and found it had been dormant for months. The next year Muddy Waters, a research firm, discovered that much of the timber Sino-Forest (audited by EY) claimed to own did not exist. Both companies lost over 95% of their value.

Of course, no police force can hope to prevent every crime. But such frequent scandals call into question whether this is the best the Big Four can do--and if so, whether their efforts are worth the $50 billion a year they collect in audit fees. In popular imagination, auditors are there to sniff out fraud. But because the profession was historically allowed to self-regulate despite enjoying a government-guaranteed franchise, it has set the bar so low--formally, auditors merely opine on whether financial statements meet accounting standards--that it is all but impossible for them to fail at their jobs, as they define them. In recent years this yawning "expectations gap" has led to a pattern in which investors disregard auditors and make little effort to learn about their work, value securities as if audited financial statements were the gospel truth, and then erupt in righteous fury when the inevitable downward revisions cost them their shirts.

The stakes are high. If investors stop trusting financial statements, they will charge a higher cost of capital to honest and deceitful companies alike, reducing funds available for investment and slowing growth. Only substantial reform of the auditors' perverse business model can end this cycle of disappointment. Born with the railways

Auditors perform a central role in modern capitalism. Ever since the invention of the joint-stock corporation, shareholders have been plagued by the mismatch between the interests of a firm's owners and those of its managers. Because a company's executives know far more about its operations than its investors do, they have every incentive to line their pockets and hide its true condition. In turn, the markets will withhold capital from firms whose managers they distrust. Auditors arose to resolve this "information asymmetry".

Early joint-stock firms like the Dutch East India Company designated a handful of investors to make sure the books added up, though these primitive auditors generally lacked the time or expertise to provide an effective check on management. By the mid-1800s, British lenders to capital-hungry American railway companies deployed chartered accountants--the first modern auditors--to investigate every aspect of the railroads' businesses. These Anglophone roots have proved durable: 150 years later, the Big Four global networks are still essentially controlled by their branches in the United States and Britain. Their current bosses are all American.

As the number of investors in companies grew, so did the inefficiency of each of them sending separate sleuths to keep management in line. Moreover, companies hoping to cut financing costs realised they could extract better terms by getting an auditor to vouch for them. Those accountants in turn had an incentive to evaluate their clients fairly, in order to command the trust of the markets. By the 1920s, 80% of companies on the New York Stock Exchange voluntarily hired an auditor.

Unfortunately, Jazz Age investors did not distinguish between audited companies and their less scrupulous peers. Among the miscreants was Swedish Match, a European firm whose skill at securing state-sanctioned monopolies was surpassed only by the aggression of its accounting. After its boss, Ivar Kreuger, died in 1932 the company collapsed, costing American investors the equivalent of $4.33 billion in current dollars. Soon after this the Democratic Congress, cleaning up the markets after the Great Depression, instituted a rule that all publicly held firms had to issue audited financial statements. Britain had already brought in a similar policy.

Read more: http://www.businessinsider.com/why-big-companies-cant-stop-cooking-their-books-2014-12#ixzz3LsJuCymz

Bob Jensen's Recipes for Book Cooking ---
http://www.trinity.edu/rjensen/Theory02.htm#Manipulation


Question
In accounitng, what is the difference between "cooking the books" and "misrepresenting the books"?

Teaching Case
From The Wall Street Journal Weekly Accounting Review on August 8, 2014

SEC Charges QSGI Executives of Misrepresenting Books
by: Maria Arnental
Jul 30, 2014
Click here to view the full article on WSJ.com
 

TOPICS: Fraud, Internal Controls, Misrepresentation

SUMMARY: Top executives of Florida computer-equipment company QSGI Inc. have been charged with misrepresenting the company's books to increase the amount of money they could borrow. The authorities allege that co-founders Messrs. Sherman and Cummings misled the company's external auditors and had poor internal controls. The deficiencies continued until the company filed for bankruptcy in July 2009.

CLASSROOM APPLICATION: This article is good to use for coverage of both internal controls and also misrepresentation. The case is a good illustration of the implications of having weak internal controls that lead to intentional or unintentional misstatements in the financial statements.

QUESTIONS: 
1. (Introductory) What are the facts of the case in the article? What agency was involved? Why was it involved in the case?

2. (Advanced) What were the inventory control problems detailed in the article? Do those problems seem to be a result of negligence or intentional actions? Why? What responsibilities do CEOs and CFOs have to insure that financial records properly record the situation in the company?

3. (Advanced) What sanctions did Mr. Cummings agree to accept? Do these seem appropriate sanctions for his actions?

4. (Advanced) The article states that Mr. Cummings did not admit or deny wrongdoing. Why would the SEC not require an admission of wrongdoing? Why did he agree to sanctions if the SEC did not prove he participated in wrongdoing?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

"SEC Charges QSGI Executives of Misrepresenting Books," by Maria Arnental, The Wall Street Journal, July 30, 2014 ---
http://online.wsj.com/articles/sec-charges-florida-computer-company-executives-1406751620?mod=djem_jiewr_AC_domainid

Top executives of Florida computer-equipment company QSGI Inc. QSGI -42.50% have been charged with misrepresenting the company's books to increase the amount of money they could borrow, the Securities and Exchange Commission said Wednesday.

QSGI Inc.'s Co-Founder and former Chief Financial Officer Edward L. Cummings has agreed to pay a $23,000 a penalty to settle the charges, the agency said. Under the terms of the settlement, Mr. Cummings, who didn't admit or deny wrongdoing, agreed to a five-year ban from practicing as an accountant of any entity regulated by the SEC and from serving as an officer or director of a publicly traded company, the agency said.

The case against Co-Founder and Chief Executive Marc Sherman is pending. Mr. Sherman is to file an answer within 20 days, according to the SEC.

Attempts to reach Mr. Sherman and the company for comment were unsuccessful.

The authorities charge Messrs. Sherman and Cummings misled the company's external auditors, withholding, for example, that inventory controls at the company's Minnesota operations were inadequate.

The authorities charge the West Palm Beach, Fla., company failed to design inventory-control procedures that took into account such things as employees' qualifications and experience levels. Sales and warehouse employees often failed to document the removal of items from inventories and when they did, accounting personnel often failed to process the paperwork and adjust inventory in the company's financial reporting system, the SEC said.

The inventory control problems emerged at the Minnesota facility beginning in 2007, when key personnel left, according to the SEC. Workers assigned to replace the accounting staff, however, lacked the necessary accounting background, the authorities said, adding, training either didn't take place or was inadequate, the SEC says.

The deficiencies continued until the company filed for bankruptcy in July 2009, the SEC added.

Also, the authorities alleged, Mr. Sherman directed Mr. Cummings to accelerate the recognition of certain inventory and accounts receivables by as much as a week at a time, improperly increasing revenue, to maximize how much money the company could borrow from its chief creditor.

 


Hertz Restatements due to Inadequate Internal Controls and Faulty Audit by PricewaterhouseCoopers
"
Ethics and Compliance Failures Underlie Hertz’s Restatement of Financial Statements," by Steven Mintz, Ethics Sage, November 26, 2014 ---
http://www.ethicssage.com/2014/11/ethics-and-compliance-failures-underlie-hertzs-restatement-of-financial-statements-.html

 Teaching Case
From The Wall Street Journal Accounting Weekly Review on November 21, 2014

Hertz to Restate More Results
by: Michael Calia
Nov 15, 2014
Click here to view the full article on WSJ.com
 

TOPICS: Accounting Errors, Materiality, Restatements

SUMMARY: Hertz Global Holdings Inc. confirmed concerns that its accounting issues run even deeper, saying it would restate its results for 2012 and 2013 as the company continues an investigation into its financial statements dating back to 2011. The company said it would take longer to complete the auditing process. "Hertz does not currently expect to complete the process and file updated financial statements before mid-2015, and there can be no assurance that the process will be completed at that time, or that no additional adjustments will be identified," the company said in a filing.

CLASSROOM APPLICATION: This article is appropriate for a financial accounting class for the topics of restatements and accounting errors, or could be used in an auditing class.

QUESTIONS: 
1. (Introductory) What are the facts of the Hertz restatements discussed in the article?

2. (Advanced) What are the reasons for the delays in releasing financial statements? What additional work must occur? Why?

3. (Advanced) How have these announcements affected Hertz's stock price? Why? How could the company's stock price be impacted going into the future?

4. (Advanced) What should the company do in the future to prevent problems like this?
 

Reviewed By: Linda Christiansen, Indiana University Southeast
 

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Carl Icahn Takes 8.5% Stake in Hertz
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"Hertz to Restate More Results," by Michael Calia, The Wall Street Journal, November 15, 2014 ---
http://online.wsj.com/articles/hertz-to-restate-more-results-1415969212?mod=djem_jiewr_AC_domainid

Hertz Global Holdings Inc. on Friday confirmed concerns that its accounting issues ran even deeper, saying it would restate its results for 2012 and 2013 as the company continues an investigation into its financial statements dating back to 2011.

Previously, the company had said it would only restate results for 2011, while saying that it would revise the results for 2012 and 2013.

Hertz shares, down 23% over the past three months through Thursday, fell as much as 14% Friday, before closing down about 5%.

The company also disclosed changes to its rental-car fleet strategy and a plan to cut $100 million in costs over the next year.

The company said its audit committee and management have “concluded that the additional proposed adjustments arising out of the review are material to the company’s 2012 and 2013 financial statements,” Hertz said in a filing Friday.

As a result, the company said it would take longer to complete the auditing process. “Hertz does not currently expect to complete the process and file updated financial statements before mid-2015, and there can be no assurance that the process will be completed at that time, or that no additional adjustments will be identified,” the company said in a filing.

Hertz revealed its detection of accounting errors in March, which followed its naming of a new chief financial officer at the end of last year. In June, the company said it would restate its 2011 results, while warning it may do the same for 2012 and 2013. It withdrew its guidance in August, citing the continuing challenges and costs associated with the audit.

The company has since fallen under scrutiny by activists investors such as Jana Partners LLC and Carl Icahn . Jana, which owns a 7% stake in Hertz, earlier this month pressed the company to move ahead with its succession planning as the company seeks a new chief executive. Mark Frissora stepped down from that role early in September as the company contended with weak results and accounting issues.

Mr. Icahn, who disclosed an 8.5% stake in Hertz in August, has said he believes the company’s shares are undervalued, and that he lacked confidence in management amid the accounting strife.

Hertz on Friday also unveiled a new strategy for its U.S. rental car fleet, with an emphasis on buying more 2015 model-year cars than 2014 models.

The company said it has implemented a cost-cutting program expected to result in $100 million in savings by the end of next year, as well.

Hertz said its total revenue for the period ended Sept. 30 rose about 2% to $3.12 billion. U.S. car-rental revenue was down slightly to $1.76 billion, while international car-rental rose about 3% to $795 million.

The company’s equipment-rental business posted a 3% revenue increase to $415 million.

Continued in article

Bob Jensen's threads on PwC ---
http://www.trinity.edu/rjensen/Fraud001.htm

Bob Jensen's threads on audit firm professionalism and ethics ---
http://www.trinity.edu/rjensen/Fraud001c.htm

 


BDO (the fifth largest multinational accounting firm) --- http://en.wikipedia.org/wiki/BDO_International

PCAOB --- http://en.wikipedia.org/wiki/Public_Company_Accounting_Oversight_Board

From the CFO Journal's Morning Ledger on December 4, 2014

(PCAOB) Regulator finds deficiencies in 65% of BDO USA’s audits
http://blogs.wsj.com/cfo/2014/12/03/regulator-finds-deficiencies-in-65-of-bdo-usas-audits/?mod=djemCFO_h
The government’s audit watchdog on Wednesday released annual inspection reports for 37 audit firms, and found more deficiencies in audits by BDO USA LLP and fewer problems in those by Crowe Horwath LLP, CFO Journal’s Noelle Knox reports. Weaknesses in BDO’s audits according to the Public Company Accounting Oversight board included a failure to test controls over goodwill, reserves and receivables, as well as a failure to test a client’s method for calculating the revenue and value of certain financial assets.

Bob Jensen's threads on audit firm professionalism and ethics ---
http://www.trinity.edu/rjensen/Fraud001c.htm


Jensen Comment
There's little evidence that PCAOB inspection reports have done much to improve financial auditing in large firms. It seems like the audit firms pretty much ignore the reports if improvements are expensive such as the expense of more detailed testing. Those reports do destroy the myth that expensive audits from the largest auditing firms are superior audits.

Clients seemingly are more concerned with reducing audit costs than improving audit quality. My hypothesis is that audit firms cut corners on clients that they are relatively certain will not lead to auditing lawsuits. When firms audit troubled clients perhaps those audits have more due diligence. A bad inspection report can destroy a small audit firm, but a negative inspection report seems to not hurt the huge global auditing firms seeking new clients.
PCAOB Inspection Reports --- http://pcaobus.org/Inspections/Pages/default.aspx

Teaching Case on Audit Inspections
From The Wall Street Journal Weekly Accounting Review on October 31, 2014

KPMG Audits Had 46% Deficiency Rate in PCAOB Inspection

by: Michael Rapoport
Oct 24, 2014
Click here to view the full article on WSJ.com
 

TOPICS: Accounting Firms, Auditing, Deficiencies, PCAOB

SUMMARY: The 23 deficient audits the Public Company Accounting Oversight Board found in its 2013 inspection of the firm, were out of 50 audits or partial audits conducted by KPMG that the PCAOB evaluated - a deficiency rate of 46%. In the previous year's inspection, the PCAOB found deficiencies in 17 of 50 KPMG audits inspected, or 34%. The report spotlights the PCAOB's continuing concerns about audit quality. Overall, 39% of audits inspected in the latest evaluations of the Big Four firms - KPMG, PricewaterhouseCoopers LLP, Deloitte & Touche LLP and Ernst & Young LLP - were found to have deficiencies, compared with 37% the previous year.

CLASSROOM APPLICATION: This is useful for an auditing class to present recent results of PCAOB inspections.

QUESTIONS: 
1. (Introductory) What is the PCAOB? What is its function?

2. (Advanced) What are the "Big Four" accounting firms? What are the results of the annual inspections of the Big Four accounting firms? Did one firm perform better than others?

3. (Advanced) What is the purpose of these inspections? What do the inspectors do? What is a deficiency? What do the firms do with the inspection results?

4. (Advanced) What happens once these results are determined? Are the financial statements changed as a result of these inspections? Are the firms sanctioned?

5. (Advanced) The article notes that the PCAOB has made public what was previously secret criticism of the firms. Why were those previous results secret? Should this information be secret? Why or why not?

6. (Advanced) Should these results impact the reputations of the Big Four firms? Why or why not? How should the firms handle these public revelations?
 

Reviewed By: Linda Christiansen, Indiana University Southeast
 

RELATED ARTICLES: 
Inspection Finds Defects in 19 PricewaterhouseCoopers Audits
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Jun 02, 2014
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Ernst & Young 2013 Audit Deficiency Rate 49%, Regulators Say
by Michael Rapoport
Aug 28, 2014
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"KPMG Audits Had 46% Deficiency Rate in PCAOB Inspection," Michael Rapoport, The Wall Street Journal, October 24, 2014 ---
http://online.wsj.com/articles/kpmg-audits-had-46-deficiency-rate-in-pcaob-inspection-1414093002?mod=djem_jiewr_AC_domainid

Audit regulators found deficiencies in 23 of the KPMG LLP audits they evaluated in their latest annual inspection of the Big Four accounting firm’s work.

The 23 deficient audits the Public Company Accounting Oversight Board found in its 2013 inspection of the firm, released Thursday, were out of 50 audits or partial audits conducted by KPMG that the PCAOB evaluated—a deficiency rate of 46%. In the previous year’s inspection, the PCAOB found deficiencies in 17 of 50 KPMG audits inspected, or 34%.

In a statement responding to the PCAOB inspection, KPMG said, “We are always mindful of our responsibility to the capital markets, and we are committed to continually improving our firm and to working constructively with the PCAOB to improve audit quality.”

The 23 deficiencies were significant enough that it appeared KPMG hadn’t obtained sufficient evidence to support its audit opinions that a company’s financial statements were accurate or that it had effective internal controls, the PCAOB said. A deficiency in the audit doesn’t mean a company’s financial statements were wrong, however, or that the problems found haven’t since been addressed.

Still, the report spotlights the PCAOB’s continuing concerns about audit quality. Overall, 39% of audits inspected in the latest evaluations of the Big Four firms—KPMG, PricewaterhouseCoopers LLP, Deloitte & Touche LLP and Ernst & Young LLP—were found to have deficiencies, compared with 37% the previous year.

In addition, all of the Big Four have now seen the PCAOB make public some of its previously secret criticisms of the firms. Separately from the latest report, the PCAOB on Thursday unsealed previously confidential criticisms of KPMG’s quality controls it had made in 2011 and 2012, mirroring previous moves the board had made with regard to PwC, E&Y and Deloitte. The unsealing amounts to a public rebuke to KPMG for not acting quickly enough to fix quality-control problems, in the regulator’s view.

In the unsealed passages, the board said some of the firm’s personnel had failed to sufficiently evaluate “contrary evidence” that seemed to contradict its audit conclusions.

In the latest inspection report, among the areas in which the PCAOB found audit deficiencies at KPMG were failure to sufficiently test companies’ loan-loss reserves, testing of companies’ valuations of hard-to-value securities, and audits of certain kinds of derivatives transactions.

The PCAOB didn’t identify the clients involved in the deficient audits, in accordance with its usual practice.

PCAOB inspectors evaluate a sample of audits every year at each of the major accounting firms—focused on those the board believes are at highest risk for problems. Because of that focus, the PCAOB says the inspection results may not reflect how frequently a firm’s overall audit work is deficient. The inspections are intended only to evaluate the firms’ performance and highlight areas for potential improvement, so the firms aren’t subject to any penalties.

Only part of the inspection reports typically becomes public. A separate portion, with the PCAOB’s criticisms of the firm’s quality controls, is kept confidential to give the firm an opportunity to address any concerns. If the firm does so, that portion of the report stays sealed permanently.

If the firm doesn’t do enough to satisfy the PCAOB within a year, however, the board makes the concerns public. Again, though, the unsealing doesn’t carry any formal penalties for the firms.

Bob Jensen's threads on the two faces of KPMG ---
http://www.trinity.edu/rjensen/Fraud001.htm

Bob Jensen's threads on professionalism in auditing ---
http://www.trinity.edu/rjensen/Fraud001c.htm


Question
For 2014 what is likely to be the worst performing stock in the Dow Jones index
?

Hint
The company is really blue at the moment.

Answer
http://www.businessinsider.com/ibm-stock-about-to-hit-an-embarrassing-milestone-2014-12


"The Error Term in the History of Time Series Econometrics," , by David Giles, Econometrics Beat, December 12, 2014 ---
http://davegiles.blogspot.com/2014/12/the-error-term-in-history-of-time.html

 
While we're on the subject of the history of econometrics ......... blog-reader Mark Leeds kindly drew my attention to this interesting paper published by Duo Qin and Christopher Gilbert in Econometric Theory in 2001.

 
I don't recall reading this paper before - my loss.

 
Mark supplied me with a pre-publication version of the paper, which you can download here if you don't have access to Econometric Theory.

 
Here's the abstract:
"We argue that many methodological confusions in time-series econometrics may be seen as arising out of ambivalence or confusion about the error terms. Relationships between macroeconomic time series are inexact and, inevitably, the early econometricians found that any estimated relationship would only fit with errors. Slutsky interpreted these errors as shocks that constitute the motive force behind business cycles. Frisch tried to dissect further the errors into two parts: stimuli, which are analogous to shocks, and nuisance aberrations. However, he failed to provide a statistical framework to make this distinction operational. Haavelmo, and subsequent researchers at the Cowles Commission, saw errors in equations as providing the statistical foundations for econometric models, and required that they conform to a priori distributional assumptions specified in structural models of the general equilibrium type, later known as simultaneous-equations models (SEM). Since theoretical models were at that time mostly static, the structural modelling strategy relegated the dynamics in time-series data frequently to nuisance, atheoretical complications. Revival of the shock interpretation in theoretical models came about through the rational expectations movement and development of the VAR (Vector AutoRegression) modelling approach. The so-called LSE (London School of Economics) dynamic specification approach decomposes the dynamics of modelled variable into three parts: short-run shocks, disequilibrium shocks and innovative residuals, with only the first two of these sustaining an economic interpretation."

Jensen Comment
Note that this problem can arise in what we often do not think of as "time series" econometrics.

From Two Former Presidents of the AAA
"Some Methodological Deficiencies in Empirical Research Articles in Accounting." by Thomas R. Dyckman and Stephen A. Zeff , Accounting Horizons: September 2014, Vol. 28, No. 3, pp. 695-712 ---
http://aaajournals.org/doi/full/10.2308/acch-50818   (not free)

This paper uses a sample of the regression and behavioral papers published in The Accounting Review and the Journal of Accounting Research from September 2012 through May 2013. We argue first that the current research results reported in empirical regression papers fail adequately to justify the time period adopted for the study. Second, we maintain that the statistical analyses used in these papers as well as in the behavioral papers have produced flawed results. We further maintain that their tests of statistical significance are not appropriate and, more importantly, that these studies do not�and cannot�properly address the economic significance of the work. In other words, significance tests are not tests of the economic meaningfulness of the results. We suggest ways to avoid some but not all of these problems. We also argue that replication studies, which have been essentially abandoned by accounting researchers, can contribute to our search for truth, but few will be forthcoming unless the academic reward system is modified.

The free SSRN version of this paper is at
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2324266

This Dyckman and Zeff paper is indirectly related to the following technical econometrics research:
"The Econometrics of Temporal Aggregation - IV - Cointegration," by David Giles, Econometrics Blog, September 13, 2014 ---
http://davegiles.blogspot.com/2014/09/the-econometrics-of-temporal.html 

Common Accountics Science and Econometric Science Statistical Mistakes ---
http://www.cs.trinity.edu/~rjensen/temp/AccounticsScienceStatisticalMistakes.htm


What can be done to make reports easier for everyone to understand?
Cut through the financial reporting clutter ---
http://intheblack.com/articles/2014/11/11/cut-through-the-financial-reporting-clutter

Jensen Comment
This is useful, especially for students in accounting and finance classes who are not accounting majors.

I would stress how financial analysis and investing entails a whole lot more than comparing earnings numbers such as eps trends and P/E ratios. Those indices are potentially very misleading since the FASB and IASB cannot even define earnings, and earnings indices may not be comparable over time or for different companies at a point in time.


Wake Forest University has nation’s top pass rate (among 787 accounting programs) for CPA exam For the 12th time since 1997 ---
http://www.journalnow.com/business/wfu-school-of-business-has-nation-s-top-pass-rate/article_55079950-7a7c-11e4-9a21-cb9c9def3a7a.html

But WFU cannot beat the University of North Carolina in football. It helps to admit graduates who can read and write and not just play football..


“'Dirty Dozen' tax scam list now includes telephone scams," by Alistair M. Nevius, Journal of Accountancy, February 19, 2014 ---
http://www.journalofaccountancy.com/News/20149633.htm

Identity theft and telephone scams top this year’s list of the Dirty Dozenfraudulent tax schemes released by the IRS on Wednesday. The annual list contains various common scams that taxpayers may be subjected to at any time, but the IRS says many of them reach a peak during tax filing season. “These schemes jump every year at tax time,” said IRS Commissioner John Koskinen in a prepared statement.

“Pervasive telephone scams” represent a new entry onto the list. The IRS reports an increase in scams in which callers pretend to be from the IRS and try to steal taxpayers’ money or identities. The IRS says that in these scams the callers may say the victim owes money or is entitled to a huge refund. Sometimes the callers threaten the victim with arrest or threaten that his or her driver’s license will be revoked.

The IRS warns that the callers can appear genuine because they may be able to recite the last four digits of the victim’s Social Security number or may imitate the IRS’s toll-free number on caller ID to make it appear that the IRS is calling.

The IRS also warns that some telephone scams target recent immigrants, who are threatened with arrest or deportation if they do not pay up promptly.

The IRS asks that taxpayers who think they are being targeted by phone scammers to contact the Service at 800-829-1040, the Treasury Inspector General for Tax Administration at 800-366-4484, and the Federal Trade Commission using the FTC Complaint Assistant at FTC.gov.

The rest of the “Dirty Dozen” is similar to last year’s list:

Jensen Comment
Ever since my local physician had his identity stolen when somebody filed a phony tax return claiming a refund using his Social Security number, I file my own returns as soon as possible when I get the information needed to file. To his own peril he delayed filing until April. Actually there were quite a few physicians in New England who had their IDs stolen and found that someone else had filed tax returns in their name. Apparently some database with their personal information was hacked.

Using 1.700 Stolen IDs
"Virginia woman admits $7.2 million child-credit tax scam," by Kenrick Ward, Fox News, November 25, 2014 ---
http://www.foxnews.com/politics/2014/11/25/virginia-woman-admits-72-million-child-credit-tax-scam/?intcmp=latestnews

 

More than a year after Watchdog reported the IRS sent thousands refunds to the tiny town of Parksley, Va., a woman has pleaded guilty to conspiracy and mail fraud.

Linda Avila admitted to obtaining more than $7.2 million in refunds by exploiting the federal government’s child tax credit program.

Avila filed more than 1,700 tax returns with stolen identifications used by illegal immigrants, mainly from Mexico.

The Virginian-Pilot reported that Avila, 50, operated a landscaping and cleaning business in Parksley.

Investigators found copies of refund checks in amounts from $4,000 to more than $7,000. The tax returns frequently cited foreign dependents, which increased the refund amounts.

Click for more from Watchdog.org ---
http://watchdog.org/184589/child-credit-tax-scam/

Bob Jensen's Fraud Updates are at http://www.trinity.edu/rjensen/FraudUpdates.htm


"Congressman Plans To Plead Guilty In Tax Fraud Case," by Hunter Walker, Reuters, December 22, 2014 ---
http://www.businessinsider.com/r-us-rep-grimm-to-plead-guilty-in-tax-fraud-case-source-2014-12

Rep. Michael Grimm (R-New York) is expected to plead guilty on Tuesday to resolve federal tax fraud and other charges, a source familiar with the case told Reuters. 

An indictment filed against Grimm in April included 20 different charges relating to Healthalicious, a Manhattan restaurant he was a part owner of from 2007 until 2010, the year before he was elected to Congress. The indictment detailed what was described as Grimm's "schemes" including hiding over $1 million in earnings to pay lower taxes and knowingly hiring undocumented immigrants. Grimm initially denied any wrongdoing

Despite his legal woes, Grimm, a former FBI agent whose New York City district includes Staten Island and parts of Brooklyn, was easily re-elected to a second term in November. 

The New York Daily News first reported on Grimm's guilty plea and said he "is expected to argue that he can continue to hold his House seat despite his guilty plea" if he is able to avoid jail time.

If Grimm does fight to keep his seat, House Republican leaders will need to decide whether to try to force him out. Grimm's re-election campaign was one of the most hotly-contested in the country as he is the only Republican House member within the confines of New York City.  

Court records show a plea hearing has been scheduled for Tuesday afternoon in Brooklyn federal court.

Grimm has also been under investigation by federal authorities since at least 2012 for various allegations involving his campaign fundraising. In January, a woman was charged with funnelling $10,000 into Grimm's war chest illegally through straw donors. Last August, an aide to a high profile Israeli rabbi who raised six figure sums for Grimm from the rabbi's followers pleaded guilty to visa fraud.
 

In addition to his legal problems, Grimm made headlines in January when he was videotaped threatening to throw a reporter off a balcony. The reporter, NY1's Michael Scotto, had asked Grimm about the probe into his fundraising. 

Continued in article

Bob Jensen's Fraud Updates are at http://www.trinity.edu/rjensen/FraudUpdates.htm


"Former IRS employee gets prison for tax fraud," by Brianne Pfannenstiel, Kansas City Business Journal, October 27, 2014 ---
http://www.bizjournals.com/kansascity/news/2014/10/27/former-irs-employee-gets-prison-for-tax-fraud.html

Taylor Knight, a former employee of the Internal Revenue Service in Kansas City, will spend two years in prison after stealing taxpayer identity information.

Knight pleaded guilty in July and was sentenced Monday. Knight admitted to inappropriately accessing information for three taxpayers and using the stolen identities to receive fraudulent tax refunds.

Knight submitted a false 2010 tax return and obtained a $46,572 refund check. Knight deposited $5,000 onto a debit card, but the receiving banks rejected other deposits.

Knight's boyfriend, Michael Moore, then called the IRS and asked to have the remaining money mailed to a former residence in Independence.

Later, the victims filed legitimate amended 2010 tax returns. A $46,734 check was mailed to the address Moore had submitted. Knight and Moore intercepted the check.

Continued in article

Bob Jensen's Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm


"Pittsburgh police payroll accountant waives preliminary hearing," by Liz Navratil, Pittsburgh Post-Gazette, December 17, 2014 ---
http://www.post-gazette.com/local/city/2014/12/17/Pittsburgh-police-payroll-accountant-waives-preliminary-hearing/stories/201412170258

A Pittsburgh police payroll accountant charged with stealing from the city waived her right to a preliminary hearing today, according to court records.

Tamara L. Davis, a civilian, was scheduled to appear in court Thursday morning for a hearing on charges of theft, forgery and misapplication of entrusted property. Her next court appearance will be formal arraignment, scheduled for Feb. 9.

The waiver by Ms. Davis, 48, of the Hill District, comes 11 months after the city's former police chief, Nate Harper, pleaded guilty to federal charges of failing to file income tax returns and conspiring with others to steal from the bureau. The charges filed against Ms. Davis appeared to have brought to a close a long and sprawling probe of the Pittsburgh police bureau and former mayor's office.

Investigators accused Ms. Davis, second-in-command in the police bureau's personnel and finance office, of stealing various amounts totaling $9,165 from the city on five instances between 2009 and 2012. In some cases, Ms. Davis withdrew money from an off-the-books account named "I.P.F" -- the same one Harper tapped -- while depositing checks made out to the bureau, according to an affidavit supporting the criminal charges. In another, a detective wrote, she forged invoices to obtain a $3,000 check made out to the police bureau, depositing some of the money into I.P.F. and keeping the rest.

The affidavit accuses Ms. Davis of withdrawing $4,000 from I.P.F. under the guise of buying riot shields for the 2009 G-20 summit. But instead of using the money on bureau expenses, Ms. Davis kept it for herself, the affidavit said.

She has also been charged in connection with a 2012 instance in which investigators said they suspect she kept part of $3,000 check cut by the city under the guise it would be used for a D.A.R.E. program.

In another instance, investigators wrote that Ms. Davis told an officer a check given to the officer for providing children's backpacks to the bureau had been cut from the wrong account and the officer should submit a new invoice and reimburse the money. A detective wrote that he suspects Ms. Davis kept the money submitted by the officer.

City officials announced after the charges were filed against Ms. Davis that they were placing her on unpaid leave.

Bob Jensen's Fraud Updates are at http://www.trinity.edu/rjensen/FraudUpdates.htm


FCC plans $105 million fine for Sprint Corp.
The Federal Communications Commission is preparing to fine Sprint Corp. $105 million over allegations the company charged consumers for unwanted text message alerts and other services ---
http://www.wsj.com/articles/corporate-watch-news-digest-1418777105

Bob Jensen's Fraud Updates are at http://www.trinity.edu/rjensen/FraudUpdates.htm


"NY Times: Life Insurers Use State Laws to Avoid $100 Billion in U.S. Taxes," by Paul Caron, TaxProf Blog, December 13, 2014 ---
http://taxprof.typepad.com/taxprof_blog/2014/12/ny-times-life-insurers-use-state-laws-.html 

New York Times DealBook, Life Insurers Use State Laws to Avoid as Much as $100 Billion in U.S. Taxes:

Some companies have been called economic traitors for seeking to lower their tax bills by moving overseas. But life insurers are accomplishing the same goal without leaving the country, saving as much as $100 billion in federal taxes, much of it in the last several years.

The insurers are taking advantage of fierce competition for their business among states, which have passed special laws that allow the companies to pull cash away from reserves they are required to keep to pay claims. The insurers use the money to pay for bonuses, shareholder dividends, acquisitions and other projects, and because of complicated accounting maneuvers, the money escapes federal taxation.

"WSJ: Bonus Depreciation Fails to Boost Jobs, Capital Investment,"  by Paul Caron, TaxProf Blog, December 12, 2014 ---
http://taxprof.typepad.com/taxprof_blog/2014/12/wsj-bonus-depreciation.html

With Congress poised to extend a raft of tax breaks, consider this: One such break has helped AT&T and Verizon slash their recent tax bills by billions of dollars without leading to the intended increase in investment or jobs.

The measure, known as “bonus depreciation,” lets companies offset their income with investments they have made more quickly. It was enacted in 2008 as part of the economic stimulus package with the goal of giving companies an incentive to build more factories or upgrade more equipment, creating jobs and giving a boost to sluggish economic growth in the process.

But that isn’t how it has worked, at least at AT&T and Verizon, whose vast networks of towers and cables make them two of the country’s biggest investors in infrastructure.

AT&T estimated its federal tax bill last year at $3 billion, down from about $5.9 billion in 2007, before the tax relief was enacted. Verizon estimated that it would get $197 million back last year, compared with a 2007 bill of $2.6 billion.

Meanwhile, the companies have kept their capital spending relatively flat since the stimulus was adopted, and their employee count has dropped by more than 100,000 people, a fifth of their combined work forces.


A terrific innovation "teetering on the brink of failure"

"HP Sprout Review: You Have Never Seen a PC Like This," by David Pogue, Yahoo Tech, November 26, 2014 ---
https://www.yahoo.com/tech/hp-sprout-review-lets-just-admit-it-the-desktop-103667461034.html

Let’s just admit it: The desktop PC is fully baked.

It’s finished evolving in a meaningful way. We know what features it has and doesn’t have. We no longer upgrade every other year to keep up with the latest advances; there are no advances worth upgrading to so often.

That’s what makes the HP Sprout ($1,900) newsworthy. It truly is, as HP contends, a groundbreaking machine. No other computer can touch its innovations. It’s a surprisingly bold departure for such a lumbering, hidebound company.

And yet, in its 1.0 version, it’s teetering on the brink of failure.

The PC
The Sprout is, first of all, a beautiful, well-built, one-piece PC. It runs Windows 8.1, has 8 gigabytes of memory and a 1-terabye hard drive, bristles with ports, and comes with a wireless mouse and keyboard. It’s got a gorgeous 23-inch screen — a touchscreen, so you can work with both standard Windows programs and TileWorld touchscreen apps.

But onto this, HP has integrated two truly unusual elements.

First, there’s a floppy white 20-inch mat. At its top is a cool-looking metal docking connector that snaps magnetically and satisfyingly onto the front of the PC. (Similarly, when you don’t need it, you can just tug it away, although there’s no real reason to; when you’re typing, you can just put the mouse and keyboard on top of it.)

Continued in article


Question
What are the mysterious (secret?) Validity Concerns of TAR referees that led to rejection of 46% of all submissions to The Accounting Review (TAR) in 2014?

"2014 Annual Report and Editorial Commentary for The Accounting Review," by Editor John Harry Evans III, The Accounting Review, Volume 89, Issue 6 (November 2014) ---
http://aaajournals.org/doi/full/10.2308/accr-10410


 
I. INTRODUCTION

This annual report describes the operations of The Accounting Review during the final year (6/1/2013–5/31/2014) of my three-year term as senior editor, with Stacy Hoffman as editorial assistant. The report represents the sixth edition of a reporting format adopted by the AAA in 2009. Along with summary statistics on The Accounting Review (TAR) operations, I will continue the tradition that Steve Kachelmeier started of providing a commentary for our constituents, particularly the AAA Publications Committee and Board of Directors, the new editorial team headed by Mark DeFond, with Elizabeth Garrett as Editorial Assistant, as well as co-editors, authors, reviewers, and readers of TAR and AAA members. Your comments and questions are welcome.


 
II. THE ACCOUNTING REVIEW EDITORIAL PROCESS

Our third year continued the increasing reliance on the online AllenTrack system, which is evolving further under Mark and Elizabeth. For additional details on our operational processes during our regime, please see the 2013 TAR annual report (Evans 2013). That report also discusses the integrity of the academic research process and the integrity of peer-reviewed journals in that process. In my opinion, these issues become more important each year as more reports of fraudulent research in academic journals become public.


 
III. EDITORIAL AND PUBLICATION STATISTICS
Table 1: Annual Activity Summary

To facilitate comparisons over time, the 2014 report follows the structure of the 2009–2013 reports. The annual TAR workflow has remained relatively consistent during the 2010–2014 period, after an initial adjustment in Steve Kachelmeier's first year in 2009.

Table 1, Panel A reports TAR's comparative workflow statistics for the six years 2009–2014, with the data on a journal-year basis of June 1 through May 31 of the following year. Panel A shows that in 2014 the volume of new submissions increased by 7.3 percent from 543 in 2013 to 583 in 2014. During the first year of the Kachelmeier term, TAR experienced a surge of new submissions, followed by a slight decline in Steve's final two years. Our regime experienced a similar surge in our first year of 2012 relative to 2011, but even further growth in the final year of 2014. The year-over-year growth rates in new submissions versus the corresponding years in the preceding regime have been 2.0 percent, 8.2 percent, and 17.8 percent, respectively. This pattern of increases suggests a generally healthy position of the journal, in terms of this single measure of attracting new submissions. The other columns of Table 1, Panel A show that 2014 achieved new highs in the activity measures of total manuscripts available for evaluation (column (d)), decision letters sent (column (e)) and ending inventory of manuscripts (column (f)).

Next, to permit comparability to years before 2009, Table 1, Panel B provides data on a calendar year (CY) basis beginning in 1998. Panel B indicates that the total of 561 new manuscripts submitted to The Accounting Review in CY2013 is exceeded only by the 582 new submissions in CY2011. The third and fourth columns of Table 1, Panel B track how the increased submissions prompted corresponding increases from four TAR issues annually in 2005 to six issues annually starting in 2008, and associated growth in the total annual published pages.

Table 2: Annual Outcome Summary

Table 2, Panel A reports the editorial outcomes communicated in the total decision letters (column (a)) generated during each of the fiscal or journal years 2009–2014. The final two columns of Panel A of Table 2 use the data in columns (a) to (d) to generate two estimated annual “acceptance rates” for each of the last six fiscal years. For 2014, Acceptance Rate 1 in column (e) divides the 81 acceptances and conditional acceptances in 2014 by the 81 (column (d)) + 466 (column (b)) = 547 “final outcome” decisions, yielding the Acceptance Rate 1 of 14.8 percent. Acceptance Rate 2 in column (f) retains the same 81 acceptances in 2014 in the numerator but now adds to the denominator the 239 “Revise and ‘Uncertain' Decisions” in 2014, which yields an Acceptance Rate 2 of 10.3 percent (81/786). Acceptance Rate 1 can be viewed as an upward-biased measure of the 2014 acceptance rate, whereas Rate 2 is downward-biased, such that the “true” acceptance rate falls somewhere in between—roughly in the 12–13 percent range for 2014. The overall results for 2014 in Table 2, Panel A are largely similar to those for 2011–2013, consistent with the current editorial team's decision to generally retain policies from the preceding regime, together with a generally similar experience in the submission and review process in 2014 as in the previous five years.

Table 2, Panel B presents a slightly different “annual cohort” perspective on acceptance rates. Whereas Panel A focuses on the annual flow of manuscripts and editorial decisions in a given year independent of when those manuscripts were initially submitted, Panel B treats each year's set of new submissions as a unique “cohort” and tracks the eventual outcomes for that cohort over the next several years. Thus, the first two lines of Table 2, Panel B shows that for the journal years ending May 31, 2009 and 2010, TAR received 557 and 502 new submissions, respectively (column (a)), all of which, as column (d) shows, were either accepted or rejected as of five years later on May 31, 2014, yielding acceptance rates of 17.4 percent and 13.7 percent, respectively, for these two cohorts of 2009 and 2010 submissions.

The final three rows of Table 2, Panel B report the corresponding figures for the status of the 2011, 2012, and 2013 submission cohorts. The final two columns present lower and upper bounds on the annual acceptance rates for these three cohorts of new submissions based on different assumptions concerning how many of the manuscripts that remained in process as of 5/31/2014 will ultimately be accepted. The results show that the final acceptance rate for the 2011 cohort of new submissions will fall in the 14.3 percent to 16.3 percent range versus 15.3 percent to 18.8 percent and 5.2 percent to 19.5 percent for the 2012 and 2013 cohorts, respectively. The wider range for the 2013 cohort reflects the fact that a larger percentage of these manuscripts remained in process as of 5/31/2014.

One final observation concerns the relation between TAR acceptance rates, publication rates, and the resulting backlog of accepted but not-yet-published manuscripts. Steve Kachelmeier's regime accepted a sufficient number of articles to build an approximately six-month backlog by the end of his term. Therefore, Stacy and I inherited an inventory of accepted articles to fill the three issues published in our first six months. Throughout the Harry/Stacy term this backlog grew to approximately ten months, which represents five issues. Based on the data in column (d) of Table 2, Panel A, TAR editors have accepted an average of 75.7 articles per year over the last six years. Given that TAR has published 72 articles per year over this period, an additional 3.7 articles per year have been added to the backlog, consistent with the general description above.

Having a sufficient backlog ensures a consistent publication rate and a consistent number of articles per issue in contrast to some earlier years in which TAR published relatively “thin” issues comprised of fewer articles, where “thin” issues can hurt a journal's visibility. On the other hand, having too long of a backlog can result in published articles that are less timely, although the online publication process addresses this concern to some degree. In net, the current backlog seems at least sufficient, and my understanding is that Mark and Elizabeth plan to take action to reduce the backlog, a policy that I endorse.

Exhibit 1: Histogram of Editorial Rounds and Outcomes

Exhibit 1 provides further details on the 786 editorial decisions reported in Table 2, Panel A for the journal year ending May 31, 2014. Exhibit 1 shows that 574 of the 786 decisions (73 percent) were first-round decisions, while 123 (16 percent) were second-round decisions (first revisions) and the remaining 89 (11 percent) were third-round or later. Of the 574 first-round decisions, Panel A of Exhibit 1 shows that rejection was the most common outcome, accounting for approximately 73 percent (227 + 192 = 419 of 574) of the first-round decisions, while the remaining 27 percent of first-round decisions were revisions if we exclude the 2012 Presidential Scholar Address.1 Panel A also shows that of the 419 first-round rejections, we attributed 227 (54 percent) to insufficient contribution, and the other 192 (46 percent) primarily to validity concerns.

Next, Exhibit 1, Panel A shows that of the 154 first-round decisions in 2014 that permitted the authors to submit a revised manuscript, 74 were standard “revise and resubmit” decisions, while the other 80 were more qualified “uncertain” decisions. Both “revise and resubmit” and “uncertain” have outcome risk, but the degree of that risk is substantially higher for an “uncertain” decision. Specifically, an “uncertain” letter informs the author that neither the reviewers nor the editor can envision a viable revision path that would address the identified concerns, but that the editor recognizes that the author might be able to construct such a path. Accordingly, such a letter gives the author an option to revise and resubmit, but without explicitly encouraging the author to do so. The intent is to communicate clearly to the author that withdrawing the manuscript might be in the author's best interest if the author's candid assessment is that the concerns raised cannot feasibly be addressed. Experience indicates that almost all recipients of “uncertain” letters choose to revise and resubmit in spite of the cautions, but the rejection rate on “uncertain” revisions is substantially higher than that for standard invitations to revise and resubmit.

Moving to the second-round or “first revision” decisions, Exhibit 1, Panel B shows that of the 123 total second-round outcomes, 12 received conditional acceptances and 68 received invitations for further revision, with seven of these in the more qualified “uncertain” category. The remaining 43 (13 + 30) second-round letters were rejections, which are always painful. Nevertheless, a third-round rejection is even worse. This consideration encourages editors to make difficult decisions on manuscripts that appear to have potential but achieved only limited progress in the first revision.

By the time a manuscript gets to the third round or beyond, the odds of success increase dramatically. Exhibit 1, Panel C shows that for these manuscripts 68 of the 89 fiscal 2014 decisions were acceptance or conditional acceptance, a rate of 76 percent. Seventeen manuscripts received a further revise and resubmit during the third or later round, and four manuscripts were rejected at this advanced stage of the process. Although we seek to minimize such late-round rejections by making the tough decisions sooner whenever possible, in some cases further rounds appear to be the most appropriate decision despite the risk. Finally, we note that Panel C includes 70 third-round decisions, 18 fourth-round decisions, and one fifth-round decision. Of the 19 fourth- and fifth-round decisions, 18 were conditional acceptances.

Table 3: Submissions and Acceptances by Subject Area and Research Method

Panels A–D in Table 3 compare submissions to acceptances by subject area, research method, and the combination of the two. The results offer important insight concerning patterns and trends, including whether submissions in certain subject areas or using certain methods were more or less likely than others to be published in TAR over the fiscal years 2009–2014. These tables are helpful in responding to conjectures that TAR systematically favors or disfavors particular areas or methods of research, where the conjecture could stem simply from comparing the number of publications across topic areas or research methods. Table 3 provides systematic data by relating acceptance rates to corresponding submission rates. Table 3 counts each study only once, even though many studies go through several rounds of revision before eventually being published or rejected. This approach means that the figures in Table 3 will generally differ from those in Tables 1 and 2, which treat each submitted version of a study as a distinct manuscript.

The general pattern in Table 3 indicates that The Accounting Review accepts articles at rates that are very similar to the corresponding submission rates, whether by topic, by method, or by topic crossed with method.2 The overall similarity in submission and acceptance rates is consistent with the journal's policy of not emphasizing one area or method over another, but rather seeking to reflect the broad interests of AAA members. In turn, this general similarity between submission and acceptance rates is consistent with our process of selecting editors and reviewers. By choosing reviewers for each submission who are experts in the area of that submission, we seek to subject each submission to a comparable review process.

Authors obviously exhibit self-selection preferences in determining the journals to which they direct their submissions. These decisions by authors are one fundamental determinant of ultimate TAR publication rates. For example, although TAR publishes far fewer manuscripts in the accounting systems area or manuscripts employing field study methods as compared to the number of financial archival manuscripts, this difference in publication rates is driven primarily by differences in submission rates rather than by differences in acceptance rates. To see this, compare the two percentages in each cell of Table 3, Panel D. The first (second) percentage indicates that cell's percentage of all submissions (acceptances).

In this way, Table 3, Panel D compares the percentage of all submissions and acceptances by area and method over the last six years, 2009–2014. For example, the two percentages in the cell in Table 3, Panel D for the combination of the financial accounting area and the archival research method are “43.5%” and “(37.5%),” indicating that over the last six years financial archival studies have comprised 43.5 percent of all TAR submissions and 37.5 percent of all TAR acceptances. The resulting [Acceptance Rate − Submission Rate] differential is −6.0 percent, which is the least favorable differential of any cell in Panel D. This pattern is consistent with the observation above that financial archival was the least-favored category by this measure over the 2009–2014 period.

In contrast to the preceding example, the overall pattern of submission and acceptance rates in Table 3, Panel D shows a generally close correspondence between the submission and acceptance percentages. Other than the −6.0 percent difference noted above, none of the individual cells (as opposed to “Total” cells in the bottom row and the far right column) in Table 3, Panel D have [Acceptance Rate − Submission Rate] differentials with absolute values greater than 2.1 percent. The only other distinctive pattern in Table 3, Panel D is that managerial accounting studies have greater acceptance rates than submission rates across all four research method categories, resulting in the bottom “Total” row in Panel D showing that managerial studies for all research methods represent 12.6 percent of TAR submissions, but 17.0 percent of acceptances over the last six years. In my view, the rate differentials documented here are worth noting and tracking in the future. Differences between submission and acceptance rates of −6.0 percent for financial archival studies and +4.4 percent for all managerial accounting studies over a six-year period could potentially represent more than temporary random fluctuations.

The preceding comparison of submissions and acceptances across areas is related to the general TAR policy of openness with respect to a variety of research areas and methods within accounting. One of the important signals that the TAR senior editor can send with respect to openness to research in particular areas or using particular methods is through the make-up of the team of TAR co-editors. For example, I continued the prior regime's approach of signaling TAR's openness to research in the accounting systems area and to studies using field-based methods by inviting Vern Richardson and Ken Merchant, respectively, to serve as TAR editors to handle submissions in accounting systems and field-based studies. Table 3, Panel A shows one acceptance in the systems area in 2014, and the same is true in Table 3, Panel B with one field and case study acceptance in 2014.

More broadly, the process of recruiting an ideal team of TAR editors is an interesting challenge. The challenge comes from attempting to balance the desire to have an editorial team that has subject matter and method expertise across a wide range of areas and methods, while at the same time keeping the total number of editors manageable and balancing the workload equitably across editors. Almost all authors would prefer that one or more of the TAR co-editors have considerable expertise and enthusiasm for the author's research area and method, and further would prefer that one of these editors handle the author's submission. To increase our odds of achieving this matching, I recruited an additional co-editor to bring the total to 14 co-editors, while adjusting the mix of editors' expertise. Specifically, I adjusted the mix of editors slightly away from the experimental/behavioral area and toward the financial archival area because of the prior regime's experience of having to request that editors in the financial archival area handle more than the targeted maximum of 40 new manuscripts per year. Based on our three years of experience, I am confident that these were good decisions. Each of our co-editors has worked very hard during these three years, and we have generally been able to handle all submissions while respecting the agreed maximum workload of 40 new manuscripts (not including revisions) per co-editor per year, in addition to resubmissions. The primary exception has been in the empirical auditing area, where Mike Ettredge has generously handled an average of more than 40 new manuscripts annually over our three-year term.

Continued in article

Jensen Comment
Firstly, I might note that this report has an interesting statistic regarding "Validity Rejections:"

Panel A also shows that of the 419 first-round rejections, we attributed 227 (54 percent) to insufficient contribution, and the other 192 (46 percent) primarily to validity concerns.

I find this frustrating in that there is no elaboration on the things that constitute "Validity Rejections." In virtually all instances these are the concerns of referees and editors. Unlike science journals, the main validity issues often arise due to inability to independently replicate the research and published commentaries of readers of the articles. Since TAR will not publish replications that do not extend the research and does not publish commentaries on published papers, the "Validity Rejections" do not come from the readers ---
http://www.trinity.edu/rjensen/TheoryTAR.htm

Since the "Validity Rejections" come only from TAR referees and editors, it's not at all likely that the scholars who rejected the papers did so on the basis of replication attempts. And the referees and editors did not publish the basis of their "Validity Rejections" it is of zero help to the TAR readership to know what constitutes a "Validity Rejection." I suspect many of the concerns are statistical analysis mistakes or serious concerns ---
http://www.cs.trinity.edu/~rjensen/temp/AccounticsScienceStatisticalMistakes.htm

Even more frustrating, is that unlike real science journals TAR does not encourage validity tests and commentaries of the papers that are published in TAR ---
http://www.trinity.edu/rjensen/TheoryTAR.htm

The implication is that if TAR publishes it the research is valid. I say baloney!
http://www.trinity.edu/rjensen/TheoryTAR.htm

 

Secondly, I might note that once again in 2014 TAR only published accountics science papers in that they had to have equations and/or statistical inference tables. Previous editors of TAR argue this is heavily due to self-selection on the part of authors submitting papers to TAR. However, since editors for four decades of TAR have done zero to encourage submissions of articles without mathematics and statistics, accounting researchers by now conclude that it's hopeless to submit a research paper to TAR that does not have mathematics and/or statistical analysis.

A notable exception is Gregory B. Waymire's very short conference summary paper in the November 2014 issue of TAR. However, this us a summary of papers that do have mathematics and statistical analysis such that I do not consider this to be a true exception to TAR's defacto editorial policy of the past four decades.

My main point of this posting, however, is that it would be terrific in referees who rejected 192 (46%) of the 2014 submissions to TAR on the basis of "Validity Concerns" would soon give us an analysis of what constituted those "Validity Concerns."


"R2 and Idiosyncratic Risk Are Not Interchangeable." by Bin Li, The Accounting Review, November 2014 ---
http://aaajournals.org/doi/full/10.2308/accr-50826

 

A growing literature exists in both finance and accounting on the association between firm-specific variation in stock returns and several aspects of the firm's information or governance environment. Appendix A, Part 1 lists 21 published papers in top-tier finance and accounting journals and the Social Sciences Research Network (SSRN) reports at least 75 working papers. These studies rely on one of two proxies for firm-specific return variation as the dependent variable: 

 

Continued in article

 

Common Statistical Mistakes in Accountics Science ---
http://www.cs.trinity.edu/~rjensen/temp/AccounticsScienceStatisticalMistakes.htm

 


Free From the Khan Academy ---
https://www.khanacademy.org/
Note that the Khan Academy has greatly expanded its tutorials in accounting, economics, finance, and information technology.

Hour of Drawing with Code: Learn to program using JavaScript, one of the world's most popular programming languages via two great options:
http://emails.khanacademy.org/523a1d5a191b2a646d943fa621xpa.7unbw/VH89x0mOdl6HTK8TD903a

 

Hour of Webpages: Learn to make your own webpages using the basics of HTML and CSS (ages 10+).
http://emails.khanacademy.org/523a1d5a191b2a646d943fa621xpa.7unbw/VH89x0mOdl6HTK8TE3e97

Hour of Databases: Learn the fundamentals of databases using SQL to create tables, insert data into them, and do basic querying (ages 12+).
http://emails.khanacademy.org/523a1d5a191b2a646d943fa621xpa.7unbw/VH89x0mOdl6HTK8TF0bf7

 

Free From the Khan Academy
Tutorials on Piketty's Capital in the 21st Century ---
https://www.khanacademy.org/economics-finance-domain/macroeconomics/gdp-topic/piketty-capital

 

 

Bob Jensen's bookmarks for multiple disciplines ---
http://www.trinity.edu/rjensen/Bookbob2.htm

 


December 7, 2014 message from Richard Campbell

This is my first contribution on my website in respect to managerial accounting. If you watch the entire video - I have questions and a feedback request embedded in the video.

See the link below.
http://virtualpublishing.net/wordpress1/2014/12/07/capital-budgeting-using-microsoft-excel/

 

 

December 7, 2014 reply from Bob Jensen

Thank you Richard. These are good for the basics.
 
Other tutorials on capital budgeting, calculation of cost of capital, inflation considerations, and risk analysis include the following
 

Khan Academy

Some Khan Academy tutorials that include inflation considerations in capital budgeting ---
https://www.khanacademy.org/economics-finance-domain/core-finance/interest-tutorial/present-value/v/introduction-to-present-value

Some considerations for opportunity cost of capital calculations (from the Khan Academy) ---
https://www.khanacademy.org/economics-finance-domain/microeconomics/firm-economic-profit/economic-profit-tutorial/v/depreciation-and-opportunity-cost-of-capital

The Rule of 72 for Compound Interest (from the Khan Academy) ---
https://www.khanacademy.org/economics-finance-domain/core-finance/interest-tutorial/compound-interest-tutorial

P/E conundrum (from the Khan Academy)
https://www.khanacademy.org/economics-finance-domain/core-finance/stock-and-bonds/valuation-and-investing/v/p-e-conundrum

Put vs. short and leverage (from the Khan Academy) ---
https://www.khanacademy.org/search?page_search_query=Capital+Budgeting&page=9

 

Some MOOCs on Corporate Finance that include capital budgeting and risk analysis modules ---
https://www.mooc-list.com/course/introduction-corporate-finance-coursera

In particular note:
A Primer For University And College Board Members ---
http://dch360.com/file/1486a31

 

Popular Capital Budgeting Videos on YouTube ---
https://www.youtube.com/playlist?list=PL6mabgsCsPGFrgXtntRZrZ8wM4Ida3KQE 

In particular note
https://www.koofers.com/wofford-college/fin/430-capital-budgeting/videos
For each video note the YouTube link.

In particular note
Capital Budgeting Part 1 CA IPCC FINAL CMA CS MBA VIDEO LECTURE CLASSES
by Shivansh Sharma
October 30, 2014
https://www.youtube.com/watch?v=2HMehMZgDmk&list=PL6mabgsCsPGFrgXtntRZrZ8wM4Ida3KQE&index=6
Capital Budgeting Part 1
Time Value Of Money (TVM)
Accounting Rate Of return (ARR)
Internal Rate Of return (IRR)
Pay Back Period
Discounted Pay Back Period

 

Bob Jensen's tutorial  on valuation of an interest rate swap ---
http://www.trinity.edu/rjensen/acct5341/speakers/133swapvalue.htm

 

Bob Jensen's Excel workbooks on capital budgeting ---
http://www.cs.trinity.edu/~rjensen/Excel/

 


 

From the Khan Academy
Tutorials on Piketty's Capital in the 21st Century ---
https://www.khanacademy.org/economics-finance-domain/macroeconomics/gdp-topic/piketty-capital

 


These are the books reviewed in the November 2014 issue of TAR:

http://aaajournals.org/doi/full/10.2308/accr-10404
Unlike articles, TAR's book reviews are free.

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


"The Double-Dipping Legal Scam Bogus asbestos claims break into the open in federal court," The Wall Street Journal, December 25, 2014 ---
http://www.wsj.com/articles/the-double-dipping-legal-scam-1419535915?tesla=y&mod=djemMER_h&mg=reno64-wsj

House Speaker John Boehner says asbestos legal reform is a priority in the New Year, and it can’t come soon enough. Based on the details emerging from federal bankruptcy court, asbestos litigation fraud has reached new heights.

Garlock Sealing Technologies is a maker of gaskets that since its bankruptcy in 2010 has become a symbol of the corrupt practices of the plaintiffs bar. Lawyers demanded $1.3 billion in payouts from Garlock for mesothelioma patients until federal Judge George Hodges reviewed evidence showing that many of the claims were a sham. The judge in January slashed the company’s liability to $125 million and slammed the trial bar for “misrepresenting” the facts.

Then in October he moved to unseal that evidence, and now we’re getting a glimpse of what has become a widespread tort-bar con. Court documents show the ugly specifics of “double-dipping”—in which lawyers sue a company and claim its products caused their clients’ disease, even as they file claims with asbestos trusts blaming other products for the harm. This lets them get double or multiple payouts for a single illness, with a huge cut for the lawyers each time.

Garlock unveiled how this worked in at least 15 different cases that it had previously settled or lost after Judge Hodges allowed for belated discovery. In a case called Torres, the plaintiff claimed the only asbestos he handled was in Garlock gaskets, even as he told multiple trusts that he regularly handled raw asbestos.

In a case called White, the plaintiff told Garlock he’d never worked at the Norfolk naval shipyard, that he never went aboard naval ships, and that he’d never had exposure to insulation in the Coast Guard. The plaintiff meanwhile told various asbestos trusts that he had worked at the Norfolk shipyard, that he’d been exposed to asbestos aboard naval ships, and that he’d been exposed to insulation while in the Coast Guard. Each of the 15 cases shows similar contradictions.

The extent of the deception won’t surprise anyone who’s done business with plaintiffs firms. In the White case, the plaintiff told Garlock that he’d been exposed to only two asbestos products. He told others (including trusts or courts) he’d been exposed to 22 additional products.

Of the 15 cases in question, the plaintiffs disclosed to Garlock a cumulative total of 32 asbestos products to which they’d had exposure. In other forums, those same 15 plaintiffs claimed to have been exposed to 284 different products—many containing the most dangerous forms of asbestos.

Often these trust claims were filed with sworn statements in which plaintiffs attested to having “breathed” specific products—though they hid this from Garlock. The company paid nearly $18 million to these 15 plaintiffs based on the misrepresentations.

Garlock noted in court that these 15 cases were handled by the same five national firms: Shein Law Center; Waters, Kraus & Paul; Belluck & Fox; Williams Kherkher; and Simon Greenstone Panatier Bartlett. The gasket maker also pointed out that four of the firms (all but Shein Law Center) employ lawyers who’d once worked for Baron & Budd, a firm famous for a 1997 memo that instructed clients in the art of withholding pertinent information from defense attorneys and courts.

The law firms have been able to get away with this because they’ve pressured dozens of outside asbestos trusts not to share claims data with each other or with courts. Most judges deny requests for discovery, and Garlock was able to uncover the double-dipping because Judge Hodges was a rare exception. No doubt more extensive discovery would turn up more double-dipping, and Garlock has filed federal racketeering suits against four of the firms toward that end.

Another response is moving through Congress: The Furthering Asbestos Claim Transparency Act would require asbestos trusts to disclose basic details about the claims they receive. This would allow companies and the courts to produce more honest assessments of asbestos liabilities. It would also allow the trusts to exercise some due diligence, preserving more assets to compensate asbestos victims who have legitimate claims.

The FACT Act had no chance in Harry Reid s Senate, but a Republican Congress might be different. Asbestos fraud is a blight on the courts and basic legal fairness, and Congress ought to put a bill to stop it on President Obama ’s desk.

 

Bob Jensen's Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm


Perhaps the Gregg Popvich style of basketball coaching applies to listserv "coaching" as well as, possibly, running a university

"55-Year-Old Legend Who Quit His Job To Work For The Spurs Explains Why Gregg Popovich Is A Genius." by Tony Manfred, Business Insider,  December 5, 2014 ---
http://www.businessinsider.com/ettore-messina-on-gregg-popovich-2014-12


OBSF and Rule 144a Question?
A reporter recently asked me how Rule 144a equity offerings are used by banks for off-balance-sheet financings. I generally view such offerings as premarket IPOs and don't have a clue as to how they are used for off-balance sheet financings. Can anybody clear up my confusion on this?
Frequently Asked Questions About 144a Equity Offerings ---
http://media.mofo.com/files/Uploads/Images/FAQ-Rule-144A-Equity-Offerings.pdf

Here's the best document for answers that I've found to date. This is great material for showing students that it's not costless to circumvent consolidation requirements of FAS 166 and 167, but that the amounts involved (trillions) are so great that companies (e.g., banks) are willing to take revenue reductions in order to avoid the consolidations.
 http://www.federalreserve.gov/boarddocs/rptcongress/securitization/riskretention.html

Also see
http://www.google.ca/url?sa=t&rct=j&q=&esrc=s&source=web&cd=3&cad=rja&uact=8&ved=0CCkQFjAC&url=http%3A%2F%2Fwww.iflr.com%2Fpdfs%2FNY2-713434-v3-How_Foreign_Banks_Can_Finance_in_the_United_States.ppt&ei=9qaBVJTeNZSqyATd1IHYBQ&usg=AFQjCNEC1EajkciiWGBbRzG8Sj-miS7KWw&bvm=bv.80642063,d.aWw

December 5m 2014 reply from M. Raza

Additional links...
http://www.lexology.com/library/detail.aspx?g=ed04549e-3800-4cad-8ef7-f8c79c96aa6f

https://www.wilmingtontrust.com/wtcom/index.jsp?fileid=3000129

Regards,
Raza

 


"Law School Enrollments Continue Their Free Fall," Chronicle of Higher Education, December 17, 2014 ---
https://www.insidehighered.com/quicktakes/2014/12/17/law-school-enrollments-continue-their-free-fall

Jensen Comment
We can thank turnover in public accounting for maintaining steady growth in accounting enrollments in masters degree programs in accountancy. The job opportunities combined with the lower cost becoming a CPA give the accountancy profession a huge edge these days over law schools where seven or more years of full-time college are required to sit for the BAR exam in all 50 states.

The cost of those extra three years of law school combined with mounting student debt at the undergraduate level hare huge discouragements for taking on tens of thousands of dollars in student loans to become a lawyer. This has not hit the medical schools quite as hard because of the better job market for new physicians.

It's sad that law schools are on a "free fall," because law schools helped to generate undergraduate majors in nonprofessional disciplines in liberal arts such as in history and philosophy. Now liberal arts graduates have a harder time getting into careers without taking more undergraduate prerequisites such as undergraduate accounting and criminal justice courses. By the way there are even more dire shortages of criminal justice Ph.D. graduates than the well-known shortages of new Ph.D.s in accountancy.


Note this article has links to the doctoral degree graduation data in either Excel or PDF formats

"Doctoral Degrees Increased Last Year, but Career Opportunities Remained Bleak," by Audrey Williams June, Chronicle of Higher Education, December 5, 2014 ---
http://chronicle.com/article/Doctoral-Degrees-Increased/150421/?cid=at&utm_source=at&utm_medium=en

The number of earned doctorates awarded by American universities increased 3.5 percent in 2013, to 52,760, according to data from the National Science Foundation.

However, the snapshot of new Ph.D.’s, which comes from an annual report on doctoral-degree attainment known as the "Survey of Earned Doctorates," highlights a bleak part of post-Ph.D. life. For new doctoral recipients, starting a postgraduate career is still an uphill struggle and appears to be getting tougher.

Continued in article

Data Tables --- http://www.nsf.gov/statistics/sed/2013/

Jensen Comment
Business administration doctorates (including accounting doctoral degrees) still comprise less that three percent of all doctoral degrees granted in the USA. But number of graduates increased from 750 graduates in 1983 to 1,545 in 2013. In comparison there were 2,781 engineering new doctorates in 1983 versus 8,963 graduates in 2013.

The tables above do not drill down to accounting doctorates, but those have actually declined from 212 accountancy doctoral graduates 1989 to 136 graduates in 2013. At the same time, demand for accounting doctorates in 2014 is well in excess of 10 openings for every new accountancy Ph.D. awarded in 2014.
http://www.jrhasselback.com/AtgDoct/XDocChrt.pdf

Question
Where are the shortages of PhDs in academe more severe than the shortage of accounting PhDs?

"Believe It or Not, in Some Fields Colleges Can’t Find Anybody to Hire," by Sara Jerde, Chronicle of Higher Education, June 18, 2014 ---
http://chronicle.com/article/Believe-It-or-Not-in-Some/147207/?cid=at&utm_source=at&utm_medium=en

. . .

Since there are so few Ph.D.’s in criminal justice, the degree nearly guarantees an offer for a tenure-track position, probably several offers, said Craig T. Hemmens, professor and chair of the department of criminal justice and criminology at Washington State University.

"There’s job after job posted throughout the year," he said. "There are more jobs out there than there are people graduating with Ph.D.’s." A 3-Year Search

Competition for faculty members is also tough in professionally oriented fields, such as physical therapy. It took three years for the University of Central Arkansas to hire an instructor in that field. The small number of qualified applicants, coupled with the college’s rural location, made for a tough search, said Nancy Reese, professor and chair of the department of physical therapy at Central Arkansas and a member of the Board of Directors of the American Council of Academic Physical Therapy. In Arkansas, Ms. Reese said, the number of applicants in the health-science field can average in the single digits.

During the search, Ms. Reese said, only about two or three people applied per year—and not all of them met even the basic job requirements. Eventually her department decided it had to be more proactive. Faculty members brainstormed to come up with a list of people they knew in the industry who might make a good fit and contacted them, ultimately offering the job to someone who was suggested to Ms. Reese by a colleague at another institution.

Job advertisements don’t often work for filling these kind of jobs, she said. "You know someone who knows someone," she said. "It’s that network that actually gets someone there."

One reason colleges struggle to hire professors in some fields might be the careers implied by the discipline. Most students going into social work, for example, don’t envision themselves leading a classroom, said Tory Cox, assistant director of field education at the University of Southern California’s School of Social Work.

Among the hundreds of master’s-degree students at USC who interact with Mr. Cox, about 15 or 20 will pursue a Ph.D. in social work, and only four or five of those will even consider teaching.

Teaching isn’t necessarily compatible with the goals students often have of working directly with people who are poor and disenfranchised, Mr. Cox said.

In nursing, meanwhile, higher paychecks in the professional sector often draw qualified candidates away from faculty positions. Someone with a Ph.D. in nursing, or a doctor-of-nursing-practice degree (a doctoral degree that emphasizes practice rather than research), can earn, as a conservative estimate, 15 to 20 percent more in a "practice setting" than in higher education, said Robert Rosseter, chief communications officer for the American Association of Colleges of Nursing.

The median salary of an associate professor with a doctoral degree is $92,736, according to the association’s data. But the median salary for a nursing director, who typically holds a doctoral degree, is $125,073. Likewise, the median salary for a chief nurse anesthetist is $179,552.

There is little comprehensive data to show where Ph.D.’s across many fields end up working. But the American Association of Colleges of Nursing tries to track where Ph.D.’s in the field are employed and began to notice a faculty shortage a decade ago.

The association also keeps track of how many students are entering nursing Ph.D. programs. So many nursing students want the credential that there aren’t always enough qualified instructors to teach them. Over the past decide, the number of students enrolled in nursing Ph.D. programs increased by 49 percent. And lack of staffing was cited as a reason almost 280 applicants were turned away from those programs last year. Nearly 1,500 applicants were turned away from doctor-of-nursing-practice programs, according to the nursing association’s data.

On top of that, a wave of nursing professors are either retiring or nearing retirement age, Mr. Rosseter said.

"It’s a perfect storm, really," said Linda K. Young, dean of the College of Nursing and Health Sciences at the University of Wisconsin at Eau Claire. Incentives to Teach

Ms. Young helped get a state grant, worth $3.2-million, to ease faculty shortages in Wisconsin. The money was awarded to four nursing programs in the University of Wisconsin system, which turned away between 50 and 80 percent of qualified applicants last year.

Continued in article

"Lessons Not Learned:  Why is There Still a Crisis-Level Shortage of Accounting Ph.D.s?" by R. David Plumlee and Philip M. J. Reckers, Accounting Horizons, June 2014, Vol. 28, No. 2, pp. 313-330.
http://aaajournals.org/doi/full/10.2308/acch-50703 (not free)

SYNOPSIS:

In 2005, an ad hoc committee appointed by the American Accounting Association (AAA) documented a crisis-level shortage of accounting Ph.D.s and recommended significant structural changes to doctoral programs (Kachelmeier, Madeo, Plumlee, Pratt, and Krull 2005). However, subsequent studies show that the shortage continues and the cumulative costs grow (e.g., Fogarty and Holder 2012; Brink, Glasscock, and Wier 2012). The Association to Advance Collegiate Schools of Business (AACSB) recently called for renewed attention to the problem (AACSB 2013b). We contribute to the literature by providing updated information regarding responses by doctoral programs and, from the eyes of potential candidates, of continuing impediments to solving the doctoral shortage. In this paper, we present information gathered through surveys of program administrators and master's and Accounting Doctoral Scholars Program (ADS) students. We explore (1) the cumulative impact of the Ph.D. shortage as of 2013, including its impact on accounting faculty composition, across different types of institutions, (2) negative student perceptions of Ph.D. programs and academic accounting careers, which discourage applicants from pursuing Ph.D. programs, and (3) impediments facing institutions in expanding doctoral programs.

Keywords:  faculty shortage, recruiting, accounting Ph.D

Received: December 2013; Accepted: December 2013 ;Published Online: January 2014

R. David Plumlee is a Professor at The University of Utah, and Philip M. J. Reckers is a Professor at Arizona State University. Corresponding author: R. David Plumlee. Email: david.plumlee@business.utah.edu

 

INTRODUCTION

Despite recognition of a critical shortage in accounting Ph.D.s and recommendations for structural changes to doctoral programs (Kachelmeier et al. 2005), there is evidence that the shortage continues (e.g., Fogarty and Holder 2012; Brink et al. 2012). The objective of this commentary is to provide contemporaneous information from administrators of doctoral programs, and the perceptions of potential candidates on the major impediments to addressing the doctoral shortage.

We were mindful in the design of our study that, potentially, two factors contribute to the current dilemma:

Insufficient numbers of qualified individuals are applying for admission to doctoral programs, and The capacity of doctoral programs has declined; thus, even if sufficient numbers of qualified individuals are applying, schools are failing to admit enough candidates to address the shortage.

In this paper, we present information gathered through surveys of program administrators and master's and Accounting Doctoral Scholars Program (ADS) students. We explore (1) the cumulative impact of the Ph.D. shortage as of 2013, including its impact on accounting faculty composition, across different types of institutions, (2) negative student perceptions of Ph.D. programs and academic accounting careers, which discourage applicants from pursuing Ph.D. programs, and (3) impediments to growth in doctoral programs faced by institutions. While many authors (e.g., Gary, Dennison, and Bouillon 2011; Fogarty and Holder 2012) have examined various causal elements for the shortage over the years, our purpose is to provide a more comprehensive and up-to-date picture of the environment.

Prior research and commentary have addressed many of the unintended negative consequences associated with the accounting doctoral shortage. Exacerbating the problem is the growing demand for collegiate accounting education. Leslie (2008) and Baysden (2013) report a surge in undergraduate and graduate accounting enrollments in recent years In 2011–2012, undergraduate accounting enrollments exceeded 240,000 students (up another 6 percent from the 2009–2010 figures), with 61,334 B.S. accounting degrees conferred and 20,843 master's accounting degrees conferred—both record highs.

Some prior initiatives regarding the shortage of Ph.D.-qualified accounting faculty have failed to sustain. The 2005 ad hoc AAA committee recommended greater financial support for doctoral students. The profession responded. The ADS program was kicked off in 2008 with funding by CPA firms and state societies; it provided four years of financial support each year for 30 doctoral students specializing in auditing or tax. Unfortunately, the ADS program has expired, and its success is hard to evaluate. Despite the initiative, Fogarty and Holder (2012, 374) conclude that “(e)xtrapolating from the current population of doctoral programs fails to support the prospects for a recovery over the near future.”

Alternative means of supplying accounting faculty have also been suggested. For example, Trapnell, Mero, Williams, and Krull (2009) propose structural changes to reduce the time frame for the degree to four years. Additionally, they suggest an executive-type program where students do not leave their employment to pursue a Ph.D. In this model, students would draw on their experience, supplemented by coursework in research methods, to develop a research project. Few schools have responded and adopted this model, and acceptance of their graduates has yet to be tested. Another proposed alternative is to take advantage of international accounting doctoral scholars willing to relocate to the United States, who would participate in a ten-week postdoctoral program and thereby become eligible to serve as accounting faculty in the United States (HassabElnaby, Dobrzykowski, and Tran 2012). Our survey addresses whether schools have actually substantially changed their doctoral programs along these lines or the composition of their student bodies.

In the remainder of this paper, we report on surveys conducted to address these and other relevant issues. First, we focus on costs of the shortage and, specifically, the changes in hiring that have been made, in part because of the Ph.D. shortage. Then we spotlight structural changes in accounting Ph.D. programs. Finally, we consider what might be discouraging more student applications; to address these issues, we surveyed 388 M.Acc. students from various programs across the country, requesting their perceptions of accounting Ph.D. programs and the academic accounting profession. We also surveyed 84 current Ph.D. students in the ADS program to compare the perceptions of a group who have chosen to get a Ph.D. with those of potential applicants. In the final section, we discuss our findings and offer recommendations for recruiting qualified students to accounting Ph.D. programs.

 

SURVEY OF ADMINISTRATORS OF ACCOUNTING PROGRAMS
Changes in Faculty Composition

Since the AAA ad hoc committee's report on the accounting Ph.D. shortage in 2005, studies have documented various aspects of the shortage, using data sources such as Hasselback's Accounting Directory (Brink et al. 2012; Fogarty and Holder 2012), surveys of accounting faculty (Hunt, Eaton, and Reinstein 2009), and surveys of accounting Ph.D. students (Deloitte 2007), but none have asked accounting program administrators directly about the impact of the shortage on their programs. To examine how accounting departments have responded to the Ph.D. shortage, we surveyed 754 accounting program administrators listed in the Hasselback directory and received 204 completed responses (a 27 percent response rate). The schools in the sample included 73 percent that had separate AACSB accounting accreditation. Of responding schools, 69 percent graduated fewer than 100 undergraduate accounting majors each year, and 69 percent of schools with Master's of Accounting programs graduated 50 or fewer each year. When asked about their teaching mission, 20 percent responded that they had only an undergraduate accounting program, 61 percent had both accounting undergraduate and master's programs, and the remaining 19 percent had a Ph.D. program in accounting, in addition to bachelor's and master's programs.

. . .

 

CONCLUSIONS AND RECOMMENDATIONS

Over 70 percent of responding accounting program administrators believe that their programs have been harmed by the accounting Ph.D. shortage. While the impact of broader economic factors is undeniable, the shortage is certainly contributing to larger class sizes, reduced elective offerings, and a significant change in the composition of accounting faculties. Nearly every category of school reports an increasing number of classes taught by clinical faculty, lecturers, and part-time instructors. It is also clear from our data that accounting Ph.D. programs have not been responsive to the calls of the AAA (Kachelmeier et al. 2005), AACSB (2013b), and others for significant structural change.

Whether the change in faculty composition is seen as a serious problem depends on one's perspective regarding the learning goals and objectives of collegiate accounting education. Some opine (e.g., AACSB 2003, 2013b) that less exposure of accounting students to doctorally qualified faculty will result in reduced attention to the economic and social roles of accounting in society, and less exposure to the rigorous forms of inquiry and analysis associated with the scientific method (and its attendant skepticism). On the other hand, the shortage is less troubling if the role of accounting faculty is perceived to be primarily to instruct and train students in technical accounting, auditing, and tax topics, and thereby instill those skills demanded to enter the accounting profession. There is a continuing controversy about when and where students are best “educated,” in the classroom or on the job, with clearly different traditions in different parts of the world.

There is also the issue of the value of accounting research, as well as the quantity of research needed. A root issue is the value one places on the role of accounting faculty in contributing to questions fundamental to accounting as a discipline. Advocates for a greater research role might ask questions such as, “Would the propriety of fair value as a measure of asset values or the option value of stock as a measure of compensation be as thoroughly embedded in the accounting discipline today without the contribution of rigorously trained accounting scholars?” The relative contribution of scholars both in the classroom, as well as through their contribution to fundamental knowledge and timely analyses of societal issues of importance, is a value of doctoral education that must be recognized and appreciated. Certainly, the AACSB (2013b) Report of the International Doctoral Education Task Force: The Promise of Business Doctoral Education foresees a much-expanded role for doctorally qualified faculty.

That AACSB (2013b) report also argues the time is now for business schools to embrace innovation, experimentation, and opportunity, and come to grips with economic realities by exploring innovations in doctoral education to enhance values and constrain costs to the individual and the institution. While M.Acc. students represent a large potential population of Ph.D. students, converting that opportunity into reality has been and will continue to be a challenge. Dogmatic intransience to change has not served our community well, any more than it has served politicians in Washington well. Honest, serious discourse is crucial if a way forward is to emerge. Financial constraints, including the length of programs, must not only be acknowledged, they must be solved. Our data are clear. Current accounting Ph.D. program models are not attractive to domestic doctoral program candidates.

The authors' personal beliefs represent two voices out of many. We do not purport to have the solutions. Certainly, we believe that a critical mass of accounting scholars is necessary for accounting to continue to serve its crucial role in society. Nonetheless, we are concerned that little appears to be happening to address our current dilemma. We are certainly mindful of the recommendations made nine years ago by the AAA's ad hoc committee (Kachelmeier et al. 2005), but that is nearly a decade past. Sustainable solutions have yet to manifest, and few signs of active commitment to find solutions appear on the horizon. Can we continue to wait on individual schools to change, or must a major collective initiative be forthcoming? Foremost, our results suggest that active recruiting of potential accounting Ph.D. students is critical, but unlikely to be successful without significant institutional changes.

Our survey of M.Acc. students also finds that there is a significant knowledge gap. Overcoming this knowledge gap requires a collective effort. This may be within the purview of the AAA or the AACSB or both. And this initiative, in our judgment, needs to rise above the level of a one-year plan.

The group of M.Acc. students who expressed the highest likelihood of applying to Ph.D. programs is those who see value in and express an affinity for teaching and research. In professions such as engineering and medicine, the leap from the academic content found in master's programs and those found in doctoral programs is not huge. However, in accounting, the disparity between the content of master's programs and Ph.D. programs is enormous. As a result, Master's of Accounting students are not acquainted with accounting research. Can this condition be remediated? How do we go about this? While cost constraints are important to everyone, it is well known that accounting academics are not motivated solely by money matters. Arguably, one way is to incorporate academic research that addresses issues of professional and/or societal importance into master's, if not undergraduate, courses. This is something individual accounting academics can do. This end might also be achieved through focused undergraduate honors theses, or by embedding distinct research courses into master's programs. While incentives for schools to adopt these strategies and Ph.D. programs to accept the academic credit do not appear to exist at present, such an approach might serve to reduce the length of Ph.D. programs.

The ad hoc committee of 2005 also urged leaders of accounting programs to consider “Ph.D. tracks” in their master's programs. These tracks should not be thought of narrowly. Courses in the track could be fashioned to allow students to get a head start on a Ph.D. program by including foundational topics such as economics, mathematics, or statistical methods.2 Accounting programs without a Ph.D. program might develop some sort of articulation agreement, where certain courses in their “Ph.D. track” would count toward the Ph.D. at the doctoral granting school. Our M.Acc. survey finds that even those inclined to apply to an accounting Ph.D. program see five years or more in a Ph.D. program as too much to sacrifice for an academic career. Any method of shortening the process without diluting the quality would be a welcome innovation.

A prior positive teaching experience also appears to be related to pursuit of an academic career. We cannot definitively resolve, based on our findings, whether those interested in Ph.D. programs seek teaching opportunities or whether teaching sparks interest in Ph.D. programs. Nonetheless, opportunities exist for more accounting students to teach in some manner, or tutor. Whatever the venue, teaching opportunities for students could be the catalyst for pursuit of an academic accounting career.

In summary, the shortage of accounting Ph.D. graduates continues, with several clearly identifiable negative consequences. Many recommendations have been forthcoming in the past with the goal of remediating the problem, but few recommendations have been adopted. Champions of sustained new initiatives have not stepped forward, with the exception of the ADS program, and the output of Ph.D. programs continues to be inadequate.

M.Acc. students offer a large potential recruiting pool, and a significant number of master's students show early interest in academic careers. Unfortunately, a host of impediments thwart our progress toward a robust Ph.D. pool. We identify and discuss the major impediments. We observe that significant M.Acc. student recruitment efforts are needed, where there are virtually none today. We suggest that waiting for this problem to solve itself is folly; that well-considered, significant, and sustained initiatives are required; and that there exists an opportunity for the AAA, and its sections, to take the lead. Individual accounting departments and schools can also make a difference. Waiting for others to solve the problem has not led to a solution to date. Continuing on our same path and expecting different outcomes is likely unrealistic.

 

Jensen Comment
This is an important update to an ever-increasing problem in our Academy. It surveys students, doctoral program coordinators, and accounting department heads with outcomes that provide some detailed insights into large and small issues.

One enormous issue is the decline in capacity for admission of applicants into accounitng doctoral programs in North America. That is best reflected in the well-known table generated by Jim Hasselback each year for many years showing the number of graduating doctoral students in each doctoral program over time ---
http://www.jrhasselback.com/AtgDoct/XDocChrt.pdf
At the moment the table shown in the above link only goes back to 1995. However, I've saved copies of this table from earlier years Consider the University of Illinois for example. Between 1939 and 1995 the University of Illinois graduated an average of six accounting PhDs per year. The data are skewed. There were only a few graduates in the early years of the program whereas during the1960-1980 period Illinois was graduating 10-20 accounting PhDs per year.

Between 1996 and 2013 Illinois only graduated an average of two accounitng PhDs per year. Similar outcomes happened in the other accounting doctoral mills of Texas and Arkansas where there were similarly severe declines in the number of annual graduates since 1995. There have been some new doctoral programs such as the newer program at the University of Texas in San Antonio, but the numbers graduated each year from those programs are small.

My poi9nt is that the decline in output in the larger mills since 1995 has not been offset by increased output in other programs. Hence in North America  we see a decline in the annual output from nearly 300 accounting PhD graduates per year to 140.4 per yer between 1996 and2013.

Plumly and Reckers avoided some of the most controversial questions in their surveys. Before 1985 accounting doctoral programs admitted accountants without mathematical and statistical backgrounds and permitted accounting dissertations without equations such as accounting history disserations without equations. Now having equations in dissertations is required even in accounting history dissertations.

In virtually all accounting doctoral programs in North America, new doctoral students cannot matriculate without meeting advanced mathematics and statistics prerequisites. Most of the accounting courses have been taken out of the curricula and are replaced by econometrics and psychometrics courses. The programs are essentially sophisticated programs on how to mine data.
 

Most accounting faculty in an accounting program do not have the quantitative skill sets to teach in the accounting doctoral programs or if they have some quantitative skills they do not want to teach ecnonometrics and psychometrics and data mining course or supervise accountics science dissertations.. This is a major reason why the the number of doctoral students that can be handled in most accounting doctoral programs have declined so dramatically.

Also accountants who have been practicing accounting for 5-10 years wound prefer accounting doctoral programs rather than accountics science doctoral programs. One reason the number of foreign students has been increasing in North American Accounting Doctoral Programs is that students are admitted on the basis of their mathematics and statistics skills rather than accounting knowledge (and even interest in accounting).

This is why so many of the graduates from our accounting doctoral programs in the 21st Century are not prepared to teach accounting courses in the undergraduate and masters programs. All they can teach are the doctoral program courses. The teaching of accounting is being shifted to adjunct professors who are better prepared to teach accounting, auditing, and taxation.

Plumlee and Reckers indirectly recognize this problem and suggest that there be more curriculum tracks in accounting doctoral programs. The Pathways Commission is even more blunt. It recommends that doctoral programs allow doctoral dissertations without equations --- like in the good old days when we had more accounting doctoral program graduates.

A huge limitation of the Plumlee and Reckers paper above is that it ignores the Pathways Commission recommendations.
http://www.insidehighered.com/news/2012/07/31/updating-accounting-curriculums-expanding-and-diversifying-field

The (Pathways Commission) report includes seven recommendations. Three are shown below:

  • Integrate accounting research, education and practice for students, practitioners and educators by bringing professionally oriented faculty more fully into education programs.

     
  • Promote accessibility of doctoral education by allowing for flexible content and structure in doctoral programs and developing multiple pathways for degrees. The current path to an accounting Ph.D. includes lengthy, full-time residential programs and research training that is for the most part confined to quantitative rather than qualitative methods. More flexible programs -- that might be part-time, focus on applied research and emphasize training in teaching methods and curriculum development -- would appeal to graduate students with professional experience and candidates with families, according to the report.

     
  • Increase recognition and support for high-quality teaching and connect faculty review, promotion and tenure processes with teaching quality so that teaching is respected as a critical component in achieving each institution's mission. According to the report, accounting programs must balance recognition for work and accomplishments -- fed by increasing competition among institutions and programs -- along with recognition for teaching excellence.

The Sad State of Accountancy Doctoral Programs in North America ---
http://www.trinity.edu/rjensen/Theory01.htm#DoctoralPrograms


Suggestions for Accounting Majors (including doctoral students)
Ask your advisor accounting professor to give you a listing of the Top 10 accounting historians since Pacioli.

"The Fall and Rise of Economic History," by Jeremy Adelman and Jonathan Levy, Chronicle of Higher Education, December 1, 2014 ---
http://chronicle.com/article/The-FallRise-of-Economic/150247/?cid=at&utm_source=at&utm_medium=en

Irritated, one shoos it out the door, and almost immediately it climbs in through the window." Without the concept of capitalism, the late French historian Fernand Braudel once wrote, it was impossible to study economic history. But the reverse is equally true: We can’t understand capitalism without economic history.

Once a mainstay of history departments, economic history was, with historians’ complicity, seized in the mid-20th century by economists who sucked the culture and chronology out of it and turned it into an obscure province of mathematical formulas. There it languished. The field became increasingly uncool. By the 1990s, to be a materialist in the age of Michel Foucault and Pierre Bourdieu was to be "deterministic"in other words, a dinosaur. So economic history further retreated to economics departments, where many self-described economic historians had already been gathering under the banner of the "new economic history."

The past decade has exposed some fundamental problems with that division of disciplinary labor. The now-old "new" economic history either fizzled or has become so technical, so unrecognizable to anyone who cannot wield its finely tuned analytics, that few historians can engage with it. Meanwhile, fewer and fewer economics departments now consider history—including the history of economics itself—a relevant domain of disciplinary inquiry, with many of the top departments having eliminated economic history from their programs altogether.

Lately historians have started to take it back, spurred by a demand to better understand the roller coaster of capitalist life, particularly how inequality and globalization factored into the recession. The economic crisis pushed courses on the "history of capitalism" to the top of the charts in history departments around the country, even making front-page news in The New York Times. With conferences, courses, and book series, the history of capitalism, one of the few areas of inquiry where job postings are growing, is on the verge of becoming an established subfield. The runaway success of Thomas Piketty’s Capital in the Twenty-First Century (Harvard University Press) raised even higher the political and intellectual profile of capitalism and its history.

In this way, a prodigal-son subfield has returned. Historians do not leave political history to political scientists, or social history to sociologists. Why should economic history be left to economists, especially when they ignore it? Besides, the humanities might well benefit from the revival of a field that once served as a bridge to the social sciences.

The history of capitalism performs heroic service, but bereft of a broader grasp of the history of economic life, it can’t provide deep insights into the makings of systems of production, circulation, and distribution. Capitalism is a latecomer in that story, and, like all latecomers, more reliant on its precursors and alternatives than its apostles and critics like to admit. There can be no history of capitalism without an economic history near its explanatory core.

Like democracy or modernity, capitalism is a historical problem, specific to time and place. If only because it eludes easy definition, it must be studied from different perspectives, with different historical methodologies. There are social histories of democracy, intellectual histories of democracy, and, of course, political histories of democracy. The economy could be the subject of similar multiple approaches. But it is not. It has been treated as a realm apart.

This is a surprising state of affairs. Looking back to 1960 or even 1980, one would not have predicted the eclipse of economic history. From the Progressive Age (1900 to 1930) onward, it was almost de rigueur to proclaim the material roots of everything and to tie one’s research to the broad spirit of reform. Capitalism’s postwar "golden age" was good for economic history, as it was for the world economy. The pairing of "social and economic history" was the fallback working methodology of many professional historians. The works of Eric Hobsbawm, Thomas C. Cochran, and Braudel himself were touchstones. Even books by the first generation of new economic historians, such as Robert Fogel and Stanley Engerman’s Time on the Cross: The Economics of American Slavery (Little, Brown and Company, 1974), were read and reckoned with by noneconomic historians. Surely globalization, the ascendance of China, and the rise of Apple should have continued to fuel the field.

Continued in article

Jensen Comment
In accountancy programs accounting history never "rose again" because it never ever rose from the bottom in the first place. I suspect that the history of a discipline is sadly neglected in most any academic programs dominated by licensure examination passage concerns of students. History would rise from the bottom of accountancy program curricula if it was a topic on the CPA examination, but this has never been the case.

Most accountancy students are aware that Pacioli wrote a book that illustrates double entry accounting using algebra, but most are not aware that this book was primarily an algebra book that only used accounting as an illustration of algebra. Between Pacioli in 1494 and the FASB's formation in the 1970s, accounting students learn virtually nothing about the intervening history of accounting for nearly 500 years.

In accountancy doctoral programs accounting history is a track in only a few programs such as at Case Western and Ole Miss. Over 99% of the new Ph.D.s in accounting graduate with little or no more knowledge than historically-unchallenged accounting undergraduates.

Assorted accounting professors have carried forth with contributions to accounting history, and most of them in recent years are or have been members of the Academy of Accounting Historians ---
http://www.aahhq.org/
Most are involved in accounting history out of genuine interest, although some may mostly be looking for opportunities to publish in journals that do not require equations and/or statistical analysis.

Suggestions for Accounting Majors (including doctoral students)
Ask your adviser accounting professor to give you a listing of the Top 10 accounting historians since Pacioli.

Hint
Don't let them fail to mention Littleton, Flesher, Previts, and Zeff.

Bob Jensen's threads on accounting history are at
http://www.trinity.edu/rjensen/Theory01.htm#AccountingHistory


Jensen Comment
I think Harvard's Ben Edelman overreacted in a fit of temper at being overcharged one time at a Chinese restaurant. I also do not fully support Peter Jacob's defense of Professor Edelman
"Stop Hating On The Harvard Professor Who Complained About Overpaying For Chinese Food — He Had A Good Point," by Peter Jacobs, Business Insider, December 10, 2014 ---
http://www.businessinsider.com/in-defense-of-harvard-professor-ben-edelman-2014-12

Jensen Comment
The academic approach to this situation, and the possible police undercover investigation approach, should have been to say nothing and not even reveal that the overcharge was detected. Then investigators (or Edelman's friends) should have dined out in the future to investigate whether there was a systematic pattern to such overcharges.

This is what happened in an incident at the golf course that I live beside up here in Sugar Hill, New Hampshire.
The golf course is owned by the Sunset Hill House Hotel (SHH) subject to deed restrictions that the mountain golf course can only be a golf course or a forest. The owners of the SHH at the time contacted me and other nearby friends to pay green fees so that the SHH owners could investigate account bookings of the fees.

They suspected pilfering of green fees by the golf course manager and pro who also gave golfing lessons. Let's call him Pro X.

Even though I don't play golf, I was one of the local residents who the SHH owners asked to pay green fees to play a round of golf. Subsequent inspections of the accounting records uncovered a pattern of unbooked green fees. Eventually the police conducted their own undercover investigation. When confronted under oath in court, Pro X eventually plea bargained to stay out of prison by confessing to stealing over $100,000 from the golf course over the years. He was unable to pay back most of the stolen funds, although the SHH eventually got the deeds to a home and car owned by Pro X. His wife also bid him farewell.

The point is that if the Chinese restaurant overcharged Professor Edelman also systematically overcharged a relatively large number of customers it becomes a matter for undercover investigation. Sadly, law enforcement often does nothing in such instances. For example, studies have shown that some hospitals systematically overcharge patients, especially billings when third parties (e.g., Medicaid, Medicare, and medical insurance companies) pay the billings such that patients are not directly harmed by the billing errors. Studies show that in over 90% of the time in some hospitals the billing errors are in favor of the hospitals. Patients seldom scrutinize bills that they do not have to pay themselves.

Back to the Chinese restaurant
Peter Jacobs does provide us with some background information on Peter Edelman that perhaps explains Edelman's overreaction. It does not explain his stupidity of making a big issue out of this one instance. Instead he should have quietly had his friends examine future billings by this restaurant in an effort to detect a systematic pattern of fraud.

Then it becomes a matter for law enforcement just like the suspected fraud by Pro X eventually became a matter for law enforcement.

Here are some pictures of the mountain golf course in question ---
Set 1 --- www.trinity.edu/rjensen/tidbits/GolfCourse/GolfCourseSet01.htm


"Accountant accused of stealing millions from N.J. megachurch," by Katie Lannin, NJ.com, December 4, 2014 ---
http://www.nj.com/union/index.ssf/2014/12/accountant_stole_millions_from_rahway_church_over_7_years_funneled_some_to_golf_association_attorney.html

The former accountant for the Agape Family Worship Center has been indicted for embezzling more than $4 million from the church over a period of seven years, church officials said today.

Donald Gridiron, Jr., a certified public accountant licensed in California, was arrested in Los Angeles Tuesday, according to a statement from the church.

The thefts were hidden in 900 separate transactions in which Gridiron would write checks to himself or arrange wire transfers, said Matthew Davis, a Texas-based attorney representing the church.

"Professionally, our former CPA violated the trust of the ministry," said Lawrence Powell, Agape's senior pastor. "And personally, I feel betrayed because this man used to be my friend. It hurts, but we serve a God who will get us through this."

The church began in Powell's parents' garage 14 years ago and has since grown to a 6.5-acre campus that serves a congregation of nearly 5,000.

Gridiron had sole control over the church's finances, Powell said.

The accountant, a California resident selected for the job in part because of his "connections with individuals in the religious community as well as his standing within that community," earned a monthly salary of $5,500, according to a criminal complaint filed Monday in federal court.

On top of his salary, he took more than $4.25 million in unauthorized payments, sending more than $2.75 million to his personal accounts in California, FBI Special Agent Abigail Weidner wrote in the complaint.

Gridiron, 50, spent those funds at casinos and a luxury car dealership and on mortgage payments, the complaint reads.

Continued in article


GASB ISSUES PRELIMINARY VIEWS ON REPORTING GOVERNMENTS’ FIDUCIARY RESPONSIBILITIES ---
http://www.gasb.org/cs/ContentServer?c=GASBContent_C&pagename=GASB%2FGASBContent_C%2FGASBNewsPage&cid=1176164579728

 

GASB ISSUES PRELIMINARY VIEWS ON LEASE ACCOUNTING FOR STATE AND LOCAL GOVERNMENTS ---
http://www.gasb.org/cs/ContentServer?c=GASBContent_C&pagename=GASB%2FGASBContent_C%2FGASBNewsPage&cid=1176164579649

 

Bob Jensen's threads the sad state of governmental accounting ---
http://www.trinity.edu/rjensen/Theory02.htm#GovernmentalAccounting


"For-Profit Educator Will Pay $3.75-Million Over Deceptive Marketing," by Andy Thomason, Chronicle of Higher Education, December 12. 2014 ---
http://chronicle.com/blogs/ticker/jp/for-profit-educator-will-pay-3-75-million-over-deceptive-marketing?cid=at&utm_source=at&utm_medium=en

A for-profit education company has agreed to pay Massachusetts $3.75-million to settle claims it engaged in deceptive marketing practices, The Boston Globe reports. The office of the state’s attorney general, Martha Coakley, announced on Friday that the Salter chain, which is owned by Premier Education Group LP, had claimed its admissions process was selective when it wasn’t and had misrepresented job-placement rates. The company’s chief executive, Gary Camp, disputed the allegations but said the company had agreed to change some of its practices and begin offering career counseling for current and former students in 2015.

Continued in article

Bob Jensen's Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm 


From the CFO Journal's Morning Ledger on December 15, 2014

Meet the SEC’s brainy new crime fighters ---
http://www.wsj.com/articles/meet-the-secs-brainy-new-crime-fighters-1418601581
Long outgunned by Wall Street’s legions of Ph.D.’s, the Securities and Exchange Commission is arming itself with mathematicians and computer programmers of its own to catch bad market actors. While the SEC has used computer models to detect fraud for years, the approach has gained added steam under Mary Jo White.

Bob Jensen's Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm 


From the CFO Journal's Morning Ledger on December 12, 2014

Risky corporate debt is meeting a wary market following a steep slide in oil prices that’s left investors worried about energy’s trickle-down effect on the economy, the WSJ’s Katy Burne reports. Investors pulled close to $1.9 billion from funds dedicated to low-rated corporate debt in the week ended Wednesday, the largest weekly decline since the $2.3 billion withdrawal registered in the week ended Oct. 1.

The oil rout has dented issuance volumes, causing a handful of energy companies to delay or cancel borrowing plans. Energy companies previously used the reach for yield among debt investors to pad their pockets for new projects, equipment and acquisitions. But now, the U.S. oil price has tumbled below $60 a barrel for the first time in five years, intensifying the pain across financial markets and jolting the central banks of some oil-dependent economies into action.

Some believe the panic is overdone, and cheap gas is now fueling hopes for a strong holiday season for retail. But it is a bad time to see weakness in junk bonds. Investors are now demanding 5.02 percentage points over comparable Treasurys to own U.S. high-yield corporate bonds, the widest spread since June 2013. Will a shifting bond market change your company’s capital and investment plans? Let us know.

 


From the CFO Journal's Morning Ledger on December 9, 2014

Inside trading convictions reversed
http://www.wsj.com/articles/appeals-court-overturns-two-insider-trading-convictions-1418224146
In a blow to the Justice Department’s Wall Street crackdown, a federal appeals court overturned two insider-trading convictions and ruled it isn’t always illegal to buy or sell stocks using inside information. The ruling raised the bar for prosecutors on a crime that is already hard to prove.

New Inefficiencies in the Capital Markets:  Unwanted (and possibly unreachable) Insiders Now Conducting Insider Trades
"Security Firm Says It Uncovered A Cyber Espionage Ring Focused On Gaming The Stock Market," by Jim Finkle, Reuters via Business Insider, December 1, 2014 ---
http://www.businessinsider.com/r-cyber-ring-stole-secrets-for-gaming-us-stock-market-fireeye-2014-12

BOSTON (Reuters) - Security researchers say they have uncovered a cyber espionage ring focused on stealing corporate secrets for the purpose of gaming the stock market, in an operation that has compromised sensitive data about dozens of publicly held companies.

Cybersecurity firm FireEye Inc, which disclosed the operation on Monday, said that since the middle of last year, the group has attacked email accounts at more than 100 firms, most of them pharmaceutical and healthcare companies.

Victims also include firms in other sectors, as well as corporate advisors including investment bankers, attorneys and investor relations firms, according to FireEye.

The cybersecurity firm declined to identify the victims. It said it did not know whether any trades were actually made based on the stolen data.

Still, FireEye Threat Intelligence Manager Jen Weedon said the hackers only targeted people with access to highly insider data that could be used to profit on trades before that data was made public.

They sought data that included drafts of U.S. Securities and Exchange Commission filings, documents on merger activity, discussions of legal cases, board planning documents and medical research results, she said.

"They are pursuing sensitive information that would give them privileged insight into stock market dynamics," Weedon said.

The victims ranged from small to large cap corporations. Most are in the United States and trade on the New York Stock Exchange or Nasdaq, she said.

An FBI spokesman declined comment on the group, which FireEye said it reported to the bureau.

The security firm designated it as FIN4 because it is number 4 among the large, advanced financially motivated groups tracked by FireEye.

The hackers don't infect the PCs of their victims. Instead they steal passwords to email accounts, then use them to access those accounts via the Internet, according to FireEye.

They expand their networks by posing as users of compromised accounts, sending phishing emails to associates, Weedon said.

FireEye has not identified the hackers or located them because they hide their tracks using Tor, a service for making the location of Internet users anonymous.

FireEye said it believes they are most likely based in the United States, or maybe Western Europe, based on the language they use in their phishing emails, Weedon said.

She said the firm is confident that FIN4 is not from China, based on the content of their phishing emails and their other techniques.

Researchers often look to China when assessing blame for economically motivated cyber espionage. The United States has accused the Chinese government of encouraging hackers to steal corporate secrets, allegations that Beijing has denied, causing tension between the two countries.

Weedon suspects the hackers were trained at Western investment banks, giving them the know-how to identify their targets and draft convincing phishing emails.

"They are applying their knowledge of how the investment banking community works," Weedon said.

"We Have Better Things to Do Than Prosecute Insider Trading," by Justin Fox, Harvard Business Review Blog, October 11, 2014 ---
 https://hbr.org/2014/12/we-have-better-things-to-do-than-prosecute-insider-trading?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date

Jensen Comment
I disagree with Justin on this one. Insider trading is an infectious market disease that can spread like an epidemic if no prosecuted vigorously.

 

Bob Jensen's Fraud Updates --- http://www.trinity.edu/rjensen/FraudUpdates.htm

Bob Jensen's threads on the Efficient Market Hypothesis (EMH) ---
http://www.trinity.edu/rjensen/theory01.htm#EMH

 


From the CFO Journal's Morning Ledger on December 9, 2014

Workers to bear burden of ACA cost increases ---
http://blogs.wsj.com/cfo/2014/12/08/workers-to-bear-burden-of-aca-cost-increases/?mod=djemCFO_h

Workers in the U.S. should expect health care to take a bigger bite out of their paychecks next year, CFO Journal’s Vipal Monga reports. According to Bank of America Merrill Lynch, finance chiefs at U.S. companies expect the Affordable Care Act to increase healthcare costs next year, and the majority expect to pass that along to their employees.

Jensen Comment
There were only supposed to be savings for workers under the ACA. What went wrong?

"ObamaCare by the Numbers: Part 2," by John Cassidy, The New Yorker, March 2010 ---
http://www.newyorker.com/online/blogs/johncassidy/2010/03/obamacare-by-the-numbers-part-2.html

. . .

Does Santa Claus live after all? According to the C.B.O., between now and 2019 the net cost of insuring new enrollees in Medicaid and private insurance plans will be $788 billion, but other provisions in the legislation will generate revenues and cost savings of $933 billion. Subtract the first figure from the second and—voila!—you get $143 billion in deficit reduction.

The first objection to these figures is that the great bulk of the cost savings—more than $450 billion—comes from cuts in Medicare payments to doctors and other health-care providers. If you are vaguely familiar with Washington politics and the letters A.A.R.P. you might suspect that at least some of these cuts will fail to materialize. Unlike some hardened skeptics, I don’t think none of them will happen. One part of the reform involves reducing excessive payments that the Bush Administration agreed to when it set up the Medicare Advantage program in 2003. If Congress remains under Democratic control—a big if, admittedly—it will probably enact these changes. But that still leaves another $300 billion of Medicare savings to be found.

The second problem is accounting gimmickry. Acting in accordance with standard Washington practices, the C.B.O. counts as revenues more than $50 million in Social Security taxes and $70 billion in payments towards a new home-care program, which will eventually prove very costly, and it doesn’t count some $50 billion in discretionary spending. After excluding these pieces of trickery and the questionable Medicare cuts, Douglas Holtz-Eakin, a former head of the C.B.O., has calculated that the reform will actually raise the deficit by $562 billion in the first ten years. “The budget office is required to take written legislation at face value and not second-guess the plausibility of what it is handed,” he wrote in the Times. “So fantasy in, fantasy out.”

Holtz-Eakin advised John McCain in 2008, and he has a reputation as a straight shooter. I think the problems with the C.B.O.’s projections go even further than he suggests. If Holtz-Eakin’s figures turned out to be spot on, and over the next ten years health-care reform reduced the number of uninsured by thirty million at an annual cost of $56 billion, I would still regard it as a great success. In a $15 trillion economy—and, barring another recession, the U.S. economy should be that large in 2014—fifty or sixty billion dollars is a relatively small sum—about four tenths of one per cent of G.D.P., or about eight per cent of the 2011 Pentagon budget.

My two big worries about the reform are that it won’t capture nearly as many uninsured people as the official projections suggest, and that many businesses, once they realize the size of the handouts being offered for individual coverage, will wind down their group plans, shifting workers (and costs) onto the new government-subsidized plans. The legislation includes features designed to prevent both these things from happening, but I don’t think they will be effective.

Consider the so-called “individual mandate.” As a strict matter of law, all non-elderly Americans who earn more than the poverty line will be obliged to obtain some form of health coverage. If they don’t, in 2016 and beyond, they could face a fine of about $700 or 2.5 per cent of their income—whichever is the most. Two issues immediately arise.

Even if the fines are vigorously enforced, many people may choose to pay them and stay uninsured. Consider a healthy single man of thirty-five who earns $35,000 a year. Under the new system, he would have a choice of enrolling in a subsidized plan at an annual cost of $2,700 or paying a fine of $875. It may well make sense for him to pay the fine, take his chances, and report to the local emergency room if he gets really sick. (E.R.s will still be legally obliged to treat all comers.) If this sort of thing happens often, as well it could, the new insurance exchanges will be deprived of exactly the sort of healthy young people they need in order to bring down prices. (Healthy people improve the risk pool.)

If the rules aren’t properly enforced, the problem will be even worse. And that is precisely what is likely to happen. The I.R.S. will have the administrative responsibility of imposing penalties on people who can’t demonstrate that they have coverage, but it won’t have the legal authority to force people to pay the fines. “What happens if you don’t buy insurance and you don’t pay the penalty?” Ezra Klein, the Washington Post’s industrious and well-informed blogger, asks. “Well, not much. The law specifically says that no criminal action or liens can be imposed on people who don’t pay the fine.”

So, the individual mandate is a bit of a sham. Generous subsidies will be available for sick people and families with children who really need medical care to buy individual coverage, but healthy single people between the ages of twenty-six and forty, say, will still have a financial incentive to remain outside the system until they get ill, at which point they can sign up for coverage. Consequently, the number of uninsured won’t fall as much as expected, and neither will prices. Without a proper individual mandate, the idea of universality goes out the window, and so does much of the economic reasoning behind the bill.

The question of what impact the reforms will have on existing insurance plans has received even less analysis. According to President Obama, if you have coverage you like you can keep it, and that’s that. For the majority of workers, this will undoubtedly be true, at least in the short term, but in some parts of the economy, particularly industries that pay low and moderate wages, the presence of such generous subsidies for individual coverage is bound to affect behavior eventually. To suggest this won’t happen is to say economic incentives don’t matter.

Take a medium-sized firm that employs a hundred people earning $40,000 each—a private security firm based in Atlanta, say—and currently offers them health-care insurance worth $10,000 a year, of which the employees pay $2,500. This employer’s annual health-care costs are $750,000 (a hundred times $7,500). In the reformed system, the firm’s workers, if they didn’t have insurance, would be eligible for generous subsidies to buy private insurance. For example, a married forty-year-old security guard whose wife stayed home to raise two kids could enroll in a non-group plan for less than $1,400 a year, according to the Kaiser Health Reform Subsidy Calculator. (The subsidy from the government would be $8,058.)

In a situation like this, the firm has a strong financial incentive to junk its group coverage and dump its workers onto the taxpayer-subsidized plan. Under the new law, firms with more than fifty workers that don’t offer coverage would have to pay an annual fine of $2,000 for every worker they employ, excepting the first thirty. In this case, the security firm would incur a fine of $140,000 (seventy times two), but it would save $610,000 a year on health-care costs. If you owned this firm, what would you do? Unless you are unusually public spirited, you would take advantage of the free money that the government is giving out. Since your employees would see their own health-care contributions fall by more than $1,100 a year, or almost half, they would be unlikely to complain. And even if they did, you would be saving so much money you afford to buy their agreement with a pay raise of, say, $2,000 a year, and still come out well ahead.

Even if the government tried to impose additional sanctions on such firms, I doubt it would work. The dollar sums involved are so large that firms would try to game the system, by, for example, shutting down, reincorporating under a different name, and hiring back their employees without coverage. They might not even need to go to such lengths. Firms that pay modest wages have high rates of turnover. By simply refusing to offer coverage to new employees, they could pretty quickly convert most of their employees into non-covered workers.

The designers of health-care reform and the C.B.O. are aware of this problem, but, in my view, they have greatly underestimated it. According to the C.B.O., somewhere between eight and nine million workers will lose their group coverage as a result of their employers refusing to offer it. That isn’t a trifling number. But the C.B.O. says it will be largely offset by an opposite effect in which employers that don’t currently provide health insurance begin to offer it in response to higher demand from their workers as a result of the individual mandate. In this way, some six to seven million people will obtain new group coverage, the C.B.O. says, so the overall impact of the changes will be minor.

Continued in article

"Senate Bill Sets a Plan to Regulate Premiums," by Robert Pear, The New York Times, April 20, 2010 --- http://www.nytimes.com/2010/04/21/health/policy/21healt

. . .

Grace-Marie Turner, president of the Galen Institute, a research center that advocates free-market health policies, said the Democrats’ proposal was unlikely to succeed in lowering insurance costs.

“Capping premiums without recognizing the forces that are driving up costs would be like tightening the lid on a pressure cooker while the heat is being turned up,” Mrs. Turner said.

Mrs. Feinstein said her bill would close what she described as “an enormous loophole” in the new law. And she said health insurance should be regulated like a public utility.

“Water and power are essential for life,” Mrs. Feinstein said. “So they are heavily regulated, and rate increases must be approved. Health insurance is also vital for life. It too should be strictly regulated so that people can afford this basic need.”

The 6 Biggest Whoppers In Gruber's ObamaCare Comic Book ---
http://news.investors.com/ibd-editorials-obama-care/120114-728618-the-6-biggest-whoppers-in-gruber-obamacare-comic-book.htm

. . .

What the reviewers failed to mention is that the book is also chock-a-block with misinformation and outright falsehoods about the law Gruber helped construct — many of which Gruber himself exposed later on. Among the most glaring:

• Gruber claims that for individuals and small firms qualifying for a tax credit, "this bill will lower your health care costs." But Gruber would later go on to tell several states the opposite. One of them was Wisconsin, where he said fewer than 6% would see lower premiums, and 41% would get hit with hikes of 50% or more. Meanwhile, millions learned that Gruber's claim was a fantasy last year, when they confronted ObamaCare's sky-high premiums after seeing their existing plans canceled.

• Gruber declares that the law doesn't raise taxes on anyone "with incomes below $200,000 per year." Yet several of the dozens of tax hikes stuffed into the bill hit the middle class, or soon will. Americans for Tax Reform counted seven big ones.

• In the section on the Cadillac tax, which depicts Gruber tooling around in a Caddy, he claims this tax would apply "only to the top few percent of health insurance plans" and would hit more only if premiums climb faster than inflation.

But in videotaped comments, Gruber explains that the tax was purposely designed to start small and then eventually hit all employer plans, "essentially getting rid of the exclusion for employer-sponsored plans."

• Gruber emphatically declares that ObamaCare will cut the federal deficit by $1 trillion over its second decade because "the deficit-reducing effects of this legislation grow over time."

But all the Congressional Budget Office said was that a "rough outlook" for ObamaCare's second decade resulted in deficit cuts "in a broad range of around one-half percent of GDP." And that assumed the law was enacted exactly as written, and worked exactly as predicted, both of which have already failed to come true.

When the Government Accountability Office ran the numbers using more realistic scenarios, it found ObamaCare adding significantly to the long-term deficit. The CBO, meanwhile, has given up making even short-term forecasts of ObamaCare's impact on the deficit.

• Throughout the book, Gruber cites CBO projections of ObamaCare's effects on premiums and coverage, calling it "the best independent source for evaluating bills like the ACA." What he doesn't mention is that when the CBO developed its health care forecasting model in 2007, Gruber had a role in creating it. It even credits Gruber for his "helpful comments and feedback ... throughout the model's development."

And in a 2011 paper, Gruber himself said that his own health care model "mirrors the CBO approach to modeling health reform."

• Gruber says that if the law's many cost-control measures work as expected, "the ACA will end up solving our cost problem in the U.S." But earlier this year Gruber told the Washington Post that it was "misleading" to say ObamaCare will save money. "The law isn't designed to save money," he said. "It's designed to improve health, and that's going to cost money."


Read More At Investor's Business Daily:
http://news.investors.com/ibd-editorials-obama-care/120114-728618-the-6-biggest-whoppers-in-gruber-obamacare-comic-book.htm#ixzz3KllqGGBp

 

Bob Jensen's universal health care messaging --- http://www.trinity.edu/rjensen/Health.htm


From the CFO Journal's Morning Ledger on December 9, 2014

Tax battle in Germany shakes family dynasties
http://www.wsj.com/articles/tax-battle-in-germany-shakes-family-dynasties-1418089894
The German tax code, which has helped build some of the world’s wealthiest business dynasties by generally exempting corporate succession from inheritance tax, is under threat in court on constitutional grounds. At present, companies can be transferred to heirs, before or after the owner’s death, tax-free as long as the heirs keep running the business for at least seven years and without substantial layoffs. Nearly two-thirds of German family businesses say they will have to cut investment and half say they will have to slash jobs if the tax privilege is abolished.


Why Bob Jensen gives Shane Ferro a grade of D-

"Leaked Data Reveals A Big Gender Pay Gap (in 2005) At The Top Of Deloitte," by Shane Ferro, Business Insider, December 3, 2014 ---
http://www.businessinsider.com/deloitte-gender-pay-gap-2014-12 

In the mid-2000s, the auditing and consulting firm Deloitte had a gender pay problem. 

This chart comes from Fusion, which analyzed 2005 salary information for over 30,000 employees. The data was leaked as part of the major Sony Pictures hack. According to Kevin Roose, the information appeared to come from the computer of a current HR employee at Sony who used to work at Deloitte and still had the files on her computer.

The info includes many of the top-paid people at Deloitte, including more than 1,000 directors.

Roose reports that "the top 10 highest earners are all men, as are 22 of the top 25, 43 of the top 50, and 85 of the top 100." He says that this appears to be a compilation of data for an internal study in 2006 about whether there was racial or gender discrimination going on at the company. 

Fifty-eight groups within the company were examined. Thirty-four seemed to have significant results regarding gender or race. Eighteen were considered "problematic based on both regressions & t-tests." Deloitte apparently looked into those 18 groups, although representatives from the company have not yet responded to requests for comment. 

While you can see from the chart that women make less than men at all levels, the gap appears to widen near the range of $75,000 to $80,000. The top-paid woman makes 25% in salary than the top-paid man (this appears to be just salary, not total comp). And, from a rough estimate looking at the chart, there appear to be about twice as many men making $100,000 as women. 

Men make up more than half of the total workforce at Deloitte, but not by much. They are about 55%, according to Fusion's Felix Salmon.
 

We'd love to know how this data has changed in the past nine years.

Jensen Comment
Perhaps this 2005 data (secretly) impacted the subsequent initiative by Deloitte to increase the number of women partners.

Women Partners in the Big 4 Accounting Firms
For the tenth consecutive year, Deloitte & Touche USA LLP tops the Big Four accounting firms in percentage of women partners, principals and directors, according to Public Accounting Report's 2006 Survey of Women in Public Accounting. The survey revealed that Deloitte's percentage of women partners, principals and directors is currently 19.3 percent, surpassing that of KPMG (16.8 percent), Pricewaterhouse Coopers (15.8 percent) and Ernst & Young (13.5 percent). Deloitte has held this lead every year since the inception of the survey in 1997, according to Jonathan Hamilton, editor, Public Accounting Report.
SmartPros, December 26, 2006 --- http://accounting.smartpros.com/x55948.xml

 

Updates:  Deloitte's Initiative for advancement and retention of female professionals
From Smart Stops on the Web, Journal of Accountancy, July 2008

HER SIDE OF THE STORY
http://tinyurl.com/5dmwu2
Deloitte’s Women’s Initiative (WIN) Blog, part of the firm’s program for advancement and retention for female employees, is an “ongoing community conversation about life, work, and everything in between.” Recent posts are listed down the right side of the home page, and cover topics such as work/life balance, the generation gap, mentors, office politics and life lessons. An active group of readers—who include both men and women—give feedback, commiserate or just share their related experiences in the comments below each blurb. You can also subscribe to the RSS feed to keep up with the latest posts.

 

"Deloitte Given Perfect Rating on Human Rights Campaign Corporate Equality Index," by Kalen Smith, Big4.com, January 13, 2012 ---
http://www.big4.com/uncategorized/deloitte-given-perfect-rating-on-human-rights-campaign-corporate-equality-index

The Human Rights Campaign has named Deloitte one of the best places to work for the sixth year in a row. In their 2012 Corporate Equality Index, the HRC noted that it gave Deloitte a 100 percent rating.

Deloitte chief talent officer, Jennifer Steinmann, said that Deloitte is constantly working to provide a workplace that employees will be proud of. Steinmann said that they offer a culture that helps the LGBT community and encourages all of its employees to feel accepted.

Steinmann said that Deloitte offers a number of solutions to the variety of challenges they face as they strive to create an environment that increases employee morale and gives all employees the opportunity to thrive. Deloitte has used a number of Business Resource Groups to educate employees and offer them the resources they need to address the challenges they face in the workplace.

HRC is making its standards increasingly strict. Due to the changes in their eligibility standards, about 50 percent of companies have fallen off of the list. New standards include providing a culture for members of the LGBT community and promoting company citizenship.

Steinmann and other representatives at Deloitte state that they are proud of the fact that Deloitte has consistently earned this recognition since 2006.

Continued in article

Accounting firms populate Working Mother top 100 list
Working Mother magazine has released its annual list of the top 100 firms for working mothers, and this year, three of the Big Four firms appear in the top 10. Among the top 10 firms are Ernst & Young, KPMG, and PricewaterhouseCoopers. Deloitte isn't far behind at xx, and Grant Thornton and RSM McGladrey also appear on the Top 100 list. Seven areas are measured and scored in order to arrive at the top 100:

 

 

Jensen Comment
I doubt that scholars would be given much credit for academic integrity by analyzing old and possibly misleading data except by noting that this is only a history study. I give Shane Ferro a D grade. Make that a D-.

Bob Jensen's threads on accounting careers are at
http://www.trinity.edu/rjensen/Bookbob1.htm#careers


Tax Reform Controversies

From the CFO Journal's Morning Ledger on December 3, 2014

Popular corporate tax credits are set to be extended for a year by Congress, the WSJ’s Siobhan Hughes reports. They include one for research and experimentation and a provision to let companies deduct more of the cost of new equipment in the year in which it is purchased. The move marks a turnabout for the “extenders” which had failed to gain their usual two-year extension in the U.S. before they expired earlier this year.

Still, the fact that current discussions are over a bill that would renew the credits only for 2014 may show that Republicans are planning to dig in their heels for a broader reform package. That means that financial chiefs may need to scramble to rework their tax plans for the current year, and also that 2015 will retain an uncertain tax outlook due to the political process.

But the debate over the extenders may be a distraction from the bigger picture for tax on multinational corporations. Jay Nibble, global vice chair of tax for EY, writes for CFO Journal that transparency initiatives from the OECD targeting cross-border tax planning appear to be on the fast track for adoption by national governments. “In short, companies can assume what it tells one country will soon be shared with every country. And tax auditors that examine corporate tax returns with a microscope will need to add a wide-angle lens to their toolkit.

Teaching Case on Tax Reform
From The Wall Street Journal Accounting Weekly Review on November 21, 2014

A Two-Year Plan to Lower Your Taxes
by: Brett Arends
Nov 15, 2014
Click here to view the full article on WSJ.com
 

TOPICS: Individual Taxation, Tax Planning

SUMMARY: Many people can boost overall deductions for every two-year period by alternating between the two approaches each year. In the years when you itemize expenses, you make two years' worth of charitable donations and pay two years of property taxes. The following year, you take the standard deduction, which could be much more than you would have qualified for otherwise, given that you would have relatively little to itemize for that tax year.

CLASSROOM APPLICATION: This tax-planning example could be used in an individual income tax class.

QUESTIONS: 
1. (Introductory) What is the standard deduction? What are itemized deductions? How are the two related?

2. (Advanced) What advice does the article offer regarding itemized deductions and the standard deduction? How involved are the steps a taxpayer must make?

3. (Advanced) How many U.S. taxpayers take the standard deduction? Why is this the choice of so many?

4. (Advanced) What amount of deductions must a taxpayer have for this planning idea to be worthwhile?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

"A Two-Year Plan to Lower Your Taxes," by Brett Arends, The Wall Street Journal, November 15, 2014 ---
http://online.wsj.com/articles/a-two-year-plan-to-lower-your-taxes-1415984503?mod=djem_jiewr_AC_domainid

Here’s another reason to be generous during the holiday season: You could lower your tax bill by making next year’s charitable donations before Dec. 31 and prepaying next year’s state and local taxes.

By doing so, you could benefit from a simple tactic that takes advantage of a feature of the tax system: Each year, taxpayers get to decide how they want to take deductions from taxable income.

The Internal Revenue Service offers two options. Taxpayers can take the standard deduction, which is $6,200 for a single filer and $12,400 for joint filers. Or they can itemize expenses such as mortgage interest, state and local income and property taxes, and charitable donations, which can add up to a larger deduction.

Unless you receive reasonably sophisticated tax advice, chances are that each year you make the choice that lowers your tax bill the most for that year. About 70% of U.S. taxpayers simply take the standard deduction, which is the easier route.

But many people can boost overall deductions for every two-year period by alternating between the two approaches each year. In the years when you itemize expenses, you make two years’ worth of charitable donations and pay two years of property taxes. For a typical couple who own a home, that could add up to well over $12,400.

The following year, you take the standard deduction, which could be much more than you would have qualified for otherwise, given that you would have relatively little to itemize for that tax year.

“Individuals should consider alternating between the standard deduction and itemized deduction,” says Grant Moore, a financial adviser in Rockford, Ill. “By doubling up on items such as charitable contributions and property taxes in the year in which someone itemizes their deductions, they could significantly reduce their lifetime tax burden.”

To be sure, the savings may be modest. Don Williamson, who heads the Kogod Tax Center at American University in Washington, said the maneuver is likely to be of marginal benefit to many taxpayers.

Those savings may be welcome nonetheless, especially for those on middle-class incomes.

The technique frequently gets overlooked. Tax planners tend to focus most on taxpayers with higher incomes or more complex affairs, whose deductions are so large that it almost always makes sense for them to take itemized deductions each year. When they recommend paying some of next year’s expenses early, it is typically to help wealthier clients avoid the impact of the alternative minimum tax, the parallel tax code designed to close loopholes in the principal code.

Yet even those who aren’t among the highest earners can benefit from multiyear planning.

Consider a married couple with $5,000 in annual mortgage interest, $3,000 in state income taxes, $4,000 in property taxes and $2,000 in annual qualified charitable donations. That adds up to $14,000 in annual deductible expenses.

The total is only slightly above the $12,400 standard deduction allowed for joint filers. This couple may wonder if it is even worth spending the extra time, effort and cost to itemize their taxes for a net saving which may amount only to a couple hundred dollars. But the picture changes if they make two years’ worth of charitable donations in a single year and prepay next year’s state and local taxes by Dec. 31.

If they do that, they can itemize $23,000 of expenses this year. (The overpayments of state and local taxes will go toward next year’s state and local tax bills.) Next year the only itemized deduction left would be the $5,000 in mortgage interest, but the couple can take the $12,400 standard deduction.

Total deductions over two years: $35,400, compared with the $28,000 they would have taken by itemizing each year. If the couple had $100,000 in taxable income each year and was in the 25% bracket for federal income tax, that would save them $1,850.

The maneuver does have some drawbacks. By prepaying some of next year’s expenses, taxpayers miss out on the interest they could have earned on the money.

But inflation is low and so are short-term interest rates, so the cost is likely minuscule. Meanwhile, low interest rates have reduced the value of the deduction for mortgage interest, bringing many taxpayers’ total annual deductions down below the value of the standard deduction.

Continued in article


A message that makes muggers hopeful
From the CFO Journal's Morning Ledger on December 2, 2014

Cash, as it turns out, is still king. Mobile payment systems like Apple Pay and CurrentC promise to liberate shoppers from their wallets and smooth the process of making purchases—and could in the process liberate retailers from the internal control headache of managing all of that physical money. But as it turns out, it may be a lot more difficult to pry those old wallets from consumers’ fingers than many eager technologists and forward-thinking finance departments would prefer.

Even old-fashioned credit and debit cards are each less popular than cold hard cash when it comes to making transactions, CFO Journal’s Vipal Monga reports. For companies, handling all of those paper bills and coins presents a slew of costly challenges, and there are a variety of strategies for coping. Pilot Travel Centers LLC, which operates Pilot Flying J truck stops, has installed cash “recyclers” from Fifth Third Bancorp at its locations that collect and count money from tills and immediately credit the company’s accounts, among other functions. Other firms are following Uber Technologies Inc.’s lead and creating payment systems that let consumers breeze past the checkout counter through the use of online profiles that include credit-card information.

Buyers appreciate the convenience of cash, the easy method of curbing spending it provides as well as its natural safety from cybersecurity threats. But is your firm encouraging consumers to adopt new payment methods? Send us an email and let us know.

 


From the CFO Journal's Morning Ledger on December 1, 2014

Banks use big data to trap wily traders
http://www.ft.com/intl/cms/s/0/8c2452ee-72c9-11e4-803d-00144feabdc0.html
Recent trading scandals have spurred big banks to turn to new technology and data sources to crack down on illegal behavior by their staff, the Financial Times reports. Some compliance departments are benchmarking staff’s performance against average use of internal communications devices to try detect discrepancies between their profitability and the number of messages sent to clients. Banks have long worried that staff may turn to personal cellphones or social-media platforms to avoid having their work communications monitored.


"What Book Changed Your Mind?" Chronicle of Higher Education's Chronicle Review, November 7, 2014 ---
http://chronicle.com/article/What-Book-Changed-Your-Mind-/149839/?cid=wb&utm_source=wb&utm_medium=en

The Chronicle Review asked 12 scholars what nonfiction book published in the last 30 years has most changed their minds—not merely inspired or influenced their thinking, but profoundly altered the way they regard themselves, their work, the world.

Continued in article
Click of the listing of scholars on the left side of the screen.

Jensen Comment

As usual when asked to name one thing such as my favorite book, my favorite movie, my favorite teacher, favorite cocktail, favorite wine, or my favorite whatever I cannot answer such a question out of context. Context means everything in terms of "favorites."

The same applies when asked to name a thing or event that changed my life because there are so many things that changed my life in certain contexts.  For example the thing that first changed my mind to major in accounting was a notice on the a bulletin board in the Placement Center at Iowa State University. I was only in my first year of college and not really seeking a job, but I went to the Placement Center out of some curiosity that I cannot recall. What I noticed was that if I were (hypothetically) a graduating senior one of the best things to be was an accounting major. The prompted me to sign up for an accounting course in my second year of college even though I was currently a General Science major. That course led me to take a second course in accounting and to discuss accountancy as a career with my professor. The rest is is a history of my life that led ultimately to a Ph.D. and academic career in accountancy. There were other events that changed by aspirations to be a professor instead of a practicing accountant, but I won't go into that here. It had to do with skiing!

Hence if I'm asked to name a book that "changed my life" I have to put it into context --- religion, love life, career, research, etc.

I will put my choice of a book that "changed my life" in the context of my research while I was an accounting faculty member at four different universities. Although I got a Ph.D. in accountancy at Stanford University in the late 1960s, this was a great transition period for accountancy and business schools in general. I entered Stanford's doctoral program as an MBA and CPA and was told focus over 90% of my time and effort learning outside the business school in such areas as mathematics, economics, statistics, and operations research.  The idea was to be on the vanguard of accounting professors who brought more science and mathematics and statistics into academic accounting research.

While at Stanford I stumbled upon a book in the campus library that changed my research life after graduation. The book is not well known but led me to years of conducting research and publishing papers in the area of "cluster analysis."

Cluster Analysis --- http://en.wikipedia.org/wiki/Cluster_analysis

The book is as follows:

Cluster analysis : correlation profile and orthometric (factor) analysis for the isolation of unities in mind and personality
by Robert Choate Tryon
Ann Arbor, Michigan : Edwards brothers, inc., 1939

I never had my own copy of this book, and the book itself was not nearly so important in my research as related books and academic papers on the topics of cluster analysis, numerical taxonomy, factor analysis, and related technical materials.

My point is that the book that changed my life was not necessarily the most important reference work in my changed life. There were far more important references and exposures to other researchers at academic conferences and workshops. But Robert Tryon changed my research life for years to come.

Later my research moved on from cluster analysis, but it was my publishing in cluster analysis that got me promotions, tenure, two years in a think tank at Stanford University, and three endowed chairs before I moved into other topical areas and research methodologies.

Bob Jensen
Retired
 


Video:  A Scenario of Higher Education in 2020

November 14, 2014 message from Denny Beresford

Bob,

The link below is to a very interesting video on the future of higher education – if you haven’t seen it already. I think it’s very consistent with much of what you’ve been saying.

Denny

http://www.youtube.com/watch?v=5gU3FjxY2uQ

November 15, 2014 reply from Bob Jensen

Hi Denny,

Thank you for this link. I agree with many parts of this possible scenario, and viewers should patiently watch it through the Google Epic in 2020.

But this is only one of many possible scenarios, and I definitely do not agree with the predicted timings. None of the predictions for the future will happen in such a short time frame.

It takes a long time for this video to mention the role of colleges as a buffer between living as a protected kid at home and working full time on the mean streets of life. And I don't think campus living and learning in the future will just be for the "wealthy." We're moving toward a time when campus living will be available more and more to gifted non-wealthy students. But we're also moving toward a time when campus living and learning may be available to a smaller percentage of students --- more like Germany where campus education is free, but only the top 25% of the high school graduates are allowed to go to college. The other 75% will rely more and more on distance education and apprenticeship training alternatives.

Last night (November 14) there was a fascinating module on CBS News about a former top NFL lineman (center) for the Rams who in the prime of his career just quit and bought a 1,000 acre farm in North Carolina using the millions of dollars he'd saved until then by playing football.

What was remarkable is that he knew zero about farming until he started learning about it on YouTube. Now he's a successful farmer who gives over 20% of his harvest to food banks for the poor.

This morning I did a brief search and discovered that there are tons of free videos on the technical aspect of farming just as there are tons of videos that I already knew about on how to be a financial analyst trading in derivative financial instruments.

My point is that there will be more and more people who are being educated and trained along the lines of the video in your email message to me.
 http://www.youtube.com/watch?v=5gU3FjxY2uQ 
The education and training will be a lifelong process because there is so much that will be available totally free of charge. We will become more and more like Boy-Girl Scouts earning our badges.

College degrees will be less and less important as the certification badges (competency achievements) mentioned in the video take over as chevrons of expertise and accomplishment. Some badges will be for hobbies, and some badges will be for career advancement.

These are exciting times for education and training. We will become more and more like the Phantom of the Library at Texas A&M without having to live inside a library. This "Phantom" Aggie was a former student who started secretly living and learning in the campus library. Now the world's free "library" is only a few clicks away --- starting with Wikipedia and YouTube and moving on to the thousands of MOOCs now available from prestigious universities ---
http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI 

Also see the new-world library alternatives at
http://www.trinity.edu/rjensen/bookbob2.htm

Thanks Denny

Bob


American Accounting Association
2014 Annual Meeting Videos are Now Posted Online (not free to non-AAA members) --- Click Here
http://commons.aaahq.org/hives/8d320fc4aa/summary

http://www.businessinsider.com/low-rates-high-valuation-2014-12

Featured videos include speakers Jimmy Wales, William Beaver, Condoleezza Rice, Duane Still, and Christine Botosan, as well as a host of workshop and session videos. 


"There Are Many Stock Market Valuation Models, And Most Of Them Stink," by Ed Yardeni, Dr. Ed's Blog via Business Insider, December 4, 2014 ---
http://www.businessinsider.com/low-rates-high-valuation-2014-12

Does low inflation justify higher valuation multiples? There are many valuation models for stocks. They mostly don’t work very well, or at least not consistently well. Over the years, I’ve come to conclude that valuation, like beauty, is in the eye of the beholder. 

For many investors, stocks look increasingly attractive the lower that inflation and interest rates go. However, when they go too low, that suggests that the economy is weak, which wouldn’t be good for profits. Widespread deflation would almost certainly be bad for profits. It would also pose a risk to corporations with lots of debt, even if they could refinance it at lower interest rates. Let’s review some of the current valuation metrics, which we monitor in our Stock Market Valuation Metrics & Models

(1) Reversion to the mean. On Tuesday, the forward P/E of the S&P 500 was 16.1. That’s above its historical average of 13.7 since 1978. 

(2) Rule of 20. One rule of thumb is that the forward P/E of the S&P 500 should be close to 20 minus the y/y CPI inflation rate. On this basis, the rule’s P/E was 18.3 during October. 

(3) Misery Index. There has been an inverse relationship between the S&P 500’s forward P/E and the Misery Index, which is just the sum of the inflation rate and the unemployment rate. The index fell to 7.4% during October. That’s the lowest reading since April 2008, and arguably justifies the market’s current lofty multiple. 

(4) Market-cap ratios. The ratio of the S&P 500 market cap to revenues rose to 1.7 during Q3, the highest since Q1-2002. That’s identical to the reading for the ratio of the market cap of all US equities to nominal GDP.

Today's Morning Briefing: Inflating Inflation. (1) Dudley expects Fed to hit inflation target next year. (2) It all depends on resource utilization. (3) What if demand-side models are flawed? (4) Supply-side models explain persistence of deflationary pressures. (5) Inflationary expectations falling in TIPS market. (6) Bond market has gone global. (7) Valuation and beauty contests. (8) Rule of 20 says stocks still cheap. (9) Other valuation models find no bargains. (10) Cheaper stocks abroad, but for lots of good reasons. (11) US economy humming along. (More for subscribers.)
 

Jensen Comment
The Accountics Science stock valuation models we teach our students are almost worthless because they only deal with the accounting data that is booked into the ledgers. Often the most important data affecting values are not booked into ledgers such as value of a firm's human resources and R&D and intangibles that we don't know how to measure.

For example, accountics scientists love to teach weighted average cost of capital, free cash flow valuation, and the residual income valuation. These can be highly misleading as illustrated in the following terrific real-world case:

"Questrom vs. Federated Department Stores, Inc.:  A Question of Equity Value," by University of Alabama faculty members Gary Taylor, William Sampson, and Benton Gup, pp. 223-256.
This is perhaps the best short case that I've ever read.  It will undoubtedly help my students better understand weighted average cost of capital, free cash flow valuation, and the residual income model.  The three student handouts are outstanding.  Bravo to Taylor, Sampson, and Gup.

From the CPA Newsletter on December 1, 2014

PCAOB receives wide range of feedback on fair value proposal
http://www.complianceweek.com/blogs/accounting-auditing-update/ideas-for-guidance-on-auditing-estimates-draws-mixed-reviews#.VHyI_MlS7rx
The Public Company Accounting Oversight Board is receiving varying levels of support during the comment period for its ideas on changing guidance on auditing fair value measurements and accounting estimates. Some commenters said the standard didn't need to be changed while other suggestions ranged from a single comprehensive new standard to involving the Securities and Exchange Commission so there is a response broader than just an auditing standard. Compliance Week/Accounting & Auditing Update blog (11/26)

Jensen Comment
Problems of appraisal professionalism include the following:

  1. Assets and liabilities are so specialized in terms of valuation estimation. Appraisals of debentures is quite unlike appraisals of commodities. Appraisals of options is quite unlike appraisals of interest rate swaps. Appraisals of housing development real estate is quite unlike appraisals cattle or even land having oil and mineral reserves.
     

  2. There is notorious subjectivity in most appraisal tasks, especially subjectivity built upon widely varying assumptions.
     

  3. Assets and liabilities are often very unique even within a given classification. For example, the estimating value of development property ofExit 132 of an interstate highway may be totally unlike estimating the value of development property off Exits 131 .133, and 167. Estimation of a McDonald's debenture may be quite unlike estimating an Intel debenture.
     

  4. The appraisal professions vary widely as to fraud history and barriers to entry (e.g., certification examinations), experience requirements, and notorious histories of fraud. For example, most real estate bubbles and recoveries bring out the worst in terms of real estate appraisals of loan values of homes and businesses. The bottom line is that the appraisal professions are not as respected as the professions of accounting, law, and medicine. Yeah even law!
     

  5. The same appraisal firm gave me widely varying estimates of my home based upon the purpose of the appraisal. The appraisal when I wanted to take out a mortgage was much higher than the subsequent appraisal when I wanted to lower my property taxes. The appraisal firm aimed to please me. Go figure!

"How Do Auditors Use Valuation Specialists When Auditing Fair Values?" by Emily E. Griffith, SSRN, May 30, 2014 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2460970 

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

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

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

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

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

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

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

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

Bob Jensen's threads on fair value accounting ---
http://www.trinity.edu/rjensen/theory02.htm#FairValue


Update on the FASB's Technical Agenda ---
http://www.fasb.org/technicalagenda

I wonder if the FASB will ever operationally define net earnings and show how to measure net earnings.


From PwC on December 8, 2014

The inaugural edition of our accounting and financial reporting guide, Foreign currency , addresses the accounting for foreign currency transactions and foreign operations under U.S. GAAP. The guide discusses the framework for accounting for foreign currency matters, accounting implications, and includes specific examples related to various topics such as:
 

The Foreign Currency URL  --- Click Here
http://www.pwc.com/us/en/cfodirect/publications/accounting-guides/foreign-currency-reporting.jhtml?display=/us/en/cfodirect/publications/accounting-guides&j=644737&e=rjensen@trinity.edu&l=934030_HTML&u=23479485&mid=7002454&jb=0

 


"California Law School Grads Bear Staggering Debt Loads," by Paul Caron, TaxProf Blog, December 3, 2014 ---
http://taxprof.typepad.com/taxprof_blog/2014/12/california-law-school-grads-.html

Typical California law graduates' debt has jumped 35 percent since 2008, so even today's top earners are strapped. A public-service repayment plan offers hope for some.

Among 2013 law graduates in California, 87 percent borrowed money to help fund their education - an average of $135,000, all backed by the federal government. The thousands of students applying this winter to attend California's 21 ABA-accredited law schools are likely to borrow even more. And most will be expected to pay as much as $350,000 apiece over the two decades after they graduate.

[The Public Service Loan Forgiveness Program, which caps payments at 10 percent of "discretionary" income and forgives the loan balance after ten years] is the best-case scenario, and it is available to only about one-fourth of new lawyers. Just 27.6 percent of the 2013 law school grads nationwide who were employed by last February worked in positions that might qualify them for eventual loan forgiveness - as judicial clerks or military lawyers or in other public-service or nonprofit roles, according to the National Association for Law Placement, or NALP. The rest are not eligible -- and many lawyers prefer corporate or community practice. ...

Debt and income are uncomfortable topics. It's especially embarrassing to acknowledge owing much more than you can reasonably repay when you're in a profession that's traditionally been considered lucrative. The issue has arisen particularly suddenly in California, where public schools - which produce nearly half the state's new lawyers - have doubled tuition since the recession began and quadrupled it since 2002. For students starting this year at a University of California law school, tuition alone will run about $145,000 for three years. Considering that the American Bar Association prohibits accredited schools from letting full-time students work more than 20 hours a week, even a generous grant - say, $25,000 a year for top students - barely dents the total cost, which UC Berkeley estimates at $228,000, including living expenses. ...

During and after the recession, the legal profession stripped down to its chassis and rebuilt itself as a much leaner and more nimble machine - with lower salaries, less job security, and fewer positions overall. Things have improved since, but just 84.5 percent of 2013 law school grads found jobs within nine months of graduation, and only 64.4 percent landed positions that required passage of a bar exam, according to NALP. At the same time, law students kept coming, all figuring they would eventually work something out.

The crushing realization that repaying their student loans could last their whole careers dawns anew each May for thousands of freshly minted JDs. Heather Cantua, a 2013 graduate of the UC Davis law school, started exploring the issue on a blog for her classmates. "A lot of the deans didn't even think it was a problem that someone in her early twenties [would accumulate] $50,000 a year in debt," she says.

Cantua counts herself lucky: Grants minimized her need to borrow, and she makes enough as a financial services associate with Reed Smith in San Francisco to pay off her debt in ten years with 15 percent of her take-home earnings. But it will be hard to save or buy a house. Cantua says her husband actually dropped out of law school after one semester, having decided the debt was too high. "He saw how quickly it could accumulate."

Davis Dean Kevin Johnson says the UC law schools remain public only in name because state funding has plunged from 90 percent of their budgets 20 years ago to about 8 percent now. And they can't offer the volume of grants and other assistance that many private schools can. All of which is changing the stakes - and the etiquette - of the whole game. "When I went to law school, and as recently as ten years ago, you didn't think that you were in the position to negotiate what you paid," Johnson says. Now students angle for grants before they accept an offer of admission. "But I find it somewhat off-putting to get a text for money before I get a 'thank you.' "

Law firm leaders don't expect the legal market to revert to prerecession conditions, when new graduates were often courted by firms and offered cushy salaries up front. The Bureau of Labor Statistics projects 75,000 new law jobs will emerge nationwide in the decade ending in 2022. At the pace California is churning out new JDs - 5,557 in 2013, according to the UC Office of the President - the state's law schools alone could fill two-thirds of those new jobs.

 


"Research and Development, Uncertainty, and Analysts’ Forecasts: The Case of IAS 38," by Tami Dinh Thi, Brigitte Eierle, Wolfgang Schultze, and Leif Steeger, SSRN, November 26, 2014 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2531094

Abstract:
This paper analyzes the consequences of the capitalization of development expenditures under IAS 38 on analysts’ earnings forecasts. We use unique hand-collected data in a sample of highly research and development (R&D) intensive German listed firms over the period 2000 to 2007. We find that the capitalization of development costs is significantly associated with both higher individual analysts’ forecast errors and forecast dispersion. This suggests that the increasing complexity surrounding the capitalization of development costs negatively impacts forecast accuracy. However, for firms with high underlying environmental uncertainty, forecast errors are negatively associated with capitalized development expenditures. This indicates that the negative impact of increased complexity on forecast accuracy can be outweighed by the information contained in the signals from capitalized development costs when the underlying environmental uncertainty is high. The findings contribute to the ongoing controversial debate on the accounting for self-generated intangible assets. Our results provide useful insights on the link between capitalization of development costs, environmental uncertainty, and analysts’ forecasts for accounting academics and practitioners alike.

Teaching Case on How It Pay's to Look Under the Hood of Indian Financial Statements
From The Wall Street Journal Accounting Weekly Review on November 21, 2013

It Pays to Look Under Tata's Hood
by: Abheek Bhattacharya
Nov 15, 2013
Click here to view the full article on WSJ.com
 

TOPICS: Financial Accounting, Financial Ratios, Financial Reporting, International Accounting

SUMMARY: Tata Motors is "India's largest auto company...[which] leapt onto the world stage after buying JaguarLand Rover in 2008. Now that the British luxury car maker makes up roughly 80% of Tata's revenue, this Indian firm is competing with BMW, Mercedes-Benz and a host of American and Japanese premium brands...Although its shares are up more than 20% so far this year, the stock trades at 9.6 times estimated profit for the fiscal year that ends next March...Yet Tata's valuation may be flattered by the way it treats certain costs...At issue is how Tata treats research and development costs...Indian accounting standards give Tata discretion in accounting for such spending...Tata capitalized roughly 80% of R&D activity last fiscal year."

CLASSROOM APPLICATION: The article provides an excellent comparison of U.S. GAAP, IFRS, and Indian local accounting for R&D costs.

QUESTIONS: 
1. (Introductory) What three accounting treatments for research and development (R&D) activities are compared in this article?

2. (Advanced) Briefly summarize the accounting under each of these systems in your own words.

3. (Advanced) Do you agree with the statement in the article that, under IFRS, German auto makers can capitalize R&D? Explain your answer.

4. (Introductory) How does the author compare the amount of R&D capitalization under these three accounting systems?

5. (Advanced) What is the implication of these differing accounting treatments for the assessment of different auto manufacturers' financial performance? Be specific about the financial ratios used in the article to compare the companies' results, valuation, and stock price.

6. (Advanced) How does the author adjust the amounts reported by these companies in order to make them comparable? Be specific in describing what accounting treatment and income measures to which the author converts the reported numbers.
 

Reviewed By: Judy Beckman, University of Rhode Island

"It Pays to Look Under Tata's Hood," by Abheek Bhattacharya, The Wall Street Journal, November 185, 2013 ---
http://online.wsj.com/news/articles/SB10001424052702303789604579199210852043816?mod=djem_jiewr_AC_domainid

India's Tata Motors TTM -1.05% is in the big league of global car makers. When it comes to accounting for certain costs, though, it doesn't play exactly the same way as its peers.

India's largest auto company by market value leapt onto the world stage after buying JaguarLand Rover in 2008. Now that the British luxury car maker makes up roughly 80% of Tata's revenue, this Indian firm is competing with BMW, BMW.XE +0.37% Mercedes-Benz and a host of American and Japanese premium brands.

And when compared with some of these peers, Tata looks to be a relative bargain. Although its shares are up more than 20% so far this year, the stock trades at 9.6 times estimated profit for the fiscal year that ends next March. That is at a discount to Daimler, DAI.XE +0.20% which owns Mercedes, and BMW.

Yet Tata's valuation may be flattered by the way it treats certain costs. This has the effect of boosting its profit—in the near term, at least. Taking that into account, Tata is more expensive than it initially appears.

At issue is how Tata treats research and development costs. Tata's R&D program, at 6% of sales, is higher than the 4% or 5% global car makers typically spend on new products and designs.

Indian accounting standards give Tata discretion in accounting for such spending. The company can treat it as an immediate expense that cuts into income. Or it can capitalize the spending, recognizing it over a longer period of time. Tata capitalized roughly 80% of R&D activity last fiscal year. In this, Tata is ahead of Indian counterparts—Indian SUV-maker Mahindra & Mahindra 500520.BY +0.44% capitalized 44% of its R&D last fiscal year.

Tata's practice also contrasts with global rivals. American and Japanese car makers expense all their R&D spending, as local accounting rules require. German auto makers, who report under international accounting standards, can capitalize R&D, though this has averaged only a third at BMW the last five years.

To be sure, Tata may need more R&D than BMW and Mahindra. JLR sported outdated models and platforms before 2008, and Tata says it's treating the British unit as a young company hungry for new designs. The company says it has followed this practice for years, meaning it isn't changing course.

Still, Tata's R&D accounting bolsters the bottom line. If all R&D spending were expensed, Tata's net profit for this fiscal year would fall by two-thirds, estimates Bernstein Research. Tuning the numbers this way decreases earnings by 10% at Daimler. And at BMW, it actually boosts earnings 1% since this car maker amortizes older R&D spending and bears the expense on its income statement.

Continued in article

"Failed Convergence of R&D Accounting::  Only Politicians and Opportunists Would Have Downplayed the Implications," by Tom Selling, The Accounting Onion, June 5, 2010 --- Click Here
http://accountingonion.typepad.com/theaccountingonion/2010/06/failed-convergence-of-rd-accounting-only-politicians-and-opportunists-would-have-downplayed-the-implications.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+typepad%2Ftheaccountingonion+%28The+Accounting+Onion%29

 

Bob Jensen's threads on R&D Accounting and IAS 38 ---
http://www.trinity.edu/rjensen/Theory02.htm#FAS02


Financial Data for Each of the 50 States in the USA ---
http://www.statedatalab.org/


"Welcome to Illinois, the Deadbeat State:  Last year the Land of Lincoln had to defer paying $7 billion owed to contractors. Its bond rating is the worst of any state," by Gerald Skoning, The Wall Street Journal, December 9, 2014 ---
http://www.wsj.com/articles/gerald-skoning-welcome-to-illinois-the-deadbeat-state-1418169679?tesla=y&mod=djemMER_h&mg=reno64-wsj

Like millions of other Americans, I have spent cautiously, paid bills on time and maintained a strict budget. That doesn’t make us heroes. But it does mean we have exercised common sense, which has been sorely lacking among the politicians in my home state of Illinois.

The Land of Lincoln has accrued a $111 billion unfunded liability for government workers’ pensions—up 75% from five years ago. There is an additional $56 billion of unfunded debt to cover health benefits for the state’s retirees. Illinois today is already spending more of its general fund on pensions than on K-12 education. One in four tax dollars pays for its retired workers’ benefits. Last year the state had to defer paying $7 billion owed to contractors. All this after Democrats in 2011 raised income taxes and corporate taxes by 67% and 30%, respectively.

It’s getting embarrassing to admit that I’m a citizen of such a deadbeat state.

The level of debt is staggering. According to a recent report by Statista Inc., Illinois residents owe $24,959 each as their share of the outstanding bonds, unfunded pension commitments and budget gaps the state has accumulated. Thank goodness this obligation doesn’t go on my credit report, or my credit rating would be in the tank along with the state’s A-minus bond rating, the worst of any state in the nation.

It is no wonder that 850,000 people have left Illinois for other states in the past 15 years, according to the Illinois Policy Institute. Or that Illinois has become one of the most business unfriendly states in the country (40th in a recent Forbes survey).

Ironically, there is an easy way for me and my fellow Illinoisans to reduce our obligations: Move next door to Indiana, or maybe to Florida. The debt per resident in the Hoosier State is just $5,726 (third lowest in the country) and residents of the Sunshine State owe only $7,175 each (fourth lowest). It may be a coincidence, but the eight lowest debt-per-resident states have Republican governors.

Crushing debt isn’t just Illinois’s problem. According to State Budget Solutions, America’s 50 state governments collectively owe $5.1 trillion, including outstanding bonds, unfunded pension commitments and budget gaps. California has by far the largest debt—$778 billion—more than twice that of No. 2, New York, with $387 billion in red ink.

County and local governments also are huge debtors. The Cook County treasurer notes that the county’s numerous local governments have a debt load of more than $140 billion. Of course, Uncle Sam is the worst offender in the deficit-spending Hall of Shame. The federal debt is more than $17 trillion and increasing by $4 billion a day. Every citizen’s share of the debt is $58,604.

The $17 trillion federal deficit is the tip of the iceberg. The U.S. has nearly more than $115 trillion in unfunded liabilities, principally in entitlement programs such as Medicare and Social Security. That’s $1.1 million per U.S. taxpayer.

Forget about Indiana and Florida, maybe I should move to the Cayman Islands. But I’m not going to leave the United States—or Illinois. The message of the midterm elections last month was that Americans want to put the era of fiscal irresponsibility and economic stagnation in the rearview mirror. I’m hoping that Bruce Rauner, the Republican elected governor of deep-blue Illinois, will show them how it can be done.

Mr. Skoning is a labor and employment lawyer in Chicago.

 

What is the incentive to manage pensions responsibly in Illinois?

"Illinois’s Pension Absurdity:  A judge rules that all benefits are forever, no matter the public cost," The Wall Street Journal, November 28, 2014 ---
http://online.wsj.com/articles/illinoiss-pension-absurdity-1417219755?tesla=y&mod=djemMER_h&mg=reno64-wsj

Republican Bruce Rauner has his work cut out rehabilitating Illinois from years of liberal-public union misrule, but now he may also have to cope with a willful state judiciary. Consider a lower court judge’s slipshod ruling last week striking down de minimis pension reforms.

The fiscally delinquent state has accrued a $111 billion unfunded pension liability—a 75% increase from five years ago—in addition to $56 billion in debt for retiree health benefits. Incredibly, the state is spending more of its general fund on pensions than on K-12 education. One in four tax dollars pays for retirement benefits. Last year the state had to defer $7 billion in bills to contractors. This is after Democrats in 2011 raised income and corporate taxes by 67% and 30%, respectively. Little wonder that Illinois has the nation’s worst credit rating.

Democrats last year passed modest pension fixes conceived with the fainthearted judiciary in mind. The retirement age for younger workers increased on a graduated scale. Workers now in their 20s could still retire with pensions approximating 75% of their salaries at age 60.

Salaries used for pension calculations were also capped at an inflation-adjusted $110,600 with a gaping carve-out for workers who collectively-bargained higher pay. Cost-of-living adjustments were tied to years of service and inflation instead of annually compounding at 3%. As a political salve, the state even cut worker pension contributions by 1%.

Yet Sangamon County Circuit Court Judge John Belz last week rejected all pension trims as a violation of the state Constitution, which holds that “[m]embership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.” According to Judge Belz, there is “no legally cognizable affirmative defense” for impairing pensions benefit.

Except, well, 80 years of U.S. Supreme Court precedent. Federal courts have established that states may invoke their police powers to impair contracts. In the 1934 case Home Building & Loan Association v. Blaisdell, the U.S. Supreme Court ruled that emergencies “may justify the exercise of [the State’s] continuing and dominant protective power notwithstanding interference with contracts,” which the U.S. Constitution otherwise prohibits.

The Supreme Court has since developed a balancing test that allows states to impair contracts when it is reasonable and necessary to serve an important public purpose. The level of legal scrutiny increases with the severity of the impairment.

Yet Judge Belz refused even to consider the state’s argument that it must tweak pensions to maintain vital public services (e.g., police, schools). The court “need not and does not reach the issue of whether the facts would justify the exercise of such a power if it existed,” the judge asserted. If the police power existed?

Perhaps the judge assumes that the Illinois Supreme Court, based on its 6-1 decision this summer that extended constitutional protections to retiree health benefits, will strike down the pension reforms. Judge Belz teed up the high court by quoting copiously from that opinion.

Even if they lose at the Illinois Supreme Court, Mr. Rauner and the legislature will still have options for fixing their pension mess including moving new workers to defined-contribution plans and putting a constitutional amendment before voters that affirms the ability to prospectively modify retirement benefits. Option C would be to petition Illinois’s more prudent neighbors for annexation.

Pension Benefit Guaranty Corporation (PBGC) --- http://en.wikipedia.org/wiki/Pension_Benefit_Guaranty_Corporation

The Pension Benefit Guaranty Corporation (PBGC) is an independent agency of the United States government that was created by the Employee Retirement Income Security Act of 1974 (ERISA) to encourage the continuation and maintenance of voluntary private defined benefit pension plans, provide timely and uninterrupted payment of pension benefits, and keep pension insurance premiums at the lowest level necessary to carry out its operations. Subject to other statutory limitations, the PBGC insurance program pays pension benefits up to the maximum guaranteed benefit set by law to participants who retire at age 65 ($54,000 a year as of 2011).[2] The benefits payable to insured retirees who start their benefits at ages other than 65, or who elect survivor coverage, are adjusted to be equivalent in value.

During fiscal year 2010, the PBGC paid $5.6 billion in benefits to participants of failed pension plans. That year, 147 pension plans failed, and the PBGC's deficit increased 4.5 percent to $23 billion. The PBGC has a total of $102.5 billion in obligations and $79.5 billion in assets.

Jensen Comment
Private sector companies can pay premiums to insure employee pension benefits will carry on when companies carrying this insurance go bankrupt. But at least those benefits are capped. For example, here on Sunset Hill Road I have a friend who is a retired United Airlines Captain. When United Airlines went bankrupt his pension benefits were cut in half because the insured benefits are capped for high-salaried employees. In terms of the public sector such caps are no longer allowed unless this court ruling is overturned by a higher court.

Because of their skills, airline Captains are understandably paid very well with large pension benefits tied to their high salaries before retirement, pensions that they themselves contributed to out of their salaries over the years. In the public sector, salaries are generally not so high, and sometimes the high pension benefits are outright frauds such as the $500,000 annual pension of the former City Manager of tiny Bell, California. Illinois public pension plans were similarly wracked with frauds promising enormous pensions and early retirements.

One can argue that pension contracts should not be broken, but pension contracts are commonly broken in the private sector. Employees of companies that did not pay for PGBC insurance may lose all their pensions depending upon the outcomes of the bankruptcy courts. Employees of companies that are insured by PGBC may still lose part of their pensions like my friend nearby lost half of his United Airlines pension. Then why is it that public sector pension contracts cannot be broken somewhat similar to private sector pensions?

The main problem with this ruling is that there is moral hazard. It encourages fraud and mismanagement of pensions in the public sector. The main problem with public sector pensions in Illinois that they were enormously mismanaged and underfunded. What is the incentive to manage pensions responsibly in Illinois?

"Measuring Pension Liabilities under GASB Statement No. 68," by John W. Mortimer and Linda R. Henderson, Accounting Horizons, September 2014, Vol. 28, No. 3, pp. 421-454 ---
http://aaajournals.org/doi/full/10.2308/acch-50710

While retired government employees clearly depend on public sector defined benefit pension funds, these plans also contribute significantly to U.S. state and national economies. Growing public concern about the funding adequacy of these plans, hard hit by the great recession, raises questions about their future viability. After several years of study, the Governmental Accounting Standards Board (GASB) approved two new standards, GASB 67 and 68, with the goal of substantially improving the accounting for and transparency of financial reporting of state/municipal public employee defined benefit pension plans. GASB 68, the focus of this paper, requires state/municipal governments to calculate and report a net pension liability based on a single discount rate that combines the rate of return on funded plan assets with a low-risk index rate on the unfunded portion of the liability. This paper illustrates the calculation of estimates for GASB 68 reportable net pension liabilities, funded ratios, and single discount rates for 48 fiscal year state employee defined benefit plans by using an innovative valuation model and readily available data. The results show statistically significant increases in reportable net pension liabilities and decreases in the estimated hypothetical GASB 68 funded ratios and single discount rates. Our sensitivity analyses examine the effect of changes in the low-risk rate and time period on these results. We find that reported discount rates of weaker plans approach the low-risk rate, resulting in higher pension liabilities and creating policy incentives to increase risky assets in pension portfolios.

Bob Jensen's threads on the sad state of governmental accounting ---
http://www.trinity.edu/rjensen/Theory02.htm#GovernmentalAccounting


"TIGTA: IRS Has 25-30% Error Rate In Refundable Child Tax Credits, Mistakenly Pays $6-7 Billion," by Paul Caron, TaxProf Blog, December 10, 2014 ---
http://taxprof.typepad.com/taxprof_blog/2014/12/tigta-irs-has-25-30-error-rate-.html

The Treasury Inspector General for Tax Administration yesterday released Existing Compliance Processes Will Not Reduce the Billions of Dollars in Improper Earned Income Tax Credit and Additional Child Tax Credit Payments (2014-40-093):

The Earned Income Tax Credit (EITC) and Additional Child Tax Credit (ACTC) are refundable credits designed to help low-income individuals reduce their tax burden. The IRS estimated that it paid $63 billion in refundable EITCs and $26.6 billion in refundable ACTCs for Tax Year 2012. The IRS also estimated that 24 percent of all EITC payments made in Fiscal Year 2013, or $14.5 billion, were paid in error. ...

The IRS has continually rated the risk of improper ACTC payments as low. However, TIGTA’s assessment of the potential for ACTC improper payments indicates the ACTC improper payment rate is similar to that of the EITC. Using IRS data, TIGTA estimates the potential ACTC improper payment rate for Fiscal Year 2013 is between 25.2 percent and 30.5 percent, with potential ACTC improper payments totaling between $5.9 billion and $7.1 billion. In addition, IRS enforcement data show the root causes of improper ACTC payments are similar to those of the EITC.

New York Times, Billions in Child Tax Credits Were Invalid, U.S. Audit Finds
http://www.nytimes.com/2014/12/10/business/billions-in-child-tax-credits-were-invalid-us-audit-finds.html?_r=0


By adding an average of 803 new residents each day between July 1, 2013 and July 1, 2014, Florida passed New York to become the nation’s third most populous state . . . Six states lost population between July 1, 2013, and July 1, 2014: Illinois (9,972 or -0.08 percent), West Virginia (3,269 or -0.18 percent), Connecticut (2,664 or -0.07 percent), New Mexico (1,323 or -0.06 percent, Alaska (527 or -0.07 percent) and Vermont (293 or -0.05 percent).
http://finance.townhall.com/columnists/mikeshedlock/2014/12/24/people-are-still-fleeing-hightax-liberal-states-n1935393?utm_source=thdaily&utm_medium=email&utm_campaign=nl
Jensen Comment
What adds pain to msery is the loss of some professionals a state really, really wants to keep. Exhibit A is Vermont. Vermont's population loss is not enormous in terms of numbers, but the losses of high income professionals, especially physicians, hurts more than the total loss numbers reflect. I suspect this is also happening in the other high tax states like Illinois and Connecticut. California is a high-tax enigma. Hollywood hangs on to its professionals due to the enormous tax relief Governor Brown has given to the movie industry and wealthy taxpayers who donated heavily to his campaigns. Proposition 13 that prevents property tax increases to long-time home owners in California also encourages retirees to not move out of state after retirement ---
http://en.wikipedia.org/wiki/California_Proposition_13_%281978%29
The Florida Express train would be derailed if more northern states like New York, New Jersey, Massachusetts, and Connecticut adopted Proposition 13.


"Stock Prices and Earnings: A History of Research," by Patricia M. Dechow, Richard G. Sloan, and Jenny Zha, SSRN
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2347193
Annual Review of Financial Economics, Vol. 6, pp. 343-363, 2014
December 2014 ($32 unless accessed free via your university's library subscription)
http://www.annualreviews.org/doi/full/10.1146/annurev-financial-110613-034522

Abstract:
Accounting earnings summarize periodic corporate financial performance and are key determinants of stock prices. We review research on the usefulness of accounting earnings, including research on the link between accounting earnings and firm value and research on the usefulness of accounting earnings relative to other accounting and nonaccounting information. We also review research on the features of accounting earnings that make them useful to investors, including the accrual accounting process, fair value accounting, and the conservatism convention. We finish by summarizing research that identifies situations in which investors appear to misinterpret earnings and other accounting information, leading to security mispricing.

Jensen Comment
AAA Members may want to accompany this paper with Bill Beaver's recollections of his own pioneering research on stock prices and earnings --- recollections given at the American Accounting Association Annual Meetings as the 2014 Presidential Scholar.
Video (free to AAA members who are subscribed to the AAA Commons) ---
http://commons.aaahq.org/hives/8d320fc4aa/summary

It is somewhat surprising that a predictor variable its extended versions (e.g., earnings per share) that cannot be defined by the FASB and IASB can be an effective predictor after it no longer can be defined. By not being definable, there is little assurance that earnings, eps, etc. are consistently measured over time for a single firm and across firms at a point in time.

Net earnings and EBITDA cannot be defined since the FASB and IASB elected to give the balance sheet priority over the income statement in financial reporting ---
"The Asset-Liability Approach: Primacy does not mean Priority," by Robert Bloomfield, FASRI Financial Accounting Standards Research Initiative, October 6, 2009 ---
http://www.fasri.net/index.php/2009/10/the-asset-liability-approach-primacy-does-not-mean-priority/

Financial Statements Loss of Quality and Predictive Power

Jensen Comment
I don't think the "The EBITDA Epidemic Takes Its Cue from Standard Setters."
Like Professor Verrecchia currently and my accounting Professor Bob Jaedicke decades earlier I think the "EBITDA Epidemic" takes its cue from investors and managers that have a "functional fixation" for earnings, eps, EBITDA, and P/E ratios --- when in fact those metrics are no longer defined by the FASB/IASB and may have a lot of misleading noise and secret manipulations.

"The EBITDA Epidemic Takes Its Cue from Standard Setters," by Tom Selling, The Accounting Onion, October 13, 2013 ---
http://accountingonion.com/2013/10/the-ebitda-epidemic-takes-its-cue-from-standard-setters.html

Jensen Comment
If the FASB cannot define net earnings then it follows from cold logic that they cannot define measures derived from net earnings like EBITDA.

However, virtually all private sector business firms compute net earnings and some measures derived from net earnings like eps, EBITDA, and P/E ratios.

It's doubtful whether net earnings for two different companies or even one company over two time intervals are really comparable.

But all that does not matter when it comes to adjudicating an insider trading case in court even if the accused may not really be an insider.

I'm reminded of why billionaire Martha Stewart went to prison because she acted on inside information about a company --- inside information passed on to her by the CEO of that company. It doesn't matter that the amount of loss saved by the inside tip involved is insignificant compared to her billion-dollar portfolio. Evidence in the case made it clear that she did exploit other investors by acting on the inside tip no matter how insignificant the value of that tip to her. She was hauled off the clink in handcuffs and was released in less than five months. But her good name and reputation were tarnished forever ---
http://en.wikipedia.org/wiki/Martha_Stewart

 

Mark Cuban --- http://en.wikipedia.org/wiki/Mark_Cuban

Flamboyant billionaire Mark Cuban is now in trial for very similar reasons, although the alleged insider tip and the value of the alleged tip is more obscure than in the Martha Stewart case. Like in the case of Martha Stewart the loss avoided is pocket change ($750,000) relative to Cuban's billion-dollar portfolio.

In the case of Martha Stewart the prosecution had her dead to rights in terms of timing of the tip and her stock sales. In the case of Mark Cuban the SEC's case is based upon an "unreliable witness who refused to testify in person."
http://www.ottawacitizen.com/business/Lawyers+Mark+Cuban+begin+closing+arguments+billionaires/9038098/story.html

"An Accounting Lesson for Twitter," by Jonathan Weil, Bloomberg Businessweek, October 14, 2013 ---
http://www.bloomberg.com/news/2013-10-04/an-accounting-lesson-for-twitter-.html 

What Cuban failed to mention to the jury is that net earnings and EBITDA cannot be defined since the FASB elected to give the balance sheet priority over the income statement in financial reporting ---
"The Asset-Liability Approach: Primacy does not mean Priority," by Robert Bloomfield, FASRI Financial Accounting Standards Research Initiative, October 6, 2009 ---
http://www.fasri.net/index.php/2009/10/the-asset-liability-approach-primacy-does-not-mean-priority/

Possible Teaching Case

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

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

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

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

"Why This Twitter Earnings Report Matters So Much," by Jon C. Ogg, 24/7 Wall Street, July 28, 2014 --- Click Here
http://247wallst.com/technology-3/2014/07/28/why-this-twitter-earnings-report-matters-so-much/?utm_source=247WallStDailyNewsletter&utm_medium=email&utm_content=JULY292014A&utm_campaign=DailyNewsletter

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

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

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

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

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

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

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

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

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

  • Average Monthly Active Users (MAUs) were 255 million as of March 31, 2014, an increase of 25% year-over-year.
  • Mobile MAUs reached 198 million in the first quarter of 2014, an increase of 31% year-over-year, representing 78% of total MAUs.
  • Timeline views reached 157 billion for the first quarter of 2014, an increase of 15% year-over-year.
  • Advertising revenue per thousand timeline views reached $1.44 in the first quarter of 2014, an increase of 96% year-over-year.

References:

"Twitter's Recent 8-K Begs for More Transparency," by Anthony H. Catanach, Grumpy Old Accountants, February 2014 ---
, http://grumpyoldaccountants.com/blog/2014/2/16/twitters-recent-8-k-begs-for-more-transparency

On the AECM Tom Selling was not so much concerned about the insider trading issue as he his with Mark Cuban's EBITDA lecture to the jury
"An Accounting Lesson for Twitter," by Jonathan Weil, Bloomberg Businessweek, October 14, 2013 ---
http://www.bloomberg.com/news/2013-10-04/an-accounting-lesson-for-twitter-.html 

What Cuban failed to mention is that net earnings and EBITDA cannot be defined since the FASB elected to give the balance sheet priority over the income statement in financial reporting ---
"The Asset-Liability Approach: Primacy does not mean Priority," by Robert Bloomfield, FASRI Financial Accounting Standards Research Initiative, October 6, 2009 ---
http://www.fasri.net/index.php/2009/10/the-asset-liability-approach-primacy-does-not-mean-priority/

Bob Jensen's threads on the history of earnings and stock price predictive power ---
http://www.trinity.edu/rjensen/Theory01.htm#PredictivePower


"Is Empirical Management Accounting Research Progressing? Evidence on its Diversity and Methodological Sophistication Over Three Decades," by Irene Essert, Maik Lachmann, and Rouven Trapp, SSRN, November 17, 2014 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2526186

Abstract:
This paper assesses three decades of empirical management accounting research in light of its diversity and methodological sophistication. In doing so, we first address concerns recently voiced by distinguished scholars regarding an increasing homogenization of research approaches that may compromise our understanding of management accounting practice. Second, we complement the methodological papers that have prescribed what researchers should account for to ensure the validity of their findings by evaluating how four important types of validity – internal, external, construct and statistical conclusion validity – are de facto considered. Our study provides initial empirical evidence on these issues based on a quantitative content analysis of 415 papers published in ten leading accounting journals. We find a growing narrowness of research content as management control issues become increasingly prioritized, whereas the range of methods employed remains broad. Given the corresponding disclosures, validity improves over time, suggesting that management accounting research is progressing with respect to its rigor. Based on our findings, we discuss avenues for further research.

Bob Jensen's threads on managerial accounting ---
http://www.trinity.edu/rjensen/Theory02.htm#ManagementAccounting


EY Attorneys at Law
"EY goes multi-disciplinary as it gains legal services licence," Financial Director, December 1, 2014 ---
http://www.financialdirector.co.uk/aa/news/2384228/ey-goes-multi-disciplinary-as-it-gains-legal-services-licence


Hertz Restatements due to Inadequate Internal Controls and Faulty Audit by PricewaterhouseCoopers
"
Ethics and Compliance Failures Underlie Hertz’s Restatement of Financial Statements," by Steven Mintz, Ethics Sage, November 26, 2014 ---
http://www.ethicssage.com/2014/11/ethics-and-compliance-failures-underlie-hertzs-restatement-of-financial-statements-.html

 Teaching Case
From The Wall Street Journal Accounting Weekly Review on November 21, 2014

Hertz to Restate More Results
by: Michael Calia
Nov 15, 2014
Click here to view the full article on WSJ.com
 

TOPICS: Accounting Errors, Materiality, Restatements

SUMMARY: Hertz Global Holdings Inc. confirmed concerns that its accounting issues run even deeper, saying it would restate its results for 2012 and 2013 as the company continues an investigation into its financial statements dating back to 2011. The company said it would take longer to complete the auditing process. "Hertz does not currently expect to complete the process and file updated financial statements before mid-2015, and there can be no assurance that the process will be completed at that time, or that no additional adjustments will be identified," the company said in a filing.

CLASSROOM APPLICATION: This article is appropriate for a financial accounting class for the topics of restatements and accounting errors, or could be used in an auditing class.

QUESTIONS: 
1. (Introductory) What are the facts of the Hertz restatements discussed in the article?

2. (Advanced) What are the reasons for the delays in releasing financial statements? What additional work must occur? Why?

3. (Advanced) How have these announcements affected Hertz's stock price? Why? How could the company's stock price be impacted going into the future?

4. (Advanced) What should the company do in the future to prevent problems like this?
 

Reviewed By: Linda Christiansen, Indiana University Southeast
 

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"Hertz to Restate More Results," by Michael Calia, The Wall Street Journal, November 15, 2014 ---
http://online.wsj.com/articles/hertz-to-restate-more-results-1415969212?mod=djem_jiewr_AC_domainid

Hertz Global Holdings Inc. on Friday confirmed concerns that its accounting issues ran even deeper, saying it would restate its results for 2012 and 2013 as the company continues an investigation into its financial statements dating back to 2011.

Previously, the company had said it would only restate results for 2011, while saying that it would revise the results for 2012 and 2013.

Hertz shares, down 23% over the past three months through Thursday, fell as much as 14% Friday, before closing down about 5%.

The company also disclosed changes to its rental-car fleet strategy and a plan to cut $100 million in costs over the next year.

The company said its audit committee and management have “concluded that the additional proposed adjustments arising out of the review are material to the company’s 2012 and 2013 financial statements,” Hertz said in a filing Friday.

As a result, the company said it would take longer to complete the auditing process. “Hertz does not currently expect to complete the process and file updated financial statements before mid-2015, and there can be no assurance that the process will be completed at that time, or that no additional adjustments will be identified,” the company said in a filing.

Hertz revealed its detection of accounting errors in March, which followed its naming of a new chief financial officer at the end of last year. In June, the company said it would restate its 2011 results, while warning it may do the same for 2012 and 2013. It withdrew its guidance in August, citing the continuing challenges and costs associated with the audit.

The company has since fallen under scrutiny by activists investors such as Jana Partners LLC and Carl Icahn . Jana, which owns a 7% stake in Hertz, earlier this month pressed the company to move ahead with its succession planning as the company seeks a new chief executive. Mark Frissora stepped down from that role early in September as the company contended with weak results and accounting issues.

Mr. Icahn, who disclosed an 8.5% stake in Hertz in August, has said he believes the company’s shares are undervalued, and that he lacked confidence in management amid the accounting strife.

Hertz on Friday also unveiled a new strategy for its U.S. rental car fleet, with an emphasis on buying more 2015 model-year cars than 2014 models.

The company said it has implemented a cost-cutting program expected to result in $100 million in savings by the end of next year, as well.

Hertz said its total revenue for the period ended Sept. 30 rose about 2% to $3.12 billion. U.S. car-rental revenue was down slightly to $1.76 billion, while international car-rental rose about 3% to $795 million.

The company’s equipment-rental business posted a 3% revenue increase to $415 million.

Continued in article

Bob Jensen's threads on PwC ---
http://www.trinity.edu/rjensen/Fraud001.htm

Bob Jensen's threads on earnings management and manipulation ---
http://www.trinity.edu/rjensen/Theory02.htm#Manipulation

Bob Jensen's threads on audit firm professionalism and ethics ---
http://www.trinity.edu/rjensen/Fraud001c.htm


"Is Academic Ethics an Oxymoron?  The Ends do not justify the Means in an Ethical Decision-Making System," by Steven Mintz, Ethics Sage, December 2, 2014 ---
http://www.ethicssage.com/2014/12/is-academic-ethics-an-oxymoron.html


PwC on the Evolution and Recommended Future of Audit Committees --- Click Here
http://www.pwc.com/us/en/cfodirect/publications/point-of-view/audit-committee-evolution-2014-beyond.jhtml?display=/us/en/cfodirect/publications/point-of-view&j=639619&e=rjensen@trinity.edu&l=930931_HTML&u=23384014&mid=7002454&jb=0


New Inefficiencies in the Capital Markets:  Unwanted (and possibly unreachable) Insiders Now Conducting Insider Trades
"Security Firm Says It Uncovered A Cyber Espionage Ring Focused On Gaming The Stock Market," by Jim Finkle, Reuters via Business Insider, December 1, 2014 ---
http://www.businessinsider.com/r-cyber-ring-stole-secrets-for-gaming-us-stock-market-fireeye-2014-12

BOSTON (Reuters) - Security researchers say they have uncovered a cyber espionage ring focused on stealing corporate secrets for the purpose of gaming the stock market, in an operation that has compromised sensitive data about dozens of publicly held companies.

Cybersecurity firm FireEye Inc, which disclosed the operation on Monday, said that since the middle of last year, the group has attacked email accounts at more than 100 firms, most of them pharmaceutical and healthcare companies.

Victims also include firms in other sectors, as well as corporate advisors including investment bankers, attorneys and investor relations firms, according to FireEye.

The cybersecurity firm declined to identify the victims. It said it did not know whether any trades were actually made based on the stolen data.

Still, FireEye Threat Intelligence Manager Jen Weedon said the hackers only targeted people with access to highly insider data that could be used to profit on trades before that data was made public.

They sought data that included drafts of U.S. Securities and Exchange Commission filings, documents on merger activity, discussions of legal cases, board planning documents and medical research results, she said.

"They are pursuing sensitive information that would give them privileged insight into stock market dynamics," Weedon said.

The victims ranged from small to large cap corporations. Most are in the United States and trade on the New York Stock Exchange or Nasdaq, she said.

An FBI spokesman declined comment on the group, which FireEye said it reported to the bureau.

The security firm designated it as FIN4 because it is number 4 among the large, advanced financially motivated groups tracked by FireEye.

The hackers don't infect the PCs of their victims. Instead they steal passwords to email accounts, then use them to access those accounts via the Internet, according to FireEye.

They expand their networks by posing as users of compromised accounts, sending phishing emails to associates, Weedon said.

FireEye has not identified the hackers or located them because they hide their tracks using Tor, a service for making the location of Internet users anonymous.

FireEye said it believes they are most likely based in the United States, or maybe Western Europe, based on the language they use in their phishing emails, Weedon said.

She said the firm is confident that FIN4 is not from China, based on the content of their phishing emails and their other techniques.

Researchers often look to China when assessing blame for economically motivated cyber espionage. The United States has accused the Chinese government of encouraging hackers to steal corporate secrets, allegations that Beijing has denied, causing tension between the two countries.

Weedon suspects the hackers were trained at Western investment banks, giving them the know-how to identify their targets and draft convincing phishing emails.

"They are applying their knowledge of how the investment banking community works," Weedon said.

Bob Jensen's Fraud Updates --- http://www.trinity.edu/rjensen/FraudUpdates.htm

Bob Jensen's threads on the Efficient Market Hypothesis (EMH) ---
http://www.trinity.edu/rjensen/theory01.htm#EMH


Arachnophobia --- http://en.wikipedia.org/wiki/Arachnophobia

Teaching Case
"Arachnophobia: A Case on Impairment and Accounting Ethics," by Julie S. Persellin, Michael K. Shaub, and Michael S. Wilkins, Issues in Accounting Education, November 2014 ---
http://aaajournals.org/doi/full/10.2308/iace-50890

This case requires students to apply accounting and ethical decision making within the context of a potential land impairment decision. Students are required to research the relevant professional literature and provide appropriate FASB codification references and IAS cites as they investigate the significant uncertainties that frequently are associated with valuation and impairment analyses. Students also are required to evaluate the ethical implications of the decisions that could be made regarding the necessity of impairment. The case provides an opportunity for students to extend their research and financial accounting abilities, to consider the consequences associated with a set of potentially reasonable accounting alternatives, and to begin to appreciate how the significant uncertainties that are present in many accounting and auditing situations require consistent technical and ethical decision making. The case could be used in Intermediate Accounting I, as well as in undergraduate and graduate Auditing or Ethics classes.

 


Adjustable-Rate Mortgage (ARM) --- http://en.wikipedia.org/wiki/Adjustable-rate_mortgage

Teaching Case from the Real World
"WaMu's Option-ARM Strategy,"
by Robert M. Bowen, S. Jane Jollineau, and Barbara A. Lougee, Issues in Accounting Education, November 2014 ---
http://aaajournals.org/doi/full/10.2308/iace-50702

Abstract
At the end of 2007, Washington Mutual, Inc. (generally known as “WaMu”) was the largest savings and loan bank in the U.S., based on assets ($328 billion) and revenue ($25.5 billion). Less than nine months later, WaMu was seized by federal regulators and sold to JPMorgan Chase for $1.9 billion in a transaction facilitated by the Federal Deposit Insurance Corporation (FDIC). During the worst recession since the Great Depression, WaMu became the largest U.S. bank failure in history.

This case illustrates how a financial institution's business strategy affects risk and how these characteristics are revealed in the financial statements. Students assume the role of a financial analyst examining WaMu's 2007 10-K after its release in March 2008. In particular, they evaluate the quality of WaMu's loans and the adequacy of WaMu's estimates for loan losses, one of the most important discretionary accruals for financial institutions. Students gain insights into the consequences of WaMu's business strategy to emphasize high-margin loan products by comparing WaMu to (1) the relatively conservative Wells Fargo Bank and (2) the average large FDIC bank. This case has been used successfully in graduate-level financial statement analysis courses.

Continued in article


Teaching Case on Small Business Taxation
From The Wall Street Journal Accounting Weekly Review on December 5, 2014

Year-End Tax Moves for Small Businesses
by: Laura Saunders
Nov 22, 2014
Click here to view the full article on WSJ.com
 

TOPICS: Corporate Taxation, Small Business, Taxation

SUMMARY: The U.S. has more than 28 million small businesses, and they employ nearly half of private-sector workers. What they often lack is staff dedicated to tax matters. Yet this year small businesses face thorny new issues. In particular, owners of small businesses should consider taking these three steps: scrutinize health reimbursement arrangements, or HRAs; prepare to act quickly on depreciation; and grapple with the "repair regs."

CLASSROOM APPLICATION: This article is appropriate for a corporate taxation class.

QUESTIONS: 
1. (Introductory) What areas of tax law are addressed in this article? Are these issues limited to small business, or must larger businesses also address them?

2. (Advanced) What tax-planning challenges do small businesses face because they are smaller? What can small businesses do to address those issues?

3. (Advanced) What are HRAs? What must small businesses do regarding HRAs? What advice does the article offer?

4. (Advanced) What is a 179 deduction? Why does tax law include it? What tax law updates does the article offer? What decisions must businesses make?

5. (Advanced) What are "repair regs"? What are the problems with the new rules? What are some of the benefits?
 

Reviewed By: Linda Christiansen, Indiana University Southeast
 

RELATED ARTICLES: 
Lawmakers Divided over Renewing Tax Breaks
by John D. McKinnon and Siobhan Hughes
Dec 02, 2014
Online Exclusive

"Year-End Tax Moves for Small Businesses," by Laura Saunders, The Wall Street Journal, November 22, 2014 ---
http://www.wsj.com/articles/three-year-end-tax-moves-for-small-businesses-1416588809?mod=djem_jiewr_AC_domainid

The U.S. has more than 28 million small businesses, and they employ nearly half of private-sector workers, according to federal data.

What they often lack is staff dedicated to tax matters. Yet this year small businesses face thorny new issues.

In particular, owners of small businesses should consider taking these three steps:

Scrutinize health reimbursement arrangements, or HRAs. In the past, many smaller businesses have chosen to reimburse workers who buy individual health-insurance policies rather than purchase group coverage. Under prior rules, employees often didn’t have to pay tax on the money. (Note: HRAs differ from health savings accounts, which allow tax-deductible payments to savings accounts to be used for health costs.)

Now, these HRAs violate the rules of the Affordable Care Act. Businesses that have them could be fined up to $100 per employee a day, meaning a $36,500 penalty for each worker a year, says Eddie Adkins, a benefits specialist with the accounting firm Grant Thornton in Washington.

Many small businesses are still unaware of the drastic penalties that HRAs can now trigger, says Mr. Adkins. “They think that because they have fewer than 50 employees, ACA penalties don’t apply to them. But this is a huge trap.” Under the ACA, businesses with fewer than 50 employees generally don’t have to provide health plans.

It’s important for affected businesses to act right away. One fix, experts say, is to make the payments to workers regardless of whether they use the money to purchase health coverage and to count it as taxable compensation.

There are also important exceptions to the new penalty. For example, it doesn’t apply to HRAs that have only one participant who is an employee. This means that many very small firms can continue to use HRAs as they did before, says Mr. Adkins.

Another exception: If the firm offers an ACA-approved health plan as well as an HRA, and employees in the HRA participate in the plan, the firm won’t owe a penalty, he says.

Prepare to act quickly on depreciation. The tax code generally requires businesses investing in equipment and property to spread deductions for these costs (known as depreciation) over several years rather than taking them all at once, which is better for owners.

However, Congress in the past has granted more generous write-offs for these business investments. The enhanced Section 179 depreciation, for example, allowed an immediate deduction of up to $500,000 for capital investments rather than just $25,000.

So-called bonus depreciation, another enhancement Congress passed, provided additional incentives.

Both benefits expired at the beginning of 2014, as did other provisions. Such lapses have happened before, and lawmakers have retroactively reinstated the benefits for two years. But the outcome this year is uncertain following the recent election.

One real possibility, experts say, is that Congress will reinstate the provisions for only one year—2014. Then they will expire again, as of Jan. 1, 2015.

The upshot: Business owners could have just a few weeks—or less—to make investments under the more generous rules. Dave Kautter, who heads the national tax office of accounting firm McGladrey, is urging businesses that would benefit from the enhanced depreciation to prepare to act quickly.

“Right now nobody knows what’s going to happen, even the Congress members and their staffs,” says Mr. Kautter. If the provisions are reinstated for only that brief period, and Congress then tackles broader tax overhauls next year, the provisions “might become a bargaining chip and never reappear in their current form.”

Grapple with the “repair regs.” In 2013, the Internal Revenue Service finally issued new regulations for Section 263 of the tax code, which also involves depreciation.

This guidance details which expenditures qualify for an immediate deduction, such as the repair of a broken window, and which must be written off over several years, unless Congress grants more generous treatment, as described above.

Continued in article


Teaching Case on Audit Firm Independence and Professionalism
From The Wall Street Journal Accounting Weekly Review on December 5, 2014

Advisory Work May Cloud Audit Integrity, PCAOB Member Says
by: Kimberly S. Johnson
Nov 24, 2014
Click here to view the full article on WSJ.com
 

TOPICS: Auditing, Big Four, Consulting

SUMMARY: The rise of non-audit services offered by accounting firms could threaten the quality and integrity of independent audits, according to a key member of the PCAOB. Although the Securities and Exchange Commission has limits on the kinds of consulting and advisory work audit firms can perform for their clients, that line may be blurring with services such as tax consulting. The rise of advisory services is generally considered to have changed the culture and tone at the top of audit firms. Revenue from non-audit services at the "Big 4" audit firms rose $14 billion to $65 billion between 2009 and 2013. Revenues from audit services rose $3 billion during the same period.

CLASSROOM APPLICATION: This is interesting information for an auditing class, and for a discussion regarding accounting careers and the accounting industry.

QUESTIONS: 
1. (Introductory) What is the PCAOB? What is its areas of authority? What is the SEC? What is its authority? How do they differ?

2. (Advanced) What is the Big Four? What type of work do they do? Why are they called the Big Four?

3. (Advanced) What type of work is including in auditing? What type of work is consulting and advisory work? Why do the Big Four do all of these types of work?

4. (Advanced) Who is Steven Harris? What is his position? What is his opinion? What are the statistics regarding revenues from various practice areas?

5. (Advanced) Is this a serious problem? Should it be addressed? What could be changed?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

"Advisory Work May Cloud Audit Integrity, PCAOB Member Says," by Kimberly S. Johnson, The Wall Street Journal, November 24, 2014 ---
http://blogs.wsj.com/cfo/2014/11/24/advisory-work-may-cloud-audit-integrity-pcaob-chair-says/?mod=djem_jiewr_AC_domainid

The rise of non-audit services offered by accounting firms could threaten the quality and integrity of independent audits, said Steven Harris, a key member of the government’s watchdog agency.

Although the Securities and Exchange Commission has limits on the kinds of consulting and advisory work audit firms can perform for their clients, that line may be blurring with services such as tax consulting, said Mr. Harris, chair of the investor advisory group of the Public Company Accounting Oversight Board.

“Investors are concerned that the firms may not maintain their public watchdog, total independence and complete fidelity to the public trust responsibilities,” he said Monday at the Practising Law Institute’s 12th Annual Directors’ Institute on Corporate Governance in New York.

The rise of advisory services is generally considered to have changed the culture and tone at the top of audit firms. Revenue from non-audit services at the “Big 4” audit firms rose $14 billion to $65 billion between 2009 and 2013. Revenues from audit services rose $3 billion during the same period, Mr. Harris said.

However, the PCAOB has no plans to issue guidance on non-audit practices, Mr. Harris said, adding that the matter was beyond the group’s jurisdiction.

Though he acknowledged that the growth in non-audit services can be “a distraction” from the audit firm’s core values, and could “surpass their interest in the audit relationship.”

The additional work being performed could cloud auditor objectivity, said Mr. Harris. And in some instances, the firm could be auditing its own work.

PricewaterhouseCoopers LLP officials were not available for comment. KPMG LLP, Deloitte LLP and Ernst & Young LLP did not return requests for comment.

Bob Jensen's threads on audit firm independence and professionalism ---
http://www.trinity.edu/rjensen/Fraud001c.htm


Teaching Case on Tax Strategies
From The Wall Street Journal Accounting Weekly Review on December 5, 2014

Using Insurance to Reduce a Couple's Taxes
by: Kelly Kearsley
Nov 28, 2014
Click here to view the full article on WSJ.com
 

TOPICS: Section 79 Insurance Plan, Taxation

SUMMARY: Section 79 insurance plans make use of an IRS tax code that allows companies to take tax deductions on insurance premiums they pay on policies for employees. Those premiums count as part of an employee's compensation, but they are assessed at a reduced tax rate. The plans can be used for tax planning.

CLASSROOM APPLICATION: This article can be used in both individual and corporate income tax classes, and it shows how planning can overlap for owners of businesses.

QUESTIONS: 
1. (Introductory) What is a Section 79 insurance plan? What are the rules for this kind of plan?

2. (Advanced) What are the details of the tax plan Mr. Turner suggested to his clients? Why did he make this suggestion?

3. (Advanced) What are the tax benefits of this plan? Are there benefits other than the tax effects? Are there any drawbacks?

4. (Advanced) Why had the couple planned to buy a second home? What was the problem with that plan?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

 

"Using Insurance to Reduce a Couple's Taxes," by Kelly Kearsley, The Wall Street Journal, November 28, 2014
http://www.wsj.com/articles/using-insurance-to-reduce-a-couples-taxes-1417189905?mod=djem_jiewr_AC_domainid

The couple’s business had a banner year, generating about $1 million in profits--much of which they planned to take as personal income. A

They’d worked with financial adviser Michael Turner to defer $100,000 of that income by establishing a Safe Harbor 401(k) and a profit-sharing plan. But the couple was interested in reducing their income taxes even further.

Unbeknown to Mr. Turner, they hatched an unusual plan to buy a second home in an income tax-free state, thinking it would exempt them from taxes. Mr. Turner had to explain that the laws regarding cross-state taxation meant that the second home likely wouldn’t have the effect they assumed.

“I told them that could still buy a second home if they wanted one, but if their goal was to reduce their income taxes, there were likely more effective options,” says Mr. Turner of Franklin Chase Wealth Management, which manages $5 million for 75 clients in Charlotte, N.C.

Putting additional money into their retirement plans wasn’t a good option, because the plan structures required that they also contribute more to their employees’ accounts at the same time. That wasn’t the couple’s immediate priority. So Mr. Turner found a solution that specifically benefited them: a Section 79 insurance plan.

These plans make use of an IRS tax code that allows companies to take tax deductions on insurance premiums they pay on policies for employees. Those premiums count as part of an employee’s compensation, but they are assessed at a reduced tax rate.

Under Mr. Turner’s plan, the couple’s business purchased separate permanent life policies on the wife and the husband. The policies offered initial death benefits of $3 million and $5 million, respectively, and the premiums totaled $400,000 a year for five years.

IRS rules required that the company also offer their dozen employees $50,000 in group term insurance as part of the program, but the small premiums on those plans didn’t count toward the employees’ income. The employees could choose to add a permanent life policy similar to the owners’ policy. However, being taxed on those additional insurance premiums didn’t make sense for the staff.

“The additional insurance really just works for the owners, who were going to take that income anyway,” Mr. Turner says.

The insurance program provided a dual bonus: The couple’s company was able to take a $400,000 expense deduction for that tax year on those premiums, which reduced the $1 million profit. And though the couple had to count the $400,000 worth of premium payments as personal income, they only owed taxes on 65% of it, or $260,000.

The policy also will provide the couple with tax-free retirement income from a cash-value component of the policy that grows based on an index’s performance, usually the S&P 500. Once the couple retires, they’ll be able to make withdrawals against that cash value, which are tax-free because they are considered “loans” that are deducted against the death benefit.

A drawback of Section 79 plans is that you have enough cash flow to fund the premiums, but the clients’ company was growing fast enough to support the cost. Also, the returns are capped, meaning the policies could feasibly earn less than market returns.

However, in this case, the strategy provided a major deduction on their company’s income, reduced the couple’s personal tax liability, and gave their retirement savings a boost. The adviser notes they also decided against buying that second home.

Continued in article

 


Teaching Case
From The Wall Street Journal Accounting Weekly Review on November 21, 2014

FASB to Consider Delaying Changes to Revenue Recognition Rules
by: Michael Rapoport
Nov 17, 2014
Click here to view the full article on WSJ.com
 

TOPICS: FASB, Revenue Recognition

SUMMARY: The Financial Accounting Standards Board, which sets U.S. accounting rules, plans to reach out to companies and other parties affected by its new rules on revenue recognition, and will assess next year whether a delay is warranted. Accounting rule-makers said they would consider whether to delay implementing new, sweeping changes in how companies book their revenue, in the wake of complaints from some companies that the current effective date of 2017 doesn't give them enough time.

CLASSROOM APPLICATION: This article is appropriate for an update on revenue recognition, as well as for discussing the changing of financial accounting rules.

QUESTIONS: 
1. (Introductory) What is FASB? What is the IASB? What are the purposes of these organizations?

2. (Advanced) What are the new revenue recognition rules? What is the effective date for compliance with those rules?

3. (Advanced) Why are some companies requesting delays in the effective date of the new rules? How much time is needed to make the changes?

4. (Advanced) What factors come into play when determining how long it could take to implement new rules?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

"FASB to Consider Delaying Changes to Revenue Recognition Rules," by Michael Rapoport, The Wall Street Journal, November 17, 2014 ---
http://online.wsj.com/articles/fasb-to-consider-delaying-changes-to-revenue-recognition-rules-1416259797?mod=djem_jiewr_AC_domainid

Accounting rule-makers said Monday they would consider whether to delay implementing new, sweeping changes in how companies book their revenue, in the wake of complaints from some companies that the current effective date of 2017 doesn’t give them enough time.

The Financial Accounting Standards Board, which sets U.S. accounting rules, plans to reach out to companies and other parties affected by its new rules on revenue recognition, and will assess next year whether a delay is warranted, said Cullen Walsh, a FASB assistant director, at a Financial Executives International conference in New York.

Companies such as AT&T Inc., TiVo Inc. and Verizon Communications Inc. have sent letters to the FASB asking for a delay, and “we are taking it seriously,” Mr. Walsh told reporters. The board recognizes that companies “need clarity…one way or another” as to how much time they will have to revamp their practices and systems to put the new rule into effect.

FASB and the International Accounting Standards Board, which sets accounting rules for most companies outside the U.S., both enacted rules in May that will overhaul the ways in which companies book their revenue. The moves are intended to simplify revenue recognition and make it more consistent across companies and industries. But for many companies that will mean significant changes—notably booking some of their revenue either more quickly or more slowly, particularly in industries such as software, autos and wireless communications.

U.S. public companies must implement the rule during 2017, but the preparations are already proving tricky. James Schnurr, the Securities and Exchange Commission’s chief accountant, said earlier this month that SEC staffers have identified as many as 250 different issues to be addressed in how companies put the new rule into effect.

Some companies have said the 2 1/2 years from final passage of the rule to implementation simply isn’t enough. “An extension of the effective date…would afford us the time to fully understand and interpret the new standard prior to beginning any modifications to our current systems,” Verizon said in an August letter to the FASB.

It wasn’t clear Monday whether the IASB also planned to consider a delay in implementing its global rule, which affects companies in more than 100 countries outside the U.S. Mr. Walsh said the IASB is having similar discussions to the FASB’s over whether its rule should be delayed, but IASB spokesman Mark Byatt declined to comment.

At the FEI conference, at the end of a panel about the new revenue-recognition rules, General Motors Co. Controller Tom Timko asked the audience of corporate finance officials and accounting-industry workers how many favored a delay in the effective date. About half the people in the giant hotel ballroom raised their hands.

“I just think there’s still a lot of unknowns at this point in time, still a lot of questions,” Mr. Timko said. “It’s challenging.”

Bob Jensen's threads on revenue accounting controversies ---
http://www.trinity.edu/rjensen/ecommerce/eitf01.htm 


Teaching Case
From The Wall Street Journal Accounting Weekly Review on December 19, 2014

U.K.'s 'Google Tax' Draws Skepticism
by: Lisa Fleisher
Dec 05, 2014
Click here to view the full article on WSJ.com
 

TOPICS: Corporate Taxation, Tax Treaties, International Taxation

SUMMARY: Should profits derived from a ride in an Uber car in London be taxed in the U.K.? How about clicking on a Google ad, or buying a song on Apple 's iTunes? U.K. treasury chief George Osborne introduced a new 25% tax on foreign companies' profits derived from economic activity in the U.K.-aiming to rein in what the government says is tax avoidance by multinationals shifting their tax burden to lower-tax regimes. Big U.S. tech companies, like Facebook Inc. and Google Inc., along with other multinationals, have long been criticized for the relatively small corporate tax they pay in Britain, compared with their large physical presence-including everything from warehouses, retail outlets and employees. But because of a web of treaties-many of them bilateral and individually negotiated between states over the years-many of these companies are legally able to move much of their taxable profits offshore, to lower-tax regimes.

CLASSROOM APPLICATION: This article is appropriate for a corporate taxation class and for international business.

QUESTIONS: 
1. (Introductory) What are the facts of Britain's proposed corporate tax? What types of companies will it impact?

2. (Advanced) Have the companies mentioned in the article purposely avoided taxes in the U.K.? How have the companies paid less in taxes than the U.K. government thinks they should?

3. (Advanced) What are tax treaties? Why do countries agree to take part in them? How could tax treaties affect Britain's new tax proposal?

4. (Advanced) What is the likelihood that this tax legislation will be passed, and the companies will have to pay additional taxes?

5. (Advanced) If this tax becomes effective, how could international business be affected?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

"U.K.'s 'Google Tax' Draws Skepticism," by Lisa Fleisher, The Wall Street Journal, December 5, 2014 ---
http://www.wsj.com/articles/u-k-s-google-tax-draws-skepticism-1417727208?mod=djem_jiewr_AC_domainid

LONDON—The British government hasn’t disclosed many details about a new 25% tax announced Wednesday that it intends to levy on companies it accuses of dodging taxes. But tax experts and attorneys here are already saying it could conflict with international tax treaties, some of which date back to the 1920s.

That would make the new measures difficult to enforce—and easy for companies to challenge. The move is already drawing criticism for being more political rhetoric than sound economic policy.

The measure, unveiled in Parliament Wednesday as part of a broader government spending and taxation plan, is officially called the “diverted profits tax.” But after Chancellor of the Exchequer George Osborne cited multinational technology companies as potential targets of the new tax, the British press quickly dubbed it the “ Google tax.”

Big U.S. tech companies, like Facebook Inc. and Google Inc., along with other multinationals, have long been criticized for the relatively small corporate tax they pay in Britain, compared with their large physical presence—including everything from warehouses, retail outlets and employees. But because of a web of treaties—many of them bilateral and individually negotiated between states over the years—many of these companies are legally able to move much of their taxable profits offshore, to lower-tax regimes.


Teaching Case
From The Wall Street Journal Accounting Weekly Review on December 19, 2014

Expected Tax Breaks Don't Go Far Enough for Some Small Firms
by: Angus Loten
Dec 11, 2014
Click here to view the full article on WSJ.com
 

TOPICS: Corporate Taxation, Deductions, Depreciation, R&D, Tax Planning

SUMMARY: Small-business owners let out sighs of relief following the deal by House lawmakers to retroactively extend tax breaks for spending on research-and-development and equipment. But for some the extension wouldn't go quite far enough. The issue is that the extension applies only to 2014-leaving small-business owners unsure if they'll get similar tax breaks in 2015 too. In 2013, Congress allowed deductions of up to $500,000. After the tax break lapsed in January 2014, the cap on deductions fell to just $25,000.

CLASSROOM APPLICATION: This is an excellent article to illustrate the challenges of tax planning complicated by Congress's propensity to delay enacting and extending tax law.

QUESTIONS: 
1. (Introductory) What is a "tax extender"? What was the example of a tax extender featured in the article?

2. (Advanced) What are the tax rules regarding the business activities mentioned in the article? How do these rules impact business planning? How far ahead should businesses typically plan transactions and acquisitions?

3. (Advanced) Why are some taxpayers frustrated with Congress's pattern of extending tax breaks? How are those taxpayers affected by the timing?

4. (Advanced) Why does Congress delay extending deductions? Why doesn't Congress enact some tax laws to apply for several years at a time? How would this help businesses and the economy?
 

Reviewed By: Linda Christiansen, Indiana University Southeast
 

RELATED ARTICLES: 
Charitable IRA Rollovers Could Get Reprieve
by Anne Tergesen
Dec 14, 2014
Online Exclusive

Senate Votes to Extend Temporary Tax Breaks to End of 2014
by John D. McKinnon
Dec 17, 2014
Online Exclusive

"Expected Tax Breaks Don't Go Far Enough for Some Small Firms," by Angus Loten, The Wall Street Journal, December 11, 2014 ---
http://www.wsj.com/articles/expected-tax-breaks-dont-go-far-enough-for-some-small-firms-1418249161?mod=djem_jiewr_AC_domainid

Small-business owners let out sighs of relief following last week’s deal by House lawmakers to retroactively extend tax breaks for spending on research-and-development and equipment.

But for some, including Lisa Goodbee, the owner of a Denver engineering firm, the extension wouldn’t go quite far enough.

The issue, she says, is that the extension applies only to 2014—leaving her and other small-business owners unsure if they’ll get similar tax breaks in 2015, too.

The federal tax write-off on equipment expenses is “one of the few tax breaks that directly affects my decision-making,” says Ms. Goodbee, whose firm, with $2 million in annual revenue, designs light-rail and other transportation systems.

Back in 2013, for instance, her business relied on that write-off, which then allowed deductions of up to $500,000 in the same tax year. She was able to fully write off purchases of some $50,000 in new laptops and software for her staff of 14 engineers and designers.

But then, after the tax break lapsed in January 2014, the cap on deductions fell to just $25,000. The lower limit forced her to keep equipment and software outlays to a minimum, cutting spending this year by 65%.

Ms. Goodbee says she finds it frustrating to deal with such variation. If she sent a memo to lawmakers, she adds, her message would be that, “As a small business, the most important thing you can do is to help us plan ahead.”


Teaching Case
From The Wall Street Journal Accounting Weekly Review on December 19, 2014

SEC, Big 4 Firms Make Progress in China Audit Dispute
by: Michael Rapoport
Dec 16, 2014
Click here to view the full article on WSJ.com
 

TOPICS: Auditing, Big Four, International Business, SEC

SUMMARY: U.S. regulators and the Chinese affiliates of the Big Four accounting firms have made "substantial progress" toward settling their dispute over access to the firms' audit documents. But Securities and Exchange Commission enforcement officials and the Chinese affiliates of the Big Four firms-PricewaterhouseCoopers, Deloitte Touche Tohmatsu, Ernst & Young and KPMG-say that while their progress toward a settlement has "increased significantly," they still need "significant time and care" to discuss the potential pact, according to an order in the SEC's administrative proceeding against the firms. The discussions involve audit documents the SEC had sought from U.S.-traded Chinese clients of the Big Four accounting firms' China-based affiliates. The order didn't give any details about the prospective terms of a settlement, which the two sides have been discussing since June, or when it might be completed. The SEC had demanded documents from the firms to assist its investigations of some of their U.S.-traded Chinese clients, but the firms refused to turn over the documents, citing strict Chinese laws that treat such documents as akin to "state secrets."

CLASSROOM APPLICATION: This is an interesting auditing article related to issues involved with auditing international businesses.

QUESTIONS: 
1. (Introductory) What are the Big Four accounting firms? Where do they do business?

2. (Introductory) What is the SEC? What is its area of authority?

3. (Advanced) What are the Big Four accounting firms and the SEC attempting to do? Why are they working together on this? What challenges do they face in obtaining information?

4. (Advanced) What potential problems could result if Chinese firms are suspended? How could this issue be resolved?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

"SEC, Big 4 Firms Make Progress in China Audit Dispute," by Michael Rapoport, The Wall Street Journal, December 16, 2014 ---
http://www.wsj.com/articles/sec-big-4-firms-make-progress-in-china-audit-dispute-1418685152?mod=djem_jiewr_AC_domainid

U.S. regulators and the Chinese affiliates of the Big Four accounting firms have made “substantial progress” toward settling their dispute over access to the firms’ audit documents, the two sides said Monday.

But Securities and Exchange Commission enforcement officials and the Chinese affiliates of the Big Four firms—PricewaterhouseCoopers, Deloitte Touche Tohmatsu, Ernst & Young and KPMG—say that while their progress toward a settlement has “increased significantly,” they still need “significant time and care” to discuss the potential pact, according to an order in the SEC’s administrative proceeding against the firms.

The discussions involve audit documents the SEC had sought from U.S.-traded Chinese clients of the Big Four accounting firms’ China-based affiliates. The order didn’t give any details about the prospective terms of a settlement, which the two sides have been discussing since June, or when it might be completed.

The SEC had demanded documents from the firms to assist its investigations of some of their U.S.-traded Chinese clients, but the firms refused to turn over the documents, citing strict Chinese laws that treat such documents as akin to “state secrets.”

In January, an SEC administrative law judge ruled the firms had violated U.S. law and ordered them suspended from auditing U.S.-traded companies for six months. The suspension is on hold while the firms appeal the judge’s ruling to the five-member SEC.

If imposed, a suspension could leave dozens of Chinese companies without auditors and complicate the audits of some U.S.-based multinational companies with major operations in China.

To allow the settlement talks to continue, the SEC granted a request by the Big Four firms and the SEC enforcers for another 70 days before legal briefs on the appeal will be due. The two sides’ briefs, which were due later this week, will now be due Feb. 26. The extension of time is the third since the settlement talks began, and both sides in the order said it is expected to be the last.

 




Humor December 1-31, 2014

An Aging Accountant by David Albrecht ---
http://profalbrecht.wordpress.com/2014/11/

This year, I’ve been working on a top ten list of things to think about today.

10.    Counting is mandatory, a-counting is not.

9.    Your wife doesn’t depreciate you any more.

8.    The tax loophole named after you pays royalties.

7.    The dry cleaner won’t charge for removing today’s coffee stains.

6.    Would the course of history have been different if debits were on the right?

5.    Everyone complains you are accrual.

4.    You are certified but not crazy.

3.    You are a debit to your profession.

2.    How to Frame a Figg (on Netflix) is your favorite movie.

1.    Today only, no spouse can contradict an auditor’s opinion.


Video:  Instead of Milk and Cookies Give Santa Air Freshener for XMAS ---
https://www.youtube.com/watch?v=wW0VYKtJisw


A Southwest Airlines flight landed in Los Angeles with one more passenger than when it took off. A passenger gave birth shortly after Flight 623 took off from San Francisco on Tuesday and the Phoenix-bound jet diverted to Los Angeles International Airport. ---
http://bigstory.ap.org/article/541472211c0e4dc7aac6916b6c602205/baby-born-flight-aboard-airliner-over-california


"When I picked up the little guy, the lioness came over to me and tapped me with her head as if to say: 'take care of him.' And then she left." (zoo keeper) Zerdzicki said. He turned to his old English sheepdog, Carmen, for help. He said the canine was "surprised, at first" by the little lion, but she quickly accepted the cub alongside her five puppies.
http://www.upi.com/Odd_News/2014/10/10/Rejected-lion-cub-adopted-by-sheepdog/2361412952002/?spt=sec&or=on


A British dwarf who dropped his pants at a government office and defecated on the floor was warned by a judge to clean up his act or face jail time.
http://www.upi.com/Odd_News/2014/10/07/Dwarf-who-defecated-on-floor-of-govt-office-warned-with-jail/8791412694237/?spt=sec&or=on




Forwarded by Paula
A born salesman Ole, the smoothest-talking Norske in the Minnesota National Guard, got called up to active duty. Ole's first assignment was in a military induction center. Because he was a good talker, they assigned him the duty of advising new recruits about government benefits, especially the GI life insurance to which they were entitled.

The officer in charge soon noticed that Ole was getting a 99% sign-up rate for the more expensive supplemental form of GI insurance. This was remarkable because it cost these low-income recruits $30 per month for the higher coverage, compared to what the government was already providing at no charge.

The officer decided he'd sit in the back of the room at the next briefing and observe Ole's sales pitch. Ole stood up before the latest group of inductees and said, "If you haf da normal GI insurans an' yoo go to Afghanistan an' get yourself killed, da governmen' pays yer beneficiary $20,000.

If yoo take out da supplemental insurans vich cost you only t'irty dollars a mont, den da governmen' got ta pay yer beneficiary $200,000!"

"Now," Ole concluded, "Vich bunch you tink dey gonna send ta Afghanistan first?"

 




Humor Between December 1-31, 2014 --- http://www.trinity.edu/rjensen/book14q4.htm#Humor123114

Humor Between November 1-30, 2014 --- http://www.trinity.edu/rjensen/book14q4.htm#Humor113014

Humor Between October 1-31, 2014 --- http://www.trinity.edu/rjensen/book14q4.htm#Humor103114

Humor Between September 1-30, 2014 --- http://www.trinity.edu/rjensen/book14q3.htm#Humor093014

Humor Between August 1-31, 2014 --- http://www.trinity.edu/rjensen/book14q3.htm#Humor083114

Humor Between July 1-31, 2014--- http://www.trinity.edu/rjensen/book14q3.htm#Humor073114

Humor Between June 1-31, 2014 --- http://www.trinity.edu/rjensen/book14q2.htm#Humor063014

Humor Between May 1-31, 2014, 2014 --- http://www.trinity.edu/rjensen/book14q2.htm#Humor053114

Humor Between April 1-30, 2014 --- http://www.trinity.edu/rjensen/book14q2.htm#Humor043014

Humor Between March 1-31, 2014 --- http://www.trinity.edu/rjensen/book14q1.htm#Humor033114

Humor Between February 1-28, 2014 --- http://www.trinity.edu/rjensen/book14q1.htm#Humor022814

Humor Between January 1-31, 2014 --- http://www.trinity.edu/rjensen/book14q1.htm#Humor013114

Humor Between December 1-31, 2013 --- http://www.trinity.edu/rjensen/book13q4.htm#Humor123113

Humor Between November 1-30, 2013 --- http://www.trinity.edu/rjensen/book13q4.htm#Humor113013,

Humor Between October 1-31, 2013 --- http://www.trinity.edu/rjensen/book13q4.htm#Humor103113

Humor Between September 1 and September 30, 2013 --- http://www.trinity.edu/rjensen/book13q3.htm#Humor093013

Humor Between July 1 and August 31, 2013 --- http://www.trinity.edu/rjensen/book13q3.htm#Humor083113

Humor Between June 1-30, 2013 --- http://www.trinity.edu/rjensen/book13q2.htm#Humor063013

Humor Between May 1-31, 2013 --- http://www.trinity.edu/rjensen/book13q2.htm#Humor053113

Humor Between April 1-30, 2013 --- http://www.trinity.edu/rjensen/book13q2.htm#Humor043013

 




And that's the way it was on December 31, 2014 with a little help from my friends.

 

Bob Jensen's gateway to millions of other blogs and social/professional networks ---
http://www.trinity.edu/rjensen/ListservRoles.htm

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

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   

Free Online Textbooks, Videos, and Tutorials --- http://www.trinity.edu/rjensen/ElectronicLiterature.htm#Textbooks
Free Tutorials in Various Disciplines --- http://www.trinity.edu/rjensen/Bookbob2.htm#Tutorials
Edutainment and Learning Games --- http://www.trinity.edu/rjensen/000aaa/thetools.htm#Edutainment
Open Sharing Courses --- http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI

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

Bob Jensen's Homepage --- http://www.trinity.edu/rjensen/

Accounting Historians Journal --- http://www.libraries.olemiss.edu/uml/aicpa-library  and http://clio.lib.olemiss.edu/cdm/landingpage/collection/aah
Accounting Historians Journal
Archives--- http://www.olemiss.edu/depts/general_library/dac/files/ahj.html
Accounting History Photographs --- http://www.olemiss.edu/depts/general_library/dac/files/photos.html


 

For an elaboration on the reasons you should join a ListServ (usually for free) go to   http://www.trinity.edu/rjensen/ListServRoles.htm

AECM (Accounting Educators)  http://listserv.aaahq.org/cgi-bin/wa.exe?HOME
The AECM is an email Listserv list which started out as an accounting education technology Listserv. It has mushroomed into the largest global Listserv of accounting education topics of all types, including accounting theory, learning, assessment, cheating, and education topics in general. At the same time it provides a forum for discussions of all hardware and software which can be useful in any way for accounting education at the college/university level. Hardware includes all platforms and peripherals. Software includes spreadsheets, practice sets, multimedia authoring and presentation packages, data base programs, tax packages, World Wide Web applications, etc

Roles of a ListServ --- http://www.trinity.edu/rjensen/ListServRoles.htm
 

CPAS-L (Practitioners) http://pacioli.loyola.edu/cpas-l/  (closed down)
CPAS-L provides a forum for discussions of all aspects of the practice of accounting. It provides an unmoderated environment where issues, questions, comments, ideas, etc. related to accounting can be freely discussed. Members are welcome to take an active role by posting to CPAS-L or an inactive role by just monitoring the list. You qualify for a free subscription if you are either a CPA or a professional accountant in public accounting, private industry, government or education. Others will be denied access.

Yahoo (Practitioners)  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

 


 

Concerns That Academic Accounting Research is Out of Touch With Reality

I think leading academic researchers avoid applied research for the profession because making seminal and creative discoveries that practitioners have not already discovered is enormously difficult. Accounting academe is threatened by the twin dangers of fossilization and scholasticism (of three types: tedium, high tech, and radical chic)
From http://www.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm
 

“Knowledge and competence increasingly developed out of the internal dynamics of esoteric disciplines rather than within the context of shared perceptions of public needs,” writes Bender. “This is not to say that professionalized disciplines or the modern service professions that imitated them became socially irresponsible. But their contributions to society began to flow from their own self-definitions rather than from a reciprocal engagement with general public discourse.”

 

Now, there is a definite note of sadness in Bender’s narrative – as there always tends to be in accounts of the shift from Gemeinschaft to Gesellschaft. Yet it is also clear that the transformation from civic to disciplinary professionalism was necessary.

 

“The new disciplines offered relatively precise subject matter and procedures,” Bender concedes, “at a time when both were greatly confused. The new professionalism also promised guarantees of competence — certification — in an era when criteria of intellectual authority were vague and professional performance was unreliable.”

But in the epilogue to Intellect and Public Life, Bender suggests that the process eventually went too far. “The risk now is precisely the opposite,” he writes. “Academe is threatened by the twin dangers of fossilization and scholasticism (of three types: tedium, high tech, and radical chic). The agenda for the next decade, at least as I see it, ought to be the opening up of the disciplines, the ventilating of professional communities that have come to share too much and that have become too self-referential.”

 

What went wrong in accounting/accountics research? 
How did academic accounting research become a pseudo science?
http://www.trinity.edu/rjensen/theory01.htm#WhatWentWrong

Avoiding applied research for practitioners and failure to attract practitioner interest in academic research journals ---
"Why business ignores the business schools," by Michael Skapinker
Some ideas for applied research ---
http://www.trinity.edu/rjensen/theory01.htm#AcademicsVersusProfession

 

Clinging to Myths in Academe and Failure to Replicate and Authenticate Research Findings
http://www.trinity.edu/rjensen/theory01.htm#Myths

 

Poorly designed and executed experiments that are rarely, I mean very, very rarely, authenticated
http://www.trinity.edu/rjensen/theory01.htm#PoorDesigns
 

Discouragement of case method research by leading journals (TAR, JAR, JAE, etc.) by turning back most submitted cases --- http://www.trinity.edu/rjensen/000aaa/thetools.htm#Cases
 

Economic Theory Errors
Where analytical mathematics in accountics research made a huge mistake relying on flawed economic theory and interval/ratio scaling

http://www.trinity.edu/rjensen/theory01.htm#EconomicTheoryErrors

 

Accentuate the Obvious and Avoid the Tough Problems (like fraud) for Which Data and Models are Lacking
http://www.trinity.edu/rjensen/theory01.htm#AccentuateTheObvious

 

Financial Theory Errors
Where capital market research in accounting made a huge mistake by relying on CAPM

http://www.trinity.edu/rjensen/theory01.htm#AccentuateTheObvious

 

Philosophy of Science is a Dying Discipline
Most scientific papers are probably wrong
http://www.trinity.edu/rjensen/theory01.htm#PhilosophyScienceDying

 

Accountancy, Tax, IFRS, XBRL, and Accounting History News Sites  --- http://www.trinity.edu/rjensen/AccountingNews.htm

Accounting Professors Who Blog --- http://www.trinity.edu/rjensen/ListservRoles.htm

Cool Search Engines That Are Not Google --- http://www.wired.com/epicenter/2009/06/coolsearchengines

Free (updated) Basic Accounting Textbook --- search for Hoyle at
http://www.trinity.edu/rjensen/ElectronicLiterature.htm#Textbooks

CPA Examination --- http://en.wikipedia.org/wiki/Cpa_examination
Free CPA Examination Review Course Courtesy of Joe Hoyle --- http://cpareviewforfree.com/
 


Bob Jensen's Pictures and Stories
http://www.trinity.edu/rjensen/Pictures.htm

 

Bob Jensen's Homepage --- http://www.trinity.edu/rjensen/

 

 

 

November 30, 2014

 

Bob Jensen's New Bookmarks for November 1-30, 2014

Bob Jensen at Trinity University 


For earlier editions of Fraud Updates go to http://www.trinity.edu/rjensen/FraudUpdates.htm
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 Box in Upper Right Corner.
For example if you want to know what Jensen documents have the term "Enron" enter the phrase Jensen AND Enron. Another search engine that covers Trinity and other universities is at 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 Pictures and Stories
http://www.trinity.edu/rjensen/Pictures.htm

 

All my online pictures --- http://www.cs.trinity.edu/~rjensen/PictureHistory/

David Johnstone asked me to write a paper on the following:
"A Scrapbook on What's Wrong with the Past, Present and Future of Accountics Science"
Bob Jensen
February 19, 2014
SSRN Download:  http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2398296 





"What Book Changed Your Mind?" Chronicle of Higher Education's Chronicle Review, November 7, 2014 ---
http://chronicle.com/article/What-Book-Changed-Your-Mind-/149839/?cid=wb&utm_source=wb&utm_medium=en

The Chronicle Review asked 12 scholars what nonfiction book published in the last 30 years has most changed their minds—not merely inspired or influenced their thinking, but profoundly altered the way they regard themselves, their work, the world.

Continued in article
Click of the listing of scholars on the left side of the screen.

Jensen Comment

As usual when asked to name one thing such as my favorite book, my favorite movie, my favorite teacher, favorite cocktail, favorite wine, or my favorite whatever I cannot answer such a question out of context. Context means everything in terms of "favorites."

The same applies when asked to name a thing or event that changed my life because there are so many things that changed my life in certain contexts.  For example the thing that first changed my mind to major in accounting was a notice on the a bulletin board in the Placement Center at Iowa State University. I was only in my first year of college and not really seeking a job, but I went to the Placement Center out of some curiosity that I cannot recall. What I noticed was that if I were (hypothetically) a graduating senior one of the best things to be was an accounting major. The prompted me to sign up for an accounting course in my second year of college even though I was currently a General Science major. That course led me to take a second course in accounting and to discuss accountancy as a career with my professor. The rest is is a history of my life that led ultimately to a Ph.D. and academic career in accountancy. There were other events that changed by aspirations to be a professor instead of a practicing accountant, but I won't go into that here. It had to do with skiing!

Hence if I'm asked to name a book that "changed my life" I have to put it into context --- religion, love life, career, research, etc.

I will put my choice of a book that "changed my life" in the context of my research while I was an accounting faculty member at four different universities. Although I got a Ph.D. in accountancy at Stanford University in the late 1960s, this was a great transition period for accountancy and business schools in general. I entered Stanford's doctoral program as an MBA and CPA and was told focus over 90% of my time and effort learning outside the business school in such areas as mathematics, economics, statistics, and operations research.  The idea was to be on the vanguard of accounting professors who brought more science and mathematics and statistics into academic accounting research.

While at Stanford I stumbled upon a book in the campus library that changed my research life after graduation. The book is not well known but led me to years of conducting research and publishing papers in the area of "cluster analysis."

Cluster Analysis --- http://en.wikipedia.org/wiki/Cluster_analysis

The book is as follows:

Cluster analysis : correlation profile and orthometric (factor) analysis for the isolation of unities in mind and personality
by Robert Choate Tryon
Ann Arbor, Michigan : Edwards brothers, inc., 1939

I never had my own copy of this book, and the book itself was not nearly so important in my research as related books and academic papers on the topics of cluster analysis, numerical taxonomy, factor analysis, and related technical materials.

My point is that the book that changed my life was not necessarily the most important reference work in my changed life. There were far more important references and exposures to other researchers at academic conferences and workshops. But Robert Tryon changed my research life for years to come.

Later my research moved on from cluster analysis, but it was my publishing in cluster analysis that got me promotions, tenure, two years in a think tank at Stanford University, and three endowed chairs before I moved into other topical areas and research methodologies.

Bob Jensen
Retired
 


Video:  A Scenario of Higher Education in 2020

November 14, 2014 message from Denny Beresford

Bob,

The link below is to a very interesting video on the future of higher education – if you haven’t seen it already. I think it’s very consistent with much of what you’ve been saying.

Denny

http://www.youtube.com/watch?v=5gU3FjxY2uQ

November 15, 2014 reply from Bob Jensen

Hi Denny,

Thank you for this link. I agree with many parts of this possible scenario, and viewers should patiently watch it through the Google Epic in 2020.

But this is only one of many possible scenarios, and I definitely do not agree with the predicted timings. None of the predictions for the future will happen in such a short time frame.

It takes a long time for this video to mention the role of colleges as a buffer between living as a protected kid at home and working full time on the mean streets of life. And I don't think campus living and learning in the future will just be for the "wealthy." We're moving toward a time when campus living will be available more and more to gifted non-wealthy students. But we're also moving toward a time when campus living and learning may be available to a smaller percentage of students --- more like Germany where campus education is free, but only the top 25% of the high school graduates are allowed to go to college. The other 75% will rely more and more on distance education and apprenticeship training alternatives.

Last night (November 14) there was a fascinating module on CBS News about a former top NFL lineman (center) for the Rams who in the prime of his career just quit and bought a 1,000 acre farm in North Carolina using the millions of dollars he'd saved until then by playing football.

What was remarkable is that he knew zero about farming until he started learning about it on YouTube. Now he's a successful farmer who gives over 20% of his harvest to food banks for the poor.

This morning I did a brief search and discovered that there are tons of free videos on the technical aspect of farming just as there are tons of videos that I already knew about on how to be a financial analyst trading in derivative financial instruments.

My point is that there will be more and more people who are being educated and trained along the lines of the video in your email message to me.
 http://www.youtube.com/watch?v=5gU3FjxY2uQ 
The education and training will be a lifelong process because there is so much that will be available totally free of charge. We will become more and more like Boy-Girl Scouts earning our badges.

College degrees will be less and less important as the certification badges (competency achievements) mentioned in the video take over as chevrons of expertise and accomplishment. Some badges will be for hobbies, and some badges will be for career advancement.

These are exciting times for education and training. We will become more and more like the Phantom of the Library at Texas A&M without having to live inside a library. This "Phantom" Aggie was a former student who started secretly living and learning in the campus library. Now the world's free "library" is only a few clicks away --- starting with Wikipedia and YouTube and moving on to the thousands of MOOCs now available from prestigious universities ---
http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI 

Also see the new-world library alternatives at
http://www.trinity.edu/rjensen/bookbob2.htm

Thanks Denny

Bob


Question
What are the mysterious (secret?) Validity Concerns of TAR referees that led to rejection of 46% of all submissions to The Accounting Review (TAR) in 2014?

"2014 Annual Report and Editorial Commentary for The Accounting Review," by Editor John Harry Evans III, The Accounting Review, Volume 89, Issue 6 (November 2014) ---
http://aaajournals.org/doi/full/10.2308/accr-10410


 
I. INTRODUCTION

This annual report describes the operations of The Accounting Review during the final year (6/1/2013–5/31/2014) of my three-year term as senior editor, with Stacy Hoffman as editorial assistant. The report represents the sixth edition of a reporting format adopted by the AAA in 2009. Along with summary statistics on The Accounting Review (TAR) operations, I will continue the tradition that Steve Kachelmeier started of providing a commentary for our constituents, particularly the AAA Publications Committee and Board of Directors, the new editorial team headed by Mark DeFond, with Elizabeth Garrett as Editorial Assistant, as well as co-editors, authors, reviewers, and readers of TAR and AAA members. Your comments and questions are welcome.


 
II. THE ACCOUNTING REVIEW EDITORIAL PROCESS

Our third year continued the increasing reliance on the online AllenTrack system, which is evolving further under Mark and Elizabeth. For additional details on our operational processes during our regime, please see the 2013 TAR annual report (Evans 2013). That report also discusses the integrity of the academic research process and the integrity of peer-reviewed journals in that process. In my opinion, these issues become more important each year as more reports of fraudulent research in academic journals become public.


 
III. EDITORIAL AND PUBLICATION STATISTICS
Table 1: Annual Activity Summary

To facilitate comparisons over time, the 2014 report follows the structure of the 2009–2013 reports. The annual TAR workflow has remained relatively consistent during the 2010–2014 period, after an initial adjustment in Steve Kachelmeier's first year in 2009.

Table 1, Panel A reports TAR's comparative workflow statistics for the six years 2009–2014, with the data on a journal-year basis of June 1 through May 31 of the following year. Panel A shows that in 2014 the volume of new submissions increased by 7.3 percent from 543 in 2013 to 583 in 2014. During the first year of the Kachelmeier term, TAR experienced a surge of new submissions, followed by a slight decline in Steve's final two years. Our regime experienced a similar surge in our first year of 2012 relative to 2011, but even further growth in the final year of 2014. The year-over-year growth rates in new submissions versus the corresponding years in the preceding regime have been 2.0 percent, 8.2 percent, and 17.8 percent, respectively. This pattern of increases suggests a generally healthy position of the journal, in terms of this single measure of attracting new submissions. The other columns of Table 1, Panel A show that 2014 achieved new highs in the activity measures of total manuscripts available for evaluation (column (d)), decision letters sent (column (e)) and ending inventory of manuscripts (column (f)).

Next, to permit comparability to years before 2009, Table 1, Panel B provides data on a calendar year (CY) basis beginning in 1998. Panel B indicates that the total of 561 new manuscripts submitted to The Accounting Review in CY2013 is exceeded only by the 582 new submissions in CY2011. The third and fourth columns of Table 1, Panel B track how the increased submissions prompted corresponding increases from four TAR issues annually in 2005 to six issues annually starting in 2008, and associated growth in the total annual published pages.

Table 2: Annual Outcome Summary

Table 2, Panel A reports the editorial outcomes communicated in the total decision letters (column (a)) generated during each of the fiscal or journal years 2009–2014. The final two columns of Panel A of Table 2 use the data in columns (a) to (d) to generate two estimated annual “acceptance rates” for each of the last six fiscal years. For 2014, Acceptance Rate 1 in column (e) divides the 81 acceptances and conditional acceptances in 2014 by the 81 (column (d)) + 466 (column (b)) = 547 “final outcome” decisions, yielding the Acceptance Rate 1 of 14.8 percent. Acceptance Rate 2 in column (f) retains the same 81 acceptances in 2014 in the numerator but now adds to the denominator the 239 “Revise and ‘Uncertain' Decisions” in 2014, which yields an Acceptance Rate 2 of 10.3 percent (81/786). Acceptance Rate 1 can be viewed as an upward-biased measure of the 2014 acceptance rate, whereas Rate 2 is downward-biased, such that the “true” acceptance rate falls somewhere in between—roughly in the 12–13 percent range for 2014. The overall results for 2014 in Table 2, Panel A are largely similar to those for 2011–2013, consistent with the current editorial team's decision to generally retain policies from the preceding regime, together with a generally similar experience in the submission and review process in 2014 as in the previous five years.

Table 2, Panel B presents a slightly different “annual cohort” perspective on acceptance rates. Whereas Panel A focuses on the annual flow of manuscripts and editorial decisions in a given year independent of when those manuscripts were initially submitted, Panel B treats each year's set of new submissions as a unique “cohort” and tracks the eventual outcomes for that cohort over the next several years. Thus, the first two lines of Table 2, Panel B shows that for the journal years ending May 31, 2009 and 2010, TAR received 557 and 502 new submissions, respectively (column (a)), all of which, as column (d) shows, were either accepted or rejected as of five years later on May 31, 2014, yielding acceptance rates of 17.4 percent and 13.7 percent, respectively, for these two cohorts of 2009 and 2010 submissions.

The final three rows of Table 2, Panel B report the corresponding figures for the status of the 2011, 2012, and 2013 submission cohorts. The final two columns present lower and upper bounds on the annual acceptance rates for these three cohorts of new submissions based on different assumptions concerning how many of the manuscripts that remained in process as of 5/31/2014 will ultimately be accepted. The results show that the final acceptance rate for the 2011 cohort of new submissions will fall in the 14.3 percent to 16.3 percent range versus 15.3 percent to 18.8 percent and 5.2 percent to 19.5 percent for the 2012 and 2013 cohorts, respectively. The wider range for the 2013 cohort reflects the fact that a larger percentage of these manuscripts remained in process as of 5/31/2014.

One final observation concerns the relation between TAR acceptance rates, publication rates, and the resulting backlog of accepted but not-yet-published manuscripts. Steve Kachelmeier's regime accepted a sufficient number of articles to build an approximately six-month backlog by the end of his term. Therefore, Stacy and I inherited an inventory of accepted articles to fill the three issues published in our first six months. Throughout the Harry/Stacy term this backlog grew to approximately ten months, which represents five issues. Based on the data in column (d) of Table 2, Panel A, TAR editors have accepted an average of 75.7 articles per year over the last six years. Given that TAR has published 72 articles per year over this period, an additional 3.7 articles per year have been added to the backlog, consistent with the general description above.

Having a sufficient backlog ensures a consistent publication rate and a consistent number of articles per issue in contrast to some earlier years in which TAR published relatively “thin” issues comprised of fewer articles, where “thin” issues can hurt a journal's visibility. On the other hand, having too long of a backlog can result in published articles that are less timely, although the online publication process addresses this concern to some degree. In net, the current backlog seems at least sufficient, and my understanding is that Mark and Elizabeth plan to take action to reduce the backlog, a policy that I endorse.

Exhibit 1: Histogram of Editorial Rounds and Outcomes

Exhibit 1 provides further details on the 786 editorial decisions reported in Table 2, Panel A for the journal year ending May 31, 2014. Exhibit 1 shows that 574 of the 786 decisions (73 percent) were first-round decisions, while 123 (16 percent) were second-round decisions (first revisions) and the remaining 89 (11 percent) were third-round or later. Of the 574 first-round decisions, Panel A of Exhibit 1 shows that rejection was the most common outcome, accounting for approximately 73 percent (227 + 192 = 419 of 574) of the first-round decisions, while the remaining 27 percent of first-round decisions were revisions if we exclude the 2012 Presidential Scholar Address.1 Panel A also shows that of the 419 first-round rejections, we attributed 227 (54 percent) to insufficient contribution, and the other 192 (46 percent) primarily to validity concerns.

Next, Exhibit 1, Panel A shows that of the 154 first-round decisions in 2014 that permitted the authors to submit a revised manuscript, 74 were standard “revise and resubmit” decisions, while the other 80 were more qualified “uncertain” decisions. Both “revise and resubmit” and “uncertain” have outcome risk, but the degree of that risk is substantially higher for an “uncertain” decision. Specifically, an “uncertain” letter informs the author that neither the reviewers nor the editor can envision a viable revision path that would address the identified concerns, but that the editor recognizes that the author might be able to construct such a path. Accordingly, such a letter gives the author an option to revise and resubmit, but without explicitly encouraging the author to do so. The intent is to communicate clearly to the author that withdrawing the manuscript might be in the author's best interest if the author's candid assessment is that the concerns raised cannot feasibly be addressed. Experience indicates that almost all recipients of “uncertain” letters choose to revise and resubmit in spite of the cautions, but the rejection rate on “uncertain” revisions is substantially higher than that for standard invitations to revise and resubmit.

Moving to the second-round or “first revision” decisions, Exhibit 1, Panel B shows that of the 123 total second-round outcomes, 12 received conditional acceptances and 68 received invitations for further revision, with seven of these in the more qualified “uncertain” category. The remaining 43 (13 + 30) second-round letters were rejections, which are always painful. Nevertheless, a third-round rejection is even worse. This consideration encourages editors to make difficult decisions on manuscripts that appear to have potential but achieved only limited progress in the first revision.

By the time a manuscript gets to the third round or beyond, the odds of success increase dramatically. Exhibit 1, Panel C shows that for these manuscripts 68 of the 89 fiscal 2014 decisions were acceptance or conditional acceptance, a rate of 76 percent. Seventeen manuscripts received a further revise and resubmit during the third or later round, and four manuscripts were rejected at this advanced stage of the process. Although we seek to minimize such late-round rejections by making the tough decisions sooner whenever possible, in some cases further rounds appear to be the most appropriate decision despite the risk. Finally, we note that Panel C includes 70 third-round decisions, 18 fourth-round decisions, and one fifth-round decision. Of the 19 fourth- and fifth-round decisions, 18 were conditional acceptances.

Table 3: Submissions and Acceptances by Subject Area and Research Method

Panels A–D in Table 3 compare submissions to acceptances by subject area, research method, and the combination of the two. The results offer important insight concerning patterns and trends, including whether submissions in certain subject areas or using certain methods were more or less likely than others to be published in TAR over the fiscal years 2009–2014. These tables are helpful in responding to conjectures that TAR systematically favors or disfavors particular areas or methods of research, where the conjecture could stem simply from comparing the number of publications across topic areas or research methods. Table 3 provides systematic data by relating acceptance rates to corresponding submission rates. Table 3 counts each study only once, even though many studies go through several rounds of revision before eventually being published or rejected. This approach means that the figures in Table 3 will generally differ from those in Tables 1 and 2, which treat each submitted version of a study as a distinct manuscript.

The general pattern in Table 3 indicates that The Accounting Review accepts articles at rates that are very similar to the corresponding submission rates, whether by topic, by method, or by topic crossed with method.2 The overall similarity in submission and acceptance rates is consistent with the journal's policy of not emphasizing one area or method over another, but rather seeking to reflect the broad interests of AAA members. In turn, this general similarity between submission and acceptance rates is consistent with our process of selecting editors and reviewers. By choosing reviewers for each submission who are experts in the area of that submission, we seek to subject each submission to a comparable review process.

Authors obviously exhibit self-selection preferences in determining the journals to which they direct their submissions. These decisions by authors are one fundamental determinant of ultimate TAR publication rates. For example, although TAR publishes far fewer manuscripts in the accounting systems area or manuscripts employing field study methods as compared to the number of financial archival manuscripts, this difference in publication rates is driven primarily by differences in submission rates rather than by differences in acceptance rates. To see this, compare the two percentages in each cell of Table 3, Panel D. The first (second) percentage indicates that cell's percentage of all submissions (acceptances).

In this way, Table 3, Panel D compares the percentage of all submissions and acceptances by area and method over the last six years, 2009–2014. For example, the two percentages in the cell in Table 3, Panel D for the combination of the financial accounting area and the archival research method are “43.5%” and “(37.5%),” indicating that over the last six years financial archival studies have comprised 43.5 percent of all TAR submissions and 37.5 percent of all TAR acceptances. The resulting [Acceptance Rate − Submission Rate] differential is −6.0 percent, which is the least favorable differential of any cell in Panel D. This pattern is consistent with the observation above that financial archival was the least-favored category by this measure over the 2009–2014 period.

In contrast to the preceding example, the overall pattern of submission and acceptance rates in Table 3, Panel D shows a generally close correspondence between the submission and acceptance percentages. Other than the −6.0 percent difference noted above, none of the individual cells (as opposed to “Total” cells in the bottom row and the far right column) in Table 3, Panel D have [Acceptance Rate − Submission Rate] differentials with absolute values greater than 2.1 percent. The only other distinctive pattern in Table 3, Panel D is that managerial accounting studies have greater acceptance rates than submission rates across all four research method categories, resulting in the bottom “Total” row in Panel D showing that managerial studies for all research methods represent 12.6 percent of TAR submissions, but 17.0 percent of acceptances over the last six years. In my view, the rate differentials documented here are worth noting and tracking in the future. Differences between submission and acceptance rates of −6.0 percent for financial archival studies and +4.4 percent for all managerial accounting studies over a six-year period could potentially represent more than temporary random fluctuations.

The preceding comparison of submissions and acceptances across areas is related to the general TAR policy of openness with respect to a variety of research areas and methods within accounting. One of the important signals that the TAR senior editor can send with respect to openness to research in particular areas or using particular methods is through the make-up of the team of TAR co-editors. For example, I continued the prior regime's approach of signaling TAR's openness to research in the accounting systems area and to studies using field-based methods by inviting Vern Richardson and Ken Merchant, respectively, to serve as TAR editors to handle submissions in accounting systems and field-based studies. Table 3, Panel A shows one acceptance in the systems area in 2014, and the same is true in Table 3, Panel B with one field and case study acceptance in 2014.

More broadly, the process of recruiting an ideal team of TAR editors is an interesting challenge. The challenge comes from attempting to balance the desire to have an editorial team that has subject matter and method expertise across a wide range of areas and methods, while at the same time keeping the total number of editors manageable and balancing the workload equitably across editors. Almost all authors would prefer that one or more of the TAR co-editors have considerable expertise and enthusiasm for the author's research area and method, and further would prefer that one of these editors handle the author's submission. To increase our odds of achieving this matching, I recruited an additional co-editor to bring the total to 14 co-editors, while adjusting the mix of editors' expertise. Specifically, I adjusted the mix of editors slightly away from the experimental/behavioral area and toward the financial archival area because of the prior regime's experience of having to request that editors in the financial archival area handle more than the targeted maximum of 40 new manuscripts per year. Based on our three years of experience, I am confident that these were good decisions. Each of our co-editors has worked very hard during these three years, and we have generally been able to handle all submissions while respecting the agreed maximum workload of 40 new manuscripts (not including revisions) per co-editor per year, in addition to resubmissions. The primary exception has been in the empirical auditing area, where Mike Ettredge has generously handled an average of more than 40 new manuscripts annually over our three-year term.

Continued in article

Jensen Comment
Firstly, I might note that this report has an interesting statistic regarding "Validity Rejections:"

Panel A also shows that of the 419 first-round rejections, we attributed 227 (54 percent) to insufficient contribution, and the other 192 (46 percent) primarily to validity concerns.

I find this frustrating in that there is no elaboration on the things that constitute "Validity Rejections." In virtually all instances these are the concerns of referees and editors. Unlike science journals, the main validity issues often arise due to inability to independently replicate the research and published commentaries of readers of the articles. Since TAR will not publish replications that do not extend the research and does not publish commentaries on published papers, the "Validity Rejections" do not come from the readers ---
http://www.trinity.edu/rjensen/TheoryTAR.htm

Since the "Validity Rejections" come only from TAR referees and editors, it's not at all likely that the scholars who rejected the papers did so on the basis of replication attempts. And the referees and editors did not publish the basis of their "Validity Rejections" it is of zero help to the TAR readership to know what constitutes a "Validity Rejection." I suspect many of the concerns are statistical analysis mistakes or serious concerns ---
http://www.cs.trinity.edu/~rjensen/temp/AccounticsScienceStatisticalMistakes.htm

Even more frustrating, is that unlike real science journals TAR does not encourage validity tests and commentaries of the papers that are published in TAR ---
http://www.trinity.edu/rjensen/TheoryTAR.htm

The implication is that if TAR publishes it the research is valid. I say baloney!
http://www.trinity.edu/rjensen/TheoryTAR.htm

 

Secondly, I might note that once again in 2014 TAR only published accountics science papers in that they had to have equations and/or statistical inference tables. Previous editors of TAR argue this is heavily due to self-selection on the part of authors submitting papers to TAR. However, since editors for four decades of TAR have done zero to encourage submissions of articles without mathematics and statistics, accounting researchers by now conclude that it's hopeless to submit a research paper to TAR that does not have mathematics and/or statistical analysis.

A notable exception is Gregory B. Waymire's very short conference summary paper in the November 2014 issue of TAR. However, this us a summary of papers that do have mathematics and statistical analysis such that I do not consider this to be a true exception to TAR's defacto editorial policy of the past four decades.

My main point of this posting, however, is that it would be terrific in referees who rejected 192 (46%) of the 2014 submissions to TAR on the basis of "Validity Concerns" would soon give us an analysis of what constituted those "Validity Concerns."


"R2 and Idiosyncratic Risk Are Not Interchangeable." by Bin Li, The Accounting Review, November 2014 ---
http://aaajournals.org/doi/full/10.2308/accr-50826

 

A growing literature exists in both finance and accounting on the association between firm-specific variation in stock returns and several aspects of the firm's information or governance environment. Appendix A, Part 1 lists 21 published papers in top-tier finance and accounting journals and the Social Sciences Research Network (SSRN) reports at least 75 working papers. These studies rely on one of two proxies for firm-specific return variation as the dependent variable: 

 

Continued in article

 

Common Statistical Mistakes in Accountics Science ---
http://www.cs.trinity.edu/~rjensen/temp/AccounticsScienceStatisticalMistakes.htm

 


These are the books reviewed in the November 2014 issue of TAR:

http://aaajournals.org/doi/full/10.2308/accr-10404
Unlike articles, TAR's book reviews are free.

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

 


American Accounting Association
2014 Annual Meeting Videos are Now Posted Online (not free to non-AAA members) --- Click Here
http://commons.aaahq.org/hives/8d320fc4aa/summary

 

Featured videos include speakers Jimmy Wales, William Beaver, Condoleezza Rice, Duane Still, and Christine Botosan, as well as a host of workshop and session videos. 


At the 2014 AAA Annual Meeting, two distinguished  researchers graciously agreed to create short videos to convey aspects of their research to share across the academy. The first of these videos is of Professor Ron Dye, of Northwestern University. Stay tuned for the next video to be posted and for others in the future!

 

"An Overview of Accounting Theory from the 1970s to today"
Click HERE to view the video of Professor Ron Dye ---
http://r20.rs6.net/tn.jsp?f=001NHUpVVP3qv5OTc5BrXaKc_WPaseuEioYFFYBIa4k2qUeqRo2Iec3vBh6c-10rdifhdWUm5U_GZDdh-H2u3cYtaKN2CEB4efcEUdZlIWjNi5xfXHv2aN4JssbbMIh_lfMFlORsAe-m2QTpCmi9uajg8h0XYqlO4dIuj3nTIbSSlhnZ_w_opoIqz55VvB_6s_Y7pRFDV1DprBF9DewaDyh7w==&c=0zHDjdss5-KbtLcp3dcDhicPt2RbZGG3vTTM2ZE1pTtE9IYmAIhGXg==&ch=mqOD4t8pspqb50AWkrzB9SjSzaosdGUdvPlbbx3fRe1QMPkhoWr4_A==

Jensen Comment
This is only an overview of a small slice of accounting theory since the 1970s, an accountics science analytical slice as it affected Ron Dye's research. For example if the theory of accounting for derivatives contracts an hedge accounting are completely overlooked. However, he's been teaching accounting theory for years in the framework of analytical models. The theories discussed in this video are pretty well detached from the complexities of the real world of accounting and business decisions.

Ron is a good speaker who uses examples a lot to make his points in this video. He's easy to follow even for viewers without mathematical expertise. However, his presentation lacks the warnings that the research contributions he praises make many underlying assumptions that are seldom met in the real world --- such as the assumptions of equilibrium and rational economic decision making. Often the definition of "information" is quite simplistic (such as number of cars in a container) or overly generalized in terms of real-world uncertainties.

At one time Ron was not overly impressed with the state of accounting research and innovation. Here's an exchange on the AECM in 2008:

January 2, 2008 reply from Bob Jensen

Hi David,

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

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

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

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

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

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

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

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

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

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

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

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

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

_________________

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

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

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

How Accountics Scientists Should Change: 
"Frankly, Scarlett, after I get a hit for my resume in The Accounting Review I just don't give a damn"
http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm
One more mission in what's left of my life will be to try to change this
http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm


The conflict between "never up never in" versus "just trying too hard."

Kobe Bryant is currently ranked Number 4 in terms of NBA points scored. However, he's now Number 1 in terms of missed shots in a single game ---
http://time.com/3580708/kobe-bryant-breaks-nba-record-for-missed-shots/?xid=newsletter-brief

Jensen Comment
Years ago a well-known accounting professor named Williard Stone made the following comment about an assistant professor seeking tenure at the University of Florida. Professor Stone observed that if this candidate would have slowed down in publishing he might have had a better chance of getting tenure. Read that as meaning that Stone thought most of the candidate's publications were crap surrounding some more quality hits ---
http://clio.lib.olemiss.edu/cdm/ref/collection/aah/id/27297


McLaren Applied Technologies --- http://en.wikipedia.org/wiki/McLaren_Applied_Technologies

"KPMG laps up McLaren’s F1-style analytics," by Harriet Agnew, Financial Times, November 20, 2014 ---
http://www.ft.com/intl/cms/s/0/262d0ffe-6fdf-11e4-90af-00144feabdc0.html#axzz3Jo3UdIEO

McLaren Group has signed an alliance with KPMG to apply the same predictive analytics and technology it does to its Formula One team to KPMG’s audit and consulting clients....

Continued in article (that is not free)


"U.S. Audit Regulator Scrutinizing PwC Over Caterpillar Tax Advice:  PCAOB Reviewing Whether Tax Advice Creates Conflict With Audit of Company," by Michael Rapoport, The Wall Street Journal, November 18, 2014 ---
http://online.wsj.com/articles/u-s-audit-regulator-scrutinizing-pwc-over-caterpillar-tax-advice-1416350375

The government’s audit regulator is scrutinizing PricewaterhouseCoopers LLP over tax-saving strategies it provided to audit client Caterpillar Inc., according to people familiar with the matter.

The Public Company Accounting Oversight Board is looking at whether the practice might create a conflict of interest that could compromise PwC’s ability to perform a tough audit of the manufacturer, the people said.

The regulator’s review dates back several months and follows an April request from Sen. Carl Levin (D., Mich.) for the PCAOB to look at the matter after he alleged earlier this year that Caterpillar had deferred or avoided $2.4 billion in taxes under strategies devised by PwC.

Neither PwC nor Caterpillar have been charged with any wrongdoing. PwC and Caterpillar have said that PwC’s advice and Caterpillar’s actions complied with all tax laws.

In April, Sen. Levin sent a letter to the PCAOB requesting that it “conduct a formal review” of the services that PwC provided to Caterpillar.

The letter, a copy of which has been reviewed by The Wall Street Journal, also asks the PCAOB to review whether its rules should be strengthened to prohibit an auditor from auditing a company’s tax obligations when those obligations rely on a tax strategy developed by the same firm.

Accounting firms are required to avoid conflicts of interest that could raise questions about their objectivity and impartiality in conducting an audit of a company.

If a firm provides tax strategies to a company for which it also serves as independent auditor, it could end up auditing its own work.

Colleen Brennan, a PCAOB spokeswoman, said in the wake of Sen. Levin’s concerns, the board “is looking further at the nature of tax services that auditors are performing for their audit clients.” The PCAOB monitors audit firms’ compliance with independence rules through its inspections, and those rules “prohibit auditors from marketing aggressive tax positions to their audit clients,” she said. She didn’t mention PwC or Caterpillar specifically.

The review came to light Tuesday when Jay Hanson, a PCAOB member, mentioned it at an accounting conference in New York. He also didn’t mention PwC or Caterpillar but said members of Congress had asked the PCAOB to review audit firms’ provision of tax strategies to their clients and whether that could affect the auditors’ independence.

News of the PCAOB’s review comes less than two weeks after the release of documents regarding other PwC tax strategies that reportedly helped hundreds of the world’s largest companies avoid billions of dollars in taxes by channeling money through the low-tax country of Luxembourg, according to the International Consortium of Investigative Journalists.

The PCAOB review predates and is unrelated to the Luxembourg matter, Mr. Hanson said. PwC has said the Luxembourg documents were stolen and that its tax advice had complied with applicable laws

Bob Jensen's threads on PwC ---
http://www.trinity.edu/rjensen/Fraud001.htm


"Who gets the best return on stock-market investments? Not finance professionals," by Siri Srinivas, The Guardian, November 17, 2014 ---
http://www.theguardian.com/money/us-money-blog/2014/nov/17/who-gets-best-return-on-investments-not-finance-professionals 

. . .

The researchers conclude that fund managers fared better only when their workplace exposed them to additional information. “This is not about skill, this is about access to superior information,” says Bodnaruk.

This mass rejection of financial expertise may be a deeper generational trend. Lambur observes that millennial investors would rather look to the wisdom of friends and their extended network than go to a financial adviser – especially so after the financial crisis they have lived through. “The younger generation has a deeper distrust of expertise,” he says. Go figure.

 

Jensen Comment
The above paper has some especially interesting quotations from finance professors at leading universities.


Question
What did Galileo Galilei claim was the language of the universe?

Hint
Pacioli wrote a book on this language and claimed it was the language of accounting ---
http://en.wikipedia.org/wiki/Luca_Pacioli

Fra Luca Bartolomeo de Pacioli (sometimes Paccioli or Paciolo; 1445–1517) was an Italian mathematician, Franciscan friar, collaborator with Leonardo da Vinci, and seminal contributor to the field now known as accounting.

Answer from Khan Academy
https://www.khanacademy.org/math/algebra/introduction-to-algebra/overview_hist_alg/v/the-beauty-of-algebra?utm_source=Sailthru&utm_medium=email&utm_term=Stuff You Might Like Test Cohort&utm_campaign=Highlighted Content 110914&utm_content=Final


Download State Sales Tax Rates ---
http://www.taxrates.com/download-tax-tables/?CampaignID=70140000000VMrA&_kk=sales tax&utm_medium=display&_bt=51227303064&_bm=&gclid=CKHYw7CVisICFfLm7AodoHIACg

"Critics: Cuomo's 'Tax-Free' Plan for NY Is Not So Tax-Free," by Cheryl K. Chumley, Newsmax, February 4, 2014 ---
http://www.newsmax.com/Newsfront/Cuomo-New-York-tax-free/2014/02/04/id/550910/ 
Jensen Comment
In part the complicated rules are intended to prevent devious taxpayers from using this "tax-free" plan as a tax haven, especially NYC residents who might try to escape Mayor de Blasio's moves the opposite direction for milking high income residents in NYC. For them, Cuomo's "Tax-Free" Plan could become very complicated if they try to shelter income from Bill de Blasio.

In any case the State of New York still has the least friendly business climate aside from New Jersey. However, governors in virtually all the 50 states have ways of selectively exempting businesses from state taxes in order to either attract new businesses or to keep businesses that threaten to leave from moving to states with more favorable "tax climates."

From the Tax Foundation
"2015 Business Tax Climate: Chilliest in Blue States," by Paul Caron, TaxProf Blog, October 29, 2014 ---
http://taxprof.typepad.com/taxprof_blog/2014/10/2015-business-tax-climate.html

The Tax Foundation yesterday released the 2015 State Business Tax Climate Index, which ranks the fifty states according to five indices: corporate tax, individual income tax, sales tax, unemployment insurance tax, and property tax. Here are the ten states with the best and worst business tax climates:

1

Wyoming

41

Iowa

2

South Dakota

42

Connecticut

3

Nevada

43

Wisconsin

4

Alaska

44

Ohio

5

Florida

45

Rhode Island

6

Montana

46

Vermont

7

New Hampshire

47

Minnesota

8

Indiana

48

California

9

Utah

49

New York

10

Texas

50

New Jersey

Continued in article

Jensen Comment
There are two kinds of tax "climates" in terms of individuals versus businesses. These two climates are highly correlated but there are some instances where a state having a high taxation business climate will give tremendous subsidies and/or tax deferrals to attract businesses and then clobber the individuals who move into the state. New York, for example, has tremendous deals exempting business income and sales taxes for new businesses locating near universities. But the deals do not extend to workers in those businesses.

Washington State did not make the Top 10 in terms of business climate taxation whereas Washington State has no income tax on individuals.

Taxachusetts taxes individuals in every which way and yet comes in at the middle at Rank 24 in terms of business taxes. This may be the reason some wealthy people who work at places like Harvard University commute from New Hampshire. They have to pay a Massachusetts tax on their in-state salaries but they can shield their portfolio capital gains taxes and royalty incomes by living in New Hampshire. Harvard's accounting professor Bob Anthony shielded his huge book revenues from state taxation by commuting in this way for years.

We keep hearing horror stories about Illinois business taxes relative to surrounding states of Indiana and Wisconsin. And yet Illinois did not make the Bottom 10 in the table above. Illinois is instead ranked near the middle at Rank 31. Go figure!


"Audit reveals half of people enrolled in Illinois Medicaid program not eligible," by Craig Cheatham, KMOV Television, November 4, 2013 ---
http://www.kmov.com/news/just-posted/Audit-reveals-half-of-people-enrolled-in-IL-Medicaid-program-not-eligible-230586321.html?utm_content=buffer824ba&utm_source=buffer&utm_medium=twitter&utm_campaign=Buffer

"Medicaid Spending Has Exploded, And It Will Keep Rising Faster Than Expected

"Medicaid Spending Has Exploded, And It Will Keep Rising Faster Than Expected," by John R. Graham, Daily Caller, November 12. 2014 ---
http://dailycaller.com/2014/11/12/medicaid-spending-has-exploded-and-it-will-keep-rising-faster-than-expected/

According to the Centers for Medicare & Medicaid Services (CMS), spending on Medicaid, the jointly funded state-federal welfare program that provides health benefits to low-income people, increased 6.7 percent in 2013 to $449.5 billion. And it will keep growing at a fast rate.

In 2014, total Medicaid spending is projected to grow 12.8 percent because Obamacare has added about 8 million dependents. A large minority of states have chosen to increase residents’ eligibility for Medicaid by expanding coverage to adults making up to 138 percent of the federal poverty level.

Unfortunately, more states are likely to expand this welfare program. This is expected to result in a massive increase in the number of Medicaid dependents: From 73 million in 2013 to 93 million in 2024. Medicaid spending is expected to grow by 6.7 percent in 2015, and 8.6 percent in 2016. For 2016 to 2023, spending growth is projected to be 6.8 percent per year on average.

This comprises a massive increase in welfare dependency and burden on taxpayers. Further, official estimates often low-ball actual experience. This is because it is hard to grapple with how clever states are at leveraging federal dollars.

The Office of the Inspector General of the U.S. Department of Health & Human Services has just released a report that summarizes a decade of research on how states game the system to increase spending beyond that which the federal government anticipated.

The incentive lies in Medicaid’s perverse financing merry-go-round. In a rich state like California, for example, the federal government (pre-Obamacare) spent 50 cents on the dollar for adult dependents. So, if California spent 50 cents, it automatically drew 50 cents from the U.S. Treasury. And most states had a bigger multiplier. Which state politician can resist a deal like that?

Continued in article


"Social Security Administration announces 2015 wage base," by Sally P. Schreiber, Journal of Accountancy, October 23, 2014 ---
http://www.journalofaccountancy.com/News/201411177.htm

On Wednesday, the Social Security Administration (SSA) announced that the wage base above which taxes for old age, survivors, and disability insurance (OASDI) are not due will increase from $117,000 to $118,500 in 2015. The new rate means employees will pay a maximum of $7,347 of OASDI in 2015, with employers paying an equal amount. According to the SSA, 10 million of the estimated 168 million workers who will pay OASDI tax in 2015 will exceed the higher wage base.

The SSA reminded taxpayers that the Medicare hospital insurance (HI) portion of the tax, which is also paid by employers and employees, has no wage limit. It applies to all wages at a rate of 1.45%—unchanged from 2014. The additional Medicare tax of 0.9% also applies to wages in excess of $200,000 for single taxpayers and $250,000 for married taxpayers filing jointly, but there is no employer portion for this tax, although employers must withhold the employee portion.

The SSA also announced a 1.7% cost-of-living increase for Social Security benefits that will take effect in 2015.


"Stanford (Graduate School of Business) Bets Big on Virtual (online) Education," by Natalie Kitroeff and Akane Otani, Bloomberg Businessweek, November 6, 2014 ---
http://www.businessweek.com/articles/2014-11-05/stanford-gsb-offers-executive-certificate-program-completely-online 

Stanford’s Graduate School of Business took its relationship with online education to the next level on Wednesday, when it announced that a new program for company executives will be delivered entirely by way of the Internet.

“I don’t know of anything else like this,” says Audrey Witters, managing director of online executive education at Stanford GSB. “We’ve put together something for a very targeted audience, people who are trying to be corporate innovators, with courses where they all work together. That’s a lot different from taking a MOOC [massive open online course].”

Stanford said it will admit up to 100 people to the LEAD Certificate program, which will begin in May 2015 and deliver the “intimate and academically rigorous on-campus Stanford experience” to students from the comfort of their computer screens. In an effort to make students “really feel connected to each other, to Stanford, and to the faculty,” the eight-course program will encourage students to interact through message boards, online chats, Google Hangouts, and phone calls over the course of its yearlong duration, Witters says.

“We really want to create the high-engagement, community aspect that everyone who comes to Stanford’s campus feels,” she says.

The classes will be offered on a platform supplied by Novoed, a virtual education company started by former Stanford professor Amin Saberi and Stanford Ph.D. student Farnaz Ronaghi. The B-school has invested a significant chunk of its resources in launching the program: About 10 to 15 faculty members are slated to teach the courses. In addition to building a studio where it will film course videos, the school has hired a growing pool of educational technology experts and motion graphic designers to work on the courses, according to Witters.

“This is by far the most serious and most significant initiative by GSB in the online realm,” Saberi says.

People go to business school for more than just lectures, Saberi says, and online programs should be as good at teaching the numbers of business as the art of it. “What we are planning to do is to create a very similar environment online where they can acquire softer skills and build a network of peers.”

The program’s $16,000 price tag dwarfs the online offerings of Stanford’s competitors, including Harvard Business Schools $1,500 nine-week online program and the Wharton School’s entirely free first-year MBA classes, which it put on the virtual platform Coursera last fall.

The program may seem less pricey, though, to the company executives it’s intended for. Business schools have traditionally sold certificates to working professionals for tens, if not hundreds, of thousands of dollars. Stanford’s own six-week, on-campus program costs executives $62,500.

To Novoed, which also provides technology to Wharton, the Haas School of Business, and the Darden School of Business, the Internet is an obvious place for business schools to expand their lucrative executive education programs.

Saberi says companies are interested in elite training programs that don’t require employees to leave their desks. “We expect that programs like this are going to grow.”

100 MOOCs in November 2014 ---
http://www.openculture.com/free_certificate_courses

Accountants might note the following:

Forensic Accounting and Fraud Examination (VC$) – West Virginia University on Coursera – November 3 (5 weeks)

Introduction to financial and management accounting (NI) – Politecnico di Milano on Polimi OPEN KNOWLEDGE – November 10 (3 weeks)

An Introduction to Financial Accounting (VC/SA) – Penn on Coursera – September 5 (10 weeks)
An Introduction to Financial Accounting (SA) – Penn on Coursera – September 16 (10 weeks)

Intro to Accounting (NI) – BYU Hawaii on Canvas – January 13

Introduction to Business in Asia (SA) – Griffith University on Open2study – January 13 (4 weeks)

Accounting Cycle: The Foundation of Business Measurement and Reporting (NI) – Utah State on Canvas – August 5 (4 weeks)

Bob Jensen's threads on MOOCs and free learning resources from prestigious universities ---
http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI

"Disruption Ahead: What MOOCs Will Mean for MBA Programs," Knowledge@wharton Blog, July 16, 2014 ---
http://knowledge.wharton.upenn.edu/article/moocs-mba-programs-opportunities-threats/

In a new research paper, Christian Terwiesch, professor of operations and information management at Wharton, and Karl Ulrich, vice dean of innovation at the school, examine the impact that massive open online courses (MOOCs) will have on business schools and MBA programs. In their study — titled, “Will Video Kill the Classroom Star? The Threat and Opportunity of MOOCs for Full-time MBA Programs” — they identify three possible scenarios that business schools face not just as a result of MOOCs, but also because of the technology embedded in them. In an interview with Knowledge@Wharton, Terwiesch and Ulrich discuss their findings.

An edited transcript of the interview appears below.

Knowledge@Wharton: Christian, perhaps you could start us off by describing the main findings or takeaways from your research?

Terwiesch: Let me preface what we’re going to discuss about business schools by saying that Karl and I have been in the business school world for many, many years. We love this institution, and we really want to make sure that we find a sustainable path forward for business schools.

Continued in article


From FAF:  USA GAAP Education Helper Site
November 19, 2014 message from Terry Warfield

This week the FAF launched a new web page focused on the benefits of Generally Accepted Accounting Principles—GAAP—to public companies, private companies, not-for-profit organizations, and state and local governments in the U.S.  The web page is available at www.accountingfoundation.org/gaap.

This educational portal is part of a broader FAF initiative to highlight the benefits of preparing financial reports according to GAAP.

While many regard GAAP as the “gold standard” of financial reporting for public companies and state governments, there are many private companies, not-for-profits, local governments, and others that may not be familiar with the benefits of using GAAP.

This initiative explores those benefits and also seeks to educate and inform all stakeholders—including preparers, investors, lenders, auditors, taxpayers, and other users—on how GAAP is essential to the efficient functioning of our capital markets and the strengthening of our economy and governments.

We encourage you to visit the new page; take a look around; and experience the new educational material, thought leadership, and videos on the importance of GAAP for public companies, private companies, not-for-profit organizations, and state and local governments. We also have a section dedicated to how the FASB and the GASB are simplifying and improving GAAP.

You are encouraged to share the FAF’s new GAAP web page with others and the FAF welcomes your feedback and input. 

Jensen Comment
Also note
Relaunched FASB Technical Agenda Web Page Brings Online Visitors Up-To-Speed At a Glance  
http://www.fasb.org/technicalagenda

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

Bob Jensen's threads on accounting theory ---
http://www.trinity.edu/rjensen/Theory01.htm


November 19, 2014 message from Dennis Huber

Huber, W.D., & DiGabriele, J.A. (2014). Research in forensic accounting – what matters? Journal of Theoretical Accounting Research, 10(1), 40-70.

The purpose of this paper is to build on and expand Stone and Miller's (2013) (henceforth, Stone and Miller) propositions concerning "what matters" in forensic accounting research. Forensic accounting research that matters is a function of the purpose(s) of forensic accounting research. Stone and Miller's work serves as a prelude for more mature forensic accounting research, a starting point for a debate about what constitutes forensic accounting research that matters. We critique their work and extend the debate by further developing their propositions.

http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=371197

 
 
Dennis

 


"Dissenting From an SEC Windfall For Lawyers:  A $600 million ‘fair fund’ is likely to benefit only class-action attorneys and the fund’s administrators," by SEC Commissioners Daniel M. Gallagher And Michael S. Piwowar, The Wall Street Journal, November 10, 2014 ---
http://online.wsj.com/articles/daniel-m-gallagher-and-michael-s-piwowar-dissenting-from-an-sec-windfall-for-lawyers-1415665948?tesla=y&mod=djemMER_h&mg=reno64-wsj

Earlier this month reports circulated that the Securities and Exchange Commission may set up a $600 million “fair fund” to distribute money collected from defendants to purportedly harmed investors in the insider-trading case SEC v. CR Intrinsic Investors.

In 2012 the SEC charged the Connecticut-based hedge-fund advisory firm CR Intrinsic Investors and former portfolio manager Matthew Martoma in connection with a $276 million insider-trading scheme involving the development of an Alzheimer’s drug by two pharmaceutical companies. The SEC’s complaint alleged that Martoma illegally obtained confidential details about negative results of a clinical trial and that, based on this information, several hedge funds sold more than $960 million in securities, avoiding hundreds of millions of dollars in losses.

In June the federal district court in the Southern District of New York approved a settlement between the SEC and CR Intrinsic. The court then ordered interested parties—including allegedly harmed investors—to make submissions to the SEC as to whether a fair fund should be established to distribute the money collected in the settlement. The court also directed the SEC to make a recommendation on setting up a fair fund.

We strongly object to the SEC’s reported recommendation to set up a fair fund, for a number of reasons. Fair funds can play an important role in returning money to defrauded investors, but in this case it will be incredibly difficult and expensive to identify and compensate the victims. In fact, it may not be possible to know who was harmed.

The only guaranteed winners will be administrators who distribute the fair fund and class-action lawyers who will take a significant cut of any funds paid to their clients. Indeed, plaintiffs lawyers mounted an unprecedented lobbying campaign after the court directed the SEC to make a recommendation about whether to establish a fair fund. Before the vote, our offices received dozens of letters from purported victims urging the commission to petition for a fair fund.

The strikingly similar tone and content of the letters that came cascading into our offices made it clear that they had been sent at the behest of class-action lawyers in a parallel civil action. It was all part of a coordinated campaign by the plaintiffs bar to gain access to the pot of gold at the end of the government investigations rainbow. These lawyers played no part in the commission’s successful enforcement action, yet they may now receive tens of millions of dollars as a result of the majority’s vote.

We refuse to be a part of any commission decision that will create a cottage industry for class-action lawyers, piggybacking on government investigations and targeting the disgorgement—and, even worse, government-ordered penalties—collected from defendants in SEC enforcement actions.

This decision sets a dangerous precedent. Class-action lawyers now have an incentive to round up potential victims in SEC insider trading cases and arrange a substantial contingency fee, then lead a fair-fund campaign under the guise of a grass-roots movement by harmed investors. Class-action lawyers could reap a third of the fair fund payouts thanks to the efforts of hard-working SEC staffers and the taxpayers who pay them.

The most galling aspect of the majority’s decision to seek a fair fund is that it will, in the long run, harm the investors the SEC is supposed to protect. Rather than receiving the maximum possible compensation for their losses under a fair fund, harmed investors are now at greater risk of suffering the additional loss of a significant amount of their potential recovery at the hands of opportunistic trial attorneys. The creation of a fair fund in this case is simply a misguided, massive wealth transfer to plaintiffs lawyers.

Beyond the corrupting influence this fair fund will have on internal SEC processes and the risk of further harm to victims, the majority’s action ignores questions of whether identifying harmed investors and calculating the amount of damages is practical, or even possible. The minuscule chance that some harmed investors might be identified cannot justify the resources that would be expended on a fruitless search.

The majority’s decision is all the more worrisome because it signals that the SEC may seek a fair fund in every insider trading case hereafter. Such a road would lead to pure folly—or in the case of class-action plaintiffs lawyers, to the bank.

Messrs. Gallagher and Piwowar are commissioners at the Securities and Exchange Commission.

Bob Jensen's Fraud Updates are at http://www.trinity.edu/rjensen/FraudUpdates.htm


"Defining roles in prevention of financial reporting fraud," by Ken Tysiac, Journal of Accountancy, November 17, 2014 ---
http://www.journalofaccountancy.com/News/201411371.htm

There is no way to guarantee that an organization will not experience financial reporting fraud.

But research shows that fraud-resistant organizations share three traits:


That’s according to
The Fraud-Resistant Organization, a report released Monday by the Anti-Fraud Collaboration, whose members include the Center for Audit Quality (CAQ), Financial Executives International, The Institute of Internal Auditors, and the National Association of Corporate Directors.

Continued in article

Jensen Comment
One of the problems is that the first trait may make the organization complacent about the other two traits. Exhibit A is Brigham Young University that certainly gets an A+ on the "encouraging an ethical culture" trait. But this made BYU complacent about skepticism and engaging employees in internal controls. Who would have guessed that a financial officer at BYU would pilfer hundreds of thousands of dollars (2002)?
http://www.deseretnews.com/article/948838/Ex-BYU-official-is-charged-with-stealing-fees.html?pg=all

PROVO — Prosecutors say that a former BYU finance officer and his wife used a defunct corporation as a shell to steal hundreds of thousands of dollars in collection fees from the university over several years.

In a preliminary hearing Friday in 4th District Court, deputy Utah County Attorney David Wayment charged that John Davis and his wife, Carol, used an expired corporate name as a front to skim thousands in inflated student fees that were supposed to go to collection agencies.

By the end of the four-hour hearing, Judge James Taylor found probable cause to bind John Davis over on seven counts of theft and one count of racketeering, all second-degree felonies. Taylor, however, found the state lacked enough evidence to prove that Carol Davis knew that potential criminal activity was going on, despite having her name on several bank accounts related to the crime.

Taylor ordered that four counts of theft and one count of racketeering be dropped against Carol Davis.

During the hearing, finance officials with Brigham Young University testified finding strange financial activity involving John Davis, who worked as BYU's supervisor of collections.

Mark Madsen, assistant treasurer over student financial services at BYU, testified of finding several checks requested by John Davis made payable to a company called RCM (Regional Credit Management). Madsen assumed that the company was a collection agency contracted with BYU to collect on outstanding debts from students who had failed to pay their tuition, library fees or parking tickets.

Continued in article

Bob Jensen's Fraud Updates are at http://www.trinity.edu/rjensen/FraudUpdates.htm


Using 1.700 Stolen IDs
"Virginia woman admits $7.2 million child-credit tax scam," by Kenrick Ward, Fox News, November 25, 2014 ---
http://www.foxnews.com/politics/2014/11/25/virginia-woman-admits-72-million-child-credit-tax-scam/?intcmp=latestnews

More than a year after Watchdog reported the IRS sent thousands refunds to the tiny town of Parksley, Va., a woman has pleaded guilty to conspiracy and mail fraud.

Linda Avila admitted to obtaining more than $7.2 million in refunds by exploiting the federal government’s child tax credit program.

Avila filed more than 1,700 tax returns with stolen identifications used by illegal immigrants, mainly from Mexico.

The Virginian-Pilot reported that Avila, 50, operated a landscaping and cleaning business in Parksley.

Investigators found copies of refund checks in amounts from $4,000 to more than $7,000. The tax returns frequently cited foreign dependents, which increased the refund amounts.

Click for more from Watchdog.org ---
http://watchdog.org/184589/child-credit-tax-scam/

Bob Jensen's Fraud Updates are at http://www.trinity.edu/rjensen/FraudUpdates.htm


"What Georgia Tech’s Online Degree in Computer Science Means for Low-Cost Programs," by Steve Kolowich, Chronicle of Higher Education, November 6, 2014 ---
http://chronicle.com/article/What-Georgia-Tech-s-Online/149857/?cid=wc

Among all recent inventions that have to do with MOOCs, the Georgia Institute of Technology’s online master’s program in computer science may have the best chance of changing how much students pay for a traditional degree.

The program, which started last winter, pairs MOOC-like course videos and assessments with a support system of course assistants who work directly with students. The goal is to create a low-cost master’s degree that is nonetheless "just as rigorous" as the on-campus equivalent—producing graduates who are "just as good," to quote one of the new program’s cheerleaders, President Obama. The price: less than $7,000 for the three-year program, a small fraction of the cost of the traditional program.

It’s too early yet for a graduating class. But researchers at Georgia Tech and Harvard University have studied the students who have enrolled in the program, in an effort to figure out "where the demand is coming from and what it’s substituting for educationally," says Joshua S. Goodman, an assistant professor of public policy at Harvard.

By understanding what kinds of students are drawn to the new program, Mr. Goodman and his fellow researchers think they can begin to understand what competitors it might threaten.

Here is what they found out about those students:

How They Are Different

The enrollees are numerous. The online program this year got as many applications as Georgia Tech’s traditional program did during two recent semesters. But while the traditional program accepted only about 15 percent of its applicants, the online program accepted 50 percent, enrolling about 1,800 in its first year. That might not qualify as large in light of the 50,000-students-per-course figures often quoted in reference to MOOCs, but it does make the online program three times as large as the largest traditional master’s programs in computer science, according to the researchers.

They’re older (and they already have jobs). The people enrolling in the online program are 35 years old, on average, and are far more likely to report that they are working rather than studying full time. (The average age of the students in Georgia Tech’s traditional program is 24, with only half indicating that they are employed.) That should not surprise anyone who has even a passing familiarity with online education. Online programs have pitched themselves to adults who are tethered to work and family, and who want to earn degrees without rearranging their lives around a course schedule.

They’re from the United States. Online education is supposed to make geographic borders matter less. But this online master’s program has drawn 80 percent of its students from within the country. By contrast, in the traditional program, 75 percent of the students are foreign, mostly from India and China.

Most of them did not study computer science in college. In the traditional graduate program, 62 percent of students have completed an undergraduate major in computer science. That is true of only 40 percent of the online students. The percentage of undergraduate engineering majors, 27 percent, remained constant.

How They Are Similar

They’re good at school. Unlike San Jose State University’s MOOC-related pilot program, which tried and failed to help underperforming students, Georgia Tech’s online program appeals to students with a proven academic track record, specifically those who earned bachelor’s degrees with a grade-point average of 3.0 or higher. (The university told The Chronicle last year that its first group of applicants averaged a 3.58 GPA—about the same as the students in the traditional program.) They seem to be doing well so far: Courses held last spring and summer saw pass rates of about 88 percent, according to the university.

They’re mostly men. The online program had a lower rate of female applicants than the traditional program did, but there were precious few in either pool: 14 percent and 25 percent, respectively. Among American applicants, the rates were similar: 13 percent and 16 percent.

Over all, the first enrollees in Georgia Tech’s MOOC-like master’s program fit the profile of students who are applying to online graduate programs at institutions across the country.

Continued in article


"The 25 Best Universities In The World For Computer Science," by Melia Robinson, Business Insider, October 30, 2014 ---
http://www.businessinsider.com/best-universities-for-computer-science-2014-10 

Ranking Criteria ---
http://www.topuniversities.com/university-rankings-articles/world-university-rankings/qs-world-university-rankings-methodology


Pushdown Accounting --- http://www.readyratios.com/reference/accounting/push_down_accounting.html

From EY on November 19, 2014

To the Point: FASB makes pushdown accounting optional

 https://americas.ey-vx.com/email_handler.aspx?sid=6fed1484-c411-4260-bf88-75f85e5aca62&redirect=http%3a%2f%2fwww.ey.com%2fPublication%2fvwLUAssetsAL%2fTothePoint_BB2882_Pushdown_19November2014%2f%24FILE%2fTothePoint_BB2882_Pushdown_19November2014.pdf

The FASB issued final guidance that allows all acquired entities to choose to apply pushdown accounting (i.e., reflect the acquirer’s basis of accounting for the acquired entity’s assets and liabilities) when an acquirer obtains control of them. The SEC staff responded by rescinding its guidance on pushdown accounting, meaning SEC registrants and non-registrants will now follow the new US GAAP guidance.

 

For further information on related topics, see our AccountingLink site.

 


How to Mislead With Charts
"How to Lie with Charts," Harvard Business Review, December 2014 ---
https://hbr.org/2014/12/vision-statement-how-to-lie-with-charts
The above link is only a teaser. You have to pay to see the rest of the article.

"BP Misleads You With Charts," by Andrew Price, Good Blog, May 27, 2010 --- Click Here
http://www.good.is/post/bp-misleads-you-with-charts/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+good%2Flbvp+%28GOOD+Main+RSS+Feed%29

"Correlation or Causation? Need to prove something you already believe? Statistics are easy: All you need are two graphs and a leading question," by Vali Chandrasekaran, Business Week, December 1, 2011 ---
http://www.businessweek.com/magazine/correlation-or-causation-12012011-gfx.html

How to Mislead With Statistics
"Reminder: The FBI’s ‘Police Homicide’ Count Is Wrong," by Reuben Fischer-Baum, Nate Silver's 5:38 Blog, November 12, 2014 ---
http://fivethirtyeight.com/datalab/reminder-the-fbis-police-homicide-count-is-wrong/ 

How to Mislead With Statistics
"Some Stats Are Just Nonsense
," by Cullen Roche, Pragmatic Capitalism via Business Insider, November 15, 2014 ---
http://www.businessinsider.com/historical-statistical-and-nonsensical-2014-11

How to Mislead With Statistics
Common Accountics Science and Econometric Science Statistical Mistakes ---
http://www.cs.trinity.edu/~rjensen/temp/AccounticsScienceStatisticalMistakes.htm


Resistance if Futile:  It's Just a Matter of When IFRS Replace USA GAAP?

From the CPA Newsletter on November 11, 2014

SEC official: IFRS recommendation is coming soon
http://r.smartbrief.com/resp/gjizBYbWhBCKBgtACidKtxCicNpBrC?format=standard
James Schnurr, chief accountant of the Securities and Exchange Commission, said Thursday he could recommend soon whether the agency should adopt International Financial Reporting Standards. "I would hope that within the next few months there would be movement on this," he said. The Wall Street Journal (tiered subscription model) (11/6)

Jensen Comment
IFRS takeover of USA GAAP is just a matter of time. Resistance is futile.
http://www.trinity.edu/rjensen/Theory01.htm#MethodsForSetting


From the CPA Newsletter on November 21, 2014

U.K. regulator advises companies against publishing audit-inspection grades
 http://r.smartbrief.com/resp/gmwnBYbWhBCLkxqICidKtxCicNxMUo?format=standard
The U.K. Financial Reporting Council (FRC) guidance contradicts recommendations made by the U.K.'s competition authority that companies publish the results of audit-quality reviews in their annual reports and accounts. The FRC stated that doing so could lead to misunderstanding of the scope or significance of the review, as well as its relevance to the quality of the financial statements. CGMA Magazine online (11/20)

Jensen Comment
This is somewhat analogous to requiring a university accompany each student's transcript with that university's Department of Education Scorecard Review ---
http://www.whitehouse.gov/issues/education/higher-education/college-score-card
The overall Scorecard Review for the university may be misleading in terms of a selected student's performance.


From the CPA Newsletter on November 11, 2014

Fiscal 2014 a record for SEC whistleblower tips ---
http://r.smartbrief.com/resp/gmmABYbWhBCLiLdvCidKtxCicNBmrb?format=standard 
Tips from whistleblowers to the Securities and Exchange Commission exceeded 3,500 in fiscal 2014, the highest annual level since the program started three years ago. Fiscal 2014 also set a record for money awarded to tipsters. Reuters (11/18)


"Here's How the Government Is Wasting Your Tax Dollars," by Barton Hinkle, Reason Magazine, November 5, 2014 ---
http://reason.com/archives/2014/11/05/heres-how-the-government-is-wasting-your

You think the federal government wastes money? You don’t know the half of it. During the past year alone, Washington has shelled out billions to give bureaucrats paid vacations in lieu of discipline; to ship coal to Germany for no reason; to design better golf clubs; and to give bunny rabbits massages — among many other things.

According to received wisdom, Americans ought to be clear about three things: (1) You can’t balance the federal budget by targeting waste, fraud and abuse. (2) The spending cuts imposed by sequestration have been devastating. (3) We might have an Ebola vaccine by now if federal agencies had received adequate funding.

Each of these propositions contains some truth. No amount of pork-trimming can offset the huge outlays for entitlements, which (along with interest on the debt) will soon consume every dollar Washington collects. Sequestration’s cuts do indeed apply equally to crucial government outlays, such as military flight training, as well as foolish ones. And while there’s no guarantee more spending would have produced an Ebola vaccine by now, there’s no guarantee it wouldn’t, either.

But arguments like those offer cold comfort when you page through the latest issue of Sen. Tom Coburn’s Wastebook, which relates just some of the myriad ways the federal government squanders your hard-earned pay.

It begins by noting that many federal workers are placed on paid administrative leave for offenses that, in the private sector, would result in summary dismissal. Such as? Such as buying liquor with government charge cards, watching porn at work or not doing their jobs. At the Department of Homeland Security, 237 employees were put on paid leave for more than 10 days this past year — more than 200 of them for misconduct.

Last year DHS Secretary Janet Napolitano said the sequester would put “our nation at risk” by “significantly negatively affecting . . . operations.” (That’s bureaucrat-speak for harming them.) Yet this year, DHS was able to find enough change in the seat cushions to pay for night-vision goggles, a robot and chemical suits for Ithaca, N.Y. — which already boasts the distinction of being named one of America’s safest small towns by Farmers Insurance.

The House Armed Services Committee has warned that sequestration “put our military and national security at risk.” But Congress can be only so alarmed — given that it continues forcing the Air Force to heat military bases in Germany with anthracite coal mined in Pennsylvania. The Defense Department has pleaded to no avail “to end this earmark because it wasted hundreds of millions of dollars annually,” the Wastebook reports.

The litany of lunacy runs on and on, and includes expenditures such as. . .

A special word ought to be said about the National Science Foundation, which seems to have a fetish for funding ridiculous research projects, to the tune of . . .

Then there’s the National Center for Complementary and Alternative Medicine, an arm of the National Institutes of Health. In the past two years, it has spent $387,000 on a study testing the effects of Swedish massage on the muscle recovery of rabbits that had recently been exercised.

That should come in real handy in the fight against Ebola.

Jensen Comment
These remind me of the famous Golden Fleece Awards issued by Wisconsin's Senator Proxmire years ago ---
http://en.wikipedia.org/wiki/Golden_Fleece_Award


From the American Library Association
Advocacy: Online Learning --- http://www.ala.org/onlinelearning/issues/advocacy
Also see the following links from Bob Jensen

Growth Worldwide --- http://www.trinity.edu/rjensen/HigherEdControversies.htm#DistanceEducation

Alternatives Worldwide --- http://www.trinity.edu/rjensen/CrossBorder.htm

Free online tutorials, videos, and courses from prestigious universities ---
http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI


Jensen Comment:  This blog posting by Joe "puzzles" me.
"HOW TO WRITE A TEST," by Joe Hoyle, Teaching Blog, October 28, 2014 ---
http://joehoyle-teaching.blogspot.com/2014/10/how-to-write-test.html

This posting is indirectly related to my threads on
"Edutainment, Learning Games, and Gamification"
http://www.trinity.edu/rjensen/000aaa/thetools.htm#Edutainment


"Editors needed to promote sets of articles based on debatable issues," by Jim Martin, MAAW's Blog, October 31, 2014 ---
http://maaw.blogspot.com/2014/10/editors-needed-to-promote-sets-of.html

Jensen Comment
I've been saying this for years for accountics science journals, but accountics scientists do not seem to want to debate controversial issues by refusing to publish commentaries and even replications ---
http://www.trinity.edu/rjensen/TheoryTAR.htm

For years Accounting Horizons lost sight of its original mission and became just another accountics science journal according to accounting historian Steve Zeff. But then something happened that illustrates what can happen when AAA journals appoint editors who are not paranoid accountics scientists. This happened with the appointment of Dana Hermanson as editor of Accounting Horizons. Among other things, Dana encouraged submissions of commentaries on controversial issues.
http://www.trinity.edu/rjensen/TheoryTAR.htm#AH

The highlight of the promoting "sets of articles on debatable issues" is illustrated by invitations to publish four essays in the December 2012 issue of AH:
"Introduction for Essays on the State of Accounting Scholarship," Gregory B. Waymire, Accounting Horizons, December 2012, Vol. 26, No. 4, pp. 817-819 ---
 http://aaajournals.org/doi/full/10.2308/acch-50236

The four essays in this bundle are summarized and extensively quoted at http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm#Essays 

You can read excerpts of these four essays at
http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm#Essays
I especially encourage a detailed reading of the "Cargo Cult Science" article by Sudipta Basu that seems to be despised by most accountics scientists that have communicated with me about this controversial article. Bravo Sudipta!

My point to Jim Martin is that Accounting Horizons seems to have turned the corner on publishing of controversial articles and commentaries. I'm still waiting for the day when TAR publishes a controversial article without equations and/or statistical inference tables. Just one is all I ask for for starters.

November 2, 2014 reply from Jim Martin

Bob,
I would like to see debates in the Journal of Accountancy since that is the largest potential audience (more than half a million according to the JOA) and perhaps followed by debates in the academic journals.

However, I think AAA panel discussions on certain issues at the annual meeting would be a good place to start. The 1990 debate by Kaplan, Shank, Boer and Horngren published in the Journal of Management Accounting Research was the edited version of an AAA panel discussion.

An example topic for a panel discussion might be something like, "Models for management accounting related decisions that avoid the dysfunctional behavior of the traditional accounting model." I believe someone on the theory of constraints side would be interested. Lean accounting advocates might want to be represented. Perhaps the activity based management, and the balanced scorecard advocates as well. The panel or group of debaters needs to include people with backgrounds other than accounting. The probability that accountants will ever solve the flaws associated with accounting is pretty low since accountants have a built-in bias to protect traditional accounting. Rather than reengineering the entire information system they tweak the system with activity accounting, target costing, value stream accounting, resource consumption accounting etc., but the underlying accounting system stays the same. People with engineering, production, operations research, and other backgrounds need to get involved. Unfortunately, these groups don't talk to each other very often or read each others publications. Goldratt's publications seems to be an exception.

 


Customer Loyalty Versus Free Cash Flow
"
Amazon’s Future: Looking Beyond the Balance Sheet," by Peter Fader and Daniel Raff," Knowledge@wharton, October 28, 2014 ---
http://knowledge.wharton.upenn.edu/article/kw-radio-faderraff-amazon/

Jensen Comment
There are many good things contributing to Amazon's extreme customer loyalty, and I've experienced nearly all the good things. For me the biggest thing is the ease of using the software such as tracking orders and obtaining a complete history of orders going back years. For example, rather than look up a product I sometimes go to my archived orders and look up when I last ordered the item. Then with one click I order it once again.

I've not found an online company with easier return software that includes free shipping cost for returning merchandise (even if you did not pay for shipping in the first place).

I like the guarantee that you will be happy with used items (like books) that you buy from other vendors like individuals who are simply putting some of their library on sale through Amazon. I like being able to pay for such items at Amazon so I don't have to give my credit card number to vendors who sell through Amazon.

Lastly I like the enormous selection of size as well as style. For example, in stores I'm lucky to find a pair of trousers I like in terms of style and color, but I'm not likely to be lucky in also finding the correct size such as the correct leg length. At Amazon I can find the preferred style, color, and size with the easiest possible search software and one-click ordering.

For a guy who does not like to "waste" a whole lot of time and fuel on shopping, give me Amazon whenever I need almost anything except for items where there are local dealer advantages or at-home service contracts. For example, I prefer to buy TV sets, freezers, computers, and most anything with a gasoline or diesel engine from a vendor who will conveniently service the item at my home, e.g., especially the Sears at-home service contracts. The Sears at-home service contract on heavy items is fantastic --- things like snow throwers, washing machines, kitchen appliances, sewing machines, etc. Amazon cannot compete with Sears on such items.

By the way, Sears will now sell service contracts on some products that you bought elsewhere --- like our walking machine. To date, Sears has put in two new motors and three new belts on a walking machine that I did not buy from Sears. The parts and labor cost me zero after paying $140 for a five-year service contract. More importantly, there's no charge for a service call even when the repair guy has to travel almost 200 miles round trip to get to our house in the White Mountains.

I'm really, really worried that Sears is now having serious cash flow problems. I don't worry two hoots about Amazon's cash flow problem, because Amazon does not have a survival problem. I do worry about the survival of Sears.


"Evernote and Markdown: Two Tools that Work Great Together," by Amy Cavender, Chronicle of Higher Education, November 10, 2014 ---
http://chronicle.com/blogs/profhacker/evernote-and-markdown-two-tools-that-work-great-together/58457?cid=wc&utm_source=wc&utm_medium=en

Sometimes, I come across ideas for posts quite by accident.

Early this afternoon (November 6), for instance, I was looking at the wiki that we use for scheduling our posts, trying to figure out my posting schedule for the next few weeks. I was also wondering whether I’d be able to post something for the week of November 10. We try to have our posts in by midnight on Thursday of the week before the post runs, and I was, quite frankly, drawing a blank on post ideas.

I’d pretty much concluded I’d have to put posting anything off for a week, and I turned to other concerns. I’ve been frustrated with my writing (or lack thereof) lately, and I’ve been thinking I need to restart a daily writing practice — something along the lines of using 750words.com, but without relying on that service

Readers may recall that I recently wrote about using Evernote in the classroom. In that post, I noted that I use Evernote for storing all kinds of information, not just for keeping track of my class notes. Since everything in my Evernote account is searchable, it seemed a good place to start keeping that daily writing.

The catch is that I’ve started doing most of my writing in Markdown, for a number of reasons. (I won’t go into them here, but if you’d like some good reasons and a quick introduction to Markdown, check out Lincoln’s post from a few years back.)
So far as I’m aware, Evernote doesn’t handle Markdown natively. Still, I was sure there had to be a way to get them working together, and that more than likely some clever person had already figured something out. So off to Google I went, and I found this:
Evernote for Sublime Text. I’ve been using Sublime Text for most of my writing for some months now. A Sublime Text package that integrates with my Evernote account is ideal. I can do my writing in the application and markup language I’ve become most accustomed to using, and can send daily work to my Evernote account with just a few keystrokes, and without having to leave Sublime Text. The note shows up in Evernote formatted in rich text, but I can easily open it (or any other note in my account) again in Sublime Text to continue editing in Markdown. This may turn out to be just the tool I was looking for.

It turned out to be a fine post idea, too.

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


Historical Research on Accountants’ Salaries ---
http://accountingonion.com/2014/11/research-on-accountants-salaries.html

Hi Tom,

A complicating factor in this survey is overtime. One of the reasons I left Ernst and Ernst to become an accounting professor was too much overtime at E&E Denver. Actually I mean too much overtime in ski season.

When I started out with E&E tax accountants were tax experts who did not have computer software making all the complicated legal decisions. After New Years Day we started spending upwards of 60 hours per week in the back room trying to figure out how clients should report their taxes.

On Saturday and Sunday mornings I would ride the elevator up the the 17th floor of Denver's First National Bank Building recalling that when I was still a student at Denver University. I would instead be riding three successive chair lifts to the top of the mountain at Aspen.

My DU accounting professors seemingly only worked 12-16 hours per week. That was when I decided that being an accounting professor was the way to go for a ski bum.

Eventually, after I graduated from Stanford, and I moved to my first faculty job at Michigan State University I never skied again. Instead I worked 60+ hours a week trying to get tenure. And there was no overtime pay for research and writing.

My point is that Notre Dame in this survey will probably have a difficult time factoring overtime for me back in the E&E office. Overtime was a highly variable thing with almost none in the summers and tons of it in the winters.

Now I suspect overtime is not such a big deal in the EY office in Denver in 2015. Staff accountants will pretty much feed the accounting data into highly sophisticated tax computers and watch the return copies get printed. The hard copy is not even mailed to the IRS. The IRS wants eFiling in 2015.

I wonder what percentage of EY staff accountants in Denver these days will be wearing casts on their legs and arms during the 2015 ski season? Sigh!

Respectfully,
Bob Jensen

 


November 17, 2014 message from Richard Campbell

See attached for my first "newsletter" - which features active links to 18 videos on the time value of money. I also have an interactive quiz on the 18 videos. Feel free to use it in your intermediate accounting classes.
If any individual faculty member wants to be on my mailing list, email me at
campbell@virtualpublishing.net

I think you will see how klutzy both the Kieso and Spiceland intermediate texts are in respect to their coverage of the time value of money.
I will next move on to coverage of managerial accounting and illustrate how trivial some of the problems are in the major textbooks.
Richard Campbell
www.VirtualPublishing.NET

Hi Richard,

Thank you for sharing the videos on computing bond prices and yields using the PV and RATE Excel functions. These should be useful when introducing time value of money ---
http://virtualpublishing.net/wordpress1/

However, in my AIS and Accounting Theory courses I thought it was important for students to learn why bond prices and yields computed in this elementary manner rarely equal, or in many cases even come close, to bond prices and yields in the real-world such as those in The Wall Street Journal and FINRA. For real world derivations Excel's specialized bond pricing and yield formulas work better.

A huge complication is that you assume finding bonds of "comparable risk." In the real world it's usually impossible to find bonds having the same default risk, the same number of time periods to maturity, the same coupon dates, etc. Sadly, virtually all accounting textbooks overlook this enormous problem.

I made my students learn how to look up real-world bond prices and yields for real companies in FINRA ---
http://www.finra.org/

A video that illustrates deriving FINRA's bond price and yield of a McDonald's debenture can be found at ---
https://www.youtube.com/watch?v=XkZ_diws6Hg

Excel's specialized bond functions are as follows:

Bond Prices

Bond Yields

I made Camtasia videos showing when and how to use all the above Excel functions using the FINRA database. Sadly, my videos no longer work due to a tragic decision of Microsoft to drop an audio codec in Windows 7 and beyond --- a codec that was used by Camtasia until then.

If I were still teaching I would divide my students into teams and have them make their own Camtasia videos showing how to use the above Excel bond functions and the FINRA database (or the Dow Jones database).

I had similar problems when teaching FAS 133 in Accounting Theory. It's one thing to teach derivatives using hypothetical examples and quite another to teach derivatives using real-world databases. In my Accounting Theory course students I made students learn how to use the CBOT and CBOE databases. The Websites for those trading exchanges have some wonderful tutorials that I assigned to my students.

Beyond pricing bonds is the more complicated problem of valuing interest rate swaps in bonds. I have a tutorial and video on how to do that at
http://www.trinity.edu/rjensen/acct5341/speakers/133swapvalue.htm


"Are Business Majors Harder to Love?" by Akane Otani, Bloomberg Businessweek, November 7, 2014 ---
http://www.businessweek.com/articles/2014-11-07/college-business-majors-dont-get-emotional-support-from-teachers

Jensen Comment
I always thought I was pretty easy to love, but my students most likely did not think the same way.

This begs the question about loving accounting majors apart from the general population of business majors. Accounting majors are probably even harder to love since they go to work as auditors, IRS agents, and FBI probers --- only one poet in a million.


How to Mislead With Statistics
"The 10 Best Jobs For 2015," by Jacquelyn Smith, Business Insider, November 20, 2014 ---
http://www.businessinsider.com/best-jobs-for-2015-2014-11?op=1

. . .

Marketing Executive

Software Developer, Applications

Registered Nurse

Industrial Engineer

Network and Computer System Administrator

Web Developer

Medical and Health Services Manager

Physical Therapist

Speech-Language Pathologist

Continued in article

Jensen Comment
The above article is terrible in many respects.

  1. The biggest failing is that it does not define "best jobs." There are many criteria for "best jobs." Best can be defined in terms of starting compensation packages, demand versus supply, mobility (e.g., are the jobs only available in larger urban centers or are they available in rural areas across the USA), amount of overnight travel required, promotion opportunities and career paths, nature of the compensation (fixed salary versus bonuses versus sales commissions) etc.
     
  2. The article does list "growth potential" as an annual percentage growth in compensation, but this is highly misleading. In some careers the inflation-adjusted compensation is asymptotic. The growth in compensation for a Registered Nurse or a Physical Therapist may be 5% per year for the first few years, but the after adjusting for inflation the growth potential is likely to be asymptotic as it approaches the high end in that career. A CPA or computer program may work for a firm for five years and then go to work for a client at double or triple compensation rates.
     
  3. The article mixes executive jobs like Marketing Executive, Network and Computer System Administrator, and Medical and Health Services Manager with non-executive jobs like Registered Nurse, Physical Therapist, and Speech-Language Pathologist. There are usually entry jobs available for Registered Nurse, Physical Therapist, and Speech-Language Pathologist, but nobody graduates after four years expecting to get job offers as a Marketing Executive or a "Manager" of anything.
     
  4. Some job categories are too vague in terms of a high degree of variance in opportunity and compensation. For example, Web Developers are a dime a dozen with extremely high variance in opportunity and compensation.
     
  5. In my opinion, the "best jobs" at the time of graduation are those with high demand, on-the-job-training, and client/customer exposures that will lead to huge opportunities down the road. The starting salary is very low in importance if a job offers tremendous opportunity for training and career advancement. For example, a new CPA in a large accounting firm usually receives very extensive training and exposure to clients that will offer tremendous job offers down the road. A Registered Nurse, Physical Therapist, and Speech-Language Pathologist may end up doing pretty much the same thing for 40+ years.
     
  6. For men or women with family responsibilities some jobs can be performed heavily without leaving the home or children. For example, many CPA firms now let workers work from home computers a very large share of the work week. This is usually not the case for a all of the above supposed "best jobs" other than possibly a "Web Developer."
     
  7. I'm confused why "Industrial Engineer" beats out other types of engineers in the above ranking. Most rankings that I have seen before list the Chemical Engineers and Electrical Engineers well above Industrial Engineers. Civil Engineers don't fare as well.
     

I could go on and on lambasting the above article. but perhaps you get the idea by now.


How to Mislead With Statistics:  Ignore the Variance and Ignore the Outliers (in this case graduates without law jobs)
"Why Huge Salaries Don't Necessarily Make Law Grads Rich," bv Akane Otani, Bloomberg Businessweek, October 22, 2014 ---
http://www.businessweek.com/articles/2014-10-22/law-school-grads-make-good-salaries-but-have-high-debt-and-few-jobs

Graduates of Harvard Law School, among all the graduate schools in the U.S., make the most money, earning a median salary of $201,000 once they are 10 years out of school, according to a new report. Law schools rank higher than other graduate programs when it comes to salaries, yet skyrocketing debt and a thinning job market for law graduates may dampen the appeal of a J.D.

Harvard Law School, Emory University School of Law, and Santa Clara University School of Law topped salary rankings for graduate and professional programs in a study released Wednesday by compensation-tracking company PayScale. Of the top 20 schools, 12 were law schools. The rest were business schools.

Despite a few law schools dominating the rankings, law school graduates did not hold claim to the most lucrative degree on the market. The median midcareer salary for a law school graduate was $139,300—a far smaller sum than the figures boasted by the schools that topped PayScale’s rankings. Considering that the median debt load for law school graduates rose to $140,616 in 2012, even a six-figure salary doesn’t sound as glamorous.

What’s more, Payscale’s data didn’t factor in law school grads who don’t have jobs—and jobs are scarcer for lawyers now than they have been in years. The employment rate for law school graduates has dropped six years in a row. “Since 1985, there have only been two classes with an overall employment rate below [84.5 percent], and both of those occurred in the aftermath of the 1990-91 recession,” the National Association for Law Placement said in a report this summer. Over the past decade, at least 12 firms, accounting for more than 1,000 lawyers, have shut their doors. Others are eyeing cuts among partners.

One reason why a J.D. isn’t a get-rich-quick guarantee is the wide range of salaries within the field of law. A new graduate working as a public interest lawyer or for local government will make an average of $60,000 or less a year, according to the NALP.

“If you want to be a public defender vs. a corporate attorney, there is going to be a big difference in terms of ability to pay off your loans,” says Lydia Frank, editorial and marketing director for PayScale. “Because there’s such a wide variety in earnings potential, you can’t assume that any job you’re going to pursue with a J.D. is going to be equal.”

While the salary rankings may provide a good benchmark for what’s possible with an elite law degree, great job connections, and a lucrative specialty, the average would-be lawyer should think carefully about the return on an investment in legal education.

“If you’re going to take out ‘X’ amount in student loans, you really want to have a good understanding of the likelihood of being able to repay that loan in a timely fashion,” Frank says. “I think it still behooves everybody to really examine things other than salary potential, such as employment potential for JDs.”

Jensen Comment
Traditionally, accounting graduates who go to work for large CPA firms get great training and great client exposure. The bad news is that probabilities of attaining partnerships after 6-10 years are very low. The good news is that prospects of going to work for clients are high, and new graduates never wanted the pressures, travel, and time commitments of partnerships in CPA firms in the first place.

Among the least-wanted pressures are the pressures to obtain new clients via lots of night and weekend community volunteer work, golf outings that aren't all that much fun, and selling the firms' services over and over and over year after year Some of the things that discourage faculty from striving to be college presidents also discourage staff accountants and lawyers from seeking partnerships.

My point is that winnings of the  highest salaries as partners in both law and accounting firms are not all they're cracked up to be in terms of job stress, long hours, frequent travel, glad-handing, broken marriages, neglected children, etc. Most of the very good lawyers and accountants want no part of this partnership lifestyle even at much higher compensation. Men and women partners who are also parents are advised to have spouses who will take on the chores of child rearing and keeping the home fires burning.

A bummer for finance and marketing graduates is performance-based compensation. For example, landing that job on Wall Street sounds great until you realize that your pay is really based upon sales commissions. It's not a great life unless you really like to spend your days wooing customers to buy what you're selling (like bonds and derivatives) year after year after year.


"Where the Jobs Are," Inside Higher Ed, April 23, 2014 ---
http://www.insidehighered.com/quicktakes/2014/04/23/where-jobs-are#sthash.NKe4NhNO.dpbs

A new analysis of available jobs finds that the highest demand (among openings for college graduates) is for white-collar professional occupations (33 percent) and science and technology occupations (28 percent). The analysis -- by the Georgetown University Center on Education and the Workforce -- is consistent with that center's past research, in finding many more opportunities for those with a bachelor's degree than for those without a college degree.

The new study is based on online job advertisements. The most in-demand professional jobs are accountants/auditors and medical/health service managers. In STEM, the most in-demand jobs are for applications software developers and computer systems analysts.

Jensen Comment
There's a bit of mixing of apples and oranges here. The study says it looks at bachelor's degrees. But in in order to take the CPA exam accountants and auditors mush have 150 credits which for most graduates translates to a masters degree. Also many medical/health service programs are graduates of masters of health care administration programs such as the graduate health care administration program at Trinity University.

In some cases like chemistry and biology the job prospects with a bachelor's degree are mostly lousy McJobs. But those majors have an edge for being admitted to graduate programs, especially medical schools, where opportunities abound upon graduation.

For those rejected for graduate schools or who cannot afford graduate schools, career opportunities are probably better in the skilled trades such as those $150,000 - $200,000 welding jobs.

Bob Jensen's career helpers ---
http://www.trinity.edu/rjensen/Bookbob1.htm#careers


"When Stock Buybacks Are Not a Waste of Money," by Justin Fox, Harvard Business Review Blog, November  4, 2014 --- Click Here
https://hbr.org/2014/11/when-stock-buybacks-are-not-a-waste-of-money/?utm_source=newsletter_finance&utm_medium=email&utm_campaign=finance050611&cm_ite=finance-111914+%281%29&cm_lm=rjensen%40trinity.edu&referral=00209&cm_ven=spop-email&cm_mmc=email-_-newsletter-_-finance-_-finance050611

Buying back stock, pretty much corporate America’s favorite thing to do with its money over the past decade, has come in for a lot of criticism this fall. In an epic September 2014 HBR article, Profits Without Prosperity,” economist William Lazonick blamed buybacks for much of what ails the U.S. economy. His arguments have begun to catch on, in the media at least.

Two years ago, though, HBR Press published a book that cast buybacks in a much different light. In The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success, Will Thorndike described how share buybacks had helped drive several of the most remarkable corporate successes of the past half century. The Outsiders has been described by The Wall Street Journal as the “playbook” for many of the activist investors currently pushing companies to buy back more shares.

So I asked Thorndike, a managing director at the private equity firm Housatonic Partners, what gives: Are buybacks a travesty, or smart capital allocation? What follows is an edited and condensed version of our conversation. But first, I should probably define a few things that come up: A tender offer is when a company publicly offers to buy a large number of shares, at a set price, over a limited time period. P/E means price-to-earnings ratio. And John Malone is a cable-TV billionaire who figures prominently in Thorndike’s book.

I guess I’ll start where your book starts, with Henry Singleton, who is really the father of the modern stock buyback. What did he do?

The way to think about Henry Singleton is that he demonstrated kind of unique range as a capital allocator. He built Teledyne [in the 1960s] largely by using his very high P/E  to acquire a wide range of businesses. He bought 130 companies, all but two of them in stock deals. Throughout that decade his stock traded at an average P/E north of 20, and he was buying businesses at a typical P/E of 12. So it was a highly accretive activity for his shareholders.

That was Phase One. Then he abruptly stops acquiring when the P/E on his stock falls at the very end of the decade, 1969, and focuses on optimizing operations. He pokes his head up in the early ‘70s and all of a sudden his stock is trading in the mid single digits on a P/E basis, and he begins a series of significant stock repurchases. Starting in ‘72, going to ’84, across eight significant tender offers, he buys in 90% of his shares. So he’s sort of the unparalleled repurchase champion.

When he started doing that in ‘72, and across that entire period, buybacks were very unconventional. They were viewed by Wall Street as a sign of weakness. Singleton sort of resolutely ignored the conventional wisdom and the related noise from the media and the sell side. He was an aggressive issuer when his stock was highly priced, and an aggressive purchaser when it was priced at a discount to the market.

The other seven companies in the book, buybacks were a big part of their success too, right?

Yes, that’s correct. Of the eight companies in the book, all but Berkshire Hathaway — kind of a special case, Warren Buffett’s company — bought in 30% or more of shares outstanding over the course of the CEO’s tenure.

Is part of it the era? Most of these stories you tell, the bear market of the ‘70s and early ‘80s is right in the middle of them.

There’s definitely some meaningful overlap across that group in terms of their tenures. But John Malone’s buyback activity is just extraordinary over the last five to eight years. And Buffett has signaled for the first time ever that he’s a buyer. He’s gone from a non-active buyback CEO to one who has changed his approach and gotten very specific about it for the first time, which is interesting.

So in the 1970s, when Henry Singleton and some of these others were getting into buybacks, it was seen as weird, a sign of weakness. Now I think we’re going through the greatest buyback wave ever. Is that good news for investors?Corporate America’s track record buying in stock is just horrendous. It’s terrible. We are now again approaching a peak of buyback activity, no matter how you measure it. The prior peak occurred in the second half of 2007, the last market peak. The trough in corporate buyback activity? Early ’09. So, kind of a perfect contra-indicator for the stock market.

Not surprisingly, many studies have shown that buybacks don’t produce great returns. But there are very different approaches to buybacks, and they produce very different outcomes. The typical way that corporate America implements a buyback is the board announces an authorization, which is usually equal to a relatively small percentage of market cap — low to mid single digits — and they then proceed to implement that authorization by buying in a specific amount of stock every quarter. Sort of a metronome-like pattern. And generally the amount of stock they repurchase is designed to offset options grants.

The approach of the CEOs in the book was entirely different. It was pioneered by Singleton, and it involved very sporadic, sizable repurchases. I mentioned that Singleton bought in those 90% of shares over eight tender offers. The largest was the last one, which he did in 1984. He bought in 40% of shares outstanding. He tendered for 20-25% and there was excess demand, so he bought in all the shares [that were offered to him].

It’s very different mindset. You’re looking at a stock repurchase as an investment decision with a return and you’re comparing that return to other alternatives, and when it’s attractive you’re aggressive in implementing it.

With Carl Icahn and Apple, Icahn’s argument is, “Do a tender offer, because the stock is relatively cheap compared to where I think it’s headed.”

That’s exactly right. It’s very interesting to see, [because] tenders are rare these days. Even Malone, he’s used tenders occasionally, but he’s generally doing open-market purchases. But you can still implement that sporadic, large-purchase approach in the open market. It’s just you don’t see it that often.

I think the world divides into people who are serious about repurchases and those who are doing it for more cosmetic reasons. You could look at a list of companies who’ve bought in some minimum threshold of shares over the last 24 months, and that’s a group who’s going to have a very different philosophy in this area than the broader market.

Continued in article

Jensen Comment
I'm a cynic on this issue. I think all too many buybacks are motivated by executives seeking more compensation based upon earnings-per-share increases. These fall under what Professor Fox calls "cosmetic." I think all too often the buybacks are motivated for cosmetic reasons that lead to higher executive compensation.


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

The death of a family farm
What do Wal-Mart, Mars and Cargill have in common? Apart from being three of America’s most high-profile corporate success stories – they are all family run businesses. As the very foundations of the American corporate landscape, almost a third of all U.S businesses are family owned. But transfer of power and influence within a company –big or small – from generation to generation is also often fraught with jealousy, suspicion and divergent ideas about the way things should run.
This piece by Kristina Johnson for Fast Company presents the anatomy of the demise one such business – a family run dairy farm. Factors akin to the aforementioned played out between father and son – coupled with externalities such as drought and unrelenting competition from bigger operations – all conspire to bring this family business to a bitter end.

Jensen Comment
One of the major factors killing the family farm is the price of quality farm land. Decades ago, when a farmer died the children, let's say four children, could often come to an agreement that one of the siblings buy the farm with the proceeds being divided among the other heirs. Often the buyer was the one running the farm at the time the retired farmer (usually the father) died. One of the heirs may well have been the spouse in addition to her children.

The problem in the 21st Century is that quality farms are so valuable that one of the heirs cannot afford to buy out the other heirs. A section of land in Iowa is one square mile. A section of good farm land in Iowa these days sells for upwards of $5 million. They typical heir farming the land often has well over $1 million invested in machinery plus owes the bank tens of thousands of dollars for investments in crops, investments like seed, fertilizer, and herbicide sprays. That heir is just unable to raise the money needed to pay out the other heirs. And so the farm is sold off to wealthy investors, sometimes to corporations from other nations like China. The heir who farms the land may even continue to farm the land as a renter. But then it's no longer a "family farm."

Decades ago a section of land in Iowa was a huge farm. It was also possible in some instances to divide the farm estate into quarter sections where each heir then had a quarter-section (160 acre farm). It was possible in those days to support a family on a quarter section. These days that is no longer realistic because of the price of machinery. Machinery in the 21st Century is made for efficient farming on very large farms. It just does not pay to invest in machinery to farm only 160 acres or possibly even 240 acres of land. I inherited a 160-acre farm that was rented to Farmer X. Farmer X owned 240 acres plus rented two quarter sections of land. When the two rental farms were sold to other investors he went out of business by selling his own land.


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

Advisory work may cloud audit integrity, PCAOB member says ---
http://blogs.wsj.com/cfo/2014/11/24/advisory-work-may-cloud-audit-integrity-pcaob-chair-says/?mod=djemCFO_h
A prominent member of the Public Company Accounting Oversight Board has warned that the rise of non-audit services offered by accounting firms could threaten the quality and integrity of independent audits. Steven Harris, chair of the watchdog’s investor advisory board, said that services such as tax consulting tread the thin regulatory line established by the SEC that dictates the kinds of consulting and advisory work audit firms can perform for clients. “Investors are concerned that the firms may not maintain their public watchdog, total independence and complete fidelity to the public trust responsibilities,” he said Monday. The rise of advisory services has essentially changed the culture and tone at the top of audit firms. Revenue from non-audit services at the “Big 4” audit firms rose $14 billion to $65 billion between 2009 and 2013. Revenues from audit services rose $3 billion during the same period, Mr. Harris said.

U.S. Audit Regulator Scrutinizing PwC Over Caterpillar Tax Advice:  PCAOB Reviewing Whether Tax Advice Creates Conflict With Audit of Company," by Michael Rapoport, The Wall Street Journal, November 18, 2014 ---
http://online.wsj.com/articles/u-s-audit-regulator-scrutinizing-pwc-over-caterpillar-tax-advice-1416350375

The government’s audit regulator is scrutinizing PricewaterhouseCoopers LLP over tax-saving strategies it provided to audit client Caterpillar Inc., according to people familiar with the matter.

The Public Company Accounting Oversight Board is looking at whether the practice might create a conflict of interest that could compromise PwC’s ability to perform a tough audit of the manufacturer, the people said.

The regulator’s review dates back several months and follows an April request from Sen. Carl Levin (D., Mich.) for the PCAOB to look at the matter after he alleged earlier this year that Caterpillar had deferred or avoided $2.4 billion in taxes under strategies devised by PwC.

Neither PwC nor Caterpillar have been charged with any wrongdoing. PwC and Caterpillar have said that PwC’s advice and Caterpillar’s actions complied with all tax laws.

In April, Sen. Levin sent a letter to the PCAOB requesting that it “conduct a formal review” of the services that PwC provided to Caterpillar.

The letter, a copy of which has been reviewed by The Wall Street Journal, also asks the PCAOB to review whether its rules should be strengthened to prohibit an auditor from auditing a company’s tax obligations when those obligations rely on a tax strategy developed by the same firm.

Accounting firms are required to avoid conflicts of interest that could raise questions about their objectivity and impartiality in conducting an audit of a company.

If a firm provides tax strategies to a company for which it also serves as independent auditor, it could end up auditing its own work.

Colleen Brennan, a PCAOB spokeswoman, said in the wake of Sen. Levin’s concerns, the board “is looking further at the nature of tax services that auditors are performing for their audit clients.” The PCAOB monitors audit firms’ compliance with independence rules through its inspections, and those rules “prohibit auditors from marketing aggressive tax positions to their audit clients,” she said. She didn’t mention PwC or Caterpillar specifically.

The review came to light Tuesday when Jay Hanson, a PCAOB member, mentioned it at an accounting conference in New York. He also didn’t mention PwC or Caterpillar but said members of Congress had asked the PCAOB to review audit firms’ provision of tax strategies to their clients and whether that could affect the auditors’ independence.

News of the PCAOB’s review comes less than two weeks after the release of documents regarding other PwC tax strategies that reportedly helped hundreds of the world’s largest companies avoid billions of dollars in taxes by channeling money through the low-tax country of Luxembourg, according to the International Consortium of Investigative Journalists.

The PCAOB review predates and is unrelated to the Luxembourg matter, Mr. Hanson said. PwC has said the Luxembourg documents were stolen and that its tax advice had complied with applicable laws

Bob Jensen's threads on PwC ---
http://www.trinity.edu/rjensen/Fraud001.htm

Bob Jensen's threads on audit firm professionalism and independence ---
http://www.trinity.edu/rjensen/Fraud001c.htm


From the CFO Journal's Morning Ledger on  November 20, 2014

Inside Apple’s broken sapphire deal ---
http://online.wsj.com/articles/inside-apples-broken-sapphire-factory-1416436043?mod=djemCFO_h
The relationship between Apple Inc. and GT Advanced Technologies Inc., the sapphire-screen manufacturer that declared bankruptcy last month, was a troubled one from the get-go. For one, GT hadn’t mass-produced sapphire before the Apple deal last year. GT’s meltdown underscores the promise and peril for Apple suppliers. An Apple deal can generate billions in revenue. But it also means adapting to huge fluctuations in demand, at razor-thin profit margins and with little room for error.


From the CFO Journal's Morning Ledger on  November 19, 2014

Smaller companies slow to adopt new rules for internal controls ---
http://blogs.wsj.com/cfo/2014/11/19/smaller-companies-slow-to-adopt-new-rules-for-internal-controls/?mod=djemCFO_h
Smaller firms aren’t keeping up with their larger brethren in adopting new internal controls as the Dec. 15 deadline approaches, CFO Journal’s John Kester reports. While businesses aren’t legally required to adopt the new framework, known as COSO 2013, those that cling to the old edition that hasn’t changed since 1992 could face questions from the SEC and investors.


Africa:  Contract sanctity and enforcement are necessary conditions of capitalism
From the CFO Journal's Morning Ledger on  November 18, 2014

Businesses in African nations are making strides in keeping better books and becoming more transparent to investors, with more recently adopting International Financial Reporting Standards, CFO Journal’s Kimberly S. Johnson reports. Sub-Saharan Africa has long lagged the developed world in governance practices, but on several fronts that is improving, and that positions the continent for growth.

Still, Africa is hardly a monolith, with varying struggles from region to region. Ghana, Kenya and Rwanda have enjoyed relative political stability, and that has had a halo effect on the region. “Many people paint Africa with one brush, but it’s 54 different countries,” said James Newlands, a partner at Ernst & Young LLP’s Africa practice.

The experience of Nigeria’s stock exchange highlights spots of progress. Two weeks ago, the CEO of the Nigerian Stock Exchange launched a corporate-governance rating system that puts its 190 major companies—including Unilever Nigeria PLC, Total Nigeria PLC and Oando PLC—through a rigorous assessment that requires them to answer questions about business ethics, internal and external audit and control, transparency and disclosure. Is your business challenged to expand in Africa due to limited financial expertise there? Send us a note or let us know in the comments.

 


From the CFO Journal's Morning Ledger on  November 17, 2014

The Web is dying, and apps are killing it
http://online.wsj.com/articles/the-web-is-dying-apps-are-killing-it-1416169934?mod=djemCFO_h
The Web—that thin veneer of human-readable design on top of the machine babble that constitutes the Internet—is dying. And the way it’s dying has farther-reaching implications than almost anything else in technology, writes the WSJ’s Christopher Mims. The advances that apps provide feel like a win for users, but they also signal the end of the openness that allowed Internet companies to grow. App stores are walled gardens where the likes of Apple Inc., Google Inc. and Amazon.com Inc. get to set the rules, and they routinely take huge fees on transactions and ban apps that offend their sensibilities.


From the CFO Journal's Morning Ledger on  November 17, 2014

Actavis PLC’s potential deal with Allergan Inc. is a backdoor to tax savings that have become harder to come by since the U.S. Treasury Department cracked down this fall on tax-friendly merger deals known as inversions, the WSJ’s Dana Mattioli reports. Actavis got the lower rate for itself when it relocated to Ireland in 2013 through a $5 billion deal it struck with Warner Chilcott PLC.

As a result of that deal, Actavis was able to strip out tax when it bought Forest Laboratories Inc., based in New York. And now with Allergan, Actavis is coming back for seconds. Estimates vary, but analysts say Actavis, whose tax rate is about 16%, could shave $240 million to $370 million off Allergan’s tax bill in 2015.

In addition to the tax benefits, a deal with Actavis could shield Allergan from hostile suitor Valeant Pharmaceuticals International Inc. But closing a deal is still a big if, as Valeant may sweeten its offer. A deal for Allergan would also be a big bite for Actavis, whose market cap barely exceeds that of its deal target.


From the CFO Journal's Morning Ledger on  November 11, 2014

Four Tips for Complying with Regulations in Health Care
http://deloitte.wsj.com/cfo/2014/11/13/four-tips-for-complying-with-regulations-in-health-care/

Health care providers face the challenge of having to manage the often competing demands of adopting health information technologies, securing patient data and complying with myriad regulations while reducing the cost and increasing the quality of care. To address security and compliance risks in such a complex environment, executives can focus on activities that take a risk-based approach to prioritizing security investments and implement controls aimed at preventing breaches, while helping to shore up funding for new investments.

Continue Reading Today's Article »

Read more Deloitte Insights »


Mobile-Game Makers:  Roller-coaster accounting and revenue shifts
From the CFO Journal's Morning Ledger on  November 11, 2014

It may be bad for a mobile-game maker’s business if players don’t stick with its games for long, but, because of accounting rules for virtual goods, it can drive revenue higher in the short term, CFO Journal reports. Anticipating when players will lose interest is an essential part of recording revenue in the industry, where the sale of “virtual durable goods,” such as cows and tractors in “FarmVille” or cannons and dark barracks in “Clash of Clans,” is a major source of income. (Just ask this Slate columnist, who was shocked to find himself spending “real money” in one.)

When game companies like Zynga Inc. or King Digital Entertainment PLC change their assumptions, it can skew their short-term results. Some virtual goods, like potions or spells, are good for a single use so accounted for as a one-time sale, but virtual durable goods that are continuously available to a player, like a tractor, are accounted for like services or club memberships. Companies book part of the payment upfront, but defer the rest until the average period in which the item will be used.

The Securities and Exchange Commission has sent more than two dozen letters to the companies since 2010, asking them to explain how they come up with their estimates on length of use of the virtual durable goods. Game makers say they base their estimates on historical data, but that the playing periods can change substantially each year. That could make for some roller-coaster accounting—and revenue shifts to go with it.

Bob Jensen's threads on revenue accounting controversies ---
http://www.trinity.edu/rjensen/ecommerce/eitf01.htm


From the CPA Newsletter on November 17, 2014

How to calculate gain or loss in an identified mixed straddle
 http://r.smartbrief.com/resp/gmdeBYbWhBCLgHoGCidKtxCicNIGih?format=standard
New regulations require unrealized gain or loss on a straddle to be recognized when the taxpayer establishes an identified mixed straddle. This article discusses how taxpayers can elect to offset these gains and losses from positions that are part of a mixed straddle. The Tax Adviser (11/2014)

Bob Jensen's Excel workbook on Hedging and Speculating Strategies With Derivatives ---
www.cs.trinity.edu/~rjensen/Calgary/CD/Graphing.xls 
Note the tabs at the bottom of the workbook.
Students need to learn about hedging and speculating strategies before attempting to learn the accounting rules in FAS 133, IAS 39, and now IFRS 9.


From the CPA Newsletter on November 6, 2014

FASB issues hedge-accounting guidance, seeks feedback on fair value measurement rule ---
http://r.smartbrief.com/resp/gjagBYbWhBCKzchwCidKtxCicNqthI?format=standard

The Financial Accounting Standards Board has issued a derivatives and hedge-accounting standard to decide whether a hybrid instrument issued as a share should be treated like debt or equity. Separately, FASB is seeking feedback on a proposal to change how companies apply fair value measurement regulations to some investments.
Compliance Week/Accounting & Auditing Update blog (11/5)

From the IFRS Report Newsletter on the AICPA on February 6, 2014

IASB completes hedge-accounting model
The International Accounting Standards Board has completed its hedge-accounting model to be added to IFRS 9 Financial Instruments. The principles-based standard is intended to reflect risk-management activities more closely in financial statements. Key areas of change include more identifiable risk components, a reduced burden of proving the efficacy of a hedge and changes in accounting for the time value of an option. Financial Director (U.K.) (1/16)

From the CFO Journal's Morning Ledger on February 12, 2014

Companies unclear on EU derivatives rules
New reporting requirements for over-the-counter derivatives trades in Europe take effect today, but companies are still uncertain about whether the regulation applies to them, according to a survey by Chatham Financial. The European Market Infrastructure Regulation, known as EMIR, requires European and multinational companies to report over-the-counter and listed derivatives transactions with an EU-recognized trade repository. To comply, CFOs will need to report more than 60 data points for each transaction, and will also need to choose a repository,
Saranya Kapur notes. They may also decide to contract with a third party or delegate reporting responsibility to their bank counterparties, if all of their trade counterparties agree to take on the operational responsibility.

Jensen Comment
The bottom line is that the forthcoming IAS 9 is replete with "principles-based" subjectivity ---
http://www.trinity.edu/rjensen/Theory01.htm#BrightLines

Put another way the IASB yielded to pressures to go soft on rules to allow hedge accounting. If you are looking for differences between IFRS versus FASB standards, this is one of the biggest differences in accounting standards. If it intended to disclose more about risk management activities dropping the previous IAS 39 requirement to identify and possibly bifurcating embedded derivatives is a loser. Reduced standards on testing for hedge effectiveness is another huge loser.

Jensen Comment
Hedge accounting is one of the areas where the IASB departed dramatically from the very complicated FAS 133 and its subsequent amendments ---

PwC:  IFRS and US GAAP: similarities and differences - 2014 edition (224 pages) --- Click Here
http://www.pwc.com/us/en/cfodirect/issues/ifrs-adoption-convergence/ifrs-and-us-gaap-similarities-and-differences.jhtml?display=/us/en/cfodirect/issues/accounting-reporting

Table of contents
Importance of being financially bilingual 4
IFRS first-time adoption 7
Revenue recognition 11
Expense recognition—share-based payments 30
Expense recognition—employee benefits 41
Assets—nonfinancial assets 54
Assets—financial assets 80
Liabilities—taxes 102
Liabilities—other 114
Financial liabilities and equity 123
Derivatives and hedging 139
Consolidation 157
Business combinations 177
Other accounting and reporting topics 185
IFRS for small and medium-sized entities 205
FASB/IASB project summary exhibit 209 Noteworthy updates 211
 Index 215

Similarities and Differences - A comparison of IFRS for SMEs and 'full IFRS' ---
http://www.pwc.com/en_GX/gx/ifrs-reporting/pdf/Sims_diffs_IFRS_SMEs.pdf

Bob Jensen's free tutorials on hedge accounting ---
http://www.trinity.edu/rjensen/caseans/000index.htm


From the CPA Newsletter on November 5, 2014

Internal controls help drive down financial restatements ---
http://r.smartbrief.com/resp/giwSBYbWhBCKxJiUCidKtxCicNKDyH?format=standard

Close to one-quarter of restatements this year included a notice that questioned the validity of previous financial statements, Audit Analytics reports. That figure is down from two-thirds in 2005. Reasons for the drop include better internal controls and improved financial-reporting software and information technology. 
The Wall Street Journal (tiered subscription model)/CFO Journal blog (11/4)


Committee of Sponsoring Organizations of the Treadway Commission (COSO) ---
http://en.wikipedia.org/wiki/Committee_of_Sponsoring_Organizations_of_the_Treadway_Commission

"COSO’s ERM framework to undergo update," by Ken Tysiac, Journal of Accountancy, October 21, 2014 ---
http://www.journalofaccountancy.com/News/201411173.htm

A well-known framework for risk management is scheduled for another update.

The Committee of Sponsoring Organizations of the Treadway Commission (COSO) announced Tuesday that it is undertaking a project to update its Enterprise Risk Management—Integrated Framework, which debuted in 2004.

Organizations use the framework to help them manage uncertainty, consider how much risk to accept, and improve understanding of their opportunities to increase and preserve value.

The update is being undertaken to improve the framework’s content and relevance in the context of an increasingly complex business environment. The update is intended to:

  • Reflect the evolution of risk management thinking and practices, as well as stakeholder expectations.
  • Develop tools to help management report risk information, and review and assess the application of enterprise risk management.


PwC has been engaged to update the framework under the direction of COSO’s board. PwC will seek input and feedback on the project, and will conduct a survey seeking opinions on the current framework and suggestions for improvements.

More information is available at coso.org.

COSO is a committee of five sponsoring organizations, including the AICPA, that come together periodically to provide thought leadership on enterprise risk management, internal control, and fraud deterrence.

In 2013, COSO completed an update of its internal control framework to reflect changes in technology and the business environment that have taken place since that framework’s origination in 1992.

 

What's New with COSO?

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

Implementing COSO's Internal Control-Integrated Framework ---
http://deloitte.wsj.com/cfo/2014/09/26/implementing-cosos-internal-control-integrated-framework/

To unlock the value that can be achieved by adopting COSO's 2013 Internal Con