September 30, 2007

 

 

Bob Jensen's New Bookmarks on September 30, 2007
Bob Jensen at Trinity University 

For earlier editions of Tidbits go to http://www.trinity.edu/rjensen/TidbitsDirectory.htm
For earlier editions of New Bookmarks go to http://www.trinity.edu/rjensen/bookurl.htm 

Click here to search Bob Jensen's web site if you have key words to enter --- Search Site.
For example if you want to know what Jensen documents have the term "Enron" enter the phrase Jensen AND Enron. Another search engine that covers Trinity and other universities is at http://www.searchedu.com/.

Bob Jensen's Blogs --- http://www.trinity.edu/rjensen/JensenBlogs.htm
Current and past editions of my newsletter called New Bookmarks --- http://www.trinity.edu/rjensen/bookurl.htm
Current and past editions of my newsletter called Tidbits --- http://www.trinity.edu/rjensen/TidbitsDirectory.htm
Current and past editions of my newsletter called Fraud Updates --- http://www.trinity.edu/rjensen/FraudUpdates.htm
 

Bob Jensen's past presentations and lectures --- http://www.trinity.edu/rjensen/resume.htm#Presentations   
 

Bob Jensen's various threads --- http://www.trinity.edu/rjensen/threads.htm
       (Also scroll down to the table at http://www.trinity.edu/rjensen/ )

Roles of a ListServ --- http://www.trinity.edu/rjensen/ListServRoles.htm

Click here to search this Website if you have key words to enter --- Search Site.
For example if you want to know what Jensen documents have the term "Enron" enter the phrase Jensen AND Enron. Another search engine that covers Trinity and other universities is at http://www.searchedu.com/

Bob Jensen's Home Page is at http://www.trinity.edu/rjensen/

CPA Examination --- http://en.wikipedia.org/wiki/Cpa_examination

Accountancy Discussion ListServs:

For an elaboration on the reasons you should join a ListServ (usually for free) go to   http://www.trinity.edu/rjensen/ListServRoles.htm

AECM (Educators)  http://pacioli.loyola.edu/aecm/  AECM is an email Listserv list which provides a forum for discussions of all hardware and software which can be useful in any way for accounting education at the college/university level. Hardware includes all platforms and peripherals. Software includes spreadsheets, practice sets, multimedia authoring and presentation packages, data base programs, tax packages, World Wide Web applications, etc Roles of a ListServ --- http://www.trinity.edu/rjensen/ListServRoles.htm

CPAS-L (Practitioners) http://pacioli.loyola.edu/cpas-l/  CPAS-L provides a forum for discussions of all aspects of the practice of accounting. It provides an unmoderated environment where issues, questions, comments, ideas, etc. related to accounting can be freely discussed. Members are welcome to take an active role by posting to CPAS-L or an inactive role by just monitoring the list. You qualify for a free subscription if you are either a CPA or a professional accountant in public accounting, private industry, government or education. Others will be denied access.

Yahoo (Practitioners)  http://groups.yahoo.com/group/xyztalk This forum is for CPAs to discuss the activities of the AICPA. This can be anything  from the CPA2BIZ portal to the XYZ initiative or anything else that relates to the AICPA.

AccountantsWorld  http://accountantsworld.com/forums/default.asp?scope=1  This site hosts various discussion groups on such topics as accounting software, consulting, financial planning, fixed assets, payroll, human resources, profit on the Internet, and taxation.

Business Valuation Group BusValGroup-subscribe@topica.com  This discussion group is headed by Randy Schostag [RSchostag@BUSVALGROUP.COM]

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Tidbits and Quotations Between September 1 and September 30, 2007

2007
July 2                 July 7               July 16           July 23    

2007
August 1             August 9          August 16       August 26

2007
September 5       September 10    September 18    September 24  
 

Tidbits Directory for Earlier Months and Years --- http://www.trinity.edu/rjensen/TidbitsDirectory.htm

New Bookmarks Directory for Earlier Months and Years --- http://www.trinity.edu/rjensen/Bookurl.htm

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

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Humor Between September 1 and September 30, 2007 --- http://www.trinity.edu/rjensen/book07q3.htm#Humor093007

Humor Between July 1 and August 31, 2007 ---  http://www.trinity.edu/rjensen/book07q3.htm#Humor083107 

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Links to Documents on Fraud --- http://www.trinity.edu/rjensen/Fraud.htm

Bob Jensen's search helpers are at http://www.trinity.edu/rjensen/searchh.htm

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

Bob Jensen's links to free electronic literature, including free online textbooks --- http://www.trinity.edu/rjensen/ElectronicLiterature.htm

Bob Jensen's links to free online video, music, and other audio --- http://www.trinity.edu/rjensen/Music.htm

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

Bob Jensen's links to free course materials from major universities --- http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI

Bob Jensen's links to online education and training alternatives around the world --- http://www.trinity.edu/rjensen/Crossborder.htm

Bob Jensen's links to electronic business, including computing and networking security, are at http://www.trinity.edu/rjensen/ecommerce.htm

Bob Jensen's links to education technology and controversies --- http://www.trinity.edu/rjensen/000aaa/0000start.htm

Bob Jensen's home page --- http://www.trinity.edu/rjensen/

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Bob Jensen's complete set of Enron Updates are at http://www.trinity.edu/rjensen/FraudEnron.htm#EnronUpdates

Bob Jensen's threads on the Enron scandal are at http://www.trinity.edu/rjensen/FraudEnron.htm

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I'm sharing some old (well relatively old) accounting theory quiz and exam material that I added to a folder at http://www.cs.trinity.edu/~rjensen/Calgary/CD/

Bob Jensen's Education Technology PowerPoint Files (in development) and Video Samplings --- http://www.cs.trinity.edu/~rjensen/EdTech/

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Question
Where are the next frontiers of installing malicious viruses on your computer?
What video sites are the most likely places to catch these bad viruses?

 

Answer
Since email users have become more cautious about opening email, the next frontiers are bound to be popular downloads outside of email. These include videos and wikis. The most likely place to catch these bad viruses are porn sites, particularly the many porn sites maintained by Russians and former Eastern Bloc countries. But there are many other dangerous porn sites as well.

 

 

"Online video players could become new vehicle for malicious code," MIT's Technology Review, October 2, 2007 --- http://www.technologyreview.com/Wire/19469/?nlid=578

 

Online videos aren't just for bloopers and rants -- some might also be conduits for malicious code that can infect your computer.

As anti-spam technology improves, hackers are finding new vehicles to deliver their malicious code. And some could be embedded in online video players, according to a report on Internet threats released Tuesday by the Georgia Tech Information Security Center as it holds its annual summit.

The summit is gathering more than 300 scholars and security experts to discuss emerging threats for 2008 -- and their countermeasures.

Among their biggest foes are the ever-changing vehicles that hackers use to deliver ''malware,'' which can silently install viruses, probe for confidential info or even hijack a computer.

''Just as we see an evolution in messaging, we also see an evolution in threats,'' said Chris Rouland, the chief technology officer for IBM Corp.'s Internet Security Systems unit and a member of the group that helped draft the report. ''As companies have gotten better blocking e-mails, we see people move to more creative techniques.''

With computer users getting wiser to e-mail scams, malicious hackers are looking for sneakier ways to spread the codes. Over the past few years, hackers have moved from sending their spam in text-based messages to more devious means, embedding them in images or disguised as Portable Document Format, or PDF, files.

''The next logical step seems to be the media players,'' Rouland said.

There have only been a few cases of video-related hacking so far.

One worm discovered in November 2006 launches a corrupt Web site without prompting after a user opens a media file in a player. Another program silently installs spyware when a video file is opened. Attackers have also tried to spread fake video links via postings on YouTube.

That reflects the lowered guard many computer users would have on such popular forums.

''People are accustomed to not clicking on messages from banks, but they all want to see videos from YouTube,'' Rouland said.

Another soft spot involves social networking sites, blogs and wikis. These community-focused sites, which are driving the next generation of Web applications, are also becoming one of the juiciest targets for malicious hackers.

Computers surfing the sites silently communicate with a Web application in the background, but hackers sometimes secretly embed malicious code when they edit the open sites, and a Web browser will unknowingly execute the code. These chinks in the armor could let hackers steal private data, hijack Web transactions or spy on users.

Tuesday's forum gathers experts from around the globe to ''try to get ahead of emerging threats rather than having to chase them,'' said Mustaque Ahamad, director of the Georgia Tech center.

They are expected to discuss new countermeasures, including tighter validation standards and programs that analyze malicious code. Ahamad also hopes the summit will be a launching pad of sorts for an informal network of security-minded programmers.

 

Storm Worm:  The Perfect Email Storm

"The Worm That Roared," by Lev Grossman, Time Magazine, September 27, 2007 --- http://www.time.com/time/magazine/article/0,9171,1666279,00.html

 

During the week of Jan. 15, an innocuous-looking e-mail appeared in thousands of inboxes around the world. Its subject line read, "230 dead as storm batters Europe." The e-mail came with a file attached, bearing a plausible-sounding name like Full Story.exe or Read More.exe. Plenty of people clicked on it. After all, storms really were battering Europe at the time; that week high winds and rain had killed 14 in the U.K. alone. But all great cons have a grain of truth in them somewhere.

 

The file that arrived with the e-mail was, of course, a computer virus, immediately christened the Storm Worm by the Finnish computer security firm F-Secure, which was among the first to spot it. Since then, the Storm Worm has proved remarkably hard to kill. Nine months later, it's still out there, infecting something like a million computers worldwide. It's not the most damaging virus in history, but it may be the most sophisticated. Whoever created it is to viruses what Michelangelo was to ceilings.

The Storm Worm is a marvel of social engineering. Its subject line changes constantly. Whoever produced it--and its many later variants--has a lively feel for the seductive come-on and a thorough grounding in human nature. It preys on shock ("Saddam Hussein Alive!") and outrage ("A killer at 11, he's free at 21 and ...") and prurience ("Naked teens attack home director") and romance ("You Asked Me Why"). It mutates at a ferocious rate, constantly changing its size and tactics to evade virus filters, and finds evolving ways to exploit other online media like blogs and bulletin boards. Newer versions might contain, instead of a file, a single link to a fake YouTube page, which crashes your browser while quietly slipping the virus into your computer. "I've heard people talk about this like virus 2.0, just like people talk about Web 2.0, because it's so different from the traditional attacks," says Mikko Hypponen, chief research officer of F-Secure. "It's probably the largest collection of infected machines we've ever seen."

Like any good parasite, the Storm Worm doesn't kill its host. In fact, most of the victims--some of whom are undoubtedly reading this article--will never know their machines are infected. It doesn't cripple your computer (and can be removed once identified), but the Storm Worm does give its authors the power to quietly control your computer. What do they do with this power? Mostly they send out spam. Back in the day, computer viruses were a relatively innocent affair, written as pranks by teenagers with too much time on their hands between Star Wars sequels. Now they're written by organized criminals looking to make money from fake offers.

Nobody knows who's behind the Storm Worm. F-Secure suspects a group based in Russia, but there's no way to be sure, and recent Storm Worm subject lines referring to Labor Day and the start of the football season suggest that those involved have an American connection. What is certain is that they are very smart--prodigious innovators engaged in a cat-and-mouse game with security firms that so far they're winning. "I don't think these guys have day jobs," says Hypponen. "They're really active and really closely watching us. I don't see them stopping anytime soon."

It's also clear that they've been pulling their punches. Right now the Storm Worm gang controls a massive amount of computing power, as much as some of the world's largest supercomputers, and all they do with it is send out spam and conduct the occasional denial-of-service attack (bombarding a specific server with traffic until it shuts down). We're lucky: so far they haven't gone in for more lucrative, damaging activities like online gambling, stock scams and stealing passwords and credit-card information. Is it possible that even a worm can have a conscience?

Bob Jensen's threads on computing and networking security are at http://www.trinity.edu/rjensen/ecommerce/000start.htm

Bob Jensen's best advice at this point --- Buy a Mac!

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Basic accounting students At BYU have great success learning accounting from special videos --- http://www.accountingcds.com/index.html

Contact Information: 
Cameron Earl 801-836-5649 cameronearl@byu.edu
Norm Nemrow 801-422-3029 nemrow@byu.edu 

Also see David Cottrell's approach at BYU --- http://www.business.uconn.edu/users/adunbar/AAA-CPE/AAA2003Cottrell.pdf 

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The "Unknown Professor's Financial Rounds Blog states the following on September 21, 2007 --- http://financialrounds.blogspot.com/ 

And They Say Accounting Doesn't Make Sense

As a person who's trained primarily in finance, accounting rules sometimes look like they were designed by Monty Python. Here's the latest installment - your company's credit rating drops, so the market value of your liabilities fall. As a result, you show a profit. This is what happened to some Wall Street firms recently. Read the whole story here. IMO, the best line in the article is:

But Moody’s Investors Service said buyers should beware of gains booked when brokers mark down their own debt liabilities. “Moody’s does not consider such gains to be high-quality, core earnings,” it said in a report issued Friday.

Ya think?

This is why we make all our Finance students take four accounting classes before they graduate. That way, they'll see these things often enough that they won't break out laughing.

Question
Why am I not laughing? Is it because I taught accounting for 40 years?

Actually the fact that a lowered credit rating can lead to a realized gain should make sense even to a finance professor. Consider the following scenario:

1. I sell a bond and record a liability for $100,000 that matures in ten years.
2. My credit rating gets lowered the next day.
3. I buy back the bond for $90,000 (the market value of the bond declines because of my lowered credit rating)
4. I've made a $10,000 cash profit in one day because of a lowered credit rating
5. I wonder if a finance professor can comprehend that this is a gain.
6. I wonder if Moody's can understand that this is a very high quality earnings since its cash in the bank.

Now what if I don't sell the bond but adopt the fair value accounting option for financial instruments under FAS 159. I did not realize a cash profit if I still owe $100,000 when the bond eventually matures. But the reason I report an unrealized holding gain follows the same logic as if I bought back the bond today. That's what the "fair value option" under FAS 159 is all about.

If Moody's does not treat unrealized holding gains and losses as high-quality, core earnings, more power to them.

Finance students who've taken four courses in accounting may not laugh because they understand why sometimes credit rating gains are high quality and sometimes low quality will not laugh because they understand why. But they may not understand why their finance professor is laughing.

Bob Jensen's tutorials on fair value accounting are at the following two links:

• http://www.trinity.edu/rjensen/Theory01.htm#FairValue
   
• http://www.cs.trinity.edu/~rjensen/Calgary/CD/FairValue/

September 30, 2007 reply from the "Unknown Professor" who writes the Financial Rounds Blog

Bob:

Just in case you missed it, there's a follow up comment on the recent post I made on mark-to-market accounting. Good natured teasing between our respective tribes aside, I figure you're better equipped to handle it than I.

Regards,

UP

p.s. since you've been a fairly regular reader (and have commented and/or linked a few times, you might as well know - my "real" name is XXXXX at college YYYYY,

. The Unknown Professor http://financialrounds.blogspot.com 
"Back away slowly from the article with your hands up and your mind open, and with luck nobody gets hurt"

Bob:

Touche (and ouch)!

I actually do understand the reasoning - I was merely joking (and playing to the finance crowd who's the main audience).

As for the Moody's comment, I believe it makes sense if they are using "high quality" and "core" to mean earnings that are likely to be persistent. These clearly aren't.

But it does seem like a bit of a perverse result that decresed firm prospects results in income. I understand it, but it still makes me smile.

Having said all that, I'm glad I have accounting folks like you to set me straight.

Unknown Professor

 

September 26, 2007 reply from Amy Dunbar [Amy.Dunbar@BUSINESS.UCONN.EDU]

The prof who teaches intermediate II at UConn wrote:

When I cover early extinguishment of debt in my class I usually do an example which I set up by first asking, "Why might a firm decide to refinance its debt when interest rates have gone UP?" The example then shows that a firm can buy back its old bonds at the current (low) market price and finance that purchase by issuing new bonds that are identical to the old ones (and thus should be priced identically to the old ones). Ignoring transactions costs and such, the firm is in exactly the same economic position it was before the transaction; the accounting outcome: gain on early extinguishment of debt. So even without the new fair value rules, this scenario can lead to some head-scratching results.

My favorite post on the original WSJ blog site sums it up:

"If a company goes broke will it still record a gain on the debt it can't pay back?"

Amy

September 27, 2007 reply from Bob Jensen

Hi Amy,

Prior to FAS 125, companies like Exxon (I think this ploy was actually invented by Exxon) would defease their relatively low cost debt in times of rising interest rates. This way they captured the gain and avoided the transactions cost of actually buying the debt back.

But if they defeased and then borrowed at higher interest rates it made little economic sense. But it was great for Exxon bonuses to show an added $132 million in earnings even if stockholders were being screwed.

FAS 125 finally put an end to this sham.

You can read the following at http://www.trinity.edu/rjensen/Theory01.htm#DoctoralPrograms

 In-Substance Defeasance
In-substance defeasance used to be a ploy to take debt off the balance sheet. It was invented by Exxon in 1982 as a means of capturing the millions in a gain on debt (bonds) that had gone up significantly in value due to rising interest rates. The debt itself was permanently "parked" with an independent trustee as if it had been cancelled by risk free government bonds also placed with the trustee in a manner that the risk free assets would be sufficient to pay off the parked debt at maturity. The defeased (parked) $515 million in debt was taken off of Exxon's balance sheet and the $132 million gain of the debt was booked into current earnings --- http://www.bsu.edu/majb/resource/pdf/vol04num2.pdf

Defeasance was thus looked upon as an alternative to outright extinguishment of debt until the FASB passed FAS 125 that ended the ability of companies to use in-substance defeasance to remove debt from the balance sheet. Prior to FAS 125, defeasance became enormously popular as an OBSF ploy.

 

September 25, 2007 reply from Paul Williams [Paul_Williams@NCSU.EDU]

Bob, et al:

Remember when we made a big deal about realization? My question is, "In an alleged world of market omniscience, how am I able to sell a bond one day before my credit rating gets lowered? Doesn't this presume some kind of extra-market power (either superior insights or freedom of caprice) on the part of bond raters? (why are they necessary in the first place?)" [Do you hear the chorus of Baaaas?]

Perhaps we accounting folk should be less reluctant to laugh at finance rather than presume its intellectual superiority. As Alan Greenspan (one of Ayn Rand's apostles) opined recently on The Daily Show, "I've been in the economic forecasting business for 50 years and we're no better at it now than we were 50 years ago." Some science that is.

Maybe we should dig out some of the "classics" (E&B, Ijiri, Chambers, Sterling, P&L (Paton and Littleton, not profit and loss) and reread them?

Paul

September 25, 2007 reply from Bob Jensen

Hi Paul,

I can think of many reasons that you would probably describe as caprice leading to abrupt lowering of credit ratings. In fact the selling of bonds or stocks on one day may be in reaction to suspicion that a WSJ reporter named John Emshwiller got wind of some related party transactions --- http://www.trinity.edu/rjensen/FraudEnronQuiz.htm#22

A WSJ reporter was the first to uncover Enron's secret "Related Party Transactions."  What reporter was this and what are those transactions that he/she investigated? 

Mr. Lay was also asked about his alleged 2001 comment to company colleagues that The Wall Street Journal had a "hate on" for Enron in connection with a series of articles looking at Mr. Fastow and his partnership operation. "I might have used that term," Mr. Lay acknowledged, adding that the Journal was "trying to paint a very negative image of Enron." (As previously reported, the Journal said it stands by the accuracy of its coverage.)
"Lay Defends Family's Role In Selling Shares:  Enron Ex-Chairman Says He Tried to Minimize Sales To Meet Margin Calls," by Gary McWilliams and John R. Emshwiller, The Wall Street Journal, May 2, 2006; Page C3 --- http://online.wsj.com/article/SB114649255583240444.html?mod=todays_us_money_and_investing

The lead Wall Street Journal reporter that Enron learned to hate was John Emshwiller along with his sometimes reporter partner Rebecca Smith.  See Page 571 in Eichenwald's Conspiracy of Fools

 

My favorite quote is the "Spike, honey" segment on Page 455 of Eichenwald's Conspiracy of Fools:

In a cramped office in the back of the Los Angeles bureau of The Wall Street Journal, a fifty-one-year-old reporter named John Emshwiller was on the phone with California's attorney general, Bill Lockyer.  Emshwiller was working on an article about the state's investigations of power marketers and their lack of success in turning up evidence of wrongdoing. Tethered to his headset, Emshwiller took notes as Lockyer made clear his frustration in the lack of progress in the inquiries.  Emshwiller asked if Lockyer believed there would be criminal prosecutions. "I don't have any doubt that there will be civil lawsuits prosecuted by the state," Lockyer said. A pause.  Lockyer hadn't answered.  "There is nothing I would rather do than nail a high executive," he continued. Silence again.  "You know what I'd really like to do?"  Lockyer asked. "What?" "I'm not sure I should really say this." Words that have led to breath holding by countless reporters. "Why not?"  Lockyer finally said.  "I'd love to personally escort Lay to an eight-by-ten cell that he could share with a tattooed dude who says, 'Hi, my name is Spike, honey.' " Emshwiller took it all down, almost in disbelief.  This was one of those too-good-to-be-true quotes that was automatically guaranteed to be printed in the paper.

Eichenwald states the following on pp. 490-492 in Conspiracy of Fools:

It was section eight, called "Related Party Transactions," that got John Emshwiller's juices flowing. After being assigned to follow the Skilling resignation, Emshwiller had put in a request for an interview, then scrounged up a copy of Enron's most recent SEC filing in search of any nuggets. What he found startled him.  Words about some partnerships run by an unidentified "senior officer."  Arcane stuff, maybe, but the numbers were huge.  Enron reported more than $240 million in revenues in the first six months of the year from its dealings with them. One fact struck Emshwiller in particular.  This anonymous senior officer, the filing said, had just sold his financial interest in the partnerships.  Now, it said, the partnerships were no longer related to Enron. The senior officer had just sold his interest, Skilling had just resigned.  The connection seemed obvious. Could Enron have actually allowed Jeff Skilling to run partnerships that were doing massive business with the company?  Now that, Emshwiller thought, would be a great story. Emshwiller was back on the phone with Mark Palmer.  With no better explanation for Skilling's resignation, he said, the Journal was going to dig through everything it could find.  Right now he was focusing on these partnerships.  Were those run by Skilling? "No, that's not Skilling," Palmer replied, almost nonchalantly.  "That's Andy Fastow." A pause.  "Who's Andy Fastow?" Emshwiller asked. The message was slipped to Skilling later that day.  A Journal reporter was pushing for an explanation of his departure and now was rooting around, looking for anything he could find.  Probably best just to give the paper a call. Emshwiller was at his desk when the phone rang. "Hi," a soft voice said.  "It's Jeff Skilling." It was a startling moment.  Emshwiller had been on the hunt, and suddenly the quarry just walked in and lay down on the floor, waiting for him to fire.  So he did: why was Skilling quitting his job? "It's all pretty mundane," Skilling replied.  He'd worked hard and accomplished a lot but now had the freedom to move on.  His voice was distant, almost depressed. He and been ruminating about it for a while, Skilling went on, but had wanted to stay on at the company until the California situation eased up.  Then, he took the conversation in a new direction. "The stock price has been very disappointing to me," Skilling said.  "The stock is less than half of what it was six months ago.  I put a lot of pressure on myself.  I felt I must not be communicating well enough." Skilling rambled as Emshwiller took it down.  India.  California.  Expense cuts.  The good shape of Enron. "Had the stock price not done what it did..."  He paused.  "I don't think I would have felt the pressure to leave if the stock price had stayed up." What?  Had Emshwiller heard that right?  Was all this stuff about "personal reasons" out the window?  Had Skilling thrown in the towel because of the stock price? "What was that, Mr. Skilling?" Emshwiller asked. The employees at Enron owned lots of shares, Skilling said.  They were worried, always asking him about the direction of the price.  He found it very frustrating. "Are you saying that you don't think you would have quit if the stock price had stayed up?" Skilling was silent for several seconds. "I guess so," he finally mumbled. Minutes later, Emshwiller burst into his boss's office.  "You're not gong to believe what Skilling just told me!"

 

Yes Spike Honey, a CEO can sell stocks or bonds on one day in anticipation of a fast coming lowering of the company’s credit rating.

 

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What's a CPA? Accountants take their show to YouTube
AccountingWeb, September 2007 --- http://www.accountingweb.com/cgi-bin/item.cgi?id=103999
Linda Kidwell forwarded this link --- http://www.youtube.com/watch?v=9I502zLYZXU
David Albrecht forwarded this link (rap) --- http://www.youtube.com/watch?v=xUcxvwAQ_n4
Bob Jensen's career helpers are at http://www.trinity.edu/rjensen/Bookbob1.htm#careers

Salary Gains for '07 Accounting Grads --- http://accounting.smartpros.com/x59204.xml

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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:

 

• Workforce profile
• Compensation
• Child care
•  Flexibility Time off and leaves
• Family-friendly programs
• Company culture

AccountingWeb, September 2007 --- http://www.accountingweb.com/cgi-bin/item.cgi?id=104048
The Working Mother online magazine link is at http://www.workingmother.com/?service=vpage/106

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

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Accounting firms dominate Business Week's second annual ranking of the "Best Places to Launch a Career."
From SmartPros, September 14, 2007 --- http://accounting.smartpros.com/x59101.xml

Deloitte & Touche is No. 1, followed by PricewaterhouseCoopers and Ernst & Young. The last of the Big Four, KPMG, moved up four spots to No. 11.

Accountants used to be spoofed as bean counters -- dutiful, middle-aged, gray-suited men with considerable analytical expertise but little charisma. This year accountants became sexy, BusinessWeek said in a statement.

Why did the accounting firms do so well? Enormous demand. Across industries, there is a mad scramble to recruit the best and brightest of a new generation, the much-maligned, heavily scrutinized Gen Y. Nowhere is the pressure more intense than in the Big Four. The Sarbanes-Oxley Act has so greatly increased the need for their services that the firms are facing an epic talent shortage.

BusinessWeek's "Best Places to Launch a Career" ranking is based on three extensive surveys: of career services directors at U.S. colleges, the employers they identify as the best for new graduates, and college students themselves.

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

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Long Lines at Accident Scenes:  Law Schools Proliferate and Law Graduates Proliferate
For graduates of elite law schools, prospects have never been better. Big law firms this year boosted their starting salaries to as high as $160,000. But the majority of law-school graduates are suffering from a supply-and-demand imbalance that's suppressing pay and job growth. The result: Graduates who don't score at the top of their class are struggling to find well-paying jobs to make payments on law-school debts that can exceed $100,000. Some are taking temporary contract work, reviewing documents for as little as $20 an hour, without benefits. And many are blaming their law schools for failing to warn them about the dark side of the job market.
Amir Efrati, "Hard Case: Job Market Wanes for U.S. Lawyers:  Growth of Legal Sector Lags Broader Economy; Law Schools Proliferate," The New York Times, September 24, 2007; Page A1 --- http://online.wsj.com/article/SB119040786780835602.html?mod=todays_us_page_one

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

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Question
What are shareholder "earn-out"contracts"?
(Another example of the increasing complexity of classifying debt versus equity.)

How did eBay make a $1.43 dollar (or more) mistake?

"Skype CEO steps down and parent company:  eBay takes $1.43 billion charge," MIT's Technology Review, October 1, 2007 --- http://www.technologyreview.com/Wire/19466/?nlid=575

EBay Inc. announced Monday that the co-founder and chief executive of its Skype division was stepping down, and that the parent company would take $1.43 billion in charges for the Internet phone service division.

Of the charges to be taken in the current quarter, $900 million will be a write-down in the value of Skype, eBay said. That charge, for what accountants call impairment, essentially acknowledges that San Jose-based eBay, one of the world's largest e-commerce companies, drastically overvalued the $2.6 billion Skype acquisition, which was completed in October 2005.

EBay also said Monday it paid certain shareholders $530 million to settle future obligations.

In 2005, eBay wooed Skype investors by offering an ''earn-out agreement'' up to $1.7 billion if Skype hit specific targets -- including a number of active users and a gross profit -- in 2008 and the first half of 2009. The Skype shareholders holding those agreements received the $530 million in an early, one-time payout, eBay spokesman Hani Durzy said.

EBay also announced that Skype CEO Niklas Zennstrom will become non-executive chairman of Skype's board and likely spend more time working on independent projects.

Durzy said the resignation of Zennstrom, a Swedish entrepreneur who started Skype, was not related to the impairment charge or Skype's performance.

''Niklas left of his own volition,'' Durzy said. ''He is an entrepreneur first and foremost, and he wanted to spend more time on some of his new projects that he has been working on.''

Skype, which allows customers to place long-distance calls using their computers, reported second-quarter revenue of $89.13 million, up 102 percent from a year ago. It was the second consecutive quarter of profitability for the newest eBay division.

Zennstrom is likely to work on developing Joost, an Internet TV service he started in 2006 with Skype co-founder Janus Friis, relying on peer-to-peer technology to distribute TV shows and other videos over the Web.

Joost had at least 1 million beta testers in July and will launch at the end of the year, Zennstrom said earlier this summer.

One of the pair's first collaborations was the peer-to-peer file-sharing network KaZaA, which launched in March 2000 and is used primarily to swap MP3 music files over the Internet. Zennstrom also co-founded the peer-to-peer network Altnet and the venture capital firm Atomico.

Continued in article

Bob Jensen's threads on debt versus equity are at http://www.trinity.edu/rjensen/Theory01.htm#FAS150 

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Bob Jensen's threads on whistleblowers are at http://www.trinity.edu/rjensen/FraudConclusion.htm#WhistleBlowing

Bob Jensen's threads on revenue reporting fraud (including bill and hold issues) are at http://www.trinity.edu/rjensen/ecommerce/eitf01.htm

A whistleblower should really wear a mask, ride a white horse, and have a native American partner to help track the piles of Kemosabi. The William Tell Overture also helps --- http://www.youtube.com/watch?v=qdQomfnCH_0

Support for 'lone ranger'

By LOREN STEFFY
Houston Chronicle, September 25, 2007 ---

I'd like to dedicate this column to lone rangers.

That's the term that a Halliburton lawyer used in a legal proceeding this week to describe Anthony Menendez, a former director of technical accounting research and training at the oil-field-services company.

Menendez claims he was forced to resign from Houston-based Halliburton after he accused the company of using improper accounting to inflate earnings and "distort the timing of billions of dollars in revenue," according to his complaint.

Halliburton says the allegations are untrue.

Menendez is seeking protection under the Sarbanes-Oxley law, which was designed to shield corporate whistle-blowers from retribution.

Congress created that provision of the law after lawmakers found that in the corporate scandals of Enron and WorldCom, employees such as former Enron executive Sherron Watkins faced retaliation for raising concerns about harmful corporate practices.

It's often too easy for companies to dismiss such concerns as an annoyance, as the ranting of someone who's lost touch with reality.

Consider how Halliburton attorney Carl Jordan described Menendez before the judge: "He saw everything in black and white, and he thought he was always right, and everyone else was wrong."

It could be that Menendez misinterpreted the accounting details he questioned. It could be that the more people ignored his concerns, the more determined he became, spinning a web of false obsession into a conspiracy of his own imagination.

But shareholders dismiss such concerns at their own peril. It may not be a major accounting scandal. It may not even be material, in the legal sense, to Halliburton's operations. But something set Menendez off.

And it wasn't just him. A colleague testified on his behalf that company accountants questioned in 2005 how Halliburton was booking revenue for oil-field tools that were sitting in warehouses, yet to be delivered to customers.

Halliburton says it listened to Menendez's concerns and investigated them thoroughly. So did its outside auditors and the Securities and Exchange Commission.

Outside auditors, though, don't have a great track record in ferreting out accounting improprieties, and the SEC has proved far better at punishment than pre-emption.

'Critical' role

If the past seven years have taught us anything, it's that concerns such as Menendez's need to be heard. We've seen the painful consequences of corporate America's deaf ear.

"The role of the whistle-blower is critical because it keeps corporations and management in line and accountable to shareholders," said Philip Hilder, a Houston attorney who represents Watkins and who represented Menendez early in the case. "Whistle-blowers are the first line of defense in discovering fraud. Management in corporations ought to embrace them. To the extent that they uncover wrongdoing, the company can correct any potential problems before they go out of control."

What Menendez did wasn't easy. He challenged his superiors and in the process surrendered a job he liked and to which he'd like to return, according to what he told the Chronicle this summer.

Beyond right or wrong

It's never easy to put conscience ahead of livelihood. It's far easier for employees to keep quiet and let someone else worry about the problem.

In some ways, what matters in this case is not whether Menendez is right or wrong, but that he had the guts to speak up.

"Whistle-blowers tend to come forward out of principle," Hilder said. "It takes courage to buck the system."

That's why the Sarbanes-Oxley law was designed to shield whistle-blowers, though many still face retaliation.

"You need to set a scenario up where individuals feel comfortable and protected in providing information that may be detrimental to the entire company if it's not met head-on," Hilder said.

Money well spent

When the Menendez case is over, regardless of the outcome, Halliburton's shareholders will have benefited. Sure, Halliburton has spent some of their money to defend itself against claims that may be, as the company contends, without merit.

But it's money well spent. Investors will gain reassurance that accounting concerns weren't ignored.

It's easy to paint lone wolves as crazy. Sometimes they may even be wrong. But what if they're right?

Loren Steffy is the Chronicle's business columnist. His commentary appears Sundays, Wednesdays and Fridays. Contact him at loren.steffy@chron.com. His blog is at http://blogs.chron.com/lorensteffy/.

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"Time Names Whistle-Blowers as Persons of the Year 2002", Reuters, December 22, 2002 --- http://www.reuters.com/newsArticle.jhtml?type=topNews&storyID=1948721  Time Magazine named a trio of women whistle-blowers as its Persons of the Year on Sunday, praising their roles in unearthing malfeasance that eroded public confidence in their institutions. Two of the women, Sherron Watkins, a vice president at Enron Corp., and Cynthia Cooper of WorldCom Inc., uncovered massive accounting fraud at their respective companies, which both went bankrupt. The third, Coleen Rowley, is an agent for the Federal Bureau of Investigation. In May, she wrote a scathing 13-page memo to FBI Director Robert Muller detailing how supervisors at a Minneapolis, Minnesota field office brushed aside her requests to investigate Zacarias Moussaoui, the so-called "20th hijacker" in the Sept. 11th attacks, weeks before the attacks occurred. "It came down to did we want to recognize a phenomenon that helped correct some of the problems we've had over the last year and celebrate three ordinary people that did extraordinary things," said Time managing editor Jim Kelly. Other people considered by the magazine, which hits stores on Monday, included President Bush, al Qaeda leader Osama bin Laden, Vice President Dick Cheney and New York attorney general Eliot Spitzer. Bush was seen by some as the front-runner, especially after he led his party to a mid-term electoral upset in November that cemented the party's majority in Congress. However, Kelly said "some of (Bush's) own goals: the capture of Osama bin Laden, the unseating of Saddam Hussein, the revival of a sluggish economy, haven't happened yet. There was a sense of bigger things to come, and it might be wise to see how things played out," he added. Watkins, 43, is a former accountant best known for a blunt, prescient 7-page memo to Enron chairman Kenneth Lay in 2001 that uncovered questionable accounting and warned that the company could "implode in a wave of accounting scandals." Her letter came to light during a post-mortem inquiry conducted by Congress after the company declared bankruptcy. Cooper undertook a one-woman crusade inside telecommunications behemoth WorldCom, when she discovered that the company had disguised $3.8 billion in losses through improper accounting. When the scandal came to light in June after the company declared bankruptcy, jittery investors laid siege to global stock markets. FBI agent and lawyer Rowley's secret memo was leaked to the press in May. Weeks before Sept. 11, Rowley suspected Moussaoui might have ties to radical activities and bin Laden, and she asked supervisors for clearance to search his computer. Her letter sharply criticized the agency's hidebound culture and its decision-makers, and gave rise to new inquiries over the intelligence-gathering failures of Sept. 11. January 6, 2002 message form Hossein Nouri -----Original Message-----  From: Hossein Nouri [mailto:hnouri@TCNJ.EDU]   Sent: Monday, January 06, 2003 10:46 AM  To: AECM@LISTSERV.LOYOLA.EDU   Subject: Re: Time Magazine's Persons of the Year 2002  In the case of Enron, I remember I read (I think in US News) that the whistle-blower sold her Enron's shares before speaking out and made a significant profit. I do not know whether or not she returned that money to the people who lost their money. But if she did not, isn't this ethically and morally wrong? January 6, 2002 reply from Bob Jensen Hi Hossein, This is a complex issue. In a sense, she might have simply taken advantage of insider information for financial gain. That is unethical and in many instances illegal. She also may have acted in a manner only to ensure her own job security --- See "Sherron Watkins Had Whistle, But Blew It" http://www.forbes.com/2002/02/14/0214watkins.html  That would be unethical. However, in this particular case, she allegedly believed that it was not too late to be corrected by Ken Lay and Andersen auditors. Remember that she did not whistle blow to the public. Whistle blowers face a huge dilemma between whistle blowing on the inside versus whistle blowing on the outside. Quite possibly (you will say "Yeah sure!") Watkins really had reasons to sell even if she had not detected any accounting questions? There are many reasons to sell, such as a timing need for liquidity and a need to balance a portfolio. Somewhat analogous dilemmas arise when criminals cooperate with law enforcement to gain lighter punishments. Is it unethical to let a criminal off completely free because that criminal testifies against a crime figure higher up the chain of command? There are murderers (one named Whitey from Boston) who got off free by testifying. Incidentally, Whitey went on to commit more murders! PS, I think Time Magazine failed to make a hero out of the most courageous whistle blower in recent years. Her name is Cindy Ossias --- http://www.insurancejournal.com/magazines/west/2000/07/10/coverstory/21521.htm  Cindy Ossias not only risked her job, she risked her law license to ever work again as an attorney. She also blew the whistle at the risk of going to jail.  Unlike Sherron Watkins, Cindy Ossias knew there was no hope in blowing the whistle to her boss. Her boss was the big crook when she blew the whistle on him and the large home owner insurance companies operating in the State of California. Bob Jensen Sharing Videos of the Week from CCPA Whistleblower Public Forum --- http://www.workingtv.com/whistleblower.html  "Accounting scandals, interference in scientific research, environmental cover-ups... From Enron to BC's fish farm, whistleblower protections are needed to keep governments and corporations accountable. Why are there so few protections for people who find the courage to speak out in the public interest?" From promotional material for the March 27, 2003 Whistleblower Public Forum at the Vancouver Public Library sponsored by the BC Office of the Canadian Centre for Policy Alternatives Download the videos from  http://www.workingtv.com/whistleblower.html   ( You can also speed up things by downloading only the audio files.) Introduction: Erica Johnson, CBC Television host of "Marketplace" RT: 5:00 Jamie Court, Foundation for Taxpayer and Consumer Rights (California) RT: 16:36 Duff Conacher, Co-ordinator Democracy Watch, Ottawa RT: 14:12 Dr. Gordon Hartman, Director, Public Service Employees for Environmental Ethics RT: 20:26 Mae Burrows, Labour Environmental Alliance RT: 17:08

 

 

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Bill-and-Hold Revenue Recognition Tale
Anthony Menedez phoned me several times indicating that he thinks his tale would be interesting for accounting students to study. I think it would be an interesting series of events for a case writer to put into an educational case. The focus of the case, in my viewpoint, should be on a comparison of the KPMG article (quoted below) with the actual bill-in-hold transactions at Halliburton to force students to decide whether KPMG auditors and  Halliburton did or did not violate GAAP on these issues.

A financial press article is also quoted below:
Jonathan Weil, "Halliburton's Accounting Might Make You Wonder," Bloomberg News, July 21, 2007

The case has two really interesting questions:

1. What is the proper accounting (and auditing) for these transactions?
2. Is "whistleblower protection" under the Sarbanes-Oxley law an oxymoron?

June 24, 2007 message from Anthony Menendez [menendez.anthony@gmail.com]

Professor Jensen-

Hello. My name is Tony Menendez. I have enjoyed much of the information you have so generously provided on the web covering accounting issues and financial fraud. I thought you might find my Sarbanes-Oxley whistleblower case interesting. Just in case you have extra time and an interest, I am providing you with my contact information and links to some information concerning my case. I hope you are enjoying retirement but have not given up providing your insight into the ever so important area of accounting and financial fraud.

Sincerely,

Tony (713) 822 3764

Here are a few links to information you can find on the web concerning my case:

http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_weil&sid=am_McfuM6i4o 

You can read Menendez's complaint in three parts (I, II, III) on the following website:
http://www.tpmmuckraker.com/archives/003500.php

Question
In accounting, what do the following terms mean and in what context?
bill-and-hold?
Ship-in-Place?

Answer
"Bill-and-Hold Transactions in the Oilfield Services Sector," John C. Christopher, KPMG LLP --- http://www.trinity.edu/rjensen/BillandHold.pdf

Determining and defining appropriate revenue recognition has been a primary focus of companies, regulators, standard setters, and auditors in recent years. Improper revenue recognition has been one of the leading causes of financial statement restatements. Perhaps no area of revenue recognition has received as much scrutiny as "bill-and-hold" transactions. Also known as "ship-inplace" transactions, these transactions generally refer to scenarios where revenue is recognized after a seller has substantially completed its obligations under an arrangement, but prior to the buyer, or a common carrier, taking physical possession of the goods.

Background In a recent interview, former SEC Chairman Arthur Levitt referred to recognizing revenue on bill-and-hold transactions as "hocus pocus accounting." He said, "Companies try to boost revenue by manipulating the recognition of revenue. Think about a bottle of wine.You wouldn't pop the cork on that bottle until it was ready. But some companies are doing this with their revenue --- recognizing it before the sale is complete, before the product is delivered to the customer, or at a time when the customer still has options to terminate, void, or delay the sale.

Although the bill-and-hold transaction is not a GAAP violation, unfortunately it has long been associated with incidents of financial fraud. In its October 2002 Report, the General Accounting Office (GAO) said that revenue recognition is the largest single issue involved in restatements. More than half of financial reporting frauds involve the overstatement of revenue, and restatements for revenue recognition have resulted in the largest drops in market capitalization compared with any other type of restatements. There remains an intense scrutiny around a company's revenue recognition principles for these types of transactions, and management and auditors should be unusually skeptical about the appropriateness of recording revenue for these transactions.

Bill-and-hold scenarios frequently arise in the oilfield services sector. It is important to note that the form. of these transactions is neither illegal nor unethical. In fact, most have very good business or economic purposes. For example, there is currently a trend in the oil and gas industry towards developing fields in the deep waters toward the Gulf of Mexico or other more remote locations throughout the world. Development plans for these large deepwater offshore fields. as well as remote onshore fields throughout the world, will commonly have long timelines; therefore, the oilfield service companies have long lead times for delivery of equipment and products. As the development plan gets under way, many of the original timelines and milestones will change along the way as information about the reservoir becomes better. However, many of the products that the oilfield services companies manufacture and deliver are extremely capital intensive and will be manufactured and ready for their fixed delivery dates without regard to any changes in the development plan. These products are generally very large built-tosuit equipment such as wellhead connection equipment and completion products.

There are certain criteria that companies must meet in order to recognize revenue on bill-and-hold transactions. These criteria relate to the risks of ownership. the commitment and request on the part of the buyer, the business purpose of the transaction, the delivery date, and the performance obligations, among others (these criteria are discussed in more detail in the next section). As an example, an oilfield services company may complete the manufacturing of the customer's requested products, have them shipped to a company-owned warehouse, determine a fixed delivery schedule to the customer's well site, obtain a legal acknowledgement from the customer that the risk of loss has been transferred, and have no additional obligations to perform such as installation of the equipment. All of this may take place prior to the particular point in the well development plan that calls for the installation of the product. In this example, the oilfield services company might (although only based on careful analysis of the SEC and FASB guidance related to bill-and-hold transactions) be able to recognize revenue immediately upon completing the manufacturing process and meeting all of the bill-and-hold revenue recognition criteria.

SEC and FASB Guidance on Revenue Recog'nition and Bill-and-Hold Arrangements
EITf- lssue 00.21: Multiple Elements in a bill-and-hold Arrangement

Companies must first apply the separation model described in ElTF lssue 00-21 , Revenue Arrangements with Multiple Deliveries, to determine the number of units of accounting in the bill-and-hold arrangement. Bill-and-hold arrangements in this industry can include both the sale of products and the performance of certain services, such as warehousing for the product if it is shipped to a company-owned warehouse. If the SEC staff's revenue recognition criteria (discussed in the next section) are met for the product element in the bill-and-hold arrangement, revenue may be recognized on the product element when the company has completed the product only if it is a separate unit of accounting, or if there are any services involved in the transaction (e.g., warehousing), and those services are inconsequential or perfunctory to one unit of accounting. The company may need to consider whether the services are a separate unit of accounting, if they are inconsequential or perfunctory, and whether there are other performance obligations yet to be performed in determining the appropriate revenue recognition policy for the entire arrangement.

Inconsequential or Perfunctory Element

According to SAB No. 104, Revenue Recognition, if the-undelivered element is both inconsequential or perfunctory and not essential to the functionality of the delivered element, it would be appropriate to recognize revenue on the arrangement at the time of delivery and accrue the cost of providing the services related to the undelivered element. However, if the undelivered element is neither inconsequential nor perfunctory or is essential to the functionality of the delivered element, the revenue for the delivered element should be deferred and recognized based on the accounting requirements of the undelivered element. The SEC's guidance on the determination of whether an element is inconsequential or perfunctory is related to whether that element is essential to the functionality of the delivered products.

In addition, remaining activities would not be inconsequential or perfunctory if failure to complete the activities would result in the customer receiving a full or partial refund or rejecting, or a right to a refund or to reject the products delivered. The SEC provided the following factors in SAB No.104, which are not all-inclusive, as indicators that a remaining performance obligation is substantive rather than inconsequential or perfunctory:

• The seller does not have a demonstrated history of completing the remaining tasks in a timely manner and reliably estimating their costs.
• The cost or time to perform the remaining obligations for similar contracts historically has varied significantly from one instance to another.
• The skills or equipment required to complete the remaining activity are specialized or are not readily available in the marketplace.
• The cost of completing the obligation, or the fair value of that obligation, is more than insignificant in relation to such items as the contract fee, gross profit, and operating income allocable to the unit of accounting.
• The period before the remaining obligation will be extinguished is lengthy.
• T he timing of payment of a portion of the sales price is coincident with completing performance of the remaining activity.

. . .

SEC Bill-and-Hold Criteria

The SEC has established specific criteria codified in SAB No. 104 that a seller of goods or equipment must meet to recognize revenue for a bill-and-hold transaction, including:

• The risks of ownership must have passed to the buyer.
• The buyer must have a commitment to purchase, preferably in written documentation.
•  The buyer, not the seller, must originate the request that the transaction be on a bill-and-hold basis.
• The buyer must have a substantial business purpose for ordering the goods or equipment on a bill-and-hold basis.
• Delivery must be for a fixed date and on a schedule that is reasonable and consistent with the buyer's purpose (this requirement will generally be difficult for an oilfield services company to meet due to the variable nature of the movement of timelines and milestones for oilfield development).
• The seller must not retain any significant specific performance obligations under the agreement such that the earnings process is not complete. The goods or equipment must be segregated from the seller's inventory and may not be subject to being used to fill other orders.
• The goods or equipment must be complete and ready for shipment.

The SEC emphasized that that the above criteria are not a simple checklist. A transaction might meet all of the criteria and still fail the revenue recognition guidelines . . .

Continued in article

Jensen Comment
Tony Menendez, while working for Halliburton, encountered what he considered a classic violation of GAAP for bill-an-hold transactions in Halliburton's oilfield operations. He says he first confronted his superiors in the company and then a KPMG auditor, who purportedly agreed with Tony on this issue. But Halliburton countered by saying that since "title passed," revenue could be recognized. The amount in terms of dollars was material in amount.

Since Halliburton did not restate its financial statements, or purportedly, its subsequent accounting for these transactions, Tony then took the added step of blowing the whistle with the SEC. The SEC purportedly turned it back to Halliburton for further internal investigation. Soon thereafter Tony Menendez became an unemployed whistle blower

Bill-and-Hold Revenue Recognition Tale
Anthony Menedez phoned me several times indicating that he thinks his tale would be interesting for accounting students to study. I think it would be an interesting series of events for a case writer to put into an educational case. The focus of the case, in my viewpoint, should be on a comparison of the KPMG article (quoted above) with the actual bill-in-hold transactions at Halliburton to force students to decide whether KPMG auditors at Halliburton did or did not violate GAAP on these issues.

By the way, Mr. Menedez is currently still unemployed and is considering applying for doctoral study in accountancy.

August 8, 2007 message from Anthony Menendez [menendez.anthony@gmail.com]

Please see attached. The very examples described by KPMG as bill-and-hold transactions at a company like Halliburton, were the same transactions, I also believed were bill-and-hold. Interestingly, Halliburton apparantly claims, that these transactions, are not, in fact bill-and-hold and thereby avoiding the bill-and-hold hold criteria which requires that the equipment is ready for its intended use, a fixed delivery date exists for the equipment, and that there are no ongoing obligations on the part of Halliburton ( e.g. installing the equipment and performing the necessary oilfield services, the typical services provided by an "oilfield service" company. Personally, I believe that Halliburton's claim is the most absurb argument I have ever seen and worse yet, I struggle to see how KPMG allows Halliburton to deviate from the very guidance it suggests to companies that are not "Halliburton" should apply. Enjoy.

Best Regards,
Tony

You can read Menendez's complaint in three parts (I, II, III) on the following website: ---
http://www.tpmmuckraker.com/archives/003500.php

Bob Jensen's threads on whistle blowing are at
http://www.trinity.edu/rjensen/FraudConclusion.htm#WhistleBlowing

Bob Jensen's threads on revenue reporting and frauds can be found at http://www.trinity.edu/rjensen/ecommerce/eitf01.htm

Here's an older example of bill and hold fraud
Death by Accounting
To get companies to participate in a flu vaccine stockpile the government is dangling tons of new funding. Cash in hand is usually a very strong incentive. But a Clinton administration SEC policy prevents the vaccine makers from recognizing the revenue until the vaccine is delivered to the doctors, countering the very purpose of a stockpile. The Department of Health and Human Services' National Vaccine Advisory Committee concluded in early 2005 that for the stockpile program to be successful, "the revenue recognition issue must be resolved as soon as possible." It all began in late 1999, when the SEC issued "Staff Accounting Bulletin 101," which it painted as a modest clarification "not intended to change current guidance in the accounting literature." But in reality it was a radical change to the way companies could book revenue from "bill and hold" orders. This change would, at its least, lead to hindrances for innovative new companies. At its worst, it would discourage production of lifesaving products like vaccines.
John Berlau, "Death by Accounting?" The Wall Street Journal, October 21, 2005 --- http://online.wsj.com/article/SB112985642561675193.html?mod=opinion&ojcontent=otep

SEC SAB 101 "Revenue Recognition in Financial Statements" --- http://www.sec.gov/interps/account/sab101.htm

---

Anthony Menendez, who was Halliburton's director of technical accounting research and training, has accused the world's second-largest oilfield-services company of using so- called bill-and-hold accounting and other undisclosed practices to ``distort the timing of billions of dollars in revenue.'' In short, Menendez says this allowed Halliburton to book product sales improperly, before they occurred.
Jonathan Weil, "Halliburton's Accounting Might Make You Wonder," Bloomberg News, July 21, 2007 --- Click Here

The allegations are part of a 54-page complaint Menendez filed against Halliburton with a Labor Department administrative- law judge in Covington, Louisiana, who released the records in response to a Freedom of Information Act request. Menendez, who resigned last year and is seeking unspecified damages, says Halliburton retaliated against him in violation of the Sarbanes- Oxley Act's whistleblower provisions after he reported his concerns to the Securities and Exchange Commission and the company's audit committee.

Halliburton has denied the allegations. A company spokeswoman, Cathy Mann, says Halliburton's audit committee ``directed an independent investigation'' and ``concluded that the allegations were without merit.'' She declined to comment on bill-and-hold issues, and Halliburton's court filings in the case don't provide any details about its accounting practices.

Menendez, a 36-year-old former Ernst & Young LLP auditor, filed his complaint in December, shortly after a Labor Department investigator in Dallas rejected his retaliation claim. Mann says the company expects to prevail at trial.

Cause of Concern

Investors, of course, will care more about the reliability of Halliburton's numbers than whether Menendez wins. And a look at internal Halliburton documents Menendez filed with the court suggests there's reason for concern.

Here's how Menendez, who reported to Halliburton's chief accounting officer, summed up the bill-and-hold issue in his complaint:

``For example, the company recognizes revenue when the goods are parked in company warehouses, rather than delivered to the customer. Typically, these goods are not even assembled and ready for the customer. Furthermore, it is unknown as to when the goods will be ultimately assembled, tested, delivered to the customer and, finally, used by the company to perform the required oilfield services for the customer.''

If true, that would violate generally accepted accounting principles. For companies to recognize revenue before delivery, ``the risks of ownership must have passed to the buyer,'' the SEC's staff wrote in a 2003 accounting bulletin. There also ``must be a fixed schedule for delivery of the goods,'' and the product ``must be complete and ready for shipment,'' among other things.

`Terribly Flawed'

Shortly after joining Halliburton in March 2005, Menendez says he discovered a ``terribly flawed'' flow chart on the company's in-house Web site, called the Bill and Hold Decision Tree. The flow chart, a copy of which Menendez included in his complaint, walks through what to do in a situation where a ``customer has been billed for completed inventory which is being stored at a Halliburton facility.''

First, it asks: Based on the contract terms, ``has title passed to customer?'' If the answer is no -- and here's where it gets strange -- the employee is asked: ``Does transaction meet all of the `bill and hold' criteria for revenue recognition?'' If the answer to that question is yes, the decision tree says to do this: ``Recognize revenue.'' The decision tree didn't specify what the other criteria were.

At Odds

In other words, Halliburton told employees to recognize revenue even though the company still owned the product.

You don't have to be an accountant to see the problem.

``The policy in the chart is clearly at odds with generally accepted accounting principles,'' says Charles Mulford, a Georgia Institute of Technology accounting professor, who reviewed the court records. ``It's very clear cut. It's not gray.''

Bill-and-hold was at the heart of Sunbeam Corp.'s collapse in the late 1990s, and later blowups at Qwest Communications International Inc. and Nortel Networks Corp.

It is possible to use bill-and-hold and comply with the rules. But it's hard. The customer, not the seller, must request such treatment. The customer also must have a compelling reason for doing so. Customers rarely do.

SEC Inquiry

Menendez, who now works as a consultant, also accuses Halliburton of improper accounting for income taxes, off-balance- sheet entities and foreign-currency adjustments. Court records show he first alerted the SEC's enforcement division in November 2005, three months before he complained to Halliburton's audit committee.

In a Jan. 3 court filing, Halliburton said the SEC had closed its inquiry into the company's accounting practices.

Menendez told me, though, that he met with SEC investigators at the agency's Fort Worth, Texas, office as recently as March 28. He also shared a March 14 letter from an enforcement-division attorney there, which shows the travel itinerary the SEC arranged for him to attend that meeting. Mann, the Halliburton spokeswoman, declined to comment on whether the company has been notified of further SEC inquiries into Menendez's allegations.

Halliburton seemed to quell doubts about its books back in August 2004, when it paid $7.5 million to settle a two-year SEC probe. The agency faulted Halliburton's disclosures, but not its accounting. As long as investors trust a company's profits, they generally don't care how the company earns them. If they begin to suspect they shouldn't, though, look out.

You can read Menendez's complaint in three parts (I, II, III) on the following website ---
http://www.tpmmuckraker.com/archives/003500.php

Bob Jensen's threads on whistle blowing are at
http://www.trinity.edu/rjensen/FraudConclusion.htm#WhistleBlowing

Bob Jensen's threads on revenue reporting and frauds can be found at http://www.trinity.edu/rjensen/ecommerce/eitf01.htm

SEC SAB 101 "Revenue Recognition in Financial Statements" --- http://www.sec.gov/interps/account/sab101.htm

Here's an older example of bill and hold fraud
Death by Accounting
To get companies to participate in a flu vaccine stockpile the government is dangling tons of new funding. Cash in hand is usually a very strong incentive. But a Clinton administration SEC policy prevents the vaccine makers from recognizing the revenue until the vaccine is delivered to the doctors, countering the very purpose of a stockpile. The Department of Health and Human Services' National Vaccine Advisory Committee concluded in early 2005 that for the stockpile program to be successful, "the revenue recognition issue must be resolved as soon as possible." It all began in late 1999, when the SEC issued "Staff Accounting Bulletin 101," which it painted as a modest clarification "not intended to change current guidance in the accounting literature." But in reality it was a radical change to the way companies could book revenue from "bill and hold" orders. This change would, at its least, lead to hindrances for innovative new companies. At its worst, it would discourage production of lifesaving products like vaccines.
John Berlau, "Death by Accounting?" The Wall Street Journal, October 21, 2005 --- http://online.wsj.com/article/SB112985642561675193.html?mod=opinion&ojcontent=otep

Bob Jensen's threads on whistleblowers are at http://www.trinity.edu/rjensen/FraudConclusion.htm#WhistleBlowing

Bob Jensen's threads on revenue reporting fraud (including bill and hold issues) are at http://www.trinity.edu/rjensen/ecommerce/eitf01.htm

A whistleblower should really wear a mask, ride a white horse, and have a native American partner to help track the piles of Kemosabi. The William Tell Overture also helps --- http://www.youtube.com/watch?v=qdQomfnCH_0

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Accounting Software Comparisons

Profiles of Software Systems and Tools --- http://www.p2pays.org/ref%5C01%5C00047/00047d.htm

RiverGuide provides in-depth profiles, comparisons, and reviews of accounting software products, and would be a valuable resource for users of your site --- http://www.riverguideinc.com/construction/

Accounting Software Ratings

May 2, 2007 message from Jessica Valdes

I am writing on behalf of CTSGuides.com, which is a site that lists accounting software reviews and ratings.  We only list qualified companies that are upstanding and reputable.  This will be a good resource to add to your site for accounting companies that are in search of vendors who offer accounting software.  I would like to know if you'd be interested in adding our link to your site.

Please review this information and let me know if you are interested in such a relationship with our company. If I have contacted you in the past, my apologies.

Title - Accounting Software Reviews and Ratings
URL - http://www.ctsguides.com/accounting-software.asp
Description - Free portal of reviews and ratings of accounting software to help companies consider options for selecting new software.

Thanks and best regards!

Jessica Valdes
jessica@ctsguides.com
CTSGuides.com

"Top Technologies for Accounting Pros Announced," SmartPros, June 11, 2007 --- http://accounting.smartpros.com/x57964.xml

Bob Jensen's threads on accounting software comparisons are at http://www.trinity.edu/rjensen/Bookbob1.htm#AccountingSoftware

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Question
How useful is XBRL for mutual funds?

From The Wall Street Journal Accounting Weekly Review on August 31, 2007

Language of Love for Mutual Funds: XBRL by Daisy Maxey The Wall Street Journal Aug 28, 2007 Page: C11 Click here to view the full article on WSJ.com --- http://online.wsj.com/article/SB118825363850710278.html?mod=djem_jiewr_ac   TOPICS: Accounting, Accounting Information Systems, Financial Statement Analysis, Securities and Exchange Commission SUMMARY: Maxey describes the usefulness of eXtensible Business Reporting Language (XBRL) for comparing mutual funds' reported results. "In April 2005, public companies began voluntarily submitting interactive-data documents as exhibits to reports and other filings with the SEC. The mutual-fund submissions are an extension of that program. " CLASSROOM APPLICATION: Reference in this review to a white paper from the SEC on XBRL and the SEC's involvement with this system allows for discussion of the system's use for all financial statements submitted to the SEC. Obtain access to the white paper at http://www.edgar-online.com/?contactID=55822111 QUESTIONS:  1.) What is XBRL? 2.) How is the Securities and Exchange Commission introducing use of this system by financial statement filers and, now, mutual funds? Hint: in addition to the description in the article, you may find this information by searching the SEC's web site (www.sec.gov) for XBRL. Provide a proper citation of documents you use for this purpose. One document you may find is the transcript of remarks at the 15th International XBRL Conference by Commissioner Kathleen L. Casey in Munich, Germany on June 4, 2007 available at http://www.sec.gov/news/speech/2007/spch060407klc.htm 3.) Why do you think companies volunteer to begin reporting under the XBRL system? Why do you think the SEC is beginning this system with voluntary reporting in this format? 4.) The SEC web site refers to an article in The Accounting Review investigating financial statement users' behaviors in accessing financial statement information. The location of the paper on the SEC's web site is http://www.sec.gov/news/press/4-515/4515-6art.pdf Read the summary of the paper. Draw an analogy from these research results to the impact of XBRL for mutual fund investors.   SMALL GROUP ASSIGNMENT:  Follow the directions in the article to access the SEC web site tool for accessing interactive data. Select two companies in the same industry and prepare a comparison report of income statement data. Download the data to Excel and calculate a common-sized income statement (showing the top line of the income statement, sales, as 100% and all other elements as percentages of sales). Assess differences between the two companies. Identify other sources of data for financial statement analysis (for example, Yahoo! Finance). Compare and contrast the use of XBRL with other available sources of data. What is the advantage of having interactive data available in the financial statement filings themselves as opposed to the use of a system accessing electronic data presented in a traditional format? What are potential disadvantages - particularly with the current state of the system in relying on companies voluntarily providing optional information in the XBRL tagged format? Reviewed By: Judy Beckman, University of Rhode Island

"Language of Love for Mutual Funds: XBRL Computer Code Simplifies Investors' Search for Data On Returns, Costs, Risks," by Daisy Maxey, The Wall Street Journal, August 28, 2007; Page C11 ---
http://online.wsj.com/article/SB118825363850710278.html?mod=djem_jiewr_ac 

Mutual-fund investors whose eyes glaze over when they read the term "XBRL" may want to keep reading: The computer language may soon make it easier to compare funds' strategies, costs, risks and returns.

Mutual funds last week began providing information related to their risks and returns to the Securities and Exchange Commission using XBRL, a software language used to label filings with standard codes. These codes make it simple to pull specific bits of data out of long, hard-to-search filings. (XBRL stands for eXtensible Business Reporting Language.)

Longer term, the effort may spur online-data providers to develop tools for investors to easily analyze and compare mutual funds, resulting in a more competitive investment-management industry.

Years in the Making

In April 2005, public companies began voluntarily submitting interactive-data documents as exhibits to reports and other filings with the SEC. The mutual-fund submissions are an extension of that program.

Among the first mutual funds to participate in the program are Allegiant Advantage Fund, American Funds' Europacific Growth Fund, Mulhenkamp Fund and Vanguard 500 Index Fund.

The coding pulls out data on funds' investment objectives, strategies, risks, costs and historical performance. "That's the kernel which we suspect most investors are interested in," said John Heine, a spokesman for the SEC.

To get an idea of what may soon be available, investors can see submissions from publicly traded companies through an interactive viewer available through the SEC's public Web site (www.sec.gov). Click on "interactive data," choose "Interactive Financial Report Viewer," and then go to "XBRL Web application."

More Tweaks to Come

Risk and return information on mutual funds can't be seen through the viewer, and there's no way to easily compare funds yet, but the SEC is considering integrating the fund information into a viewer.

"Millions of retail investors rely on mutual funds to finance their retirement, health care, education and other financial needs, so shopping for the right fund shouldn't be a needlessly time-consuming and frustrating exercise," SEC Chairman Christopher Cox said in a news release. With the new tools, "investors will be able to comparison-shop among thousands of funds at the click of a mouse. This is a potentially rich new source of investing information for retail investors who need it most."

Jack Kunkle, an analyst with Muhlenkamp & Co. in Wexford, Pa., said he envisions many uses for the newly coded data. For example, the firm's customer-service representatives now research other mutual funds for their shareholders.

"Instead of having to go through big, long documents, this can easily compare one fund to another," he said.

Among the nation's biggest mutual-fund companies, Vanguard, of Valley Forge, Pa., could make additional submissions for funds as the SEC pilot program continues, but the firm has no plans to do so now, said spokeswoman Amy Chain.

"We think it's a powerful tool for mutual-fund investors. More than 80% of our client interactions take place online," she said.

Fidelity Investments is actively looking at the XBRL voluntary program, but Sophie Launay, a spokeswoman for the Boston-based fund company, said "it's too early to discuss specific plans."

 

Bob Jensen's video tutorials on XBRL are at http://www.cs.trinity.edu/~rjensen/video/Tutorials/

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

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It's elementary Watson! Of course the statement of cash flow matters

"Why the Statement of Cash Flows Matters," by Scott Rothbortm, TheStreet, September 21, 2007 --- Click Here
Jensen Comment
This really is an elementary article, but it does have some rather nice current examples.

Perhaps a better topic would be "why accrual accounting still matters."

"Which is More Value-Relevant: Earnings or Cash Flows?" by Ervin L. Black, Sr., SSRN, May 1998 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=118089 
 

Statements in the financial press and recent research suggest that controversy exists as to which accounting measure is more value-relevant: earnings or cash flows. This study examines the relative value-relevance of earnings and cash flow measures in the context of the firm life-cycle. Earnings are predicted to be more value-relevant in mature stages. Cash flows are expected to be more value relevant in stages characterized by growth and/or uncertainty. In general the hypotheses are supported using Wald chi-square tests (Biddle, Seow, and Siegel 1995) of the Edwards, Bell, Ohlson (1995) model. Evidence supports the hypothesis that earnings are more value-relevant than operating, investing, or financing cash flows in mature life-cycle stages. However, in the start-up stage investing cash flows are more value relevant than earnings. In growth and decline stages, operating cash flows are more value relevant than earnings.

Jensen Comment
The above paper by Professor Black is an illustration of a working paper that for quite a long time was available free from BYU. Now that it's on SSRN it's no longer free. SSRN did not necessarily contribute to the open sharing of research papers.

By the way, even if cash flow statements were hypothetically more relevant in all instances, accrual accounting statements would still be vital. My DAH reason is that, if accountants only reported cash flows, it would be quite simple for managers to distort period-to-period performance by simply altering the contractual timings of cash in and cash out. This is much more simple to do for cash payments than for accrual transactions. There would also be the pesky problem of capital maintenance if depreciation and amortization gets overlooked. In theory capital maintenance is not overlooked in fair value accounting since values decline with asset deterioration. However, fair value accounting is quite another matter entirely --- http://www.trinity.edu/rjensen/Theory01.htm#FairValue

September 27, 2007 reply from Mark Eckman, Rockwell Collins [mseckman@ROCKWELLCOLLINS.COM]

Your last comment has pain. Our profession has overloaded the world with standards. Daily I struggle with US GAAP, IFRS and government accounting standards, not to mention my counterparts in the tax department. Other than our professional contemporaries, financial accounting standards have become so complex that most users look for something they understand - cash flows. Thinking about the effects of fair value, phase II of the pension project and that recent suggestion that at some time in the future "net income" will not appear on the income statement the FASB has set a course to add more confusion.

Simply put, why does the profession consistently make it more difficult for the users of financial statements to comprehend them? Why can't standards consider simplicity, readability and ease of use along with completeness, valuation, presentation, et al.? The profession talks a great game that standards help the user of the financial statements. They seem more geared to providing a standard for the auditor to test consistency and that is a good value. But considering usefulness, ease of use or understanding by the user, we do not walk the talk.

Mark S. Eckman

September 27, 2007 reply from Bob Jensen

Hi Mark,

I passed the CPA examination while I was in college. Colorado allowed seniors in college to sit for the examination. When I took the exam in 1960 there were 512 paragraphs of standards, aside from the tax code, that were all we had to learn for the examination. Today I don’t know how many paragraphs there are there are in the standards, but there are thousands upon thousands of paragraphs. And how can anybody pass the CPA exam today? The answer is that candidates today know less and less about more and more standards. Hence the examination passage rate remains roughly the same at about 10% to 20%.

So you ask why can’t we go back to simpler days, back to around 500 paragraphs of concepts and standards? The answer is that financial reporting would, in my viewpoint, become chaos and riddled with enormous inconsistencies where auditors for Company A recommend booking a $1 million loss and auditors for Company B don’t even disclose the loss let alone measure it. And the contracts for both companies may be identical in all respects. If there are is no GAAP to cover this particular kind of contract, accountants must use more and more subjective judgment. Subjective judgment leads to inconsistencies.

Also there is no need to go back to simpler days in this age of technology. The analogy here is the small town doctor before 1970. When I was growing up in Algona, Iowa our family doctor was Dr. Bourne, MD. A high percentage of cancer patients died because country doctors knew the basics of medicine but could not detect many types of cancer until it was too late. Today we have computers in high tech medical laboratories and immensely complex diagnostics software that can both detect cancers very early and recommend courses of action. Today my doctor in Franconia, NH is Virginia Jeffreys, MD. I’ve never once seen Dr. Jeffreys when she’s not balancing a networked laptop on her lap.

The same can be said for technology aids for auditors these days. Every auditor in the field does not have to memorize GAAP about how to qualify for the Shortcut Method to avoid hedge effectiveness testing for interest rate swaps. But her/his laptop connected to the Internet can tap into his firm’s database in seconds and come up with the Shortcut Method answers.

When I passed the CPA examination the contracts we accounted for were amazingly simple. Firms borrowed under a few basic kinds of contracts and off-balance sheet financing was virtually unknown except for leasing. Today with structured financing, debt/equity with all sorts of conversion features, and thousands of kinds of hedging contracts using derivative financial instruments like interest rate swaps that have zero initial cost and can have immense swings in value and risk in the days following the contract signing.

I think the FASB and IASB initiatives for simpler standards in this age of technology are a huge mistakes. Accountants need more rather than less GAAP to cover the millions of different kinds of contracting taking place in the world.

If financial reporting is important and firms are constantly trying to manage earnings to pad their bonuses and look good on the stock market, then we need a comprehensive GAAP for both guidance in the world of complex contracting and for restraints on devious managers.

Bob Jensen

September 28, 2007 reply from Mark Eckman, Rockwell Collins [mseckman@ROCKWELLCOLLINS.COM]

Hi Bruce & Bob,

> The greater number and complexity of standards creates a barrier to entry into the profession.  That creates a shortage of accountants, which increases the
> fees which can be charged... All in all, the profession as a whole profits from the increased complexity and changing nature of the standards.  

That is purely an academic perspective.  IMO, the constant pressure by management on our profession to drive down audit fees pushed CPA firms into more consulting engagements to keep the revenue streams growing.  That was a root cause of not holding corporate management to the standards, i.e., Enron.  While economics may provide an answer, it does not drive the correct ethical behavior in either practice or industry.

> So you ask why can’t we go back to simpler days, back to around 500 paragraphs of concepts and standards... Also there is no need to go back to simpler
> days in this age of technology.

Actually, I never asked for either of those as options.  I just do not believe we are on the right path going forward.  When I was in college, I remember the excitement of my professor when FAS 13 was released.  The concept was simple, the application was straightforward and yet the abuses continue to this day.  The games in application of the standard remain invisible to the most users of the financial statements.  Let's continue to make standards as complex as necessary, as long as they provide clarity to the user community as a whole.

Remember, users fall between two extremes:

• The professional user (analysts, accountants, bankers et al.) assembling information themselves with financial acumen and access to management and,
• The paycheck-to-paycheck worker that will retire on a 401(k) filled with mutual fund investments.

While the analyst should be able to properly interpret the financial statements and interpret new standards, the general public does not stand a chance.

As for technology, it is a great tool that needs to be expanded in use.  Just consider the millions of calculations a typical company will go through to record stock based compensation, again, well beyond the visibility of the typical reader of the financial statements.  However, the executive compensation tables in the proxy do provide visibility specifically for the non-professional reader.  Note I did not say these are perfect and they are certainly not what some would like to see, but they provide insight on a level where the non-professional reader has a chance to understand what actually happens.

Mark S. Eckman

September 28, 2007 reply from Jack Hall [jack.hall@WKU.EDU]

A close reading of SFAC No. 1 states that

The [financial] information should be comprehensible to those who have a reasonable understanding of business and economic activities and are willing to study the information with reasonable diligence. (¶ 34)" Also, "Financial information is a tool and, like most tools, cannot be of much direct help to those who are unable or unwilling to use it or who will misuse it. (¶ 36)"

Furthermore, W.A. Paton stated, in 1922, that we must assume an intelligent reader of the financial statements.

I am not sure that the financial reporting system can ever be simplified enough to serve the paycheck to paycheck worker, or the general public. Reliance on professionals will be necessary.

 

Bob Jensen's threads on accounting theory are at http://www.trinity.edu/rjensen/Theory01.htm

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

September 24, 2007 message from David Albrecht [albrecht@profalbrecht.com]

I'm somewhat doubtful that even a Ph.D. in accounting, by itself, makes for a good teacher in upper level accounting courses. What competitive advantage to an UG classroom does having a top-tier accounting pub offer? Do I remember correctly that the research on switch from FIFO to LIFO found (depending on the study) found either a positive market reaction, no reaction, or a negative reaction? Well, the research on the relationship between teaching and research finds either a positive, negative, or no relationship (depending on the study).

I find it really interesting that AACSB goes for content mastery (having enough "research" pubs to be AQ or having enough continuing ed to be PQ) as the prime qualification for being able to "teach" upper level accounting courses. When does the ability to help students learn start to matter as a qualification?

How many AQ professors (or PQ, for that matter), engage in professional development to help make them better in the classroom? Dee Fink says that across the academy, professional development on the teaching end is virtually non-existant.

And, given the recent emphasis on accounting Ph.D.s to be AQ, what is the impact on upper-level accounting courses of ruling some of the accounting Ph.D.s to be non-AQ?

David Albrecht
Bowling Green State University

September 24, 2007 reply from Bob Jensen

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

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

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

Bob Jensen

September 24, 2007 reply from David Albrecht [albrecht@profalbrecht.com]

Bob,

To tell you the truth, I can't imagine what such a project would be like. Can you give me a couple of concrete examples? Perhaps I might find something of interest and start working on it.

Dave

September 24, 2007 reply from Bob Jensen

Hi David,

Most of Bob Kaplan (and co-authors) writings in recent years are more closely aligned with business management and clinical accountancy, although Bob once complained to me that the leading academic accounting research journals would not publish his work built upon case methodology.
A link to Bob --- http://drfd.hbs.edu/fit/public/facultyInfo.do?facInfo=ovr&facEmId=rkaplan

Of course many other faculty around the world use case methodology. But you seldom see their work published in the so-called “top academic accounting research journals.” Case methodology is risky business for doctoral dissertation research in current times.

Probably one of the largest areas where academic research and clinical accounting intersect in the area of fraud detection and prevention. Examples include the following:
 

• Some of the recent publications of Chuck Mulford --- http://mgt.gatech.edu/directory/mulford.html
  Chuck was a doctoral student when I was at FSU, although he did his work under other FSU faculty. Chuck is deeply involved in lab research that is very relevant to clinical accountancy --- http://mgt.gatech.edu/fac_research/centers_initiatives/finlab.html
  
   
• Some of the recent publications of George Benston (although knowing George over the years I never thought I would be able to recommend him for clinical research) --- http://www.goizueta.emory.edu/faculty/faculty_profiles.html
  George has conducted some of the best research on the Enron scandal.

And of course in recent years, XBRL studies are very relevant to clinical accounting. Although most of these are rooted in the clinical profession, there are college faculty and students making contributions to this important area of research and development.

In fairness there are accountics studies that make relevant contributions to clinical accountancy. Example? I especially like the following paper:
“Accounting for tax benefits of employee stock options and implications for research,” Michelle Hanlon and Terrance J. Shevlon, Accounting Horizons, Vol. 16, No. 1, March 2002, pp. 1-16.

Much of the research on earnings management is also relevant, especially when providing clues as ploys managers use to manage earnings. My guess, however, is that the FASB already knows about these manipulation ploys before the empiricists launch more formal studies. That’s the big problem with accountics research. It’s not generally discovery research in terms of first discovering where problems and solutions lie. It’s better at testing anecdotal evidence in a more rigorous fashion.

I suspect some ACMEers will suggest even better examples. Paul Williams will perhaps help us with some of the leading clinical implications of the research in AOS and related journals. Amy Dunbar and Richard Sansing can help us with taxation research which in many ways is a good area to look for relevance of academic research to the practicing profession.

And of course there are many clinical implications in accounting history research such as that found in the Accounting Historians Journal.

 The fact of the matter is that most accounting standards that emerge are rooted in normative methodology --- that dirty N-word in academe.

Bob Jensen

 

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Question
Why is SAS 99 fundamentally changing the role of the external auditor in detecting and disclosing fraud, including fraud that may not pass the materiality test as far as the aggregate financial statements are concerned?

Recent professional guidance, such as SAS 99, Consideration of Fraud in a Financial Statement Audit, and Public Company Accounting Oversight Board Auditing Standard 2, has brought more attention to the auditor's responsibility to uncover the warning signs of fraud, but there is still some ambiguity about where the auditor's responsibility ends and the fraud examiner's begins.
AccountingWeb, September 2007 --- http://www.accountingweb.com/cgi-bin/item.cgi?id=104036

Consider this scenario: A staff auditor reviewed various accrual accounts during a routine audit. He uncovered 10 manual entries made after the quarter's close that lacked sufficient supporting documentation and that significantly reduced the reserve balance for each account. The auditor reviewed the entries in the system and found the same explanation for each reduction: "reduce accrual by $1.5 million, per John Davies, corporate controller." The total amount of reductions came to $15 million, and was material to the financial statements of the company.

The auditor brought this information to the audit manager, who advised him to discuss the entries with the corporate controller. The controller provided verbal support for each entry. The auditor had no reason to disbelieve the controller, so he cited the lack of supporting documentation as an audit finding and completed the report. Six months later, news came out that the controller was adjusting various accrual accounts to manipulate earnings. The auditor was distraught about the situation, and questioned his or her conduct and the audit procedures. The audit manager was asked to explain why the audit team did not pursue the findings and press for supporting documentation. The controller was terminated, and the company underwent an investigation by the Securities and Exchange Commission (SEC). The auditor continued to wrestle with himself: "I'm an auditor, not an investigator….right?" Auditors and forensic accountants share common attributes, but their roles differ significantly. Sometimes it can be difficult for auditors to understand their responsibilities for fraud detection, investigation, and prevention. Generally, companies call in a fraud examiner to conduct an investigation once fraud is suspected, but the auditor is the person who initially finds the red flags of potential fraud.

The auditor's role in fraud detection has a long history of confusion and controversy. In 1892, the widely used auditing textbook A Practical Matter for Auditors, by Lawrence Dicksee, expressed the view that the objective of an audit was the detection of fraud, technical errors, and errors of principle. It stated, "the detection of fraud is the most important portion of the auditor's duties." Shortly thereafter, the auditor's role in fraud detection started to evolve. In an 1895 British court case (London and General Bank), the court ruled that it was the auditor's responsibility to report to shareholders all dishonest acts, but that the auditor could not be expected to uncover all fraud committed in a company, although they should conduct all audits with reasonable care. Fast-forward to the 21st Century. The nature of the auditor's responsibility to detect fraud is still the subject of confusion. For example, a 2003 study of prospective jurors conducted by Camico, a provider of CPA malpractice insurance, found that 74 percent of respondents believe audits are designed to uncover all types of fraud. In fact, according to a 2006 Association of Certified Fraud Examiners (ACFE) Report, Report to the Nation on Occupational Fraud and Abuse, only 12 percent of fraud is initially detected by external auditors, while 50 percent came from employee tips, 20 percent came from internal audits, and 19 percent was detected by internal controls.

Responsibilities

The management of public companies is required by PCAOB Auditing Standard 2 to develop and implement internal controls to prevent, detect, and deter incidents of fraud in financial reporting, and Section 404 of the Sarbanes-Oxley Act requires management to assess and report on the effectiveness of those internal controls on an annual basis.

Continued in article

Jensen Comment
External auditors are not even close to being the main source of initial detections of frauds. A much better source for early on fraud detection is a whistleblower within the organization being audited. The Sarbanes-Oxley Law in theory affords some protection for whistleblowers, but in reality SOX has been lousy at protecting whistleblowers --- http://www.trinity.edu/rjensen/FraudConclusion.htm#WhistleBlowing
Also see http://www.trinity.edu/rjensen/ecommerce/eitf01.htm#BillAndHold

In general fraud examination is still fundamentally different from auditing in spite of SOX ---
http://www.amazon.com/Principles-Fraud-Examination-Joseph-Wells/dp/0471517089

Bob Jensen's threads on the professional responsibility of auditors are at http://www.trinity.edu/rjensen/Fraud001.htm#Professionalism

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Wikipedia has a rather nice summary of financial ratios --- http://en.wikipedia.org/wiki/Financial_ratio

Wikipedia also has a rather nice and concise comparison of fundamental versus technical analysis --- http://en.wikipedia.org/wiki/Financial_statement_analysis

Two analytical models

When the objective of the analysis is to determine what stock to buy and at what price, there are two basic methodologies.

1. Fundamental analysis maintains that markets may misprice a security in the short run but that the "correct" price will eventually be reached. Profits can be made by trading the mispriced security and then waiting for the market to recognize its "mistake" and reprice the security.
    
2. Technical analysis maintains that all information is reflected already in the stock price, so fundamental analysis is a waste of time. Trends 'are your friend' and sentiment changes predate and predict trend changes. Investors' emotional responses to price movements lead to recognizable price chart patterns. Technical analysis does not care what the 'value' of a stock is. Their price predictions are only extrapolations from historical price patterns.

Investors can use both these different but somewhat complementary methods for stock picking. Many fundamental investors use technicals for deciding entry and exit points. Many technical investors use fundamentals to limit their universe of possible stock to 'good' companies.

The choice of stock analysis is determined by the investor's belief in the different paradigms for "how the stock market works". See the discussions at efficient market hypothesis , random walk hypothesis, Capital Asset Pricing Model, Fed model Theory of Equity Valuation, and behavioral finance.

Valuation for Financial Reporting : Fair Value Measurements and Reporting, Intangible Assets, Goodwill and Impairment , 2nd Edition, by Michael J. Mard, James R. Hitchner, Steven D. Hyden, Wiley, ISBN: 978-0-471-68041-3 Hardcover 240 pages September 2007. The last time I checked Amazon had eight used copies available --- Click Here

Bob Jensen's threads on ratios and valuation are at http://www.trinity.edu/rjensen/roi.htm

 

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Delphi Settles Lawsuits Over Accounting Fraud Charges
Delphi Corp. settled fraud lawsuits by investors, including about 40,000 current and former employees and several pension funds, who contended former managers fraudulently inflated financial results to make Delphi more attractive. Participants in employee-retirement plans will get $24.5 million in allowed interest in Delphi's Chapter 11 bankruptcy case and $22.5 million in cash from insurance carriers. Buyers of Delphi's debt and equity will get $204 million in combined allowed interest and about $90 million in cash from other defendants and insurers.
"Delphi Settles Lawsuits Over Fraud Charges," The Wall Street Journal, September 4, 2007; Page A9 --- http://online.wsj.com/article/SB118887586498116651.html?mod=todays_us_page_one

Jensen Comment
I think what's important about this is that Deloitte is the only one of the Big Four that did not sell its consulting division (although those firms that did sell have started up new advisory services divisions).  It would seem that Deloitte was still auditing an information system that it once designed.  However, some other firms are probably doing the same thing even though they sold the consulting divisions that once designed the information systems being audited.

"Delphi Investors Seek Deloitte's Ouster as Auditor," by Jonathan Weil, The Wall Street Journal,  December 3, 2005; Page B13 --- http://online.wsj.com/article/SB113356891041013005.html?mod=todays_us_money_and_investing

A group of large investors has asked the judge presiding over Delphi Corp.'s bankruptcy proceedings to disqualify Big Four accounting firm Deloitte & Touche LLP from continuing to audit the auto-parts maker's financial statements.

Delphi filed for Chapter 11 bankruptcy-court protection in October, just months after disclosing a litany of accounting violations involving hundreds of millions of dollars. The disclosures prompted a series of government investigations that are continuing. Shortly after filing for bankruptcy protection, Delphi asked the court for permission to continue using Deloitte, its longtime outside auditor.

In their request Friday, the Teachers' Retirement System of Oklahoma, the Public Employees' Retirement System of Mississippi and two other large institutional investors asked U.S. Bankruptcy Judge Robert D. Drain to reject that application, arguing that Deloitte faces unmanageable conflicts of interests.

"The more Deloitte were to discover about Delphi's past accounting problems, the more it would implicate itself for having failed to detect them at the time," the funds wrote in their court filing. "In fact, Deloitte has strong incentive to conceal pre-petition accounting and auditing problems, and to minimize its own liability."

Those same investors are the lead plaintiffs in a lawsuit that seeks class-action status accusing Delphi, Deloitte and several other defendants of misleading investors. They also have filed papers before Judge Drain objecting to potentially lucrative pay packages that Delphi has proposed for certain key employees, including senior Delphi executives, while the company reorganizes.

In a statement, Deloitte spokeswoman Deborah Harrington said the accounting firm "does not believe it would be appropriate to publicly comment on a retention application that is currently pending before the federal bankruptcy court. However, any allegations that Deloitte & Touche LLP acted improperly with respect to its prior audit engagements for Delphi are untrue."

A Delphi spokesman declined to comment.

In addition to auditing Delphi's financial statements, Deloitte also designed and implemented Delphi's financial-information systems following the company's 1999 spinoff from General Motors Corp. In 2000, Delphi paid Deloitte $6.6 million for its annual audit and $50.8 million for nonaudit services, including $41.3 million for the information-systems project; it paid Deloitte an additional $12 million related to the project in 2001.

Since then, Delphi's audit fees have risen, while nonaudit fees have declined. For 2004, Delphi paid Deloitte $14 million in audit fees and $1.7 million for other services.

Continued in article

Bob Jensen's threads on Deloitte are at http://www.trinity.edu/rjensen/Fraud001.htm#Deloitte

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Leader in TJX Fraud Gets 5-Year Sentence
Irving Escobar, a ring leader in a TJX Cos.-linked credit-card fraud, was sentenced to five years in prison and has been ordered to pay nearly $600,000 in restitution for damages resulting from stolen financial information, Florida officials said. The sentencing follows a guilty plea by Mr. Escobar, 19 years old, of Miami, to charges that he participated in a 10-person operation that used counterfeit cards bearing the stolen credit-card data of hundreds of TJX customers to purchase approximately $3 million in goods and gift cards. The penalty is the stiffest handed down so far in the case. The thefts were carried out at a string of Wal-Mart and Sam's Club stores in Florida during the second half of 2006, authorities said. Some of the merchandise was bought with gift cards that had previously been purchased with the fraudulent credit cards, a modern-day version of money laundering, officials said.
Joseph, Perira, The Wall Street Journal, September 14, 2007, Page B5 ---
http://online.wsj.com/article/SB118973246548127272.html?mod=todays_us_marketplace

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KPMG's Defining Issues --- http://www.kpmg.com/aci/DI.asp

New KPMG Faculty Portal --- https://www.kpmg.com/facultyportal/
I suggest that accounting educators register (free) even though doing so is a bit tedious.

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SEC Charges 69 Auditing Firms, Partners With Violating Sarbanes-Oxley Registration
Federal regulators on Thursday charged 69 accounting firms and partners with violating a landmark 2002 antifraud law by auditing public companies without registering with the board that supervises the accounting industry. The Securities and Exchange Commission, which often brings charges and settles them on the same day, also said that 50 of the firms and partners had settled with the agency . . . Without being registered and subject to inspections by the board, the 69 accounting firms and partners around the country together issued audit reports for 53 public companies from November 2003 to October 2005, the SEC said. Congress created the board, with subpoena power and the authority to discipline accountants, in the Sarbanes-Oxley law to replace the accounting industry's own regulators. The corporate blowups of 2002 exposed inadequate internal controls and auditors at major companies who had become too cozy with the corporations whose books they examined.
SmartPros, September 14, 2007 --- http://accounting.smartpros.com/x59097.xml

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"Proposed Guidance on Applying the “Shortcut Method” of Hedge Accounting," KPMG's Defining Issues, July 2007 ---
http://www.kpmg.com/aci/docs/DI 07_24 Shortcut Method.pdf
Also see http://www.cs.trinity.edu/~rjensen/Calgary/CD/fasb/ShortcutMethodFromKPMG.pdf

Bob Jensen's threads on the shortcut method are given under the S-Terms at
http://www.trinity.edu/rjensen/acct5341/speakers/133glosf.htm#S-Terms

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"Big Four accounting firm KPMG LLP faces a class action lawsuit against its Canadian division," SmartPros, September 10, 2007 --- http://accounting.smartpros.com/x59025.xml

The lawsuit, filed this week in Ontario Superior Court, claims overtime compensation for non-chartered accountant KPMG employees who worked more than 44 hours in a week, were not paid overtime pay, and are not exempt under applicable regulation.

Chartered accountants, who make up the bulk of KPMG's staff, are excluded from overtime provisions.

The lead plaintiff, Toronto resident Alison Corless, was employed by KPMG as a "technician" between 2000 and 2004 and is seeking $87,000 in overtime pay for that period. The lawsuit filed this week seeks $20 million for the class.

This is the second unpaid-overtime class action lawsuit against a major company in Canada, following a lawsuit against Canadian Imperial Bank of Commerce.

Bob Jensen's threads on KPMG are at http://www.trinity.edu/rjensen/Fraud001.htm#KPMG

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CPA auditors have always considered their primary role as attesting to full and fair corporate disclosures to investors and creditors under Generally Accepted Accounting Principles (GAAP). Now it turns out that this extends, perhaps unexpectedly, to the government as well.

"How Accounting Rule (FIN 48) Led to Probe Disclosure of Tax Savings Firms Regard as Vulnerable Leaves Senate Panel a Trail," by Jesse Drucker, The Wall Street Journal, September 11, 2007; Page A5 ---
http://online.wsj.com/article/SB118947026768923240.html?mod=todays_us_page_one

The probe, by the Senate's Permanent Subcommittee on Investigations, appears to have been sparked by an accounting rule known as FIN 48, which took effect in January. The rule for the first time requires companies to disclose how much they have set aside to pay tax authorities if certain tax-cutting transactions are successfully challenged by the government. The disclosures require companies to attach a dollar figure to tax-savings arrangements they think could be vulnerable.

Although intended to inform investors, the disclosures also serve as a kind of road map for government authorities, guiding them to companies that may have taken an aggressive stance on tax-related arrangements.

The probe, by the Senate's Permanent Subcommittee on Investigations, appears to have been sparked by an accounting rule known as FIN 48, which took effect in January. The rule for the first time requires companies to disclose how much they have set aside to pay tax authorities if certain tax-cutting transactions are successfully challenged by the government. The disclosures require companies to attach a dollar figure to tax-savings arrangements they think could be vulnerable.

Although intended to inform investors, the disclosures also serve as a kind of road map for government authorities, guiding them to companies that may have taken an aggressive stance on tax-related arrangements.

The FIN 48 disclosures generally reveal how much a company has set aside in an accounting reserve called "unrecognized tax benefits." The reserve represents the portion of the tax benefits realized on a company's tax return that also hasn't been recognized in its financial reporting.

In the letters, sent Aug. 23, Senate investigators seek to obtain more details about the underlying transactions in the FIN 48 disclosures. One letter viewed by The Wall Street Journal asks the companies to "describe any United States tax position or group of similar tax positions that represents five percent or more of your total [unrecognized tax benefit] for the period, including in the description of each whether the tax position involved foreign entities or jurisdictions."

The subcommittee, led by Sen. Carl Levin (D., Mich.), has held numerous hearings on tax shelters, tax avoidance, and the law firms and accounting firms that set up such structures.

The Senate's inquiry also includes questions about other tax-cutting arrangements. For tax-cutting transactions on which companies spent at least $1 million for legal fees or other costs, Senate investigators are asking companies to identify the amount of the tax benefit, as well as "the tax professional(s) who planned or designed the transaction or structure and the law firm(s) that authored the tax opinion or advice."

Continued in article

Tutorial:  FIN 48 from different perspectives
Financial Accounting Standards Board Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, is intended to substantially reduce uncertainty in accounting for income taxes. Its implementation and infrastructure requirements, however, generate a great deal of uncertainty. This feature provides an overview of FIN 48, addresses some of its federal and international tax issues, as well as issues arising at the state and local level.
AccountingWeb, June 2007 --- http://www.accountingweb.com/cgi-bin/item.cgi?id=103625

From The Wall Street Journal Accounting Weekly Review on June 1, 2007

Lifting the Veil on Tax Risk by Jesse Drucker The Wall Street Journal May 25, 2007 Page: C1 Click here to view the full article on WSJ.com --- http://online.wsj.com/article/SB118005869184314270.html?mod=djem_jiewr_ac   TOPICS: Accounting, Accounting Theory, Advanced Financial Accounting, Disclosure Requirements, Financial Accounting Standards Board, Financial Analysis, Financial Statement Analysis, Income Taxes SUMMARY: FIN 48, entitled Accounting for Uncertainty in Income Taxes--An Interpretation of FASB Statement No. 109, was issued in June 2006 with an effective date of fiscal years beginning after December 15, 2006. As stated on the FASB's web site, "This Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This Interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition." See the summary of this interpretation at http://www.fasb.org/st/summary/finsum48.shtml  As noted in this article, "in the past, companies had to reveal little information about transactions that could face some risk in an audit by the IRS or other government entities." Further, some concern about use of deferred tax liability accounts to create so-called "cookie jar reserves" useful in smoothing income contributed to development of this interpretation's recognition, timing and disclosure requirements. The article highlights an analysis of 361 companies by Credit Suisse Group to identify those with the largest recorded liabilities as an indicator of risk of future settlement with the IRS over disputed amounts. One example given in this article is Merck's $2.3 billion settlement with the IRS in February 2007 over a Bermuda tax shelter; another is the same company's current dispute with Canadian taxing authorities over transfer pricing. Financial statement analysis procedures to compare the size of the uncertain tax liability to other financial statement components and follow up discussions with the companies showing the highest uncertain tax positions also is described. QUESTIONS:  1.) Summarize the requirements of Financial Interpretation No. 48, Accounting for Uncertainty in Income Taxes--An Interpretation of FASB Statement No. 109 (FIN 48). 2.) In describing the FIN 48 requirements, the author of this article states that "until now, there was generally no way to know about" the accounting for reserves for uncertain tax positions. Why is that the case? 3.) Some firms may develop "FIN 48 opinions" every time a tax position is taken that could be questioned by the IRS or other tax governing authority. Why might companies naturally want to avoid having to document these positions very clearly in their own records? 4.) Credit Suisse analysts note that the new FIN 48 disclosures about unrecognized tax benefits provide investors with information about risks companies are undertaking. Explain how this information can be used for this purpose. 5.) How are the absolute amounts of unrecognized tax benefits compared to other financial statement categories to provide a better frame of reference for analysis? In your answer, propose a financial statement ratio you feel is useful in assessing the risk described in answer to question 4, and support your reasons for calculating this amount. 6.) The amount of reserves recorded by Merck for unrecognized tax benefits, tops the list from the analysis done by Credit Suisse and the one done by Professors Blouin, Gleason, Mills and Sikes. Based only on the descriptions given in the article, how did the two analyses differ in their measurements? What do you infer from the fact that Merck is at the top of both lists? 7.) Why are transfer prices among international operations likely to develop into uncertain tax positions?   Reviewed By: Judy Beckman, University of Rhode Island

 

Bob Jensen's threads on FIN 48 are at http://www.trinity.edu/rjensen/Theory01.htm#FIN48

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There are property taxes and then their are total state taxes
How does your state rank in terms of property taxes?

"NY, NJ pay highest property taxes: study," by Anastasija Johnson, Reuters, September 12, 2007 --- Click Here

New Jersey and New York state residents paid the highest property taxes in the country in 2006, as much as $6,500 more than the national median, according to a report released on Wednesday.

Hunterdon County, New Jersey, about a 55-mile (89-km) drive from New York City, replaced Westchester County, New York, on top of the list of 10 counties with the highest median real estate taxes, the Tax Foundation, a nonpartisan tax research group, said in the report.

Median real estate taxes for Hunterdon County totaled $7,999, followed by the $7,706 bill paid by homeowners in Nassau County, Long Island's western half.

Third on the list was Westchester County, which is just north of New York City. Its residents paid $7,626, according to the report by the Washington, D.C.-based group.

Nationally, the median homeowner property tax was $1,541.

In New Jersey, the median value of a home was $366,600. New York's median home value was $303,400.

By this measure, both states were far eclipsed by California, whose median home value was $535,700, the nation's highest. However, in California the median property tax was just $2,510.

All of the other seven counties with highest median real estate taxes were also either in New York or New Jersey.

The rankings were based on the latest data for 2006 from the U.S. Census Bureau in its American Community Survey, the Tax Foundation said.

"The story for the states is much the same as for the top counties: the Northeast area of the country has the highest property taxes, along with pockets elsewhere, such as Wisconsin, Texas, and Illinois," the research group said.

Texas has passed property tax reform since the data was tallied, it added.

When the states were looked at, instead of just counties, New Jersey led the list of the top five, followed by New Hampshire, Connecticut, New York and Massachusetts.

"These states also have high per capita income, and the highest property tax bills, in terms of dollar amounts, are usually found in the areas with the highest incomes," the study said.

Arkansas, Mississippi, West Virginia, Alabama and Louisiana had the lowest median property taxes in 2006.

New Jersey's statewide median real estate taxes were $5,773, while Louisiana's stood at only $179.

The study also looked at median real estate taxes as a percentage of median home value. In this regard, nine of the top 10 counties were in New York, with one Texas county also making the list, the research group said.

September 12, 2007 reply from Linda

Thanks Bob, lucky me lives in Hunterdon County NJ! And Yikes the tax bill was 8K…..thought it was just me…..
>^^< Linda

September 14, 2007 reply from Steve Curry

Another issue that your readers might be interested in is an effort that is failing in my neighborhood regarding a “Neighborhood Improvement District”. You can check out my opinion in the latest three postings on my blog: www.myspace.com/uncle_tex and you can check out their side of the story at www.mynhha.org and look at the “pool” links. In short, is an effort to create a special tax district to raise $850,000. The surface reason they give is to turn the private swim club into a public pool with adjacent park. Last night, however, they as much admitted as the real goal is to make the voluntary homeowner’s association mandatory with the power of taxation. The NID provision is a new law in Texas (Local Gov’t Code Chapter 327) though it has existed in other states. From what was said at the NID Information Meeting last night, my neighborhood was a test to see if such a plan will fly in San Antonio. The net effect is that City Council can pawn off some of its duties to these Improvement Districts leaving the City more money for their projects without raising citywide taxes.

Stephen A. Curry
Trinity University
One Trinity Place
San Antonio, Texas 78212-7200
www.Trinity.edu/SCurry

 September 14, 2007 reply from Bob Jensen

Hi Steve,

I hope you realize your dream of becoming a minister.

Texas property taxes are “relatively high” according to a module at http://www.taxfoundation.org/research/topic/60.html

You can look up tax facts about any of the 50 states at http://www.taxfoundation.org/research/topic/9.html 

I link to a number of documents regarding taxations state-by-state in the forthcoming September 30, 2007 edition of New Bookmarks.

I have mixed feelings about neighborhood surtaxes. A problem is that this added money creates an added bureaucracy with more significant revenue and expense issues and accountability, including audits and decisions regarding what to spend now and what to build up for the future.

 Bob Jensen

 

Total State Tax Burdens
Tax Foundation Data --- http://www.taxfoundation.org/research/topic/9.html
State-by-State Rankings in 2007 --- http://www.taxfoundation.org/research/topic/9.html

 

When it comes to rankings with respect to per capita total taxation, there are more disputes as to what taxes to include and exclude. One listing of such taxes and results state by state as of January 2007 is at http://www.retirementliving.com/RLtaxes.html

States are listed alphabetically in three sections:
Alabama-Iowa, Kansas-New Mexico, New York-Wyoming

Many people planning to retire use the presence or absence of a state income tax as a litmus test for a retirement destination.  This is a serious miscalculation since higher sales and property taxes can more than offset the lack of a state income tax. The lack of a state income tax doesn’t necessarily ensure a low total tax burden.

States raise revenue in many ways including sales taxes, excise taxes, license taxes, income taxes, intangible taxes, property taxes, estate taxes and inheritance taxes.  Depending on where you live, you may end up paying all of them or just a few.

This section of our Web site provides you with information on state income taxes, sales and fuel taxes, taxes on retirement income, property taxes and inheritance and estate taxes. as well as sales and fuel taxes. It is intended to give you some insight into which states may offer a lower cost of living.  To check out the state where you want to retire,  just select from the state menu above.

State Sales Tax
All states except Alaska, Delaware, Montana, New Hampshire and Oregon, collect sales taxes.   Some have a single rate throughout the state though most permit local additions to the base tax rate. Those states with a single rate include Connecticut, Hawaii, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, Mississippi, New Jersey, Rhode Island, Vermont, Virginia, and West Virginia.

States with the highest sales tax are: California (7.25%), Mississippi (7.0%), New Jersey (7.0%), Tennessee (7.0%), Rhode Island (7.0%), Minnesota (6.5%), Nevada (6.5%), and Washington (6.5%).  Many cities and counties have the option of imposing an additional local option sales tax.  For instance, in Tennessee some cities add as much as 2.75%.  Nevada's sales tax varies by county and can be as high as 7.75%.

Most states exempt prescription drugs from sales taxes. Some also exempt food and clothing purchases and a few also exempt non-prescription drugs.

Fuel Tax
Every state collects excise taxes on gasoline, diesel fuel and gasohol. The figures shown for each state reflect only the amounts controlled by the states and do not include additional taxes imposed on motor carriers. However, they do include other taxes paid at the pump by consumers.  Where applicable they include sales taxes, gross receipts taxes, oil inspection fees, underground storage tank fees and other miscellaneous environmental fees. They do not include the federal excise tax which is 18.4 cents for gasoline and 24.4 cents for diesel fuel.

Nine states permit cities or counties to impose a local tax on fuel. Taxes in some states can also vary based on the wholesale price which is adjusted quarterly.

Cigarette Tax
Several states are continuing to raise excise taxes on cigarettes and other tobacco products in order to increase revenue.  The rates shown do not include the federal cigarette tax of 39 cents a pack.  Chicago is the most expensive place to buy cigarettes.  When you add the city tax, the Cook County tax and the state tax, the total is $3.66 per pack.  Evanston and Cicero (Illinois) also have city and Cook county taxes.  The top five states with the highest state tax on cigarettes are: New Jersey ($2.58), Rhode Island ($2.46), Washington ($2.025), tied for fourth place are Arizona, Maine, Michigan ($2.00), and fifth is Alaska ($1.80).   Counties and cities may impose an additional tax ranging from 1 cent to $2.00 on a pack of cigarettes. About 82% of what consumers pay for a pack of cigarettes (average cost $4.26 - including statewide sales taxes but not local cigarette or sales taxes) ends up going to the government in taxes and other payments rather than for the cigarettes.

Personal Income Tax
A total of 41 states impose income taxes. New Hampshire and Tennessee apply it only to income from interest and dividends. Seven states (Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming) do not tax personal income. Of the 41 with a broad-based income tax, 35 base the taxes on federal returns, typically taking a portion of what you pay the IRS or using your federal adjusted gross income or taxable income as the starting point.

Personal Exemptions and Standard Deductions
Most states specify amounts for taxpayers and each of their dependents that can be used as an offset in determining taxable income. Most also specify the amounts that persons 65 or older can deduct.

Medical/Dental Deductions
Most states treat health care expenses as having already been deducted from federal returns. Two states (North Dakota and Oregon) allow full deductions while Indiana does not permit itemized deductions on state taxes.

Federal Income Tax Deduction
Only 12 of the 41 states with broad-based income taxes permit taxpayers to deduct federal income taxes.  This is an advantage if you are deciding between two states with similar rate structures but only one allows you to deduct. The latter would give you a lower effective tax rate.

Retirement Income Taxes
Under federal law, taxpayers may be required to include a portion of their Social Security benefits in their taxable adjusted gross income (AGI).  Most states begin the calculation of state personal income tax liability with federal AGI, or federal taxable income.  In those states, the portion of Social Security benefits subject to personal income tax is subject to state personal income tax unless state law allows taxpayers to subtract the federally taxed portion of their benefits from their federal AGI in the computation of their state AGI.

Many states exclude Social Security retirement benefits from state income taxes.  The District of Columbia and 26 states with income taxes provide a full exclusion for Social Security benefits -- Alabama, Arizona, Arkansas, California, Delaware, Georgia, Hawaii, Idaho, Illinois, Indiana, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, and Virginia.

The remaining 15 states with broad-based income taxes tax Social Security to some extent:

• Kansas, Minnesota, Missouri, Nebraska, North Dakota, Rhode Island, Vermont, and West Virginia tax Social Security income to the extent it is taxed by the federal government.
• Connecticut, Iowa, Montana and Wisconsin tax Social Security income above an income floor.  Iowa will gradually phase out its Social Security tax levy from 2008 through 2014.  Wisconsin will fully exclude Social Security beginning in tax year 2008.
• Colorado, New Mexico and Utah require that federally untaxed Social Security benefits be added back to federal AGI to calculate the base against which their broad age-determined income exclusions apply.

States are prohibited from taxing benefits of U.S. military retirees if they exempt the pensions of state and local government retirees.  Most states that impose an income tax exempt at least part of pension income from taxable income.  Different types of pension income (private, military, federal civil service, and state or local government) are often treated differently for tax purposes.  

States are generally free from federal control in deciding how to tax pensions, but some limits apply.  State tax policy cannot discriminate against federal civil service pensions.  Ten states exclude all federal, state and local pension income from taxation.  These include Alabama, Hawaii, Illinois, Kansas, Louisiana, Massachusetts, Michigan, Mississippi, New York and Pennsylvania.  Among these 10 states, only Kansas taxes any Social Security income, but only to the extent it is subject to federal taxation.  These 10 states differ on the taxation of retirement income from private-sector sources.  Kansas and Massachusetts do not exclude any private-sector retirement income, but most of the others allow a fairly broad exclusion.  Pennsylvania allows a full exclusion.  Alabama excludes income from defined benefit plans.  Hawaii excludes income from contributory plans.  Illinois and Mississippi exclude income from qualified retirement plans.  Louisiana, Michigan and New York cap the private-sector exclusion at $6,000, $34,920 and $20,000, respectively.

Five states (California, Connecticut, Nebraska, Rhode Island, and Vermont) allow no exemptions or tax credits for pension and other retirement income that is counted in federal adjusted gross income.  Most in-state government pensions are taxed the same as out-of-state government pensions.  However, Arizona, Idaho, Kansas, Louisiana, New York, and Oklahoma provide greater tax relief plans than they do for out-of-state government pension plans.  The District of Columbia also provides greater tax relief for DC government pensions than for state government pensions.

Three states (New Jersey, Massachusetts, and Pennsylvania) do not allow IRA contributions to be deducted from taxable income.  Of the three, only Pennsylvania does not tax IRA earnings of taxpayers age 59 ½ years or older, since earnings are treated like pension income, which is tax exempt.

Retired Military Pay
Some states provide special tax benefits to military retirees.  Others simply follow the federal tax rules.  The states that do not tax retired military pay are: Alabama, Alaska, Florida, Hawaii, Illinois, Kansas, Kentucky*, Louisiana, Massachusetts, Michigan, Mississippi*, Missouri*, Nevada, New Hampshire, New Jersey, New York, North Carolina*, Oregon*, Pennsylvania, South Dakota, Tennessee, Texas, Washington, Wisconsin and Wyoming.
(*With conditions)

Property Taxes
Taxes on land and the buildings on it are the biggest source of revenue for local governments.  They are not imposed by states but by the tens of thousands of cities, townships, counties, school districts and other assessing jurisdictions.

The state's role is to specify the maximum rate on the market value of the property, or a percentage of it, as the legal standard for the local assessors to follow.  The local assessor determines the value to be taxed. You can't escape property taxes in any state.  But you can find significantly low rates in certain parts of the country.

Most states give residents over a certain age a break on their property taxes.  With some taxes, you'll need a relatively low income to qualify.  Forty states provide either property tax credits or homestead exemptions that limit the value of assessed property subject to tax.

There may be other tax breaks available, depending on where you live.  All 50 states offer some type of property tax relief program, such as freezes that will lock in the assessed value of your property once you reach a certain age, or deferral of taxes until the homeowner moves or dies.  They ultimately have to be paid.  In addition, counties and municipalities often have their own property tax relief plans.

Retirees with low incomes and high housing costs may face property tax bills that are higher than they can manage.  Some states target property tax relief to those homeowners bearing the greatest burden.  Property tax reform that takes into account a homeowner's ability to pay, such as a so-called "property tax circuit breaker," can better protect low-income homeowners from rising property taxes that accompany rising property values.  Targeted property tax relief avoids sharp reductions in funding for locally provided public services and inequities based solely on date of purchase.

• A property tax circuit breaker prevents property taxes from "overloading" a taxpayer. Under a typical circuit breaker, the state sets a maximum percentage of income that an eligible family can be expected to pay in property taxes. If property taxes exceed this limit, the state then provides a rebate or credit to the taxpayer.
• Currently, of the 31 states and the District of Columbia with circuit breakers for homeowners, only six and the District of Columbia permit all households to participate in the program without regard to age.

Other property tax relief strategies that may be used to target property tax relief include homestead exemptions which exempt a certain amount of a home's value from taxation, credits to rebate a certain percentage of taxes paid, and deferral programs to allow low-income elderly homeowners to defer payment of property taxes until property is sold.

Property Tax Swaps
More and more states are cutting property taxes in exchange for increases in sales or other taxes.  Idaho, New Jersey, South Carolina and Texas took this step in 2006.  In New Jersey the state increased the sales tax by 1 cent with half of it designated for property tax relief in 2006 and possibly the full amount in future years.  Voters in Idaho also approved a 1 cent sales tax increase that reduces property taxes by $260 million.  South Carolina's Republican governor, Mark Sanford, signed a measure that promises to cut average property taxes by 60% and makes up the revenue by increasing the sales tax by 1 cent.  The revenue will be used to support the Homestead Exemption Fund.  In Texas the state lowered property taxes by increasing the taxes on cigarettes and some business activity.

Best and Worst States: Based on data from the 2002 census, the following five states have the lowest local property taxes per capita/year. They are Arkansas ($191), Alabama ($285), Kentucky ($376), New Mexico ($380), and Oklahoma ($425). The states with the highest local property taxes per capita/year are: New Jersey ($1,871), Connecticut ($1,733), New York ($1,402), and Rhode Island ($1,369).

For more information about property taxes in all states, click here.

Inheritance and Estate Taxes
An inheritance tax is an assessment made on the portion of an estate received by an individual. It differs from an estate tax which is a tax levied on an entire estate before it is distributed to individuals. It is strictly a state tax. Eleven states still collect an inheritance tax. They are: Connecticut, Indiana, Iowa, Kansas, Kentucky, Maryland, Nebraska, New Jersey, Oregon, Pennsylvania and Tennessee. Connecticut will be phased out after 2005. In all states, transfers of assets to a spouse are exempt from the tax. In some states, transfers to children and close relatives are also exempt.

As for estate taxes, the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) phases out the federal estate tax that culminates in full repeal in 2010. On a much faster track, the legislation repeals over four years -- 2002 through 2005 -- the federal estate tax credit to which state estate taxes are tied. In most states, estate and inheritance taxes are designed in such a way that states face either a full or partial loss of estate tax revenues as this credit is phased out. States can avert this loss of revenue by "decoupling." Decoupling means protecting the relevant parts of their tax code from the changes in the federal tax code, in most cases by remaining linked to federal law as it existed prior to the change.

Seventeen states and the District of Columbia have retained their estate taxes after the federal changes. Of these, 15 states -- Illinois, Kansas, Maine, Maryland, Massachusetts, Minnesota, New Jersey, New York, North Carolina, Ohio, Oregon, Rhode Island, Vermont, Virginia, and Wisconsin -- and the District of Columbia decoupled from the federal changes. Two states -- Nebraska and Washington -- retained their tax by enacting similar but separate estate taxes.

Of these, 12 states acted to decouple from the federal changes. Illinois, Maine, Maryland, Massachusetts, New Jersey, Rhode Island, and Vermont enacted legislation linking their estate taxes to the federal estate tax as in effect before the 2001 tax bill. Minnesota, which passes a tax conformity package each year, explicitly elected not to change its estate tax to conform to the federal changes. North Carolina elected to decouple at least through 2005, and Wisconsin has decoupled through 2007. Nebraska decoupled by creating a separate state estate tax on estates that exceed $1 million based on the federal law before the 2001 changes. In 2005, Washington enacted a separate tax with a somewhat different rate structure that applies to estates that exceed $2 million after the state's original decoupling was nullified in court.

In addition, five states and the District of Columbia will remain decoupled unless they take legislative action. In five states -- Kansas, New York, Ohio, Oregon, and Virginia -- and the District of Columbia, estate tax laws are written in such a way that the state will not conform to the federal changes unless it takes legislative action.

Tax Burden By State
If all other things are equal, a state with a lower tax burden is a more attractive place to retire than a state with a higher one. To get a true sense of which state is less expensive, you need to look at state and local tax burdens. Only then do the low tax states stand out.

Taxes that are included in the state and local tax burden are as follows:

*Property Taxes (represents an average; individual property taxes vary by locality)
 *Sales and Gross Receipts (different taxing entities may add to the state sales tax)
*Selective Sales Taxes (alcoholic beverages, amusements, insurance premiums, motor fuels, parimutuels, public utilities, tobacco products, and others)
*Licenses (alcoholic beverages, amusements, corporation, hunting and fishing, motor vehicles, motor vehicle operators, public utilities, occupation and business) *Other Taxes (individual income, corporation net income, death and gift, documentary and stock transfer, severance, and others)

The data presented on the linked page that follows shows states ranked by tax burden as a percentage of income. The taxes include those paid by individuals AND businesses to state and local governments. Businesses are included because they usually pass their tax costs on to consumers.

The top five states where the tax burden as a percent of income is the highest are: Vermont (14.1%), Maine (14.0%), New York (13.8%), Rhode Island (12.7%), and Ohio (12.4%).  The United States average is 11.06%.  The District of Columbia is 12.5%.

The five states with the lowest tax burden as a percent of income are: Alaska (6.6%) 50th, New Hampshire (8.0%) 49th, Tennessee (8.5%) 48th, Delaware (8.8%) 47th, and Alabama (8.8%) 46th.  Alaska has the lowest tax burden because it levies significant severance taxes on oil extracted from the state - taxes that are included in the price of oil sold thereby enabling Alaska to collect taxes that are paid by consumers across the country.  As a result, the state sends checks to all residents at tax time.

Other states that export a significant fraction of their severance tax burdens are Texas and New Mexico. States that "import" the largest portions of those taxes are California, Pennsylvania and New York.

Since 2000, five states have experienced double-digit drops in their tax burden rankings.  New Mexico has dropped 29 places, Idaho 23 places, and Utah 19 places.  Georgia and North Dakota have dropped 15 and 10 places, respectively.  New jersey has seen the highest increase since 2000, jumping from 24th place to 10th place.  Arkansas and Indiana have both risen 10 places.

The data supporting the tax burden figures comes from the U.S. Department of Commerce's Census Bureau and the Bureau of Economic Analysis. It is the most authoritative source of income and total tax collection data. Its projections of the tax burden for 2007 come from data as yet unpublished.

To view a table showing the effective state and local tax burdens as a percentage of income, the tax burden per capita, and income per capita, click here. The table does not reflect the tax advantages available to seniors in many states and municipalities that reduce their property taxes and/or personal income taxes.

Sources:
* Individual state tax and revenue departments
* State Tax Handbook (2007); published by CCH Inc.
* Federation of Tax Administrators 
* The Tax Foundation
* National Conference of State Legislatures
* U.S. Department of Commerce, Bureau of Economic Analysis

Updated: January 2007

Tax Foundation Data --- http://www.taxfoundation.org/research/topic/9.html

Rankings in 2007 --- http://www.taxfoundation.org/research/topic/9.html

Compare the trends since 2002
Tax Burden Rankings of States in 2002 --- http://www.freerepublic.com/focus/fr/685157/posts

Question
What are state legislatures doing about taxation and other matters?
State Legislatures’ GrassCatcher --- http://www.ncsl.org/programs/press/grasscatcher.htm 

Super Bowl XXXVIII Commercial - Willie N Doll (Tax Advice from Willie) --- http://www.youtube.com/watch?v=o6QlgsolmCk
Willie Nelson very nearly went to prison for a $16.7 million tax evasion.

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"S.E.C. Sues 4 Former Nortel Officers in Accounting Case," Bloomberg News, The New York Times, September 13, 2007 --- http://www.nytimes.com/2007/09/13/business/worldbusiness/13nortel.html?ref=business 

The Securities and Exchange Commission sued four former finance officers at Nortel Networks yesterday, saying they helped the former chief executive, Frank A. Dunn, manipulate reserves to enhance earnings.

The four men — Douglas A. Hamilton, Craig A. Johnson, James B. Kinney and Kenneth R. W. Taylor, all former vice presidents for finance at Nortel units — were named as defendants in an amended complaint filed in Federal District Court in Manhattan, the commission said.

The S.E.C. initially filed suit in March against Mr. Dunn; the former chief financial officer, Douglas C. Beatty; and the former controller, Michael J. Gollogly, saying they improperly manipulated reserves to create the false impression that Mr. Dunn was improving results. The agency said yesterday that the manipulation was carried out “with the active participation” of the four new defendants.

Nortel, based in Toronto, restated financial results in 2005, saying it had inflated sales by $3.4 billion, going back to 1999. The company is the biggest maker of telecommunications equipment in North America.

The lawyer representing Mr. Taylor, who was once vice president for finance at Nortel’s enterprise business unit, said he did not know the S.E.C. was going to amend its complaint. “I wasn’t given advance notice, and it comes as a surprise to me,” said the lawyer, Harold McGuire.

Lawyers for the other three men either declined to comment or did not immediately return telephone calls.

Nortel fired all four men on Aug. 9, 2004, after the company learned about allegations of an accounting fraud, according to the S.E.C.

The S.E.C. opened a formal investigation into Nortel’s accounting in 2004. That led to the firings of Mr. Dunn, Mr. Beatty and Mr. Gollogly in July 2004. At that time, Nortel said it had put four individuals holding senior finance positions on a paid leave. It did not identify the executives.

In May, Nortel settled with the Ontario Securities Commission, which conducted a parallel investigation, by agreeing to pay 1 million Canadian dollars ($940,000) to cover the cost of the inquiry. Nortel did not admit or deny wrongdoing.

The company has agreed to pay $2.4 billion to settle shareholder lawsuits over the accounting irregularities.

Jensen Comment
Nortel's external auditor is Deloitte, an auditing firm that seems to have a lot of patience with repeated restatements by Nortel.

Bob Jensen's threads on Deloitte are at http://www.trinity.edu/rjensen/Fraud001.htm#Deloitte

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"Guilty Plea Seen," by Lynnley Brown, The New York Times, September 11, 2007 --- http://www.nytimes.com/2007/09/11/business/11kpmg.html?ref=business

The government’s criminal case against promoters of questionable tax shelters took a step forward yesterday when an investment adviser at the center of the inquiry pleaded guilty and provided new details on those involved.

The plea by David Amir Makov, 41, in Federal District Court in Manhattan is expected to bolster the government’s investigation of Deutsche Bank over its work with questionable shelters, including one known as Blips, whose workings Mr. Makov described in detail yesterday.

No charges have been filed against Deutsche Bank, and it was not named in court documents yesterday. In a statement that he read yesterday, Mr. Makov described his tax shelter work with Bank A, which people close to the case have identified as Deutsche Bank. A spokesman for the bank declined to comment.

Mr. Makov’s plea is also expected to help the government’s case against the four remaining defendants, who include three former employees of the accounting firm KPMG and an outside lawyer. Those four are scheduled to go to trial in October.

As part of the plea agreement, Mr. Makov agreed to pay a $10 million penalty; he will be sentenced at a later date. His lawyers declined to comment yesterday.

His guilty plea to conspiracy to commit tax evasion puts back on track a faltering case that had become, to the consternation of prosecutors, a referendum on the constitutional rights of white-collar defendants, rather than the largest criminal inquiry ever into abusive tax shelters.

Continued in article

Another KPMG defendant pleads guilty of selling KPMG's bogus tax shelters
One of the five remaining defendants in the government's high-profile tax-shelter case against former KPMG LLP employees is expected to plead guilty ahead of a criminal trial set to begin in October, according to a person familiar with the situation. The defendant, David Amir Makov, is expected to enter his guilty plea in federal court in Manhattan this week, this person said. It is unclear how Mr. Makov's guilty plea will affect the trial for the remaining four defendants. Mr. Makov's plea deal with federal prosecutors was reported yesterday by the New York Times. A spokeswoman for the U.S. attorney in the Southern District of New York, which is overseeing the case, declined to comment. An attorney for Mr. Makov couldn't be reached. Mr. Makov would be the second person to plead guilty in the case. He is one of two people who didn't work at KPMG, but his guilty plea should give the government's case a boost. Federal prosecutors indicted 19 individuals on tax-fraud charges in 2005 for their roles in the sale and marketing of bogus shelters . . . KPMG admitted to criminal wrongdoing but avoided indictment that could have put the tax giant out of business. Instead, the firm reached a deferred-prosecution agreement that included a $456 million penalty. Last week, the federal court in Manhattan received $150,000 from Mr. Makov as part of a bail modification agreement that allows him to travel to Israel. 
Paul Davies, "KPMG Defendant to Plead Guilty," The Wall Street Journal, August 21, 2007; Page A11 --- Click Here

Bob Jensen's threads on KPMG's roses and thorns are at http://www.trinity.edu/rjensen/Fraud001.htm#KPMG

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"U.S. Prosecutors Plan New Indictment in Tax Shelter Case (against Ernst & Young)," by Lynnley Brown, The New York Times, September 11, 2007 --- http://www.nytimes.com/2007/09/12/business/12tax.html?ref=business  

Federal prosecutors are planning a fresh indictment in a case that involves tax shelters sold by the accounting firm Ernst & Young, according to defense lawyers in the case.

Four current and former partners of Ernst & Young were indicted last May in connection with their tax shelter work from 1998 through 2004. The firm itself, which has not been charged, has been under investigation since 2004 by federal prosecutors in Manhattan, who have been looking into its creation and sale of aggressive shelters.

It was not clear whether a superseding indictment — which would include previous charges as well as new ones — would be focused on additional Ernst & Young employees, either former or current; on the firm itself; or on other firms or individuals.

Defense lawyers for two of the Ernst & Young defendants said that Deborah E. Landis, the federal prosecutor overseeing the case, told a hearing in a Federal District Court in Manhattan yesterday that the government expected to file a superseding indictment around mid-December. Any decision to file new charges requires approval of the Justice Department.

Yesterday’s hearing, before Judge Sidney H. Stein of United States District Court in Manhattan, was held to discuss the schedule of court events for the four Ernst & Young defendants. No trial date has been set.

Asked about an impending new indictment, a spokesman for Ernst & Young declined last night to comment.

Continued in article

Bob Jensen's threads on Ernst & Young roses and thorns are at http://www.trinity.edu/rjensen/Fraud001.htm#Ernst

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"The Six Signs of Internal Fraud," by Peter Goldmann --- http://accounting.smartpros.com/x59050.xml

However, we can see the signs of fraud, Albrecht said in a speech at the 18th Annual ACFE Fraud Conference. There are six signs in all organizations. By understanding them and looking for them, we significantly improve our chances of detecting and reporting fraud.

Accounting anomalies—representing such countless red flags as inventory shortages, unrecorded transactions, unusual levels of returns, etc.

Internal control weaknesses. These equate to opportunities for insiders to commit fraud. If you identify a weakness, chances are that someone will exploit it if they haven’t already.

Analytical symptoms. When a business function occurs at the wrong time, or is conducted by the wrong person or a similar operational anomaly occurs, chances are it is a sign of fraud.

Lifestyle symptoms. Employees living beyond their means is the most common. Smart internal fraudsters would steal and save. But most steal and spend. When you notice signs of extravagant lifestyle, you’re most likely looking at a sign of fraud.

Behavioral symptoms. People who stop looking you in the eye, sweat more than usual, come in earlier than usual and/or stay late should be monitored as potential fraudsters.

Tips and complaints. When employees report actual or suspected incidents of fraud among their co-workers or bosses, you’ve got good reason to start following up with a search for hard evidence.

Bob Jensen's threads on fraud detection and reporting are at http://www.trinity.edu/rjensen/FraudReporting.htm

 

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2007 CEO Compensation Study --- http://www.charitynavigator.org/index.cfm?bay=studies.ceo

From The Wall Street Journal Accounting Weekly Review on September 7, 2007

SEC Asks Firms to Detail Top Executives' Pay by Kara Scannell and JoAnn S. Lublin The Wall Street Journal Aug 31, 2007 Page: B1 Click here to view the full article on WSJ.com --- http://online.wsj.com/article/SB118851491281613993.html?mod=djem_jiewr_ac   TOPICS: Accounting, Disclosure, Disclosure Requirements, Executive compensation, Financial Accounting, Financial Accounting Standards Board SUMMARY: "SEC Chairman Christopher Cox has made revamping executive-pay disclosure a priority..." Under that initiative, the SEC last year implemented new disclosure rules in response to "growing disquiet about executive pay and the options-backdating scandal." The SEC has now sent letters to "nearly 300 companies across America critiquing their disclosures...." One new requirement is to disclose performance targets whenever an executive's pay is dependent upon them "...or if disclosing them would result in competitive harm, explain how difficult it is to meet them. Now the SEC is asking companies to document why the targets should be treated as confidential and excluded." CLASSROOM APPLICATION: This article sheds light on SEC requirements in excess of reporting requirements under FASB standards, updates students on current issues in executive compensation, and identifies the need for disclosure of forward-looking information beyond the historical information provided in financial statements. QUESTIONS:  1.) Based on discussion in the article, what are the new SEC disclosure requirements that were recently established? 2.) What did the SEC do with the information provided in the new disclosures? 3.) What are the current difficulties with disclosures regarding executive compensation? 4.) Consider the requirement to describe performance targets that form the basis for executive compensation. Why are investors interested in that information? What information does it provide beyond presentation of annual executive compensation in historical cost based financial statements? 5.) Consider again the issues described in answer to question 4. Does investor interest in targets for executive compensation eliminate the need to disclose information about compensation paid to executives in the past year? Include in your answer discussion about the concepts of predictive value and feedback value in financial reporting. 6.) Suppose that the SEC considers a cost-benefit analysis in deciding whether to require the disclosure of these executive performance targets. Why might disclosure of these targets cause competitive harm? Should competitive harm be considered a cost in the SEC's analysis? What benefits should be included in the analysis? Can these costs and benefits be exactly quantified?   Reviewed By: Judy Beckman, University of Rhode Island

 

 

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Tidbits and Quotations Between July 1 and July 31, 2007

Tidbits Directory for Earlier Months and Years --- http://www.trinity.edu/rjensen/TidbitsDirectory.htm

New Bookmarks Directory for Earlier Months and Years --- http://www.trinity.edu/rjensen/Bookurl.htm

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

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Humor Between September 1 and September 30, 2007

Forwarded by Auntie Bev
Looking Back --- http://www.bentbay.dk/in_oldDays.html

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Forwarded by Auntie Bev

You may remember the old Jewish Catskill comics of Vaudeville days: Shecky Green, Red Buttons, Totie Fields, Milton Berle, Henny Youngman, and others. Don't you miss their humor? Not one single swear word in their comedy. Here are some examples:

There was a beautiful young woman knocking on my hotel room door all night! ...... I finally had to let her out.

A car hit an elderly Jewish man. The paramedic says, "Are you comfortable?" The man says, "I make a good living."

I just got back from a pleasure trip. I took my mother-in-law to the airport.

I've been in love with the same woman for 49 years. If my wife ever finds out, she'll kill me!

Someone stole all my credit cards, but I won't be reporting it. The thief spends less than my wife did.

We always hold hands. If I let go, she shops.

She was at the beauty shop for two hours. That was only for the estimate.

She got a mudpack and looked great for two days. Then the mud fell off.

The doctor gave a man six months to live. The man couldn't pay his bill,

so the doctor gave him another six months.

The Doctor called Mrs. Cohen saying, "Mrs. Cohen, your check came back." Mrs. Cohen answered, "So did my arthritis!"

Doctor: "You'll live to be 60!" Patient: "I AM 60!" Doctor: "See! What did I tell you?"

A doctor held a stethoscope up to a man's chest. The man asks, "Doc, how do I stand?" The doctor answers "That's what puzzles me!"

Patient: "I have a ringing in my ears." Doctor: "Don't answer!"

A drunk was in front of a judge. The judge says, "You've been brought here for drinking." The drunk says "Okay, let's get started."

A bum asked a fellow, "Give me $10 till payday ." The fellow responded, "When's payday?" The bum said, "I don't know! You're the one that's working!"

I wish my brother would learn a trade, so I would know what kind of work he's out of.

The Harvard School of Medicine did a study of why women like Chinese food so much.

The study revealed that this is due to the fact that Won Ton spelled backward is "Not Now."

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Faulty Towers
Forwarded by Gene and Jo

The following is a telephone exchange between a hotel guest and Room-service:

Room Service (RS): "Morrin. Roon sirbees."

Guest (G): "Sorry, I thought I dialed room-service."

RS: " Rye. Roon sirbees...morrin! Joowish to oddor sunteen???"

G: "Uh..... Yes, I'd like to order bacon and eggs."

RS: "Ow July den?"

G: ".....What??"

RS: "Ow July den?!?... Pryed, boyud, poochd?"

G: "Oh, the eggs! How do I like them? Sorry... Scrambled, please."

RS: "Ow July dee baykem? Crease?"

G: "Crisp will be fine."

RS: "Hokay. An Sahn toes?"

G: "What?"

RS: "An toes. July Sahn toes?"

G: "I... Don't think so"

RS: "No? Judo wan sahn toes???"

G: "I feel really bad about this, but I don't know what 'judo wan sahn toes' means."

RS: "Toes! Toes!...Why Joo don Juan toes? Ow bow Anglish moppin we

Bodder?"

G: "Oh, English muffin!!! I've got it! You were saying 'toast'...

Fine...Yes, an English muffin will be fine."

RS: "We bodder?"

G: "No, just put the bodder on the side."

RS: "Wad?!?"

G: "I mean butter... Just put the butter on the side."

RS: "Copy?"

G: "Excuse me?"

RS: "Copy...tea...meel?"

G: "Yes. Coffee, please... And that's everything."

RS: "One Minnie. Scramah egg, crease baykem, Anglish moppin, we bodder on

Sigh and copy.. Rye??"

G: "Whatever you say."

RS: "Tenjooberrymuds."

G: "You're welcome."

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Forwarded by a former boss.

YOU KNOW YOU ARE LIVING IN 2007 when...

01. You accidentally enter your password on the microwave.

02. You haven't played Solitaire with real cards in years.

03. You have a list of 15 phone numbers to reach your family of 4.

04. You e-mail the person who works at the desk next to you.

05. Your reason for not staying in touch with friends and family is that they don't have e-mail addresses.

06. You pull up in your own driveway and use your cell phone to see if anyone is home to help you carry in the groceries.

07. Every commercial on television has a web site at the bottom of the screen.

08. Leaving the house without your cell phone, which you didn't have the first 20 or 30 (or 50) (actually 75 years ) years of your life, is now a cause for panic and you turn around to go and get it.

10. You get up in the morning and go on line before getting your coffee.

11. You start tilting your head sideways to smile. : )

12 You're reading this and nodding and laughing.

13. Even worse, you know exactly to whom you are going to forward this message.

14. You are too busy to notice there was no #9 on this list.

15. You actually scrolled back up to check that there wasn't#9 on this list

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Forwarded by Auntie Bev

A man from Texas, driving a Volkswagen Beetle, pulls up next to a guy in an Arkansas-licensed Rolls Royce at a stop sign.

Their windows are open and he yells at the guy in the Rolls, "Hey, you got a telephone in that Rolls?

The guy in the Rolls says, "Yes, of course I do.." "I got one too... see?" the Texan says "Uh, huh, yes, that's very nice." "You got a fax machine?" asks the Texan. "Why, actually, yes, I do." "I do too! See? It's right here!" brags the Texan.

The light is just about to turn green and the guy in the Volkswagen says, "So, do you have a double bed in back there?" The guy in the Rolls replies, "NO! Do you?" "Yep, got my double bed right in back here," the Texan replies.

The light turns and the man in the Volkswagen takes off. Well, the guy in the Rolls is not about to be one-upped, so he immediately goes to a customizing shop and orders them to put a double bed in back of his car. About two weeks later, the job is finally done. He picks up his car and drives all over town looking for the Volkswagen beetle with the Texas plates. Finally, he finds it parked alongside the road, so he pulls his Rolls up next to it.

The windows on the Volkswagen are all fogged up and he feels somewhat awkward about it, but he gets out of his newly modified Rolls and taps on the foggy window of the Volkswagen.

(Keep reading - This is a CLEAN JOKE *** )

The man in the Volkswagen finally opens the window a crack and peeks out...

The guy with the Rolls says, "Hey, remember me?""Yeah, yeah, I remember you," replies the Texan, "What's up?" "Check this out...I got a double bed installed in my Rolls."

"The Texan exclaims, "YOU GOT ME OUT OF THE SHOWER TO TELL ME THAT ????

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Iowa Corn from the Swensons

01. I wondered why the baseball was getting bigger. Then it hit me.

02. Police were called to a daycare where a three-year-old was resisting a rest.

03. Did you hear about the guy whose whole left side was cut off? He's  all right now .

04. The roundest knight at King Arthur's round table was Sir Cumference..

05. To write with a broken pencil is pointless.

06. When fish are in schools they sometimes take debate.

07. A thief who stole a calendar got twelve months

.08. A thief fell and broke his leg in wet concrete. He became a hardened criminal.

 09. Thieves who steal corn from a garden could be charged with stalking..

 10. We'll never run out of math teachers because they always multiply.

 11. When the smog lifts in Los Angeles, U C L A.

 12. The professor discovered that her theory of earthquakes was on shaky ground.

 13. The dead batteries were given out free of charge.

 14. If you take a laptop computer for a run you could jog your memory.

 15. A dentist and a manicurist fought tooth and nail.

 16. What's the definition of a will? (It's a dead giveaway)

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Old but worth repeating
Forwarded by Maria

DO YOU DECIDE WHO TO MARRY? (written by kids)

 

You got to find somebody who likes the same stuff. Like, if you like sports, she should like it that you like sports, and she should keep the chips and dip coming. -- Alan, age 10

No person really decides before they grow up who they're going to marry. God decides it all way before, and you get to find out later who you're stuck with. -- Kristen, age 10

WHAT IS THE RIGHT AGE TO GET MARRIED?

Twenty-three is the best age because you know the person FOREVER by then. -- Camille, age 10

HOW CAN A STRANGER TELL IF TWO PEOPLE ARE MARRIED?

You might have to guess, based on whether they seem to be yelling at the same kids. -- Derrick, age 8

WHAT DO YOU THINK YOUR MOM AND DAD HAVE IN COMMON?

Both don't want any more kids. -- Lori, age 8

WHAT DO MOST PEOPLE DO ON A DATE?

Dates are for having fun, and people should use them to get to know each other. Even boys have something to say if you listen long enough. -- Lynnette, age 8 (isn't she a treasure)

On the first date, they just tell each other lies and that Usually gets them interested enough to go for a second date. -- Martin, age 10

WHAT WOULD YOU DO ON A FIRST DATE THAT WAS TURNING SOUR?

I'd run home and play dead. The next day I would call all the newspapers and make sure they wrote about me in all the dead columns. -- Craig, age 9

WHEN IS IT OKAY TO KISS SOMEONE?

When they're rich. -- Pam, age 7

The law says you have to be eighteen, so I wouldn't want to mess with that. - - Curt, age 7

The rule goes like this: If you kiss someone, then you should marry  them and have kids with them. It's the right thing to do. -- Howard, age 8

IS IT BETTER TO BE SINGLE OR MARRIED? It's better for girls to be single but not for boys. Boys need someone to clean up after them. -- Anita, age 9 (bless you child)

HOW WOULD THE WORLD BE DIFFERENT IF PEOPLE DIDN'T GET MARRIED?

There sure would be a lot of kids to explain, wouldn't there? -- Kelvin, age 8

And the #1 Favorite is........

HOW WOULD YOU MAKE A MARRIAGE WORK?

Tell your wife that she looks pretty, even if she looks like a dump truck. -- Ricky, age 10

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Forwarded by a good friend

Memory was something you lost with age
An application was for employment
A program was a TV show
A cursor used profanity

A keyboard was a piano
A web was a spider's home
A virus was the flu
A CD was a bank account

A hard drive was a long trip on the road
A mouse pad was where a mouse lived
And if you had a 3 inch floppy.
You just hoped nobody ever found out!

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Forwarded by Paula

AGE IS A FUNNY THING

Do you realize that the only time in our lives when we like to get old is when we're kids? If you're less than 10 years old, you're so excited about aging that you think in fractions.

"How old are you?"

"I'm 4 and half."

You're never 36 and a half, but you're 4 and a half going on 5! That's the key. You get into your teens, now they can't hold you back. You jump to the next number.

"How old are you"

"I'm gonna be 16."

You could be 12, but you're gonna be 16.

And then the greatest day of your life happens: you become 21. Even the words sounds like a ceremony--you BECOME 21. YES!!!! But then you turn 30. Ooohhh, what happened here??

Makes you sound like bad milk. He TURNED. We had to throw him out. There's no fun now. What's wrong?? What changed???

You're PUSHING 40,

You REACH 50...

My dreams are gone..

You BECOME 21,

You TURN 30,

Then you're PUSHING 40...stay over there, it's all slipping away...

.

You BECOME 21,

You TURN 30,

You're PUSHING 40,

You REACH 50

And then you MAKE IT to 60...Whew! I didn't think I'd make it.

You BECOME 21,

You TURN 30,

You're PUSHING 40,

You REACH 50,

You MAKE IT to 60, and by then you've built up so much speed, you HIT 70!

After that, it's a day-by-day thing. You HIT Wednesday, you get into your 80s, you HIT lunch.

I mean my grandmother won't even buy green bananas: "Well it's an investment, you know, and maybe a bad one."

And it doesn't end there...Into the 90's, you start going backwards: I was JUST 92. Then a strange thing happens, if you make it over 100, you become a little kid again: I'm 100 and a half!!

---

Forwarded by Ed

THE MASTER CHIEF KNOWS The Master Chief was bragging to the Ensign one day. "You know, I know everyone there is to know. Just name someone, anyone and I know them." Tired of his boasting, the Ensign called his bluff, "Okay, Master Chief, how about Tom Cruise"? "Sure, yes, Tom and I are old friends and I can prove it." So they fly out to Hollywood and knock on Tom Cruise's door and sure enough, Tom Cruise, shouts, "Master Chief! Great to see you! You and your friend come right in and join me for lunch! " Although impressed, the Ensign is still skeptical.

After they leave Cruise's house, he tells the Master Chief that he thinks his knowing Cruise was just lucky. "No, no, just name anyone else," the Master Chief says. "President Bush", the Ensign quickly retorts. "Yep, I know him, let's fly out to Washington." So, off they go. At the White House, Bush spots them on the tour and motions them over, saying, "Master Chief, what a surprise. I was just on my way to a meeting, but you and that Ensign come on in and let's have a cup of coffee first and catch up." Well, the Ensign is very shaken by now, but still not totally convinced.

After they leave the White House grounds, he expresses his doubts to the Master Chief, who again implores him to name anyone else. "The new Pope," the Ensign replies. "Sure, I've known the Pope a long time." So, off they fly to Rome. They're assembled with the masses in Vatican Square when the Master Chief says, "this will never work. I can't catch the Pope's eye among all these people. Tell you what, I know all the guards, so let me just go upstairs and I'll come out on the balcony with the Pope." He disappears into the crowd headed toward St. Peter's. Sure enough, half an hour later, the Master Chief emerges with the Pope on the balcony. But by the time he returns, he finds that the Ensign has had a heart attack and is surrounded by paramedics. Working his way to his side, the Master Chief asks him, "What happened"?

The Ensign looks up and says, "I was doing fine until you and the Pope came out on the balcony and the tourist next to me asked, "Who's that on the balcony next to the Master Chief"?

---

Stand-Up Comics' Funniest Lines --- http://www.rd.com/content/stand-up-comics-funniest-lines/1/ 

So they’re showing me, on television, the detergents getting out bloodstains. I mean, come on, you got a T-shirt with 
a bloodstain all over it. Maybe laundry isn’t your biggest problem right now. 
-- Jerry Seinfeld 

At what age do you tell a highway it’s adopted? I think around seven because that’s when they start wondering, 
Hey, I don’t look like the Kiwanis Club. 
-- Zach Galifianakis 

Why are women wearing perfumes that smell like flowers to attract men? Men don’t like flowers. I wear a scent called 
“new-car interior.” 
-- Rita Rudner 

I had my identity stolen a few months ago, and my credit actually improved. I’m dating now, have a new car. Life is good. 
-- Steve Moris 

A new computer virus is going around. Office workers everywhere will now be forced to play solitaire with real cards. 
-- Craig Kilborn 

Your marriage is in trouble if your wife says, “You’re only interested in one thing,” and you can’t remember what it is. 
-- Milton Berle 

About a month ago, I got a cactus. And a week later, it died. I got really depressed because it was like, 
Damn, I am less nurturing than a desert. 
-- Demetri Martin 

The problem is that God gives men a brain and a penis, and only enough blood to run one at a time. 
-- Robin Williams 

Michael Jackson is the spokesperson for people who cut off their noses to spite their face. 
-- Dennis Miller 

You know you’re getting old when work is a lot less fun and fun is a lot more work. 
-- Joan Rivers 

I called a discount exterminator. A guy came by with a rolled-up magazine. 
-- Will Shriner 

You don’t get married to get sex. Getting married to get sex is like buying a 747 to get free peanuts. 
-- Jeff Foxworthy 

Don’t touch that dial. And, if your TV has a dial, go buy a new one. 
-- Stephen Colbert 

I asked my brother-in-law why he was wearing my raincoat. He answered, “You wouldn’t want me to get your 
suit wet, would you?” 
-- Henny Youngman 

I had a linguistics professor who said that it’s man’s ability to use language that makes him the dominant 
species. That may be, but I think there’s one other thing: We aren’t afraid of vacuum cleaners. 
-- Jeff Stilson 

Men can read maps better than women. ’Cause only the male mind could conceive of one inch equaling a hundred miles. 
-- Roseanne 

I was raised half Jewish and half Catholic. When I’d go to confession, I’d say, “Bless me, Father, for 
I have sinned … and you know my attorney, Mr. Cohen.” 
-- Bill Maher 

When I was in London, I went to buy some chocolates. The cashier was like, “That will be ten pounds.” I’m like, “Rub it in, why don’t you?” 
-- Carol Leifer 

Two wrongs don’t make a right, but three lefts do. 
-- Jason Love 

As long as there is algebra, there will be prayer in school. 
-- Larry Miller 

NASA says they have proof that parts of Mars were once submerged under water, which means it could have supported 
life. Of course, water doesn’t always mean intelligent life— you remember Baywatch? 
-- Jay Leno 

I am not afraid of death. I just don’t want to be there when it happens. 
 -- Woody Allen 

What I need is to find a woman who loves me for my money but doesn’t understand math. 
 -- Mike Birbiglia 

Jews and blacks express our suffering differently—blacks developed the blues, while Jews complain. 
We just never thought of putting it to music. 
 -- Jon Stewart 

When I was a little kid, we had a quicksand box. I was an only child … eventually. 
 -- Steven Wright 

In high school, my sister went out with the captain of the chess team. My parents loved him. 
They figured that any guy that took hours to make a move was okay with them. 
 -- Brian Kiley 

First the doctor told me the good news: I was going to have a disease named after me. 
 -- Steve Martin 

My problem is I belong to so many anonymous groups, everybody knows who I am. 
 -- Nancy Redman 

If carrots are so good for your eyesight, how come I see so many dead rabbits on the highway? 
 -- Richard Jeni 

What if there were no hypothetical situations? 
 -- John Mendoza 

Did you know that Americans spent $48 million on lottery tickets last year? “What are you doing for your retirement?” 
“Uh, Powerball.” 
 -- Wanda Sykes 

Women don’t want to hear what you think. Women want to hear what they think—in a deeper voice. 
 -- Bill Cosby 

Gay people invented sports. Think about it. Boxing: two topless men ... in silk shorts ... fighting over a belt. 
 -- Ant 

I went to a bookstore and asked the saleswoman, “Where’s the self-help section?” She said if she told me, 
it would defeat the purpose. 
 -- Brian Kiley 

My wife has tons of credit cards. She has so many magnetic strips in her wallet, her purse points north. 
 -- Peter Sasso 

I didn’t understand NASCAR until I met some NASCAR fans. You talk to a couple of NASCAR fans and you’ll 
see where a shiny car driving in a circle would fascinate them all day. I can make fun of NASCAR fans because 
if they chase me, I just turn right. 
 -- Alonzo Bodden 

Batman never fights crime in neighborhoods that need it. I’d like to see Batman fight crime in my neighborhood. 

“Robin?”

“Yes, Batman?”

“Didn’t we park the car right here, man?” 
 -- Dave Chappelle 

Have you seen the deer heads on the walls of bars, the ones wearing party hats, sunglasses and streamers? I feel sorry for them because obviously
they were at a party having a good time …
-- Ellen DeGeneres

Did you know babies are nauseated by the smell of a clean shirt?
-- Jeff Foxworthy


I’m on that diet where you eat vegetables and drink wine. That’s a good diet. I lost ten pounds and my driver’s license.
-- Larry the Cable Guy


How many people here have telekinetic powers? Raise my hand.
-- Emo Phillips

Garbagemen come at 5 a.m. Why? They’re picking up garbage. It’s not going to go bad again.
-- Dave Attell

I will clean house when Sears makes a vacuum you can ride on.
-- Roseanne

LEGO has announced that they are shutting down their U.S. factory and moving it to Mexico. LEGO employees say it’s their fault
because they made the factory too easy to take apart and rebuild somewhere else.
-- Conan O’Brien

I tried to walk into Target, but I missed.
-- Mitch Hedberg

You know, marriage is making a big comeback. I know personally that in Hollywood people are marrying people they never married before.
-- Bob Hope

I went into a McDonald’s yesterday and said, “I’d like some fries.” The girl at the counter said, “Would you like some fries with that?”
-- Jay Leno

I constantly walk into a room and I don’t remember why. But for some reason, I think there’s going to be a clue in the fridge.
-- Caroline Rhea

Have you ever noticed that anybody going slower than you is an idiot and anyone going faster than you is a maniac?
-- George Carlin

You know, you get that tattoo of barbed wire when you’re 18. By the time you’re 80, it’s a picket fence.
-- Robin Williams

---

Forwarded by Auntie Bev

Wow!  

Wonder how long it took someone to figure this one out??  
 

1 x 8 + 1 = 9

12 x 8 + 2 = 98

123 x 8 + 3 = 987

1234 x 8 + 4 = 9876

12345 x 8 + 5 = 98765

123456 x 8 + 6 = 987654

1234567 x 8 + 7 = 9876543

12345678 x 8 + 8 = 98765432

123456789 x 8 + 9 = 987654321

 

1 x 9 + 2 = 11

12 x 9 + 3 = 111

123 x 9 + 4 = 1111

1234 x 9 + 5 = 11111

12345 x 9 + 6 = 111111

123456 x 9 + 7 = 1111111

1234567 x 9 + 8 = 11111111

12345678 x 9 + 9 = 111111111

123456789 x 9 +10= 1111111111
 

9 x 9 + 7 = 88

98 x 9 + 6 = 888

987 x 9 + 5 = 8888

9876 x 9 + 4 = 88888

98765 x 9 + 3 = 888888

987654 x 9 + 2 = 8888888

9876543 x 9 + 1 = 88888888

98765432 x 9 + 0 = 888888888
 

And look at this symmetry:

 

1 x 1 = 1

11 x 11 = 121

111 x 111 = 12321

1111 x 1111 = 1234321

11111 x 11111 = 123454321

111111 x 111111 = 12345654321

1111111 x 1111111 = 1234567654321

11111111 x 11111111 = 123456787654321

111111111 x 111111111=12345678987654321

---

Forwarded by Paula

A young blondee woman was driving through the Florida Everglades while on vacation. She wanted to take home a pair Of genuine alligator shoes in the worst way, but was very Reluctant to pay the high prices the local vendors were asking.

After becoming very frustrated with the attitude of one of The shopkeepers, the young blonde declared, "Well then, maybe I'll just go out and catch my own alligator and get a pair of shoes for Free!"

The shopkeeper said with a sly smile, "Well little lady, why Don't you go on and give it a try?"

The blonde headed off to the swamp, determined to catch an Alligator.

Later in the day, as the shopkeeper is driving home, he spots The same young woman standing waist deep in the murky water, Shotgun in hand. As he grinds his car to a stop, he sees a huge 9-foot gator swimming rapidly toward her. With lightning Reflexes, the blonde takes aim, shoots the creature and hauls it Up onto the slippery bank. Nearby were 7 more dead gators, all Lying belly up. The shopkeeper stood on the bank, watching in silent amazement. The blonde struggles mightily and manages to flip the gator onto Its back. Rolling her eyes heavenward, she screams in Frustration

"OH NO! THIS ONE’S BAREFOOT, TOO!"

 

---

Forwarded by Auntie Bev

Did I read that sign right?

TOILET OUT OF ORDER. PLEASE USE FLOOR BELOW

In a Laundromat:
AUTOMATIC WASHING MACHINES: PLEASE REMOVE ALL YOUR CLOTHES WHEN THE LIGHT GOES OUT

In a London department store:
BARGAIN BASEMENT UPSTAIRS

In an office:
WOULD THE PERSON WHO TOOK THE STEP LADDER YESTERDAY PLEASE BRING IT BACK OR FURTHER STEPS WILL BE TAKEN

In an office:
AFTER TEA BREAK STAFF SHOULD EMPTY THE TEAPOT AND STAND UPSIDE DOWN ON THE   DRAINING BOARD

Outside a secondhand shop:
WE EXCHANGE ANYTHING - BICYCLES, WASHING MACHINES, ETC. WHY NOT BRING YOUR WIFE  ALONG AND GET A WONDERFUL BARGAIN?

Notice in health food shop window:
CLOSED DUE TO ILLNESS

Spotted in a safari park:
ELEPHANTS PLEASE STAY IN YOUR CAR

Seen during a conference:
FOR ANYONE WHO HAS CHILDREN AND DOESN'T KNOW IT, THERE IS A DAY CARE ON THE  1 ST FLOOR

Notic e in a farmer's field:
THE FARMER ALLOWS WALKERS TO CROSS THE FIELD, FOR FREE, BUT THE BULL CHARGES.

Message on a leaflet:
IF YOU CANNOT READ, THIS LEAFLET WILL TELL YOU HOW TO GET LESSONS

On a repair shop door:
WE CAN REPAIR ANYTHING. (PLEASE KNOCK HARD ON THE DOOR - THE BELL DOESN'T WORK)
 

---

Forwarded by Auntie Bev

Husbands and Wives




Wife: "What are you doing?"
Husband : Nothing.
Wife : "What do you mean, nothing...? You've been reading
our marriage certificate for an hour now."
Husband : "I was looking for the expiration date."

------------------------------------------------------------------
Wife : "Do you want dinner?"
Husband : "Sure! What are my choices?"
Wife : "Yes and no."

------------------------------------------------------------------
Wife: "You always carry my photo in your wallet. --
Stress Reliever Girl: "When we get married, I want to
 share all your worries, troubles and lighten your burden."
Boy: "It's very kind of you, darling, but I don't have any
            worries or troubles."
Girl: "Well that's because we aren't married yet."

------------------------------------------------------------------
Son: "Mom, when I was on the bus with Dad this morning, he
            told me to give up my seat to a lady."
Mom: "Well, you have done the right thing."
Son:   "But mom, I was sitting on daddy's lap."
________________________________
A newly married man asked his wife, "Would you have
married me if my father hadn't left me a fortune?"
Honey," the woman replied sweetly, "I'd have married you,
NO MATTER WHO LEFT YOU A FORTUNE!"

------------------------------------------------------------------
Father to son after exam: "Let me see your report card."
Son: "My friend just borrowed it. He wants to scare his parents."

------------------------------------------------------------------
Girl to her boyfriend: One kiss and I'll be yours forever.
The guy replies: "Thanks for the early warning."

------------------------------------------------------------------
A wife asked her husband: "What do you like most in me, my
        pretty face or my sexy body?"
He looked at her from head to toe and replied: "I like your
        sense of humor."

---

Forwarded by Auntie Bev

The top 10 Viagra add slogans (picked from a slogan contest) were:

10. Viagra, Whaazzzz up!

09. Viagra, The quicker pecker picker upper.

08. Viagra, like a rock!

07. Viagra, When it absolutely, positively has to be there overnight.

06. Viagra, Be all that you can be.

05. Viagra, Reach out and touch someone.

04. Viagra, Strong enough for a man, but made for a woman.

03. Viagra, Home of the whopper!

02. Viagra, We bring good things to Life!

And the unanimous number one slogan:

01. This is your peepee. This is your peepee on drugs.

---

Forwarded by Auntie Bev

Maybe some of them should be heard today!!!!!

Be sure and refill the ice trays, we are going to have company after while.

Watch for the postman, I want to get this letter in the mail today.

Quit slamming that screen door!

Be sure to pull the windows down when you leave, it looks like it might
shower -- and bring in the clothes on the line, too.

Don*t forget to wind the clock before you go to bed.

Wash your feet before you go to bed, they are nasty from playing bare-footed
outside all day.

Why can*t you remember to roll up your pants legs? Getting them caught in
the bicycle chain so many times is tearing them up.

You have torn the knees out of that pair of pants so many times there is
nothing left to put a patch on.

Don*t you go outside with your good school clothes on!

Hang up your Sunday School cloth es, you know you need to pass them down to
your brother in good condition.

Go comb your hair It looks like the rats have nested in it all night.

Be sure and pour the cream off the top of the milk when you open the new
bottle. I need it for baking and Pa*s coffee.

Take that empty bottle to the store with you so you won*t have to pay a
deposit on another one.

Put a dish towel over the cake so the flies won*t get on it.

Quit jumping on the floor! I have a cake in the oven and you are going to
make it fall if you don*t quit!

Let me know when the Fuller Brush man comes by, I need to get a few things
from him.

You boys stay close by, the car may not start and I will need you to help
push it off.

There is a dollar in my purse, go by the service station and get five
gallons of gas when you! start to town.

Open the back door and see if we can get a breeze through here, it is
getting hot.

Y o u can walk to the store; it won*t hurt you to get some exercise. Maybe you
will learn to be more careful with your bicycle.

Don*t sit to close to the TV it is hard on your eyes.

If you pull that stunt again, I am going to wear you out!

Don*t lose that button, I will sew it back on after while.

Wash under your neck before you come to the table, you have beads of dirt
and sweat all under there.

Get out from under that sewing machine, pumping it messes up the thread!

Do you want to go get me a switch?

Be sure and fill the lamps this morning so we don*t have to do that tonight
in the dark.

Here, take this old magazine to the outhouse when you go, we are almost out
of paper out there.

Go out to the well and draw a bucket of water for me to wash dishes in.

Don*t turn the radio on now, I want the battery to be up when the Grand Ole
Opry comes on.

No! I don*t have five cents for you to go to th e show, do you think money
grows on trees?

Eat those vegetables; they will make you big and strong like yourdaddy.

That dog is NOT coming in this house! I don*t care how cold it is out there,
dogs just don*t come in the house.

Sit still! I am trying to get your hair cut straight and you keep moving and
it is getting botched up.

Hush your mouth! I don*t want to hear words like that. I will wash your
mouth out with soap again!

It is time for your system to be cleaned out, I*m going to give you a dose
of Castor Oil in the morning.

If you get a spanking in school and I find out about it, you will get
another one when you get home.

Quit crossing your eyes! They will get stuck that way!

Soak your foot in this pan of coal oil so that cut won*t get infected.

When you take your driving test don*t forget your hand signals each turn.
Left arm straight out the window for a left turn, and left arm bent up to
the sky at the elbow for a right turn and straight down to the side of the
door when you are going to stop.

It is "Yes, sir!" and "No, sir" to me and your elders young man, and don*t
you forget it!

While we are at Aunt Mary*s and Uncle John*s you kids eat when the adults
get through and I don*t want to hear "I don*t like this stuff" You better
keep your mouth shut and eat everything on your plate.

Well, that ought to keep us remembering some of the finer things of the
past, some good and some not so good, and young man if I hear you repeat one
word of this I will beat the daylights out of you, do you, understand me?
 

 

---

An Oldie from Paula

Patrick, who was on holiday from Ireland on Bondi beach couldn't seem to make it with any of the girls. So he asked the local lifeguard for some advice.

Mate, it's obvious," says the lifeguard, "you're wearing them old baggy swimming trunks that make ya look like an old geezer They're years outta style. Your best bet is to grab yourself a pair of Speedos - about two sizes too small and drop a fist-sized potato down inside 'em. I'm tellin' ya mate...you'll have all the babes ya want!"

The following weekend, Patrick hits the beach with his spanking new tight Speedos, and his fist-sized potato. Everybody on the beach was disgusted as he walked by, covering their faces, turning away, and laughing, looking sick!

So Patrick went back to the lifeguard again and asked him, "What's wrong now?"

JAHEESUS!" said the lifeguard, "Mate. The potato goes in front!"

---

---

---

 

And that's the way it was on September 30, 2007 with a little help from my friends.

 

Fraud Updates --- http://www.trinity.edu/rjensen/FraudUpdates.htm

 

Facts about the earth in real time --- http://www.worldometers.info/ 

Jesse's Wonderful Music for Romantics (You have to scroll down to the titles) --- http://www.jessiesweb.com/

International Accounting News (including the U.S.)

AccountingEducation.com and Double Entries --- http://www.accountingeducation.com/
        Upcoming international accounting conferences --- http://www.accountingeducation.com/events/index.cfm
        Thousands of journal abstracts --- http://www.accountingeducation.com/journals/index.cfm
Deloitte's International Accounting News --- http://www.iasplus.com/index.htm
Association of International Accountants --- http://www.aia.org.uk/ 

Free Harvard Classics --- http://www.bartleby.com/hc/
Free Education and Research Videos from Harvard University --- http://athome.harvard.edu/archive/archive.asp

 

I highly recommend TheFinanceProfessor (an absolutely fabulous and totally free newsletter from a very smart finance professor, Jim Mahar from St. Bonaventure University) --- http://www.financeprofessor.com/ 

 

Bob Jensen's bookmarks for accounting newsletters are at http://www.trinity.edu/rjensen/bookbob1.htm#News 

News Headlines for Accounting from TheCycles.com --- http://www.thecycles.com/business/accounting 
An unbelievable number of other news headlines categories in TheCycles.com are at http://www.thecycles.com/ 

 

Jack Anderson's Accounting Information Finder --- http://www.umsl.edu/~anderson/accsites.htm

 

Gerald Trite's great set of links --- http://www.zorba.ca/bookmark.htm 

 

The Finance Professor --- http://www.financeprofessor.com/about/aboutFP.html 

 

Walt Mossberg's many answers to questions in technology --- http://ptech.wsj.com/

 

How stuff works --- http://www.howstuffworks.com/ 

 

Household and Other Heloise-Style Hints --- http://www.trinity.edu/rjensen/bookbob3.htm#Hints 

 

Bob Jensen's video helpers for MS Excel, MS Access, and other helper videos are at http://www.cs.trinity.edu/~rjensen/video/ 
Accompanying documentation can be found at http://www.trinity.edu/rjensen/default1.htm and http://www.trinity.edu/rjensen/HelpersVideos.htm 

 

Click on www.syllabus.com/radio/index.asp for a complete list of interviews with established leaders, creative thinkers and education technology experts in higher education from around the country.

 

Professor Robert E. Jensen (Bob) http://www.trinity.edu/rjensen
190 Sunset Hill Road
Sugar Hill, NH 03586
Phone:  603-823-8482 
Email:  rjensen@trinity.edu  

 

 

 

 

July and August 2007

Bob Jensen's New Bookmarks on August 31, 2007
Bob Jensen at Trinity University 

For earlier editions of Tidbits go to http://www.trinity.edu/rjensen/TidbitsDirectory.htm
For earlier editions of New Bookmarks go to http://www.trinity.edu/rjensen/bookurl.htm 

Click here to search Bob Jensen's web site if you have key words to enter --- Search Site.
For example if you want to know what Jensen documents have the term "Enron" enter the phrase Jensen AND Enron. Another search engine that covers Trinity and other universities is at http://www.searchedu.com/.

Bob Jensen's Blogs --- http://www.trinity.edu/rjensen/JensenBlogs.htm
Current and past editions of my newsletter called New Bookmarks --- http://www.trinity.edu/rjensen/bookurl.htm
Current and past editions of my newsletter called Tidbits --- http://www.trinity.edu/rjensen/TidbitsDirectory.htm
Current and past editions of my newsletter called Fraud Updates --- http://www.trinity.edu/rjensen/FraudUpdates.htm
 

Bob Jensen's past presentations and lectures --- http://www.trinity.edu/rjensen/resume.htm#Presentations   
 

Bob Jensen's various threads --- http://www.trinity.edu/rjensen/threads.htm
       (Also scroll down to the table at http://www.trinity.edu/rjensen/ )

Roles of a ListServ --- http://www.trinity.edu/rjensen/ListServRoles.htm

Click here to search this Website if you have key words to enter --- Search Site.
For example if you want to know what Jensen documents have the term "Enron" enter the phrase Jensen AND Enron. Another search engine that covers Trinity and other universities is at http://www.searchedu.com/

Bob Jensen's Home Page is at http://www.trinity.edu/rjensen/

Accountancy Discussion ListServs:

For an elaboration on the reasons you should join a ListServ (usually for free) go to   http://www.trinity.edu/rjensen/ListServRoles.htm

AECM (Educators)  http://pacioli.loyola.edu/aecm/  AECM is an email Listserv list which provides a forum for discussions of all hardware and software which can be useful in any way for accounting education at the college/university level. Hardware includes all platforms and peripherals. Software includes spreadsheets, practice sets, multimedia authoring and presentation packages, data base programs, tax packages, World Wide Web applications, etc Roles of a ListServ --- http://www.trinity.edu/rjensen/ListServRoles.htm

CPAS-L (Practitioners) http://pacioli.loyola.edu/cpas-l/  CPAS-L provides a forum for discussions of all aspects of the practice of accounting. It provides an unmoderated environment where issues, questions, comments, ideas, etc. related to accounting can be freely discussed. Members are welcome to take an active role by posting to CPAS-L or an inactive role by just monitoring the list. You qualify for a free subscription if you are either a CPA or a professional accountant in public accounting, private industry, government or education. Others will be denied access.

Yahoo (Practitioners)  http://groups.yahoo.com/group/xyztalk This forum is for CPAs to discuss the activities of the AICPA. This can be anything  from the CPA2BIZ portal to the XYZ initiative or anything else that relates to the AICPA.

AccountantsWorld  http://accountantsworld.com/forums/default.asp?scope=1  This site hosts various discussion groups on such topics as accounting software, consulting, financial planning, fixed assets, payroll, human resources, profit on the Internet, and taxation.

Business Valuation Group BusValGroup-subscribe@topica.com  This discussion group is headed by Randy Schostag [RSchostag@BUSVALGROUP.COM]

Tidbits and Quotations Between July 1 and August 31, 2007

2007
July 2                 July 7               July 16           July 23    

2007
August 1             August 9          August 16       August 26

2007
September 5       September 10    September 18    September 24  

Tidbits Directory for Earlier Months and Years --- http://www.trinity.edu/rjensen/TidbitsDirectory.htm

New Bookmarks Directory for Earlier Months and Years --- http://www.trinity.edu/rjensen/Bookurl.htm

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

Humor Between July 1 and August 31, 2007 --- Click Here

Bob Jensen's complete set of Enron Updates are at http://www.trinity.edu/rjensen/FraudEnron.htm#EnronUpdates

Bob Jensen's threads on the Enron scandal are at http://www.trinity.edu/rjensen/FraudEnron.htm

2007 Salaries at Nation's Top Accounting Firms: Report --- http://accounting.smartpros.com/x58940.xml

Demand for Internal Auditors Prompts IIA Textbook --- http://accounting.smartpros.com/x58888.xml

Accounting Majors are Hot, Hot
But two weeks into her final year, she had lined up 15 interviews with the biggest firms in the country. Recruiters treated her to trendy happy hours and fancy steak dinners, wooing her with impressive salaries, free Cancun <http://www.washingtonpost.com/ac2/related/topic/Cancun?tid=informline> vacations and irresistible sign-on bonuses. She got three job offers in one afternoon."I had no idea it would be that easy to find a job," said Piniuk, 23, who will start at Ernst & Young's McLean <http://www.washingtonpost.com/ac2/related/topic/McLean+(Virginia)?tid=informline> office in October.
The Washington Post, Forwarded on July 6, 2007 by Don Ramsey.

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

Powerful Business Professors
"Powerful Profs:  As business schools gain visibility, star professors gain influence that extends outside the classroom to boardrooms, the best-seller lists, and beyond," by Dan Macsai, Business Week, August 22, 2007 --- http://www.businessweek.com/bschools/content/aug2007/bs20070821_430502.htm

Question
What finance professor won the American Accounting Association's 2007 Notable Contributions to Accounting Literature Award?

Answer --- My Letter to Kate http://www.trinity.edu/rjensen/2007NotableLiteratureAward.htm

My letter to Kate

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

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

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

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

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

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

August 15, 2007 reply from David Albrecht [albrecht@PROFALBRECHT.COM]

I agree that it does seem to be a rigged game. Sad.

Dave Albrecht

August 15, 2007 reply from Bob Jensen

Hi David,

I might add that I hesitate to call possible rigging of the game entirely intentional and/or sinister. I think it is somewhat intentional in terms of who gets assigned to the Screening Committee versus who gets assigned to the Selection Committee that can only evaluate papers submitted by the Screening Committee.

However, in line with what Paul Williams argues, nearly 100% of the graduates from accounting doctoral programs have really graduated from social science (particularly econometrics and psychometrics) programs such that the biases toward accountics is almost universal among recent graduates. They may not even be aware of their screening biases, especially if they only look to accountics-biased leading academic journals to find submissions.

Random assignments of younger accounting faculty to these committees might’ve resulted in the same awards being granted for the past 20 years. It would be almost impossible, for example, to get a majority of members on a randomly assigned Screening Committee that have AIS degrees. That would be about as unlikely as winning the lottery.

But committee assignments are not at all random! I might add that anecdotally across my years serving the American Accounting Association, I've noted that a very small subset of members are more active in nominating their friends and colleagues for committee assignments and for awards. One particular senior faculty member from a very prestigious university repeatedly nominates his former doctoral students, co-authors, and colleagues. Long ago, possibly while serving as an AAA President, he learned how the game was played and plays it very, very well.

I just think that one criterion that should be added for screened papers forwarded by the Screening Committee should be some type of replication if the submission is any type of empirical study.

Bob Jensen

Flashbacks --- Click on the "Non USF User Link"

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

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

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

Barr, A. (1961). "Accounting research,"  The Accounting Review (January): 17-20. Click on the "Non USF User Link"

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

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

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

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

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

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

Editor
Trumball:         63.6/63.5

Griffin:             71.3/59.6

Hendrickson:    75/53.7

Keller:              61.1/50.3

Decoster:         63/45.2

Zeff:                 51.9/43.1

Sundem:            47.1/38

Kinney:             50.6/34.7

Abdel-khalik:     56.6/33

 

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

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

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

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

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

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

Even JAR published a paper by Peter Miller!

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

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

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

Paul

 Paul Williams

paul_williams@ncsu.edu

(919)515-4436

The Enron Party Video

August 15, 2007 message from Jim McKinney [jim@MCKINNEYCPA.COM]

Does anyone know where I can get a copy of the Rich Kinder farewell video made at Enron that was made prior to the implosion? The video had various skits and included a messages from Bush. The Houston Chronicle used to have a link but that disappeared a couple of years ago.

Thanks,

Jim McKinney, Ph.D., C.P.A.
Tyser Teaching Fellow
Accounting and Information Assurance
Robert H. Smith School of Business
3345 Van Munching Hall
University of Maryland College Park, MD 20742-1815
http://www.rhsmith.umd.edu 

August 16, 2007 reply from Bob Jensen

Hi Jim,

Jim Borden forwarded a copy to me years ago. I think it was a video recorded from home TV is not a great reproduction. But I really appreciated it when Jim sent me this copy.

For what it’s worth I filed the video away as the Enron3.avi file at http://www.cs.trinity.edu/~rjensen/video/  It will load very, very, very slowly as an avi file.

I previously compressed the enron3.avi file into a much faster loading enron3.wmv file that will play in a Windows Media Player.
Go to http://www.cs.trinity.edu/~rjensen/video/windowsmedia/

This was an amateur video of Rich Kinder’s farewell party and is all in fun, which in retrospect became sickening fun. A highlight on the tape is Jeff Skilling’s proposal for moving from mark-to-market accounting (that the SEC mistakenly approved for Enron energy) to HFV accounting standing for Hypothetical Future Value accounting. Although HFV was a joke in this video, it’s becoming a reality under FAS 159.

I think you can buy a much better copy from the Houston Chronicle if you want a copy for your library. Keep in mind that this was never video captured by video professionals. Still the person that shot it did some editing and added lively Broadway music in spots.

You can read a bit more about Rich Kinder and the Enron gang in my Enron Quiz --- http://www.trinity.edu/rjensen/FraudEnronQuiz.htm  My personal opinion is that Rich early on did not like some things going on at Enron and departed early on before things got even worse. Rich later became a billionaire on his own in the oil/finance industry. My quiz will tell you what other Enron executive got off clean but less honorably than Rich Kinder.

Bob Jensen

August 16, 2007 reply from Bill Ellis [wmhne@AOL.COM]

Channel KPRC I Houston lists the video in their archives but it is not playable online
http://www.click2houston.com/video/1843565/index.html 

Bill Ellis
Furman University

August 16, 2007 reply from Richard C. Sansing [Richard.C.Sansing@TUCK.DARTMOUTH.EDU]

Close your eyes, for your eyes will only tell the truth and the truth isn't what you want to see.
In the dark it is easy to pretend that the truth is what it ought to be.
"Smartest Guys in the Room": now a Broadway musical!

 

August 31 reply from Eileen Taylor [eileen_taylor@NCSU.EDU]

The following article is related to the discussion about the future of textbook publishing. It was included in the Raleigh News and Observer this week and can be found at:

http://www.newsobserver.com/opinion/columns/story/685565.html 

Basic conclusion is that textbook publishers reward faculty for content more than universities reward faculty for content. Thus, faculty sell textbook content to publishers, who then sell it back to students for a profit. Students pay for this "service"and publishers stay in business.

A possible solution is for universities to reward faculty directly for producing content, and pass the savings on to students. The issue I see with that solution is that publishers are good at distributing the knowledge, so that there is no duplication of efforts across universities. If e-publishing and improved communication (like online education journals and the AECM itself) can address distribution, then I think publishers are in trouble.

Excerpt from article: "Generally the faculty still produce the content and sell it to a publisher. The publisher shrink wraps it and sells it back to students (at an inflated price). Thirty years ago this arrangement made sense because the 'hard copy"'that was the textbook represented true value added. In the present age, the value added by the publisher is often virtually nil, yet publishers want to maintain the same revenue stream."

While this may be the natural goal for the publisher, it hardly makes sense any longer for the university or for students.

The reality is that the burden of the present textbook scam falls primarily on students, and faculty have up until now been provided better incentives by publishing companies than by the colleges and universities that employ them. It's time for some dialogue on this issue.

From the standpoint of cost-effectiveness, it makes no sense for colleges and universities to be both the producers and consumers of intellectual content for which students receive a large bill from a middleman who orchestrates a process designed to maximize off-campus profits."

(Lavon B. Page is retired as a professor of mathematics at N.C. State University but still teaches part-time. He served as special assistant to the provost for implementing the university's "Learning in a Technology-Rich Environment" plan.)

Eileen Taylor

Eileen Z. Taylor, PhD
Assistant Professor,
Department of Accounting
North Carolina State University Campus
Box 8113, Nelson Hall
Raleigh, NC 27695-8113
919-513-2476
eileen_taylor@ncsu.edu