December 31, 2007

 

 

 

Bob Jensen's New Bookmarks n December 31, 2007
Bob Jensen at Trinity University 

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

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

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

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

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

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

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

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

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

Wikipedia has a rather nice summary of accounting software at http://en.wikipedia.org/wiki/Accounting_software

Bob Jensen’s accounting software bookmarks are at http://www.trinity.edu/rjensen/Bookbob1.htm#AccountingSoftware

Bob Jensen's accounting history summary --- http://www.trinity.edu/rjensen/Theory01.htm#AccountingHistory

Bob Jensen's accounting theory summary --- http://www.trinity.edu/rjensen/Theory.htm

Accountancy Discussion ListServs:

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

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

2007
September 5       September 10    September 18    September 24  

2007
October 1          October 10        October 17        October 30 

2007
November 8      November 15     November 22    November 29    

2007
December 6      December 11      December 18    December 26  

 

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

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

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

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Humor Between December 1 and December 31, 2007  --- http://www.trinity.edu/rjensen/book07q4.htm#Humor123107  

Humor Between November 1 and November 30, 2007 --- http://www.trinity.edu/rjensen/book07q4.htm#Humor113007 

Humor Between October 1 and October 31, 2007        --- http://www.trinity.edu/rjensen/book07q4.htm#Humor103107  

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

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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

Large International Accounting Firm History --- http://en.wikipedia.org/wiki/Big_Four_auditors

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Fascinating Statistics --- http://www.trinity.edu/rjensen/FascinatingStatistics/Statistics.htm

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It saddens me that Sidney Davidson recently died. He was a good friend and a great accounting professor for many years at the University of Chicago.

His Accounting Hall of Fame module summarizes some of his many accomplishments --- http://snipurl.com/sidneydavidson

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It also saddens me that Bob Sprouse also died in 2007. Bob was an accounting professor and a former Board member of the FASB.

Bob's Accounting Hall of Fame module --- Click Here

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Integrity is a cornerstone of our culture and we continue to make great progress in our effort to build a model ethics and compliance program. This means fostering awareness, trust, and personal responsibility at every level of the firm. This year, we issued our first ever ethics and compliance progress report and guidebook. This report, Ethics and Compliance Report 2007: It Starts with You, highlights initiatives that we have in place to support our values-based compliance culture, and features real-life stories of some of KPMG's partners and employees who faced ethical challenges and how they handled them. We responded to heightened interest in ethics education and input from your fellow academics and created our KPMG Ethical Compass—A Toolkit for Integrity in Business, a three-module package of classroom materialsto help you present ethics-related topics to your students.
An Open Letter From Tim Flynn, Chairman and CEO, KPMG LLP
This was part of an email message that I assume was sent to the academy of accountants.

Once again the link to the Ethics and Compliance Report 2007 is at http://www.kpmgcampus.com/whoweare/ethics.pdf

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

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A New Type of Intangible Investment (sort of not yet legal in the U.S.) --- Litigation
How should it be booked and carried in financial statements?
I say "sort of" since this intangible asset might be buried (as Purchased Goodwill") in acquisition prices when firms are purchased purchased or merged.

The notion of litigation as a separate asset class is a novel one. It's hard to imagine fund managers one day allotting a bit of their portfolio to third-party lawsuits, alongside shares, bonds, property and hedge funds. But some wealthy investors are starting to dabble in lawsuit investment, bankrolling some or all of the heavy upfront costs in return for a share of the damages in the event of a win. The London-managed hedge fund MKM Longboat last month revealed plans to invest $100million (£50.5million) to finance European lawsuits. Today a new company, Juridica, floats on AIM, having raised £80million to make litigation bets.
"The law is now an asset class," The London Times, December 21, 2007 --- http://business.timesonline.co.uk/tol/business/columnists/article3080766.ece

Jensen Comment
Under U.S. GAAP, intangible assets are generally booked only when purchased and are not conducive to fair value accounting afterwards. Probably the most serious problem in both accounting theory and practice is unbooked value (and in many cases undisclosed) of intangible assets and liabilities. Do the values of human capital and knowledge capital ring a bell? Does the cost retraining the world's workforce to use Office software other than Microsoft Office (Word, Excel, PowerPoint, etc.) ring a bell?

Contingent liabilities (particularly pending lawsuits) are problematic until the amount of the liability is both reasonably measurable and highly probable. Until now, contingent litigation assets were not investment assets. Contingent liabilities were booked as current or past expenses. Now purchased litigation assets having future value? Horrors!

In the past when a company purchased another company, some of the "goodwill" value above and beyond the traceable value to net tangible assets could easily have been the value of future litigation such as when Blackboard acquired WebCT and WebCT's patents on online education software. Patents and Copyrights may have value with respect to fending off future competition.

But patents and copyrights may also have value in future litigation regarding past infringements. Now hedge funds might invest in bringing litigation to fruition.

Intangible assets and liabilities are, and will forever remain, the largest problem in accounting theory and practice! In some cases, such as Microsoft Corporation, booked assets are so miniscule relative to unbooked intangible assets that the balance sheets are virtually a bad joke.

An enormous problem, besides the fact that current value of intangibles cannot be counted, current value can change by enormous magnitudes overnight as new discoveries are made and new legislation is passed, to say nothing of court decisions. Tangible asset values can also change, but in general they are not as volatile.

December 25, 2007 reply from Dennis Beresford [dberesfo@TERRY.UGA.EDU]

Bob,

SFAS 141R (available on the FASB web site) substantially changes the accounting for both contingent assets and liabilities in connection with business combinations. In fact, 141R coupled with SFAS 160 on noncontrolling interests makes major changes to both the accounting for business combinations and the accounting for consolidation procedures. While the new rules can't be applied until 2009, anyone teaching advanced accounting or where ever else these topics are covered should throw out their old lesson plans and be prepared to enter into an entirely new world of accounting - not for the better in my humble opinion.

By the way, another interesting thing to read on the FASB web site is the proposal to reduce the size of the FASB and make some other changes to improve the standard-setting process. We celebrated our family Christmas a few days ago because of travel plans and I'm working on my comment letter to the Financial Accounting Foundation today.

Merry Christmas!

Denny

December 25, 2007 reply from Amy Dunbar [Amy.Dunbar@BUSINESS.UCONN.EDU]

What I found interesting about 141R is the discussion in the appendices that showed both the FASB and IASB views and how the Boards reached convergence.

141R also added a couple paragraphs to FIN 48 that result in goodwill no longer being adjusted if the contingent tax liability is increased or decreased. Instead the DR is to tax expense, which makes a lot more sense to me. If I read the statement correctly, the purchased assets and liabilities are stated at fair value under a recognition, then measurement principle. Taxes are exempt from those two principles; instead FAS 109/FIN 48 apply. What I couldn't tell is if the purchaser still has up to one year (the maximum measurement period) to get the tax contingent liability right before the DR goes to tax expense. Can anyone help me?

Amy Dunbar
UConn

From the AccountingWeb on December 27, 2007 --- http://www.accountingweb.com/blogs/eva_lang_blog.html

On December 4, 2007, the Financial Accounting Standards Board issued FASB Statements No. 141 (revised 2007), Business Combinations. The new standard requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination. The revision of 141 is part of the FASB's push toward "fair value," or mark-to market accounting.

Financial Week (December 10, 2007) reports that Dennis Beresford, a former FASB chairman now serving on a Securities and Exchange Commission advisory committee that is studying the U.S. financial reporting system says “The rules will be difficult to apply and will require companies and analysts to relearn a lot of things.” The article goes on to say that the revisions to 141 “essentially extend the fair-value requirements to new areas. That will increase the valuation work required of corporate finance departments, and in some cases jack up the volatility of reported earnings as various assets and liabilities are marked to market.”

"FASB Issues FASB Statements No. 141(R), Business Combinations and No. 160, Noncontrolling Interests in Consolidated Financial Statements," SmartPros, December 6, 2007 --- http://accounting.smartpros.com/x60031.xml

Jensen Comment
You can download FAS 141(R) from http://www.fasb.org/st/index.shtml#fas160

December 31, 2007 reply from Gerald Trites [gtrites@ZORBA.CA]

Warren Buffett referred to "mark to market" as "mark to myth", a comment that I think is right on the mark.

Bob Jensen's threads on intangible/contingency asset asset and liability accounting are at
http://www.trinity.edu/rjensen/Theory01.htm#TheoryDisputes 

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"Fair Value: Bumpy Road from Theory to Practice American Banker," by Todd Davenport, American Banker, December 28, 2007 --- http://www.americanbanker.com/article.html?id=2007122753FUHMD4
(Link forwarded by Denny Beresford)

To its critics, fair-value accounting is far from fair and has only a casual relationship with value. To its supporters, fair-value accounting is a logical response to innovative and complex financial markets that have outstripped traditional valuation methods.

Though it has long been a passionate topic among accounting practitioners, academics, and corporate financial officers, the larger investing public has thankfully been spared the details of the debate. But that's changing.

Early this year several companies — most of them banks, investment banks, and insurers — adopted the clearest articulation yet of fair value by the Financial Accounting Standards Board. Hopes for an easy transition to the new standard have run hard against some of the worst market conditions in recent memory, turning what might have been a clinical application of the new model into a messy tangle that has undermined the credibility of those struggling to implement it and pushed the debate about accounting methods out of the corporate controller's office and into the marketplace. Even the president of the United States is weighing in on how banking companies should recognize their losses, and the Securities and Exchange Commission has launched an investigation of securities valuation by dealer banks.

Questioning the reliability of banks' financial statements is not novel sport. The industry's accounting for, among other things, mergers, loan losses, derivatives, and off-balance-sheet instruments has fed the skepticism of analysts, investors, and regulators. As a general matter, the larger and more complex the bank, the deeper the questions surrounding the accuracy of the financial statements.

Anyone who isn't convinced of that skepticism is likely ignoring the market's treatment of large banking companies. As 2007 draws to a close, the country's three largest banks — Citigroup Inc., Bank of America Corp., and JPMorgan Chase & Co. — all trade at under 10 times their earnings over the past year. That explicit vote of no confidence is as much an expression of concern about banks' asset valuations as it is about their earnings prospects.

Fair-value accounting, which in the best of all possible worlds would have ameliorated those concerns, has only exacerbated them. In the midst of a subprime crisis in which writedowns of illiquid, opaque financial instruments — including collateralized debt obligations and asset-backed securities — by global banking companies now total more than $75 billion, the fundamental question is what happens next.

Cynicism runs deep, and in every direction. Some observers wonder whether the new accounting standards have forced a reckoning that the industry would have papered over in the past. Others wonder whether banks continue to underestimate the true nature of their losses, while still others wonder whether the fair-value method has given banks a new cookie jar from which to feed earnings in the future.

The accounting board "tried to accommodate everybody's movement into these less transparent, less liquid asset classes, and they enabled the mess by letting people do that if they merely assigned values to them — and there is no way to value them," said Chris Whalen, the managing director at Lord, Whalen & Co.'s Institutional Risk Analytics. "The great fallacy that we have all committed is allowing ourselves to get pulled into asset classes that are not liquid, and fair value means nothing in an asset class that is illiquid — it's only a matter of debate."

The parade of fair-value-related writedowns by global banking companies simultaneously implementing new fair-value standards has led some observers to see something less than a coincidence. Others claim that the accounting hasn't changed much, if at all, and frankly doubt that banks would have been able to hide their subprime-related losses. Truth, like value, is an elusive standard.

Neri Bukspan, the chief accountant at Standard & Poor's, said he believes the adoption of the fair-value standards has influenced the level of writedowns reported by banking companies.

The standards "crystallized the vision around fair value" and "put much greater emphasis on the importance of market attributes and transactions in the market," he said. "I think it created a greater focus on the relevant data points to which you look as a reference for the writedowns."

David Morris, a former controller at JPMorgan Chase and now an accounting consultant, said the fair-value precepts laid out in the accounting literature before the adoption of the new standards are similar enough that he sees little impact from the standards.

"I think the writedowns would have been about the same and probably would have occurred in the same time frames," he said. " I don't think the accounting caused the problem. The problem was in the way the loans were created and underwritten."

And there are those who hew a middle path.

"It may be that we have so much more emphasis on fair value and disclosures that the application of 157 and 159 has led to some differences," said Sydney Garmong, an executive in Crowe, Chizek & Co. LLC's financial institutions group. "But I'm not sure it would be significantly different," and though "the downward adjustments may be somewhat larger because of 157 and 159, I just don't think we're talking night and day."

The accounting board's drive to fair value is underpinned by the belief that what a company once paid for an asset is not nearly as relevant as what the asset is currently worth. By that reasoning, market value trumps book value. Leave aside arguments that potentially undermine that reasoning; the more immediate concern is how to value assets for which there is no ready, liquid market. That nettlesome question is one reason why FASB has not yet implemented a model that would apply fair value to banks' chief assets: loans.

The FASB has required the use of fair value for some instruments in standards and guidance issued over the years, but it had never consolidated a practical method for applying it. To fill that void, it issued Financial Accounting Standard 157, Fair-Value Measurements, in October 2006; the 158-page standard is essentially a reference book that tells companies how to apply fair value, but not where they must apply it.

It issued a companion statement, FAS 159, Fair Value Option for Financial Assets and Financial Liabilities, in February 2007, that has been seen by many observers as an enticement to get companies to apply fair value to a wider swath of assets. Under 159, companies have the latitude to use fair value only for the financial instruments of their choosing. The discretion is so complete that companies can make separate designations for similar securities in the same portfolio.

Though the standards are only now in effect — companies following generally accepted accounting principles must use them in preparing financial statements for periods beginning after Nov. 15 — the board allowed for early adoption in the first quarter of 2007. The catch: Companies that wanted to use the option standard, 159, also had to adopt the new measurement standard, 157, for every instrument on the balance sheet required to be measured at fair value.

The banking industry did not have a unified response to either standard, and that is because the "banking industry" is not nearly as monolithic as it sounds. The fair-value model works for some business lines better than it does for others.

Continued in article

"Fair Value: Simple Idea, Complex Path,"  by Todd Davenport, American Banker, December 31, 2007 ---
http://www.americanbanker.com/article.html?id=20071228XOYSLOCX

It's fair to say that there is more than a little hostility to the concept of fair value, and the hostility intensifies depending on the instruments under discussion.

For some bankers, accounting standard-setters' ongoing search to define "fair value" for traditional loans is almost heretical. But there are fewer grounds for objecting to the application of fair value to securities, which, after all, are created primarily to make illiquid assets liquid.

Companies have used fair value for years. The Financial Accounting Standards Board's decision to adopt a new standard on fair value, issued in October of last year, was intended merely to clarify its use and identify methods for valuing increasingly complex securities that have poured into the market.

The seizure of markets once presumed to be liquid has complicated what was to be a no-hassle transition to the new standard, FAS 157.

"Companies and their auditors are really nervous about changing values, and they are nervous about whether they could be second-guessed" on securities valuations, said Dennis Beresford, a former FASB chairman and now a professor of accounting at the University of Georgia and the director who chairs Fannie Mae's audit committee. "It's awfully hard for some people to believe that markets could have changed so quickly."

The organizing principle of FAS 157 is a three-level liquidity hierarchy for financial instruments. Valuation is simple enough for Level 1 securities, which are traded actively in liquid markets with regular, quoted prices. For these securities, fair value is market value, and the math is straightforward.

Common equities and highly liquid U.S. Treasuries generally are considered Level 1 securities. For those securities quoted by bid and ask prices, companies can choose either the midpoint or the point between them that is "most representative" of fair value.

But the association between fair value and market value starts to break down with Level 2 securities, which are not quoted directly or traded actively but have "observable inputs" — market prices of similar securities, for instance — that can be thrown into models.

Common interest rate swaps, options, and other derivatives frequently fall in this bucket, as do licensing arrangements and even buildings. Agency mortgage-backeds, corporate debt, and some collateralized debt obligations fall into this category, as well.

Level 3 of the fair-value inferno is reserved for instruments that have "no observable inputs." The value of these instruments is almost entirely model-driven. They are worth what the company says, provided it can get its auditor to bless the calculated value.

This bucket, by and large, is the home of mortgage servicing rights, asset-backed commercial paper, and structured products like synthetic CDOs.

"The fair-value measurement objective remains the same, that is, an exit price from the perspective of a market participant that holds the asset or owes the liability," the standard reads. "Therefore, unobservable inputs shall reflect the reporting entity's own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk)."

That's a lot of assumptions. Even granting the standard's comprehensible internal logic, figuring out which securities qualify as what is not always clear. Companies can reach different conclusions about the level and value of securities that seem similar. Value depends on the models, which can vary from company to company and produce wildly varying results, depending on the inputs.

"These values for Level 2 and particularly Level 3 are not as precise as the financial statements might imply," Prof. Beresford said. "But what they don't tell you, and probably couldn't very accurately, is tell you what kind of range we're talking about."

It is, of course, the Level 3 instruments that have gotten the most attention since markets dried up, given that their value is based largely on internal — if audited — assumptions. Investors have taken a dim view of these assets; the larger the portion of these assets, the larger the perceived black hole in the balance sheet.

As of Sept. 30, Citigroup Inc. held $135 billion of Level 3 assets, JPMorgan Chase & Co. held $55 billion, and Bank of America Corp. held $28 billion. Spokesmen for the companies would not make executives available to discuss their use of fair-value accounting.

"Level 3 raises a reasonable question: If an asset is hard to value, should you be buying it at all?" asked Donald van Deventer, the CEO of Kamakura Corp., which helps companies and investors value securities. "The answer is probably no, unless you are really good at the analytics."

Banking companies could argue reasonably that they are good at the analytics, and that as financial intermediaries, they must be expected to hold a variety of instruments, including those not easy to value. But then the companies must live with the questions that arise from holding them.

"If an investor, in deciding whether to buy shares of a particular bank, sees a huge fraction of its assets are Level 3, the investor may wonder if the assets are worth as much as the bank says they are," said Darrell Duffie, a professor of finance at Stanford University's Graduate School of Business. "That's a discipline on the bank. It's helpful information for the investor making that decision, and banks will be forewarned not to load up on Level 3 assets if they want to sell at high multiples in the market."

Most accountants are quick to remind that the three-level hierarchy was a rough element in the accounting literature even before the FASB delineated it clearly in FAS 157. Fair value is a central element of FAS 115, a 1993 standard. Under that standard, securities held in the trading portfolio — the portfolio in which the largest U.S. banking companies keep most of their securities — are marked at fair value, with the aggregate change running through the income statement.

Banking companies that do not have substantial investment-banking businesses — from large regional ones to community ones — are more likely to keep their securities in the available-for-sale portfolio, which also is marked at fair value. Though the unrealized gains and losses in that portfolio are reflected in GAAP capital (regulatory capital calculations do not include unrealized gains or losses), they do not hit the income statement as long as they are relatively insignificant and reasonably likely to be recovered in future periods.

(Companies lose that safe harbor if losses are serious enough that recovery becomes unlikely. Zions Bancorp. reported one of the most recent instances of other-than-temporary impairment. In a securities filing Dec. 20, the Salt Lake City company, which has not adopted FAS 157, disclosed a $94 million impairment of CDOs in its available-for-sale portfolio and said it would record the entire amount as a charge to fourth-quarter earnings.)

Continued in article

"Fair Value: Trust Is Wild Card in Debate,"  by Todd Davenport, American Banker, January 2, 2008 ---
http://www.americanbanker.com/article.html?id=200712318ZWKJCBM 

The market meltdown in the second half of last year gave investors plenty of reasons to doubt the accuracy of banks' asset valuations, and the way the situation has unfolded is telling.

What was seen initially as a liquidity crisis soon was revealed as a crisis of confidence. There was money to transact, but investors did not trust what they were being told about the value of the securities that banks were originating, packaging, and trading. Representations of value derived by models are only as good as the models themselves, and investors have learned the hard way that dealers' incentives are quite different from those of their clients.

"For a long time people looking for values were relying on quotes from Wall Street with no transactions associated with them," said Donald van Deventer, the chief executive officer of Kamakura & Co., which helps companies and investors value securities. "If you take the business cycle and macroeconomic factors into account to drive default probabilities up and down, you get dramatically different answers than you get using the popular method that Wall Street and the rating agencies have encouraged people to use."

Mr. van Deventer, a former investment banker, said he has a pretty clear idea why the dealer banks encouraged clients and internal auditors to use the valuation techniques of their choosing.

"Because it makes more money if you do," he said. "Anybody who doesn't understand that is just hopelessly naive, and there are a lot of investors who by self-admission have fallen into that category."

And again, he sees a change under the Financial Accounting Standards Board's new standard.

"The combination of [FAS] 157 and the current crisis has meant that unless there is a real trade, the quote has no credibility, because the quoter has a vested interest in your perception of value," Mr. van Deventer said.

Cynicism about bankers' valuations is embedded so deeply that some observers who say banks are being forced only now to recognize the true value of their illiquid securities also suspect that the companies could undervalue the securities they once overvalued.

Loan-loss provisions spike so consistently in the fourth quarter that it is known as the "kitchen sink" quarter. Taking the losses at the end of the year makes comparisons with next year's earnings easier, and a plump fourth-quarter provision can lead to smaller bites from the bottom line in future quarters.

Some skeptics say writedowns afford the same opportunity; once the big dealer banks realized their writedowns would be substantial, they arguably had as much incentive to overstate as to understate. A sophisticated financial institution knows its stock may get pummeled if it reports a $4 billion writedown; would the market reaction be any more violent if the writedown was, say, $5 billion, or $6 billion, or $8 billion? Preserving capital ratios is the primary limitation on the magnitude of writedowns.

The freedom of FAS 159, a companion statement to FAS 157, would give banks the tools to follow an earnings-management strategy that would not violate accounting rules. (Principles are another matter, but that's a debate for another day.)

"A bank can choose which financial instruments it wants to report at market value," said Darrell Duffie, a professor of finance at Stanford University's Graduate School of Business. "A bank that wanted to report lower earnings now and bank any embedded gains later could mark to market anything that had embedded loss and leave at book value anything that has an embedded gain to be marked later."

The advantage of fair-value accounting is that it allows companies to take market gains back through the income statement as quickly as they incurred the losses. Should models lead them to conclude that marked-down securities had recovered value, the difference would be reflected as income.

"Companies, of course, aren't supposed to use the new standard as a way to manage earnings — they're only supposed to use it to get a closer approximation of fair value," Prof. Duffie said. "But accountants will sometimes be led to do what management of a bank wants them to do."

Nevertheless, he said he supports fair-value accounting, because the potential for earnings management dissipates the longer a company has reported under the regime.

In current market conditions, there is one more strange, almost perverse, effect of the new standard: Companies stand to profit when the value of their own debt falls. Bank debt, of course, tends to tumble when the credit cycle worsens, as it is doing now.

Corporate debt is a liability, and companies apply fair or market value, if available, to that debt. Never mind the principal value — as the liability's market value falls, it is marked as a pickup in earnings on the company's income statement. This unusual development, known as the "own-creditworthiness" doctrine, already has been recognized by some companies.

On Dec. 21, SunTrust Banks Inc. reported a series of writedowns and a huge increase in its loan-loss provision. "Market valuation declines are expected to result in an estimated fourth quarter 2007 pretax writedown of $125 million to $150 million, net of a positive mark on the company's debt carried at fair value," the Atlanta company said in a filing with the Securities and Exchange Commission.

Own-creditworthiness does have an internal logic, but some of its potential consequences raise serious questions. It makes sense to value liabilities the way the market is valuing them, but the possibility of recording income from a loss of investor credibility seems perverse.

It is only one reason the debate over fair value is not likely to be resolved soon. Bankers may save their biggest fight for when the FASB articulates a standard that applies fair value to bread-and-butter loans.

Christopher Whalen, the managing director at Lord, Whalen LLC's Institutional Risk Analytics, dismisses the notion that fair value is a step forward for accounting.

"In between when you buy something and when you sell something, valuing it may be an interesting exercise, but it may not be one that is practical," he said. "The only time you can value something dynamically is if it is traded — if you have a visible, public price. Otherwise, who wants to know?"

Legions of bankers agreed with that expression of contempt. They cite this summer's events as evidence that markets are not always rational and occasionally may put values on securities that do not match what they believe are the securities' economic or intrinsic value. And wildly moving markets mean income statements will move with them.

To which fair-value adherents say: Tough.

Continued in article

Bob Jensen's threads on fair value accounting are at http://www.trinity.edu/rjensen/Theory01.htm#FairValue

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"The Finer Points of Fair Value," by Thomas A. Ratcliffe, Journal of Accountancy, December 2007 --- http://www.aicpa.org/pubs/jofa/dec2007/fair_value.htm

EXECUTIVE SUMMARY

To adopt FASB Statement no. 159, companies must comply with the requirements of Statement no. 157, Fair Value Measurements. Companies and their auditors must consider whether the use of fair value option accounting reflects a “substance over form” decision by management rather than an effort to gain an accounting result. FASB has raised the bar for disclosure required when the fair value option is in play so that financial statement users will be able to clearly understand the extent to which the option is utilized and how changes in fair values are being reflected in the financial statements. Companies are encouraged but not required to present the fair value option disclosures in combination with the fair value disclosures required in other accounting literature. The guidance must be implemented on an instrument-by-instrument basis and is irrevocable.

 

From the FASB:  PROPOSED FASB STAFF POSITION No. FAS 157-a
"Application of FASB Statement No. 157 to FASB Statement No. 13 and Its Related Interpretive Accounting Pronouncements That Address Leasing Transactions" --- http://www.fasb.org/fasb_staff_positions/prop_fsp_fas157-a.pdf

Objective

1. This FASB Staff Position (FSP) amends FASB Statement No. 157, Fair Value Measurements, to exclude FASB Statement No. 13, Accounting for Leases, and its related interpretive accounting pronouncements that address leasing transactions.

Background

2. The Exposure Draft preceding Statement 157 proposed a scope exception for Statement 13 and other accounting pronouncements that require fair value measurements for leasing transactions. At that time, the Board was concerned that applying the fair value measurement objective in the Exposure Draft to leasing transactions could have unintended consequences, requiring reconsideration of aspects of lease accounting that were beyond the scope of the Exposure Draft.

3. However, respondents to the Exposure Draft indicated that the fair value measurement objective for leasing transactions was generally consistent with the fair value measurement objective proposed by the Exposure Draft. Others in the leasing industry subsequently affirmed that view. Based on that input, the Board decided to include lease accounting pronouncements in the scope of Statement 157.

4. Subsequent to the issuance of Statement 157, which changed in some respects from the Exposure Draft, constituents have raised issues stemming from the interaction

Proposed FSP on Statement 157 (FSP FAS 157-a) 1 FSP FAS 157-a between the fair value measurement objective in Statement 13 and the fair value measurement objective in Statement 157.

5. Constituents have noted that paragraph 5(c)(ii) of Statement 13 provides an example of the determination of fair value (an exit price) through the use of a transaction price (an entry price). Constituents also have raised issues about the application of the fair value measurement objective in Statement 157 to estimated residual values of leased property. These issues, as well as other issues related to the interaction between Statement 13 and Statement 157, would result in a change in lease accounting that requires considerations of lease classification criteria and measurements in leasing transactions that are beyond the scope of Statement 157 (for example, a change in lease classification for leases that would otherwise be accounted for as direct financing leases).

6. The Board acknowledges that the term fair value will be left in Statement 13 although it is defined differently than in Statement 157; however, the Board believes that lease accounting provisions and the longstanding valuation practices common within the leasing industry should not be changed by Statement 157 without a comprehensive reconsideration of the accounting for leasing transactions. The Board has on its agenda a project to comprehensively reconsider the guidance in Statement 13 together with its subsequent amendments and interpretations.

Bob Jensen's threads on fair value accounting are at http://www.trinity.edu/rjensen/Theory01.htm#FairValue

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"Common blunders: Personal finance resolutions for 2008," by Carrie Schwab Pomerantz, Town Hall, January 1, 2008 --- Click Here

Bob Jensen's personal finance helpers are at http://www.trinity.edu/rjensen/Bookbob1.htm

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Forensic Accounting
There’s a rather nice module on Forensic Accounting at http://en.wikipedia.org/wiki/Forensic_Accounting
This includes links to a journal and career opportunities.

The link to the following article was forwarded by Charles Wankel [wankelc@VERIZON.NET]

"Account for more than hill of beans," The Bay City Times Via The Saginaw News, December 16, 2007 --- Click Here

When Kojo Quartey went to college to learn accounting 25 years ago, many considered the job a steady, unexciting career.

But financial scandals in recent years at Enron, WorldCom and other companies have transformed the field, says Quartey, dean of Davenport University's Donald W. Maine School of Business.

''When I was an accounting student, we were all number crunchers. In this day and age, it's a much more exciting field,'' he said.

Many accountants today are seeking specialized training to work as detectives who can sniff out financial fraud. They call themselves forensic accountants.

Davenport, a Grand Rapids-based university with branches at 5300 Bay in Kochville Township and at 3930 Traxler Court in Bay County's Monitor Township, has two online offerings in the growing field. One is a new bachelor's degree in business administration in accounting fraud investigation and the other is a forensic accounting examiner certificate available to postgraduates.

Forensic accountants undergo training to mind the books while keeping an eye out for crime.

Demand for accountants who have such training is skyrocketing, Quartey told a group of Bay and Arenac county high school counselors.

In addition to traditional accounting, forensic accountants may learn from law enforcement experts about how to detect fraud, and from psychologists about how to interview people to detect lying, Quartey said.

Irene Bembenista teaches classes at Davenport required for the forensic examiner certificate.

''It's not just how to do an audit, but what are some of the clues that would indicate something more is going on? And ideas about where to further investigate,'' said Bembenista, Davenport's associate business school dean.

Bembenista said 10 years ago, people did not generally recognize forensic accounting as a college career path.

A federal law enacted in 2002 to reform accounting has brought the investigation field into its own. It's also created job opportunities because it requires accountants at public entities to maintain a separation of duties, Bembenista said.

''Accountants aren't allowed to do double duties, like taxes and audit the company at the same time,'' she said.

''And businesses are very interested in accountants with a fraud (detection) background, because they are looking out for the well-being of the organization.''

The starting salary for an accounting fraud investigator is $48,000 to $60,000 a year, and certified forensic examiners can earn more than $100,000 a year, Davenport says compensation studies indicate.

Davenport has about two dozen students enrolled in the forensic accounting certificate curriculum, Quartey said. The next term begins in January, and more information is available on the Internet at www.davenport.edu

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

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

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What's Your Fraud IQ? --- http://www.aicpa.org/pubs/jofa/dec2007/fraud_iq.htm

1. According to ACFE’s 2006 Report to the Nation on Occupational Fraud and Abuse, the typical organization loses what percentage of its annual revenue to fraud? a. 1% b. 5% c. 10% d. 20% 2. The most common method of concealing inventory theft is: a. Misstating inventory counts b. Padding the physical inventory c. Falsifying journal entries d. Altering shipping and receiving documentation 3. To prevent the forged endorsement of a check, which of the following is MOST critical? a. The check preparer should not be able to modify the vendor addresses b. Signed checks should not be returned to the preparer c. The duties of receiving and delivering signed checks should rotate 4. The most basic and important control for detecting cash larceny from a deposit is to: a. Monitor the deposit slip receipt for alterations b. Compare monthly bank statements to the organization’s end-of-the-month report c. Reconcile the receipt copy of the daily deposit slip with the organization’s daily receipts d. None of the above 5. All of the following are methods of preventing overstated expense reimbursements EXCEPT: a. Reviewing expense reimbursements per employee looking for individuals whose travel and entertainment expenses appear to be out of line b. Spot-checking expense reports with vendors c. Prohibiting the reimbursement of any expenses supported by a photocopied receipt without first verifying that the expense is legitimate d. Reimbursing air travel expenses based only on itineraries supplied by travel agencies 6. Which of the following schemes might be used to increase a company’s income in the current year? a. Understating liabilities b. Capitalizing expenses c. Improperly recording returns and allowances d. All of the above 7. Which of the following scenarios would represent a departure from the prescribed method of obtaining a confirmation during a financial statement audit? a. The auditor prepares the confirmation letter and allows the client to inspect the letter before the client mails it b. The client mails the confirmation letter and a return envelope addressed to the auditor c. Both a and b d. Neither represents a departure from the prescribed procedure 8. A fictitious accounts receivable scheme almost always involves which of the following? a. Fictitious inventory b. Fictitious sales c. Fictitious credit memos d. Both b and c 9. Company XYZ has a controlling relationship over Firm C. This relationship must be disclosed in the notes to non-consolidated financial statements even if no transactions have occurred between the two companies. a. True b. False 10. A key indicator of fictitious revenues can be found through a comparison of the increase in sales to the change in which of the following accounts? a. Cost of goods sold b. Advertising expense c. Shipping expense d. Both a and c

Answers --- http://www.aicpa.org/pubs/jofa/dec2007/fraud_iq.htm

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

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"Distance learning: The world of online training for accountants," AccountingWeb, December 2007 ---
http://www.accountingweb.com/cgi-bin/item.cgi?id=103948

From Smart Stops on the Web, Journal of Accountancy, November 2007 --- http://www.aicpa.org/pubs/jofa/nov2007/smart_stops.htm 

CONTINUING EDUCATION

THE CPA TOOLBOX www.cpemarket.com This Smart Stop is part of the National Association of State Boards of Accountancy’s www.nasbatools.com, which offers “tools for accountancy compliance.” CPAs can search CPE course providers, the National Registry of CPE Sponsor courses and quality assurance service courses, plus click on “Pilot Test CPE Courses” to try out courses for free. There’s also access to instructor resumes and in-house course providers. Click on the state you’re licensed in to find updated information on mandated continuing education requirements and links to your state’s board of accountancy. CREDITS ON THE GO www.cchpodcast.com/partners/cchPodcast Check this site for free CPE podcasts, available as streaming audio or downloadable to your computer or audio player. Click on “Course Catalog” to download available podcasts and their supplementary PDFs, including a study guide and final exam questions. When you’re ready to take the exam, enroll and purchase the credits—your exam grading and certification is available immediately. Be sure to check if your state’s board of accountancy accepts these CCH self-study courses by clicking the “CPE Accreditation” link. ASSESS YOURSELF www.cpa2biz.com/CPE Just starting your continuing education requirements? Test your skills and training needs with the site’s “Competency Self-Assessment Tool,” free for AICPA members, then search CPE courses by topic, level, job area or format, including CD-ROM and DVD. Check back often to see the month’s top sellers and new releases or to download catalogs for the “CPE Direct” program and “Staff Training Series.” THE ROAD TO CPE COMPLIANCE www.cpetracking.com Can’t keep up with your CPE hours? Launched in 2006, this site keeps accounting professionals and firms up-to-date on CPE hours and compliance. Registered users can record CPE credits, which are then compared to the requirements from each state’s board of accountancy and regulatory agencies. The service also provides status reports by jurisdiction and reporting period, as well as access to all of your CPE records in one location.

 

Most accountancy associations, firms, and many colleges also offer CPE courses.

Bob Jensen's threads on online training and education are at http://www.trinity.edu/rjensen/Crossborder.htm

Also see the bookmarks at http://www.trinity.edu/rjensen/Bookbob1.htm#010304OnlineAccountingCPEandTraining

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From The Wall Street Journal Accounting Weekly Review on November 30, 2007

Global Accounting Effort Gains a Step by David Reilly and Kara Scannell The Wall Street Journal Nov 16, 2007 Page: A4 Click here to view the full article on WSJ.com --- http://online.wsj.com/article/SB119515473521294535.html?mod=djem_jiewr_ac   TOPICS: Accounting, Financial Accounting, Financial Reporting, GAAP, International Accounting Standards, SEC SUMMARY: The SEC voted 4-0 to drop a requirement that foreign companies with U.S. listings reconcile their results to U.S. accounting rules. Regulators are hoping to eventually create a single, global set of accounting rules that could potentially benefit investors and companies world-wide. One concern is that a uniform set of global accounting rules could be undermined by differing views over who those rules are supposed to serve: investors, companies, or governments. CLASSROOM APPLICATION: This article notes that GAAP is not a set of international accounting standards, but that it applies to U.S. companies and those foreign companies who list in the U.S. Also discussed are some of the issues surrounding a possible movement towards uniform international accounting standards. QUESTIONS:  1.) What is the SEC? What is it area of enforcement? 2.) What rule has the SEC recently changed? Why do you think the SEC made the change? 3.) What is GAAP? What companies must follow GAAP? Why is it important to have GAAP, and for companies to utilize it? 4.) What are the benefits for having standard international accounting standards? What are the problems associated with having one uniform set of accounting standards for all companies in the world? 5.) What parties want foreign companies to reconcile financial statements with U.S. standards? What are their concerns? Do you agree with their concerns? 6.) What are the various constituents served by financial reporting around the world? Which countries cater to each of these groups of constituents? How does each particular focus affect the financial statements? 7.) Is a single, global accounting system possible? Why or why not? What is hindering it? What could be done to make it work?   Reviewed By: Linda Christiansen, Indiana University Southeast

 

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Overhaul Proposed in Accounting Standards Board
The Financial Accounting Foundation, the body that decides who will set accounting rules in the United States, plans on Tuesday to propose an overhaul aimed at enabling the Financial Accounting Standards Board to act faster while increasing the power of its chairman, Robert H. Herz. The proposals being put out for comment Tuesday would reduce the size of the FASB to five members from seven, and give the chairman the power to decide whether to place issues on the board’s agenda.
Floyd Norris, The New York Times, December 18, 2007 --- http://www.nytimes.com/2007/12/18/business/18audit.html?_r=1&ref=business&oref=slogin

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

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Question
What are CDOs?
Should they be booked?

CDO --- Click Here

From The Wall Street Journal Accounting Weekly Review on November 30, 2007

Citi's $41 Billion Issue: Should It Put CDOs On the Balance Sheet? by David Reilly The Wall Street Journal Nov 26, 2007 Page: C1 Click here to view the full article on WSJ.com --- http://online.wsj.com/article/SB119604238679603556.html?mod=djem_jiewr_ac   TOPICS: Accounting, CDO, Collateralized Debt Obligations, Consolidated Financial Statements, Consolidations, Financial Accounting, Reconsideration Events SUMMARY: Does Citigroup need to bring $41 billion in potentially shaky securities onto its balance sheet? Opinions are divided, reflecting a wider debate over how to interpret accounting rules on off-balance-sheet treatment for some financing vehicles. CLASSROOM APPLICATION: This article offers a good basis for discussion of CDOs, possible consolidation of CDOs, and the balance sheet presentation of CDOs based on the rules related to "reconsideration events." QUESTIONS:  1.) What are CDOs? What are the recent problems connected with CDOs? What is the cause of these problems? In general, why are they especially a concern for Citigroup? 2.) What is the specific issue facing Citigroup, as detailed in the article? 3.) What are the accounting rules regarding consolidation of CDOs? How do banks avoid having to consolidate? 4.) Why is there controversy over the how the losses should be booked by the bank? What is the potentially vague part of the rules? 5.) What position does Citigroup take? What position are some accounting experts taking? Is either side getting support from other parties? If so, from whom? 6.) With what position do you agree? How did you reach this conclusion? Please offer support from your answer.   Reviewed By: Linda Christiansen, Indiana University Southeast   RELATED ARTICLES:  Why Citi Struggles to Tally Losses by Carrick Mollenkamp and David Reilly Nov 05, 2007 Page: C1 The Nine Lives of CDOs by Nov 26, 2007 Page: C10 Goldman Says Citigroup Faces $15 Billion CDO Write-Downs by Kimberly A. Vlach Nov 20, 2007 Online Exclusive

"Citi's $41 Billion Issue: Should It Put CDOs On the Balance Sheet?" by David Reilly, The Wall Street Journal, November 26, 2007; Page C1 --- http://online.wsj.com/article/SB119604238679603556.html?mod=djem_jiewr_ac

A $41 billion question mark is hanging over Citigroup Inc.

That is the amount, in a worst-case scenario, of potentially shaky securities the bank would need to bring onto its balance sheet. Citi has already taken billions of dollars of such securities onto its balance sheet and expects to take big write-downs on those holdings.

The fate of the $41 billion rests on the outcome of a debate going on in accounting circles over what constitutes a "reconsideration event." Those who say Citi needs to put these securities, known as collateralized debt obligations, onto its balance sheet argue that because Citi acted over the summer to backstop some of them, its relationship with them changed, prompting a reconsideration event.

At the moment, it seems unlikely Citigroup will be forced to bring the assets onto its books. The bank doesn't believe such a reconsideration event is in order. A spokeswoman says Citigroup is confident its "financial statements fully comply with all applicable rules and regulations."

But the division of opinion reflects debate within accounting circles over just how to interpret rules that govern off-balance-sheet treatment for some financing vehicles. That, in turn, underscores what many consider to be a failure of these rules to ensure that investors in the companies that create these vehicles are adequately informed of the risks posed by them.

In recent months, investors have been shocked to learn that many banks were exposed to big losses because of their involvement with vehicles that issued commercial paper and purchased risky assets such as mortgage securities. The troubles facing one kind of off-balance-sheet entity, known as structured investment vehicles, have even prompted Citigroup and other major banks to organize a rescue fund.

But CDO vehicles created by Citigroup have proved to be a more immediate threat. The bank's announcement this month that it expects to take $8 billion to $11 billion in write-downs in the fourth quarter largely stems from its exposure to CDO assets. Citigroup was one of the biggest arrangers of CDOs -- products that pool debt, often mortgage securities, and then sell slices with varying degrees of risk.

If Citigroup had to include an additional $41 billion in CDO assets on its books, that could potentially spur a further $8 billion in write-downs, above and beyond those already signaled, according to a report earlier this month by Howard Mason, an analyst at Sanford C. Bernstein. Such losses could further weaken Citigroup's capital position, threatening its dividend or forcing the bank to raise money.

The issue for Citigroup is when, and if, it has to reconsider consolidation of the CDO vehicles it sponsors.

Like other banks, Citigroup structured these vehicles so they wouldn't be included on its books. The vehicles are created as corporate zombies that ostensibly aren't owned or controlled by anyone. In that case, accounting rules say consolidation of such vehicles is determined by who holds the majority of risks and rewards connected to them.

To deal with that, banks sell off the riskiest pieces of the vehicles. This ensures they don't shoulder a majority of the risk and so don't have to consolidate the vehicles. The assessment of who absorbs the majority of losses is made when the vehicles are created.

Over time, though, rising losses within a vehicle can lead a sponsor to shoulder more risk, or even a majority of it. That can also happen if a sponsor takes on additional interests in the vehicle by buying up the short-term IOUs it issues.

That is what happened to Citigroup. Over the summer, the bank was forced to buy $25 billion in commercial paper issued by its CDO vehicles because investors were no longer interested in the paper. Citigroup already had an $18 billion exposure to these vehicles through other funding it had provided.

This combined $43 billion exposure means that if CDO losses climb high enough, the bank could be exposed to more than half the losses, according to Bernstein's Mr. Mason. That would seem to argue for Citigroup's consolidating all $84 billion of its CDO assets originally held in off-balance-sheet vehicles.

But the accounting rules don't say that sponsors of these vehicles have to reassess on any regular basis the question of who bears the majority of risk of loss. Such "reconsideration events" occur when there is a change in the "governing documents or contractual arrangements" related to these vehicles, the rules say.

Citigroup believes that because it hasn't changed the documents or contracts related to the vehicles, it shouldn't have to reconsider its relationship to them, according to people familiar with the bank's thinking.

But some accounting experts point out that the rule also says a reconsideration event occurs when an institution acquires additional interests in the vehicle. "If a bank is being forced to step in and be a bigger holder of the commercial paper, to me that's pretty black and white that it's a reconsideration event," says Ed Trott, a retired member of the Financial Accounting Standards Board, the body that wrote the accounting rule.

An influential accounting-industry group, the Center for Audit Quality, also seems to lean toward this view. In a paper issued last month, the center said the purchase of commercial paper is an example of a change in the contractual arrangements governing these vehicles. This "may also result in a reconsideration event," the paper said.

But Citigroup believes its purchase of the CDO vehicles' commercial paper is different, because it had taken on the obligation to provide such assistance when the vehicles were created. This means the bank was acting within the contractual arrangements governing the vehicles, not changing them, according to the people familiar with Citigroup's thinking.

Some accounting experts agree. "If all that's happening is one set of [paper holders] is going out and another is coming in, that's not a reconsideration event," says Stephen Ryan, an accounting professor at New York University. "I don't think you reconsider moment by moment; an event is not just bad luck happening."

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

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Leading Democrats Do Not Seem to Agree on Corporate Tax Rates
If you watch the constant stream of political advertisements in New Hampshire these days, all Democratic Party presidential candidates want to tax corporations harder but old Charlie, who really wields the power, thinks otherwise.

From The Wall Street Journal Accounting Weekly Review on December 6, 2007

Review & Outlook: Corporate Tax War The Awll Street Journal by WSJ Opinion Page Editors Dec 04, 2007 Page: A20 Click here to view the full article on WSJ.com --- http://online.wsj.com/article/SB119673397691112663.html?mod=djem_jiewr_ac   TOPICS: Accounting, Personal Taxation, Tax Laws, Taxation SUMMARY: This Fall, House Democrat Charlie Rangel proposed "...to cut the U.S. corporate income tax] rate to 30.5% from 35%." This WSJ opinion page article argues that, " As a new study makes clear, such a reduction would give a lift to the U.S. economy when it really needs it...[and concludes that] if America is going to remain the developed world's leading job creator and economic engine, corporate tax rates are going to have to fall -- and by more than even Mr. Rangel has suggested." CLASSROOM APPLICATION: Use this article to integrate political and economic issues into tax policy discussion. QUESTIONS:  1.) What entity prepared this report assessing the association between corporate income tax rates and economic performance? Why does this entity undertake such analyses? 2.) What measures were used to identify the relationships between corporate tax rates and economic health? In your answer, be sure to define statutory income tax rates and effective income rates and to identify specific measures of economic health. 3.) Summarize the main points of the discussion. With what political party typical supports this viewpoint? 4.) Is it surprising to you that a Democrat proposes to cut the corporate income tax rate? Explain your answer. 5.) How do personal income taxes also contribute to the issues discussed in this article? 6.) This opinion page piece clearly presents just one side of the debate on raising or lowering income tax rates. Identify one counter-argument to those presented in the piece.   Reviewed By: Judy Beckman, University of Rhode Island   RELATED ARTICLES:  Democrats' Tax Measure Could Delay Energy Bill by John J. Fialka Dec 05, 2007 Page: A5

"Corporate Tax War," The Wall Street Journal, December 4, 2007; Page A20

Word is that the Bush Administration will soon propose a cut in the U.S. corporate income tax, following House Democrat Charlie Rangel's proposal this fall to cut the rate to 30.5% from 35%. As a new study makes clear, such a reduction would give a lift to the U.S. economy when it really needs it.

The study, from the National Bureau of Economic Research, looked at corporate taxes in 85 countries from 1996 to 2005. Economists from the World Bank and Harvard University calculated the effective business tax rate for each country, because some nations have so many tax loopholes that the rate paid by companies can be one-half to one-third the statutory tax rate. The study found that corporate taxes have a statistically significant negative effect on economic performance.

High business taxes were found to reduce a nation's domestic capital investment, the amount of foreign investment into that country, and its overall growth in GDP. The authors conclude that "corporate taxation reduces the return on capital and thus discourages investment" and "reduces the cash flow of the firm" in such a way as to reduce the after-tax capital available for reinvestment.

The researchers also found that high corporate levies reduce entrepreneurship, which drives new industries and job growth. In many nations the corporate tax rate is paid both by large corporations and small businesses. In the U.S., small businesses are often organized under Subchapter S of the tax code and thus pay the personal income tax rate. However the tax is imposed, the study found, "a 10 percentage point rise in a nation's effective corporate tax rate causes a decline in the number of firms by 1.8 per 100 people (the average is 5 per 100 population)."

The clear implication is that raising the U.S. personal income tax rates would also stunt small business entrepreneurship. Yet this is precisely what all of the Democratic Presidential candidates, and even Mr. Rangel, propose. In Mr. Rangel's case, the benefits of his cut in the corporate tax for big business to 30% would be offset by the damage he'd do by raising the top marginal tax rate on individuals and small businesses to as high as 44%. The NBER research suggests this could discourage hundreds of thousands of small businesses from being formed in the next few years.

This study supports research earlier this year by economist Kevin Hassett of the American Enterprise Institute, which found that high business taxes also result in lower wages for workers. The higher rate means less capital investment in making workers productive, which translates into smaller pay checks.

What American CEOs understand, but most in the media and political class so far refuse to acknowledge, is that the U.S. is far behind the rest of the world in reducing corporate tax rates. The U.S. corporate income tax rate is the world's second highest after Japan's among developed nations. Even Mr. Rangel's proposed reduction would leave the U.S. well above the OECD average of 25%. In recent years, Germany, France, the United Kingdom, Vietnam, Poland and Singapore, among many other nations, have either cut or proposed to cut their business tax rates. These lower rates are attracting more investment and capital, and they pose a threat to America's economic competitiveness if Washington fails to act.

The NBER study is a reminder of how out-of-touch America's current political debate is with global economic trends. American politicians are proposing new barriers to trade, as well as new obstacles to capital formation, even as the rest of the world is welcoming more of both. The study is also a reminder that because workers don't see a tax does not mean that they don't feel its impact. If America is going to remain the developed world's leading job creator and economic engine, corporate tax rates are going to have to fall -- and by more than even Mr. Rangel has suggested.

You can read much more about corporate taxes at http://en.wikipedia.org/wiki/Corporate_Income_Tax

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Congratulations to Andrea Locke from New Zealand

A New Zealand accounting student has scored the the highest mark in the world on the financial reporting exam run by the Association of Certified Chartered Accountants (ACCA), beating more than 20,000 other people. Less than half of those who sit it pass the financial reporting exam. Twenty-seven-year-old Andrea Locke, of Arrowtown, NZ and originally from England, scored 95 percent on the three-hour exam. She is studying for by correspondence. Forty-five percent passed the exam, which was given in June.
AccountingWeb, December 6, 2007 --- http://www.accountingweb.com/cgi-bin/item.cgi?id=104318

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XBRL and the SEC in December 2007

"SEC releases taxonomy for GAAP financial reports," AccountingWeb, December 6, 2007 --- 

The Securities and Exchange Commission's Office of Interactive Disclosure is heralding the release for public comment of computer labels that will help companies make their financial disclosures more useful for investors. The labels are already supported by at least nine software companies whose products will enable public companies to make quarterly and annual financial reports available in interactive data form instead of text form. Interactive data concepts allow companies to present their financial information in an electronic format that investors, analysts, and others can use to more easily locate and analyze desired information. The interactive data is encoded in a format known as eXtensible Business Reporting Language (XBRL), which allows companies to map their financial information to a set of computer codes that represent U.S. GAAP accounting standards. This standardized list of codes used to represent U.S. GAAP is known as a taxonomy.

The SEC's Office of Interactive Disclosure, created in October to lead the transformation to interactive financial reporting by public companies, encourages broad public review of the taxonomy and the corresponding instructions about how to create a financial statement in XBRL.

"We've been saying that interactive data is on the brink of transforming the review and analysis of financial information for the benefit of investors and public companies alike," said David Blaszkowsky, Director of the SEC's Office of Interactive Disclosure. "With the release of this taxonomy today, investors can now begin to visually see the progress being made, and so will every public company that uses GAAP. Interactive data is no longer merely an up-and-comer, it's becoming reality. We encourage both users and preparers of financial information to participate in this public review so we can advance interactive data to be recognized as, not only amazing technology, but a superior way of doing business and making faster, cheaper, and more informed investment decisions."

The SEC launched its interactive data filing initiative in April 2005 to make filings more accessible and understandable to the common investor. A test group of public companies have since been voluntarily submitting XBRL documents as exhibits to periodic reports and Investment Company Act filings. Through feedback from these voluntary XBRL filers and a global collaboration of technologists, the XBRL US project team created tags for a financial reporting taxonomy that covers every U.S. GAAP accounting concept — virtually every fact that a company might want to report on its financial statements and in its footnotes.

The SEC will use the initial financial statements prepared using the new taxonomy to help it update its electronic filing system to seamlessly accept and render the filings.

"We have gone a long way since we started this in 2005. The voluntary pilot program started out when there was nothing like the fully-fledged taxonomies that we are going to release to the public on Wednesday," SEC Chairman Christopher Cox told a media briefing in Vancouver earlier this week.

"That's really what got us from a slow jog to right now, a full gallop," he said following a presentation to the 16th annual XBRL International Conference.

A free taxonomy review tool is publicly available on the Internet at usgaap.xbrl.us along with other information, including the nine software companies whose products are compatible with the new draft taxonomy. The public comment period ends on April 5, 2008.

Once the testing period ends, regulators expect to be ready to propose that U.S. companies begin filing financial reports in XBRL format.

"A lot is going to depend on the acceptance phase that we are now entering for the U.S. GAAP taxonomies," Cox told Reuters news.

"If that all works the way it's supposed to then we'll have some opportunities to introduce it more broadly. If there are suggestions from people who are using it that are going to take time to meet, then that will influence our thinking."

Some U.S. companies, including General Electric, Microsoft, and United Technologies Corp., are already using XBRL voluntarily, and international acceptance has been strong, with several countries, including Japan, China, and the Netherlands, embracing the format.

Informative podcasts available

XBRL US, Inc., the nonprofit consortium dedicated to the adoption of XBRL, initiated its first two podcasts featuring important stakeholders. The programs featured Jeff Diermeier, CFA, president and CEO of CFA Institute, and Barry Melancon, president and CEO of the American Institute of Certified Public Accountants. Podcasts can be downloaded to a handheld device or simply listened to online at http://xbrl.us.

The series of 10-minute interviews will feature industry experts presenting their view on interactive data or covering a specific topic related to XBRL. The series is designed to address key stakeholder viewpoints but will also feature timely and sometimes controversial topics related to the use of interactive data in different reporting situations.

Diermeier kicked off the webcast series, reflecting the fact that Wall Street is the ultimate stakeholder in the XBRL movement. CFA Institute, a global professional association that is well known for its administration of the Chartered Financial Analyst(R) (CFA(R)) and Certificate in Investment Performance Measurement (CIPM) curriculum and exam programs, recently became a member of XBRL US and has been conducting a roadshow series to educate its members about interactive data. It has also surveyed its members about their awareness

Continued in article

December 8, 2007 message from Roger Debreceny [Roger@DEBRECENY.COM]

XBRL International has held its semi-annual meeting in Vancouver this week. Some key elements of the meeting were:

• As many on AECM will know, the new (see what $5m will buy) US GAAP XBRL taxonomy is on its way. It has moved from internal review within the XBRL community to public review. See www.xbrl.us and http://usgaap.xbrl.us/ for the draft taxonomy. You can sign up to review the taxonomy, code financials etc. The quality of the taxonomy is central to the adoption of XBRL by the SEC.
• An interesting set of ideas from Peter Wallison of the AEI on the role of XBRL in capital markets presented as a keynote at the meeting is at http://www.aei.org/publications/filter.all,pubID.27191/pub_detail.asp
• There are two new MP3 podcasts on XBRL at www.xbrl.us .. Mark Bolgiano, CEO of XBRL US, interviews AICPA President Barry Melancon and CFA Institute President Jeff Diermeier.

Later, all presentations will be available at http://archive.xbrl.org/. Presentations from earlier XBRL International conferences are available on the archive.

 

Roger

 

 

..................................................................

Roger Debreceny

Shidler College Distinguished Professor of Accounting

School of Accountancy

Shidler College of Business

University of Hawai`i at Mānoa

2404 Maile Way, Honolulu, HI 96822, USA

roger@debreceny.com
rogersd@hawaii.edu

Office: +1 808 956 8545 Cell: +1 808 393 1352

www.debreceny.com

December 8, 2007 message from Saeed Roohani [sroohani@COX.NET]

1-We now have: XBRL for Dummies – A Reference for the Rest of Us, ISBN: 978-0-470-22874-6 Published by Wiley. This is a quick course on XBRL without getting too technical.

2-US GAAP Taxonomy project is completed for public review http://xbrl.us/USGAAPreview/Pages/default.aspx Academics with any interest in financial accounting, auditing, or XBRL are strongly encouraged to go to the web site and evaluate this product. The use of archival data about public companies will be impacted by this US. GAAP taxonomy, most likely we all have a dog in this fight. Although a lot of tools and guidance provided by the website, you might need additional skills/training for this evaluation. Charlie Hoffman charles.hoffman@ubmatrix.com , also father of XBRL, has offered to provide such training for academics and I will be happy to coordinate it; please let me know.

Saeed Roohani
Bryant University

 

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

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

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Majority of Companies Produce Unreliable Financial Forecast, Potentially Hurting Share Prices

The KPMG study of 544 global executives found that 78 percent of the companies surveyed reported forecasting errors of more than 5 percent. Although other factors are undoubtedly at play, companies with unreliable and inaccurate forecasting had a six percent drop on average in share price over the past three years, according to the survey findings. Similarly, the survey also found that companies that kept forecast fluctuations below the five percent mark realized a 46 percent rise in share price over the same three-year period, compared to a 34 percent increase among the companies that had more than a five percent margin of error in their forecasts.
SmartPros, December 14, 2007 --- http://accounting.smartpros.com/x60077.xml

Bob Jensen's threads on pro forma reporting are at http://www.trinity.edu/rjensen/Theory01.htm#ProForma

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A Blue State Singing the Blues

California Takes Fiscal-Stress Test by Jim Carlton The Wall Street Journla Dec 19, 2007 Page: A4 Click here to view the full article on WSJ.com --- http://online.wsj.com/article/SB119802732770738273.html?mod=djem_jiewr_ac   TOPICS: Advanced Financial Accounting, Governmental Accounting SUMMARY: "In all, 15 states face either deficits or lower-than-expected revenues stemming in part from the subprime crisis, according to the National Association of State Budget Officers." California has an approximately $100 billion general fund and faces a "budget deficit during the next two year of $10 billion to $14 billion....State agencies have been notified to prepare for cuts that could total as much as 10% each." CLASSROOM APPLICATION: This article can lead to a class discussion on governmental accounting. QUESTIONS:  1.) What is a "general fund of a state governmental entity"? What are its major sources of revenues? 2.) How large is the general fund of the State of California? What are its major expenditures? 3.) What is a "budget deficit"? Is the State of California currently operating in a deficit? Explain your answer. 4.) How were general fund budget deficits resolved in recent years under Governor Schwarzenegger's administration? 5.) In general terms, what is included in the general fund's statement of revenues, expenditures, and changes in net assets? How would this statement appear if the California budget crisis is again resolved with a bond issuance?   Reviewed By: Judy Beckman, University of Rhode Island

 

"California Takes Fiscal-Stress Test:  New Taxes, Cuts in Services Among Plans Considered To Avoid Big Budget Deficit," by Jim Carlton, The Wall Street Journal, December 19, 2007; Page A4 --- http://online.wsj.com/article/SB119802732770738273.html?mod=djem_jiewr_ac

California's ballooning budget deficit will test Gov. Arnold Schwarzenegger as he balances raising taxes and cutting services.

Mr. Schwarzenegger last week said he would declare a fiscal emergency in the state, which faces a projected $14.5 billion gap over two years, convening legislators next month to consider cuts to an array of services. Many state officials say the projected budgetary gap is so vast that new taxes may be required to balance the budget. That is likely to set off a new round of partisan wrangling, and test Mr. Schwarzenegger's mettle. Many legislators in the Republican minority say they won't sign off on any taxes; many Democrats say there may be no other choice.

"For us, I'm very clear: Taxes are not an option," says Michael Villines, the Assembly Republican leader.

California's projected budget shortfall during the next two years is precipitated in part by the subprime-mortgage collapse, which is also wreaking havoc in other states as borrowers default or curb their spending to cope with higher rates on adjustable-rate loans. Florida faces an additional $1 billion budgetary shortfall in 2008 after addressing a $1.1 billion deficit this year. Arizona estimates at least an $800 million deficit in the current fiscal year. In all, 15 states face either deficits or lower-than-expected revenues stemming in part from the subprime crisis, according to the National Association of State Budget Officers.

No governor faces a more formidable challenge than Mr. Schwarzenegger, who rode into office in 2003 after his Democratic predecessor became ensnared in a California budget crisis. As recently as June, California had a $4.1 billion reserve set aside for emergencies, thanks to several years of a booming housing market and sharp increases in personal income tied to a strong stock market.

At the same time, California housing sales have cooled as rates on adjustable mortgages have climbed. California tops the country in foreclosure filings, with Central Valley and Southern California cities among the hardest hit. State officials say a spending pullback by cash-strapped borrowers has resulted in a sharp slowdown in the revenues the state gets on taxable sales, which account for nearly one-third of California's approximate $100 billion general fund.

With taxable sales growth slowing to 1.3% in the second quarter from as high as 7.4% in 2005, those revenues for the current fiscal year are now projected to be as much as $624 million lower than expected, according to estimates by California Legislative analyst Elizabeth Hill. California is more reliant on sales and income taxes than other states, in part because of property-tax limits voters imposed under Proposition 13 in 1978.

As a result, Gov. Schwarzenegger on Friday projected that California faced a budget deficit during the next two years of $10 billion to $14 billion; people familiar with the situation say the shortfall is expected to be $14.5 billion. State agencies have been notified to prepare for cuts that could total as much as 10% each. The governor's budget advisers note the state's general economic condition remains healthy, with job growth continuing despite the housing problems.

Mr. Schwarzenegger faces a tough road in resolving the shortfall. California is one of only a few states where two-thirds of legislators, rather than a simple majority, have to sign off on any tax increase.

With Republicans in the statehouse effectively blocking most new taxes, lawmakers in recent years have relied on ballot measures to get more money. Indeed, after ousting Gov. Gray Davis in a recall election four years ago, Mr. Schwarzenegger resolved the last budget crisis by getting California voters in 2004 to pass $15 billion in bonds.

Mr. Schwarzenegger faces other challenges, too. Some of the governor's fellow Republicans are chafing over his support for a state Assembly bill passed Monday that would create the nation's largest universal health-care plan. Since Assembly Republicans have indicated they wouldn't approve any additional taxes to fund the plan, the bill was written so it would have to go before voters next year to approve the $14.4 billion in financing with new levies on tobacco products, hospitals and employers.

Even some Democrats are leery of the health bill. Don Perata, a Democrat and president of the state Senate, which also has to sign off on the bill, says he wouldn't call for a vote by his members until after the fiscal impact of the health plan can be better assessed.

Meanwhile, powerful interest groups are poised to defend big recipients of state funding, such as education. Fully 40% of the state's approximate $100 billion-a-year general-fund budget goes to schools from kindergarten through community college. "Nobody wants to start there," says Craig Cornett, budget director for Assembly Speaker Fabian Núñez.

Continued in article

 

 

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"The Fallout from FAS 133: Should Congress Change Tax Law to Match New Accounting Standards?" by Ira Kawaller and John J. Ensminger: --- http://papers.ssrn.com/sol3/papers.cfm?abstract_id=256752

Suggested Citation Kawaller, Ira G. and Ensminger, John J., "The Fallout from FAS 133: Should Congress Change Tax Law to Match New Accounting Standards?" . Regulation, Vol. 23, No. 4 Available at SSRN: http://ssrn.com/abstract=256752 or DOI: 10.2139/ssrn.256752

Bob Jensen's threads on FAS 133 are at http://www.trinity.edu/rjensen/caseans/000index.htm

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This is a neat little caselet for Intermediate Accounting
Then you can unleash the confusion with the Jensen links that follow

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

Investment-Grade Firms Find It Cheaper to Sell Debt by Romy Varghese The Wall Street Journal Dec 05, 2007 Page: C2 Click here to view the full article on WSJ.com --- http://online.wsj.com/article/SB119678132030913165.html?mod=djem_jiewr_ac   TOPICS: Accounting, Bond Prices, Bonds, Debt SUMMARY: "Highly-rated companies...are finding it is now cheaper to sell new debt in the corporate bond market than before the summer credit crunch....Corporate issuers typically pay rates based on Treasury yields plus risk premiums." Yields on treasurys have fallen as prices have risen due to investors' demand for these safe debt securities in the current credit markets. Furthermore, Treasury market participants have already priced an expected interest rate reduction, also due to current market conditions, from the Federal Reserve Board. CLASSROOM APPLICATION: Use this article to discuss the economic conditions surrounding issuance of corporate debt. QUESTIONS:  1.) What is a risk premium? How are corporate bond issuances priced using interest rates on U.S. Treasury securities and a risk premium? 2.) What is the relationship between the interest rate associated with debt and the price of the debt, or the proceeds from debt issuance received by the issuing company? 3.) Define the terms coupon rate, effective interest rate, and bond yield. 4.) What factors have led to the current situation for corporate debt issuances, identified in the current Lehman U.S. Investment-Grade Corporate Index average of 5.7% versus 6.1% in June, 2007? 5.) How does the situation for high-grade corporate issuers differ from those with less favorable balance sheets and debt ratings?   Reviewed By: Judy Beckman, University of Rhode Island

"Investment-Grade Firms Find It Cheaper to Sell Debt," by Romy Varghese, The Wall Street Journal, December 5, 2007; Page C2  ---
http://online.wsj.com/article/SB119678132030913165.html?mod=djem_jiewr_ac

Sometimes, skyrocketing risk premiums on corporate debt aren't so daunting.

That's the case for highly rated companies, which -- unlike their counterparts with riskier credit profiles -- are finding it is now cheaper to sell new debt in the corporate bond market than before the summer credit crunch.

This is occurring even as investment-grade companies have been hit by fears that the subprime mortgage problem will hurt their bottom lines, particularly financial firms that already have been forced to write down billions in mortgage-related exposure.

To be sure, such companies have had to offer hefty risk premiums on their debt to entice investors, who are worried about subprime contagion impacting the financial resources of these borrowers. But the Federal Reserve's two rate cuts and accompanying sharp drop in yields on Treasurys have offset the increase in risk premiums.

Corporate issuers typically pay rates based on Treasury yields plus risk premiums. Yields on investment-grade corporate debt, as measured by the Lehman U.S. Investment-Grade Corporate Index, now average 5.7%, according to Joseph DiCenso, Lehman Brothers senior fixed-income strategist. In June, before the onset of the credit crunch, they were higher, at 6.1%, he said.

"The market's been choppy, but [total] yield costs are really attractive" for borrowers, said Tom Murphy, sector leader for investment grade corporate bonds at RiverSource Investments in Minneapolis.

Last week, General Electric Co., holding the top-notch rating of triple-A, sold 10-year bonds at 1.4 percentage points over Treasurys. "That's really wide" when compared to its existing debt that was trading around 1.2 percentage points in the secondary market, said Michael Kastner, head of fixed-income at Sterling Stamos Capital Management in New York.

Still, this deal is 0.6 percentage point cheaper for GE than one done the same time last year, he said. Although the risk premium is higher, it is offset by the lower yield on the 10-year Treasury.

However, this doesn't mean borrowers in good standing won't feel the pinch of risk aversion if it continues.

The market has yet to return to normalcy, said John Olert, managing director at Fitch Ratings. "You certainly don't see any meaningful benefit in the long-term right now," he said.

It would be "virtually impossible" for Treasury yields to rally enough to offset the increased risk premiums for speculative-grade issuers, Mr. DiCenso said. The average yield is 9.53%; higher than the June average yield of 8.22%.

Meanwhile, Treasurys continue to maintain their low yields. On Tuesday, the 10-year rose 1/32, or $0.3125 per $1,000 face value, to yield 3.890%, little changed from the 3.893% on Monday. The yield was more than 5% in June. The 30-year bond rose 4/32 to push down the yield to 4.346%, from 4.353% on Monday. Diane Vazza, managing director at Standard & Poor's Ratings Services, said the current strong showing in Treasurys is due to participants already pricing in a rate cut.

China Plans Bond Sale to Finance Wealth Fund

China's Ministry of Finance plans to sell 750 billion yuan ($101.3 billion) of 15-year bonds next week to finance the recently launched $200 billion sovereign-wealth fund.

Sale of the bonds Monday will bring the ministry closer to completing the financing of China Investment Corp., or CIC. The sovereign-wealth fund hopes eventually to play a role on the global financial stage.

Jensen Comment and Links
Here are some extensions on how to hedge interest rate risk (fair value versus cash flow hedges).

One question I'm often asked is why companies that have no cash flow risk on bond investments/debt will create cash flow risk by hedging fair value?

Do you know how to respond to the above question?

Compare the Example 2 versus Example 5 Excel Workbooks at http://www.cs.trinity.edu/~rjensen/Calgary/CD/FAS133AppendixB/

You can also watch the Example 5 video at http://www.cs.trinity.edu/~rjensen/video/acct5341/

Then if you really want to delve into (or get confused by) the technicalities of risk premiums and benchmark interest rate hedging under FAS 138, go http://www.cs.trinity.edu/~rjensen/138bench.htm

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"SEC's technology limits hurt efforts against insider trading, congressional auditors find," MIT's Technology Review, December 17, 2007 --- http://www.technologyreview.com/Wire/19959/?nlid=758

Deficiencies in its computer system hamper the Securities and Exchange Commission's efforts to ferret out insider trading and other securities-law violations, congressional auditors found in a report issued Monday.

The Government Accountability Office, Congress' investigative arm, found that the SEC receives many referrals from the exchanges' internal inspectors concerning suspected insider trading. However, the agency's computer systems for receiving such investigative referrals and tracking cases don't allow its investigators to electronically search all the referral information, the report said.

As a result, it said, that ''may limit SEC's ability to monitor unusual market activity, make decisions about opening investigations and allow management to assess case activities.''

Sen. Charles Grassley of Iowa, who requested the GAO study, said that if the SEC investigators can't easily search the data, ''it's like working with one hand tied behind their backs.''

''It's a no-brainer that the (SEC) ought to be at least looking at this information and have a computer system that can spot trends and let investigators review the data as effectively and efficiently as possible,'' Grassley, the senior Republican on the Senate Finance Committee, said in a statement.

Grassley also asked SEC Chairman Christopher Cox in a letter why the agency does not use the internal audits made by the exchanges' inspectors to plan and conduct its own investigations, as noted in the GAO report.

SEC spokesmen didn't immediately return telephone calls seeking comment.

Cox, in a letter to the GAO included in the report, noted its suggestion that technological changes be made in the SEC's computer systems to give the agency's investigators electronic access to the referrals from the exchanges.

''We agree that additional information-technology changes such as these may help the (SEC) enforcement staff to effectively analyze trends, manage current caseloads and focus areas of investigation,'' Cox wrote. ''We will assess the feasibility of the recommended system improvements.''

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"IRS Issues Fall 2007 Statistics of Income Bulletin," SmartPros, December 3, 2007 --- http://accounting.smartpros.com/x59998.xml

The Internal Revenue Service today released the fall 2007 issue of the Statistics of Income Bulletin, featuring data from 134.4 million individual income tax returns filed for tax year 2005.

U.S. taxpayers reported $7.4 trillion of adjusted gross income less deficit in tax year 2005, up 9.3 percent from tax year 2004 when 132.2 million returns were filed.
Certain types of income posted strong gains between 2004 and 2005. Net capital gains climbed 41 percent and taxable interest rose 29.5 percent, while net partnership and S corporation income gained 27.3 percent.

Taxable income totaled $5.1 trillion in tax year 2005, up 10 percent from the prior year. Total income tax increased for a second straight year, rising 12.4 percent to $934.8 billion.  Between tax years 2003 and 2004, total income tax rose 11.2 percent, the first increase in 4 years.

The alternative minimum tax (AMT) grew 33.7 percent between 2004 and 2005 to $17.4 billion. Four million taxpayers paid the AMT in 2005, compared to almost 3.1 million in tax year 2004.

This edition of the quarterly Bulletin also includes articles about:

• Growth trends in partnerships: Between tax years 2004 and 2005, the number of partnerships rose 8.5 percent to about 2.76 million. The number of partners increased just 4.2 percent to about 16.21 million in tax year 2005. Meanwhile, income rose at a much faster rate. Total partnership net income climbed 42 percent to $546.2 billion in tax year 2005.
• Municipal bond issuance: State and local governmental entities issued about $475 billion of tax-exempt bonds in calendar year 2005, up 11.9 percent from the prior year. Governmental bonds accounted for about three-quarters of the total, while private-activity bonds represented the remainder.
• A look at private foundations: The number of private foundations that filed Form 990-PF remained nearly the same between tax years 2003 and 2004,while the number of nonexempt charitable trusts treated as private foundations that filed the return increased by 12 percent. In tax year 2004, private foundations distributed $27.6 billion in contributions, gifts, and grants and other outlays for charitable purposes, while nonexempt charitable trusts distributed $314 million.
• Recent data on charities: For tax year 2004, nonprofit charitable organizations exempt from income tax under Internal Revenue Code Section 501(c)(3) filed more than 276,000 information returns, an increase of 5 percent from 2003. These organizations held more than $2.0 trillion in assets, a real increase of 5 percent from the previous year and 52 percent over the past decade.
• Corporate foreign tax credits: For tax year 2003, U.S. corporations claimed $50 billion in foreign tax credits.  Corporations that claimed a foreign tax credit paid $140.5 billion in worldwide income taxes on $424.5 billion in worldwide taxable income.
• Historical data: The final article in the issue describes the availability and expansion of SOI's published corporate data between 1917 and today and presents some corporate data highlights within a historical context.

The Bulletin also includes historical data on income, deductions and tax reported on returns filed by individuals, corporations and unincorporated businesses, with selected data.

Continued in article

IRS Homepage (The best U.S. Government agency web site on the Internet) http://www.irs.gov/ 

IRS Site Map --- http://www.irs.gov/sitemap/index.html

FAQs and answers --- http://www.irs.gov/faqs/index.html

IRS Tax Interactive
http://www.irs.gov/individuals/page/0,,id%3D15552,00.html  

The IRS youth education web site on taxation (an IRS  joint development project with the American Bar Association)
http://www.irs.ustreas.gov/prod/taxi/abouttaxi.html

Taxpayer Advocate Service --- http://www.irs.gov/advocate/index.html

Will you get hit by the Alternative Minimum Tax?
The AMT Assistant from the IRS --- http://apps.irs.gov/app/amt/

Bob Jensen's taxation helpers are at http://www.trinity.edu/rjensen/Bookbob1.htm#010304Taxation

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Question
What are some of the most popular tactics for front loading income?
Hint:  One of the most popular is "Gain on Sale" Accounting.

Bonus
The article below by Greenberg revealed to me where Don Vickery ended up. I think Don's last stop was Arizona State -West before becoming Editor-in-Chief of Gradient.
My hat's off to Don. It takes courage to enter the real world.
The SEC dropped its investigation of Gradient Analytics in February 2007 --- http://www.gradientanalytics.com/news/GA_PR_SECDropsInvestigation.pdf
You can read Gradient's response to the Sixty Minutes (CBS) television exposé --- Click Here
 

From The Wall Street Journal Accounting Weekly Review on December 14, 2007

This Game Theory Is Cautionary Tale
by Herb Greenberg
The Wall Street Journal
Dec 08, 2007
Page: B3
Click here to view the full article on WSJ.com --- http://online.wsj.com/article/SB119708095744018036.html?mod=djem_jiewr_ac
 

TOPICS: Accounting, FASB, Financial Accounting Standards Board, GAAP, Generally accepted accounting principles

SUMMARY: Some companies might be reporting losses and charges that are artificially low, says Donn Vickrey, of Gradient. That is something to keep in mind if you're bargain hunting among the most beaten down financial-services companies. He says much of this is a result of the companies meeting "the bare minimum letter of GAAP, but not adhering to the spirit of GAAP."

CLASSROOM APPLICATION: This article presents the opportunity for a very interesting discussion of the ways a company can manipulate its earnings and other financial numbers while technically staying within the rules of GAAP (but still 'playing games'). It offers specific examples of some of these activities.

QUESTIONS: 
1.) What is GAAP? Why was it established? How does requiring GAAP help the users of the financial statements?

2.) Is GAAP objective or subjective? Why? Please explain why this is important to realize.

3.) How could these accounting practices impact investors? How can investors protect themselves?

4.) Are Mr. Vickery's criticisms well-known among investors? Among accountants? Why or why not? Is anyone doing anything to limit these practices?

5.) Why is accounting manipulation said to be occurring so often recently? What events or conditions make this seem to be an option for companies?

6.) Please give some examples of the types of tactics that Mr. Vickery is publicizing. Are these allowed under GAAP or are the companies violating required standards? Please explain your answer.

7.) Is it easy, challenging, or impossible for investors to detect these particular increases or decreases in account balances? Please offer some reasoning for your answer.

8.) Who, if anyone, is in the best position to detect and/or prevent these reporting "games?"

9.) What does the reporter mean by "hidden losses?" What does he mean by "low quality income?"
 

Reviewed By: Judy Beckman, University of Rhode Island
Reviewed By: Linda Christiansen, Indiana University Southeast

 

"This Game Theory Is Cautionary Tale," by Herb Greenberg, The Wall Street Journal, December 8, 2007; Page B3 ---http://online.wsj.com/article/SB119708095744018036.html?mod=djem_jiewr_ac

The reality of Generally Accepted Accounting Principles, or GAAP, is that they give companies just enough rope to hang themselves and their investors, if they so please. Much of GAAP is so subjective that you could drive side-by-side snow plows through the gray areas.

That is something to keep in mind if, with the latest wave of write-offs, you believe it is time to start bargain hunting among the most beaten down financial-services companies tied to the mortgage blowup. The time may very well be right, but a recent report by Gradient Analytics warns that financial-reporting practices of some of these companies yesterday and today could still come back to bite investors tomorrow.

Gradient, a Scottsdale, Ariz., research firm that caters to mutual funds and hedge funds, was early to spot accounting issues at Krispy Kreme Doughnuts, Biovail and Children's Place Retail Stores, among others, and their stocks subsequently tumbled.

"I think for a number of years they played games," Don Vickrey, a former accounting professor who co-founded and is now editor-in-chief of Gradient says about the financial-services companies.

By "playing games" he means a tendency during the mortgage boom "to report numbers that were artificially high." There were a variety of ways to do that, all of them completely legitimate and blessed by the gods of financial accounting rules -- otherwise known as the Financial Accounting Standards Board.

One of the most-popular tactics was front-loading income and cash flows through what is known as "gain on sale" accounting, as loans were packaged and sold to other investors. The amount recognized largely reflected what the company expects to receive at some point in the future, based on predictions of such things as delinquencies, prepayments and interest rates. It is totally discretionary; the more conservative the predictions, the lower the gain.

Just as companies may have been reporting numbers that were too high, Mr. Vickrey believes some might now be reporting losses and charges that are artificially low, hoping they will somehow get bailed out before the situation worsens.

This is being done, he believes, by such things as deferring recognition of losses; transferring mortgages that are likely to default from one part of the balance sheet to another, where management has more discretion in determining the seriousness of the loss; somehow concealing "the aftereffects" of aggressive gain-on-sale accounting, and reliance on interest income from negatively amortized mortgages -- those in which the amount owed rises if payments don't cover all the interest due, which in this environment at best appears dicey.

Much of this, he says, involves meeting "the bare minimum letter of GAAP, but not adhering to the spirit of GAAP."

Among the five biggest companies involved in mortgage securities, Gradient believes Washington Mutual and Countrywide Financial have been the most aggressive, with Washington Mutual edging out Countrywide as having "the most risk for a material misstatement." Washington Mutual didn't respond to requests for comment.

Countrywide said its accounting is appropriate and it has taken steps to reduce risk.

Gradient warns that Washington Mutual may not be properly valuing loans it is holding for investment purposes. As a result, reserves for future losses may be too low.

While the company boosted its loss provision in the third quarter, the Gradient report says "the increase appears to be too little too late as the allowance for loan losses has failed to keep pace with the increase in nonperforming loans."

Meanwhile, in recent years, interest from negatively amortized mortgages leapt as a percentage of interest income to 7.2% for the first nine months of this year from 1.8% in the same period two years ago. Not only is that income unsustainable, Gradient says, but more prone to write-offs, especially if there are increased delinquencies and defaults.

Then there's the high level of gain-on-sale income in prior years "that may signal additional risks to come."

Washington Mutual, the report says, ranked second behind only Countrywide in terms of its reliance on gain-on-sale. Countrywide has been on Gradient's screen for four years because of a variety of earnings-quality issues.

As with Washington Mutual, Gradient now wonders whether there could be "hidden losses" among loans held by Countrywide for investment. While reserves as a percentage of nonperforming loans have been rising, hitting 63.4% as of Sept. 30, Gradient says they still lag behind peers, including Washington Mutual. Countrywide disagrees, and says that "when all of the relevant factors are considered, our 'reserves' are comparable to our competitors."

Like Washington Mutual, Gradient says Countrywide suffers from "low quality income" related to negative-amortized loans. "Unfortunately," the report says, in trying to determine its exposure, "Countrywide does not provide as much detail as other firms we surveyed."

While the stocks of these companies and others have fallen considerably, Mr. Vickrey believes "a lot remains to be revealed." Can't wait.

Another example of how to front load income under GAAP
Mr. Wallison is correct about their motivations: "holding mortgages is profitable -- much more so than creating pools of mortgages and selling . . . to investors." However, much of that reported profit is illusory. Generally accepted accounting principles (GAAP) do a poor job of reflecting economic reality in this case. While they do have a funding cost advantage, most of their reported profit is simply "phantom income," that is, front-loaded income. By funding mortgages with a mix of short-term bullet bonds and longer-term callable bonds, GAAP front-loads income. There is fixed coupon income from the mortgages over 30 years, but the cost of funding rises over time as the shorter-term, lower-cost debt matures.
Jerry Hartzog, "Fannie and Freddie's 'Phantom Income'," The Wall Street Journal, October 6, 2007; Page A19 ---
http://online.wsj.com/article/SB119162496214550640.html?mod=todays_us_page_one

Bob Jensen's threads on how to cheat with revenue accounting are at http://www.trinity.edu/rjensen/ecommerce/eitf01.htm

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From The Wall Street Journal on Accounting Weekly Review on December 14, 2007

Deloitte Receives $1 Million Fine by Judith Burns The Wall Street Journal Dec 11, 2007 Page: C8 Click here to view the full article on WSJ.com --- http://online.wsj.com/article/SB119734046614120346.html?mod=djem_jiewr_ac   TOPICS: Accounting, Audit Firms, Auditing, Big Four, PCAOB, Public Accounting, Public Accounting Firms SUMMARY: The PCAOB, the nation's audit watchdog, recently fined Deloitte & Touche $1 million and censured the firm over its work checking the books of a San Diego-based pharmaceutical. This is the first PCAOB enforcement case against a Big Four accounting firm. CLASSROOM APPLICATION: This article can serve as a basis of discussion of audit firm responsibility and the enforcement process. It also discusses the PCAOB and a little of its history and enforcement, as well as provides information for discussion of Deloitte's response. QUESTIONS:  1.) What firm recently agreed to a fine imposed by the PCAOB? What was the reason for the fine? Is this firm a large, medium, or small firm? 2.) What is the PCAOB? What is its purpose? When was it created? What caused the creation of the PCAOB? 3.) What is Deloitte's response to the fine? How does the firm defend itself against the allegations? What do you think of the firm's comments and actions? 4.) What does it mean that Deloitte settled this case "without admitting or denying claims?" Why would that be a good tactic to take? How could it hurt the firm/ 5.) Is the PCAOB's main focus enforcement? Why or why not? What other responsibilities does the organization have? 6.) Relatively speaking, is this a substantial or minor fine for the firm? Will fines like this change the behavior of the firms? Why or why not?   SMALL GROUP ASSIGNMENT:  Examine the PCAOB's website? What information is offered there? What information are you interested in as an accounting student? What might interest you as an investor? What would interest a businessperson? Does the website offer extensive information or is it general information? What information is offered regarding enforcement? Is the website a good resource for accountants? Why or why not? Is it a valuable resource for businesspeople? Please explain your answers. Offer specific examples of value offered on the website? What would you like to see detailed or offered on the website that is not included? What did you learn from this website that you have not seen elsewhere? Reviewed By: Linda Christiansen, Indiana University Southeast

"Deloitte Receives $1 Million Fine," by Judith Burns, The Wall Street Journal, December 11, 2007; Page C8 --- http://online.wsj.com/article/SB119734046614120346.html?mod=djem_jiewr_ac 

In its first-ever enforcement case against a Big Four accounting firm, the nation's audit watchdog fined Deloitte & Touche LLP $1 million and censured the firm over its work checking the books of a San Diego-based pharmaceutical company.

Deloitte settled the matter without admitting or denying claims brought by the Public Company Accounting Oversight Board that one of the firm's former audit partners failed to perform appropriate and adequate procedures in a 2004 audit of Ligand Pharmaceuticals Inc.

Deloitte signed off on Ligand's books, finding they fairly presented the firm's results and complied with U.S. generally accepted accounting principles, or U.S. GAAP.

Ligand later restated financial results for 2003 and other periods because its recognition of revenue on product shipments didn't comply with U.S. GAAP.

Ligand's restatement slashed its reported revenue by about $59 million and boosted its net loss in 2003 by more than 2½ times, the oversight board said.

First-Ever Case

The PCAOB's action against Deloitte marked the first time since it was created in 2003 by the Sarbanes-Oxley corporate-reform legislation that it has taken action against one of the Big Four accounting firms -- Deloitte, PricewaterhouseCoopers LLP, KPMG LLP and Ernst & Young LLP.

The PCAOB previously took enforcement actions against 14 individuals and 10 firms, according to a spokeswoman, although they all involved smaller firms.

Oversight-board Chairman Mark Olson told reporters yesterday after a speech to the American Institute of Certified Public Accountants that the board isn't looking to bring a lot of enforcement actions but said "it is reasonable to expect that there will be others" against Big Four firms.

Mr. Olson said in an earlier statement that the board's disciplinary measures are needed to ensure public confidence isn't undermined by firms or individual auditors who fail to meet "high standards of quality and competence."

Competence was lacking in the 2003 Ligand audit, according to the regulatory body. The oversight board said former auditor James Fazio didn't give enough scrutiny to Ligand's reported revenue from sales of products that customers had a right to return, even though Ligand had a history of substantially underestimating such returns.

Deloitte's Response

In a statement yesterday, Deloitte said it is committed to ongoing efforts to improve audit quality and "fully supports" the role of the accounting-oversight board in those efforts.

"Deloitte, on its own initiative, established and implemented changes to its quality control policies and procedures that directly address the PCAOB's concerns," the company said.

It added that it is confident that Deloitte's audit policies and procedures "are among the very best in the profession and that they meet or exceed all applicable standards."

New York-based Deloitte began auditing Ligand in 2000 and resigned in August 2004.

Mr. Fazio, who resigned from Deloitte in October 2005, agreed to be barred from public-company accounting for a minimum of two years, the PCAOB said. Mr. Fazio's lawyer couldn't be reached to comment.

The oversight board also faulted Mr. Fazio for not adequately supervising others working on the audit and faulted Deloitte for leaving him in place even though some managers had determined he should be removed and ultimately asked him to resign from the firm.

Mr. Fazio remained on the job despite the fact that questions about his performance had been raised in the fall of 2003, the oversight board said.

In addition, the oversight board said Deloitte had assigned a greater-than-normal risk to Ligand's 2003 audit but failed to ensure that the partners assigned to the work had sufficient experience to handle it.

"Deloitte Agrees to Pay $38 Million to Ex-Delphi Investors," SmartPros, December 31, 2007

A U.S. Securities and Exchange Commission investigation found that Delphi manipulated its earnings from 2000 to 2004, using several illegal schemes to boost its earnings, including the concealment of a $237 million transaction in 2000 with GM involving warranty costs.

Deloitte & Touche, now part of the privately held Deloitte Touche Tohmatsu, served as Delphi's outside accountant.

The agreement requires approval by Detroit U.S. District Judge Gerald Rosen and completes a $325 million settlement of investor claims over the accounting issue, lawyers for the investors said. Delphi agreed to pay about $205 million, with Delphi's insurers and banks paying the rest.

"It's about holding the gatekeepers accountable," said attorney Stuart Grant of Grant & Eisenhofer, one of four law firms representing public employee pension funds and other Delphi investors in the class action suit. "We're forcing the accountants ... to say, 'I am my brother's keeper.'"

Continued in article

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

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Question
Does it pay to evade taxes and, if so, why don't more people do it?

"Why so Little Tax Evasion?" by Nobel Laureate Gary Becker, The Becker-Posner Blog, November 25, 2007 --- http://www.becker-posner-blog.com/

All the rich countries are successful in raising sizable amounts of revenue from taxes with only a rather little tax evasion. Tax avoidance is the use of legal means to reduce taxes, whereas tax evasion uses illegal means. The federal government of the US raises almost 20 percent of American GDP through taxes on personal and business income, capital gains, estates, and the sale of gasoline and some other goods. The estimates from the 2001 IRS National Research Program indicate that the percent of income not reported is quite low for wages and salaries, but rises to over 50 percent for farm income, and about 40 percent for business income. Income tax payments overall are under reported by about 13 percent. What determines the degree of tax evasion?

If taxpayers responded only to the expected cost of evading taxes, evasion would be far more widespread. The reason is that only about 7 percent of all tax returns are audited (over a 7 year period), and typically the penalty on under reported income is only about 20 percent of the taxes owed. Virtually no one is sent to jail simply for evading taxes unless that evasion is on a very large scale, or involves massive fraud. If a person were to evade $1,000 in taxes, his expected gain would be 0.93x$1000 -0.07x$200 (=$1000/5) = $916. On these considerations alone, he should not hesitate to evade paying the $1,000, and presumably much more.

To be sure, the expected gain is not the right criterion since most taxpayers would be risk averse regarding audits and punishments, especially if there is some chance of much greater than the average punishment or likelihood of an audit. However, if the expected gain from evading $1,000 were $916, the degree of risk aversion would have to be huge, far higher than the risk aversion that is embodied in pricing of assets, for risk to explain why there is so little tax evasion.

This is not to say that possible punishments have no affect on the amount of tax evasion. Compliance rates are much higher when governments have independent evidence on a person's income since then the probability of audit when he under reports his income is much higher than when they do not have this information. For example, income from independent consulting to companies is better reported than tips on earnings, or than the incomes of farmers and other small business owners because employers report how much they paid to independent consultants, whereas no one reports how much they paid in tips, or how much they bought from a local store. A PhD study in progress at the University of Chicago by Oscar Vela also shows that persons in occupations where integrity is a more important determinant of success, such as law or medicine, are less likely to evade taxes. Presumably, any publicity that an individual in these occupations was convicted of tax evasion would damage his reputation and earnings.

Vela finds that considerations of reputation, along with more traditional variables in the tax evasion literature do help explain how much evasion occurs for different types of income. These variables include the likelihood of audits that varies for different classes of taxpayers, punishments for those audited, marital status (not surprisingly, married persons are less likely to evade taxes), the marginal tax rate, and the ease with which governments can match reported incomes with independent evidence on incomes, such as from 1040 and 1099 tax forms,

Note that tax avoidance as well as tax evasion tends to rise as the marginal tax rate increases. That is, with higher tax rates, individuals and businesses are both more likely not to report some of their income to the tax authorities, and also to search harder for ways to reduce how much of their income they are obligated to report. This implies, for example, that flattening the income tax structure would increase the amount of personal income reported to tax authorities because both the amount of evasion and the avoidance of the personal income tax would be reduced.

However, audits, punishments, and the other deterrence variables mentioned in the previous paragraphs do not fully explain why there is not much more tax evasion. I believe it is necessary to recognize that most people believe they have a duty, moral or otherwise, to report their taxable income more or less honestly. I intentionally say "more or less honestly" because a little cheating on taxes is usually considered to be ok, as long as it does not go too far. Individuals might not pay social security taxes on their payments to workers who clean their houses, and they might pay a mason in cash because he then gives them a lower price, but these same persons would be very reluctant to engage in large-scale tax evasion.

Similarly, most people do not believe it is moral to steal money even when there is little chance they will be found out, and they feel obligated to obey many other laws, even when that entails inconvenience and cost to themselves. There would be considerably more crime if individuals only obeyed laws when the expected cost of being caught, adjusted for risk, exceeded the benefits from disobeying these laws. To some extent, people obey many laws, including tax laws, because most other persons are doing the same. If so, their behavior might change radically if they lost confidence that others would pay their taxes and obey other laws.

Clearly, morality about obeying laws does not apply to all types of taxes, or all laws-people often cross a street when the light is red, do not stop at stop signs when riding their bikes, and do not report much of their tips. Moreover, in many countries of Latin America, Africa, and Russia and other parts of Eastern Europe, individuals do not even feel much obligation to pay ordinary income and other taxes. They evade except when they expect the chances of being caught are high, as with businesses paying value added taxes. These countries are unable to raise substantial amounts from taxes on personal incomes or businesses except when marginal tax rates are low. Instead they rely greatly on value added and other more difficult to evade taxes.

"Why so Little Tax Evasion?" Richard Posner, The Becker-Posner Blog, November 25, 2007 --- http://www.becker-posner-blog.com/

Becker presents persuasive evidence that the amount of tax evasion varies, as one would expect in a rational-choice model of taxpaying, with variance in the private costs and private benefits of evasion. I am inclined to believe that the private costs are higher than he suggests, which if true would mean that more tax compliance can be attributed to rational fear of punishment than he suggests and less to taxpayers' feeling a moral duty to pay taxes. For example, the civil penalties for tax evasion are quite severe (the fraud penalty is 100 percent of the amount of taxes evaded), and anyone charged with civil or criminal tax evasion will incur heavy legal and accounting expenses in defending against the charge. Although the audit rate is low, it is not random, but rather is higher for those taxpayers who are in the best position to evade taxes without being caught or whose tax returns raise a red flag because of unusually high deductions or other suspicious circumstances. And once one has been caught evading taxes, one can expect the rate of future audits of one's returns to be high. While it is true that underpayment of taxes is rarely prosecuted criminally, even when deliberate, criminal prosecution is likely if the tax evader takes steps to conceal the evasion, as by never filing a tax return, keeping phony books, or forging evidence of deductions. Moreover, the government does occasionally prosecute even small fry.

. . .

The general question that Becker raises of the moral costs of committing crime is a fascinating one. I would be inclined to search as hard as possible for nonmoral costs before concluding that morality is a major motivator of behavior, especially with regard to crimes, like tax evasion, that do not have an identifiable victim. In the case of many crimes, the benefits to most people of perpetrating them would be so slight (and often zero or even negative) that sanctions play only a small role in bringing about compliance; enforcement costs needn't be high in order to deter when nonenforcement benefits are low. Some examples: the demand for crack cocaine among white people (including cocaine addicts) appears to be very small. Both altruism and fear deter most people from attempting crimes of violence, quite apart from expected punishment costs. The vast majority of men do not have a sexual interest in prepubescent children. Well-to-do people often have excellent substitutes for crime: any person of means can procure legal substitutes for illegal drugs (for example, Prozac for cocaine, Valium for heroin). Fear of injury deters most people from driving recklessly or while drunk. People who have no taxable income are incapable of evading income tax. People who do have taxable income can obtain benefits from evading it, but the costs of evasion are, as I have emphasized, nonnegligible, so there is widespread compliance along with a good deal of evasion. I would therefore expect differences across countries in tax evasion to be related more to differences in penalties, collection methods, and so forth than to differences in morality. Americans may exhibit higher tax compliance than Italians, but Americans are not a more moral people than Italians.

Continued in article

Jensen Comment
I inclined to think that more people evade taxes than Becker and Posner suggest, although this evasion has declined due to added reporting of revenues, particularly 1099 forms for miscellaneous and investment income. Increasingly, without formal audits, the IRS is sending out bills for underreported 1099 income. In the United States, the IRS estimated in 2007 that Americans owed $345 billion more than they paid, or about 14% of federal revenues for FY2007. But these estimates are very soft numbers based largely on intense audits of a miniscule proportion of taxpayers filing returns --- http://en.wikipedia.org/wiki/Tax_Evasion

Contents 1 Tax avoidance 1.1 Country of residence 1.2 Double taxation 1.3 Legal entities 2 Tax evasion 2.1 Statistics 2.2 Illegal income and tax evasion 2.3 Economics of tax evasion 2.4 Evasion of customs duty 2.4.1 Smuggling 2.5 Evasion of Value Added Tax (VAT) 3 Control of evasion 3.1 Corruption by tax officials 3.2 Role of middleman 3.3 Level of evasion and punishment 3.4 Privatization of tax enforcement 3.5 Tax farming 3.6 PSI Agencies 4 The distinction in various jurisdictions 4.1 The distinction in the United States 4.2 The distinction in the United Kingdom 4.2.1 History of the distinction 5 Public opinion on tax avoidance 6 Responses to tax avoidance 7 Tax protesters and tax resistance 7.1 Definition of tax evasion in the United States 7.2 Application to tax protesters 7.3 Failing to file returns in the United States 8 Tax shelters 9 Quotes 10 See also 11 Notes 12 References 13 External links

You can learn a lot about taxation at http://en.wikipedia.org/wiki/Tax
Also see http://en.wikipedia.org/wiki/Income_tax

Bob Jensen's tax helpers are at http://www.trinity.edu/rjensen/Bookbob1.htm#010304Taxation

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Legalizing Same-Sex Marriage Could Bring a Tax Windfall to States --- http://www.accountingweb.com/cgi-bin/item.cgi?id=104293

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Small Business Helpers from Smart Stops on the Web
Journal of Accountancy, December 2007 --- http://www.aicpa.org/pubs/jofa/dec2007/smart_stops.htm

“A” FOR ADVICE www.sba.gov/services Whether you’re a CPA with small business or sole proprietor clients or you’re interested in leading your own firm, the Small Business Administration is here to help. This Smart Stop offers free online training in business planning and management, marketing and advertising, federal taxes, compliance and cyber security. Prepare for the future with guidance on disaster planning, contract opportunities and loan eligibility. Looking for a more personal experience? Use the site to locate the nearest Small Business Development Center or Women’s Business Center. PLANNING FOR THE FUTURE www.finance.cch.com/tools/calcs.asp With plenty of day-to-day responsibilities, it’s hard for small business owners to step back and look at the big picture: their financial future. Take some time to use CCH’s Financial Planning Toolkit, which provides resources on commercial loans, working capital and profit margins, as well as dozens of calculators for debt management, investments, tax and personal finance. Click on “Planning Guide” and “Planning Tools” for guidance on risk management, taxes, retirement and estate planning, including “Ages and Stages Approach to Investing” and “Tax Year and Accounting Methods.” GET SMART www.tutorials.com This site delivers how-tos for life and work right to your desktop. You can purchase courses that help you master a computer program, build a Web site or learn how to negotiate successfully. Its skills training offerings include series of courses on sales and organizational development, personal finance and Internet marketing. Free offerings include step-by-step guides ranging from the everyday—how to clean your computer or how to remove spyware—to the workday—how to identify your customers or choose office

Human Resource Calculators (cost of employee turnover, productivity losses, relocation losses, etc.) --- http://www.hrworld.com/calculators/badhire/

The home page for human resource management is at http://www.hrworld.com/

Bob Jensen's links to calculators --- http://www.trinity.edu/rjensen/Bookbob3.htm#080512Calculators

Bob Jensen's small business helpers are at http://www.trinity.edu/rjensen/Bookbob1.htm#SmallBusiness

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"Ex-CEO Agrees To Give Back $620 Million:  UnitedHealth, SEC Settle With McGuire On Options Backdating," by Vanessa Fuhrmans and James Bandler, The Wall Street Journal, December 7, 2007; Page A1 --- http://online.wsj.com/article/SB119697535545316199.html?mod=todays_us_page_one

In one of the largest executive-pay givebacks in history, former UnitedHealth Group Inc. Chief Executive William McGuire has agreed to forfeit about $620 million in stock-option gains and retirement pay to settle civil and federal-government claims related to stock-option backdating.

The settlement comes a year after the options-backdating scandal led to Dr. McGuire's ouster from the Minnetonka, Minn., company, one of the largest U.S. health insurers. Dr. McGuire had been among the most successful and highest-paid executives in the U.S.

Stock options allow executives to buy stock at a fixed price, generally the market price on the day the options were granted. In the scandal, dozens of companies pretended that options were granted at an earlier date than they actually were. They picked dates when the stock price was at a low point, allowing executives to reap outsize gains. More than 80 corporate officials have lost their jobs in the scandal.

Brian Foley, a compensation consultant in White Plains, N.Y., said he believes Dr. McGuire's $620 million repayment represents the largest giveback related to executive-compensation abuses in history. "You have to applaud the sheer magnitude," Mr. Foley said. "On the other hand, he still walks away with a lot."

Dr. McGuire retains about 24 million stock options that currently could be cashed in for a gain of roughly $800 million, on top of about $530 million in pay he pocketed while running UnitedHealth from 1991 to 2006.

Continued in article

The HealthSouth Settlement Does Not Include Ernst & Young

From The Wall Street Journal Accounting Weekly Review on November 10, 2006

TITLE: UnitedHealth Expects Probe to Result in 'Greater' Charges
REPORTER: Steve Stecklow and Vanessa Fuhrmans
DATE: Nov 09, 2006
PAGE: B1
LINK: http://online.wsj.com/article/SB116299996219517252.html?mod=djem_jiewr_ac 
TOPICS: Accounting, Accounting Changes and Error Corrections, Sarbanes-Oxley Act, Securities and Exchange Commission, Stock Options

SUMMARY: "UnitedHealth Group Inc. said it would have to take charges related to its backdated stock options that will be 'significantly greater' than its previous estimates and expects the charges to impact more than 10 years of previously reported earnings."

QUESTIONS:
1.) Describe the options backdating scandal that has developed since March, 2006. If you are unfamiliar with the issue, you may click on the link for "Perfect Payday: Complete coverage" on the left hand side of the on-line article.

2.) For how long has options backdating been going on at UnitedHealth? Have the accounting requirements remained the same throughout that period of time? Summarize the required accounting and other financial reporting practices for executive and employee stock options over the last 10 years.

3.) Suppose that, once UnitedHealth finishes its review, the restatement of earnings nearly doubles to $500 million and that the restatement applies equally to each of the preceding 10 years. What accounting entry must be made to correct this $500 million error? What will be the ultimate impact on each year's earnings and on stockholders' equity at the end of each year? How will this correction be disclosed? In your answer, cite the accounting standards which require the treatment you present.

4.) Click on "Read the full text" of UnitedHealth's Nov. 8 filing with the SEC on the right-hand side of the on-line article. What Form number did UnitedHealth file? Summarize the implications of the depth of the options backdating problem found at this company.

5.) Refer to the related article. What role does the Public Accounting Oversight Board fill in assisting accountants to audit companies' accounting for stock options?

Reviewed By: Judy Beckman, University of Rhode Island

--- RELATED ARTICLES ---
TITLE: Guidelines Set for How to Audit Stock Options
REPORTER: Siobhan Hughes
PAGE: A10 ISSUE: Oct 18, 2006
LINK: http://online.wsj.com/article/SB116114078518696161.html?mod=djem_jiewr_ac

"HealthSouth Agrees to $445 Million Settlement," AccountingWeb, October 2, 2006 ---
http://www.accountingweb.com/cgi-bin/item.cgi?id=102629

HealthSouth Corp. announced on Wednesday that it will pay $445 million to settle several lawsuits that were filed against the company and some of its former directors after an accounting scandal.

HealthSouth will pay $215 million in common stock and warrants, and its insurance carriers will pay $230 million in cash, the company said. Also, federal securities class-action plaintiffs will get 25 percent of any future judgments obtained by or on behalf of HealthSouth regarding certain claims against fired CEO Richard Scrushy, former auditors Ernst & Young, and the company’s former investment bank, UBS. Each party remains a defendant in the derivative actions and the federal securities class actions.

A judge must approve the settlement, which is nearly the same as a preliminary settlement that was reached in February.

"This settlement represents another significant milestone in HealthSouth's recovery and is a powerful symbol of the progress we have made as a company," said HealthSouth President and CEO Jay Grinney. HealthSouth, the Birmingham, Ala.-based rehabilitation and medical services chain, does not admit any wrongdoing in the settlement, nor does any other settling defendant, the company said.

The settlement does not include Ernst & Young, UBS, Scrushy or any former HealthSouth officer who entered a guilty plea or was convicted of a crime in connection with the company's financial reporting activities ending in March 2003.

Scrushy and more than a dozen top executives were accused of recording as much as $2.7 billion in bogus revenues on the company's books over six years. UBS and Ernst & Young have denied knowing about the fraud. Last year, Scrushy was acquitted of all criminal charges in the fraud. He was convicted of conspiracy, bribery and mail fraud charges in a separate government corruption trial.

 

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Traditional double-entry bookkeeping is becoming the Latin of business school

December 4 message from Ed Scribner [escribne@NMSU.EDU]

http://tinyurl.com/24h88e 

<snip>

[A new book called] Crack the Books [features] double-entry bookkeeping, not only for the general public but for those practitioners who have qualified with a less-than-perfect appreciation of its importance. … … some contemporary thinking argues that, in an IT age, the teaching of debits and credits is a waste of training time. For instance, Rick Elam of the AICPA has stated that “traditional double-entry bookkeeping is becoming the Latin of business school - interesting to study and useful from a historical perspective, but not in demand in everyday practice.”

Despite such criticisms, June firmly believes double-entry accounting remains crucial. Taking the language analogy, she maintains it offers the key foundation. “Although Latin and double-entry accounting have been derided as immaterial for everyday business, both provide a knowledge platform. Even though few people speak Latin today, it’s the basis for many western European languages, including English, French, Spanish and Italian. Having a firm grounding in Latin can only enhance your ability to master these languages. Similarly, accounting IT is rooted in double-entry accounting. It provides the bedrock for understanding the workings of virtually all accounting information systems.”

For June and Cecil, double-entry accounting is not an artificial, historic construct but the natural representation of business events. The fundamentals of accounting are the same whether a manual or computerized system is used. “A Euro amount is assigned to each impacted account; the processing system aggregates all those transactions that affect particular accounts. When processing is complete, balances are determined and presented as financial statements.”

<snip>

Crack the Books: Accounting for Non-Accountants will be available in Eason’s and all good bookshops in the New Year. It can also be ordered at www.icai.ie 

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Career helpers for cubicle workers --- http://cuberules.com/

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

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December 7, 2007 message from Bruce Mizrach [mm-9939-6545129@bepress.com]

The Berkeley Electronic Press, together with editor Bruce Mizrach (Rutgers), is pleased to announce a new issue of Studies in Nonlinear Dynamics & Econometrics (SNDE). To view any of the articles in question, simply click on the links below (full citations and abstracts follow at bottom of message).

 

Massimiliano De Santis "Movements in the Equity Premium: Evidence from a Time-Varying VAR".

http://www.bepress.com/snde/vol11/iss4/art1

Deepankar Basu and Robert M. de Jong "Dynamic Multinomial Ordered Choice with an Application to the Estimation of Monetary Policy Rules".

http://www.bepress.com/snde/vol11/iss4/art2

Maximo Camacho and Gabriel Perez Quiros "Jump-and-Rest Effect of U.S. Business Cycles".

http://www.bepress.com/snde/vol11/iss4/art3

Antonis Michis and Theofanis Sapatinas "Wavelet Instruments for Efficiency Gains in Generalized Method of Moment Models".

http://www.bepress.com/snde/vol11/iss4/art4

Frédérique Bec and Alexia Bastien "The Transmission of Aggregate Supply and Aggregate Demand Shocks in Japan: Has There Been a Structural Change?".

http://www.bepress.com/snde/vol11/iss4/art5

 

To submit your next paper, visit http://www.bepress.com/snde and click Submit. Among the well-known authors whose work has appeared in SNDE are: Anthony C. Atkinson, Jess Benhabib, William Cleveland, Ray C. Fair, J. Doyne Farmer, Eric Ghysels, James Hamilton, Bruce Hansen, Alan Kirman, Blake LeBaron, Charles Nelson, Kazuo Nishimura, Ruey Tsay, Howell Tong, Halbert White, and Arnold Zellner.

All papers by junior faculty members will be eligible for The Kenneth Arrow Prize for Junior Economists, and all papers by senior authors will be eligible for The Kenneth Arrow Prize for Senior Economists. See http://www.bepress.com/arrow.html for additional details.

_______________________

CITATIONS & ABSTRACTS OF PUBLISHED ARTICLES

 

Massimiliano De Santis (2007) "Movements in the Equity Premium: Evidence from a Time-Varying VAR", Studies in Nonlinear Dynamics & Econometrics: Vol. 11: No. 4, Article 1.

http://www.bepress.com/snde/vol11/iss4/art1

ABSTRACT:

Previous literature has recognized the importance of regime changes in the calculation of ex-ante equity premia. However, the methodologies used to estimate equity premia only allow for very restrictive forms of regime transitions. This paper addresses the issue by postulating an evolving model for the law of motion of dividend growth, consumption growth and dividend-price ratio. Model parameters are then used to compute conditional and unconditional U.S. equity premia. We substantially extend and confirm previous work on the declining equity premium, and uncover important macroeconomic factors driving the equity premium. We find that the equity premium has declined, particularly from 1950 to 1971 and from 1988 to 2000. Our results point to changing consumption volatility as an important priced factor. We find that volatility of consumption growth is a good indicator of economic uncertainty and, as such, its changes are reflected in expected returns, and are priced by the market. We also find that not accounting for parameter time variation induces large pricing errors, as too little variation in dividend yields is attributed to changes in expected dividend growth.

 

Deepankar Basu and Robert M. de Jong (2007) "Dynamic Multinomial Ordered Choice with an Application to the Estimation of Monetary Policy Rules", Studies in Nonlinear Dynamics & Econometrics: Vol. 11: No. 4, Article 2.

http://www.bepress.com/snde/vol11/iss4/art2

ABSTRACT:

We present a novel specification of a dynamic multinomial ordered choice model, where the latent variable is a function of strictly stationary exogenous variables and lags of the choice variable. We prove that such a model with weakly dependent errors will have a strictly stationary solution which is L-2 near epoch dependent. We also derive consistency and asymptotic normality of the maximum likelihood estimator for a probit specification of the model. We illustrate a possible application of the model by estimating a discrete version of a robust "difference" monetary policy rule for the period 1990:2006 at a monthly frequency.

 

Maximo Camacho and Gabriel Perez Quiros (2007) "Jump-and-Rest Effect of U.S. Business Cycles", Studies in Nonlinear Dynamics & Econometrics: Vol. 11: No. 4, Article 3.

http://www.bepress.com/snde/vol11/iss4/art3

ABSTRACT:

One of the most familiar empirical stylized facts about output dynamics in the United States is the positive autocorrelation of output growth. This paper shows that positive autocorrelation can be better captured by shifts between business cycle states rather than by the standard view of autoregressive coefficients. The result is extremely robust to different nonlinear alternative models and applies not only to output but also to the most relevant macroeconomic variables.

 

Antonis Michis and Theofanis Sapatinas (2007) "Wavelet Instruments for Efficiency Gains in Generalized Method of Moment Models", Studies in Nonlinear Dynamics & Econometrics: Vol. 11: No. 4, Article 4.

http://www.bepress.com/snde/vol11/iss4/art4

ABSTRACT:

We propose a simple computational method in the context of generalized method of moments for improving the efficiency of regression coefficient estimates. The gains in efficiency arise by incorporating additional moment conditions in the estimation framework based on maximal overlap wavelet packet transforms of the continuous explanatory variables. A major advantage of the proposed method is that it does not require additional exogenous auxiliary information but relies on wavelet packet transforms of the existing continuous explanatory variables. Based on existing theory, we provide theoretical arguments for the proposed methodology, for both linear and non-linear models, and demonstrate its advantages with both an empirical application concerning two brand demand models and a Monte Carlo simulation study.

 

Frédérique Bec and Alexia Bastien (2007) "The Transmission of Aggregate Supply and Aggregate Demand Shocks in Japan: Has There Been a Structural Change?", Studies in Nonlinear Dynamics & Econometrics: Vol. 11: No. 4, Article 5.

http://www.bepress.com/snde/vol11/iss4/art5

ABSTRACT:

Despite expansionary fiscal and monetary policies, the Japanese real economy has been stagnating since the bubble bursting in the early nineties. Within a multivariate setup, this paper proposes to test for and date a possible structural shift in the response of Japanese macroeconomic fluctuations to aggregate supply and aggregate demand shocks. The econometric methodology directly derives from Andrews (1993) and Bai, Lumsdaine and Stock (1998) theoretical results. Our empirical study from monthly post-1980 observations reveals i) a significant structural break in the end of 1991, and ii) a sharp decrease in the influence of demand shocks on Japanese output fluctuations after this date.

 

---

Ways to Attract the Best People Into Accountancy Careers

December 4, 2007 message from ellen.glazerman@ey.com

As you're probably aware, in June of this year Treasury Secretary Paulson established an Advisory Committee on the Auditing Profession to develop recommendations as to what can be done to sustain this profession, whose work is so critical to investor confidence in the capital markets. The Committee is examining ways to attract the best people to the profession, address concentration and competitive issues, and promote the long-term health of the private-sector auditing function.

At the Committee's meeting yesterday in Washington, D.C., our Chairman and CEO, Jim Turley, presented testimony on behalf of Ernst & Young (a link is attached below). I thought you would be interested in his thoughts on some of the major issues facing the profession, including recruiting, and the world's financial markets - and of course I would be interested in your comments on these issues.

Here is a link to a printed copy of the testimony: Jim Turley's ACAP Treasury Testimony

Best Regards,

Ellen

Ellen J. Glazerman
Executive Director,
Ernst & Young Foundation Americas
Director, University Relations
Ernst & Young LLP
5 Times Square, 6th Floor
New York, NY 10036
(Office)212-773-5686
(Fax): 866-855-4960
ellen.glazerman@ey.com 

 

---

"The Accounting Cycle:  Poor Performance of Credit Rating Agencies," by J. Edward Ketz, SmartPros, December 2007 --- http://lyris.smartpros.com/t/204743/5562870/4383/0/

Soon after Merrill Lynch disclosed its $8.4 billion write-down because of problems with collateralized debt obligations (CDOs) and other financial instruments relating to subprime mortgages, the credit rating agencies started downgrading the securities. But, this is like the proverbial soldier who watches a raging battle from afar; when the war is over, he proceeds to bayonet the wounded. 

Merrill Lynch and other banks got into the CDO business several years ago. The CDOs received an imprimatur from agencies such as Moody's, Standard & Poor's, and Fitch. Some CDOs were even evaluated as investment grade securities. The analysts at Moody's, Standard & Poor's, and Fitch apparently ignored the risks involved in the subprime mortgage market as well as the risks in real estate prices.

This segment generated lots of money for Merrill Lynch and the other banks. The CDO business brought in millions and millions of revenues. This line of business was at least as profitable for the bond rating agencies, too, as their ratings produced massive amounts of money.

Not surprisingly, problems developed because the financial institutions were lending funds to marginal borrowers, those with less-than-stellar credentials for loan applicants. When some of these riskier borrowers defaulted on their mortgages, the CDOs started losing value. The credit rating agencies did nothing; presumably, they felt that the CDOs still had investment grade status.

With the losses by Merrill Lynch out in the open, everybody knows not only that the CDOs have less fair value, but also that the credit raters aren't earning their keep. Unfortunately, members of Congress believe that they should hold investigations on the matter. I say unfortunate because such a move would be a waste of time, energy, and money.

Recall the downfall of Enron and the high credit ratings that Enron received from the credit rating agencies. These agencies did not downgrade Enron's debt until after the 2001 third quarter results became public and Enron's stock price started its nosedive. When Congress passed the Sarbanes-Oxley Act in 2002, section 702(b) required the SEC to conduct a study of credit rating agencies to determine why these credit rating agencies did not act as useful watchdogs and warn the public about Enron's true situation. It accomplished little at the time; if Congress holds hearings now, nothing new will be learned. Until policy makers focus on the institution of credit ratings and follow the cash, they waste their time with investigations.

Moody's and the other agencies make money by charging the business entities who are issuing debt. It doesn't take a genius to see the conflict of interest. The credit agencies lean on the issuer for more money or risk receiving a poor rating. Payment not only entitles one to a good rating, but also it gives one the privilege of not receiving a downgrade unless bad news becomes public.

The SEC barely mentions this institutional feature in its "Report on the Roles and Function of Credit Rating Agencies in the Operation of the Securities Markets."

This essay, written in January, 2003, practically ignores the problem. On page 41, the SEC report states, "The practice of issuers paying for their own ratings creates the potential for a conflict of interest." The SEC goes on to review comments by the large rating agencies themselves on how they manage this potential conflict of interest.

The comments are pathetic. First, the SEC and the managers at credit rating agencies mangle the English language when they refuse to identify conflicts of interest for what they are. My dictionary defines conflict of interest as "the circumstance of a public officeholder, corporate officer, etc., whose personal interests might benefit from his or her official actions or influence." The term does not mean that they actually do benefit, but calls attention to the possibility. Calling such circumstances "potential conflicts of interests" merely attempts to push ethics aside. I can understand this behavior by the managers, but I don't comprehend the words of the SEC staff.

Second, the comments rely heavily on the assertions of the credit rating agencies themselves. Managers of these agencies claim there is no problem, and of course the SEC should listen to them and accept every word as truth. Yeah, right!

Third, on page 42 of the report, the SEC promises to explore whether these credit rating agencies "should implement procedures to manage potential conflicts of interest that arise when issuers [pay] for ratings." Either the SEC did not keep its promise or such actions are inadequate. Clearly, the credit rating agencies have not responded any differently to the CDO problem than they did with Enron's circumstances.

Policy makers can reduce the problems by reducing the very real conflict of interests that perniciously raises its ugly head from time to time. The solution is to prohibit credit rating agencies to receive any funds from the issuers. If the ratings have any merit, then investors will be willing to pay for them.

This essay reflects the opinion of the author and not necessarily the opinion of The Pennsylvania State University.

Bob Jensen's threads on hiding debt with CDOs are at http://www.trinity.edu/rjensen/Theory01.htm#CDO

Bob Jensen's threads on credit rating industry frauds are at http://www.trinity.edu/rjensen/FraudRotten.htm#CreditRatingAgencies 

---

Human Resource Calculators (cost of employee turnover, productivity losses, relocation losses, etc.) --- http://www.hrworld.com/calculators/badhire/

Bob Jensen's links to calculators --- http://www.trinity.edu/rjensen/Bookbob3.htm#080512Calculators

---

---

---

Humor Between December 1 and December 31, 2007  --- http://www.trinity.edu/rjensen/book07q4.htm#Humor123107  

Humor Between November 1 and November 30, 2007 --- http://www.trinity.edu/rjensen/book07q4.htm#Humor113007 

Humor Between October 1 and October 31, 2007        --- http://www.trinity.edu/rjensen/book07q4.htm#Humor103107  

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

 

---

Humor Between December 1 and December 31, 2007

---

Forwarded by Team Carper

AFTER BEING MARRIED FOR 40 YEARS, I TOOK A CAREFUL LOOK AT MY WIFE ONE DAY AND SAID, "HONEY, 40 YEARS AGO WE HAD A CHEAP APARTMENT, A CHEAP CAR, SLEPT ON A SOFA BED AND

WATCHED A 10-INCH BLACK AND WHITE TV, BUT I GOT TO SLEEP EVERY NIGHT WITH A HOT 25-YEAR-OLD GAL.

NOW I HAVE A $2,500,000.00 HOME, A $45,000.00 CAR, NICE BIG BED AND PLASMA SCREEN TV,

BUT I'M SLEEPING WITH A 65-YEAR-OLD WOMAN. IT SEEMS TO ME THAT YOU'RE NOT HOLDING UP YOUR SIDE OF THINGS."

MY WIFE IS A VERY REASONABLE WOMAN. SHE TOLD ME TO GO OUT AND FIND A HOT 25-YEAR-OLD GAL,

AND SHE WOULD MAKE SURE THAT I WOULD ONCE AGAIN BE LIVING IN A CHEAP APARTMENT, DRIVING

A CHEAP CAR, SLEEPING ON A SOFA BED AND WATCHING A 10-INCH BLACK AND WHITE TV.

AREN'T OLDER WOMEN GREAT? THEY REALLY KNOW HOW TO SOLVE A MID-LIFE CRISIS.

---

Forwarded by Team Carper

KNOW THE SYMPTOMS.....PLEASE READ! Thank goodness there's a name for this disorder. Somehow I feel better, even though I have it!!

Recently, I was diagnosed with A.AA.D.D. - Age Activated Attention Deficit Disorder. This is how it manifests:

I decide to water my garden.

As I turn on the hose in the driveway, I look over at my car and decide it needs washing.

As I start toward the garage, I notice mail on the porch table that I brought up from the mail box earlier.

I decide to go through the mail before I wash the car.

I lay my car keys on the table, put the junk mail in the garbage can under the table, and notice that the can is full.

So, I decide to put the bills back on the table and take out the garbage first.

But then I think, since I'm going to be near the mailbox when I take out the garbage anyway, I may as well pay the bills first.

I take my check book off the table, and see that there is only one check left.

My extra checks are in my desk in the study, so I go inside the house to my desk where I find the can of Coke I'd been drinking.

I'm going to look for my checks, but first I need to push the Coke aside so that I don't accidentally knock it over.

The Coke is getting warm, and I decide to put it in the refrigerator to keep it cold.

As I head toward the kitchen with the Coke, a vase of flowers on the counter catches my eye--they need water.

I put the Coke on the counter and discover my reading glasses that I've been searching for all morning.

I decide I better put them back on my desk, but first I'm going to water the flowers.

I set the glasses back down on the counter, fill a container with water and suddenly spot the TV remote. Someone left it on the kitchen table.

I realize that tonight when we go to watch TV, I'll be looking for the remote, but I won't remember that it's on the kitchen table, so I decide to put it back in the den where it belongs, but first I'll water the flowers.

I pour some water in the flowers, but quite a bit of it spills on the floor.

So, I set the remote back on the table, get some towels and wipe up the spill.

Then, I head down the hall trying to remember what I was planning to do.

At the end of the day:

the car isn't washed

the bills aren't paid

there is a warm can of Coke sitting on the counter

the flowers don't have enough water,

there is still only 1 check in my check book,

I can't find the remote,

I can't find my glasses,

and I don't remember what I did with the car keys.

Then, when I try to figure out why nothing got done today, I'm really baffled because I know I was busy all day, and I'm really tired.

I realize this is a serious problem, and I'll try to get some help for it, but first I'll check my e-mail....

Do me a favor. Forward this message to everyone you know, because I don't remember who I've sent it to.

---

Computer Stupidity --- http://www.rinkworks.com/stupid/cs_abuse.shtml

---

Forwarded by Dick Haar

Only in America ......do drugstores make the sick walk all the way to the back of the store to get their prescriptions while healthy people can buy cigarettes at the front.

Only in America .......do people order double cheeseburgers, large fries, and a diet coke.

Only in America ......do banks leave both doors open and then chain the pens to the counters.

Only in America ......do we leave cars worth thousands of dollars in the driveway and put our useless junk in the garage.

Only in America ......do we buy hot dogs in packages of ten and buns in packages of eight.

Only in America ......do they have drive-up ATM machines with Braille lettering.

EVER WONDER ....

Why the sun lightens our hair,but darkens our skin ?

Why women can't put on mascara with their mouth closed?

Why don't you ever see the headline "Psychic Wins Lottery"?

Why is "abbreviated" such a long word?

Why is it that doctors call what they do "practice"?

Why is lemon juice made with artificial flavor, and dishwashing liquid made with real lemons?

Why is the man who invests all your money called a broker?

Why is the time of day with the slowest traffic called rush hour?

Why isn't there mouse-flavored cat food?

Why didn't Noah swat those two mosquitoes?

Why do they sterilize the needle for lethal injections?

You know that indestructible black box that is used on airplanes? Why don't they make the whole plane out of that stuff?!

Why don't sheep shrink when it rains?

Why are they called apartments when they are all stuck together?

If flying is so safe, why do they call the airport the terminal?

---

Forwarded by Gene and Joan,

Some are facts and some are urban legends.
If you've nothing else to do, check out each one at http://www.snopes.com/

*****************************************************************************

The liquid inside young coconuts can be used as a substitute for Blood plasma. *****************************************************************************

No piece of paper can be folded in half more than seven (7) times. Oh go ahead...I'll wait...~ *****************************************************************************

Donkeys kill more people annually than plane crashes or shark attacks. *****************************************************************************

You burn more calories sleeping than you do watching television. *****************************************************************************

Oak trees do not produce acorns until they are fifty (50) years of age or older.

****************************************** ***********************************

The first product to have a bar code was Wrigley's gum.

*****************************************************************************

 The King of Hearts is the only king WITHOUT A MOUSTACHE

******************** *********************************************************

American Airlines saved $40,000 in 1987 by eliminating one (1) olive from each salad served in first-class. *****************************************************************************

Venus is the only planet that rotates clockwise. (Since Venus is normally associated with women,what does this tell you!) ****************************************************** ****************

Apples, not caffeine, are more efficient at waking you up in the morning. *****************************************************************************

Most dust particles in your house are made from DEAD SKIN! *****************************************************************************

The first owner of the Marlboro Company died of lung cancer. </ SPAN> So did the first " Marlboro Man." *****************************************************************************

Walt Disney was afraid OF MICE!

*****************************************************************************

PEARLS MELT IN VINEGAR!

*****************************************************************************

The three most valuable brand names on earth: Marlboro, Coca Cola, and Budweiser, in that order. *****************************************************************************

It is possible to lead a cow upstairs... but, not downstairs.

*****************************************************************************

A duck's quack doesn't echo, and no one knows why. (urban legend --- http://www.snopes.com/critters/wild/duckecho.asp )

*****************************************************************************

Dentists have recommended that a toothbrush be kept at least six (6) feet away from a toilet to avoid airborne particles resulting from the flush. (I keep my toothbrush in the living room now!)

*****************************************************************************
Richard Millhouse Nixon was the first U.S. president whose name contains all the letters from the word "criminal." (who thinks up this stuff???) The second? William Jefferson Clinton

(Please don't tell me you're SURPRISED!!!)

*****************************************************************************

And the best for last.....
Turtles can breathe through their butts. (I know some people that breathe out but not in, don't YOU?)

*****************************************************************************

---

Did George Carlin write a list of hurricane rules --- http://www.snopes.com/katrina/soapbox/carlin.asp

---

Forwarded by Paula

he U.S.S. Constitution (Old Ironsides), as a combat vessel, carried 48,600 gallons of fresh water for her crew of 475 officers and men. This was sufficient to last six months of sustained operations at sea. She carried no evaporators (i.e. fresh water distillers!).

However, let it be noted that according to her ship's log, "On July 27, 1798, the U.S.S. Constitution sailed from Boston with a full complement of 475 officers and men, 48,600 gallons of fresh water, 7,400 cannon shot, 11,600 pounds of black powder and 79,400 gallons of rum."

Her mission: "To destroy and harass English shipping."

Making Jamaica on 6 October, she took on 826 pounds of flour and 68,300 gallons of rum.

Then she headed for the Azores , arriving there 12 November. She provisioned with 550 pounds of beef and 64,300 gallons of Portuguese wine.

On 18 November, she se t sail for England . In the ensuing days she defeated five British men-of-war and captured and scuttled 12 English merchant ships, salvaging only the rum aboard each.

By 26 January, her powder and shot were exhausted. Nevertheless, although unarmed she made a night raid up the Firth of Clyde in Scotland . Her landing party captured a whisky distillery and transferred 40,000 gallons of single malt Scotch aboard by dawn. Then she headed home.

The U.S.S. Constitution arrived in Boston on 20 February, 1799, with no cannon shot, no food, no powder, no rum, no wine, no whisky, and 38,600 gallons of water.

---

Courtroom Testimony --- http://www.amigamccc.org/journal/0709cour.htm

---

Partying Accountants (video links forwarded by David Albrecht)

• Accountant Holiday Party --- http://www.youtube.com/watch?v=gaEudWDMpvU
• Who says accountants aren't fun? Move over Michael --- http://www.youtube.com/watch?v=kKK8gA_AJvM
• The Accountant Dance --- http://www.youtube.com/watch?v=kcjbKnwcL9w&feature=related
• Seinfeld Accountant --- http://www.youtube.com/watch?v=ekp9dmXM7Qs&feature=related
• The Accountant --- http://www.youtube.com/watch?v=UePRIzW___s&feature=related

Bob Jensen's threads on accounting humor are at http://www.trinity.edu/rjensen/FraudEnron.htm#Humor

---

Why I Will Never Have a Girlfriend (mathematical reasoning) --- http://en.nothingisreal.com/wiki/Why_I_Will_Never_Have_a_Girlfriend

---

Forwarded by Valerie

In wine there is wisdom, in beer there is freedom, in water there is bacteria.

In a number of carefully controlled trials, scientists have demonstrated that if we drink 1 litre of water each day, at the end of the year we would have absorbed more than 1 kilo of Escherichia coli,(E. coli) - bacteria found in feces. In other words, we are consuming 1 kilo of poop.

However, we do NOT run that risk when drinking wine & beer (ortequila, rum, whiskey or other liquor) since alcohol has to go through a purification process of boiling, filtering and/or fermenting.

So remember:
Water = Poop
Wine = Health
 

Therefore, it's better to drink wine and talk stupidly, than to drink water and be full of shit.

There is no need to thank me for this valuable information. I'm doing it as a public service.
 

---

Forwarded by Auntie Bev

Colonoscopy

All the organs of the body were having a meeting, trying to decide who was the one in charge.

'I should be in charge,' said the brain , 'Because I run all the body's systems, so without me nothing would happen.'

'I should be in charge,' said the blood , 'Because I circulate oxygen all over so without me you'd all waste away.'

'I should be in charge,' said the stomach,' Because I process food and give all of you energy.'

'I should be in charge,' said the legs, 'because I carry the body wherever it needs to go.'

'I should be in charge,' said the eyes, 'Because I allow the body to see where it goes.'

'I should be in charge,' said the rectum, 'Because I'm responsible for waste removal.'

All the other body parts laughed at the rectum And insulted him, so in a huff, he shut down tight. Within a few days, the brain had a terrible headache, the stomach was bloated, the legs got wobbly, the eyes got watery, and theblood Was toxic. They all decided that the rectum should be the boss . The Moral of the story? Even though the others do all the work...

The asshole is usually in charge

---

Top ten worst Christmas cracker jokes ever (these are tricky) --- http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2007/12/19/njoke119.xml

---

Forwarded by Auntie Bev

The Demographics of American Newspapers

The Demographics of American Newspapers

1. The Wall Street Journal is read by the people who run the country

2. The Washington Post is read by people who think they run the

country.

3. The New York Times is read by people who think they should run the country and who are very good at crossword puzzles.

4. USA Today is read by people who think they ought to run the country but don't really understand The New York Times. They do, however, like their statistics shown in pie charts.

5. The Los Angeles Times is read by people who wouldn't mind running the country -- if they could find the time -- and if they didn't have to leave SouthernCalifornia to do it.

6. The Boston Globe is read by people whose parents used to run the country and did a poor job of it , thank you very much.

7. The New York Daily News is read by people who aren't too sure who's running the country and don't really care as long as they can get a seat on the train.

8. The New York Post is read by people who don't care who is running the country as long as they do something really scandalous, preferably while intoxicated.

9. The Miami Herald is read by people who are running another country but need the baseball scores.

10. The San Francisco Chronicle is read by people who aren't sure if there is a country or that anyone is running it; but if so, they oppose all that they stand for. There are occasional exceptions if the leaders are handicapped minority feminist atheist dwarfs who also happen to be illegal aliens from any other country or galaxy, provided of course, that they are not Republicans.

11. The National Enquirer is read by people trapped in line at the grocery store.

12. The Oregonian is read by people who have recently caught a fish and need something in which to wrap it.

---

Forwarded by Auntie Bev

An old, tired-looking dog wandered into the yard. I could tell from his collar and well-fed belly that he had a home. He followed me into the house, down the hall, and fell asleep in a corner.

An hour later, he went to the door, and I let him out. The next day he was back, resumed his position in the hall, and slept for an hour. This continued for several weeks. Curious, I pinned a note to his collar: "Every afternoon your dog comes to my house for a nap." The next day he arrived with a different note pinned to his collar: "He lives in a home with ten children -- he's trying to catch up on his sleep. Can I come with him tomorrow?"

---

This is a repeat, but what the heck? It's the holiday season.

Christmas Carols for Those Over the Edge

01.         Schizophrenia --- Do You Hear What I Hear?

02.         Multiple Personality Disorder --- We Three Kings Disoriented Are

03.         Dementia --- I Think I'll be Home for Christmas If I Can Find Where Our Home Is?

04.         Narcissism--- Hark the Herald Angels Are Singing About Me

05.         Manic--Deck the Halls and Walls and House and Lawn and Streets and Stores and Office and Town and Cars and Buses and ...

06.         Paranoid --- Santa Claus is Coming to Town to Get Me

07.         Borderline Personality Disorder --- You Better Watch Out, I'm Gonna Cry, I'm Gonna Pout, Maybe I'll Tell You Why

08.         Personality Disorder---Thoughts of Roasting on an Open Fire

09.         Attention Deficit Disorder --- Silent Night, Holy oooh look at the Froggy - Can I have a Chocolate Why is France so Far Away?  

10.        Obsessive Compulsive Disorder --- Jingle Bells, Jingle Bells, Jingle Bells, Jingle Bells, Jingle Bells, Jingle Bells, Jingle Bells, Jingle Bells, Jingle Bells, Jingle Bells, Jingle Bells, Jingle Bells, Jingle Bells, Jingle Bells.

11.         Family Visitation at Rehab --- What Child is This?

12.        San Francisco Syndrome --- I Saw Daddy Kissing Santa Claus.

---

Forwarded by Dick Haar

 

 Law of Mechanical Repair
After your hands become coated with grease, your nose will begin to itch or you'll have to pee. 

 Law of the Workshop
Any tool, when dropped, will roll or slide to the least accessible location.

Law of Probability
The probability of being watched is directly proportional to the stupidity of your act. 

Law of the Telephone
If you dial a wrong number, you never get a busy signal.

Law of the Alibi
If you tell the boss you were late for work because you had a flat tire,  the very next morning you will have a flat tire.

Variation Law
If you change lines (or traffic lanes), the one you were in will start to move faster than the one you are in now (works every time).

Law of the Bath
When the body is fully immersed in water, the telephone rings.

Law of Close Encounters
The probability of meeting someone you know increases dramatically when you are with someone you don't want to be seen with.  

Law of the Result
When you try to prove to someone that a machine won't work, it will.

Law of Biomechanics
The severity of the itch is inversely proportional to your ability to reach and scratch it. 

Law of the Theater
At any event, the people whose seats are furthest from the aisle will arrive last.

Law of Coffee
As soon as you sit down to a cup of hot coffee, your boss will ask you to do something which will last until the coffee is cold. 

Murphy's Law of Lockers
If there are only two people in a locker room, they will have adjacent lockers.
 
Law of Rugs/Carpets
The chances of an open-faced jelly sandwich landing face down on a floor covering are directly correlated to the newness and cost of the carpet/rug. 

Law of Location
No matter where you go, there you are.

Law of Logical Argument
Anything is possible if you don't know what you are talking about.

Brown's Law
If the shoe fits, it's ugly.

Oliver's Law
A closed mouth gathers no feet.

Wilson's Law
As soon as you find a product that you really like, they will stop making it.  (this one is true every time!)

Doctors' Law
If you don't feel well, make an appointment to see a doctor, and by the time you get there you'll feel better.  Don't make an appointment and you'll remain sick 

 

 

---

The year is 1907.  One hundred years ago.  What a difference a century makes! 
Here are some statistics for the Year 1907 :
************ ********* ********* ******
 The average life expectancy was 47 years.
 Only 14 percent of the homes had a bathtub.
 Only 8 percent of the homes had a telephone.
 There were only 8,000 cars and only 144 miles of paved roads.
 The maximum speed limit in most cities was 10 mph.
 The tallest structure in the world was the Eiffel Tower!
 The average wage in 1907 was 22 cents per hour.
 The average worker made between $200 and $400 per year .
 A competent accountant could expect to earn $2000 per year,  A dentist $2,500 per year, a veterinarian between $1,500 and $4,000 per year, and a mechanical engineer about $5,000 per year.
More than 95 percent of all births took place at HOME .
Ninety percent of all doctors had NO COLLEGE EDUCATION! Instead, they attended so-called medical schools, many of which  were condemned in the press AND the government as "substandard. "
Sugar cost four cents a pound.
Eggs were fourteen cents a dozen.

Coffee was fifteen cents a pound.
Most women only washed their hair once a month, and used
Borax or egg yolks for shampoo.
Canada passed a law that prohibited poor people from entering into their country for any reason.
 
Five leading causes of death were:
1. Pneumonia and influenza  2. Tuberculosis  3. Diarrhea  4. Heart disease  5. Stroke
 
The American flag had 45 stars.
The population of Las Vegas , Nevada, was only 30!!!!
Crossword puzzles, canned beer, and ice tea hadn't been invented yet.
There was no Mother's Day or Father's Day.
Two out of every 10 adults couldn't read or write.
Only 6 percent of all Americans had graduated from high school.

 Marijuana, heroin, and morphine were all available over the counter at the local corner drugstores. Back then pharmacists said, "Heroin clears the complexion, gives buoyancy to the mind, regulates the stomach and bowels, and is, in fact, a perfect guardian of health." ( Shocking? DUH! )

Eighteen percent of U.S. households had at least one full-time servant or domestic help.
There were about 230 reported murders in the ENTIRE ! U.S.A. !
 
Now I forwarded this from someone else without typing it myself, and sent it to you and others all over Canada & U.S.A
Possibly the world, in a matter of seconds!
Try to imagine what it may be like in another 100 years.
Will it be for the better? I think I prefer graduating from high school in 1956 rather than 2056! People 100 years old probably prefer being born in 1907.

---

Forwarded by Paula

These appeared in earlier editions of New Bookmarks, but they're worth repeating.

 SERENITY

Just before the funeral services, the undertaker came up to the very elderly widow and asked, "How old was your husband?" "98," she replied. "Two years older than me" "So you're 96," the undertaker commented. She responded, "Hardly worth going home, is it?

Reporters interviewing a 104-year-old woman: "And what do you think is the best thing about being 104?" the reporter asked. She simply replied, "No peer pressure."

The nice thing about being senile is you can hide your own Easter eggs.

I've sure gotten old!   I've had two bypass surgeries, a hip replacement, new knees, fought prostate cancer and diabetes I'm half blind, can't hear anything quieter than a jet engine, take 40 different medications that make me dizzy, winded, and subject to blackouts. Have bouts with dementia. Have poor circulation; hardly feel my hands and feet anymore. Can't remember if I'm 85 or 92. Have lost all my friends. But, thank God, I still have my driver's license.

I feel like my body has gotten totally out of shape, so I got my doctor's permission to join a fitness club and start exercising. I decided to take an aerobics class for seniors. I bent, twisted, gyrated, jumped up and down,  and perspired for an hour. But, by the time I got my leotards on, the class was over.

An elderly woman decided to prepare her will and told her preacher she had two final requests. First, she wanted to be cremated, and second, she wanted her ashes scattered over Wal-Mart. "Wal-Mart?" the preacher exclaimed. "Why Wal-Mart?" "Then I'll be sure my daughters visit me twice a week"

My memory's not as sharp as it used to be. Also, my memory's not as sharp as it used to be.

Know how to prevent sagging? Just eat till the wrinkles fill out.

It's scary when you start making the same noises as your coffee maker.

These days about half the stuff in my shopping cart says, "For fast relief."

THE SENILITY PRAYER : Grant me the senility to forget the people I never liked anyway, the good fortune to run into the ones I do, and the eyesight to tell the difference.

  
Now, I think you're supposed to share this with 5 or 6, maybe 10 others. Oh heck, give it to a bunch of your friends if you can remember who they are!
 
Always Remember This:
You don't stop laughing because you grow old,
You grow old because you stop

laughing.

 

---

Forwarded by Dick Haar

An interview with an 80-year-old woman

The local news station was interviewing an 80-year-old lady because she had just gotten married -- for the fourth time.

The interviewer asked her questions about her life, about what it felt like to be marrying again at 80, and then about her new husband's occupation.

"He's a funeral director," she answered.

"Interesting," the newsman thought.

He then asked her if she wouldn't mind telling him a little about her first three husbands and what they did for a living.

She paused for a few moments, needing time to reflect on all those years. After a short time, a smile came to her face and she answered proudly, explaining that she¢d first married a banker when she was in her early 20's, then a circus ringmaster when in her 40's, later on a preacher when in her 60's, and now in her 80's, a funeral director.

The interviewer looked at her, quite astonished, and asked why she had married four men with such diverse careers.

She smiled and explained, "I married one for the money, two for the show, three to get ready, and four to go."

---

Courses for Men (taught by women) and Women (taught by men) --- http://www.jamesshuggins.com/h/hum1/courses_men_women.htm

---

And you think you've got a deviated septum!
The Pug Factory --- http://files.meetup.com/126468/pug factory.jpg

---

Forwarded by Auntie Bev

Why did the chicken cross the road?

DR. PHIL: The problem we have here is that this chicken won't realize that he must first deal with the problem on 'THIS' side of the road before it goes after the problem on the 'OTHER SIDE' of the road. What we need to do is help him realize how stupid he's acting by not taking on his 'CURRENT' problems before adding 'NEW' problems.

OPRAH : Well, I understand that the chicken is having problems, which is why he wants to cross this road so bad. So instead of having the chicken learn from his mistakes and take falls, which is a part of life, I'm going to give this chicken a car so that he can just drive across the road and not live his life like the rest of the chickens.

GEORGE W. BUSH : We don't really care why the chicken crossed the road. We just want to know if the chicken is on our side of the road, or not. The chicken is either against us, or for us. There is no middle ground here.

COLIN POWELL : Now to the left of the screen, you can clearly see the satellite image of the chicken crossing the road...

ANDERSON COOPER - CNN: We have reason to believe there is a chicken, but we have not yet been allowed to have access to the other side of the road.

JOHN KERRY : Although I voted to let the chicken cross the road, I am now against it! It was the wrong road to cross, and I was misled about the chicken's intentions. I am not for it now, and will remain against it.

NANCY GRACE : That chicken crossed the road because he's GUILTY! You can see it in his eyes and the way he walks.

PAT BUCHANAN: To steal the job of a decent, hardworking American.

MARTHA STEWART : No one called me to warn me which way that chicken was going. I had a standing order at the Farmer's Market to sell my eggs when the price dropped to a certain level. No little bird gave me any insider information.

DR SEUSS : Did the chicken cross the road? Did he cross it with a toad? Yes, the chicken crossed the road, but why it crossed I've not been told.

ERNEST HEMINGWAY: To die in the rain. Alone.

JERRY FALWELL: Because the chicken was gay! Can't you people see the plain truth?' That's why they call it the 'other side.' Yes, my friends, that chicken is gay. And if you eat that chicken, you will become gay too. I say we boycott all chickens until we sort out this abomination that the liberal media white washes with seemingly harmless phrases like 'the other side. That chicken should not be crossing the road. It's as plain and as simple as that.

GRANDPA : In my day we didn't ask why the chicken crossed the road. Somebody told us the chicken crossed the road, and that was good enough.

BARBARA WALTERS: Isn't that interesting? In a few moments, we will be listening to the chicken tell, for the first time, the heart warming story of how it experienced a serious case of molting, and went on to accomplish its life long dream of crossing the road.

JOHN LENNON : Imagine all the chickens in the world crossing roads together, in peace.

ARISTOTLE: It is the nature of chickens to cross the road.

BILL GATES: I have just released eChicken2007, which will not only cross roads, but will lay eggs, file your important documents, and balance your check book. Internet Explorer is an integral part of eChicken. This new platform is much more stable and will never cra...#@&&^(C% ........ reboot.

ALBERT EINSTEIN : Did the chicken really cross the road, or did the road move beneath the chicken?

BILL CLINTON: I did not cross the road with THAT chicken. What is your definition of chicken?

AL GORE : I invented the chicken!

COLONEL SANDERS: Did I miss one?

DICK CHENEY : Where's my gun?

AL SHARPTON: Why are all the chickens white? We need some black chickens.

---

Forwarded by Lynn

A mother is driving a little girl to her friend's house for a play date.

'Mommy,' the little girl asks, 'how old are you?'

'Honey, you are not supposed to ask a lady her age,' the mother replied.

'It's not polite.'

'OK', the little girl says, 'How much do you weigh?'

'Now really,' the mother says, 'those are personal questions and are really none of your business.'

Undaunted, the little girl asks, 'Why did you and Daddy get a divorce?'

'That is enough questions, young lady, honestly!'

The exasperated mother walks away as the two friends begin to play.

'My Mom won't tell me anything about her,' the little girl says to her friend.

'Well,' says the friend, 'all you need to do is look at her drivers license. It is like a report card, it has everything on it.'

Later that night the little girl says to her mother, 'I know how old you are, you are 32.'

The mother is surprised and asks, 'How did you find that out?

'I also know that you weigh 140 pounds.'

The mother is past surprised and shocked now. 'How in heaven's name did you find that out?'

'And,' the little girl says triumphantly,'I know why you and daddy got a divorce.'

'Oh really?' the mother asks. 'Why?'

'Because you got an F in sex.

Hint:
All this information is on her mother's drivers license.

---

Forwarded by Paula

(On September 17, 1994, Alabama's Heather Whitestone was selected as Miss America 1995.)
Question: If you could live forever, would you and why?

Answer: "I would not live forever, because we should not live forever, because if we were supposed to live forever, then we would live forever, but we cannot live forever, which is why I would not live forever," --
Miss Alabama in the 1994 Miss USA contest .

``````````````````````````````````

"Whenever I watch TV and see those poor starving kids all over the world, I can't help but cry. I mean I'd love to be skinny like that, but not with all those flies and death and stuff." --
Mariah Carey

````````````

"Smoking kills. If you're killed, you've lost a very important part of your life," --
Brooke Shields, during an interview to become Spokesperson for federal anti-smoking campaign .

`````````````````````````````````````````````````

"I've never had major knee surgery on any other part of my body," --
Winston Bennett, University? of Kentucky basketball forward .

`````````````````````````````````````````````

"Outside of the killings, Washington has one of the lowest crime rates in the country," --
Mayor Marion Barry, Washington, DC .

````` ``````````````````````

"I'm not going to have some reporters pawing through our papers. We are the president." --
Hillary Clinton commenting on the release of subpoenaed documents.

````````````````````````````````````````````````````

"That lowdown scoundrel deserves to be kicked to death by a jackass, and I'm just the one to do it," --A congressional candidate in Texas .

````````````````````````````

"Half this game is ninety percent mental." --Philadelphia Phillies manager, Danny Ozark

``````````````````````````````````

"It isn't pollution that's harming the environment. It's the impurities in our air and water that are doing it." --
Al Gore, Vice President

And ...

"We are ready for an unforeseen event that may or may not occur." -- Al Gore, VP

```````````````````

"I love California . I practically grew up in Phoenix ." --
Dan Quayle

``````````

"We've got to pause and ask ourselves: How much clean air do we need ?" --
Lee Iacocca

```````````

"The word "genius" isn't applicable in football. A genius is a guy like Norman Einstein." ---
Joe Theisman, NFL football quarterback & sports analyst.

````````````````````````````````````````````

"We don't necessarily discriminate. We simply exclude certain types of people." --
Colonel Gerald Wellman, ROTC Instrutor .

````````````````````````````````

"If we don't succeed, we run the risk of failure." --
Bill Clinton, President

````````````````

"Traditionally, most of Australia 's imports come from overseas." --
Keppel Enderbery

````````````````

"Your food stamps will be stopped effective March 1992 because we received notice that you passed away. May God bless you. You may reapply if there is a change in your circumstances." --
Department of Social Services, Greenville , South Carolina

````````````````````````````````````````````

"If somebody has a bad heart, they can plug this jack in at night as they go to bed and it will monitor their heart throughout the night. And the next morning, when they wake up dead, there'll be a record." --
Mark S. Fowler, FCC Chairman

---

Forwarded by Paula

Sometimes newspaper editors state the obvious

• If strike isn't settled quickly it may last a while
• War dims hope for peace
• Smokers are productive, but death cuts efficiency
• Cold wave linked to temperatures
• Child's death ruins couple's holiday
• Blind woman gets new kidney from dad she hasn't seen in years
• Man is fatally slain
• Something went wrong in jet crash, experts say
• Death causes loneliness, feeling of isolation

Grammar often botches other headlines 

• Squad helps dog bite victim
• Dealers will hear car talk at noon
• Enraged cow injures farmer with ax
• Lawmen from Mexico barbecue guests
• Miners refuse to work after death
• Two sisters reunite after eighteen years at checkout counter

Some become unintentionally suggestive

• Queen Mary having bottom scraped
• Prostitutes appeal to Pope
• Panda mating fails - veterinarian takes over
• NJ judge to rule on nude beach
• Dr. Ruth to talk about sex with newspaper editors

---

Forwarded by Paula

This is an article submitted to a 1999 Louisville 
Sentinel contest to find out who had the wildest 
Christmas dinners. This won first prize. 
  
   CHRISTMAS WITH LOUISE 
 
 
  As a joke, my brother used to hang a pair of panty 
hose over his fireplace before Christmas. He said 
all he wanted was for Santa to fill them. What they 
say about Santa checking the list twice must be true 
because every Christmas morning, although Jay's 
kids' stockings were overflowed, his poor pantyhose 
hung sadly empty. 
 
  One year I decided to make his dream come true. 
I put on sunglasses and went in search of an 
inflatable love doll. They don't sell those things 
at WalMart . I had to go to an adult bookstore downtown. 
    If you've never been in an X-rated store, don't 
go. You'll only confuse yourself. I was there an 
hour saying things like, "What does this do? You're 
kidding me! Who would buy that?" Finally, I made  it 
to the inflatable doll section. 
 
   I wanted to buy a standard, uncomplicated doll 
that could also substitute as a passenger in my 
truck so I could use the car pool lane during rush 
hour. 

   Finding what I wanted was difficult. Love Dolls 
come in many different models. The top of the  line, 
according to the side of the box, could do things 
I'd only seen in a book on animal husbandry. I 
settled for Lovable Louise. She was at the bottom of 
the price scale. To call Louise a doll took a huge 
leap of imagination. 
 

  On Christmas Eve and with the help of an old 
bicycle pump, Louise came to life. 
 
   My sister-in-law was in on the plan and let me in 
during the wee morning hours. Long after Santa had 
come and gone, I filled the dangling pantyhose with 
Louise's pliant legs and bottom. I also ate some 
cookies and drank what remained of a glass of milk 
on a nearby tray. I went home, and giggled for a 
couple of hours. 

   The next morning my brother called to say that 
Santa had been to his house and left a present that 
had made him VERY happy but had left the dog 
confused. She would bark, start to walk away, then 
come back and bark some more. 
 
   We all agreed that Louise should remain in her 
panty hose so the rest of the family could admire 
her when they came over for the traditional 
Christmas dinner. 
 
   My grandmother noticed Louise the moment she 
walked in the door. "What the heck is that?" she 
asked. 
 
    My brother quickly explained, "It's a doll." 
"Who would play with something like that?" 
Granny snapped. 
 
   I had several candidates in mind, but kept my 
mouth shut. 
 
   "Where are her clothes?" Granny continued. 
"Boy, that turkey sure smells nice Gran" Jay said, 
to steer her into the dining room. 
 
   But Granny was relentless. "Why doesn't she have 
any teeth?"  
  Again, I could have answered, but why would I?  It 
was Christmas and no one wanted to ride in the  back 
of the ambulance saying, "Hang on Granny, hang on!" 
 
   My grandfather, a delightful old man with poor 
eyesight, sidled up to me and said, "Hey, who's the 
naked gal by the fireplace?" 
 
   I told him she was Jay's friend. 
  A few minutes later I noticed Grandpa by the 
mantel, talking to Louise. Not just talking, but 
actually flirting. It was then that we realized this 
might be Grandpa's last Christmas at home. 
 
   The dinner went well. We made the usual small  talk 
about who had died, who was dying, and who should be 
killed, when suddenly Louise made a noise like my 
father in the bathroom in the morning. Then she 
lurched from the panty hose, flew around the room 
twice, and fell in a heap in front of the sofa. 
 
  The cat screamed. I passed cranberry sauce through 
my nose, and Grandpa ran across the room, fell to 
his knees, and began administering mouth-to-mouth 
resuscitation. My brother fell back over his chair 
and wet his pants. 
Granny threw down her napkin, stomped out of the 
room, and sat in the car. 
 
  It was indeed a Christmas to treasure and 
remember. 
 
   Later in my brother's garage, we conducted a 
thorough examination to decide the cause of Louise's 
collapse. We discovered that Louise had suffered 
from a hot ember to the back of her right thigh.  

 Fortunately, thanks to a wonder drug called duct 
tape, we restored her to perfect health! 

 

---

Forwarded by Amy Dunbar

From http://immobilienblasen.blogspot.com/2007/12/investment-banking-lexicon-post-credit.html

Love the Christmas party one!

 

An investment banking lexicon: The post-credit squeeze edition
Investment-speak is a universal language. From maximising shareholder value to full and fair offers, bankers are well versed in the art of keeping their clients happy.

But four months into the credit crisis and their words have taken on a new meaning. Here is an explanation.

SUBPRIME
Pre-squeeze: Poor cut of beef
Post-squeeze: On the national education curriculum

COVENANT-LITE
Pre-squeeze: Please pay back the money (no rush)
Post-squeeze: Please get approval for all expenses above £50

COMPETITIVE AUCTION
Pre-squeeze: 50 buy-out firms submit first-round bids
Post-squeeze: The Malaysians are looking

EMI
Pre-squeeze: Coveted transaction
Post-squeeze: Distressed debt play

STAN O’NEAL
Pre-squeeze: $50m for successfully delivering shareholder value
Post-squeeze: $50m for destroying shareholder value

DEBT AVAILABLE FOR BUY-OUT
Pre-squeeze: $10bn
Post-squeeze: Z$300,000bn

ATTRACTIVE INVESTMENT OPPORTUNITY
Pre-squeeze: Growing faster than the competition
Post-squeeze: Not falling quite as quickly as the competition

INFRASTRUCTURE
Pre-squeeze: Goldman launches billion-dollar fund
Post-squeeze: Heathrow queues get longer

MULTIPLES
Pre-squeeze: 8 x pro forma ebitda
Post-squeeze: 4 x historic earnings

DUE DILIGENCE
Pre-squeeze: There is a hole in the pension book
Post-squeeze: Due diligence to look diligent

BANK’S CHRISTMAS PARTY
Pre-squeeze: Bollinger, Château Lafite, Nobu catering
Post-squeeze: Glass of Chianti, dry roasted peanuts

PIPELINE IS FULL
Pre-squeeze: Real deals by stretched bankers
Post-squeeze: Stretched deals by virtual bankers

EMERGING MARKETS
Pre-squeeze: Risky, high-yield play
Post-squeeze: Safe haven

STRATEGIC REVIEW
Pre-squeeze: We will take the highest offer
Post-squeeze: Fire sale

---

Forwarded by Moe

THE GOLDEN PHONE.

A man in Topeka , Kansas decided to write a book about Churches around the country. He started by flying to San Francisco and started working east from there.

Going to a very large church, he began taking photographs and making notes. He spotted a golden telephone on the vestibule wall and was intrigued with a sign, which read 'Calls: $10,000 a minute.'

Seeking out the pastor he asked about the phone and the sign. The pastor answered that this golden phone is, in fact, a direct line to heaven and if he pays the price he can talk directly to God.

The man thanked the pastor and continued on his way. As he continued to visit churches in Seattle , Dallas, St. Louis, Chicago, Milwaukee, and around the United States, he found more phones, with the same sign, and the same answer from each pastor.

Finally, he arrived in Massachusetts. Upon entering a church in Boston, MA .. ........Behold - he saw the usual golden telephone.

But THIS time, the sign read "Calls: .35 cents."

Fascinated, he asked to talk to the pastor, "Reverend, I have been in cities all across the country and in each church I have found this golden telephone and have been told it is a direct line to Heaven and that I could talk to God, but in the other churches the cost was $10,000 a minute. Your sign reads only .35 cents a call. Why? Why?"

The pastor, smiling benignly, replied :

"Son, you're in Boston, Massachusetts now, home of the Boston Red Sox, the Patriots, Celtics, Bruins and Boston College ! "

You're in God's Country, It's a local call.

( American by Birth - A BOSTON SPORT FAN by the grace of GOD ! )

---

---

---

Humor Between December 1 and December 31, 2007  --- http://www.trinity.edu/rjensen/book07q4.htm#Humor123107  

Humor Between November 1 and November 30, 2007 --- http://www.trinity.edu/rjensen/book07q4.htm#Humor113007 

Humor Between October 1 and October 31, 2007        --- http://www.trinity.edu/rjensen/book07q4.htm#Humor103107  

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

---

---

---

 

And that's the way it was on December 31, 2007 with a little help from my friends.

 

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

 

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

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

International Accounting News (including the U.S.)

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

Wikipedia has a rather nice summary of accounting software at http://en.wikipedia.org/wiki/Accounting_software
Bob Jensen’s accounting software bookmarks are at http://www.trinity.edu/rjensen/Bookbob1.htm#AccountingSoftware

Bob Jensen's accounting history summary --- http://www.trinity.edu/rjensen/Theory01.htm#AccountingHistory

Bob Jensen's accounting theory summary --- http://www.trinity.edu/rjensen/Theory.htm

 

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

 

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

 

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

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

 

 

 

 

November 30, 2007

Bob Jensen's New Bookmarks Between November 1 and November 30, 2007
Bob Jensen at Trinity University 

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

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

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

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

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

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

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

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

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

Wikipedia has a rather nice summary of accounting software at http://en.wikipedia.org/wiki/Accounting_software

Bob Jensen's accounting history summary --- http://www.trinity.edu/rjensen/Theory01.htm#AccountingHistory

Bob Jensen's accounting theory summary --- http://www.trinity.edu/rjensen/Theory.htm

Accountancy Discussion ListServs:

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

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

Recent Tidbits --- http://www.trinity.edu/rjensen/TidbitsDirectory.htm

2007
November 8      November 15     November 22    November 29     

2007
October 1          October 10        October 17        October 30  

 

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

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

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

Humor Between November 1 and November 30, 2007 --- http://www.trinity.edu/rjensen/book07q4.htm#Humor113007 

Humor Between October 1 and October 31, 2007 --- http://www.trinity.edu/rjensen/book07q4.htm#Humor103107 

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

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

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

Large International Accounting Firm History --- http://en.wikipedia.org/wiki/Big_Four_auditors

"FAS 157: Auditors are ready to assign fair value to financial assets," AccountingWeb, November 2007 --- 
http://www.accountingweb.com/cgi-bin/item.cgi?id=104246

When credit markets all but dried up as a result of the sub-prime mortgage crisis in the late summer, auditors of investment and commercial banks that elected to adopt Financial Accounting Standard 157, Fair Value Measurements, earlier than the effective date of November 15th were called upon to play a key role in determining the market value of mortgage-backed assets when few were being traded. Many of these banks had to report huge write-downs in the third quarter from declining assets values. But auditors of public companies have made it clear in three recently published white papers from their newly formed Center for Audit Quality that despite the severity of the current market crunch, they intend to apply the fair value standard consistently, and market problems will not influence their professional judgment about the quality of valuation models and assumptions used by banks.

Continued in article

Jensen Comment
The following standards are especially pertinent to fair value accounting:
FAS 105, 107, 115, 130, 133, 141, 142, 155, 157, 159
FAS 157 is mainly a definitional standard. The key standard to date is FAS 159 that allows companies to cherry pick which contracts are to be carried at fair value and which are to be carried at amortized historical cost. To me FAS 159 is a terrible standard that can lead to all sorts of subjective manipulation, earnings management, and aggregation of apples and door knobs in summations of assets, liabilities, and earnings components. I think the FASB viewed FAS 159 as a politically-expedient way to expand fair value accounting into financial statements without having to fight the huge political battle with banks and other corporations who aggressively oppose required fair value accounting for all financial and derivative financial instruments.

Why do bankers resist expanding FAS 159 into required accounting for all financial instruments?
Misleading Financial Statements:  Bankers Refusing to Recognize and Shed "Zombie Loans"
One worrying lesson for bankers and regulators everywhere to bear in mind is post-bubble Japan. In the 1990s its leading bankers not only hung onto their jobs; they also refused to recognise and shed bad debts, in effect keeping “zombie” loans on their books. That is one reason why the country's economy stagnated for so long. The quicker bankers are to recognise their losses, to sell assets that they are hoarding in the vain hope that prices will recover, and to make markets in such assets for their clients, the quicker the banking system will get back on its feet.
The Economist, as quoted in Jim Mahar's blog on November 10, 2007 --- http://financeprofessorblog.blogspot.com/

But there are questions in theory about fair value accounting!
Bob Jensen's threads on fair value accounting are at http://www.trinity.edu/rjensen/Theory01.htm#FairValue

Sixty-seven percent of American employees are living paycheck to paycheck, according to results released this week from the 2007 "Getting Paid In America" survey. The online survey by the American Payroll Association asked respondents how difficult it would be to meet their current financial obligations if their paycheck were delayed for a week. An overwhelming 31,640 of more than 47,000 respondents said they'd find it difficult to meet their financial obligations if their paycheck were delayed. This is a 2 percent increase from 2006 . . .
AccountingWeb, September October 2006, 2007 --- http://www.accountingweb.com/cgi-bin/item.cgi?id=104038

Illustrated Cash Flow For Dummies --- http://www.thetaoofmakingmoney.com/2007/11/05/540.html
Link forwarded by Jim Mahar

Questions
How can the IRS tax earnings for services not rendered?
There may be an incentive for faculty to begin early retirement at the end of the calendar year rather than at the end of the academic year in May or June.

My second question concerns the annual limit on wages (that just moved up to $102,000) subject to Social Security taxes. Suppose a professor received an academic year salary of $150,000 in 2008 plus a tenure buyout of $300,000 for early retirement at age 56 (actually there's no obligation to retire before reaching 100 years of age or later). If her/his "wages" aggregate to $450,000 wouldn't the Social Security tax still be limited to the first $102,000? (Linda Pfingst later reminded me that the Medicare tax has no such capped-wages limitation.)

"University Owes Social Security Taxes for Tenured-Faculty Buyouts, Court Says," by Goldie Blumenstyk, The Chronicle of Higher Education, November 5, 2007 --- Click Here

A federal appeals court has ruled against the University of Pittsburgh’s argument that buyout payments to tenured professors who take early retirement are not subject to Social Security taxes. The court, in a 2-to-1 ruling, said the payments are taxable.

The ruling centered heavily on the judges’ interpretation of tenure.

The university had contended that such payments were not taxable as “wages” because they were given in exchange for the professors’ relinquishing their tenure rights. Pitt sought a refund for the $2-million in taxes that it paid from 1996 to 2001.

But the Internal Revenue Service denied that request, and when the university sued, a U.S. district-court judge, Donetta Ambrose, ruled for the university as a matter of law. The federal government appealed that decision, paving the way for the ruling last week in which a three-judge panel of the U.S. Court of Appeals for the Third Circuit sided with the government.

“Because tenure is a form of compensation for past services to the university, payments offered as a substitute for tenure are compensation and therefore taxable as wages,” two of the judges said in the majority opinion.

In a dissent, Judge Anthony J. Scirica disagreed with the interpretation of tenure as merely a version of seniority but, rather, as the second part of an employment relationship with its own rights. As such, said Judge Scirica, “payments for the relinquishment of property right in tenure at the university were not remuneration for employment and were not subject” to taxation.

As the opinion notes, the case marked the third time that a federal appeals court had taken up the question since 2001. In one instance the court found that such payments were taxable, and in another, that they were not.

November 6, 2007 reply from Becky Miller [itsyourmom@HOTMAIL.COM]

This series of cases really go to the issue of whether or not payments in cancellation of tenure rights are wages under Section 3121 of the Code or consideration for cancellation of a property right. Once you get to wages for 3121, you hit both the FICA and the Medicare taxes.

As to the dissenting opinion, I am curious as to what rights exist in an employment arrangement that would trigger income other than compensation. I seem to recall some old tax theory about the fruit and the tree. Here the person is the tree and any consideration offered for their labor would be the fruit. I have to admit that I have a difficult time building a consistent theoretical argument that this is something other that wages.

As to the question of subjecting payments for service NOT rendered to FICA and Medicare tax, that, also has a long tradition. For example, sick pay and vacation pay are subject to these taxes.

Becky

Becky Miller 22339
510 Street Pine Island, MN 55963

November 7, 2007 reply from Bob Jensen

Hi Becky,

Interesting that you should use a tree and fruit analogy.

Many, if not most, tenure buyouts are an effort by a college to rid itself of a fruitcake. In other words, the college no longer wants the services of a fruitcake professor. It’s interesting that the IRS wants to tax the tenure buyout as “wages for services” when in fact the college is buying the professor out to rid itself of her/his services. 

What’s a fruitcake professor?
Fruitcake professors come in different varieties. Some are showing signs of dementia. Some have a problem of moral turpitude that’s becoming an embarrassment to the college (I know of one senior professor of political science who pulled a condom out of his drawer and propositioned a female student who, to his unpleasant surprise, turned out to be the wife of a member of the Board of Trustees). Some fruitcakes are really lousy, and often negligent, teachers to a point where the college no longer wants them assigned to classes. A Chair in a leading School of Accountancy told me that she stopped assigning classes to a very senior accounting professor (even though he still received full pay) because he’d become just plain mean to women students in his classes. Presumably he thought that women were taking over the CPA profession and was not at all happy about it.

Since it's so difficult to terminate a tenured professor, colleges generally prefer buyouts that are cheaper than litigation costs and/or avoid a lot of negative publicity for the college and the fruitcake.

Bob Jensen

Bob Jensen's taxation helpers are at http://www.trinity.edu/rjensen/Bookbob1.htm#010304Taxation

Foreign Companies Listed in U.S. Securities Markets May Now Use International Accounting Standards
The Securities and Exchange Commission has unanimously approved rule amendments under which financial statements from foreign private issuers in the U.S. will be accepted without reconciliation to U.S. Generally Accepted Accounting Principles only if they are prepared using International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.
"SEC relieves foreign companies of U.S. GAAP filing requirements," AccountingWeb, November 2007 ---
http://www.accountingweb.com/cgi-bin/item.cgi?id=104239

The XBRL U.S. consortium completed its U.S. GAAP taxonomy, a key step necessary for the full implementation of interactive data technology for financial reporting. The Financial Accounting Foundation and critical stakeholder groups including analysts, public company preparers and software providers are reviewing the draft taxonomy before it is released for public review, said the SEC, which has contributed funding to the project. For more information, visit www.xbrl.org/us/taxonomies or www.sec.gov/spotlight/xbrl.htm. --- http://www.aicpa.org/pubs/jofa/nov2007/highlights.htm

From Smart Stops on the Web, Journal of Accountancy, October 2007 --- http://www.aicpa.org/pubs/jofa/oct2007/smart_stops.htm
FEDERAL FOCUS
www.sec.gov/spotlight.shtml
Visit this site for a rundown of hot topics on the SEC’s radar—including internal control reporting divisions, XBRL initiatives and IFRS. You can access transcripts and webcasts of roundtable discussions on mutual recognition, the proxy process and hedge funds, as well as information on the SEC’s new Advisory Committee on Improvements to Financial Reporting (see “Seeking Clarity,” page 30). You also can revisit older topics such as auditor independence and corporate officer statements that have been retired to the “Archive” page (www.sec.gov/spotlight/spotarchive.htm).

"Interactive Data - Building XBRL into Accounting Information Systems," by Jerry Trites  --- http://www.cica.ca/index.cfm/ci_id/27401/la_id/1.htm

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

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

Some Cutting Edge (and some not so new) Practice-Based Research for the Accountancy Profession

"Management Accounting Research for the C-Suite:  Consider findings from cutting-edge research to take your company to the next level," by Cynthia Bolt-Lee, Journal of Accountancy, November 2007 --- http://www.aicpa.org/pubs/jofa/nov2007/management_accounting.htm

This second installment in a series of columns on accounting research summarizes results from the field of management and cost accounting. The 2006 through June 2007 issues of five top-tier journals in management and cost accounting research were examined. Those publications included, alphabetically, Accounting, Organizations and Society; The Accounting Review; Contemporary Accounting Research; the Journal of Accounting Research; and Management Science.

These summaries explain the implications of a wide range of research and give CPAs the opportunity to apply the results in day-to-day activities. Readers interested in more detail should review the full text of each article to explore the hypothesis, research process, statistical analysis, supporting theories and conclusions.

Continued in article

"SEC STAFF PUBLISH THEIR OBSERVATIONS IN THE REVIEW OF EXECUTIVE COMPENSATION DISCLOSURE," SEC News Release, November 21, 2007 --- http://accountingeducation.com/index.cfm?page=newsdetails&id=145831

The Securities and Exchange Commission staff have published a report discussing the principal themes that emerged from its initial review of the disclosure of 350 public companies for compliance with the Commission’s new and enhanced rules for executive compensation and related disclosure.

After completing the first stage of these reviews, the staff sent individualized comments to the companies. Two principal themes emerged from these reviews. First, companies should provide more focused disclosure of how and why they made specific executive compensation decisions. Second, the manner of presentation is important, and companies can use it to provide more direct, specific, clear and understandable executive compensation disclosure.

John White, Director of the Division of Corporation Finance, stated, “Since the new principles-based rules became effective in late 2006, public companies have provided their investors with the clearest and most complete disclosure ever regarding how much they pay their executives and directors. Our individualized comments and our observations should help companies enhance their future executive compensation disclosure and better explain their compensation policies and decisions.” Several members of the Commission’s staff will provide further context to the staff report in public appearances this week. Chairman Cox will present the keynote address at the Center for Plain Language’s Symposium on Plain Language: Public Policy and Good Business on Oct. 12, 2007.

Bob Jensen's threads on outrageous executive compensation are at http://www.trinity.edu/rjensen/FraudConclusion.htm#OutrageousCompensation

Question
Is Second Life catching on in academe?

November 15, 2007 message from David Albrecht [albrecht@PROFALBRECHT.COM]

I attended a session on Second Life today. My university has purchased an island and has erected a few buildings along with a huge sand box. Along with other Web 2.0 technologies, faculty are told that second life has many educational possibilities?

Does it open up anything for accounting? Does anyone currently use it? How should it be used?

Dave Albrecht
Bowling Green State University

November 15, 2007 from Bob Jensen

Hi David,

Steve Hornik at the University of Central Florida uses Second Life for accounting courses. He also has a YouTube video about his applications.

Go to http://www.trinity.edu/rjensen/000aaa/thetools.htm#SecondLife 

His last email indicates that he's perhaps become a bit discouraged with it, although I don't want to put words in his mouth. You should contact him directly.

Bob Jensen

November 21, 2007  message from David Albrecht [albrecht@PROFALBRECHT.COM]

This relates to a question I recently asked.

David Albrecht

CPAs Find an Island on Second Life (Nov. 21, 2007) By Michael Cohn, Editor-in-Chief, WebCPA

Accounting firms are starting to go virtual and setting up shop on Second Life.

A few weeks ago, I wrote about how futurist Edie Weiner recently predicted that accountants might need to start keeping track of money in Second Life's virtual currency, Linden dollars (see Accounting in Linden Dollars). I received a note in response to that column from Tom Hood, CEO of the Maryland Association of CPAs, pointing out that the association has already created a CPA Island in Second Life along with a Second Life Association of CPAs.

The first accounting firm to go live on the virtual world was Baltimore-based KAWG&F. CPA Island includes a "chillin' grounds" for new and young professionals to network. There is also a Firm of the Future office that shows off leading-edge concepts for CPA firms, as well as an exhibition hall aimed at educators. MACPA is in the process of expanding its presence on Second Life even further and is at work on CPA Island 2.

Firms need to reach out through venues like Second Life to attract young clients and recruit young accountants who are spending more and more of their time online, both at the office and during their leisure hours. Virtual worlds like Second Life have been attracting all manner of businesses, ranging from computer companies like Dell and Sun Microsystems to retailers like American Apparel to virtual real estate developers who specialize in creating homes on SL. Why not CPA firms too?

Continued at: http://www.webcpa.com/article.cfm?articleid=26011 

November 22, 2007 reply from Bob Jensen

Hi David,

The FASB is also interested. You can read the following at http://www.trinity.edu/rjensen/000aaa/thetools.htm#SecondLife

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

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

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

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

. . .

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

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

Continued in article

November 23, 2007 reply from Steven Hornik [shornik@BUS.UCF.EDU]

November 30, 2007 message from Carolyn Kotlas [kotlas@email.unc.edu]

CALL FOR PAPERS ON ACADEMICS IN VIRTUAL ENVIRONMENTS

INNOVATE, edited by James Morrison, UNC-Chapel Hill Professor Emeritus, is a peer-reviewed e-journal that began publication with the October/November 2004 issue. The journal covers cutting-edge research and practice in the field of using information technology tools to enhance teaching and learning. Readers can also comment on articles, share material with colleagues and friends, and participate in open forums.

Innovate is soliciting manuscripts for a special issue on academics in virtual environments. This issue focuses on the use of Multi-User Virtual Environments (MUVEs) as an enhancement to education. A MUVE combines graphics and audio with the ability to communicate with multiple users in real time within the context of a 3-D virtual environment. MUVEs are not necessarily considered games, as programs like Second Life and There have no end goal or objective.

For more information go to

http://www.innovateonline.info/index.php?view=special_issues and click on the Academics in Virtual Environments paragraph.

To submit a manuscript go to

http://www.innovateonline.info/index.php?view=submit.

Bob Jensen's threads on edutainment and learning in virtual worlds are at http://www.trinity.edu/rjensen/000aaa/thetools.htm

Neutrality Concept in Accounting Standard Setting

In Concepts Statement No. 2, the FASB asserts it should not issue a standard for the purpose of achieving some particular economic behavior. Among other things, this statement implies that the board should not set accounting standards in an attempt to bolster the economy or some industry sector. Ideally, scorekeeping should not affect how the game is played. But this is an impossible ideal since changes in rules for keeping score almost always change player behavior. Hence, accounting standards cannot be ideally neutral. The FASB, however, actively attempts not to not take political sides on changing behavior that favors certain political segments of society. In other words, the FASB still operates on the basis that fairness and transparency in the spirit of neutrality override politics. However, there is a huge gray zone that, in large measure, involves how companies, analysts, investors, creditors, and even the media react to new accounting rules. Sometimes they react in ways that are not anticipated by the FASB.

Questions
Is there a problem with how GAAP covers one's Fannie?
Would fair value accounting help in this situation?

"Fannie Execs Defend Accounting Change Friday," by Marcy Gordon, Yahoo News, November 16, 2007 --- http://biz.yahoo.com/ap/071116/fannie_mae_accounting.html 

Fannie Mae executives on Friday defended a change in the way the mortgage lender discloses losses on home loans amid concern from analysts that it could mask the true impact of the credit crisis on its bottom line.

The chief financial officer and other executives of the government-sponsored company, which reported a $1.4 billion third-quarter loss last week, held a conference call with Wall Street analysts to explain the recent change.

Analysts peppered the executives with questions in a skeptical tone. The way Fannie discloses its mortgage losses, addressed in an article published online by Fortune, raises extra concern among analysts given that Fannie Mae was racked by a $6.3 billion accounting scandal in 2004 that tarnished its reputation and brought government sanctions against it.

Moreover, the skepticism from Wall Street comes as Fannie seeks approval from the government to raise the cap of its investment portfolio.

The chief financial officer, Stephen Swad, said in the call that some of the $670 million in provisions for credit losses on soured home loans that Fannie Mae wrote off in the third quarter likely would be recovered.

"We book what we book under (generally accepted accounting principles) and we provide this disclosure to help you understand it," Swad said.

Shares of Fannie Mae fell $4.30, or 10 percent, to $38.74 on Friday, following a 10 percent drop the day before.

"Fannie Shares Continue Plunge," by Mike Barris,  The Wall Street Journal, November 16, 2007 --- http://online.wsj.com/article/SB119522620923495790.html

Shares of Fannie Mae skidded further Friday, after falling 10% Thursday amid worries over the way the mortgage giant reports credit losses and a gloomy outlook for the housing market.

The latest decline in the company's share price came as Chief Financial Officer Stephen Swad on Friday attempted to alleviate investor concerns about the company's credit losses.

In morning trading, Fannie shares were at $41.30, down $1.75, or 4%. The shares had fallen as much as 14% early in the day before recovering somewhat. Shares of Fannie's counterpart, Freddie Mac, also fell, down $1.98, or 4.8%, to $39.91.

Thursday's drop came after Fortune magazine's Web site reported a change in the method Fannie uses to report credit losses.

Last week, the nation's biggest investor in home-mortgage loans reported that its credit losses in the year's first nine months equaled 0.04% of the company's $2.8 trillion of mortgages and related securities owned or guaranteed, up from 0.018% a year earlier. That was in line with the company's forecast.

But the company changed its method of presenting the figure, excluding unrealized losses on certain loans that were marked down to reflect current market conditions. Including those unrealized losses, the rate for this year's first nine months was 0.075%, up from 0.023% a year before.

Fannie officials said the change was made to separate realized losses from ones that haven't been realized and depend on fluctuating market values for loans. A report from J.P. Morgan Chase & Co. analyst George Sacco said the new method is similar to that used by Freddie Mac. Fannie officials noted that both the realized and unrealized losses were reflected in the earnings reported last week.

Fannie's stock had already been falling for a few weeks amid worries about how hard Fannie would be hurt by rising mortgage defaults. At an investment conference Thursday in New York, Wells Fargo & Co.'s chief executive, John Stumpf, predicted more pain for mortgage lenders in the year ahead as falling home prices cut the value of collateral, saying the nationwide decline in housing is the worst since the Great Depression.

Thursday, Fannie shares dropped $4.78, or 10%, to $43.04.

On Friday, Mr. Swad tried to explain further how the company was accounting for potential losses.

Last week, Fannie Mae reported roughly $670 million in credit losses in the third quarter related to certain charge-offs recorded when delinquent loans were purchased from mortgage-backed securities trusts. Mr. Swad explained Friday that portions of the credit losses would likely be recovered.

Though these third quarter losses were charged off, they are not considered realized losses, Mr. Swad said, because the loans backing these securities could still be "cured." Mr. Swad said the company was "required to take a charge when the market estimate is below our purchase price." The company's experience, he added, "has shown that the majority of these loans don't result in any realized losses." But he declined to be more specific about what percentage of the loans would eventually "cure."

Fannie last week released earnings for the first three quarters of the year. It reported an additional unrealized loss of $955 million in the value of private-label securities backed by subprime and Alt-A mortgages through the end of the third quarter. This was in addition to $376 million the company had previously accounted as a loss for these securities this year.

November 16, 2007 reply from Dennis Beresford [dberesfo@TERRY.UGA.EDU]

For the record, there was no "accounting change" as per this headline. A headline of "Fannie Mae follows GAAP" probably wouldn't be quite as sexy but it would be 100% accurate. The company's clear explanation of what it is required to do under GAAP is covered in the conference call that is available on Fannie Mae's web site for those accounting aficionados who want to learn more about AICPA Statement of Position 03-03 that requires companies repurchasing loans to record them at fair value. So the answer to your question is that fair value accounting apparently only complicated analysts' understanding in this case.

Denny Beresford

November 17, 2007 reply from Bob Jensen

Hi Denny,

Your comment sheds a lot of light on this apparent gap between analyst expectations and GAAP rules in this case. The SEC, FASB, and the IASB are pushing hard and steady toward fair value accounting with FAS 155, 157, and 159 just being intermediary steps along the way. At least in this case, however, required fair value accounting is allegedly contributing to the plunge in Fannie Mae’s share values.

This is another example of the unpredictability of the Neutrality Concept in standard setting. You point out (see below) that FASB seriously considers neutrality for every new standard and interpretation with the goal of having scorekeeping not affect how the game is played, but in athletics and business it is virtually impossible to change how something is scored without affecting policies and strategies. For example, when long shots in basketball commenced to earn three points rather than two points it fundamentally changed the game of basketball.

Perhaps this is all an example of what you, in 1989, termed "relevant financial information may bring about damaging consequences." (see a quote from your article below). It would have been interesting if the media reporters in 2007 had cited your 1989 article in this beating Fannie Mae is now taking by adhering to GAAP.

Bob Jensen

"How well does the FASB consider the consequences of its work?" by Dennis Beresford, All Business, March 1, 1989 ---
http://www.allbusiness.com/accounting/methods-standards/105127-1.html

Neutrality is the quality that distinguishes technical decision-making from political decision-making. Neutrality is defined in FASB Concepts Statement 2 as the absence of bias that is intended to attain a predetermined result. Professor Paul B. W. Miller, who has held fellowships at both the FASB and the SEC, has written a paper titled: "Neutrality--The Forgotten Concept in Accounting Standards Setting." It is an excellent paper, but I take exception to his title. The FASB has not forgotten neutrality, even though some of its constituents may appear to have. Neutrality is written into our mission statement as a primary consideration. And the neutrality concept dominates every Board meeting discussion, every informal conversation, and every memorandum that is written at the FASB. As I have indicated, not even those who have a mandate to consider public policy matters have a firm grasp on the macroeconomic or the social consequences of their actions. The FASB has no mandate to consider public policy matters. It has said repeatedly that it is not qualified to adjudicate such matters and therefore does not seek such a mandate. Decisions on such matters properly reside in the United States Congress and with public agencies.

The only mandate the FASB has, or wants, is to formulate unbiased standards that advance the art of financial reporting for the benefit of investors, creditors, and all other users of financial information. This means standards that result in information on which economic decisions can be based with a reasonable degree of confidence.

A fear of information

Unfortunately, there is sometimes a fear that reliable, relevant financial information may bring about damaging consequences. But damaging to whom? Our democracy is based on free dissemination of reliable information. Yes, at times that kind of information has had temporarily damaging consequences for certain parties. But on balance, considering all interests, and the future as well as the present, society has concluded in favor of freedom of information. Why should we fear it in financial reporting?

Continued in article

 

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

Bob Jensen's threads on Accrual Accounting and Estimation are at http://www.trinity.edu/rjensen/Theory01.htm#AccrualAccounting

Bob Jensen's threads on fair value accounting are at http://www.trinity.edu/rjensen/Theory01.htm#FairValue

Bob Jensen's threads on Fannie Mae's enormous problem (the largest in history that led to the firing of KPMG from the audit and a multiple-year effort to restate financial statemetns) with applying FAS 133 --- http://www.trinity.edu/rjensen/caseans/000index.htm#FannieMae

There's a shelf of financial bestsellers whose titles now sound absurd: Ravi Batra's The Great Depression of 1990; James Glassman's Dow 36,000; Harry Figgie's Bankruptcy 1995: The Coming Collapse of America and How to Stop It. There’s BusinessWeek’s 1979 description of "the death of equities as a near permanent condition,
Michael Lewis, "The Evolution of an Investor," Blaine-Lourd Profile, December 2007 ---
http://www.portfolio.com/executives/features/2007/11/19/Blaine-Lourd-Profile#page3
As quoted by Jim Mahar in his Finance Professor Blog at http://financeprofessorblog.blogspot.com/

As a group, professional money managers control more than 90 percent of the U.S. stock market. By definition, the money they invest yields returns equal to those of the market as a whole, minus whatever fees investors pay them for their services. This simple math, you might think, would lead investors to pay professional money managers less and less. Instead, they pay them more and more...Nobody knows which stock is going to go up. Nobody knows what the market as a whole is going to do, not even Warren Buffett. A handful of people with amazing track records isn’t evidence that people can game the market. Nobody knows which company will prove a good long-term investment. Even Buffett’s genius lies more in running businesses than in picking stocks. But in the investing world, that is ignored. Wall Street, with its army of brokers, analysts, and advisers funneling trillions of dollars into mutual funds, hedge funds, and private equity funds, is an elaborate fraud.
Michael Lewis, "The Evolution of an Investor," Blaine-Lourd Profile, December 2007 ---
http://www.portfolio.com/executives/features/2007/11/19/Blaine-Lourd-Profile#page3
As quoted by Jim Mahar in his Finance Professor Blog at http://financeprofessorblog.blogspot.com/

"GM Will Book $39 Billion Charge Write-Down of Tax Credits Indicates That Profits Won't Come in Near Term," by John D. Stoll, The Wall Street Journal, November 7, 2007; Page A3 --- http://online.wsj.com/article/SB119438884709884385.html?mod=todays_us_page_one

General Motors Corp. will take a $39 billion, noncash charge to write down deferred-tax credits, a signal that it expects to continue to struggle financially despite significant restructuring and cost cutting in the past two years.

The deferred-tax assets stem from losses and could be used to offset taxes on current or future profits for a certain number of years.

In after-hours trading, GM fell 2.9% to $35.14. Before the disclosure, its shares finished at $36.16, up 16 cents, or less than 1%, in New York Stock Exchange composite trading.

GM, the world's largest auto maker in vehicle sales, was to report third-quarter financial results today. The company, which was stung by big losses in 2005 and 2006, said the write-down was triggered by three main issues: a string of adjusted losses in core North American operations and Germany over the past three years, weakness at its GMAC Financial Services unit, and the long duration of tax-deferred assets.

GM had appeared to be making progress in stemming its losses. Its global automotive operations were profitable in the first half of the year. It recently signed a labor deal with the United Auto Workers that allows it to establish an independent trust to absorb its approximately $50 billion in hourly retiree health-care liabilities. The move promises to significantly reduce GM's cash health-care expenses and combine with other labor-cost cuts in creating a more profitable North American arm.

If it returns to steady profits, GM could remove the valuation allowance and reclaim some or all of the $39 billion in deferred credits.

For now, the massive charge promises to devastate GM's headline financial results for the third quarter, and for the year, likely leading to the worst annual loss in its 99-year history. Although the charge is an accounting loss that doesn't involve cash, it is still a staggering sum. By comparison, the company reported a total of $34 billion in net income from 1996 to 2004.

GM will partially offset the charge with a gain of more than $5 billion related to the sale of its Allison Transmission unit.

The charge follows more than $12 billion in losses since the beginning of 2005. GM has been scrambling to cut the size of its U.S. operation amid shrinking market share, rising costs and a rapidly globalizing auto industry. Its restructuring has been complicated by a slowdown in U.S. demand for automobiles and losses at GMAC.

The lending giant lost $1.6 billion in the third quarter, the biggest quarterly setback since at least the 1960s. It made money on auto lending and insurance but was dragged down by a $1.8 billion setback at ResCap, its residential-mortgage business and a big player in subprime loans. GM's exposure is limited because it sold 51% of GMAC to Cerberus Capital Management LP last year. In the past, GMAC delivered dividends to GM, including more than $9 billion in the decade before the GMAC sale.

The write-down isn't expected to affect GM's liquidity position, which stood at $27.2 billion as of June 30. GM has been selling noncore assets in recent years to pad its bank account. In addition, GM Chief Financial Officer Frederick "Fritz" Henderson said the write-down won't preclude it from using loss carry-forwards or other deferred-tax assets in the future. It is unclear whether GM's plunge deeper into negative shareholder-equity status will affect it's borrowing capabilities or credit rating.

The latest disclosure underscores the challenge Chief Executive Officer Richard Wagoner faces in seeking a full-scale turnaround as GM hangs on to its No. 1 global-sales ranking over Toyota Motor Corp. by a thread. Delphi Corp., GM's top supplier, has failed in attempts to emerge from bankruptcy protection, so GM must wait indefinitely on cost savings it hopes to gain from a reorganized Delphi. Also, U.S. automobile demand has withered to the lowest point in a decade, and, as oil futures continue to escalate, pressure on high-profit trucks and SUVs remains firm.

Denny Beresford provided a link to another reference --- Click Here

November 7, 2008 reply from Amy Dunbar [Amy.Dunbar@BUSINESS.UCONN.EDU]

>So they think it is more likely than not that they will receive zero tax benefit from their tax loss carryforwards! 

Hmmmmm, I doubt that is what GM thinks. As the news release stated, "In making such judgments, significant weight is given to evidence that can be objectively verified. A company's current or previous losses are given more weight than its future outlook, and a recent three-year historical cumulative loss is considered a significant factor that is difficult to overcome." FAS 109, P 23 states, "Forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence such as cumulative losses in recent years."

As an aside, the more-likely-than-not standard in FAS 109 existed before FIN 48 adopted the standard. FIN 48 doesn't talk about objective evidence wrt the MLTN standard.

FIN 48, 6, states, "An enterprise shall initially recognize the financial statement effects of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. As used in this Interpretation, the term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. The more-likely than- not recognition threshold is a positive assertion that an enterprise believes it is entitled to the economic benefits associated with a tax position. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold shall consider the facts, circumstances, and information available at the reporting date.

FIN 48, 7, states, "In assessing the more-likely-than-not criterion as required by paragraph 6 of this Interpretation: a. It shall be presumed that the tax position will be examined by the relevant taxing authority that has full knowledge of all relevant information. b. Technical merits of a tax position derive from sources of authorities in the tax law (legislation and statutes, legislative intent, regulations, rulings, and case law) and their applicability to the facts and circumstances of the tax position. When the past administrative practices and precedents of the taxing authority in its dealings with the enterprise or similar enterprises are widely understood, those practices and precedents shall be taken into account. c. Each tax position must be evaluated without consideration of the possibility of offset or aggregation with other positions."

In an appendix, FIN 48, B46, states, "In considering the subsequent recognition of tax positions that do not initially meet the more-likely-than-not recognition threshold and the subsequent measurement of tax positions, the Board initially considered whether specific external events should be required to effect a change in judgment about the recognition of a tax position or the measurement of a recognized tax position. The Board concluded in the Exposure Draft that a change in estimate is a judgment that requires evaluation of all available facts and circumstances, not a specific triggering event. Some respondents to the Exposure Draft stated that the evidence supporting a change in judgment should be objectively verifiable and that a triggering event is normally required to subsequently recognize a tax benefit."

Since this language wasn't put in the standard, I wonder if one could argue that the two MLTN standards are different. It would be interesting to be a fly on the wall as some of the debate goes on about uncertain tax positions.

Amy Dunbar

Also see "Accounting for Uncertainty" --- http://www.aicpa.org/pubs/jofa/oct2007/uncertainty.htm

From The Wall Street Journal Accounting Weekly Review on November 9, 2007

GM Will Book $39 Billion Charge The Wall Street Journal by John D. Stoll Nov 07, 2007 Page: A3 Click here to view the full article on WSJ.com --- http://online.wsj.com/article/SB119438884709884385.html?mod=djem_jiewr_ac   TOPICS: Advanced Financial Accounting, Income Taxes SUMMARY: "General Motors Corp. will take a $39 billion, noncash charge to write down deferred tax assets, "...a signal that it expects to continue to struggle financially despite significant restructuring and cost cutting in the past two years." CLASSROOM APPLICATION: Use to cover accounting for deferred tax assets and a related valuation account. QUESTIONS:  1.) Define the terms deferred tax assets, deferred tax liabilities, net operating loss carryforwards, and deferred tax credits. 2.) Which of the above three items has General Motors recorded for a total of $39 billion? In your answer, comment on the opening statement in the article that GM will write-down its "deferred tax credits." 3.) What is a valuation allowance against deferred tax assets? When must such an allowance be recorded under generally accepted accounting standards? Use GM's situation as an example in your answer. 4.) GM states that its $39 billion write down was impacted by three factors. Explain how each of these factors bears on the determination of a valuation allowance against deferred tax assets. Be specific. 5.) The author writes, "If it returns to steady profits, GM could remove the valuation allowance and reclaim some or all of the $39 billion in deferred credits," and that the write-down does not preclude GM from future use of its net operating loss carryforwards and deferred tax assets. Explain these statements, including the entries that will be recorded if the deferred tax assets are used in the future.   Reviewed By: Judy Beckman, University of Rhode Island   RELATED ARTICLES:  GM Statement on Noncash Charge by General Motors, via PRNewswire Nov 06, 2007 Online Exclusive

 

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

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

"Decoding Business Profitability," by Lyn Denend quoting Mark Soliman, Stefan Reichelstein, and Madhav Rajan, Stanford Business Magazine, November 2007 --- http://www.gsb.stanford.edu/news/bmag/sbsm0711/kn-decoding.html

For years, return on investment (ROI) and related financial accounting ratios have been widely used as key measures of business profitability. Now three Business School accounting professors have written an award-winning paper that shows the economic interpretation of the ROI metric requires more careful analysis.

For more than 40 years, business professionals and academics have relied on ROI to infer a company’s economic rate of return, which is usually conceptualized as the internal rate of return of a firm’s investment projects. Many recognized that financial accounting is subject to biases that could skew the magnitude of the ROI ratio, but they tended to believe these effects would average out over time, thereby enabling parity between ROI and real economic return. On the other hand, when companies such as those in the oil industry have been accused of abusing their market power, as evidenced by excessive accounting profitability, they tried to explain away high accounting returns by claiming that standard metrics do not adequately measure real economic returns.

“There wasn’t a precise mathematical understanding of the issue,” said Madhav Rajan, a professor of managerial accounting who collaborated on the study with Stefan Reichelstein, who also specializes in managerial accounting, and Mark Soliman, a financial accountant.

The threesome developed a model that enabled them to examine analytically and empirically how a firm’s ROI was affected by two central variables: accounting conservatism and growth in new investments. They considered accounting to be conservative if it resulted in book values that were understated because investments were written off faster than they should be, given the under-lying pattern of project cash flows. Direct expensing of intangible investments is a prime example of such conservatism.

The researchers found that accounting conservatism and past growth in investments jointly determined how ROI compared to the underlying economic profitability of a business. Given conservative accounting, higher growth tended to depress ROI, a decline that was accentuated by more conservative accounting rules. On the other hand, more conservative accounting increased ROI only if the rate of past growth in new investments was below some critical value, with the opposite effect emerging for growth rates above that critical value. To test the theoretical predictions of the model, the researchers used a data sample of 43,680 firm-year observations from 1982 to 2002.

The result is a tool for “decoding the economic profitability of a firm given the accounting profitability reported in the ROI number,” Reichelstein said. Contrary to earlier examples and numerical illustrations in textbooks and the relevant literature, “we now have a much more systematic grasp of the linkage between accounting and economic return.”

Both investors and managers can use the tool, “From a management perspective, it’s perfectly possible that one of your divisions has an ROI of 15 percent while another one has an ROI of 10 percent,” Reichelstein said. “You shouldn’t jump to the conclusion that the one giving you 15 percent is the one that’s adding more value to the business.” By applying the model, taking into account how rapidly both divisions have been growing and which has assets that may be more subject to a conservatism, management can more accurately determine the real economic profitability of both business groups.

The research, which earned best paper awards when presented at two international accounting conferences, is published as “Conser-vatism, Growth, and Return on Investment,” in the September 2006 issue of the Journal of Accounting, Auditing, and Finance.

November 2, 2007 reply from Nichols, Don [D.Nichols@TCU.EDU]

I think that the Stanford Business Magazine has an incorrect citation. The article was published in Conservatism, Growth, and Return on Investment: Review of Accounting Studies, September, 2007.

Don Nichols

Bob Jensen's threads on return on investment (ROI) are at http://www.trinity.edu/rjensen/roi.htm

Misleading Financial Statements:  Bankers Refusing to Recognize and Shed "Zombie Loans"
One worrying lesson for bankers and regulators everywhere to bear in mind is post-bubble Japan. In the 1990s its leading bankers not only hung onto their jobs; they also refused to recognise and shed bad debts, in effect keeping “zombie” loans on their books. That is one reason why the country's economy stagnated for so long. The quicker bankers are to recognise their losses, to sell assets that they are hoarding in the vain hope that prices will recover, and to make markets in such assets for their clients, the quicker the banking system will get back on its feet.
The Economist, as quoted in Jim Mahar's blog on November 10, 2007 --- http://financeprofessorblog.blogspot.com/

After the Collapse of Loan Markets Banks are Belatedly Taking Enormous Write Downs
BTW one of the important stories that are coming out is the fact that this is affecting all tranches of the debt as even AAA rated debt is being marked down (which is why the rating agencies are concerned). The San Antonio Express News reminds us that conflicts of interest exist here too.
Jime Mahar, November 10, 2007 --- http://financeprofessorblog.blogspot.com/

Jensen Comment
The FASB and the IASB are moving ever closer to fair value accounting for financial instruments. FAS 159 made it an option in FAS 159. One of the main reasons it's not required is the tremendous lobbying effort of the banking industry. Although many excuses are given resisting fair value accounting for financial instruments, I suspect that the main underlying reasons are those "Zombie" loans that are overvalued at historical costs on current financial statements.

Daniel Covitz and Paul Harrison of the Federal Reserve Board found no evidence of credit agency conflicts of interest problems of credit agencies, but thier study is dated in 2003 and may not apply to the recent credit bubble and burst --- http://www.federalreserve.gov/Pubs/feds/2003/200368/200368pap.pdf

In September 2007 some U.S. Senators accused the rating agencies of conflicts of interest
"Senators accuse rating agencies of conflicts of interest in market turmoil," Bloomberg News, September 26, 2007 --- http://www.iht.com/articles/2007/09/26/business/credit.php
Also see http://www.nakedcapitalism.com/2007/05/rating-agencies-weak-link.html

Bob Jensen's threads on fair value accounting are at http://www.trinity.edu/rjensen/Theory01.htm#FairValue

Bob Jensen's Rotten to the Core threads are at http://www.trinity.edu/rjensen/FraudRotten.htm

Creative Accounting at Freddie Mac and the SEC Unhappiness Over This Creativity

"The Accounting Cycle Freddie Mac's Scandal and the SEC's Judgment," by: J. Edward Ketz, SmartPros, November 2007 --- http://accounting.smartpros.com/x59491.xml

The financial reporting lies in the statements of Federal Home Loan Mortgage Corporation (Freddie Mac) came to light in 2003. The Securities and Exchange Commission recently issued a litigation release that attempts to put the affair behind us. Unfortunately, the SEC still cannot meet its goal of meting out punishment against the bad guys and only the bad guys.

The SEC issued Litigation Release No. 20304 on Sept. 27. The SEC alleges that the corporation engaged in an accounting fraud from 2000 to 2002. The manipulation of earnings occurred by incorrectly accounting for various derivative instruments of the firm as well as manipulating the accounting for loan origination costs and reserves for losses. Freddie Mac will pay a $50 million fine. The four executives who conceived and executed this fraud were also punished. Their fines ranged from $65,000 to $250,000; they paid out disgorgement amounts that ranged from $29,227 to $150,000. More details are laid out in the SEC complaint in this matter.

The fascinating thing about this accounting scandal is that it involved the understating of net income. In particular, the SEC contrasts the reported income with the restated net income (in billions of dollars):

 

Year	Reported Net Income	Restated Net Income	Difference
2000	$2.547	$3.666	$ 1.119
2001	4.147	3.158	(0.989)
2002	5.764	10.090	4.326

 

This fraud creates three problems for investors and creditors:

The first consequence of the fraud is that it misleads capital providers with respect to the firm; the investment community will not think it as deserving as other organizations. The economy suffers a misallocation of resources.

The second consequence of the fraud is that it supplies the corporate executives with incentives to engage in insider trading. The market thinks the business entity has the lower income and may bid down the stock price and the bond prices. The managers who are partaking in the fraud know that the earnings stream is actually higher and can profit from this knowledge illegally.

The third consequence is that the market may misestimate the risk of the corporation and, in this case, that seems to provide the motivation for the accounting fraud. Corporate managers wanted to portray a picture of a steady, reliable company that was ever growing in resources and income. That picture was phony inasmuch as the true income stream is far more volatile than the reported earnings would indicate.

This case is fascinating for another reason. The SEC continues to give miscreants a slap on the wrist while hitting the innocents with a massive fine. Yes, I said that the SEC continues to dote on the bad guys by only slapping their wrist. The largest fine plus disgorgement is only $400,000. For the salaries and stock options and perquisites that these guys got while working at Freddie Mac, the fines plus disgorgement amounts to a speeding ticket for those mortals with at most six-digit incomes. The fines are trivial. If the SEC wants to dissuade managers from committing accounting frauds, then they must impose meaningful and enormous fines and prison sentences. Petty and insubstantial fines imply that the SEC no longer cares for investors and creditors. And managers at other entities surely take notice.

Continued in article

Jensen Comment
In the early days of FAS 133, Freddie Mac was not understating income. It did in fact do a terrible job of implementing accounting for derivative financial instruments, and Freddie has lots and lots of derivatives mostly for hedging interest rate risk ---
http://www.trinity.edu/rjensen/caseans/000index.htm#FreddieMac

A Free Harvard Business Review Archives Article

"Why Budgeting Systems Fail:  One Management System is Not Enough," by Péter Horváth and Ralf Sauter, Harvard Business Review, September-October 2004 --- http://marketing.adaptiveplanning.com/forms/HBRwhybudgetingfails

Accounting Theory:  The Vexing Problem of Contingent Liabilities and Environmental Risk

From The Wall Street Journal Accounting Weekly Review on November 2, 2007

BP Settles Charges, Submits to Watchdogs by Ann Davis, Amir Efrati, Matthew Dalton and Guy Chazan The Wall Street Journal Oct 26, 2007 Page: A3 Click here to view the full article on WSJ.com --- http://online.wsj.com/article/SB119332810057671536.html?mod=djem_jiewr_ac   TOPICS: Advanced Financial Accounting, Contingent Liabilities, Environmental Cleanup Costs SUMMARY: "[British Petroleum] BP PLC put a host of legal threats behind it with far-reaching federal settlements yesterday [10/24/2007] and $373 million in fines and restitution...The British energy firm agreed to plead guilty to environmental crimes and agreed to a three-year probation connected to a fatal accident in Texas and an oil spill in Alaska." The article describes the expected impact on BP PLC's operations; the questions in this review focus on the company's Form 20-F contingent liability disclosures, including environmental and other contingent liabilities. CLASSROOM APPLICATION: Environmental liabilities and other contingencies are discussed in this article. QUESTIONS:  1.) The article states that BP PLC (British Petroleum) "put a host of legal threats behind it" through a settlement with U.S. government authorities and fines. Summarize the legal issues facing the company and the settlement that was reached. 2.) In general, where can you find information about the likely financial impact of legal and environmental issues facing any company? Describe the authoritative literature requiring disclosure of this information. 3.) BP PLC uses the term "provisions" in their corporate balance sheet, rather than "contingent liabilities." What is the meaning of the term "provisions"? 4.) Specifically investigate the extent of the legal and environmental issues facing BP PLC by examining their annual report filed on Form 20-F with the Securities and Exchange Commission, available at: http://www.sec.gov/Archives/edgar/data/313807/000115697307000346/b848881-20f.htm#p85  How extensive are the liabilities associated with these issues, as measured on December 31, 2006? 5.) Examine footnote 40 to further investigate these liabilities. What are the 3 major categories of provisions for estimated liabilities recorded by BP PLC? How do they estimate the amounts recorded for these liabilities? 6.) Which category of provisions do you think will be impacted by the settlement, based on the disclosures in the December 31, 2006, year end financial statements and the description of the settlement in the article?   Reviewed By: Judy Beckman, University of Rhode Island

Bob Jensen's threads on accounting for intangibles and contingencies are at http://www.trinity.edu/rjensen/Theory01.htm#TheoryDisputes

The Grassley is Greener:  An Added Tax on Each Employed Skilled Immigrant
Last week Mr. Grassley, the Iowa Republican, slipped an amendment into a spending bill that would tax businesses that hire skilled immigrants an additional $3,500 per visa to a total of $5,000 each. According to the National Foundation for American Policy, this represents a $3.1 billion tax increase over five years on some of America's fastest growing companies. Companies employing foreign professionals who are here on H-1B visas already pay $1,500 per individual. The fee was originally set at $500 in 1998, but at least past increases have also included a rise in the number of available visas. When Mr. Grassley floated this tax back in April, it would have been part of a Senate bill that lifted the H-1B visa cap by 50,000 and put in place an escalator provision that allowed market demand to determine future increases.
"The Grassley Visa Tax," The Wall Street Journal, November 2, 2007; Page A12 --- http://online.wsj.com/article/SB119397030162580100.html

 

Before reading this tidbit, you may want to read about creative accounting and earnings management at http://en.wikipedia.org/wiki/Earnings_management

From Jim Mahar's blog on November 5, 2007 --- http://financeprofessorblog.blogspot.com/
Does short-term debt lead to more "earnings management"?

 

In another paper from the FMAs, Gupta and Fields look at whether more short term debt leads to more "earnings management."

Does short-term debt lead to more "earnings management"?

Short answer: YES.

Longer answer:

Intuitively the idea behind the paper is that if a firm has to go back to the capital markets, they do not want to do so when times are bad. Of course, sometimes times are bad. In those times, management may be tempted to "manage" earnings so that things do not appear as bad as they may be.

The findings? Sure enough, managers seemingly manage their firm's earnings more when the firm has more short term debt.

A few look-ins:

From the Abstract (this is the best summary of the entire paper):
 

"...results indicate that (i) firms with more current debt are more susceptible to managing earnings, (ii) this relation is stronger for firms facing debt market constraints (those without investment grade debt) and (iii) auditor characteristics such as auditor quality and tenure help diminish this relation...."
 

Which fits intuition. Why?
* The more the constraints, the more incentive the management has to manage earnings since if they do not, they may not be able to refinance.
* Auditors would frown upon this behavior and the stronger the auditor, the less likely it is that the manager would manage earnings.

How does this "earnings management" manifest itself? The most common way (although not the only way) that managers manipulate earnings is through the use of accruals . Thus, the authors examine this and find:
 

"A one standard-deviation increase in short-term debt (total current liabilities) increases discretionary accruals by 1.69% and increase total accruals by 2.28%. Our evidence supports the idea that debt maturity significantly impacts the tendency of firms to manage earnings."
 

Which is a really interesting finding!

Bob Jensen's threads on fraud are at http://www.trinity.edu/rjensen/Fraud.htm
Bob Jensen's thread on cooking the books are at http://www.trinity.edu/rjensen/fraud001.htm#Cooking
(The above module has been neglected by me. It is somewhat dated in terms of earnings restatements and there are broken links to old sites.)
Bob Jensen's threads on accounting theory are at http://www.trinity.edu/rjensen/Theory01.htm

New York Sues Firm for Rigging Home Appraisals
New York Attorney General Andrew Cuomo has initiated a lawsuit against a real estate appraisal unit of the Fortune 500 company First American Corp. He says the appraiser colluded with Washington Mutual to inflate home values.
Chris Arnold, NPR, November 1, 2007 --- http://www.npr.org/templates/story/story.php?storyId=15858178

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

"NORTEL NETWORKS PAYS $35 MILLION TO SETTLE FINANCIAL FRAUD CHARGES," AccountingEducation.com, November 22, 2007 --- http://accountingeducation.com/index.cfm?page=newsdetails&id=145832

The Securities and Exchange Commission recently filed civil fraud charges against Nortel Networks Corporation and its principal operating subsidiary Nortel Networks Limited (Nortel) alleging that Nortel engaged in accounting fraud from 2000 through 2003 to close gaps between its true performance, its internal targets and Wall Street expectations. Nortel is a Canadian manufacturer of telecommunications equipment.

Without admitting or denying the Commission's charges, filed in the U.S. District Court for the Southern District of New York, Nortel has agreed to settle the Commission's action by consenting to be permanently enjoined from violating the antifraud, reporting, books and records and internal control provisions of the federal securities laws and by paying a $35 million civil penalty, which the Commission will seek to place in a Fair Fund for distribution to affected shareholders. Nortel also has agreed to report periodically to the Commission's staff on its progress in implementing remedial measures and resolving an outstanding material weakness over its revenue recognition procedures.

"This is an important fraud case involving conduct from 2000 through 2003," said Linda Thomsen, Director of the Commission's Division of Enforcement. "Since that time, under new leadership, Nortel has undertaken significant efforts to address the wrongdoing, remedy the harm and implement a remediation plan to prevent recurrence of the misconduct."

Christopher Conte, an Associate Director of the Commission's Division of Enforcement, stated, "The settlement reached today reflects the seriousness of the company's past activity. Nortel's fraud was long-running, intentional and pervasive."

According to the Commission's complaint, from late 2000 through January 2001, Nortel made changes to its revenue recognition policies that were not in conformity with U.S. Generally Accepted Accounting Principles (GAAP). The changes were made to fraudulently accelerate revenue into 2000 to meet its publicly announced revenue targets for the fourth quarter of 2000 and for that year. The complaint alleges that Nortel also selectively reversed certain revenue entries during the 2000 year-end closing process when its acceleration efforts pulled in more revenue than necessary to meet its targets. These actions, the complaint alleges, inflated Nortel's fourth quarter and fiscal year 2000 revenues by approximately $1.4 billion.

The complaint further alleges that Nortel had improperly established, and was improperly maintaining, over $400 million in excess reserves by the time it announced its fiscal year 2002 financial results. According to the complaint, these reserve manipulations erased Nortel's fourth quarter 2002 pro forma profit and allowed it to report a loss instead so that Nortel would not show a profit earlier than it had previously forecast to the market. The complaint alleges that in the first and second quarters of 2003, Nortel improperly released approximately $500 million in excess reserves to boost its earnings and fabricate a return to profitability. These efforts turned Nortel's first quarter 2003 loss into a reported profit under GAAP, and largely erased its second quarter loss while generating a pro forma profit. According to the complaint, in both quarters Nortel's inflated earnings allowed it to pay tens of millions of dollars in so called "return to profitability" bonuses, largely to a select group of senior managers.

In settling the matter, the Commission acknowledges Nortel's substantial remedial efforts and cooperation. After Nortel announced its first restatement, the Audit Committee of Nortel's Board of Directors launched an independent investigation which later uncovered the improper accounting. Nortel's Board took extensive remedial action that included promptly terminating employees responsible for the wrongdoing, restating its financial statements four times over four years, replacing its senior management, and instituting a comprehensive remediation program designed to ensure proper accounting and reporting practices. Nortel also shared the results of its independent investigation with the Commission.

As part of the settlement, Nortel agrees to report to the Commission staff every quarter until it fully implements its remediation program, and the company and its outside auditor agree that the existing material weakness has been resolved.

Nortel is a KPMG client. You can read more about KPMG at http://www.trinity.edu/rjensen/Fraud001.htm#KPMG

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

International CPA Firms Want One Set of Standards --- The IASB Standards

"Mind the GAAP," by James S. Turley, The Wall Street Journal, November 9, 2007; Page A18 --- http://online.wsj.com/article/SB119457514915987494.html

I manage a firm with a presence in over 140 countries, and from my perspective it is clear that the fluidity of the world's capital markets is outstripping the reach and constraints of national regulatory approaches. The pace of change in capital markets begs for bold action. The willingness of the U.S. and other nations to embrace International Financial Reporting Standards and give up GAAP provides a glimpse of the prospect for more international collaboration -- rather than stand-alone national approaches -- in other areas of capital market regulation.

True, it can be difficult for national representatives to relinquish direct control and embrace international collaboration, and the transition will have its share of hurdles. Many U.S. companies are not ready to make the change, and they have legitimate concerns about the degree to which judgments about international standards will be respected by regulators and the courts.

In many countries, the shift to international standards is already underway. While English may be the dominant global language of business, IFRS -- not U.S. GAAP -- is becoming the dominant language for financial reporting. Today, more than 100 countries either require or permit IFRS as their accounting standard or base their own local standards on it. Canada shifts in 2011, while Brazil, Chile, India, Israel and Korea are among the countries that have also set a date for a move to IFRS.

Robert Herz, chairman of the Financial Accounting Standards Board, recently suggested establishing a target date or dates for transitioning to IFRS, following a series of IFRS improvements. To take his suggestion a step further, the U.S. should reject a wait-and-see approach, go beyond the possibility of a switch and declare that it will adopt IFRS as of a date certain for all public companies filing in the U.S.

Such a move would enable U.S. companies to begin preparing now and would provide impetus to confront needed legal and regulatory changes that would accompany the shift. It would motivate universities to train tomorrow's accountants in IFRS and promote similar moves by other jurisdictions to embrace these international standards instead of modifying them for local use. This would also help countries establish and work toward the improvement of a single standard, rather than devoting their energy to tweaking national standards to make them look more like IFRS.

At Ernst & Young, we will weigh in with strong support for the SEC to set a certain date for a shift to IFRS. As SEC Chairman Christopher Cox has said, "Having a set of globally accepted accounting standards is critical to the rapidly accelerating global integration of the world's capital markets."

Mr. Turley is chairman and CEO of Ernst & Young.

Key differences between IFRS and FASB standards are discussed at http://www.trinity.edu/rjensen/Theory01.htm#FASBvsIASB
Comparisons for other nations --- http://www.iasplus.com/country/compare.htm

The best blog for tracking what's happening in this regard is at http://www.iasplus.com/index.htm

November 4, 2007 message from David Albrecht [albrecht@PROFALBRECHT.COM]

I think this is a must read, but then I'm a financial reporting guy.

David Albrecht Bowling Green

Someone to Watch over Me: IASB Asks for an Overseer The International Accounting Standards Board wants someone to watch over it. Alan Rappeport, CFO.com | US November 02, 2007

The International Accounting Standards Board contends that it needs a committee to oversee its actions and make sure that it represents the public interest. IASB Chairman David Tweedie told CFO.com editors on Thursday that the board will officially announce its plan for putting together such a group, and give further details next week.

The creation of such a committee could help quell the anxiety felt within some European countries and companies that the new global accounting standards being developed jointly by IASB and the U.S.-based Financial Accounting Standards Board don't represent their interests. Currently, IASB's European constituents are proposing local or industry-specific exceptions to International Financial Reporting Standards, known as "carve-outs."

"They feel slightly disenfranchised ... [wondering] what this group is doing floating around in global space just sticking laws onto us?" Tweedie said.

Although he didn't say specifically how such a monitoring system might work, the IASB chairman said it could function similarly to the SEC's oversight of FASB. The committee could maintain equanimity over the varying interests represented on the standards board and could act as an "endorsement mechanism" or a "second check" to ensure that it operates in the public interest, according to Tweedie.

Continued at http://www.cfo.com/printable/article.cfm/10086117/c_2984368?f=options

 

November 4, 2007 message from David Albrecht [albrecht@PROFALBRECHT.COM]

Oh, the beauty of it. US GAAP for years has been set up with the FASB overseen by the SEC. Recently, we saw the creation of the PCAOB to oversee the auditors, and the PCAOB is overseen by the SEC. The SEC, established by law with commissioners appointed by the President, oversees both the FASB and the PCAOB.

Internationally, the band wagon is rolling unstoppably along behind the IASB. Now the IASB wants an overseer. My guess is that sometime soon we will see the crying out need for an international group to oversee the auditors, the PCAOBI (Public Company Accounting Oversight Board International, pronounced pah-KOBI Bryant, with the Bryant silent). Why not? The large firms are international, and they dominate the audit markets in most countries. I doubt that any governmental oversight group will ever have much control over them. Right now, governmental oversight is diffused, spread from country to country. Shouldn't international audit firms applying international accounting rules have international oversight?

And who will be the oversight group for IASB and PCAOBI? And from where springs the authority to have any real power? The FASB plugs into the SEC's power outlet, so does the PCAOB. Would the IASB like to? It certainly is having difficulty maintaining control over its own rules in the face of EU carveouts. I suspect the carveouts will last a while, because the EU has its own power supply independent of the US. So, whose power supply will the IASB plug into, the SEC or the EU? Are there alternatives?

Right now I guess we could say that the IASB is operating on broadcast power. It got a huge kick in popularity when the EU adopted its rules. With the carveouts I see the EU exerting its power, and if the IASB wishes to continue using EU's power, it had better fall in line and plug directly into the EU. But that won't go over so well with the rest of the world. The US has its own power supply and there are power generators in other parts of the world.

My background is in political science, My original take on accounting rule harmonization was that irrevocable ceding of authority needs to be agreed to, or else rule harmonization would be as ineffective as the United Nations. The United Nations has never been effective because nations don't cede any real authority to it. It takes too much trust.

Here, I think, is where the excrement will hit the rotary blade. Accounting rules make a difference, a supposition borne out around the world, time and time again, by governments exerting control over them. Does the US trust the EU? Does China or Japan trust the EU? No. Does anybody trust the EU? No. But then, does the EU trust anybody else? No. Nobody trusts anybody.

Hence springs the IASB's search for its own power outlet. It won't find one because there isn't one.

Militarily, the US and Europe combined to form NATO, and arguably NATO has been more effective than the UN in peacekeeping. Something similar needs to be created for IASB to plug into.

In other words, I don't see true harmonization until the world's securities markets are brought under the control of an International Securities Market Group (perhaps called the International Securities & Exchange Commission), resulting from international treaty. I think that the discussion needs to expand to securities markets because I don't that sufficient power can be collected for only the IASB proposal for a power supply only for accounting rules. What about the auditors? What about the securities markets?

But NATO hasn't been very effective, as some of its countries still act unilaterally (I won't even talk about the UN). Nobody will irrevocably cede its authority. Nor will it happen here with accounting rules. There just isn't enough trust.

Consequently I think the new IASB idea will fly about the time that swine and pachyderms fly. However, if it does get off the ground, then I don't think it will ever be very effective.

David Albrecht
Bowling Green

 

November 26, 2007 message from Miklos A. Vasarhelyi [miklosv@andromeda.rutgers.edu]

HSBC in $45bn SIV bailout

By Paul J Davies
The New York Times
Published: November 26 2007 12:59 | Last updated: November 26 2007 12:59

HSBC has unveiled plans to take $45bn of mainly complex debt investments onto its balance sheet to end uncertainty surrounding its structured investment vehicles in the latest sign of the pressure banks are experiencing as a result of the credit squeeze.

The UK-listed bank said its decision to bail out its structured investment vehicles (SIVs) would provide certainty for investors in the funds, for HSBC shareholders and for the bank and could help support the broader market by removing the threat of a fire sale of the assets its vehicle held.
 

However, its decision to go it alone could be a blow for the US banks attempting to push through a US Treasury backed plan to create the so-called super SIV by taking a large potential collaborator out of the game.

HSBC was a relative late-comer to the multi-billion dollar investment game that has been hobbled by this summer’s financial crisis, but it now hopes to pioneer an escape route from the mire in which so many banks are stuck.

Stuart Gulliver, chief of its investment banking arm, said on Monday he believed HSBC’s restructuring plan for its $45bn (£22bn) in SIVs, the first of which it launched in the summer of 2005, would “set a benchmark and restore a degree of confidence to the SIV sector”.

These vehicles have had little good news since western financial markets began to look increasingly gummed up in August. There has been only one successful restructuring to date and almost half a once-$400bn-plus market now faces downgrades from rating agencies.

SIVs look to profit from the difference between cheap short-term funding in the commercial paper markets and the higher returns on financial company debt and complex debt products. But they have seen funding dry up and the value of their assets fall as investors fled from anything possibly tainted by the US subprime mortgage market.

HSBC has decided that the funding issues in the broad SIV sector are not going to be resolved for some time. Without action, its two vehicles – known as Cullinan and Asscher – would be likely to breach the common SIV covenants that would force a firesale of its holdings.

The threat of such firesales is part of the vicious circle helping to still further depress the values of the common assets all SIVs hold.

“The market needs these decisive steps to restore faith,” HSBC said on Monday. “It will help the market because our SIVs’ assets are no longer hanging over it, they’re off the table.”

The bank insists its move also helps its shareholders, mainly because it provides certainty at no great cost, arguing: “What is the alternative? If you’re going to let these vehicles go, what is the litigation risk from [SIV] investors? That is untested.”

While the bank will take $45bn of SIV assets on to its balance sheet, the junior investors who bear the risk of the first losses from those assets are expected to remain in place in two new vehicles – albeit probably having taken some kind of loss in the restructuring and earning a lower return.

The ongoing presence of these investors means the bank expects no material impact on its earnings and only a limited impact on its regulatory capital base.

The alternative for junior investors in the two SIVs is to retain holdings in vehicles that HSBC said it could not guarantee would be able to raise funding. By implication, the bank will do little else to support any rump SIVs or investors holding out in them.

EDITOR’S CHOICE

Money managers fight for new credit lines - Nov-24


Credit squeeze lifts Intermediate Capital - Nov-23


In depth: Subprime and the credit crisis - Aug-16


Editorial comment: Squeeze continues - Nov-20


3i rides credit squeeze to lift returns 37% - Nov-09


Lex: Mezzanine debt - Oct-18

 

Normally I avoid forwarding of advertising messages, especially for expensive products that appear to be overpriced. But this may be of interest to many of you to order for your library or on your library's free interlibrary-loan service.

November 6, 2007 message from Amy Cole [amy.cole@researchandmarkets.com]

I enclose details of our latest US Accounting Report.

Our Accountancy in the United States industry profile is an essential resource for top-level data and analysis covering the accountancy industry.

It includes detailed data on market size and segmentation, plus textual and graphical analysis of the key trends and competitive landscape, leading companies and demographic information.

http://www.researchandmarkets.com/product/a1e401/accountancy_in_the_united_states 

Scope: - Contains an executive summary and data on value, volume and/or segmentation - Provides textual analysis of the industry's recent performance and future prospects - Incorporates in-depth five forces competitive environment analysis and scorecards - Includes a five-year forecast of the industry - The leading companies are profiled with supporting key financial metrics - Supported by the key macroeconomic and demographic data affecting the market

Highlights: - Detailed information is included on market size, measured by value and/or volume - Five forces scorecards provide an accessible yet in depth view of the market's competitive landscape

Why you should buy this report: - Spot future trends and developments - Inform your business decisions - Add weight to presentations and marketing materials - Save time carrying out entry-level research

For a complete overview of this report click on: http://www.researchandmarkets.com/product/a1e401/accountancy_in_the_united_states 

Report Index:

CHAPTER 1 Market Overview 1.1 Market Definition 1.2 Research Highlights 1.3 Market Analysis

CHAPTER 2 Market Value

CHAPTER 3 Market Segmentation I

CHAPTER 4 Market Segmentation II

CHAPTER 5 Five Forces Analysis 5.1 Buyer Power 5.2 Supplier Power 5.3 New Entrants 5.4 Substitutes 5.5 Rivarly

CHAPTER 6 Leading Companies 6.1 Deloitte Touche Tohmatsu 6.2 Ernst & Young International 6.3 KPMG International

CHAPTER 7 Market Forecasts 7.1 Market Value Forecast

CHAPTER 8 Macroeconomic Indicators

CHAPTER 9 Appendix 9.1 Methodology 9.2 Industry Associations 9.3 Related Our Research

Pricing:

Electronic : EUR 268

Ordering - Three easy ways to place your order:

1] Order online at http://www.researchandmarkets.com/product/a1e401/accountancy_in_the_united_states 

2] Order by fax: Print an Order form from http://www.researchandmarkets.com/product/a1e401/accountancy_in_the_united_states 
and Fax to +353 1 4100 980

3] Order by mail: Print an Order form from http://www.researchandmarkets.com/product/a1e401/accountancy_in_the_united_states 
and post to Research and Markets Ltd. Guinness Center, Taylors Lane, Dublin 8. Ireland.

Related report also available from Research and Markets:

Accountancy: Global Industry Guide - http://www.researchandmarkets.com/product/a1e401/accountancy_global_industry_guide 

Thank you for your consideration.

Best Regards,

Amy Cole Senior Manager Research and Markets Ltd amy.cole@researchandmarkets.com 

Subscribe: Click on http://www.researchandmarkets.com/register.asp 
You can subscribe free for regular details on new research in your sector.

Please note you are currently subscribed as rjensen@trinity.edu 

If you no longer wish to receive our market research updates, please reply to this message with Suppression Request as the subject line, or use the link below

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Humor Between November 1 and November 30, 2007

Saturday Night Live Clips from the 1980s --- http://www.youtube.com/watch?v=pDv7GLz1qyw

John McCain sings Barbara Streisand --- http://www.youtube.com/watch?v=XQeU4uvm40g

Gilda Radner -- Nadia Comaneci --- http://www.youtube.com/watch?v=m9uNsHrkr3g

Gilda Radner - Emily Litela: Substitute Teacher --- http://www.youtube.com/watch?v=afi2xeM5ZSI

Gilda Radner - Lets Talk Dirty To The Animals --- http://www.youtube.com/watch?v=0SVmQMPaLMQ

A Tribute to the Incredible Gilda Radner --- http://www.youtube.com/watch?v=scSpb6Q949o

Britney Spears singing Everytime at saturday night live --- http://www.youtube.com/watch?v=LMccA6IxDdM
I want them to play Britney Spears at my funeral. This way I won't feel so bad about being dead, and everyone there will know there is something worse than Death.
Gary Numan

Saturday Night Live , Lohan / Hilary Duff / Avril Lavigne --- http://www.youtube.com/watch?v=m0bS3w8admY

Paul McCartney Saturday Night Live May 17, 1980 --- http://www.youtube.com/watch?v=9aOR-3WpTag

Stompin' Tom Connors - Sudbury Saturday Night (Live 2005) --- http://www.youtube.com/watch?v=Dw7rzpvDvS0

How to be a Good Wife --- http://www.snopes.com/language/document/goodwife.asp

With Pictures
In a politically correct age, they seem like outrageous anachronisms. And there is no doubt these adverts - many taken from the first half of the last century - reveal just how much women used to be caricatured as downtrodden housewives or hair-brained office girls. Now, a new book - You Mean A Woman Can Open It?: The Woman's Place In The Classic Age Of Advertising - brings together images which would surely cause a howl of protest if they were released today.
"The outrageously politically incorrect adverts from the time equality forgot," London Daily Mail, November 28, 2007 --- Click Here

Accountants Like Their Figures
November 28, 2007 message from Linda A. Kidwell [LKidwell@uwyo.edu]

This is a real advertisement from The Journal of Accountancy in 1951.  I came across it looking for the earliest article on the fraud triangle.  Wow!  Have times changed!  (well maybe only the business interpretation of the ad).

See http://www.trinity.edu/rjensen/tidbits/2007/1951AccountancyAdv.pdf

Linda Kidwell

Bumper Stickers for the Elderly --- http://www.trinity.edu/rjensen/tidbits/2007/Bumperstickers02.htm

Funny Signs --- http://eightsolid.com/24-very-strange-funny-signs/

Computer Stupidities --- http://www.rinkworks.com/stupid/cs_paranoia.shtml

Forwarded by a Neighbor

Forwarded by James Don

I don't know if you have seen these before--they have been circulating for a while. If you have not seen them I thought you might get a laugh out of them.

These sentences are reported to have actually appeared in church bulletins or were announced in church services:

(Summer, 2006 Release)

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

The Fasting & Prayer Conference includes meals.

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

The sermon this morning: 'Jesus Walks on the Water.'

The sermon tonight: 'Searching for Jesus.'

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

Ladies, don't forget the rummage sale. It's a chance to get rid of those things not worth keeping around the house.

Bring your husbands.

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

Remember in prayer the many who are sick of our community. Smile at someone who is hard to love. Say 'Hell' to someone who doesn't care much about you.

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

Don't let worry kill you off - let the Church help.

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

Miss Charlene Mason sang 'I will not pass this way again,' giving obvious pleasure to the congregation.

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

For those of you who have children and don't know it, we have a nursery downstairs.

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

Next Thursday there will be tryouts for the choir.

They need all the help they can get.

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

Irving Benson and Jessie Carter were married on October 24 in the church. So ends a friendship that began in their school days.

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

A bean supper will be held on Tuesday evening in the church hall. Music will follow.

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

At the evening service tonight, the sermon topic will be 'What Is Hell?'

Come early and listen to our choir practice.

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

Eight new choir robes are currently needed due to the addition of several new members and to the deterioration of some older ones.

Scouts are saving aluminium cans, bottles and other items to be recycled. Proceeds will be used to cripple children.

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

Please place your donation in the envelope along with the deceased person you want remembered.

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

The church will host an evening of fine dining, super entertainment and gracious hostility.

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

Potluck supper Sunday at 5:00 PM - prayer and medication to follow.

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

The ladies of the Church have cast off clothing of every kind.

They may be seen in the basement on Friday afternoon.

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

This evening at 7 PM there will be a hymn singing in the park across from the Church. Bring a blanket and come prepared to sin.

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

Ladies Bible Study will be held Thursday morning at 10 AM. All ladies are invited to lunch in the Fellowship Hall after the B. S. is done.

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

The pastor would appreciate it if the ladies of the congregation would lend him their electric girdles for the pancake breakfast next Sunday.

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

Low Self Esteem Support Group will meet Thursday at 7 PM. Please use the back door.

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

The eighth-graders will be presenting Shakespeare's Hamlet in the Church basement Friday at 7 PM. The congregation is invited to attend this tragedy.

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

Weight Watchers will meet at 7 PM at the First Presbyterian Church. Please use large double door at the side entrance.

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

The Associate Minister unveiled the church's new tithing campaign slogan last Sunday: 'I Upped My Pledge - Up Yours.'

Forwarded by Auntie Bev

Once again, The Washington Post has published the winning submissions to its yearly neologisms, in which readers are asked to supply alternate meanings for common words.

The winners are:

1. Coffee (n.), the person upon whom one coughs.

2. Flabbergasted (adj.), appalled over how much weight you have gained.

3. Abdicate (v.), to give up all hope of ever having a flat stomach.

4. Esplanade (v.), to attempt an explanation while drunk.

5. Willy-nilly (adj.), impotent.

6. Negligent (adj.), describes a condition in which you absentmindedly answer the door in your nightgown.

7. Lymph (v.), to walk with a lisp.

8. Gargoyle (n.), olive-flavored mouthwash.

9. Flatulence (n.) emergency vehicle that picks you up after you are run over by a steamroller.

10. Balderdash (n.), a rapidly receding hairline.

11. Testicle (n.), a humorous question on an exam.

12. Rectitude (n.), the formal, dignified bearing adopted by proctologists.

13. Pokemon (n), a Rastafarian proctologist.

14. Oyster (n.), a person who sprinkles his conversation with Yiddishisms.

15. Frisbeetarianism (n.), The belief that, when you die, your Soul flies up onto the roof and gets stuck there.

16. Circumvent (n.), an opening in the front of boxer shorts worn by Jewish men.

The Washington Post's Style Invitational also asked readers to take any word from the dictionary, alter it by adding, subtracting, or changing one letter, and supply a new definition.

Here are this year's winners:

1. Bozone (n.): The substance surrounding stupid people that stops bright ideas from penetrating. The bozone layer, unfortunately, shows little sign of breaking down in the near future.

2. Foreploy (v): Any misrepresentation about yourself for the purpose of getting laid.

3. Cashtration (n.): The act of buying a house, which renders the subject financially impotent for an indefinite period.

4. Giraffiti (n): Vandalism spray-painted very, very high.

5. Sarchasm (n): The gulf between the author of sarcastic wit and the person who doesn't get it.

6. Inoculatte (v): To take coffee intravenously when you are running late.

7. Hipatitis (n): Terminal coolness.

8. Osteopornosis (n): A degenerate disease.

9. Karmageddon (n): Its like, when everybody is sending off all these really bad vibes, right? And then, like, the Earth explodes and it's like, a serious bummer.

10 Decafalon (n.): The grueling event of getting through the day consuming only things that are good for you.

11. Glibido (v): All talk and no action.

12. Dopeler effect (n): The tendency of stupid ideas to seem smarter when they come at you rapidly.

13. Arachnoleptic fit (n.): The frantic dance performed just after you've accidentally walked through a spider web.

14. Beelzebug (n.): Satan in the form of a mosquito that gets into your bedroom at three in the morning and cannot be cast out.

15. Caterpallor (n.): The color you turn after finding half a grub in the fruit you're eating.

And the pick of the literature:

16. Ignoranus (n): A person who's both stupid and an a-hole.

Forwarded by Gene and Joan

DIVORCE VS. MURDER

A nice, calm and respectable lady went into the pharmacy, walked up to the pharmacist, looked straight into his eyes, and said, "I would like to buy some cyanide."

The pharmacist asked, "Why in the world do you need cyanide?"

The lady replied, "I need it to poison my husband."

The pharmacist's eyes got big and he exclaimed, "Lord have mercy! I can't give you cyanide to kill your husband. That's against the law! I'll lose my license! They'll throw both of us in jail! All kinds of bad things will happen. Absolutely not! You CANNOT have any cyanide!"

The lady reached into her purse and pulled out a picture of her husband in bed with the pharmacist's wife.

The pharmacist looked at the picture and replied, "Well now, that's different. You didn't tell me you had a prescription."

Forwarded by Paula

Forget Rednecks, here is what Jeff Foxworthy has to say about folks from Texas ...

You May Live In Texas IF:

If someone in a Lowe's store offers you assistance and they don't work there, you may live in Texas

If you've worn shorts and a parka at the same time, you may live in Texas .

If you've had a lengthy telephone conversation with someone who dialed a wrong number, you may live in Texas .

If "Vacation" means going anywhere south of Dallas for the weekend, you may live in Texas .

If you measure distance in hours, you may live in Texas

If you know several people who have hit a deer more than once, you may live in Texas .

If you install security lights on your house and garage, but leave both unlocked, you may live in Texas .

If you carry jumper cables in your car and your wife knows how to use them, you may live in Texas .

If the speed limit on the highway is 55 mph -- you're going 80 and everybody is passing you, you may live in Texas

If you find 60 degrees "a little chilly", you may live in Texas .

Forwarded by Dick Haar

Political Correctness is a doctrine, fostered by a delusional, illogical, liberal minority and rabidly promoted by an unscrupulous mainstream media, which holds forth the proposition that it is entirely possible to pick up a t _ _d by the clean end.

Teachers' Notes in Report Cards

Forwarded by Gene and Joan

These are supposedly actual comments made on students' report cards by teachers   In the New York City public school system. All teachers were purportedly reprimanded. Who knows? But they're funny anyway. They might also have been comments on RateMyProfessor --- http://www.ratemyprofessors.com/index.jsp    

01 Since my last report, your child has reached rock bottom and has started to dig.     

02. I would not allow this student to breed.     

03. Your child has delusions of adequacy.     

04. Your son is depriving a village some where of an 'idiot'.      

05. Your son sets low personal standards, and then consistently fails to achieve them.     

06. The student has a "full six-pack" but lacks the plastic thing to hold it all together.     

07. This child has been working with glue too much.     

08. When your daughter's IQ reaches 50, she should sell.     

09. The gates are down, the lights are flashing, but the train isn't coming.   

10. If this student were any more stupid, he'd have to be watered  --- Twice a week.     

11. It's impossible to believe the sperm that created this child, beat out 1,000,000 others .  

12. The wheel is turning, but the hamster is definitely dead.  

Forwarded by Moe

Four Worms and a Lesson

A minister decided that a visual demonstration would add emphasis to his Sunday sermon.

Four worms were placed into four separate jars.

The first worm was put into a container of alcohol. The second worm was put into a container of cigarette smoke. The third worm was put into a container of chocolate syrup. The fourth worm was put into a container of good clean soil.

At the conclusion of the sermon, the Minister reported the following results:

The first worm in alcohol - Dead.

The second worm in cigarette smoke - Dead.

Third worm in chocolate syrup - Dead.

Fourth worm in good clean soil - Alive.

So the Minister asked the congregation -

What can you learn from this demonstration?

Maxine was sitting in the back, quickly raised her hand and said,

"As long as you drink, smoke and eat chocolate, you won't have worms!"

Forwarded by Paula

To all you dog lovers out there and those who understand the difference between Yankees and Southerners...

A Translation Of Yankee Dogs To Southern Dawgs

(Yankee) German Shepherd Dog
(Southern) Poh-leece Dawg.

(Yankee) Poodle
(Southern) Circus Dawg.

(Yankee) St. Bernard
(Southern) "Thank Gawd, Here Comes The Whiskey Dawg."

(Yankee) Doberman Pinscher
(Southern-2 versions) Bad Dawg, or Dobimin Pinches.

(Yankee) Beagle
(Southern) Rabbit Dawg.

(Yankee) Rottweiler
(Southern) Bad Dawg AND Mean As Heck Dawg. Good dawg to guard the still.

(Yankee) Yellow Lab
(Southern) Ol' Yeller Dawg.

(Yankee) Black Lab
(Southern) Duck fetchin' Dawg.

(Yankee) Greyhound
(Southern) Greased Lightnin' Dawg.

(Yankee) Malinois
(Southern) Another kind of Poh-leece Dawg.

(Yankee) Blue Ticks, Red Bones, etc.
(Southern) Prize Coon Dawgs.

(Yankee) Pekinese
(Southern) Mop Dawg.

(Yankee) Chinese Crested
(Southern) Nekkid Dawg.

(Yankee) Dachshund (
Southern) Wienie Dawg.

(Yankee) Siberian Husky
(Southern) Sled-Pullin' Dawg.

(Yankee) Bouvier, Komondor
(Southern) "What The Heck Kinda Dawg Is That?"

(Yankee) Great Dane, Mastiff
(Southern) Danged BIG Dawg.

(Yankee) Any dog that raids the hen house (Southern) Egg-Suckin' Dawg.

(Yankee) Any lazy dog
(Southern) Good fer nothin' Dawg.

(Yankee) Any dog that's dead & buried & gone to Rainbow Bridge
(Southern) Best danged Dawg I ever had.

Forwarded by Auntie Bev

Reporters interviewing a 104-year-old woman: 'And what do you think is the best thing about being 104?' the reporter asked. She simply replied, 'No peer pressure.'
_______________________________
The nice thing about being senile is you can hide your own Easter eggs .
__________________________________________________________
I've sure gotten old! I've had two bypass surgeries, a hip replacement, new knees, fought prostate cancer and diabetes. I'm half blind, can't hear anything quieter than a jet engine, take 40 different medications that make me dizzy, winded, and subject to blackouts. Have bouts with dementia. Have poor circulation; hardly feel my hands and feet anymore. Can't remember if I'm 85 or 92. Have lost all my friends. But, thank God, I still have my driver's license.
________________________________
I feel like my body has gotten totally out of shape, so I got my doctor's permission to join a fitness club and start exercising. I decided to take an aerobics class for seniors. I bent, twisted, gyrated, jumped up and down, and perspired for an hour. But, by the time I got my leotards on, the class was over.
_______________________________
An elderly woman decided to prepare her will and told her preacher she had two final requests. First, she wanted to be cremated, and second, she wanted her ashes scattered over Wal-Mart.
'Wal-Mart?' the preacher exclaimed. 'Why Wal-Mart?'
'Then I'll be sure my daughters visit me twice a week.'
____________________________________________________________
My memory's not as sharp as it used to be. Also, my memory's not as sharp as it used to be.
________________________________  
Know how to prevent sagging? Just eat till the wrinkles fill out.
_______________________________
It's scary when you start making the same noises as your coffee maker.
______________________________
These days about half the stuff in my shopping cart says, 'For fast relief.'
______________________________
Remember: You don't stop laughing because you grow old, You grow old because you stop laughing.
________________________________
--- THE SENILITY PRAYER : Grant me the senility to forget the people I never liked anyway, the good fortune to run into the ones I do, and the eyesight to tell the difference.

Celebrities With Two Names --- http://www.trinity.edu/rjensen/tidbits/2007/CelebrityNames.htm
 

Maxine's Living will forwarded by Paula

Last night my girlfriend and I were sitting in the den and I said to her, “I never want to live in a vegetative state, dependent on some machine and fluids from a bottle to keep me alive. That would be no quality of life at all. If that ever happens, just pull the plug.”

So she got up, unplugged the computer, and threw out my wine.

Forwarded by a neighbor

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

 

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

 

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

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

International Accounting News (including the U.S.)

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

Wikipedia has a rather nice summary of accounting software at http://en.wikipedia.org/wiki/Accounting_software
Bob Jensen’s accounting software bookmarks are at http://www.trinity.edu/rjensen/Bookbob1.htm#AccountingSoftware

Bob Jensen's accounting history summary --- http://www.trinity.edu/rjensen/Theory01.htm#AccountingHistory

Bob Jensen's accounting theory summary --- http://www.trinity.edu/rjensen/Theory.htm

 

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

 

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

 

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

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

October 31, 2007

Bob Jensen's New Bookmarks between October 1 and October 31, 2007
Bob Jensen at Trinity University 

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

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

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

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

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

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

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

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

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