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Archive for April, 2011

The last two days have been busy, fielding calls from reporters.  One called asking my thoughts on convergence, the other asked about my thoughts on whether accounting can forestall the next financial crisis.

Long time readers know what I said.

Convergence of accounting standards is a bad idea.  The academic theory is that market participants benefit from detailed information tailored to that specific market.  Given that capital markets are local (but are linked around the world) it makes sense that local accounting standards (that force companies to disclose as much detail as possible) would provide the greatest value.

What is the impact of accounting rules and auditors on the next financial crisis?  Because auditors don’t do the job that investors wish they would do, the accounting rules hardly matter.  The academic theory is that if companies are not required to secure an audit opinion, then the act of hiring an auditor signals a company’s intention to obey the accounting rules.  However, if companies are required by law to secure an audit opinion, there is no theory that these audits provide value.  There is a theory paying more signals intent to follow the accounting rules, but then paying more might mean that the company wants to get away with more.  Therefore we are in uncharted waters.  There is no theory to suggest that audit opinions will be trustworthy.  If audit opinions aren’t trustworthy, then there is no effective check on the numbers reported by companies in their financial statemeents.

The two work together.  If converged accounting standards are company friendly, and auditors are paid to be company friendly, then it is likely that accounting and auditors will not delay, by even a day, the next financial crisis.

I hope the reporters heard my message.

Debit and credit – – David Albrecht

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Please Pick Me!

The SEC announced today a July 7 roundtable on International Financial Reporting Standards, “to discuss benefits or challenges in potentially incorporating International Financial Reporting Standards (IFRS) into the financial reporting system for U.S. issuers.”  The complete text of the announcement is here.

There will be three panels: investors, small businesses, regulators.  They will not have a panel for opponents of IFRS adoption.

Here’s a suggestion for the SEC–please pick me!  I’ll be glad to represent investors.  I also recommend Tom Selling and Charley Niemeier.

Please pick professor David Albrecht for the July 7 Roundtable on IFRS

The SEC has not welcomed viewpoints opposing IFRS adoption.  Presumably it thinks that if we are not given a voice, then that voice doesn’t exist.  SEC Chief Accountant James Kroeker has repeated said that incorporation of IFRS into American rules for financial reporting is a must.  Perhaps he is just going through the motions by scheduling this roudtable.  I don’t care.  Please pick me!  I would love to participate.

Here’s another idea.  Schedule a roundtable panel discussion of IFRS opponents, so opposing viewpoints can be presented to the SEC.

Debit and credit – – David Albrecht

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How is a mugger different from an IRS agent?  Both take your money, but the mugger doesn’t make you fill out forms.

It is April 18, 2011, tax forms must be filed no later than today.  Of course, it is easy to get a six month extension.  Come October 17, 2011, there will be a line of taxpayers at the post office filing for an additional extension.

Actually not. Not in the age of e-filing.  That’s a shame. Back in the mid-70s I was a clerk at the U.S. Post Office in Iowa City, working the 11 p.m. to 7 a.m. shift (ugh!).  One year I was sent outside to empty the mail box at 11:59 p.m.  There were six cars backed up.  I had instructions to accept mail from anyone in line when the clock struck midnight.  I miss those days.

Tax is a day of accountability, but not accounting.  I’ve always viewed taxes as the practice of law, not the practice of accounting.

I haven’t seen many good cartoons this year, so I’m going to recycle a classic.

And now, for a really clever cartoon about the complicated tax code.

Debit and credit – – David Albrecht

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David Letterman has produced a Top 10 list nightly for years.  Every year, around tax time, there’s one devoted to federal income taxes and the Internal Revenue Service.  This year’s tax list aired on Thursday, April 14, 2011.  I like it, because area accountants were brought in to read each item. There are several repeat accountants from the last two years.  Richard Cohen (“Women want me, men want to be me.”), who usually bats clean up, was noticeably absent.  Doug Cohen did a great job filling in as his replacement.  [Thanks to Kay Bell of Don’t Mess With Taxes for the tip.]

My all time favorites is “Women want me …” from 2009:

There have been other taxing Top 10 lists over the years.  From several years ago, here’s “1040, Good Buddy.”

And just for the record, here’s 2010:

Keep up the good work, Dave.

Have a happy April 18th!

Debit and credit – – David Albrecht

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If you missed this NOVA special, please watch it now.  Thanks to Bob Jensen on the tip to this video.

Debit and credit – – David Albrecht

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The annual conference of the Ohio Region of the American Accounting Association is hosting a debate between Francine McKenna (journalist/commentator on the audit industry) and Andy Bailey (Grant Thornton).  It is scheduled for Friday, May 13, 2011, in Dublin (Columbus), Ohio.  Conference registration is $180 on site.

The topic of the debate is, “An Examination of the Audit Business Model.  Presumably, McKenna will talk about the flaws in the current audit model and the many problems that result, and Bailey will talk about the importance of the model and how audit forms function smoothly and effectively.

4:30 PM – 5:45 PM Concurrent Session
Panel 5 – An Examination of the Audit Business Model
A critical examination of the function of the public accounting based audit model.

Francine McKenna, Litigation Consultant
Andy Bailey, Grant Thornton

As my readers know, I have been studying this topic for 25 years.  There is no theory in the accounting field that predicts that audits and auditors will serve the public interest IF companies are required to secure audits (whether they want them or not), are free to select the auditor they want, pay them for their opinion, and audit firms are large, can restrict competition and shareholder litigation.

Many industry observers have noticed the many instances when audit firms did not act in the public interest, and are asking what can be done to fix the audit model.  My response is that a new audit model needs to be developed.

But what will McKenna and Bailey say?  Presumably McKenna will say that the current model is seriously flawed (if not fatally), and has resulted in the current environment of auditors not serving the public interest.  Presumably Bailey will say that all is well in the auditing world, but can be even better if a few small tweaks are made.

I’ll be there, hanging on every word.  I hope to see you all there.


Francine McKenna

Francine McKenna is a freelance writer with credits in the Financial Times, Accountancy Age, Accountancy Magazine, the FEI Blog, and various financial, media, and technology blogs. She also blogs at Forbes.com under the heading “Accounting Watchdog.” Her blog is occasionally reposted at the The Huffington Post and she had a weekly column at GoingConcern.com

Ms. McKenna has more than twenty-five years of experience in a range of industries in the consulting and professional services environment. McKenna directed the Y2K PMO for JP Morgan in Latin America and was the first female Managing Director for BearingPoint in Latin America, responsible for the Industrial, Automotive and Transportation practice. She was a RVP for Jefferson Wells/Manpower and a Director for PricewaterhouseCoopers LLC, auditing the PwC the firm itself. She held various positions in accounting and financial management prior to her career in professional

Ms. McKenna was recently named a finalist for the Gerald Loeb Award for Distinguished Financial and Business Journalism in the online commentary and blogging category.

Francine has been quoted in the New York Times, Wall Street Journal, Chicago Tribune, Financial Times, Forbes, BusinessWeek, The Deal, The Times of London, the Guardian, and the Financial Chronicle (India) amongst many others. She has been profiled by accounting and social marketing/media sites. Her public speaking credits include private training, university teaching, and speeches for the Institute of Internal Auditors, the Information Systems Audit and Control Association, and the Maryland Association of CPAs.


Andrew Bailey

Andrew D. Bailey was appointed Senior Policy Advisor to the Grant Thornton National Public Policy and Strategy Group in September 2006.

From January 2004 to December 2005, Dr. Bailey was a Senior Officer of the United States Securities and Exchange Commission (SEC), serving as the Deputy Chief Accountant in the Commission’s Office of the Chief Accountant. In this capacity, Dr. Bailey managed the day-to-day operations of the office, overseeing the accounting aspects of the resolution of registrant issues, rulemaking projects and private sector standard-setting efforts. Earlier, from August 2000 to July 2001, Dr. Bailey had served as an Academic Accounting Fellow in the SEC Office of the Chief Accountant.

Professor Bailey spent a long and distinguished career in academia, with numerous visiting professorships abroad, and culminating with his being named Emeritus Professor of Accountancy at the University of Illinois at Urbana-Champaign.

Debit and credit – – David Albrecht

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Social Media Strategies for Professionals and Their Firms, by Michelle Golden, is an excellent book to study from if you are thinking about doing more with social media.  And why should you do more with social media?  You will enhance your productivity, your career, and your life!  All professors, professional accountants, finance professionals and business students should do more with social media from a professional perspective.

I’ve had the book for three months now, and have settled into using it as a reference.  It’s so useful, I have one copy for my home office, and one for my university office.  It is a great book, and should I ever get a chance to teach a course in Social Media Marketing (e-mail if you want me to teach such a course at your school), this will be one of the assigned books.

Michelle Golden is the marketing guru to accounting and law firms.  You might be a reader of her Golden Practices Blog. Make every effort to hear her speak in person.

I’m bringing reviews of her book to you through the voices of other readers.

The first is by Professor Gary Schirr (Radford University, Virginia).  Schirr blogs at Service Co-Creation.  His review comes via video:

The other reviews are customer reviews at Amazon (here).  They are uniformly positive.

Please buy her book and read it!

Debit and credit – – David Albrecht

P.S.  Another good review is here.

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