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Archive for October, 2011

I’m a social media guy–blogging, tweeting, connecting via LinkedIn, and updating through a Facebook page.  Social media usage has helped transform me into a better listener and a kinder, gentler speaker.  That’s enough proof for me to believe that social media makes a person more social (although reliable research findings collaborate this conclusion).

I’m not the only one hooked on social media.  Hundreds of millions are active on Facebook, and someday the number might reach one billion.  And why do so many people use various social media?  It’s because human beings are social creatures.  We tend to do things in families and groups.  We like interacting.

There are benefits to being social, such as companionship, friendship, love, respect, and sharing information.  There are costs, too.  Some are unskilled at being social and alienate instead of befriend.  And others reveal too much, too often.  Although loose lips get kissed, they also sink ships.

Businesses are flocking to social media, and using it for marketing, communication, employee education and image branding.  The primary reason is increased profit.  However, a downside is starting to emerge.

Enter corporate espionage, a thriving industry.  Have you seen the movie Duplicity?  Clive Owen plays Ray Koval, formerly of MI6, and Julia Roberts plays Claire Stenwick, formerly of the CIA.  They now work for corporate rivals who employ their own spy networks.

Far less interesting than Duplicity is Broker, Trader, Lawyer, Spy: The Secret World, by Eamon Javers.  Javers’ book is a history of the corporate espionage business, which really does exist.  From page one of BTLS:

There was no way for [KPMG accountant] Enright to know that Hamilton was not at all who he suggested he was.  He couldn’t know that several clandestine operatives were right now following him from his office at KPMG Financial Advisory Services to the restaurant, working in an efficient tag-team relay to ensure that Enright wouldn’t spot anything unusual. And Enright certainly didn’t notice that, among the crowd of well-dressed international business people and tourists dining at Little Venice, one woman watched as he took his seat.  She, too, was working for Hamilton, and she was there to make sure Enright didn’t have backup of his own.

Enright did not.  He was way out of his league.  The British-born was just like millions of mid-level white collar workers around the world.  What did he know about espionage? But his position as a senior manager in corporate recovery gave him access to documents for which a wealthy client might pay millions of dollars.  Might lie for.  Might steal, if necessary.  And that client hired the man who called himself Nick Hamilton.  Hamilton’s team was a mix of American CIA veterans, former officers of the British MI5 security service, and young, adventure-seeking American college graduates.

They were corporate spies.

Oh, to be young, athletic and good looking again.  I might enjoy a spate of adventure.

Corporate espionage represents a serious threat to business, in general, and accounting/auditing firms in particular.  Although economic espionage is illegal, it has spawned a thriving industry.  Moreover, it is just a step removed from outsider fraud aimed at small to medium sized business.  Linda Kotze, in “Corporate Espionage Highlighted in the Movie Duplicity,”  describes the scope of the problem,

Research from consulting firm PricewaterhouseCoopers, estimates that Corporate Espionage costs the world’s 1,000 largest companies in excess of US$45 billion  every year. Unfortunately, these surveys and estimates do not include the over 600,000 businesses in the US with more than 20 employees or the 98,000 companies with more than 100 employees.

Daniel J. Benny, a private investigator and security consultant has placed his PowerPoint presentation, “Corporate Espionage Countermeasures,” on-line.

Corporate espionage and corporate fraud from outsiders are serious threats.  Accounting/auditing firms are frequently targets of such espionage activities because of their access to inside corporate information.  That so  many businesses and employees are using social media just makes the job of spies that much easier.

Unpublished research reveals that both SMBEs and their accountants/auditors know next to nothing about combatting it.  Perhaps it is time they learned.

Debit and credit – – David Albrecht

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Miscellany — interesting items that caught my eye during the week.


Jonathan Weil shows why he is one of the premier journalists writing about accounting in, “Goldman Sachs Envy Gains New Meaning at Big Four.”  Weil shows several examples of the revolving door between the large accounting firms and their regulators on the PCAOB.  There are stinky conflicts of interest.


Adam Jones, accountancy correspondent for the Financial Times, writes about new KPMG International chairman Michael Andrew in “KPMG vows to remain a multi-disciplinary firm.”  In this interview, Andrew ridicules all non-Big 4 accounting firms,

He also lashed out at a Commission proposal to force the Big Four to share some audits with smaller rivals. “Can you imagine a second-tier firm auditing a global bank at a time when there is already a lack of confidence in the marketplace?”

He added: “They simply don’t have the skills or the market expertise.”

He also accused some smaller rivals of being “quite lazy” about investing in their businesses.

Mr. Andrew is a jerk.  But Steve Martin was funnier at it.

Jones has another story on the issue, “Auditing has moved into the realms of sitcom.”  It’s worth a read.


Stephanie Sammons, of Social Media Examiner, writes about, “5 Simple Steps for Improving Your LinkedIn Visibility.”  Read it.  Do it.


Tom Selling is terrific when he writes about IFRS adoption issues, as he does in, “Will the SEC Sneak IFRS in Through the Back Door?”  Selling is sounding more pessimistic about how the nefarious SEC might sneak in IFRS, despite all reason and common sense (as well as almost every accountant and investor) being against it.

I have little faith.  The commissioners of the SEC are political appointees, and Mary Schapiro has been a willing accomplice to Obama administration policy.  She has her marching orders to install IFRS, and she is loyal to the hand that feeds her.


Mark Schaefer of {Grow} has another post out on Klout, “Kould Kare Less.”

His Klout score is high, but he doesn’t care.  Mine isn’t, and I don’t care either.  Yet, many do.


Debit and credit – – David Albrecht

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Charles T. Horngren, 1926-2011

Charles T. Horngren has passed away.  Born on October 28, 1926, he died October 23, 2011 of natural causes.  He is well known for authoring Cost Accounting: A Managerial Emphasis, the best selling textbook in cost accounting for the past 40 years.  Now in its 14th edition and co-authored with Srikant M. Datar and George Foster, I first read the book in 1977 as a young accounting student.  At that time, it was already the dominate cost textbook nation-wide.

According to Bob Jensen, “He was not only a well-loved member of the GSB community, he was regarded with the same admiration by his professional peers beyond Stanford.”  I agree.

The Graduate School of Business at Stanford University has set up a testimonial page.  Quoting from it,

It is with great sadness the GSB must inform you that Charles T. (Chuck) Horngren, Edmund W. Littlefield Professor of Accounting, Emeritus, passed away peacefully October 23, 2011. He was not only a well-loved member of the GSB community, he was regarded with the same admiration by his professional peers beyond Stanford …

A memorial service is planned for 10 am, Saturday, November. 12, at St. Thomas Aquinas Church, 751 Waverley Street, Palo Alto. A reception will follow at the Garden Court Hotel, 520 Cowper, Palo Alto (free valet parking will be provided for those attending the memorial reception.)

Horngren was added to the Accounting Hall of Fame in 1990.

Horngren's Cost Accounting: A Managerial Emphasis

Pearson, which published his popular textbook, lists his many accomplishments,

Charles T. Horngren is the Edmund W. Littlefield Professor Emeritus of Accounting at Stanford University. A graduate of Marquette University, he received his MBA from Harvard University and his Ph.D. from the University of Chicago. He is also the recipient of honorary doctorates from Marquette University and DePaul University.

A Certified Public Accountant, Horngren served on the Accounting Principles Board for six years, the Financial Accounting Standards Board Advisory Council for five years, and the Council of the American Institute of Certified Public Accountants for three years. In addition, he served as a trustee of the Financial Accounting Foundation, which oversees the Financial Accounting Standards Board and the Government Accounting Standards Board for six years.

A member of the American Accounting Association, Horngren has also served as its President and Director of Research. He received the Outstanding Accounting Educator Award in 1973, when the association initiated an annual series of such awards.

The California Certified Public Accountants Foundation gave Horngren its Faculty Excellence Award in 1975 and its Distinguished Professor Award in 1983. He is the first person to have received both awards. In 1985, the American Institute of Certified Public Accountants presented him with its first Outstanding Educator Award. Five years later, he was elected to the Accounting Hall of Fame.

In 1993, Horngren was named Accountant of the Year, Education, by the national professional accounting fraternity, Beta Alpha Psi.

Professor Horngren is a member of the National Association of Accountants, and served on its research planning committee for three years. He was also a member of the Board of Regents, Institute of Management Accounting, which administers the Certified Management Accountant examinations.

Dr. Horngren, I appreciate your contributions to my professional life.

Debit and credit – – David Albrecht

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The Writing Spectrum

Most people don’t write well.  They lack sufficient skill.  Don’t question this, I know what I’m talking about.

I’m paid both to evaluate the writing of others and to write for publication (professors must publish or perish).  After years of requiring writing assignments in my accounting and general business courses, I have concluded that those opting into accounting are worse writers than most other students.  After graduation, writing skills remain lacking because accountants do not pursue professional development in writing.

It wouldn’t be a problem if bad writers didn’t write.  They have to, however, because in today’s social media world business professionals (including accountants) write more than ever before.

The problem is exacerbated when bad writers believe they are better writers than they actually are.  Instead of avoiding advanced writing tasks that result in failure, they rush to volunteer for such opportunities.  Qué pena.

Tom Johnson at I’d Rather Be Writing, authors my favorite blog on writing. He provides insight into this problem in a recent post, “What Does It Mean to Know How to Write?”  His key contribution, in my opinion, is organizing typical writing tasks into a writing spectrum.

Image credit: Tom Johnson of I'd Rather Be Writing

Johnson explains that various writing tasks require different level of skill.  The simplest writing tasks–texts, e-mails, PowerPoint slides and tweets–don’t need much writing skill.  Much of the time, professionals who are bad writers can perform such tasks successfully.

On the other end of the writing spectrum, there are writing tasks needing, “… original idea development, organization of lengthy arguments, style and flow and voice, and a host of other elements that require more advanced abilities.”  When most professionals attempt tasks requiring lots of writing ability, lack of writing skill results in embarrassment and loss of clients.  [And how!]

There are two ways to mitigate the problem.  The first is to have one’s writing skill professionally assessed.  Armed with an honest appraisal of writing ability, professionals then can avoid tasks for which they are unqualified.  The second is for professionals to seek continuing education in writing.

I vote for improvement through continuing education.

Debit and credit – – David Albrecht

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Miscellany — interesting items that caught my eye during the week.


James Ulvog writes the Attestation Update blog.  He weighs in on the professor/accountant blogging issue in, “Can’t find anything in the accounting world to blog about? Are you kidding me?

James does a really good job on his blog.


David Milstead writes for the Globe and Mail, Canada’s largest national newspaper.  He has an interesting perspective to share in, “A desperate Obama kicks Sarbanes-Oxley halfway to the curb,” published Monday, October 17, 2011.

A desperate politician will do anything to get reelected.  Obama has already signaled his willingness to ditch LIFO.  What’s next,  IFRS?

The New York Times on Wednesday ran an editorial, “Not Their Job.”  It argues that the Jobs Council overstepped its bounds.  Since the proposal is approved by President Obama, it should have been titled, “Hey Prez, Shame on You!”


Deloitte has become a regular in the accounting news cycle, but not in a good way.  Peter J. Henning’s blog at the NYT, White Collar Watch, has an interesting article on it, “Deloitte’s Quandary: Defy the S.E.C. or China.”


I don’t have an iPhone, but that doesn’t stop me from typing, “Sent from my iPhone,” at the bottom of every e-mail I send.  But I try to stay current on iPhone news just in case anyone ever donates a new phone.

David Pogue, columnist for the New York Times, blogs about iPhone’s new personal assistant Siri in, “Siri Is One Funny Lady.”  He writes about Siri’s responses to his question, “What is the meaning of life?”  Because he kept re-entering the question, he received various responses including the classic, “42.”

I’ve never understood why the film directors for THGTTG considered 42 so funny (the basis for its selection). Why is 42 funnier than 43, 44, or my personal favorite–63?


Sorry, I just can’t resist posting a link to:  ” ‘Man-flu’ is real to a fifth of British women.”

(Reuters) – One in five British women believe that the debilitating “man-flu” disease which temporarily leaves sufferers prostrate on the sofa watching televised sports is real, according to a new study.

I’m speechless.


Are you curious about how a professional sports team uses accounting to prepare financial statements?  I’m not sure you’re going to learn anything from this error-filled and mistaken Deadspin article, “Exclusive: How An NBA Team Makes Money Disappear [UPDATE WITH CORRECTION].”  Thanks to professor Mark Holtzman, the Accounting Ethicist, for the tip.

Shouldn’t a prerequisite to writing an accounting article be that the writer actually knows and understands proper accounting?


Debit and credit – – David Albrecht

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The U.S. Senate Committee on Banking, Housing and Urban Affairs, on Tuesday, February 12, 2002, held an oversight hearing on “Accounting and Investor Protection Issues Raised by Enron and Other Public Companies.”  Eventually, the Sarbanes-Oxley Act of 2002 was passed by both houses of Congress and signed into law by President George W. Bush.  A key part of the legislation is the creation of the Public Company Accounting Oversight Board (PCAOB).

In the months leading up to passage, several hearings were held including one on February 12, 2002, in which four previous SEC chairs–Arthur Levitt, Harold Williams, Richard Breeden, Roderick Hills–testified.  Jim Hamilton of the Jim Hamilton’s World of Securities Regulation blog reminds us, in “Views of Former SEC Chairs on Auditor Rotation Relevant as PCAOB and European Commission Consider the Concept,” of ideas that didn’t make it into Sarbanes-Oxley.

Three of the former chairmen spoke up in favor of auditor rotation.  Despite this support, the decision was made in 2002 not to require auditor rotation.  We now have another crisis in 2008 and again auditors are criticized for failing to require solid numbers in corporate financial reports.  Perhaps it is time to try it.  I don’t think it would hurt.

Here is what each of the former chairmen has to say. (more…)

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KPMG signature accompanying U.S. Department of Labor's audited financial report.

An audit firm must sign its opinion that accompanies a corporation’s financial statements.  An example of KPMG’s signature is shown at the right.  Of course, the signature applied will look different depending on which individual engagement partner actually signs it.  A Google image search on “KPMG signature” returned KPMG written by several different hands.

In “Shhh! Don’t Name That Auditor,” Floyd Norris of the New York Times blogs about the current controversy over such signatures.  Two and a half years ago, the PCAOB signaled its intention to have the audit firm engagement partner sign both the name of the firm and his/her name.  Beaten back, the PCAOB is now only proposing to require that the audit firm engagement partner’s name (sans signature) appear on the opinion.

Norris explains that the purpose of the proposed rule change is to help motivate the audit partner in charge to do a better job.  Audit firms are against this change, and Norris explains their rationale.

If getting audit firms to accept responsibility wasn’t so frustrating, the matter would be laughable.

Let’s go back to 1776 when the 13 U.S. colonies were in the process of declaring independence.  On July 2, the Continental Congress declared independence by a vote of 12 for, 0 against, and 1 abstention (later changed to yes).  Although nearly 50 delegates were present, the vote was by state.  On July 4, the document declaring independence was approved.  Starting on August 2, the delegates signed the declaration document.

As we all know, the delegates signed their names.  56 in total.

There were two to nine delegates per state, and the vote was by state.  Never-the-less, the delegates signed their individual names.  They took responsibility.

If an auditor has signed for New Jersey

If the delegates had signed in a manner similar to audit firms, there would have been only13 signatures, one for each of the original 13 colonies: Virginia, New Jersey, Pennsylvania, etc.

When will audit firm representatives accept some responsibility?

Debit and credit – – David Albrecht

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On October 11, 2011, the PCAOB unanimously approved a proposal for changes to certain disclosures in the audit report.  The proposal is identified as PCAOB Release No. 2011-007, “Improving the Transparency of Audits:  Proposed Amendments to PCAOB Auditing Standards and Form 2.”

The proposed amendments are summarized in Release 2011-007 as:

The Public Company Accounting Oversight Board (“PCAOB” or “Board”) is soliciting public comment on amendments to its standards that would improve the transparency of public company audits. The proposed amendments would:

  1. require registered public accounting firms to disclose the name of the engagement partner in the audit report, 
  2. amend the Board’s Annual Report Form to require registered firms to disclose the name of the engagement partner for each audit report already required to be reported on the form, and 
  3. require disclosure in the audit report of other independent public accounting firms and other persons that took part in the audit.

This proposal would not require the engagement partner to separately sign the audit opinion.  It merely would require that the partner’s name be disclosed on the opinion.

Is this proposal a big deal?  No.  I tend to agree with Jim Peterson, “The PCAOB Wants to Name Audit Engagement Partners: Would Its “Red A” Really Matter? when he says that this is not a substantive matter.  This additional piece of information will not cause the scales to fall away from the eyes of investors.

However, it does signal the possibility a small defeat for the entrenched large audit firms.  Large audit firms are not accustomed to losing any battles, however inconsequential.  And how long has this battle lasted?  The underlying concept release (“Concept Release on Requiring the Engagement Partner to Sign the Audit Report,” PCAOB Release No. 2009-005) was approved on July 28, 2009.  Approval of this proposal won’t take place until early 2012, if at all.

The PCAOB has had three years on this and this is all it came up with?

Debit and credit — David Albrecht

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Retired accounting professor Tom Selling (Thunderbird) started the current discussion on October 11 at The Accounting Onion (I’ve raised the issue at least twice before on AECM), with his post, “Why Do Accounting Academics Blog Less Than Other Academics?”  He said that it’s because profs don’t want to say anything that could negatively impact the Big 4 recruiting of their students.

There have been responses in four venues.  None has disagreed with Selling’s central point, that accounting professors are far less likely to blog than counterparts in other business disciplines or practically any other academic field.  They all throw out other reasons, and sometimes disagree with Selling’s suggested cause.

What follows is my current summary of the discussion.

(more…)

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Thanks to Bob Jensen and Jim Mahar (FinanceProfessor.com) for alerting us to a video by Michael Burry, MD.  On April 5, 2011, Burry spoke at the Vanderbilt Medical School (his alma mater).  Here is a short (31 min) recording.

Debit and credit – – David Albrecht

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Accountants are stereotyped as being dull and boring. It is accounting professors who have taught them so well.

We are sharing nostalgic stories of the old days of AECM, from back in the mid 90s.

Today, Bob Jensen (emeritus, Trinity University) said,

In the very early days of the AECM I sometimes strayed a bit too far off the accounting-topic path. I recall being chewed out royally by Barry because I posted a link to the early history of commodes. “What does that have to do with accounting?” Barry asked. In reality I think commodes are where a lot of accounting theory and research should be flushed!

Whereupon, Barry Rice (emeritus, Loyola University-Baltimore) shared a long-ago picture of his office.

Then Bob shared a picture of his home bathroom:

I googled “toilet office” and came across mention that 10% have used the Internet while on a toilet.  With the proliferation of smart phones and tablet computers, I expect this percentage to increase.

My office is a bit more conventional,

Prof Albrecht hard at work on his couch, even on a Saturday night.

Debit and credit – – David Albrecht

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Miscellany — interesting items that caught my eye during the week.


Floyd Norris, respected chief business correspondent of The New York Times, as well as NYT blogger of Notions of High and Low Finance, pokes fun at the large audit firms in “Shhh! Don’t Name That Auditor.”

Large audit firms oppose naming the partner in charge on the audit opinion that accompanies corporate financial statements.  Norris considers their stance to be ridiculous.


Bloomberg BusinessWeek publishes a very useful article, “Social Media: Why B-School Applicants Need to Keep It Clean.”  Every B-school student, undergrad or MBA, should read this warning and take heed.


Roger Burritt

Roger Burritt is Professor of Accounting at the University of South Australia, and is reported on by Stephen Matchett of The Australian.  In “Burritt Slams Academic Accounting,” Burritt is quoted as saying, “The vast majority of accounting academics are still behind the game on research that can make a difference to practice (and) to the important problems facing the world,”

Burritt also says, “… many accounting researchers often do not bother to even try to engage, and instead spend their entire career just talking to other accounting researchers about their work through conferences and journals.”

Many of us on AECM have been saying the same things for years.


Worried about plagiarism in your classes?  There’s an interesting article, “How to Avoid Plagiarism Online,” at Effective Online Teaching.  It includes a link to a basic how-to YouTube video.  It’s worth a look.


Debit and credit – – David Albrecht

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