Archive for February, 2010

Sara McIntosh (a pseudonym) has published her first novel, Shell Games, a financial action/thriller.  It’s a good first novel, and well worth the time invested for reading. [ordering information]

Shell Games is a fun read for anyone.  Accountants, though, will receive an extra dose of enjoyment.  The plot is thrilling.  In some tense scenes, I found myself cheating a look at the final chapter to see how the story ends.

When considering the sub-genre of financial action/thriller novels that showcase the role of fraud auditor (aka financial sleuth or forensic accountant), there are few options.  Well, there has been only one serious option–The Devil’s Banker by Christopher Reich.  Shell Games is a pleasant contrast to the heavy international espionage of Reich.


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Getting angry with a taxman from the IRS?  How could that possibly happen?   Perhaps it’s because of the IRS motto:

We are the IRS.
We aren’t happy until we make you unhappy.

Frequent readers of The Summa are well aware of my fascination with Youtube videos.  They are so revealing of public sentiments.  Although the premier video in this blog post come up a bit later (by Anne M. McKinney), there are some excellent videos to go through first.


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A single set of global accounting standards, rules to be followed by any public company as it reports annual operating results, has become the  Holy Grail of Accounting.  In today’s world, these rules are embodied in International Financial Reporting Standards. Unfortunately for many good but unwitting people, advocating the U.S. adoption of IFRS is a fool’s errand.   To more fully understand the ramifications of this statement let’s turn to the dictionary for a basic frame of reference.


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The U.S. government bears the societal responsibility for establishing accounting standards.  In its structure of economic regulation, the task for creating accounting standards is fixed on the Securities and Exchange Commission.  For seventy years the SEC has passed on its responsibilities, instead relying upon private U.S. organizations.   This has been called the Ostrich Syndrome (aka Head-in-Sand).  Now, the SEC proposes to rely upon a private international organization (IASB).  I call this the Some Sort of Ostrich Syndrome (aka Head-Where-It-Doesn’t-Need-to-Be).


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In yesterday’s Accountancy Age appeared an interesting piece by IFRS reporter-advocate Mario Christodoulou, “The long and winding roadmap”.  He does an adequate job, I think, even if he didn’t quote any of the many things I’ve said about U.S. adoption of or conversion with IFRS.

His quotation of fellow blogger Tom Selling statement of the differences between the GAAP and IFRS positions is priceless,

“Not only were Kroeker’s and Niemeier’s positions as different as black and white… Niemeier’s inspiration clearly sprang from a foundation of cited broad-based analyses produced by published rigorous, peer-reviewed, independent research.  The source of Kroeker’s remarks apparently came from nothing more than his own wishful thinking,” prominent blogger Tom Selling said in September last year.

I recall thinking at the time his statement was something that I very well might have written, had Tom not said it first.  There is every sound reason for the U.S. to retain its GAAP.  Reasons for switching to IFRS are specious, sophist all the way.

Christodoulou goes on to say that the push for IFRS has too much momentum for the U.S. to continue to buck the trend.  He might very well be right, but I’ll continue fighting it never-the-less.

Regardless, isn’t it time that someone came up with some good reasons for the U.S. to switch to IFRS?  No one has ever stated one.  Not that one is absolutely needed, because when governments decide to do something no good reason is needed.  I mean, didn’t Ben Bernanke say this week that the multi-billion USD bailout didn’t actually cost a single cent?  So, in government speak, Kroeker’s reason for moving to IFRS–for enhanced comparability–isn’t that bad.  Of course, it is a false reason and no on in the world truly believes it.  It is nonsensical.

And, governments frequently make bad decisions when it come time to regulate some aspect of society.  In deed, governments in North America are more likely to get something wrong than right.

But as I say, isn’t it about time that we had some real reasons for moving the U.S. to IFRS (convergence accomplishes pretty much the same thing as a switch-over)?  I have studied this topic for a few years.  Researching government regulation of accounting and auditing is what I do.  So far, I know of two reasons for the U.S. to switch to IFRS:

  1. Large audit firms hope to realize in excess of $100 billion in fees from services related to the switch over.  This represents a wealth transfer from stockholders.
  2. Europe hopes that when investors can compare U.S. and European companies using IFRS-generated statements, they will decide to move upwards of a couple trillion USD from the U.S. to Europe.

I am aware of no other benefits to any other identifiable party for the U.S. switching from GAAP to IFRS.  Shouldn’t there be some high-minded benefits from putting out so many millions of Americans and taxing the U.S. economy by a couple trillion dollars?  I just don’t think that putting money in audit-partner pockets so they can buy luxury goods, or whatever, is a good enough reason.

So come on, all of you pro-IFRS folks.  Kroeker has never come up with a reason for why the U.S. can make a change.  Please leave a comment and help us all out.  A good reason, or two, would make us all feel better.

Debit and credit –  – David Albrecht

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There’s quite a discussion going on over at AECM now, centered around whether or not corporate disclosures via XBRL tagged data will be audited, and therefore receive some sort of assurance blessing.

One professor whom I respect a great deal is arguing that it is in the best interest of companies to make the best and most honest disclosures as they seek to raise capital, and it is in the best interest of auditors to associate themselves with only those companies that make the best and most honest disclosures via XBRL (and presumably via financial statements, also).

To which I say:  hogwash!

I’ve seen enough corporate reporting shenanigans, and auditor “nod-and-wink” assurance, that I have concluded that there are indeed sufficient incentives in place for corporate agents to try to game the system by mis-reporting financial results. I don’t see why, if there is substantial non-compliance with GAAP, that XBRL tagging would be a refuge of purity.   Moreover, there are incentives in place for auditors to fail to object to minor transgressions.   Some of the times, the incentives are sufficiently large so that auditors fail to object to major transgressions.  I guess I don’t see why assurance on XBRL reporting will be any different.

I certainly don’t trust corporate executives or auditors, as classes, to properly exercise “professional” judgment. Oh, proper judgment may be exercised more than half the time of the time, but given the risk averse nature of many investors, it is enough for a few bad apples to give the rest a bad name.   It is the many examples of bad reporting and bad auditing (while admittedly in the minority) that are enough to destroy trust.


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Steve Zelin, “The Singing CPA“, and Edith Orenstein, FEI Blog editor, combined to sing, “If I Were An Auditor.”  It looked like they had a lot of fun, more fun that accountants ordinarily have.  So, I sent each a few questions to find out more about their experience.  In this blog post I first interview Steve, then I interview Edith.

Interview with Steven Zelin

Steven Zelin - The Singing CPA

Steven, can you share a little about how you learned to sing, etc.

I sang in the chorus in 6th grade while growing up in brooklyn, new york. I also did a lot of singing at summer camp. I taught myself guitar in high school and in college I took a lot of music courses and started writing my own songs. When I began my career at pricewaterhousecoopers, my work life started to creep into my songwriting.


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Debuting on Feb. 10, 2010 (in time for Valentine’s Day), “If I Were an Auditor” tells the story the story of two auditors who view their relationship through the lens of certain accounting and auditing-related concepts.

The idea for the video and song parody lyrics was developed by Edith Orenstein, author of the FEI Financial Reporting Blog.  The video was produced by the Maryland Association of CPAs.

The song is a parody of “If I were a carpenter”, a hit folk song of many decades ago.  This duet is sung by Steven Zelin, the singing CPA, and Edith Orenstein.  It is available for I-tunes download.

Several financial and accounting bloggers appeared in the video, including me.  It was a great time.  Mostly I was just there to look good, which is all I wanted.  Don’t you know any good wedding needs rice throwers?  Although I don’t get over to Second Life enough, it really is cool.

Coming later this week to The Summa will be interviews with the video’s singers:  Steven Zelin and Edith Orenstein.

Other interesting stories on the video are, “A-list of accounting bloggers visit CPA Island to film music video” and “Accounting music video launches in time for holiday” and CFO’s “Would you marry and auditor” and “A Little Valentine’s Day Accounting Humor & Playing on Second Life” and “Auditors in Love“.

Professor David Albrecht appearing in "If I Were An Auditor"

Avatars for Edith Orenstein and Steven Zelin singing "If I Were An Auditor"

Singing at the altar in "If I Were An Auditor"

Debit and credit – – David Albrecht

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(Feb. 10, 2010) “If I Were an Auditor” – a song parody of “If I Were a Carpenter” – is the first ‘music video’ about accounting performed in the virtual world of Second Life.

Making its worldwide debut in the FEI Financial Reporting Blog on Feb. 10, 2010 (in time for Valentine’s Day), “If I Were an Auditor” tells the story the story of two auditors (would-be auditors) who view their relationship through the lens of certain accounting and auditing-related concepts. The idea for the video and song parody lyrics were developed by Edith Orenstein, author of the FEI Financial Reporting Blog.

The Maryland Association of CPAs (MACPA), creator of CPA Island in Second Life, served as Producer of “If I Were an Auditor.” MACPA is a leading force in using new technologies for delivering continuing education programs and networking opportunities to CPAs. MACPA’s innovative CEO, Tom Hood was named to Accounting Today’s Top 100 Most Influential People in Accounting for 2009, and is a former chair of the CPA State Executives Association.

The MACPA Production team, including staff and interns, provided the cast members of “If I Were an Auditor” with ‘basic training’ in use of Second Life (e.g., creating an avatar, outfitting the avatar, walking, sitting, standing). Filming of the Second Life production took place at MACPA’s headquarters in Towson, MD, with an ensemble cast of bloggers participating online in Second Life from various locations in the U.S. and Canada.

With MACPA lined up as Producer of “If I Were an Auditor,” Orenstein signed on Steven Zelin, “The Singing CPA,” as Musical Co-Director. Zelin, a CPA and professional singer-songwriter, was featured on the front page of the Wall Street Journal in April, 2008 (“Why Tax Day Makes Mr. Zelin Want to Sing”).  As musical co-director, Zelin performs on “If I Were an Auditor,” advised on improvements to the song, and arranged the audio recording session at Rob Taube Words and Music in Brooklyn, NY.

An eclectic ensemble cast, “The MACPA Players & Blogger Friends,” was then formed, featuring A-list bloggers and MACPA staff. (Additional bloggers had scheduling conflicts precluding them from participating in the production, but provided moral support to their colleagues in their ‘acting’ debut.)

Here is the list of cast and crew:


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Last week, two individuals with corporate backgrounds were named to the IASB. According to a news release, the new members are Dr. Elke König, a former member of the executive board and CFO of the reinsurance company Hannover Re Group in Germany, and Darrel Scott, CFO of the FirstRand Banking Group of South Africa.

Historically, investors have infrequently secured representation on the IASB and its predecessor organizations. Typically, IASB members have a large audit firm background, but a large minority of members have corporate accounting backgrounds. Of the current 15 member group, only two or three members can be said to have primarily an investment background.  It is most definitely true that the numbers are stacked against investors!

This is a significant event, with serious ramifications. Although accounting standard setters claim that they are after “the best” accounting rules, in practice no such thing is possible. The reason being that accounting rules have economic consequences. The major competing interests–corporations against investors–have decidedly different information needs. Corporations prefer flexible accounting rules so that similar transactions can be accounted for differently by companies or even by a single company. Investors prefer more rigid accounting rules so that transactions are accounted for in a uniform manner.

Corporations and auditors claim that flexible accounting will provide more informative disclosures. Investors are skeptical, referring to the many incentives in place to cause corporate executives to provide falsified financial reports, and incentives in place to prevent audit firms from forcing proper accounting.

Investors in the United States should be made aware of the difference in focus between accounting rules under FASB and IASB. In the United States, the purpose of financial accounting is widely viewed as providing information to investors so they can make the best investment decisions. In contrast, the purpose of financial accounting under the IASB is to help companies raise capital. In practice, accounting rules can differ markedly under the two emphases.

Despite the regulated state of the American capital markets system, accounting scandals are fairly common in the United States.  It is widely thought that investors stand little chance of receiving unbiased information under IFRS.

Debit and credit – – David Albrecht

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… when permitted to leave their offices for unsupervised free time?

Most questioners ask only rhetorically.

In response to my statement, “What is I do? I’m an accounting professor,” I wish I had a nickel for every time I heard __________ (fill in the blank with a much less than flattering comment about either accounting, accountants, or accounting classes in college).

In response to my statement, “I’m on an e-mail listserv with 1,000 other accounting professors,” I wish I had a nickel for every time I heard __________ (fill in blank with a much less than flattering comment about how little there is to talk about, and what we talk about must be exceedingly boring).

So, what did the accounting professors really talk about today?


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