Archive for March, 2010

J. Edward Ketz is my round tuit.  ???  A round tuit is anything that unlocks your sense of inertia, allowing you to start working on some task that has been delayed far too long.

An example helps.  Have you, like me, ever been nailed for procrastinating?  All the time.  It probably followed this thought, “I’ll get a round tuit when there’s a free moment.”  But everything else doesn’t get done and there’s no free time, so you never get a round to it.

Ed is my round tuit.

On February 25, 2010, the Securities and Exchange Commission (SEC) released a formal Commission Statement in Support of Convergence and Global Accounting Standards.

I never got around to reacting.  Yesterday (March 29, 2010), Ed Ketz published his reaction, “The Iffiness of IFRS“.  It’s better than anything I can  write (anything Ed writes is always better than anything I can ever write, just take it for truth).  Better late than ever, here are my personal reactions.


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On February 25, 2010, the Securities and Exchange Commission (SEC) released a formal Commission Statement in Support of Convergence and Global Accounting Standards.

I never got around to reacting.  Today (March 29, 2010), Ed Ketz publishes his reaction, “The Iffiness of IFRS” at SmartPros.   It’s better than anything I can write (anything Ed writes is always going to be better than anything I can ever write, just take it for truth).  For those of you new to The Summa, Professor Ketz is a charter member of the group of IFRS critics.

For years, Ketz has railed (Merriam-Webster: to revile or scold in harsh, insolent, or abusive language) at the corporate practice of financial reporting.  He has repeatedly said that the number one problem is that corporations simply don’t follow the rules.  If ever they were all to be in a general state of compliance, then we could talk about about the structure of accounting standards.  But first, we need compliance.  Generally speaking, he favors specific accounting rules that permit no wiggle room.  Such rules make it easier to crack down on wrong-doers.

Professor Ketz’s latest editorial is “The Iffiness of IFRS.”  He responds to the SEC and suggests several issues that still need to be worked out before IFRS adoption.  Although the context for his remarks is opposing IFRS adoption, he believes the biggest problem with the proposed transition is:

… whether IFRS statements can be audited and what will happen in the courtroom after a firm experiences severe declines in its stock price.

Ketz concludes with:

… I again marvel at the rush to IFRS. The benefits do not appear to match or exceed the costs of the adoption.


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Tiger Woods was interviewed recently by a reporter from ESPN.  The interview aired on radio (which I heard) and I imagine it aired on TV.

I only heard the interview once.  Tiger didn’t directly say that he had been screwing around, but his comments were easy to interpret given their context.  I could be mistaken (frequently am) but I think Tiger’s meaning is, “I lied and cheated, causing harm to wife and mother and fans.  I’m sorry.  I won’t do it again.”  Would you agree this is his message?

There have been a number of spectacular audit failures in recent history.  Clean audit opinions to bogus financial statements were followed by bankruptcy (in many cases) and lawsuits.  To the extent that audit firms knowingly gave clean audit opinions when they should have blown a whistle and called, “Foul!”  I think it a fair summarization in such cases to say the audit firms lied and cheated.

Does anyone ever recall one of the firms making a Woods type of apology?  I don’t think  so.


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Ronald Martinez/Getty Images

UNI 69 – KU 67.

Eric Prisbell of the Washington Post, writes, “Northern Iowa’s win over Kansas goes down as one of the biggest upsets in recent NCAA tournament history, for sure.”  Gregg Doyel of CBS Sports thinks it is the greatest upset ever in the NCAA men’s basketball championship tournament.

Upset (noun) – 1. a sporting victory so unexpected that, prior to the game, it was considered unthinkable.

Hey, guys,  I think you could benefit from an accounting perspective on this.  Here’s why.


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[Ever get something wrong?  I made an error in the first version of this post (March 9, 2010).  I have fixed the error.  My apology to several fine people for implying they are accounting pornographers.  They aren’t.]

We get into some strange conversations over on AECM (Accounting Education Using Computers and Multimedia), the listserv for accounting professors.  One started out innocently enough, then took a exotic turn in the direction of wierd.


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Over on AECM, good friend Bob Jensen has written a letter seemingly addressed to me.  I’m posting it, then replying to it.

This is my reply to somebody on the AECM who is becoming increasingly cynical about our profession in the wake of the Lehman Report.


As with most things in life, especially in accounting, law, medicine, politics, and war, it’s easily to get discouraged and even cynical because of all the bad things that are in the media.

However, all of our academic background has convinced us to balance everything. In virtually every instance we must balance the bad things with the countless good things that counterbalance the bad. For example, Sarbox has failed us in the publicized articles, but the countless successes of Sarbox just don’t get balanced in the media. The bad is seldom counterbalanced by the good in the media, including our listserv messaging.

The thing to pass on to students is to build on the bad and not get buried under it.

There is one writer in accounting and finance, Prem Sikka, that particularly gets my goat in his published Guardian articles, because he is always one sided. I often learn things from his articles and sometimes pass them along in my tidbits, but just once I would like to hear him say one thing positive about the auditing profession, banking, business, capitalism, and politics.

I write a lot of negative things, but if you carefully examine all of my writings you will find what I hope is more academic counterbalancing (http://www.trinity.edu/rjensen/threads.htm).  I even, with great effort and a clothes pin on my nose, write some positive tidbits about accountics.

We must agree to disagree but not always disagree in the academy.

If we become too one-sided in the academy, it’s a big turn off for students and colleagues.
I once had a colleague in the political science department who was known for constantly bashing multinational corporations. My students who took his courses hammered him in course evaluations for preaching rather than ing. The university tired of his rants and persuaded him to retire early.

Bob Jensen

Now, for my response.


I’ll probably get over my “cynical stage.”  However, I’m asking these questions in good faith. I’m searching for answers.  In this day and age, of what value are financial statements? audits? regulation?

To be sure, events over the past few years have injured my belief and confidence in the system.

We know that there’s financial statement manipulation going on, lots of it.   We know that there are unrecorded assets and liabilities that GAAP and IFRS don’t address, and valuation bases in the standards are inconsistent.  Audit firms act like they can be bought.  SEC regulators have so little respect for accounting that it’s delegating the task of standard setting to people from around the world with no interest in making the U.S. system of capital markets the best it can be.

There’s a lot here to get discouraged about.  I think accounting can matter.  Perhaps it did in the past.  But does it matter in 2010?

Is financial reporting robust enough that none of these problems matter? As long as financial statements show the general flow of corporate performance is that enough?

Or is it, as a few have suggested, a ponzi scheme? There’s a rising value to stock markets as long as new money keeps coming in. Because humans are industrious and make progress, there’s always going to be new money (new money = human advancement).   Current investors will be able to cash out as long as new investors keep coming in.   Because of human-kind’s progress, future cash flow seems assured.

Is that all there is?  Will the system keep working no matter how high a charge is exacted by the system’s leeches?

I’m still teaching financial statements. It’s my job and society still deems it important enough that people are paid pretty well to do it.  And I”m still commenting on the system.

I’ve gone down this path of criticism because there are questions I simply can’t figure out the answer to.

If you think I’ve done too much rocking in the boat, then I must consider that I might have.

From this day on I’ll resume looking for answers.  It is tough, given that the SEC and the Big 4 are deaf to suggestions for improvement in standard setting.  I mean, what good ever came about from our calls not to move to a single set of global accounting standards.  However, I’ll try to be more positive.

Debit and credit – – David Albrecht

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Things are getting pretty grim here in the financial reporting & auditing part of the world. The countdown continues:

  • 8 7 6 5 4 … 3

In the aftermath of the Valukis Report on Lehman Brothers, rubber neckers are circling the Big 4 in a death watch.  Who will be the first to die.  There are enough lawsuits to finish them all.

The Valukis report considers Ernst & Young work on Lehman brothers to be  “at least grossly negligent,” if not “malpractice.”

  • “Our whole industry is useless.”  ~ Unnamed Big 4 Auditor and GoingConcern.com reader from GC’s Quote of the day.  Is this a deathbed confession?

Here’s a strident blog post:

  • “What exactly is the point of hiring accountants?”  byMarketWatch. Commentary: Current system provides little to investors

The report on the Lehman Brothers bankruptcy — and the “Repo 105” accounting trick that seems to have made $50 billion disappear from the balance sheet in the blink of an eye — doesn’t just raise questions as to the liability of Ernst & Young, Lehman’s auditor; it raises questions about the entire foundation of public reporting.

What precise purpose does it serve to have a supposedly independent auditor (paid for by the company) sign off on accounts?  The outside auditors themselves are assigned a negligible value by the market.

Solution:  get rid of accountants. Who cares? They add no value, and their expenses weigh on the bottom line.

That’s a bitter pill.

I just love it when common folks get riled up over politicians, corporate execs and auditors.  And they are riled up.  Here’s the Big 4 Auditor’s Rag, a parody of Country Joe’s famous Draft Dodger Rag:

And it’s one, two, three,
What are we fighting auditing for?
Don’t ask me, I don’t give a damn,
Next stop is Vietnam the federal pen;

And it’s five, six, seven,
Open up the pearly gates,
Well there ain’t no time to wonder why,
Whoopee! we’re all gonna die.

Here’s my take:

If the audit industry dies, shall we say it died of natural causes, suicide, or homicide?

It is most definitely a self-inflicted wound.

Debit and credit – –  David Albrecht

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I have decided to revise this post, and it has a distinct url:  https://profalbrecht.wordpress.com/2010/03/16/what-is-accounting-pornography-revised/ I’ve kept this page here so you can read the original user comments.

In my original version of this post, I incorrectly identified those who create accounting pornography.  The true accounting pornographers are those who perpetrate accounting frauds.  Shame on them.

Debit and credit – – David Albrecht

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5 Q at GC

I’m a very fortunate guy.  My mind functions pretty well, my body is mostly healthy, and I’ve matured to the point of acting the age of someone 40% of my chronological age (not bad for a guy).

I’m a professor.  A very fine liberal arts school regularly deposits money in my personal checking account.  In return, I get to read a lot (mostly about accounting and regulation, though), reflect on what I read, and either talk about it with my students or write about it.   I have more family and friends than enemies.  I really, really, really, really, really, really like being a professor.

Being a professor is rewarding.  One reward is how I both like and love my students, whether here  or at any of my previous schools.  Most want to learn so as to have a better life.  Who can fault them for that?  They are smart, and trying the best they can.  What’s not to love?  Another reward is how I still love, admire and respect my area:  accounting.  Another reward is getting to associate with other professors on AECM.  Each e-mail I receive from them is a highpoint to my day.  Then there’s blogging.  And yes, there’s that paycheck thing.  It has supported my wonderful family.

Having students/readers is great, because they continually teach me.  Once I experimented with writing a blog post in stages throughout the day.  Partway in, my older son Tom texted me, telling me to delete it and never bring it back.  Those were good words, and I needed to hear them.  Students have a way of communicating just how they want their courses organized/taught.  And my readers sometimes let me know if I’m on the write right track.

My appreciation goes out today to the Junior Deputy Accountant over at Going Concern for writing about me (Five Questions).  It’s a very nice write-up.  And thanks, Caleb, for making the assignment.

Debit and credit – – David Albrecht

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I’m sorry to have slowed down my blogging rate.  Last week was spring break and I traveled a bit.  I Amtraked back, and am exhausted.   This post addresses the need for me to get something up.  Excuse the brevity, for I am worn out.

Right now, I’m in reading mode.  Maybe it will result in a few book reviews, maybe it will just result my becoming a bit better informed.  Here’s my reading list:

  1. Commission Statement in Support of Convergence Standards, Release Numbers 33-9109; 34-61578, by the Securities and Exchange Commission.
  2. No One Would Listen, by Harry Markopolos and published yesterday by Wiley.  You all think I am dissatisfied with U.S. government of accounting and capital markets?  I can’t even hold a candle to the antipathetical thoughts of Harry.
  3. Predictably Irrational, by Dan Ariely and published by Harper.  This has created quite a stir amongst a few more reasonably inclined accounting professors.
  4. IFRS Accounting Trends and Techniques, by Patricia Walters and published by the AICPA.  The GAAP version is absolutely indispensible to an accounting professor.  I have high hopes for this new IFRS version as a reference  However, it is based only on 100 companies, and the companies are non-U.S.

There are some obvious connections.


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