Archive for March, 2011

A Control Problem

Thanks to David Fordham (JMU) for pointing out one little known problem with internal controls.

Accountants are concerned with internal controls.  A commonly used definition reads:

Internal control is broadly defined as a process, effected by an entity’s board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories: a) Effectiveness and efficiency of operations; b) Reliability of financial reporting; and c) Compliance with laws and regulations. (Wikipedia 3/31/11)

What this means is that company management needs a combination of process that monitor operations to make sure they are being done the right way.  If not, then steps can be taken to tighten everything up.  It ranges from managerial policies for employees, to protecting assets such as cash, to making sure that the data in reports are accurate.

Fordham directed me to this CBS video on a problem with photocopiers.  It turn out that most copiers manufactured since 2002 have a hard drive which preserves a copy of every document that has been scanned for printing or faxing.  Every document!  When copiers are inevitably replaced by newer models, the hard drive leaves the company ready to divulge its secrets to anyone capable of accessing the hard drive.

In the following video, four copiers were purchased from the used copier market.  Two came from a metro police department (sex crimes unit and narcotics investigations unit), one from a construction company, and one came from a health insurance company.  All had copious amounts of privileged information to divulge.

Of course this has ramifications for accountants and auditors.  Many CPA firms have gone paperless.  They scan documents and retain the electronic images.  It turns out the images are retained twice.  Once in their intended storage place, and once on the copier/scanner hard drive.  If the hard drives are not cleansed, then confidential information can be leaving the firm.  Note to self, erase copier hard drive at work.

Of course,there is another problem, as revealed in this second YouTube video:

Debit and credit – – David Albrecht

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What is the difference between a novelist and a Lehman Brothers accountant?  Both deal in fiction, work in solitude much of the time, and deal in the creation of art.  The writer can paint a picture with words that others might observe, understand and appreciate.   The Lehman Brothers accountant painted a picture of reduced liabilities that others observed, but misunderstood and in hindsight didn’t appreciate.

I have a history with numbers and visualization.  As a kid, I would practice counting–by ones, twos, threes, fours (my favorite), etc.  It must have seemed odd to neighbors when I delivered newspapers while reciting my numbers up to 1,000.  Then I progressed to multiplication tables memorized through 20×20, fractions memorized through fifteenths, and mental arithmetic (medium length number addition, subtraction, multiplication).  As a result of all this, I can communicate in numbers.  And more than that, endorphins flood my body when I pick up paper filled with numbers .

In my first accounting classes I discovered others like me–people who can read and understand numbers.  We like numbers and charts.  A few of my favorites are supply & demand (which I had figured out by kindergarten), breakeven, and curvilinear costs:

Upon picking up a document willed with numbers, my eyes search for the patterns I know have to be there.  Once I have identified the patterns, trend lines fill my mind, lines that are living and vibrant organisms that I can look and marvel at from several different perspectives.  What?  You can’t do that?

When I became an accounting professor, I would layout a few columns of numbers on the board, and encourage students to identify the patterns by rearranging them and adding percentages.  Here’s an example from one of my lectures:

Students are instructed to recast single step income statements (a corporate favorite) into a classified (multiple step) format, then convert to percentages based on yearly sales.  Can you spot the patterns that caused profits to suffer after 2006?

After 30 years in the collegiate accounting classroom, I’ve come to realize that understanding the above chart remains difficult for most students (even undergrad accounting students).  Perhaps it is time for a change.

Some good work is being done with data visualization.  I’m presenting two YouTube videos that might start you thinking of different methods present data.

The first video presented here is a TEDTalks featuring journalist David McCandless in “The Beauty of Data Visualization.”  Everything he does is based on the principle that using our eyes more will make it possible “… to see the patterns and connections that really matter.”  Besides, “… visualizing information is really cool.”  He says that “We can use [data visualization] to alter our perspective or change our views.”  And this leads to a change in behavior.

Swedish professor Hans Rosling studies the science of health.  Using self-developed software (previously profiled here on The Summa), works on dispelling myths.  He says, “The problem is not knowledge, but preconceived ideas.”  This TEDTalks video is well worth the time to view.

Isn’t it time for accountants moved into the 21st century and developed some Hans Rosling showmanship?  Just think how much better the world would be if more investors understood that patterns crying for release from oceans of financial data.

Debit and credit – – David Albrecht

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Professors travel to academic conferences.  It is a very good thing, in my opinion.  In this blog post, I’ll let you know a little about my past three days attending the annual conference of the North American Accounting Society, an affiliate of the MBAA International organization.

For me, the conference started early on Wednesday morning, when I woke up incredibly early to get to the airport.  A big part of post-conference fatigue is the pre-conference trip.  Mine was grueling.  The flight was cancelled due to weather (11 inches of snow the night before with blizzard winds).  We finally left after two rebookings and a departure weather delay.

I traveled to the conference with the two most wonderful accounting colleagues (Concordia College) I’ve ever had the honor to work with:  Ron Twedt (tax) and Maggie Jorgenson (principles).  They are wonderful people and superb in the classroom.

Once there, I had dinner with a friend from grad school.  He was a groomsman at my wedding.  After a dual Master of Accountancy and J.D. program, he went on to a long and successful law career advising clients on leases.  Back in grad school, he was always the most brilliant student, the best TA.  He would have made a great professor.  He is now married with two college-age sons.

There are only two types of conference presenters:  good and bad.  There is no middle ground.  I’ll focus on the good presenters who were most interesting.

Thursday afternoon found Roberto DeMagalhaes (University of North Dakota) presenting the results of a survey to North and South Dakota CPAs.  With UND colleagues Kate Campbell and DeeAnn Ellingson (not co-authors) in attendance, there was bound to be a great discussion.

The most intriguing result is that 45% of respondents think a BA with 120 hours is sufficient to test for, and receive, the CPA.  46% think a BA with 150 hours is called for.  Only 4% prefer a masters degree.  Imagine that, a 50-50 split on the 150 hour rule. Actually, I was surprised that 50% of the membership would endorse 150 hours.  Although the official push for 150 hours came from the largest auditing firms, the true push came from accounting professors.  Back in the 1990s there was a need to bolster enrollment in accounting courses, and having states mandate more accounting education was believed to be a panacea.  IMO this survey result is a clear rejection of the academic push for masters degree education.

In the discussion that followed, it was suggested that DeMagalhaes test to see if years of experience is a factor.  Also, DeMagalhaes should survey investors.  If auditors are there to protect investors (auditors don’t believe they are), then it seems reasonable that investors would have an opinion on auditor qualifications.

The other interesting presentation highlighted here was by Mark Holtzblatt (Roosevelt University, Chicago).  Holtzblatt and co-author Norbert Tschakert (Salem State University) are clearly the discipline’s experts on using video for both education and research.  Holtsblatt’s presentation was PowerPoint based with several embedded video clips.  It was the most visually stunning presentation I’ve seen at an academic conference.  If there was such a thing as a Golden A award, I would award it to Mark.

There was only one paper that dealt with fraud.  I’ll have to fix that next year.

Along the way, I had opportunities to chat with super-prolific researcher/writer Tim Fogarty (Case Western), former student E. Anne Christo-Baker (Purdue University, North Central), and mesmerizing speaker Carol Jessup (Southern Illinois University – Edwardsville).  Many thanks to Jack Elfrink (Western Illinois) for putting together a pretty good program.

Debit and credit – – David Albrecht

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It is late March and windy in Chicago.  It must be that I’m attending the annual conference for MBAA International at the historic Drake Hotel.

The MBAA conference annual draws about 800 academics from the areas of finance, accounting, international business, marketing, management, legal studies, information systems, economics, operations management and entrepreneurship, case research, and BSG (business society and government).  As you might imagine, I’m here for accounting.

I like coming to the NAAS portion of the MBAA conference.  There are only 80 accounting academics in attendance, but they all are really cool (especially TF).

This post is about my presentation, titled:

If you want, you can view my presentation slides.

Should professors be using blogging in the classroom? Duhhhh, yes.  Blogging should be used in any class where the professor wants to accomplish anything other than memorization for multiple choice tests.  It is not uncommon for teachers to use blogging in elementary education classes.  If second graders can handle it, then college students should be able to.

A professor does not need to be a blogger to use blogging in the classroom.

Why use blogging?  For many reasons, but here are two.  First, it’s a social media world.  College students that can do anything with SM other than Facebook are at a premium.  Accounting and law firms use social media and blogging.  Obtaining SM proficiency gives students a leg up when they graduate.  Second, it’s such an easy tool to use if you want students to do anything more than memorize.

There are four ways to use blogging in the classroom:

  1. Professor can transmit useful content to students.  Blogging is a great platform for writing informative essays.
  2. Professors can introduce a provocative issue in a blog post, and require students to make comments.  The first student reacts to what the professor wrote.  Each successive student reacts to what both the professor and previous commenting students wrote.  It is a great way to achieve a group thinking environment.
  3. Professors can assign students to write their own blog posts, and then publish them to the student’s own blog or to a group blog.  This is a great way for a student to learn what others in the class are thinking.
  4. Professors can assign blog essays that are published and available on the web, and then students can write their analysis of or reaction to that essay.  These can be submitted online or via paper.

There are three types of blogs and blog posts:

  1. Informative or news.  The purpose of these types of blogs is to pass along news tidbits.  A great example in tax is the TaxProf, by Paul Caron.  He gets about 7,000,000 hits per year.  I asked another tax professor if he reads TaxProf, and he responded that he does on a daily basis.  I then asked him if he has his students read TaxProf.  He said no.  No?  By the way, Professor Caron makes the Accounting Today list of 100 most influential people in the American accounting world.
  2. Commentary or editorial.  Most bloggers have an opinion and they want to persuade readers.  Having students read, analyze and react to these commentaries is a great way to introduce students to developing professional values.  So often professors never ask students what they think.  This is a great way of doing so.  In the study of liberal arts, critical thinking is defined as reading, analyzing and reacting. A great example of this in the accounting area is the Accounting Onion, by Tom Selling.
  3. Lifestyle, or welcome to my life.  Students don’t yet know what it is like to be working as an accountant.  A blog focused on the young accountant’s working environment is a great way of showing students what the working world of accounting is like.  Examples are Accountant by Day (working accountant), and Pondering the Classroom (accounting professor).

Debit and credit – – David Albrecht

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Tom Selling of the Accounting Onion is by far the best writer today on GAAP vs. IFRS.  It isn’t easy being Tom, given that the political, regulatory and auditing establishment (political types all) have come out in favor of IFRS.  They publish so much spin (don’t touch it or smell it) about the benefits of the U.S. moving to IFRS, that it must seem like everyone in the world is for it.

But they aren’t.  All the smart guys are against it.  Isn’t that the way it so frequently works.  Smart, educated sane professionals trying to make the world a better place are pitted against powerful political parties whose only interest is what’s in it for them.  And India is backing off its commitment to IFRS after it decided it would need 65 carve-outs.

Today’s e-mail brings notification that Tom Selling has written yet another must read blog post on the issue.  He writes about the establishment spin, on one hand, and on other hand a WSJ reporter’s careful analysis of the perils of IFRS.  The blog post is titled, “ ‘Convergence Flaws'” v. Convergence Spin.”   You should just go read it.  You won’t be sorry.

Just a thought:   David Tweedie is making the rounds again hawking IFRS.  Is there anyone less believable in the accounting world today?  Other than E&Y after its Lehman Brothers audit opinion?

Another thought:  A recent survey of financial statements users reveals that 18% believe the auditor report is of no use to them at all.  I wonder what the results would have been had they asked about the value of IFRS financial statements.

Yet another thought:  Is there any more of a perfect storm than (1) corporate executives preparing financial statements (2) under IFRS and (3) receiving a clean audit opinion from a large audit firm?

Debit and credit – – David Albrecht

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Drool, the telltale sign of death by PowerPoint

Back in the old days of overhead projectors, a joke frequently heard on most college campuses was, “You know when you get to the business building because the temperature will suddenly rise 10 degrees.”

Now  in the age of death by PowerPoint, the joke has been revised, “You know you’re in the business building because the classrooms are filled with PowerPoint cadavers.”

Three of the five worst experiences in my life involve sitting through PowerPoint presentations by business professors.  It is the unsocial media.

The first rule of creating lethal presentations is to put so much text on a single slide that you need to shrink the font size.  Accountants can take it one step further if they put so many numbers on a single slide that they must reduce the font size.

But I don’t know for sure.  If you have any PowerPoint stories, leave a comment below or send an e-mail.

Don McMillan is a professional comedian who has a pretty good routine where he finds humor in the misuse of PowerPoint.  Enjoy!

Debit and credit – – David Albrecht

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Mary Schapiro is the Chairman of the SEC. Richard Fuld is the ex-CEO of bankrupt Lehman Brothers

Classify this under speculative rumor, I suppose.  In a story by Jean Eaglesham and Lis Rappaport, “Lehman Probe Stalls; Chance of No Charges,” it is reported that SEC officials are considering dropping thoughts of filing charges against former Lehman Brothers executives.

The U.S. government’s investigation into the collapse of Lehman Brothers Holdings Inc. has hit daunting hurdles that could result in no civil or criminal charges ever being filed against the company’s former executives, people familiar with the situation said.

In recent months, Securities and Exchange Commission officials have grown increasingly doubtful they can prove that Lehman violated U.S. laws by using an accounting maneuver to move as much as $50 billion in assets off its balance sheet, which made it appear that the securities firm had reduced its debt levels.

SEC officials also aren’t confident they could win any lawsuit …

Qué lástima! (What a pity!)  Qué pena! (What a shame!) Eso apesta! (That sucks!)

I don’t care if the case can’t be won.  Bringing them to trial for Repo 105 schenanigans is a symbolic act that will cheer investors.  Sometimes in war it is appropriate to fight to the death.

This is the porn viewing SEC, the Madoff enabling SEC.  Does it also want to be known as the federal agency that let Lehman Brothers off the hook?

Better go after Ernst & Young, a seemingly more winnable case.

Debit and credit – – David Albrecht

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Paul Butler is an intern at Facebook.  On December 13, 2010, he posted a note on Facebook pertaining to a rather unique example, or picture, of data visualization.

I’ve written before about data visualization:  Intriguing Example of Data Visualization, and I’ll write about it again.  Sometimes, a sea of data can prevent one from seeing the big picture.  Once visible, a good job of data visualization can present the creator’s interpretation.  To abuse a tired cliché, it is possible to miss the forest because there are too many trees.

This is what Paul attempted, in his own words:

Visualizing data is like photography. Instead of starting with a blank canvas, you manipulate the lens used to present the data from a certain angle.  When the data is the social graph of 500 million people, there are a lot of lenses through which you can view it. One that piqued my curiosity was the locality of friendship. I was interested in seeing how geography and political borders affected where people lived relative to their friends. I wanted a visualization that would show which cities had a lot of friendships between them.

pic credit: Paul Butler

After a few minutes of rendering, the new plot appeared, and I was a bit taken aback by what I saw. The blob had turned into a surprisingly detailed map of the world. Not only were continents visible, certain international borders were apparent as well. What really struck me, though, was knowing that the lines didn’t represent coasts or rivers or political borders, but real human relationships. Each line might represent a friendship made while travelling, a family member abroad, or an old college friend pulled away by the various forces of life.

The result is stunning, if for no other reason than the picture implies that relationships light up the world.  There are some noticeable dark spots:  the interior of South America, north and central Africa, Russia and China.

I’m an accounting professor, and data visualization is important because there are too many numbers that are in need of the type of picture that Butler can create.  If you find another great example, e-mail me at albrecht@profalbrecht.com.

Debit and credit – – David Albrecht

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This post is not for accounting or entertainment purposes.  I cry for my fellow humans living in Japan.

Videos and still are emerging from Japan about the sixth worst earthquake in history and the tsunami that follow. It is a terrible tragedy.

During the school year, I live in an are prone to massive flooding, but I am grateful that the experience is many, many times less intensive as a tsunami.

Here are the most striking videos I could find about the Japan tsunami:


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Accounting Prof reaction to ejection for obnoxious fan behavior

Accountants have a nice job.  They work inside during lousy winter weather, and they get paid big bucks for their opinion.  It’s a very big deal.

George Washington University accounting professor Robert Kasmir, a big-time supporter of GW athletics, was attending a men’s basketball game on Saturday, March 5, 2011.  His GW Colonials team was playing the University of Dayton Flyers (and won, 60-58).  During the second half of the game, he offered an opinion on a referee’s foul call on a GW player.  There is no recording of what he actually said, but it might have gone something like this:


I have audited the refereeing job of X during the men’s basketball game between the GW Colonials and the UD Flyers on May 5, 2011.

I conducted my audit in accordance with auditing standards generally accepted in the Smith Center. These standards require that I plan and perform the audit to obtain reasonable assurance about whether the foul calls and other judgments of rules infractions are free of material misstatement.

In my opinion, the most recent foul call on GW sophomore forward David Pellom is the worst call in the history of NCAA basketball.  Not only that, but you are the worst referee I have ever seen and you aren’t worth the $1,600 dollars  GW is paying you to call the game.


Robert Kasmir

Where upon said referee ejected Kasmir from the game, and a sports department official helped him leave.

I’ve seen horrible fan behavior that didn’t earn an ejection, so I can only imagine that Kasmir’s behavior was off the charts.  A press account noted Kasmir’s obnoxious behavior, and a GW Athletic Department release described his behavior as bad sportsmanship.  Apparently he was trying to teach some nearby students how to cuss out a ref.  Does that mean the opposite of a clean opinion must be laced with foul (or dirty) words?

He should have offered the above opinion.  Or, he should have stuck with something like,  “You can’t tell your debits from your credits,” or “Your accounts don’t balance.”

For more on the story, read this blog post from the GW student newspaper.

Still, this isn’t as bad as Ernst & Young’s blown call on the Lehman Brothers financial statements.

Debit and credit – – David Albrecht

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