Archive for August, 2011

Is the PCAOB charging at windmills?

In 1605, Miguel de Cervantes Saavedra published part one of The Ingenious Gentleman Don Quixote of La Mancha.  In 1615, he published part two.  In various ages, the novel’s theme has been thought to be a comedy, a philosophical defense of the individual in a crazy world, and a social commentary.

The novel’s protagonist is a retired country gentleman who became obsessed with the ideal of a knight as one who does good by righting wrongs.   The gentleman renamed himself Don Quixote, donned an old suit of armor, and set off seeking knightly adventure while guided by the principles of honor, generosity and courtesy.  Don Quixote regularly deceived himself, deluded into interjecting himself as a solution to imaginary problems.  He fared poorly, because the people and things of the world correctly viewed him as irrelevant.  They ridiculed and beat him.  His typical retreat is brilliantly portrayed in one scene when Don Quixote gets bested by a windmill.

Four hundred years later, the PCAOB is embarking on a Quixotic quest to improve the state of auditing in the United States.  I’m sure the PCAOB would describe its quest as knightly.  However, when you charge at a windmill, your quest is Quixotic.  As surely as Don Quixote got beat by a windmill, the PCAOB is about to get beat down by auditor rotation.


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The 2011 AICPA Accounting Competition is now accepting entries.  Last year I reviewed the submitted videos from the finalists, and thought they were very impressive.  Copied from the website:

The 2011 AICPA Accounting Competition asks college students to flex their fraud and forensic skills in advising a client on a major overseas expansion. The top three teams strut their stuff in Washington D.C., and the one that does the best job keeping the project on track — and on the right side of the law — gets a very legal $10,000.

The schedule:

Call for entries Aug. 29-Sep. 30
Judging Sep. 30-Oct. 11
Submissions Oct. 11-Nov. 7
Public voting Nov. 14-21
Judging Nov. 21-23
Finalists Announced Nov. 23
Presentations and Judging Dec. 16
Champions announced Dec. 17

This is an excellent competition with great rewards.  I recommend all accounting students consider entering.

Debit and credit – – David Albrecht

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Last year, the Accounting Today published its list of the Top 100 Most Influential People in [American] Accounting on September 9, 2010.  I don’t know that it ever causes a stir, but we talked about it on AECM.  AECM is the e-mail listserv for accounting professors (with a membership of 750).  We wondered why no one from the academic side of accounting made the list (or ever makes the list, for that matter).  Upon closer examination, it turned out that Frank Ross (Howard U) made the list.  Bob Jensen contacted the editor and suggested the names of 20 academics for the 2011 list.

It’s an interesting question, I think, as to who should qualify to be on the list.  The accounting industry in the U.S. is so large, certainly over 1,000,000.  There are auditors, accountants, thought leaders, professors and students who are all directly part of it.  Then there are those who are indirectly related, such as companies/investors that benefit from using accounting information, businesses that serve the accounting industry, journalists, bloggers, government regulators and even tax collectors.  And what about those Europeans who have their IFRS, FRC and the EC?  And should the person’s contribution be for only the most recent 12 months, recent years, or a lifetime of activity?  And what about fraudsters who influence the accounting industry?

For that matter, what does it mean to be to have been influenced?  I look at the list and I wonder how the honorees influenced me?  I have heard of almost none of them.  Does being influential mean having had an impact?

I’m sure the editorial staff at Accounting Today has grappled with these questions over the years, time and time again.

A short while ago, I was asked who I would say are the most influential.  Here are the people in the accounting world who have influenced me the most in the past year.


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Adrienne Gonzalez is JDA, and she writes the blog Jr Deputy Accountant.  She also writes for Going Concern. Every year she becomes less and less junior, she is no deputy, and has never been an accountant.  Never-the-less, she has quite a following in the accounting world.

Like a lot of accountants these days, she drinks, smokes, cusses and has tats.  It all adds to her appeal.  I love her.

Did you read her most recent blog post?  “Defunct Colonial Bank Sues The Sh*t Out of Its Former Auditors, Including PwC.”


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Last week I wrote (GRATA’s Non-Grata News) about Senator Chuck Grassley’s (R-Iowa) inquiry into the SEC destruction of evidence.  Most journalists and bloggers have led with splashy headlines.  However, there have been a few voices of sound reason, such as Broc Romanek of CorporateCounsel.net and Tracy Coenen of The Fraud Files Blog.

Much discussion has assumed that valuable evidence is being destroyed when the SEC discards MUI (matters under investigation).  This is not necessarily so, as Broc Romanek explains in “A Little Debunking of the SEC’s Records Destruction: What is a MUI?


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Today is Wednesday, August 5.  It’s all over except for a few meetings.  The commercial exhibitor’s hall is already closed.  The career center interview room is open only for a few hours.  Some professors have left already, others are leaving throughout the day.  Only a few remain until tomorrow.

I only meet with representatives from four prospective schools today.  By noon, I’m ready for a real conference activity:  large luncheon where the 2010-2011 chair (Kevin Stocks, BYU) reflects on the past year, and then hands over the gavel to the 2011-2012 chair (Greg Waymire, Emory).

Kevin Stocks suggested the idea for collecting donations for back to school supplies for homeless children in the Denver area.  The AAA staff worked diligently in planning and seeking donations from the AAA membership.  Eventually, enough was raised for 507 backpacks filled with school supplies.

A pile of donated backpacks filled with school supplies for Denver school age children.

Stocks also focused our attention on the AAA staffers who have put in long hours.  I agree.  Our AAA staffers are wonderful.  I wish I had a group picture to show you.

Then Greg Waymire, the 2011-2012 president, spoke.  His message is about the need for increased accounting research.  Waymire has always been focused on research.  His Ph.D. is from the University of Chicago, in economics.  He has conducted capital markets research, trying to link stock market reactions to various events that appeal to economics, finance and accounting theorists.  Such a research record is typical of one who graduates from, then works for one of the top research universities.  Many professors and practitioners criticize such research as not relevant to the real world or accounting.

This sparked a discussion on AECM, the e-mail listserv for accounting professors.  Dan Stone, Gatton Endowed Chair (Professor) at Univ. of Kentucky, said, “Goodness, the things that American-trained “accounting” academics consider accounting these days will always puzzle and amaze me.”

Denny Beresford, former Chairman of the FASB and now a professor at University of Georgia, agreed.  He said that the research papers presented at the University of Georgia seldom have anything to do with accounting (and wouldn’t you expect the former Chair of the FASB to know something about what is accounting?).  He wondered if Waymire was sounding a call to be more relevant.  I disagreed, “… he was arguing for a continuation of big school research, albeit with a broader horizon. I didn’t hear a call to turn toward the real world.”

Then Paul Williams, North Carolina State, entered the discussion:

Back in the early days of the JAR (Journal of Accounting Research) conferences when practice people were invited to participate the tough questions were often posed by the practitioners. Since the answers to these questions pose serious challenges to the appropriateness of the methodology, conference organizers solved the problem by simply excluding practitioners. [Denny} you are correct that the paper you referred [from UGA] has nothing to do with accounting and, for reasons that would take too long to elaborate here, nothing to do with any kind of reality that impinges on the actual lives we live. The activity of the accountics “scholars” has raised significant issues of jurisdiction for the profession as increasingly we share the domain of accounting with so-called valuation experts.

Never-the-less, Williams found promise in Waymire’s speech, “I was most encouraged by Greg Waymire’s remarks at the business meeting. A window is open (I think) for people like Denny to have an effect by expressing themselves more openly and confidently.”

At this point, I entered the discussion again:

The new president of the AAA, Greg Waymire, said during his first presidential speech on Wednesday noon, that we needed more diversity in accounting research. He said that the needs of the FASB should not motivate our research, too much research is being done for them. He mentioned several reasons/recipients of accounting research. Nothing he said implied the need for a link between accounting research and either practitioners or investor users.

Williams later e-mailed me, saying that he had consulted with several in attendance and I correctly had interpreted the speech.

Conclusion: many professors think that the world of academic accounting is sick and in danger of expiration.  Waymire doesn’t appear ready to help seek a cure.

I concluded my conference with a quick dash to hear a presentation by Mark Holtzblatt and Norbert Tschakert, 2011 winners of the Innovations in Accounting Education award.  They have pioneered student creation of accounting videos.  They are good friends of mine.

Mark Holtzblatt (L) and Norbert Tschakert (R)

Debit and credit –  – David Albrecht

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Today is Monday, August 8.  The American Accounting Association (AAA) annual meeting is in full swing today.  For me, this day will be busier than yesterday’s 15 hour day.

The annual business meeting of the Teaching, Learning & Curriculum section of the AAA is held at breakfast.  Traditionally, the scheduled time for it is from 6:45 to 8:15 a.m.  This year, a misprint in the printed program had early birds showing up at 6:15.  In this picture, Wally Wood (Cincinnati) leads other early birds in a lively discussion.

Wally Wood of Cincinnati

What happens at a breakfast business meeting?  Pastries, fruit, juice and coffee for breakfast (some don’t think this is enough).  The section chairman (Robert Allen, Utah) reading through the business report, and a speaker (Dick Light, Harvard).  Billie Cunningham (Missour-Columbia) received the 2011 Hall of Honor award.  Go Billie!

Billie Cunningham of Missouri

After breakfast, I go off to six interviews with prospective schools, and miss the day’s plenary speaker and all the concurrent sessions.

Effective Learning Strategies is the AAA title of letting professors present nifty teaching ideas that help make classes go a little better for students.  This year, there are four such sessions, and today I am presenting mine at 3:00.

The picture that follows shows it all.  Several room separators are placed, creating halls.  Presenters tack up either a poster (preferred) or sheets of paper (ugh!) telling of the teaching hint.  The presenter stays by the poster, and chats with anyone who wants more information.

Bustling activity at the afternoon session of ELS.

Some of the presentations are very colorful, as is that of Shifei Chung (Rowan U).

My teaching hint and related presentation was up for an award, but the judges never came by!

Using social media in the classroom, by David Albrecht

Click on picture to see larger pdf of Albrecht's presentation.

After this, it’s time to attend a dinner honoring 50 years of service by Charles Horngren (Stanford) and his tremendous cost accounting book.  Pearson is sponsoring it.  Following it is the Grant Thornton dessert reception (thanks for inviting me, GT), and the U of Cincinnati reception (thrown by two New York professors).

Tomorrow I attend ten more interviews, so will miss the regular part of the conference.  There will be no update for tomorrow.

Debit and credit – – David Albrecht

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Inside Public Accounting has released its list of the largest U.S. auditing & accounting firms.  Inside Public Accounting has been compiling this list since 1991.  Before that, the Top 100 list was compiled by Public Accounting Report.  The list is available online here.

I have excerpted the top 25 firms from the list.  Following each firm’s name is its net revenues.  Net revenue is not defined.

  1. Deloitte LLP & Subsidiaries $10,938,000,000
  2. PwC LLP $8,034,000,000
  3. Ernst & Young LLP $7,100,000,000
  4. KPMG LLP $4,889,000,000
  5. RSM McGladrey Inc. and McGladrey & Pullen LLP $1,370,424,000
  6. Grant Thornton LLP $1,085,696,000
  7. CBIZ & Mayer Hoffman McCann PC $590,600,000
  8. BDO USA LLP $572,000,000
  9. Crowe Horwath LLP $498,379,000
  10. BKD LLP $390,684,000
  11. Moss Adams LLP $316,000,000
  12. Plante & Moran PLLC $304,000,000
  13. Dixon Hughes Goodman LLP $284,480,000
  14. Clifton Gunderson LLP $254,652,060
  15. EisnerAmper LLP $254,629,000
  16. Marcum LLP $250,800,353
  17. Baker Tilly Virchow Krause LLP $242,000,000
  18. J.H. Cohn LLP $235,568,000
  19. LarsonAllen LLP $227,002,000
  20. Reznick Group PC $202,500,000
  21. UHY Advisors Inc. $200,200,000
  22. ParenteBeard LLC $163,756,942
  23. Rothstein Kass $163,203,000
  24. Eide Bailly LLP $151,397,012
  25. WeiserMazars LLP $140,000,000

There are several ways to think about this list.

The top seven or eight certainly have worldwide networks, so are physically located to audit multinationals.

AICPA, CAQ, and audit researchers argue that the firms at the top do the best job and provide the highest quality audits.  Naysayers like me argue that the firms at the top of this list have done the best job of selling their opinions.

Firms 9-100 are excellent places to start a career, especially if you value quality of life.

Debit and credit – – David Albrecht

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GRATA’s Non Grata News

The Summa deals with all matters related to financial reporting (i.e., financial statements) and auditing, so it’s natural to cover the Great Regulator of All Things Accounting (GRATA).  The news spreading today is very non grata (grata means “welcome,” so “non grata” means “not welcome”), at least to the Securities and Exchange Commission (SEC).

Yesterday, August 17, 2011, Senator Chuck Grassley (R-Iowa) sent a letter to SEC Chair Mary Schapiro.  Today it has been reported in the Wall Street Journal (“SEC Destroyed Files on Wall Street Probes, Agency Lawyer Says” by Liz Moyer and Jessica Holzer), New York Times (“S.E.C. Files Were Illegally Destroyed, Lawyer Says” by Edward Wyatt), The Rolling Stone (a conspiratorial article “Is the SEC Covering Up Wall Street Crimes” by Matt Taibbi) and blogs such as TheCorporateCounsel.net (“Not a Good Headline” by Broc Romanek).

After reading through everything, I conclude this issue is all smoke with no fire.

Senator Grassley fires cheap shot at SEC's Mary Schapiro

Senator Grassley is the ranking member of the Senate Committee on the Judiciary, meaning that he’s the longest serving Republican.  He’s also a lawyer.  But more than anything, he’s a politician.

In his letter, Senator Grassley passed along allegations from Darcy Flynn, a 13 year veteran of the SEC enforcement division and now in the SEC’s document disposition office.  Flynn’s allegations concern the disposition of files, once a matter under investigation (MUI) has been concluded with a decision not to pursue.  Prior to 2010, the files were destroyed as per policy (it’s not a bad policy).  Flynn brought up the issue in 2010, policies were changed, and the files now are retained for a while according to federal document retention policies.  This is a moot issue.

Possibly Flynn is taking heat at the SEC.  He has hired a lawyer, seeking whistle-blower protection.  His note to Grassley could be part of a strategy of hoping that publicity provides protection (it doesn’t).  Grassley probably perceives the possibility of short-term political gains.   So, he wrote a letter to Schapiro which was bound to provoke attention grabbing headlines, and it did.  [My first thought was to wonder what the SEC was covering up.  It turns out there was nothing being covered up.]

Grassley’s letter scores points on many political scorecards.  First and foremost, it embarrasses Democrats.  The SEC is controlled by Democrats.  Under Schapiro’s direction, the SEC faithfully has carried out Obama’s policies.  Second, it hinders the effective implementation of Dodd-Frank.  I’m no fan of Dodd-Frank, a pointless, horrible piece of legislation.  If Grassley embarrasses one of Dodd-Frank’s key enforcement agencies, Dodd-Frank’s eventual effectiveness is lessened.  Third, the SEC desires a bigger budget, and that is under consideration.  Embarrassing the SEC and invoking names such as Madoff, Goldman Sachs, and Lehman brothers (all publicly perceived failures of SEC enforcement) is a shot across the bow, announcing that no budget increases are about to be received any time soon.

The media seems to be abuzz about these allegations, but I see it only as another example of political infighting and nothing to be concerned about.

Mary Schapiro, you don’t deserve this cheap shot.  Take the high road on this one.

Debit and credit – – David Albrecht


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Auditor rotation – where you pick one up and spin it around.

When rotating auditors, I prefer to skewer mine from head to toe.

Has anyone asked if auditor rotation could make matters worse?  I didn’t think anyone had, but it is possible.

In an environment with mandatory rotation, auditors will no longer be able to threaten, “Not as long as we’re the auditor.”

I’m sure by now everyone in the business social media world has heard that their LinkedIn privacy settings need to be updated, click here.

Caleb Newquist at Going Concern reports the hottest story of the day–that of an accounting instructor arrested for pandering (aka pimping).  Quoting from the article:

The reader who pointed us to the story simply had this to say, “And he was my favorite accounting professor when I was in school… who knew?”

At the Denver AAA, a Kennesaw State accounting professor passed along a rumor that the stripping instructor had done it before!

Debit and credit – – David Albrecht

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Denver AAA – Day 2

At 6 a.m., are you a penguin or a bear?

Today is Sunday, August 6.  This will be my busiest day of the American Accounting Association annual meeting in Denver.  My highlight?  Conducting two workshops.

My day starts at 6:15.  Why do hotel wake up calls sound like sadistically played cymbals?

Sunday is CPE workshop day, a favorite part of the AAA annual meeting.  Everything revolves around professional development.  CTLA (Conference for Teaching and Learning in Accounting) has encroached upon Saturday and Sunday CPE, and has almost destroyed it.  This is a crying shame.  In my opinion, CTLA should be discontinued.  Down with CTLA!

My first workshop is “Using Social Media in the Classroom,”  My actual attendance is 9.  We spend four hours talking about why and how to use various social media in the classroom.  The participants are pretty much informed, and we have great conversations.  My second workshop is “Blogging for Professors.”  My actual attendance is 4.  Where were the others that signed up?  Can you believe that I was charged $300 for wireless Internet so I could present the two workshops?

Much of an academic conference revolves around rekindling friendships with former colleagues.  On my way to a reception I ran into professors Ramesh Narasimhan (Montclair State) and wife Shifei Chung (Rowan), and new professor Meng Ju Lee (PWC).  Ramesh and I were doctoral students together at Virginia Tech.

Ramesh Narasimhan, Shifei Chung, Meng Ju Lee

Then, in quick succession, I attended a preliminary job interview (do you remember that I’m looking for a new job?), the career fair, new member reception, and the Virginia Tech reception.

Receptions are difficult work and very exhausting.  An uneducated outsider would look at and condemn the collection of professors eating free food, drinking free alcohol, laughing and joking around.  But a lot of complex, difficult work actually goes on.  At the Virginia Tech reception, John Walker inspired several of us with stories of some legendary accounting prof who had 100 refereed pubs in two years (52/48).  Walker’s department chair would roam the halls late every Friday afternoon asking each professor how many submitted articles had been accepted that week. After the reception, I went back to my hotel room and wrote two papers.  I woke up early the next morning and wrote yet another paper.

Professors John Brozovsky (Virginia Tech), Susanne O'Callaghan (Pace) and husband John Walker (Queens).

Debit and credit – – David Albrecht

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The Public Company Accounting Oversight Board (PCAOB) has scheduled an open meeting for Tuesday, Aug. 16, at 9:30 a.m.  In this meeting, the Board will consider a concept release soliciting public comments on ways that auditor independence, objectivity, and professional skepticism could be enhanced, including mandatory audit firm rotation.

The meeting is to be live webcast at the PCAOB web site.  As is my practice, I will live blog this meeting/discussion.

On June 21, 2011, the PCAOB issued a concept release on the fundamentally flawed audit model. At that time, Chairman James Doty and the four other members of the board issued statements.

The purpose of this concept release is:

… to solicit public comment on the potential direction of a proposed standard-setting project on the content and form of reports on audited financial statements. The Board will also convene a public roundtable meeting in the third quarter of 2011, at which interested persons will present their views. Additional details about the roundtable will be announced at a later date.

The concept release document and the statements of the five board members are found here.

Debit and credit – – David Albrecht

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