Archive for November, 2011

EurActive is reporting that tomorrow, Internal Affairs Commissioner Michel Barnier will present a proposal affecting audit firms in the EU:
1.       Big 4 to be audit-only firms
2.       Maximum tenure of 9 years
3.       Two audit firms per client company, a maximum of one Big 4 firm.

Barnier has been floating his idea for the past six months, and apparently has the support needed to push it through.

This proposal reflects compromises that have been made.   The tenure of nine years is fairly long, and much longer than the American proposal of five years.  That smaller firms are to be included in the audit reflects a compromise of not breaking up the Big 4.

The American PCAOB is considering mandatory auditor rotation after five years, but most comment letters to the proposal are opposed to the idea.  If EU is successful in forcing auditing rotation, pressure will be put on the Americans to go along.

Tune in tomorrow for the latest developments

Debit and credit – – David Albrecht


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On August 16, 2011, the PCAOB opened a 120 day comment period on the concept release in which it proposes mandatory auditor rotation.  Relevant information about the matter are included in Docket 37, “Concept Release on Auditor Independence and Audit Firm Rotation.”

With two weeks left in the comment period, the only audit firm to submit a comment letter is Ernst & Young.  Expect KPMG, PWC, Deloitte, McGladrey, Grant Thornton and BDO to submit their comments soon.   I’m certain that each letter will be similar in message to that of Ernst & Young.,

Ernst & Young submitted its letter on November 18, about four weeks before the December 14, 2011, deadline.  In general E&Y’s message is that auditors are sufficiently skeptical of management’s assertions that in general, financial reporting is a benefit to investors.  Because the system works at the current time, no changes are needed.  In any case, E&Y does not like the idea of mandatory rotation.

Mandatory audit firm rotation, in our view, is not a necessary or constructive means to promote
auditor skepticism. There is no evidence that we are aware of suggesting that mandatory firm rotation will improve audit quality. Moreover, there are many identifiable and known downsides to such a policy with little to no certain benefit. A mandatory audit firm rotation model would not only give rise to substantial costs and disruptions, but also would, we believe, impair audit quality, undermine sound corporate governance, and detract from the ability to maintain a robust accounting profession —all to the ultimate disadvantage of the interests of investors. We believe the mandatory retendering approach suffers from the same or even greater disadvantages.

There are five reasons why E&Y “… believe[s] mandatory firm rotation would harm corporate governance and investor interests and the ability to maintain a robust, highly skilled independent accounting profession performing high-quality audits.”

  1. Negative effect on shareholders, corporate governance and audit committees.”  E&Y says this would result from meddling with the duties of the audit committee.
  2. Negative effect on auditor’s knowledge of the company being audited and the effectiveness of audits.”  E&Y argues that long auditor tenures are beneficial, not detrimental.
  3. Negative effect on public companies and the interests of their shareholders.”  E&Y argues that a new auditor’s efforts would be inefficient (and therefore more costly) and less effective (thereby increasing audit failure risk).
  4. Negative effect on the audit profession.” E&Y says that there would be increased costs to auditor and audit team relocation once a five-year engagement ends.  In addition, the firm’s focus would shift away from delivering quality audits to a focus on marketing.
  5. Effect on audit fees.” E&Y thinks audit fees are bound to increase.  Since it foresees no advantages to auditor rotation, it is a negative NPV proposition.

There you have it. E&Y didn’t say anything controversial.

I can’t wait to read what the other firms have to say.

Debit and credit – – David Albrecht

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On August 16, 2011, the PCAOB opened a 120 day comment period on the concept release in which it proposes mandatory auditor rotation.  This comment period ends on Wednesday, August 14, 2011, at 5 p.m. ET.

Relevant information about the matter are included in Docket 37, “Concept Release on Auditor Independence and Audit Firm Rotation.”  There are links to a copy of the concept release, comments by each of the five board members, and comment letters received so far.

At the current time, 72 comments have been received.  Two were withdrawn, and one deals with a different concept release.  Consequently, there are 69 comments on the issue at hand.

After reading all 69 comment letters, not only do I have an intense desire to relieve the pain by hitting myself with a hammer several times in the head, but I can comment on general trends.

By my count, 47 comments (68%) oppose mandatory audit firm rotation and argue for maintaining the status quo, 12 favor mandatory auditor rotation (17%), eight (12%) suggest alternative changes, and two (3%) only raise questions instead of taking a position.  Alternatives include letting shareholders vote annually on which audit firm to hire, and having an independent agency assign new auditors.

Because the board assumes that each comment letter is a vote, retaining the status quo currently is winning the election with 68% of the vote.  I disagree with the PCAOB’s interpretation of the comment letters.  Taken as a whole, the entire collection of comment letters provide ideas and reasons for one alternative versus an idea.  Many might identify and agree with views expressed already, and therefore might not be inclined to submit a comment that is redundant to the larger argument.

Based on my analysis of the submitted comments, it appears that investors favor mandatory rotation.  On the other hand, corporations and auditors oppose rotation.

Although only one audit firm (Ernst & Young) has tendered an opinion, several retired audit partners were represented (individually or as part of a corporate audit committee) in opposing rotation.

Time to comment is growing short.  To have your voice heard, send your comment letter to:

Written comments should be sent to the Office of the Secretary, PCAOB, 1666 K Street, N.W., Washington, D.C.  20006-2803.

Comments also may be submitted by e-mail to comments@pcaobus.org or through the Board’s Web site at www.pcaobus.org.

All comments should refer to PCAOB Rulemaking Docket Matter No. 37 in the subject or reference line.

Debit and credit – – David Albrecht

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

Have you commented on the PCAOB Concept Release suggesting auditor rotation?  Others have, and you can read them here.  Former FASB Chair Denny Beresford, a group including Shyam Sunder, and Ernst & Young have sent in comment letters.

Brad Spitzer is part is part of the financial establishment.  Candice M. Giove of the New York Post, though, has caught him in an oops moment.  She reports in, “Occupy Wall Street protesters stay at $700-a-night hotel,” that Deloitte analyst Brad Spitzer has been taking part on Occupy Wall Street protests and adding his pricey digs to his Deloitte expense report.  Talk about a two-fer.  Isn’t an indiscretion like this grounds for termination with hard feelings?

Thanks to Caleb Newquist of Going Concern for the tip.

An interesting essay on, “The Value Of Writing A LinkedIn Profile That’s Different From Your Resume.”  Maybe I’ve been ahead of the crowd, but for the past 3-4 years  I’ve had summaries to introduce each section of my resume (AlbrechtVita_2011-10-17).  I add my philosophies, intentions, likes and dislikes.

David Coursey has a nice article at Forbes, “25 “Worst Passwords” Of 2011 Revealed.”  None of my passwords made the list.  If you want a suggestion for a difficult-to-hack password, try this:


Alex Planes of The Motley Fool paints a depressing landscape of the future in, “The Next Economic Revolution.”

Debit and credit – – David Albrecht

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The following story is reprinted in its entirety from The Forum of Fargo, ND.  Adva Aharonovich is one of my students.

Life’s journey has led swimmer to Cobbers after
near-drowning incident, stint in Israeli Defense Forces

By: Eric Peterson
November 25, 2011

Concordia College swimmer Adva Aharonovich is from Israel. Dave Wallis / The Forum

Moorhead – Adva Aharonovich remembers one of her first experiences in a swimming pool being quite traumatic.

She was in grade school and in an outdoor pool in her native Israel.

“They told me not to let go of the wall and I did,” Aharonovich said.

Aharonovich said no one immediately noticed she “was drowning.”

“Finally, my sister caught me and then she jumped and saved me,” Aharonovich said. “That was pretty scary. That was the end of it, and my mom put me in swimming.”

These days, she is at home in the water and more than 6,000 miles away from home. She is a senior swimmer for Concordia.

“It’s been really great,” said Aharonovich, who is 24 years old. “It’s a really a nice school and I have no regrets.”

Aharonovich came to Concordia after two years of mandatory service in the Israel Defense Forces. She was athletic trainer for the Israeli Air Force. Part of her job included teaching self-defense, including using an M16 as a “cold weapon.”

Aharonovich went into the military about six months after high school. She said in Israel, women are required to serve for two years and men for three years.

“It’s mandatory, and that is kind of surprising to people here,” she said. “For me, it’s just not a big deal because you grew up in that. … You knew you were going to be serving in the military whether you liked it or not. I had an amazing service and I would do it all over again.”

Aharonovich grew up in Kiryat Bialik, which is a suburb of Haifa in the north part of Israel. After her military service, she knew she wanted to study abroad. She knew she wanted to go to a small liberal arts college. She wanted to go to a school that had a swim program and offered accounting and computer science majors.

Those factors led her to Concordia. Aharonovich had been to the United State many times before she came to Concordia in August 2008, but she had mixed emotions initially. She was starting from scratch, coming to a part of the United States where she didn’t know anyone and also had to get used to a new climate. In Israel, Aharonovich said it would get as hot as 120 degrees with brutal humidity. In Moorhead, she would have to brave temperatures that could hit 30 degrees below zero.

None of that fazed her too much.

“I was really excited and also kind of afraid, because I hadn’t touched anything school-wise for a good three years,” Aharonovich said.

She has handled the academic transition and turned into a reliable member on the Concordia swimming team. Cobbers head coach Julie Lucier said Aharonovich’s drive was evident near the end of her sophomore season.

Late in the season, she had yet to qualify for the Minnesota Intercollegiate Athletic Conference meet in the 50-yard freestyle. Aharonovich swam the event three times in one day in the team’s final meet of the regular season.

The third and final time she swam the 50 freestyle was in a time trial. She clocked the qualifying time she needed after falling short the first two times.

“She perseveres,” said Lucier. “And she knows what I think about time trials because it’s unlikely that you are going to do better. She is persistent.”

Aharonovich is taking 21 credits this semester and also works 15 hours a week at an accounting internship. Her junior year, she worked 30-40 hours a week in that same internship.

“She’s a tough girl,” said Lucier, who is having Aharonovich over for Thanksgiving dinner. “The first time I met her I could tell she was determined.”


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I’m an accounting professor in America, so I celebrate Thanksgiving on the fourth Thursday in November.

In earlier times, human societies celebrated at the conclusion of a harvest.  Economies have evolved from agricultural to manufacturing to service to information, so most of us have no direct connection to a harvest, anymore.  But in my part of the world, Thanksgiving is still celebrated by all.

For accountants, the inventory count is wrapping up.  We can scan the ledger for the past year, looking over the the journal entries of events both large and small.  For many of us assets still exceed liabilities.

I’m thankful for my family.  It carries the largest value on the asset side of my personal balance sheet.  Even accounting nerds can have them, and my family is wonderful.

I’m thankful for my career as an accounting professor.  After teaching more than 10,000 students, my retained earnings figure is the largest it’s ever been.

And I’m thankful for The Summa and its readers.  You magnify my comprehensive income.

Debit and credit – – David Albrecht


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When I Grow Up – 2nd Take

Last week I wrote on a Thomson Reuters video called, “When I Grow Up I Want To Be a Tax Accountant.”  Fellow Concordia College accounting professor alerted me to the entire video.  Apparently I had linked only to the first part where describe the unlikeable aspects of being a tax accountant.

In the entire video, embedded below, a second part is included where the kids are dressed in kid-sized business attire, filmed in color and smiling.  Why the difference?  They use a  Thomson Reuters tax software package called OneSource.  Yeah, right.

Here’s the entire video, but it doesn’t make for as good a story as just the first part.

Debit and credit – – David Albrecht

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Gabi Hennen, business student at Concordia College, is the winner of the 2011 Bean Counters Contest.  She will be receiving a $30 Amazon gift card.

Out of over 100 entrants, Hennen’s guess came closest to the actual count of 812.  Her guess of 805 was off by seven.

Ms. Hennen estimated the diameter and the height of the spaghetti container, and then used these estimates to calculate an approximate number of M&Ms.  Although she did not know this, there were 411 M&M peanuts, and 401 M&M regulars in the jar.

Most of the entrants were students.   E-mail addresses showed entrants from Arizona State, Concordia College, New Mexico State, NCSU, Penn State, SUNY Binghampton, TCU, and others.  Binghampton had the most entrants.

Congratulations to all who entered the contest.  Better luck next year.  In the meantime, I hope you continue reading The Summa.  Every day.

Debit and credit – – David Albrecht

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When I Grow Up

A cute Thomson Reuters video is making the rounds of accounting blogs, “When I Grow Up, I Want to be a Tax Accountant.”  I’m curious to see what, “When I Grow Up, I Want to be an Accounting Professor,” would look like.

The video’s recipe is simple.  First, start with attractive kids.  The two boys and two girls used here are enchanting, especially the one missing his two front teeth.  Second, dress them in grown-up sized business attire.  Third, coach the kids to read a script about the daily frustrations and complaints of being an adult working as a tax accountant.   Fourth, cue the rolling acoustic guitar line with a happy bounce.   Fifth, release on Youtube.

Voilà!  A tasty video going viral by accounting standards (>100,o00 hits).

If you listen carefully to the lyrics, you catch lines such as, “When I grow up, I want to manage a tax department.  I want to have lots of turnover and burnt out employees, and I want to have only three employees to do the work of eight.”

Really?  With such prospects in store, why would anyone want to become a tax accountant?   The video offers no clue.

The template can be used in a variety of settings.  For example, if I knew then what I know now about the frustrations of working as an accounting professor, would I ever have started down the path?  The answer varies depending on whether the day is good or bad.

Why did any of us decide to become an accountant?  I think the answer is fairly simple.  We can do numbers.  More than being able to do arithmetic, we can read numbers, and we are able to hear what the numbers say to us.  For that we are willing to put up with all the frustrations.

It didn’t hurt that being an accounting major is fun.  Well, it’s fun for nerds.  In anticipation of Accountant Day, I asked my students what we’d look like in costume.  They had fun with it.  Nerd clothes include pocket protectors filled with pencils, white shirts stained from coffee droplets, unkempt hair, clothes that no longer wear well after a 12 hour day, and a caustic sense of humor.

Accounting classes have always been fun, sort of.  We got hooked with the first statement of accounting 101, “Assets equal Liabilities plus Owners Equity.”  Then it was accounting 102, Intermediate Accounting, Cost Accounting, Auditing, and various tax courses.  Do you know there is no college curriculum as standardized as that of accounting?

Most of us loved being an accounting major.  A 2009 video put together by some graduating University of Florida Fisher School of Accounting students says it well.

This video helps to bring back memories.  It contains a clip of Hadley Schaefer, one of my favorites.  The years of studying accounting were some of the best years of my life.

Yours too.

And I’d do it again.

Debit and credit – – David Albrecht

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Today is Accountant Day (aka Accounting Day).  In the hopes of coming up with something clever enough to get linked to from Going Concern and RTed on Twitter, I queried a few dozen accounting notables including professors, bloggers, journalists, regulators and Top 100 Most Influential People.

How do you intend to celebrate Accountant Day on November 10?

At least Paul Bahnson (professor at Boise State, Accounting Today columnist, and member of the 2011 Top 100 list) was honest, “I wasn’t even aware that there was any such thing as Accountant Day.”

Denny Beresford, former Chairman of the FASB, is going to work today.  Ugh.  “I’ll be attending the PCAOB Standing Advisory Group meeting in DC in the morning, flying and driving home to Athens, GA in the afternoon, and participating in a corporate board meeting in Seoul, South Korea by phone that evening.”  Denny is still working off the bills from his college toga parties.

Professors Bahnson and Ed Ketz (Penn State professor and Grumpy Old Accountants blogger), like most accountants, really know how to cut lose. Bahnson said, “I’m thinking I might put up an entry in class where the debits don’t equal the credits (on purpose!) just to celebrate.”  Ketz said, “I’m giving an exam on currency forwards, foreign translation, and options as fair value and cash flow hedges.  Should be fun.”

Ed Scribner (accounting department Head at New Mexico State University and  Funniest Accounting Professor in America), has a day long program planned:

  • Dr. John Loveland will be delivering his special address entitled, “Accountants – You Can’t Do Without Them, But I’d Certainly Like to Try.”
  • Dr. David Boje will be telling a story entitled, “Interesting Accountants I Have Known.”  (This session will be brief.)
  • Dr. Carl Enomoto will be explaining why accountants cannot have personality conflicts, by definition.
  • Dr. Janet Green will be presenting favorite bean recipes from the kitchens of HRTM.

Jim Peterson (blogger at re:Balance and audit theorist) will propose new wording for the auditor opinion:

“Having performed such calendar-reading tests as we deemed reasonable in the circumstances, it is our opinion that, in accordance with generally accepted calendar principles, Accountants’ Day is fairly likely to be observed on Thursday, October 10, 2011.

“Third parties are advised, however, that our opinion is intended for use only by those with whom we are in privity, and that they should perform such other or further due diligence as they may require or deem suitable.”

Hey Jim, very funny.

Sam Antar, the most creative accountant of his generation, (as well as convicted felon, former CFO at Crazy Eddie’s and now blogger at White Collar Fraud), says,

I will be giving thanks to Green Mountain Coffee Roasters and its auditors at PricewaterhouseCoopers. Their antics have provided me with fresh materialfor teaching how to find accounting irregularities in plain sight.

The most interesting party plans come from the regulators:  James Kroeker (SEC), Leslie Seidman (FASB), Hans Hoogervorst (IASB).  They chose not to respond to my invitation to comment, so I’m just going to make stuff up.

Hoogervorst suggests that on Accounting Day debits and credits should be optional and used only according to professional judgment.  Seidman exposed the idea of debits and credits switching sides.  Henceforth, credits are now to be located on the left side.  Kroeker is to issue a Convergence Roadmap to a party at his house.

How are you celebrating on this day?  Leave details in the comment section below.

Debit and credit – – David Albrecht

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To commemorate Accountant Day on Thursday, November 10, 2011, The Summa is conducting its second annual Bean Counters Contest.

If you can correctly guess the total number of M&Ms (regular and peanut) in this jar, you can win a $30 gift certificate from Amazon.

Entries are accepted by commenting to this blog post or by e-mail to albrecht@profalbrecht.com.  Entries must be time-stamped by 11:59 p.m. CT, Thursday, November 10, 2011.  Entries must contain contestant’s name and e-mail address.

If no entry correctly guesses the actual number of M&Ms in the jar, the closest guess will be declared winner.

Number of expected winning entries:  one.  In case of multiple winning entries, the two entries with the earliest time stamp will be declared co-winners, and each will receive a $30 gift certificate from Amazon.  The jar contains no items other than regular or peanut M&Ms.  Maximum of one entry per person accepted.

Accountant Day is for all accountants, auditors and bean counters to celebrate being a part of the accounting profession.  November 10 is chosen as the day of celebration.


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