Accounting Scandal Updates on October 30, 2002
Bob Jensen at Trinity University

Bob Jensen's main document on the Enron scandal and other accounting frauds is at 

The FASB is looking for your advice on whether to dim the bright lines in accounting standards and move to a "principles-based" approach that leaves financial reporting choices much more in the hands of professional judgment of management and their auditors --- 

The main arguments for principles-based standards are that they will be less complex and will lead to less game playing (such as when firms purchase19.99% of the equity in another company rather than 20% in order to avoid the equity method of accounting under FAS 115 and 124.)  But, in my viewpoint, principles-based standards are a disaster.

Anybody that thinks that principles-based standards will reduce the chances for Enron-like scandals is also willing to vote that there will be total peace on earth without first destroying most of mankind.  Some naive theorists point to international IASB standards before the IASB (formerly IASC) started adding bright lines to newer standards.  But IASB standards tend to avoid controversial issues, and even if there are some newer principles-based standards on controversial issues, such standards will not do much to improve  transparency in financial reporting.  International standards have been a bad joke, because international accounting standards are rarely enforced.  Many major nations like Germany do not even have an infrastructure for enforcing any type of accountancy standards, including their own standards and/or IASB standards.  International standards are selectively followed and avoided at will, and virtually no pressure is brought to bear on corporations to follow all international standards.  In the U.S., pressure is much greater to follow FASB accounting standards, because the U.S. is a litigious society with plaintiff attorneys armed with the bright lines of accounting and auditing standards (although the AICPA has tended to avoid some badly needed bright lines in auditing standards).

Principles-based standards are favored by accounting firms and corporate auditing clients, because such standards will make it much more difficult for investors to sue for damages attributed to misleading financial reporting.  In these troubled times when accounting firms are trying to restore their reputations and corporations are trying to restore confidence among equity investors, each move toward principles-based standards is a step backwards.  This is a time to get tough with auditing and accounting standards.  Unfortunately, hopes of reform of auditing standards in the U.S. were badly dashed by recent evidence that corporations and large accounting firms virtually own the SEC and the AICPA.  I am referring in particular to how obvious it became that the Big 4 firms, with the help of the AICPA leadership, stacked the new Public Company Accounting Oversight Board.   Anybody who believes that SEC Chairman Harvey Pitt is "fiercely independent" is probably also in favor of principles-based standards.  The selection process was most certainly not in the best interest of investors.  Newsweek reported the following on October 24, 2002 --- 

SEC Chairman Harvey Pitt was joined by fellow Republicans Cynthia Glassman and Paul Atkins in voting for Webster and the other four board members. Democrats Harvey Goldschmid and Roel Campos voted against Webster. And while the vote was officially for all five accounting board members, Campos added he was voting for all but Webster.

In an unusually rancorous SEC open meeting, Pitt rejected suggestions he had been swayed by the accounting industry to support Webster over Biggs, saying he was “fiercely independent” and “beholden to no one.” But Goldschmid criticized the selection process as inept. “Until this morning, for example, I was not informed as to which 5 individuals would be presented to this commission at this meeting. To my knowledge, none of the individuals have been properly vetted,” he said.

I think Goldschmid's statement is incorrect.  Chairman Pitt, with the aid of corporate lobbyists adamantly opposed to the appointment of John Biggs, carefully vetted the slate of candidates that he (Pitt) intentionally selected to inhibit major reforms and bright lines in the best interest of investors. It was typical smoke and mirror politics in Washington DC.   Outwardly there seemingly was a glimmer of hope for reform that, when push came to shove, was dashed by powerful lobbyists.

November 6, 2002 Update:  Harvey Pitt resigned from the SEC on November 5.

Europe also has huge accounting problems! 
Europe Wants Increased Financial Disclosure --- 

Reply from Elliot Kamlet SUNY Account [ekamlet@BINGHAMTON.EDU

I think it's even worse. John Biggs is sitting in his job at TIAA-CREF. One day Harvey Pitt comes to his doior to inform him he's number one for the leadership of the new Board and he'd better prepare. So he quits his job (and gets replaced immediately) and submits himself for nomination. Then Pitt said "who me? I never offered him the job" (not a direct quote). The rest Bob has shared with us. It's the pitts.

Elliot Kamlet 
Binghamton University

Book Recommendation: 
Title:  Take On the Street: What Wall Street and Corporate America Don't Want You to Know
Authors:  Arthur Levitt and Paula Dwyer (Arthor Levitt is the highly controversial former Chairman of the SEC)
Format: Hardcover, 288pp.  This is also available as a MS Reader eBook --- 
ISBN: 0375421785
Publisher: Pantheon Books
Pub. Date: October  2002

This is Levitt's no-holds-barred memoir of his turbulent tenure as chief overseer of the nation's financial markets. As working Americans poured billions into stocks and mutual funds, corporate America devised increasingly opaque strategies for hoarding most of the proceeds. Levitt reveals their tactics in plain language, then spells out how to intelligently invest in mutual funds and the stock market. With integrity and authority, Levitt gives us a bracing primer on the collapse of the system for overseeing our capital markets, and sage, essential advice on a discipline we often ignore to our peril - how not to lose money. 

A free video from Yale University and the AICPA (with an introduction by Professor Rick Antle, also Senior Associate Dean, from Yale).  This video can be downloaded to your computer with a single click on a button at 
It might be noted that Barry Melancon is in the midst of controversy with ground swell of CPAs and academics demanding his resignation vis-a-vis continued support he receives from top management of large accounting firms and business corporations.

A New Accounting Culture
Address by Barry C. Melancon
President and CEO, American Institute of CPAs
September 4, 2002
Yale Club - New York City
Taped immediately upon completion

Using Technology to Reduce Fraud --- 

Oct. 21, 2002 (Internet World) — These are not the best of times to be sitting in the chief executive's chair of a lot of companies. If a bear market weren't bad enough, chief executives are being put directly in the bull's eye of public and political ire over financial accounting scandals that at their worst have sucked billions of dollars out of the market, and at the least have depressed the market rebound.

That pressure will be felt far beyond just the 947 public companies whose CEOs and CFOs have been forced by the Securities and Exchange Commission to certify the truthfulness of their financial reports. And though that move by the SEC was largely a publicity stunt (you can even go to the SEC's Web site and view the sworn statements from these executives), the question arises about whether technology can play a part in providing protection for investors and company executives.

"It's quite an interesting topic," says Kraig Haberer, a former CPA at Price Waterhouse who now serves SAP AG as director of product marketing for its mySAP Financials suite. "Technology can be an enabler; however, it cannot replace good judgment." He notes that the situations that have blackened corporate images today are primarily caused, not by a lack of technology, but by bad judgement by a few key executives.

"However, I do think technology can help minimize the chance of occurrences of either outright fraud or purely overlooking something in an account," Haberer says. "To some degree, the more automated you can make your processes and your financial reporting and accounting, the better off you are because technology can be that independent third party. You have a lot of companies with multiple data feeds they are pulling from. That process of recording, processing, and reporting on that information is not automated, and you can introduce the likelihood of just pure error, nothing fraudulent. So technology can be that third party that can automate and integrate that process and minimize the opportunities for error."

The mySAP response is to give the finance department a number of automated tools for handling the complexity of financial reporting in the modem global enterprise. That can make it more difficult for an unscrupulous person somewhere in the mix to introduce unethical practices, but it still may not be enough to let the CEO relax. "You also have to empower that chief officer with the information at his desk," Haberer says. MySAP offers an executive dashboard, where you can specify the key indicators you want to track at a high level and see their performance over time. Simply by having lowerlevel executives know they're being watched may not eliminate the threat, but if you sense a problem, you will at least know what questions to ask.

To others, the problem is a security matter related to protecting the integrity of the data in the enterprise's financial systems. In August, Datum Inc. and WetStone Technologies Inc. jointly announced a new subscription service, called Time Lock for Microsoft Word that lets users embed secure and auditable digital time stamps into their work. They then have a document that can be verified for authenticity and time accuracy.

"If I was a CEO of a company and I had to sign off on the financial statements, I would want to know that my records are absolutely protected," says Steve Corie, who is in fact the CEO and president of a company, Perimeter Data Inc. Perimeter recently began selling a product that takes Datum's idea to its logical conclusion: it makes it so that any files-email, video, a series of sequential documents, voice mail, etc.-are stamped, signed, and archived in a way that makes it impossible to delete or modify. "CEOs have a fear, that if they do sign off on something, they have to rely on people down the organization," he adds.

For Comrie, the key point is that the data is viable and can be proven legally in a court of law, if necessary. He sees a future in which a brokerage house under investigation might say certain e-mails being sought by investigators have been deleted or don't exist, but their auditor steps in with the records it keeps from its collaboration with its brokerage client, and produces the digitally signed, time stamped, and sealed files. That might actually create a headache for an unscrupulous chief executive, but that headache, at least, would be well deserved.

"There's no way even an administrator with access can go in and delete or manipulate data" with Perimeter's system, says Comrie. "We believe there is a vulnerability most corporations will never talk about, that at the end of the day some of this stuff will be challenged in a court of law-some will be brought forward as evidence."

The ultimate answer for corporate financial accountability is not technological, of course. If a company's executives or directors are concerned about their financials, the answer lies in the integrity of the people managing the financial records. But company leaders can invest in certain technology that can help them detect problems before they become disastrous headaches, whether the problem was man-made or a simple result of people tripping over too-complex financial regulations.

-- Zipperer, John

The MySAP Solutions homepage is at delivers a comprehensive e-business platform designed to help companies collaborate and succeed -- regardless of their industry or network environment. solutions include: Solutions

Flexible Solutions for Any E-Business Problem solutions are open and flexible, supporting databases, applications, operating systems, and hardware platforms from most major vendors. They also uphold the highest quality standards and deliver unparalleled levels of performance. And they're appropriate for virtually any organization, from global enterprise to small and midsize business.

What's more, SAP provides Business Maps to help you visualize, plan, and implement a coherent, integrated, and comprehensive solution.

To learn more about the e-business platform, check out "Solutions for the Best-Run E-Businesses" (PDF, 643 KB).

To find out how some of SAP's most successful customers are using to improve their businesses, check out "SAP E-Business Success Stories 2001 Edition" (PDF, 238 KB).

Want to learn more? Contact SAP for additional information.

Bob Jensen's threads on electronic commerce can be found at 

Bob Jensen's threads on fraud are at 

An Important 272 Page Report from the GAO that documents major post-audit restatements of earnings by corporations for the Year 2001
FINANCIAL STATEMENT RESTATEMENTS Trends, Market Impacts, Regulatory Responses, and Remaining Challenges
United States General Accounting Office , GAO 03-138, October 2002 --- 
(Includes a glossary of key terms.)

While the number of restating companies continues to make up a small percentage of all publicly listed companies annually, the number of restatements due to accounting irregularities grew significantly—about 145 percent—from January 1997 through June 2002. Based on the number of restatements as of June 30, 2002, we expect the increase to exceed 170 percent by the end of the year. The number of financial statement restatements identified each year rose from 92 in 1997 to 225 in 2001. The proportion of listed companies on NYSE, Amex, and Nasdaq identified as restating their financial reports tripled from less than 0.89 percent in 1997 to about 2.5 percent in 2001 and may reach almost 3 percent by the end of 2002. From January 1997 through June 2002, about 10 percent of all listed companies announced at least one restatement. Among the restating companies that we identified, the number of large company restatements had grown rapidly since 1997. 6 The average (median) size by market capitalization of a restating company increased from $500 million ($143 million) in 1997 to $2 billion ($351 million) in 2002. 7 In addition, of the 125 public companies that announced restatements due to accounting irregularities in 2002, 54 were listed on Nasdaq and 53 were listed on NYSE, which generally lists more large companies than any other stock market.

The 845 restating companies we identified had restated their financial statements for many reasons—for example, to adjust revenue, costs or expenses, or to address securities-related issues. From January 1997 to June 2002, issues involving revenue recognition (misreported or nonreported revenue) accounted for almost 38 percent of the 919 announced restatements; revenue recognition was also the primary reason for restatement each year. Finally, in reviewing the restatements, we found different parties can prompt a restatement, including the restating company, an external auditor, or SEC. 

The 689 publicly traded companies we identified that announced financial statement restatements between January 1997 and March 2002 lost billions of dollars in market capitalization in the days around the initial restatement announcement. For example, from the trading day before through the trading day after an initial restatement announcement, stock prices of the restating companies that we analyzed fell almost 10 percent on average (market adjusted). We estimate that the restating companies lost about $100 billion in market capitalization, which is significant for the companies and shareholders involved but represents less than 0.2 percent of the total market capitalization of NYSE, Nasdaq, and Amex. However, these losses had potential ripple effects on overall investor confidence and market trends. Restatements involving revenue recognition led to greater market losses than other types of restatements. For example, although restatements involving revenue recognition accounted for 39 percent of the 689 restatements analyzed, over one-half of the total immediate losses were attributable to revenue recognition-related restatements. Although longer-term losses (60 trading days before and after) are more difficult to measure, there is some evidence that restatement announcements appear to have had an even greater negative impact on stock prices over longer periods.

The growing number of restatements and mounting questions about certain corporate accounting practices appear to have shaken investors’ confidence in our financial reporting system. Although determining the effect of financial statement restatements and other accounting issues on overall investor confidence is difficult to measure (because so many factors go into making investment decisions), various attempts to measure investor confidence have been made. For example, a UBS/Gallup survey-based index that asks questions aimed at measuring investor confidence indicates that people cited accounting practices as a serious problem and that these practices have negatively impacted securities markets.9 However, Yale University calculates four survey-based indexes that ask different questions that generally indicate that investor confidence in the markets has been largely unaffected as of June 2002. 10 Other sources such as empirical research studies and academic experts generally suggest accounting issues have negatively affected overall investor confidence and raised questions about the integrity of U.S. markets. 

With the increase in the number of restatements due to accounting irregularities, almost 20 percent of SEC’s enforcement cases since the late 1990s were for violations resulting from financial reporting and accounting practices. An SEC official said that about half of these enforcement cases involved revenue recognition violations. Of the 150 accounting-related cases brought from January 1, 2001, to February 28, 2002, about 75 percent were brought against public companies or their directors, officers, and employees; the other 25 percent of the cases involved accounting firms and certified public accountants (CPA). To address such violations, SEC has sought a variety of penalties against these companies and individuals, including levying monetary sanctions, issuing cease-and-desist orders, and barring individuals from appearing before SEC or serving as officers or directors in public companies.11 Slightly more than half of the enforcement proceedings initiated were administrative, involving allegations that a firm or individual had violated GAAP or that an individual had caused a firm or other individuals to act unlawfully. The remainder of the enforcement proceedings initiated were civil judicial actions, usually cases involving securities fraud. 

The recent increase in the number and size of financial statement restatements and disclosures of accounting issues and irregularities underlying these restatements have raised significant questions about the adequacy of the current system of corporate governance and financial disclosure oversight. In addition to public companies, their auditors, and SEC, investors rely on a variety of parties for oversight and financial information, including stock markets, securities analysts, and credit rating agencies, all of which have roles in the corporate governance system or provide information to the investing public. However, recent events have raised concerns about the roles played by each of these parties. In response, Congress, the President, SEC, the exchanges, and others have begun taking action to attempt to strengthen corporate governance and financial reporting. Most significantly, on July 30, 2002, the Sarbanes-Oxley Act was enacted.12 The act addresses many of these concerns, including strengthening corporate governance and improving transparency and accountability to help ensure the accuracy and integrity of the financial reporting system. In addition, the act authorizes additional funding for SEC, which as we reported in March 2002, has faced staffing and workload imbalances that have challenged its ability to fulfill its mission.13 Effectively managing its human capital resources, technology, and processes is likely to remain a challenge for SEC in the future, especially for regulatory activities involving oversight of public company disclosures and financial fraud-related enforcement.

Employees who try to bring to light unethical or illegal practices by their employers are often criticized, treated like outcasts, fired, or worse. ---,5309,7778,00.html 

By Gary Silverman and Adrian Michaels in New York 
Business Week, November 2 2002 

A US banking regulator on Friday filed a $2bn suit against Ernst & Young for its role in a bank failure, saying the firm covered up improper accounting work so it could "buy time" for the sale of its consulting arm to Cap Gemini of France.

The suit filed by the Federal Deposit Insurance Corporation stems from the failure of Superior Bank, based in the Chicago suburb of Hinsdale, Illlinois, in July 2001. The failure cost the FDIC $750m.

Superior specialised in making mortgage loans to customers with tarnished credit histories - so-called "subprime" borrowers. It then used the expected cash flows from the loans to back bonds that were sold to investors.

Such business models - involving what is known as securitisation - have proved dangerous because the lender books its profits based on its estimate of expected returns. If borrowers fail to pay as much as expected - either through default or prepayment - the lender's earnings disappear, making proper accounting crucial.

The FDIC said Superior Bank failed "as a direct result of E&Y's gross mistatement of Superior's assets."  It said E&Y knew its work was "improper and grossly misleading" and failed to disclose that fact because it was trying to sell its consulting practice to Cap Gemini.

"E&Y's fraud went to the highest level of E&Y - its national office in New York," the FDIC's complaint said.
The complaint said the E&Y's auditing arm brought in its consulting division "to give the appearance of an independent, conservative and reasonable review of the valuation of Superior's securitisation assets." It added: "The 'review', however, was designed from the outset to be cursory in scope."
The complaint said: "Over the last approximately 11 years, E&Y has engaged in a pattern of repeatedly failing to adhere to established accounting and auditing standards."

E&Y said the FDIC complaint "flies in the face of the agency's own earlier conclusions". It said the FDIC had told legislators in February that Superior's failure was "directly attributable" to the bank's board and executives ignoring sound risk management principles.

E&Y has already been in trouble with lawsuits and regulatory scrutiny over its role as auditor to CUC, which later became Cendant. It has paid $335m to settle shareholder litigation in connection with fraud at the franchising and marketing group.
The lawsuit comes as public confidence in the audit profession has sunk to an all-time low. Andersen's role in the Enron scandal led to a federal criminal trial and its collapse. E&Y is one of only four global accounting firms left.

Lawsuits: I Wouldn't Cook Books So I Got Fired --- 

Oct. 15, 2002 (USA TODAY) — As the crackdown on corporate fraud continues, some executives are suing their former companies, saying they were fired after refusing to cook the books.

There's no nationwide tally of such lawsuits. But with so much shady accounting and pressure to meet Wall Street numbers in recent years, attorneys say more corporate executives and whistle-blowers are striking back and not taking the fall for higher-ups.

Some cases are pending in:

* Silicon Valley. Ronald Sorisho, a former vice president at high-tech contractor Solectron in Milpitas, Calif., says in a lawsuit filed last week that he was canned because he believed the firm should have written down $45 million in obsolete inventory.

But executives refused to allow the write-down, saying it would hurt the firm's earnings and stock price, the lawsuit alleges.

Solectron spokesman Kevin Whalen denies the allegations, calling them "baseless" and "sour grapes." Sorisho was let go for poor performance, he says.

* Hollywood. A former executive hired by fallen super-agent Michael Ovitz sued him last week, alleging she was let go because she told auditors that Ovitz's Artists Management Group was misusing $4 million in annual funds from partner Vivendi.

Cathy Schulman, who ran Ovitz's film-production unit, charges that Ovitz fired her "in a rage" and engaged in a "public smear campaign" against her.

Ovtiz's attorney, Terry Sanchez of Munger Tolles & Olson in Los Angeles, declined to comment Friday.

* Texas. Bradley Farnsworth, the former controller at Dynegy, sued the Houston energy firm in August. He alleges he was dismissed because he would not manipulate natural-gas trading data and earnings.

Dynegy spokesman John Sousa says the company will investigate the allegations and prove them false.

Dynegy says Farnsworth never raised red flags with the company's board or audit committee, and he signed off on financial statements for fiscal 2000.

Dynegy's accounting practices are under investigation by the Justice Department and the Securities and Exchange Commission.

In recent months, former executives and managers at Xerox, WorldCom and Global Crossing have filed similar lawsuits alleging wrongful termination.

A new federal law may encourage more whistle-blowers to speak up. It requires companies to set up confidential procedures for employees who suspect fraud, and it allows workers to sue if they are harassed, demoted or fired for reporting allegations.

"This gives employees a decent weapon," says Jonathan Ben-Asher, an attorney at the law firm of Beranbaum Menken Ben-Asher & Fishel in New York. "We're going to see many more of these cases."

October 14, 2002 message from Dee (Dawn) Davidson [dgd@MARSHALL.USC.EDU

Since Enron and other corporate accounting scandals, ethics programs and hotlines are fast becoming an unoffical requirement for businesses. Confidential hotlines, in particular, are gaining popularity to protect an employee from being labeled a "whistleblower."

"Recent events in the business world demonstrate the need for more ethical guidance for financial professionals," said President Butler. "When financial professionals call the toll-free hotline, their inquiries will be forwarded to an experienced ethics counselor, who provides confidential guidance. This hotline is particularly well-suited for small businesses and solo practitioners who need guidance on ethical issues."

Financial professionals can call the hotline toll-free at 1-800-638-4427 x1662, or send their inquiry via e-mail to The IMA does not record phone numbers or e-mail addresses. Those who contact the hotline can be provided with a numerical code for identification, to maintain confidentiality. 

dee davidson 
Accounting Systems Specialist 
Marshall School of Business L
eventhal School of Accounting 
University of Southern California 213.740.5018

Bob Jensen's commentary on whistle blowing can be found at 

"Insider Loans: Everyone Was Doing It It isn't just the Enrons and the Tycos of the world that will eat huge losses on insider loans. It turns out that the practice -- now banned -- was common at 75 percent of the country's biggest corporations," by Ralph King, Business 2.0, November 2002 Issue ---,1640,44304,FF.html 

Early in September, Microsoft (MSFT) had a small confession to make. Back in December 2000, the company had lent its president, Rick Belluzzo, $15 million, taking some of his stock options as collateral. Though the options were underwater and had no value at the time, Microsoft figured its stock would eventually go up. But by last August, when Belluzzo resigned, the options were even further submerged. So the software giant forgave the loan -- it had no choice under the deal Belluzzo had struck -- charged off the $15 million, and said its belated disclosure was "appropriate" because the loan was really just an "advance."

Corporate scandals are so big and bountiful these days -- Tyco (TYC) and WorldCom (WCOM) were getting the headlines the week Microsoft made its disclosure -- that the significance of the little item was easy to miss. Next to alleged accounting fraud and corporate looting, the practice of making and pardoning insider loans, even multimillion-dollar ones, seems like small beer. And why single out Belluzzo? He hadn't left his company in tatters like Lucent's (LU) Richard McGinn, Mattel's (MAT) Jill Barad, Webvan's George Shaheen, and the few other executives who made news by having their multimillion-dollar company debts erased as they headed out the door. Compared with WorldCom's (WCOM) Bernie Ebbers, whose officially disclosed unpaid loans stand at $160.8 million, Belluzzo hardly seems to rate.

Yet Belluzzo symbolizes an aspect of the ongoing revelations about boom-time corporate excess that, until now, has escaped notice: Insider lending and the subsequent forgiving of those loans didn't just benefit a few alleged corporate rogues and failed executives. It was astoundingly common. Read the full story >>,1640,44304|2,FF.html

AICPA Issues New Audit Standard for Detecting Fraud --- 

Bob Jensen's threads on other proposed reforms are 

Winning Essay: "Accounting: a Pillar of the Free Market" --- 

Oct. 14, 2002 (Pennsylvania CPA Journal) — In an effort to encourage accounting students to improve their writing abilities, the Pennsylvania CPA Journal Editorial Board sponsors an annual Student Writing Competition. This year, for the first time, the contest was open to all business majors attending Pennsylvania colleges and universities, as well as to Pennsylvania residents who attend school out-of-state.


The 2002 topic was Accounting's Role in the Creative Destruction Process. Harris Arch, a student at the Wharton School of the University of Pennsylvania, placed first and received a cash award of $2,000. The Wharton School also received $1,000 for his achievement. Andell Lewis of Ursinus College placed second and received $1,200. Justin Stolte, also of Ursinus College, placed third and received $800. Ursinus College was awarded $1,000 ($600 and $400, respectively) for its students' achievements.

Special thanks go to contest chair and judge Frank Farina and to judges Steve Blum and Rose Marie Bukics--all members of the Pennsylvania CPA Journal Editorial Board-for their hard work and dedication to this program.

Winning Essay: The following is an excerpt from the Student Writing Competition's first-place essay, written by Harris Arch from the Wharton School of the University of Pennsylvania. To read the complete paper, please visit, click on Contest & Awards, then go to Student Writing Competition.

Accounting: A Pillar of the Free Market By Harris Arch, The Wharton School of the University of Pennsylvania

Joseph Schumpeter's "creative destruction" theory is critical to the understanding of the role of accounting within the free market. In his famous text, Capitalism, Socialism, and Democracy, Schumpeter wrote, "The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers, goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates."

Schumpeter's observations demonstrate keen insight because the history of the American free market has consistently supported the force of change. Businesses must be able to adapt to markets that are dynamic and be responsive to consumers' changing habits or new methods of production. ... Schumpeter argued that innovation would always remain in the free market economy, and consequently the old structure and processes would be "destroyed" by new, more efficient ways of business. Schumpeter's theory is a powerful force in the free market economy and a reminder that innovation will never become obsolete as the economy develops...

One of the questions of interest in this paper is how the role of accounting affected the dot-com boom of the late 1990s. To support the growth of the technological businesses, these companies needed an infusion of capital. These investments could have come from venture capital, initial public offerings in the stock market, loans, or various other financing vehicles. Regardless of the financing choice, investors needed a way to accurately value the operations of the company and determine the growth potential. The role of accounting is to provide these investors with reliable information about a company's earnings and balance sheet accounts.

The accounting profession's responsibility should not be taken lightly, because investing decisions hinge upon the provided numbers. When an investor reads that earnings grew 25 percent from the previous quarter or revenues decreased 10 percent year-to-date, the investor needs to have the ability to assume that information is correct to the best of the knowledge of the accountant. Without this crucial assumption, investors would inefficiently allocate capital in companies that are not optimal and the innovation of the free market that Schumpeter described would become undermined. ...

For Schumpeter's "creative destruction" to occur, true technological innovators need investment to support their fledgling companies. Recently, there have been serious issues about companies overstating their earnings, such as Sunbeam, Waste Management, and Enron. Investors need to have confidence that earnings reports are correct. If the worries over accounting continue, the free market and the ability to raise funds will become seriously constrained. When earnings are reported, investors will not be certain that these numbers are correct and may be hesitant to invest. Without capital, our free market will not be able to develop sufficiently and fund enterprises that provide value to the economy. ...

The beauty of the free market is its own self-sustaining capabilities. The market can function by itself without strong intervention from the government, but some regulation is needed to support the self-sustainability. Accounting is one such pillar of strength for the free market. For investors to be able to develop proper investing decisions, the accounting numbers must be accurate. If not, our economy will suffer from poor capital allocation decisions based upon faulty numbers. Schumpeter's idea of "creative destruction" in the economy is a testament to the strong innovative character of our society. That innovation cannot occur without support from the accounting profession and standards. Without innovation, our economy will overlook potential growth opportunities, and the dreams of a better standard of living in the future may not see fruition.

And then there is the dark side --- 

Politics as Usual on the Beltway

October 21, 2002 message from 

Unfortunately, partisan Democrats went even further in both politicizing and personalizing the process by attacking SEC Chairman Pitt a month before the election. And now Congress recesses without appropriating funds for the SEC and the President calls for a reduction in the SEC enforcement funds included in Sarbanes-Oxley and in the Senate Appropriations Committee bill! Politicians of both parties are politicizing the SEC as never before.

As I noted in my very first PCAOB article submitted to the Washington Times ("Mary Poppins vs. the Chamber of Commerce"), which you posted at , the lack of PCAOB independence from government may well prove a fatal flaw:


You can read more about Craig at 

"It's Time For Him to Go:  The Securities and Exchange Commission is desperate for strong leadership--and Harvey Pitt isn't providing it," by Jeffrey H. Birnbaum, FORTUNE, October 28, 2002, pp. 99-102 --- 

For a while there, it was starting to look as if Harvey Pitt finally got it. After nearly a year of being a day late and a dollar short as corporate scandals mounted and investor confidence eroded, the Securities and Exchange Commission chairman seemed to be getting tough on the bad guys. He dispatched teams of SEC staffers to ferret out major-company frauds. He stopped trading verbal jabs with New York attorney general Eliot Spitzer--who has been far ahead of the SEC in exposing Wall Street conflicts--and instead joined forces with Spitzer to crack down on the deceptions of securities analysts. Perhaps the most promising sign of all: Pitt had decided to back John Biggs, a reform-minded pension fund CEO, to become head of an important new board to oversee the accounting profession. He'd even said as much to Biggs.

So much for the new Harvey Pitt.

Buckling to pressure from the accounting lobby and some Republican members of Congress--who feared that Biggs would be too rough on the industry--Pitt did an about-face and withdrew his support. When the New York Times broke this story in early October, it set off a firestorm, with calls from key Democrats for Pitt's resignation. His SEC colleagues were embarrassed and appalled. A fellow commissioner puts it this way: "This was the single most important decision the chairman had to make, and he's made a total mess of it."

Pitt's reversion to type could not have come at a worse time. With the stock market still in a deep swoon and the scandals continuing to attract headlines, investors desperately need to see that the SEC is serious about correcting the current problem. But Pitt has consistently given the opposite signal--and his reversal on Biggs, who was supported by such heavyweights as Warren Buffett and Alan Greenspan, only reinforces the mounting view, both inside and outside Washington, that the chairman of the SEC is simply not up to the job.

Few agencies are in greater need of strong leadership than the SEC, and not just because of all the corporate misconduct. Pitt's predecessor, Arthur Levitt, was an outspoken reformer but wielded little political clout. His efforts to reform Wall Street and the accounting industry were swatted down by Congress. At the same time, the commission was starved for resources, its staff turnover was twice the rate of other agencies, and it was often comically outgunned by the companies it was supposed to police. Even basic tasks proved too difficult. It barely managed to review the financial statements of major companies once every six years, a lapse that had disastrous consequences--as we now know. A bipartisan congressional report has called the SEC's failure to examine Enron's filings since 1997 "catastrophic."

Pitt came into office in 2001 as the anti-Levitt. A lawyer who had represented accounting firms, among other companies, Pitt opposed heavy-handed government intervention and promised a "kinder and gentler" SEC. But fate conspired to give him a mandate for market regulation that Arthur Levitt could only dream of. The corporate malfeasance over the past year has put Pitt in an uncomfortable position: He is a diehard deregulator at a time when more regulation is widely viewed as necessary to prevent future scandals. And he has refused to adjust.

The Biggs controversy has demoralized the upper echelon of Pitt's work-weary staff. They've concluded that they can't change his autocratic style or deregulatory bent. Over coffee a senior SEC lawyer shakes his head and muses, "The political types [like Pitt] come and go, and the agency still does its job. But it is unpleasant sometimes." And the unpleasantness will probably get worse. Congress has mandated that the SEC name all the accounting board members by Oct. 28, but with the commissioners at odds over who should lead the panel, it may be too divided to meet the deadline.

That's not the only problem the agency faces. Congress has finally agreed to up the SEC's 2003 budget by an eye-popping 75%, from $438 million to $766 million. But the SEC was underfunded for so long that that's probably not enough. Former SEC chairman Richard Breeden has testified that $1 billion would be closer to the right amount. Still, despite the obvious need, the SEC won't see an extra penny for months. Congress hasn't passed any of the bills that actually appropriate additional funds; spending could be stalled at current levels until next March.

Meanwhile, the Sarbanes-Oxley legislation, which was enacted in July and is aimed at enhancing government's ability to root out and punish corporate chicanery, makes more demands than the agency can currently shoulder. In addition to creating an accounting regulator from scratch, the SEC must review the filings of the nation's largest companies twice as often as it does now, extract from corporate executives a mountain of new disclosure forms, and devise a system for disciplining corporate lawyers who fail to report financial wrongdoing to their companies. And that's a partial list. "To deal with the most serious financial scandals in my professional lifetime, the SEC has been given a vast amount of new responsibilities," says commissioner Harvey Goldschmid. "We're going to be spread very thin even with extra budget resources."

Book Recommendation: 
Title:  Take On the Street: What Wall Street and Corporate America Don't Want You to Know
Authors:  Arthur Levitt and Paula Dwyer (Arthor Levitt is the highly controversial former Chairman of the SEC)
Format: Hardcover, 288pp.  This is also available as a MS Reader eBook --- 
ISBN: 0375421785
Publisher: Pantheon Books
Pub. Date: October  2002

This is Levitt's no-holds-barred memoir of his turbulent tenure as chief overseer of the nation's financial markets. As working Americans poured billions into stocks and mutual funds, corporate America devised increasingly opaque strategies for hoarding most of the proceeds. Levitt reveals their tactics in plain language, then spells out how to intelligently invest in mutual funds and the stock market. With integrity and authority, Levitt gives us a bracing primer on the collapse of the system for overseeing our capital markets, and sage, essential advice on a discipline we often ignore to our peril - how not to lose money. 

Federal District Judge Melinda Harmon hammered her gavel for Arthur Andersen LLP for the last time yesterday, sentencing the firm to probation and a monetary fine as a penalty for obstructing justice in regard to the firm's audit of Enron Corp. The sentence is the maximum allowable by law. 

AccountingWEB US - Oct-17-2002 -  Federal District Judge Melinda Harmon hammered her gavel for Arthur Andersen LLP for the last time yesterday, sentencing the firm to five years' probation and a $500,000 fine as a penalty for obstructing justice in regard to the firm's audit of Enron Corp. The sentence is the maximum allowable by law.

"Andersen's conduct in obstructing the Securities and Exchange Commission investigation of Enron, we submit, contributed to - contributed to significantly - the historic shaking of the foundation of our markets," prosecutor Sam Buell told the Court.

Earlier this year Andersen was found guilty of obstruction of justice. The jury relied heavily on an internal memo from Andersen in-house counsel Nancy Temple in arriving at its decision. Ms. Temple, who refused to testify at the trial, authored a controversial memo in which she documented a conference call in which Mr. Duncan challenged Enron's reporting of a loss as "nonrecurring." In a preliminary draft, Mr. Duncan described the reporting as "misleading." Ms. Temple suggested "aggressive" instead. She also asked that he remove her name from the final copy.

Andersen is expected to appeal on grounds that some of Judge Harmon's rulings regarding what evidence the jury heard and the instructions given the jury were improper. Another ground for appeal is the judge's decision to allow testimony about Andersen's controversial relationship with former clients Sunbeam and Waste Management.

Testimony of Ex-Tyco Exec Passes Blame to PwC

Last week, PricewaterhouseCoopers was assured that individual auditors would not face criminal charges related to "secret bonuses" at Tyco International. But this week, PwC found itself back in the hot seat, thanks to statements made by the company's former general counsel. 

AICPA issues SAS 99 in an effort to make auditors more accountable in detecting high-level fraud. Slated for release within the next month, this new audit standard will help ensure material fraud is detected early on, before investors are taken in by fraudulent financial statements. 

"Auditors Say U.S. Agencies Lose Track of Billions," by Joel Brinkley, The New York Times, October 13, 2002 --- 

In the last year, the Office of Management and Budget has taken on the financial accounting problem in something like an auditor's holy war. In a letter to Congress on Oct. 7, Mitchell E. Daniels Jr., director of the budget office, said the federal government's accounts would "never be tolerated in the private sector," adding that "repair of a system so badly broken will not happen overnight."

In part to embarrass the agencies so they will improve their financial performance, the budget office early this year began rating the 24 largest federal departments, scoring each green, yellow or red. Green indicates that the agency's financial systems are acceptable, yellow that they are troubled but improving and red that there are serious, chronic problems. In the most recent rating, completed in June, only one agency was rated green, the tiny National Science Foundation. Twenty were rated red.

The Department of Defense routinely makes the largest financial blunders. In the fiscal year that ended Sept. 30, 2000, auditors found, the department entered unsubstantiated balance adjustments totaling $1.1 trillion. That was an improvement over the previous year, when the figure was $2.3 trillion.

"They just made the adjustments up," said a senior official with the Defense Department's inspector general's office.

That does not mean $1.1 trillion is missing. Some adjustments were deposits, others were debits. For example, the Defense Finance and Accounting Service found last year that its accounts were out of balance with the Treasury Department, the bank, by $3.9 billion. Instead of determining the source of the discrepancy, the service simply entered a balance adjustment for that amount. Hundreds of similar adjustments are behind the $1.1 trillion total.

Over all, the department's financial records are so chaotic — the agency has more than 1,100 accounting systems — that Congress advised the agency's auditors not to bother even trying to audit them.

Three other federal agencies — the Agriculture Department, NASA and the Agency for International Development — had unauditable books in 2000-2001. But even many of the agencies that received so-called clean audits — with books well organized enough to be audited — had serious financial shortcomings.

The Internal Revenue Service, for example, is unable to produce a hard figure for the amount of tax payments due the government. Instead it runs a statistical sample of taxes due and from that derives an estimate — an arduous process that takes several months. That estimate is one of the figures the government uses to plan spending for the year.

All told, for the 2000-2001 fiscal year, the Treasury Department entered a balance deduction from the government's general fund of $17.3 billion to make up for financial errors throughout the government. The government also recorded at least $33 billion in erroneous payments last year, like improper Medicare payments of $12.1 billion.

Continued at 

"An Audit Could Tip the Scales on Tyco," by Gretchen Morgenson, The New York Times, October 13, 2002 --- 

The giant accounting firm PricewaterhouseCoopers is in the midst of its annual audit on Tyco International. What inquiring minds want to know is whether the accountants, who missed some of the recent shenanigans at the company, will go easy on Tyco this year. Or will they try tough love in their audit?

Asking the questions is more than just an intellectual exercise. Depending upon how Pricewaterhouse assesses the company's enormous amount of good will and other intangible assets on its balance sheet, Tyco could be in violation of a covenant on some recently negotiated bank debt.

Last February, a few months before L. Dennis Kozlowski went from esteemed to indicted, Tyco negotiated two bank loans totaling about $5.8 billion. One, for $3.8 billion, is due in four months, the other in 2006. J. P. Morgan Chase was the lead bank on both.

A covenant on both loans dictates that Tyco's consolidated debt cannot exceed 52.5 percent of its total capitalization. On June 30, Tyco's debt was 49 percent.

That cushion could vanish fast if Pricewaterhouse finds that Tyco's good will is seriously impaired and that some deserves to be written off. Given deal-a-day Dennis's record of overpaying for acquisitions, which results in ballooning good will, and given that profit margins in all four of the company's businesses have dropped the last four quarters, a hefty write-down is a distinct possibility. Such a write-down would reduce Tyco's total capitalization.

Tyco's balance sheet groaned under good will and other intangible assets of $33.6 billion in June. That figure has more than doubled since 2000 and has more than quadrupled since 1998. Amazingly, in June, good will equaled Tyco's shareholder equity, or net worth, and accounts for 48 percent of total assets at the company.

Good will is spread among Tyco's operations: the electronics business has $8.5 billion, before a $2.5 billion write-down it has announced in its telecom unit; health care has $7.2 billion; fire and security has $8.2 billion; and engineered products, $3.1 billion. Other intangible assets amount to $6.5 billion.

So how big a write-down of good will or intangibles would put Tyco in violation of the debt-to-total capitalization covenant? Roughly $4.8 billion, or about 15 percent, of its current intangibles.

To be sure, the company has more than $5 billion in cash, and Tyco could use some of this to reduce the debt. Assuming that Tyco used $3 billion for that, a write-down of $7.4 billion would put the company in violation of the debt covenant.

There is a wild card in this debt, however. Because all of Tyco's lenders have equal status — none is senior to another — if certain debt starts to be repaid, other lenders could become nervous about their loans and demand repayments, too. Almost all of Tyco's debt is unsecured — not backed by assets. Unsecured lenders typically become nervous more easily than those whose loans are secured.

Which brings us back to Pricewaterhouse and its audit. It is possible that the firm will decide that none of Tyco's good will is impaired, require no write-downs and keep the company well within its loan covenants.

But Pricewaterhouse might also think it wise to be a wee bit conservative in its Tyco audit this year. After all, the recent indictment of Mr. Kozlowski by Robert M. Morgenthau, the Manhattan district attorney, indicated that Pricewaterhouse missed some highly questionable transactions at Tyco. People at Pricewaterhouse are under investigation for their Tyco work.

There's no telling what Pricewaterhouse will do, of course. The firm would not comment, but a spokesman said that it always scrutinizes "good will of a material nature" in audits. But shareholders may not have to wait too long for the news. Last year's annual report shows that Pricewaterhouse signed off on Tyco's books on Oct. 18. 

A video on how Federal prosecution works:  Copping a Plea
Corporate Fraud Attorney Neil Getnick discusses the indictment proceedings against former Enron CFO Andrew Fastow. This probably will only be available for a few days --- 

Hi Janko,

Worldcom will go down in history as one of the worst audits in the history of the world.  It was a far worse audit by Andersen than the Andersen audit of Enron.

Worldcom is not the most exciting research study, because the fraud was so simple.  It is, however, an interesting study of how bad audits were becoming as audit firms commenced to succumb to client pressures, especially very large clients like Worldcom.

The main GAAP violations at Worldcom concerned booking of expenses as assets --- over $3 billion overstated. The company also violated revenue recognition rules in GAAP. Many of the GAAP violations are summarized in the recent class action lawsuit against Worldcom --- 



This is a class action on behalf of a class (the "Class") of all persons who purchased or otherwise acquired the securities of WorldCom Corporation between February 10, 2000 and November 1, 2000 (the "Class Period), seeking to pursue remedies under the Securities Exchange Act of 1934 ("1934 Act").

During the Class Period, defendants, including WorldCom, its Chief Executive Officer, Bernard Ebbers and its Chief Financial Officer, Scott Sullivan, issued a series of false statements to the investing public. During the Class Period, WorldCom reported seemingly unstoppable growth in revenue and profitability despite unprecedented competition in the telecommunications industry, transforming WorldCom into the second largest long-distance carrier in the United States, second only to industry giant AT&T. Indeed, WorldCom, headed by Ebbers and Sullivan, acquired billions of dollars worth of companies in the span of a few years - - including the then largest merger ever, the 1998 MCI merger. Throughout the Class Period, defendants represented that the massive MCI merger was an enormous success - contributing heavily to synergies, revenues and growth.

As defendants knew, due to industry-wide pressure, there was simply no way to continue the significant revenue and earnings growth the market had come to demand from WorldCom absent further consolidation. To that end, Ebbers in October, 1999 announced WorldCom’s largest merger ever, a deal to merge with number three in the industry, Sprint Telecommunications. The Sprint Merger was crucial to WorldCom for several reasons: (1) due to increased competition, WorldCom’s revenue growth was slowing dramatically due to regular forced contract renegotiations as a result of lower prices for long-distance and telecommunications services; (2) WorldCom’s account receivable situation was out of control, with hundreds of millions of receivables going uncollected but remaining on its books for long periods of time; and (3) WorldCom did not have a significant presence in the wireless business, and needed Sprint’s wireless division to allow the Company to compete with major telecommunications providers such as AT&T who did have wireless operations. The Sprint Merger would not only provide a conduit of increased revenue by which defendants could mask WorldCom’s deteriorating financial condition, but also provided a means to hide the enormous amount of uncollectible accounts receivables through integration-related charges.

Throughout 1999 and the first two quarters of 2000, the Company reported strong sales and growth, and became an investor favorite, reaching $62 per share in late 1999. WorldCom was followed by numerous analysts who favorably commented on the Company and its potential, especially in light of the highly anticipated Sprint Merger. Behind the positive numbers, however, there were significant problems growing at WorldCom which threatened the Company’s ability to compete.

According to numerous former employees, the Company resorted to a myriad of improper revenue recognition and sales practices in order to report favorable financial results in line with analysts’ estimates despite the significant, and worsening financial decline WorldCom was then experiencing. Defendants’ fraud involved : (a) failing to take necessary write-offs in order to avoid a charge to earnings (¶¶58-72); (b) intentionally misrepresenting rates to customers (¶¶74-81); (c) switching customers' long distance service to WorldCom without customer approval (¶¶82-83); (d) recognizing revenue from accounts which had been canceled by customers (¶¶84-87); (e) "double-billing" (¶¶91-92); (f) back-dating contracts to recognize additional revenue at the end of a fiscal quarter (¶97); (g) failing to properly account for contracts which had been renegotiated or discounted (¶¶93-96, 98-99); and (h) deliberately understating expenses. (¶¶88-90). Further, despite defendants' frequent statements regarding WorldCom's increased network expansion3 capabilities, the Company was experiencing substantial difficulties performing "build-outs", or network expansions, a failure which limited the Company's growth.

In addition, the number of uncollectible receivables skyrocketed during the Class Period, in part because those receivables represented phony sales that never should have been booked, and in part because defendants allowed over half a billion of worthless accounts receivable to remain on WorldCom's books in order to delay a charge against earnings required by Generally Accepted Accounting Principles ("GAAP"). Defendants knew about the increasing amount of uncollectible accounts by virtue of a monthly written report which detailed all accounts deemed uncollectible by virtue of prolonged litigation, bankruptcy or other circumstances. Indeed, defendants received detailed monthly packages regarding accounts receivables and their status, which included lengthy case histories, litigation summaries, a description of the most recent action taken by the Legal Department, and updates. Ebbers himself received these reports because he was the individual at WorldCom responsible for authorizing writeoffs in excess of $25 million - - accounts for which his express approval was required.

Defendants implicitly encouraged the widespread improper revenue recognition tactics employed by WorldCom employees, as well as the failures to properly reserve for and account for uncollectible accounts, for several reasons. First, defendants were desperate to complete the Sprint Merger. As defendants knew, Sprint shareholders were scheduled to vote on the pending merger on April 28, 2000, and it was essential that WorldCom appear to be a financially strong company in order for the vote to pass. Therefore, defendants reported phenomenal financial results for the first quarter on April 27, 2000 - one day before the Sprint shareholder vote on the merger.

Once Sprint and WorldCom shareholders approved the Merger, defendants kept up their barrage of false statements to avoid attracting negative attention while federal regulators considered the deal, and to ensure the deal was completed on the most favorable terms possible. Defendants intended to use WorldCom stock as currency to merge with Sprint, and the higher the price of WorldCom stock, the cheaper the purchase. It was also crucial to inflate the price of WorldCom stock in order to complete public offerings of debt in May and June, 2000 - for nearly $6 billion - to be used as to pay existing debt and free up additional borrowing capacity in order to pay for the costs of integrating Sprint.

Defendant also had personal reasons to misrepresent WorldCom’s financial results. If the Sprint Merger was completed, Ebbers felt the stock would "go through the roof"and he stood to gain hundreds of millions of dollars in profits as a result of his considerable WorldCom holdings, including soon-to-vest stock options. Ebbers was also strongly motivated to inflate WorldCom’s stock price to avoid a forced sale of his stock which he bought through a loan years before. In fact, in order to meet margin calls when the price of WorldCom stock declined, Ebbers regularly received multi-million dollar personal loans from the Company at the expense of WorldCom shareholders. Similarly, Sullivan, keenly aware of the Company’s accounting fraud because of his position as the Company’s top financial officer, divested himself of nearly $10 million worth of WorldCom stock on August 1, 2000. John Sidgemore, the Company’s Chief Technology Officer and a WorldCom Director, aware of the lack of new products being produced by the Company, sold over $12 million worth of WorldCom stock in May, 2000.

On July 13, 2000, defendants were forced to reveal that the Sprint Merger had been rejected by federal regulators. As a result, defendants scrambled to put together another deal which could conceal the problems at WorldCom. On September 5, 2000, defendants announced an intent to merge with Intermedia Communications, Inc. ("Intermedia") an Internet-services company which included its subsidiary, Digex, a company that manages web sites for business. This acquisition too would be completed using WorldCom stock as currency, so it was essential for the stock price to remain artificially inflated to complete the deal on favorable terms. The Intermedia deal, however, ran into unexpected hurdles and delays, and was the subject of lawsuits filed in Delaware Chancery Court by Digex shareholders, seeking to block the deal, and alleging the deal was financially unfair to Digex shareholders given WorldCom's worsening financial condition. As a result of the focusing of a spotlight on WorldCom's true financial status, defendants could no longer hide WorldCom's problems. On October 26, 2000, defendants revealed that the Company was forced to write down $405 million of uncollectible receivables due to bankruptcies of certain wholesale customers. The $405 million was stated in after-tax terms to deflect attention from the even higher whopping pre-tax write off of $685 million. The stock dropped from over $25 to slightly over $21 on October 26, 2000, on trading volumes of nearly 70 million shares.

On November 1, 2000, defendants dropped the other shoe, announcing a massive restructuring which would create a separate tracking stock for MCI - - a concession that the integration of MCI and WorldCom had not worked and was not profitable for investors. Defendants also revealed that the Company had been experiencing dramatic declines in growth and profitability. Fourth quarter 2000 earnings would be between $0.34 and $0.37 share - a far cry from the $0.49 analysts and investors expected, and which defendants said was an estimate they were comfortable with "from top to bottom." In addition, rather than earning $2.13 per share in 2001, defendants expected only between $1.55 and $1.65. The stock dropped over 20% in one day in response, sinking to a new 52 week low of $18.63 on November 1, 2000.

During a November 1, 2000 conference call, Defendant Ebbers revealed that he had "let investors down." He also admitted that, contrary to his repeated Class Period statements detailing the Company’s successful acquisition strategy which included purchasing billions of dollars worth of assets from telecommunications and Internet companies, some of the acquired assets "should have been disposed of sooner."

WorldCom stock has never recovered, and traded at slightly over $18 per share in May, 2001. As a result, WorldCom investors who purchased securities during the Class Period, have lost billions. The following chart indicates the impact of defendants' false statements on the market for WorldCom securities:




One thing you might look into is the extortion that various CEOs, including Ebbers at Worldcom, forced upon large investment banks. These CEOs threatened to withdraw the business of their large companies if the investment banks did not give them new shares in various IPOs of other companies. In other words, this extortion did not directly involve a company like Worldcom, but Bernie Ebbers extorted $11 million from Salamon, Smith, Barney by threatening to withdraw Worldcom's business with the investment bank. See 


Top current and former WorldCom executives scored millions of dollars from hot initial public offerings made available to them by Salomon Smith Barney and its predecessor companies, records released on Friday by the U.S. House Financial Services Committee showed. Bernie Ebbers, the former chief executive of WorldCom, made some $11.1 million from 21 IPOs, including $4.56 million off the sale of Metromedia Fiber Network shares and almost $2 million from rival Qwest Communications International shares, according to the documents.

"This is an example of how insiders were able to game the system at the expense of the average investor," Rep. Michael Oxley, R-Ohio, chairman of the committee, said in a statement. "It raises policy questions about the fairness of the process that brings new listings to the markets."

The committee released the documents within moments of receiving the information it had subpoenaed from Salomon Smith Barney, a unit of Citigroup, as it investigates whether the company offered IPO shares to win investment banking business.

In the late 1990s through early 2000, technology IPOs were almost guaranteed to soar in the open market, meaning those investors who were able to buy shares at the offering prices would likely haul in large, risk-free gains.

Salomon got hundreds of millions in fees from telecommunications deals over the years. A memo turned over to the committee by Salomon showed that star telecommunications analyst Jack Grubman, who recently left the firm, was sent a memo about which executives got shares in two IPOs.

A lawyer for the firm was said to have not found any evidence of a "quid pro quo," in which it received investment banking business in exchange for the IPO allocations.

"We believe the allocations at issue fit well within the range of discretion that regulators have traditionally accorded securities firms in deciding how to allocate IPO shares," Jane Sherburne, the Salomon lawyer, said in a letter to the committee.

The committee's investigation comes after WorldCom admitted in June and July to a whopping $7.68 billion in accounting errors dating back to 1999, and the No. 2 U.S. long-distance telephone and Internet data mover was forced to file for bankruptcy protection in July.

James Crowe, WorldCom's former chairman, made $3.5 million by selling 170,000 shares of Qwest on Aug. 27, 1997, two months after he acquired the shares in the company's IPO, according to the documents. Former WorldCom Director Walter Scott made $2.4 million in his sale of 250,000 shares less than a month after Qwest went public.

Ironically, the man at the center of the WorldCom controversy, Scott Sullivan, who was fired for his role in the accounting debacle, lost $13,059 in the nine IPOs he received allocations.

His biggest losses came from the sale of Rhythms NetConnections, losing $144,450 when he sold his 7,000 shares in May 2001, two years after the company went public but less than three months before Rhythms filed for bankruptcy.

Representatives for Ebbers, Sullivan and WorldCom were not immediately available for comment.

The National Association of Securities Dealers last month proposed new rules to stop investment banks from allocating IPO shares to favored clients, but the rules would require approval from the Securities and Exchange Commission.



Bob Jensen

-----Original Message----- 
From: Janko Hahn []  
Sent: Friday, October 18, 2002 4:04 AM 
To: Jensen, Robert Subject: Questions about Worldcom

Dear Professor Jensen,

I´m writing a thesis paper round about 15 pages about the manipulation at Enron and Worldcom here at the office of Professor Coenenberg. Last semester, you have been here in Augsburg, so I had a look at your homepage and it was a great help for me about Enron (I think, the main points to mention are SPE´s and derivatives).

But I´m still not shure what to write about worldcom: in different articles I can read about failures in the books, but nothing specific I can present.

So I have three questions, perhaps you can help me:

1. what have been the main points of manipulations at Worldcom? Where in the Gaap standards can I refer to?

2. why are the credits to the CEO Ebbers so important? Of course, they are really big and Ebbers won´t be able to pay them back, but this is no manipulation? So why do all the newspapers focus on this point?

3. Are these manipulations at Enron and Wordlcom really illegal? Of course, they are bad in the meaning of the standards, no prudence, and so on, but is this illegal? Or is it illegal, beacause they did not show the debts / revenues in the correct matter and so lied to the investors?

Thanks for your help Professor Jensen,

with best regards,

Janko Hahn 
Kennedystr. 16 82178 Puchheim
86159 Augsburg

Bob Jensen's threads on the accounting scandals are at 

You may also want to note 

Employees who try to bring to light unethical or illegal practices by their employers are often criticized, treated like outcasts, fired, or worse. ---,5309,7778,00.html 

Barron Stone doesn't like to be called a whistleblower. The CPA, who alleges that his employer, Duke Energy Corp., kept the price of electricity artificially high in the Carolinas with questionable accounting, says he prefers to be called an "informant." "The word 'whistleblower' has a negative connotation," he explains.

Indeed it does. Stories like that of Sherron Watkins, who has been praised for speaking out against fraud at Enron, are rare. More often, those who try to bring to light unethical or illegal practices by their employers are criticized, treated like outcasts, fired, or worse. "It almost always turns out badly for the whistle-blower," says James Fisher, director of the Emerson Center for Business Ethics at Saint Louis University. "Often they regret it. They lose their jobs, they have family problems, or they're shunted off to the side."

It's not surprising, then, that the most common reactions of those who discover dubious employer practices are to either leave or look the other way. And while the public has continually asked, "Why didn't anybody come forward?" during the recent scandals, the fact that so few did indicates that systems designed to protect whistleblowers often don't work.

Power Play
Stone's decision to blow the whistle at Duke was not an easy one: it took two years after first noticing what he calls irregular accounting entries before he came forward. "My wife was against it. She was afraid for my personal safety and the family's well-being," says the father of two. Although he says personal safety was never an issue, he was prepared for hostility. "If you go into it thinking people are going to pat you on the back, you are kidding yourself," warns Stone.

In its Duke Power unit, which runs its regulated utility business, Duke Energy is allowed to earn a maximum rate of return on electricity it sells — 12.5 percent in North Carolina and 12.25 percent in South Carolina. If the company is earning more than that, regulators can cut the rate it charges to customers.

Stone alleges that from 1998 to 2001, the company reclassified some accounting items to make its returns lower so state regulators wouldn't cut rates. For example, he says Duke often gets rebates from insurers of its nuclear plants based on safety records. Although the cost of the premiums is expensed to the electricity business, he claims the rebates — approximately $26 million to $30.5 million each — were not booked back to the same accounts. On a number of occasions, "they were booked below the line in a nonelectric account," says Stone. The moves, he says, kept Duke Power from exceeding its allowable returns and kept the states from reducing electricity rates. (CFO PeerMetrix: Look into working capital for the last three years at Duke and at its Richmond rival, Dominion Resources.)

In 1999, as accounting manager at the division level, Stone concluded that he had an obligation to address the issue. "I made a strong case [that the accounting didn't comply with generally accepted accounting principles]," he recalls. But Stone's superiors said that the decisions were final. "They never offered an explanation," he says.

In 2001, Stone reported the issue to state regulators, and to company officials through an anonymous compliance channel. And while his identity was supposed to remain anonymous to his superiors, he believes the information was leaked. "You find that you are never really anonymous," says Stone.

In response, utilities commissions in the Carolinas have appointed Grant Thornton to investigate if Duke used improper accounting to artificially keep returns low. And in February, Stone, who has worked for Duke since graduating from college in 1985, was forcibly transferred to a new job that he dislikes, and downsized from an office to a cubicle.

Duke says Stone has never been treated differently because he raised the issue. "Duke has a strong commitment to maintaining an open work environment and supporting the highest business ethics," says Cathy Roche, director of external relations at Duke.

Continued at,5309,7778,00 

During the past week, two more companies found themselves facing lawsuits from former executives for wrongful discharge after incidents involving ethics and financial reporting. Attorneys say it is a growing area of litigation. 

Enron's creditors won an $8 million victory on October 17, 2002 when a judge approved a deal giving money seized from former executive Michael Kopper to company bondholders.  Shareholders and other creditors get no nibbles on this piece of pie.

PwC Sued for False and Misleading Financial Statements --- 

Oct. 22, 2002 (AFX News Limited) — Three Dallas-based technology entrepreneurs have sued PricewaterhouseCoopers on claims that the firm certified false and misleading financial statements of San Jose, CA-based HPL Technologies Inc whose shares fell to pennies on the dollar within five months of a 33 mln usd stock trade.

Plaintiffs Mark Harward, Brenda Stoner and Merrill Wertheimer said PwC verified the strong financial position of HPL prior to the trio merging their successful technology company, Covalar Technologies Group Inc, and its subsidiary TestChip Technologies, with HPL in Feb 2002 in exchange for 10 mln usd in cash and approximately 33 mln usd in HPL stock.

According to the plaintiffs, PwC audited and approved HPL's financial statements for the three years preceding HPL's initial public offering in July 2001 even though HPL's financial results were allegedly based on non-existent revenue "fraudulently" reported by the company's chief executive David Lepejian.

These allegedly fraudulent financial statements were included in a prospectus approved of and distributed by UBS Warburg, the lead underwriter of HPL's IPO, also a named defendant in the lawsuit.

On July 19, 2002, HPL surprised the financial world when it announced that the company was investigating internal financial and accounting irregularities, and that chairman and chief executive officer David Lepejian was being removed.

HPL's stock, which closed at 14.10 usd per share a day earlier, fell to 4.00 usd per share before trading was halted. The company's stock has now been delisted and currently sells for approximately 10 cents per share.

Lawsuit Blames Deloitte & Touche for Fall of Philadelphia-Based Insurer --- 

Oct. 17, 2002 (The Philadelphia Inquirer) — The Pennsylvania Insurance Department is blaming one of the nation's biggest accounting firms for inflating Reliance Insurance Co.'s financial statements by $1 billion and contributing to its financial collapse last year.

In a civil suit filed in Commonwealth Court yesterday, state insurance commissioner M. Diane Koken accused Deloitte Touche LLC and Deloitte principal actuary Jan A. Lommele of "professional negligence and malpractice, misrepresentation, breach of contract, and aiding and abetting breaches of fiduciary duties" by Reliance chairman Saul P. Steinberg and other former officials.

The New York-based accounting giant denied wrongdoing on behalf of its Philadelphia office, which audited Reliance.

"Deloitte and Touche performed its services for Reliance in accordance with all applicable professional standards and will defend itself accordingly," said spokesman Paul Marinaccio. He added that the firm had not yet seen the suit and could not comment on specific claims.

Lommele, former head of a financial reporting committee for the American Academy of Actuaries, a national group that sets and enforces professional standards for its members, was unavailable for comment at his Connecticut office.

Pennsylvania liquidated Reliance last fall after estimating a shortfall of over $1 billion between the company's assets and its likely future claims. Founded in 1817, Philadelphia-based Reliance employed over 7,000 workers in the late 1990s.

To bail out Reliance policyholders, along with customers of a string of smaller failed insurers, Pennsylvania home and business insurers are paying the legal maximum 2 percent surcharge on policies; smaller surcharges have been levied by other states in connection with Reliance. Typically those costs are passed on to policyholders in the form of higher premiums.

Whether "motivated by the desire to increase fee income from an important client" or "hopelessly conflicted" by its dual role checking the books of both Reliance and its owner, Deloitte and Lommele understated the company's expected insurance claims by more than $500 million and exaggerated assets by nearly as much, resulting in a "billion dollar overstatement" of the company's financial surplus in 1999, according to the suit, prepared by Philadelphia lawyer Jerome Richter.

Deloitte collected $6.5 million in auditing fees from both Reliance and its owner, New York investor Saul P. Steinberg's Reliance Group Holdings, in 1998-99, and Deloitte is still collecting additional payments from Reliance Group, which is now in bankruptcy proceedings.

Deloitte should have blown the whistle on Reliance by issuing a warning about the company's ability to stay in business by "the end of 1999, and probably earlier", the suit maintains. The firm's failure to issue such a warning "helped Reliance to preserve its favorable rating" from A.M. Best & Co. and other insurance rating firms, giving customers a false sense of security, the suit said.

According to the suit, Lommele employed a discredited method called "summing" to calculate Reliance's cash reserves while "manipulating" loss ratios, sometimes by crudely cutting them in half, to reduce apparent reserve requirements.

The suit also accuses Deloitte staff of ignoring loss trends in calculating future losses for certain unnamed "large lines of business", and of failing to properly account for tax and reinsurance obligations. And the suit says Deloitte "obscured" Reliance's increasing dependence on Steinberg's "bull market" stock investments as a source of capital in 1999 and 2000.

Had Deloitte and Lommele done their job, "hundreds of millions of dollars in losses to Reliance", its creditors and the U.S. insurance policyholders who are currently bailing the company by paying surcharges on their policies might have been "avoided", according to the suit.

Instead, according to the suit, the auditors allowed Steinberg and his fellow directors to "drain" over $500 million in cash from Reliance Insurance by "recklessly, intentionally or negligently concealing" the company's poor financial condition from the Insurance Department, policyholders and creditors.

Steinberg and his fellow Reliance officers, directors and executives, including former Pennsylvania Insurance Commissioner and Reliance lawyer Linda S. Kaiser, are the subject of a separate Insurance Department lawsuit alleging they caused or failed to prevent the company's collapse. The ex-Reliance officials have sought to have the suit thrown out, alleging it lacks specific allegations.

Koken's department says it has raised over $130 million by suing the lawyers, accountants, executives, directors and other people connected to a string of failed Pennsylvania insurers over the past five years, a period in which the state has led the nation in property-and-casualty insurance company failures.

Contact Joseph N. DiStefano at 215-854-595 or

Version edited by News Service:

To see more of The Philadelphia Inquirer, or to subscribe to the newspaper, go to 

In a series of speeches on the importance of integrity and quality, Deloitte CEO Jim Copeland explained why he sees a talent war ahead and what accounting firms can do to win the war. 

Deloitte Tells How Firms Can Win Accounting Talent War

AccountingWEB US - Oct-14-2002 -  In the latest in a series of speeches on the importance of integrity and quality, Deloitte CEO Jim Copeland explained why he sees a talent war ahead and what accounting firms can do to win the war. He outlined the best recruiting and retention tactics for today's emerging social, economic and regulatory trends.

Factors conspiring to create the talent war:

  1. An aging workforce, leading to more competition for entry-level workers and a net loss of intellectual capital as masses of experienced auditors leave the workforce.
  2. Limitations on the services accounting firms are permitted to provide, which can translate into more limited career options for both partners and staff.
  3. An increase in the number of clients changing auditors, causing more changes in local staffing needs and forcing workers already characterized as "road warriors" to endure heavier travel requirements, longer hours and more frequent relocations.
  4. The prospect of greater legal liability, which frightens prospective partners away from accepting positions with accounting firms.

Tactics for winning the talent war:


  1. Defend your people. Firm leaders should take opportunities to combat the overall impact of criticism of accountants in the media by defending their people in speeches, interviews, and testimony.
  2. Provide as much career variety and opportunity as possible. This can be done by arranging for staff to work with the best experts in all fields, including taxes, technologies, and legal counsel.
  3. Protect your firm's professionals from litigation by being selective in the clients served and resigning from higher-risk clients.
  4. Initiate programs to help retain more experienced workers. For example, Deloitte has a senior partner program to retain partners in their fifties who are thinking of retiring early.
  5. Maximize intellectual capital. This can be done by investing in the education and training of people, carefully monitoring their assignments, and using knowledge-sharing systems.
  6. Improve the interaction between workers and their immediate supervisors. "People don't leave bad companies," notes Mr. Copeland, "they leave bad managers."

Bob Jensen's threads on proposed reforms are at 

October 18, 2002 message from FINNEGAN, KERRI A [

Timothy Belden, the former head of trading in Enron's Portland, Ore., office, admitted to one count of conspiracy to commit wire fraud. He faces up to five years in prison and must forfeit $2.1 million. "I did it because I was trying to maximize profit for Enron," Belden told U.S. District Judge Martin Jenkins. U.S. Attorney Kevin Ryan said the plea demonstrates once and for all that the rolling blackouts and huge price increases that rocked California in 2000 and last year were the result of illegal conduct.

"The three Cs of fraudulent financial reporting"
Source: The Internal Auditor
October 10, 2002
Web Link --- 

Assessing an organization's conditions, corporate structure, and the choices it makes can help reveal the motivations, opportunities, and rationalizations behind the commission of financial statement fraud.

FRAUDULENT FINANCIAL REPORTING IN THE UNITED States has cost investors more than sioo billion over the past two years. In its "2002 Report to the Nation on Occupational Fraud and Abuse," the Association of Certified Fraud Examiners estimates that about 6 percent of revenues, or $600 billion, will be lost this year as a result of occupational fraud and abuse (see related story, "The High Cost of Occupational Fraud," page 13). This report also indicates that financial statement fraud is the most costly type of occupational fraud, with median losses of $425 million per scheme. The other two types of occupational frauds are asset misappropriations and corruption schemes.

Fraudulent financial reporting occurs for many reasons, which can be grouped into three broad categories - conditions, corporate structure, and choice, or the "3Cs." Internal auditors can use the 3Cs model to predict and uncover financial statement fraud, consistent with 11A Attribute Standard 1210.A2, which clearly states that "The internal auditor should have sufficient knowledge to identify the indicators of fraud ... ." 11A Practice Advisory 1210.A2-I: Identification of Fraud, and Practice Advisory 1210.A2- 2: Responsibilities for Fraud Detection, further detail the auditor's role in fraud investigations and suggest that auditors should 1) identify symptoms - conditions - that indicate a fraud may have been perpetrated; 2) search for opportunities - corporate structure - that may allow fraud to occur; and 3) evaluate the need for further investigation, notify the appropriate individuals within the company about the possibility of financial statement fraud, and take the actions necessary to reduce or minimize its likelihood of occurrence - choice.


The 3Cs model helps explain motivations, opportunities, and rationalizations for the commission of financial reporting fraud.

The motivations and pressure to engage in financial statement fraud are the conditions. Pressures on corporations to meet analysts' earnings forecasts play an important role in the commission of this type of fraud. In recent corporate cases, executives deliberately committed illegal actions to mislead users of financial statements - investors and creditors - about their poor or less-than-favorable financial performance.

An organization's corporate structure can create an environment that increases the likelihood that fraudulent financial reporting will occur. Given that management usually is the perpetrator of this type of fraud, it is not surprising that most incidences occur in an environment characterized by irresponsible and ineffective corporate governance.

Attributes of the corporate governance structure most likely to be associated with financial statement fraud are aggressiveness, arrogance, cohesiveness, loyalty, blind trust, control ineffectiveness, and gamesmanship. Aggressiveness and arrogance can play a part in the organization's attitude and motivations toward being a leader in the field or exceeding analysts' earnings expectations. Cohesiveness, gamesmanship, and loyalty attributes increase the likelihood of cooking the books and subsequent cover- up attempts and decrease the probability of whistle-blowing. Blind trust and ineffective controls can cause monitoring mechanisms - such as audit functions and the internal control structure - to be less effective in preventing and detecting fraud.

Management must choose between using ethical business strategies to achieve continuous improvements in both quality and quantity of earnings and engaging in illegitimate earnings management schemes to show earnings stability or growth. Management may choose to engage in financial statement fraud when: 1) its personal wealth is closely associated with the company's performance through profit sharing, stock-based compensation plans, and other bonuses; 2) management is willing to take personal risk - such as risking indictment or civil or criminal penalties - for corporate benefit; 3) opportunities for the commission of financial statement fraud are present; 4) there is a substantial internal and external pressure to either create or maximize shareholder value; and 5) the probability of the fraud being detected is perceived to be very low.

The presence of any one of the 3Cs can signal the possibility of fraud, whereas the combination of two or more factors at any one time increases the likelihood that fraud has occurred.

Bob Jensen's conclusions on the recent accounting scandals are at 

A new lobbying group, known as the "No More Enrons" Coalition, is pushing for aggressive implementation of accounting reforms. The group has prepared a report that attempts to quantify the human cost of accounting scandals. 

Report Measures Human Costs of Accounting Scandals
AccountingWEB US - Oct-18-2002 -  The "No More Enrons" Coalition was formed to push for aggressive implementation of accounting reforms. At a recent press conference, the Coalition presented a report of the human costs of accounting scandals. "The Cost of Corporate Recklessness" attempts to quantify the human cost in several ways.
  • Lost jobs. 
    Mike Lux, Coalition member and president of American Family Voices, estimates that over 1 million workers have lost their jobs as a result of accounting scandals.

  • Stock market losses. 
    Altogether, the Coalition calculates a cost in excess of $200 billion, which it sees as a "corporate abuse tax." The report provides a breakdown of lost jobs and shareholder value for 11 companies and 2 accounting firms said to be "enmeshed in scandal." The companies and firms are: Enron, Global Crossing, Adelphia, Xerox, Tyco, WorldCom, Arthur Andersen, KPMG, ImClone, Merrill Lynch, Merck, Halliburton, and Qwest Communications.

  • Vanished retirement savings
    Noting the beating that retirement accounts have taken as the stock market has continued to tumble with each new corporate scandal, the report pegs total 401(K) losses at $176 billion in 2001. Hans Riemer of the Campaign for America's Future, a member of the Coalition, says this amount is "more than enough to shatter the dreams of millions for a safe, secure, dignified retirement."

  • Unfair tax burdens. 
    The report also cites differences between book and tax income that translate into $13 billion in uncollected taxes for just 11 companies. This is based on a schedule of "corporate tax disparities" at Boeing, Colgate Palmolive, Enron, Ford, General Electric, General Motors, IBM, Kmart, Microsoft, Navistar and WorldCom.

Members of the "No More Enrons" Coalition include the Campaign for America's Future, American Family Voices, The Daily Enron, Progressive Majority, USAction, and MainStreetUSA. For more information, visit" or download the complete report.

Bob Jensen's threads on proposed reforms are at 

Forwarded by Miklos Vasarhelyi [] on October 25, 2002

Date: Fri, 25 Oct 2002 10:52:10 EDT
Subject: - Spitzer, Regulators Set a Plan For Stock-Research Overhaul
X-Mailer: AOL 8.0 for Windows US sub 180
X-Virus-Scanned: by AMaViS

Click here: - Spitzer, Regulators Set a Plan For Stock-Research Overhaul,,SB1035506182565961351,00.html?mod=home_whats_news_us

- Spitzer, Regulators Set a Plan For Stock-Research Overhaul
- SEC's Pitt Faces Public Battle Over Nominee for Audit Panel..Spitzer, Regulators Set a Plan For Stock-Research Overhaul

Proposal Would Create Panel for Funding Independent-Research Option for Investors
Staff Reporters of THE WALL STREET JOURNAL..

The way Wall Street provides research on stocks to small investors will soon undergo a drastic makeover...The New York state attorney general and federal securities regulators Thursday agreed on a broad plan that would create a panel to oversee independent stock research that brokerage firms would be required to provide to individual investors in addition to their own analyst recommendations...The plan also would require securities firms to create additional internal fire walls between their stock-research and investment-banking departments to avoid conflicts that arise when bankers try to influence research in order to win lucrative banking business. The proposal would apply only to research offered to individuals; securities firms could continue to use their own analysts to provide research to institutional investors...The panel would represent a significant change in the way Wall Street works, though it would fall short of the total separation of research and investment banking that some critics had called for. And for Wall Street firms, it would avoid their worst-case scenario, which could have required them to split off their research departments...Representatives of about a dozen major securities firms were given until Wednesday to approve the proposal, presented Thursday during a meeting led by the New York attorney general, Eliot Spitzer, and the Securities and Exchange Commission's enforcement chief, Stephen Cutler, at SEC headquarters in Washington. It isn't clear what would happen if the firms don't agree to the plan...The plan, if approved, would mark the first major step toward reaching an industrywide settlement of the wide-ranging investigations into allegations that brokerage firms misled small investors with overly optimistic research on investment-banking clients during the stock-market bubble of the 1990s. Some analysts routinely published rosy research to help win investment-banking business and boost their annual bonuses, which often totaled more than $1 million...Mr. Spitzer is pushing for t he top Wall Street firms to contribute a total of $1 billion over five years to an oversight board that will not only monitor practices, but would also bid out contracts to independent research firms, such as the Value Line Investment Survey, according to people close to the matter. These people say Mr. Spitzer envisions the use of 20 independent research companies that would be funded by the group of firms, which would each be required to pay perhaps $10 million to $20 million annually to fund the service. Thus, investors would have access to both their brokerage firm's research and that of these independent research outfits...The group would be headed by an independent panel of executives, with one early candidate to head it being former Federal Reserve Chairman Paul Volcker. Mr. Volcker said he wasn't aware of any effort to tap him. A spokesman for Mr. Spitzer declined to comment. An SEC spokesman had no comment. A spokeswoman for the Securities Industry Association, Wall Street's main trade group, didn't return a call seeking comment.

Under the plan, each firm would be expected to adopt the rules as part of separate enforcement actions to settle investigations by Mr. Spitzer and regulators in faulty research, and other conflicts such as doling out hot initial public offerings of stock to executives of companies that hand out investment-banking contracts...This could be costlier for some firms that have been lightning rods on the analyst-conflict issue. Citigroup Inc., for instance, could be forced to pay several hundred million dollars to settle Mr. Spitzer's broad probe into its research practices, people familiar with the matter say. Leah Johnson, a Citigroup spokeswoman, declined to comment...Some large securities firms voiced reservations. Gary Lynch, global general counsel at Credit Suisse Group's Credit Suisse First Boston, suggested that, after an initial period of funding by the major securities firms, the new independent research provider be funded via some sort of user fee. That, he said, would reflect the fact that some firms, such as CSFB, whose clients are mainly institutional investors and wealthy individuals, have few retail customers who would be consumers of the research. Otherwise, he said, the funding of the new research vehicles would be a de facto penalty for such institutional firms...The proposal focused on how major Wall Street firms should provide independent research for use by individual investors. Here is how it would work:..Every firm would pay the same amount, roughly $50 million to $100 million, over a period of five years -- with no specifics yet on what happens after five years. The funding of this independent entity would be separate from any fines and fees that may get levied...There would be an oversight board set up to certify research, and money would be used to give investors access to roughly 20 firms producing independent research, and the banks would provide access for customers through a portal on their Web site...Firms would also be free to conduct their own research. But that would have to be a sep a rate organization within the company, with its chief reporting to the chief executive or a senior executive not involved with investment banking...While firms' research budgets must be set without regard to investment-banking revenue, they would be allowed to draw on the total revenue of the firm -- keeping the door ajar for analysts to share indirectly in investment-banking fees...The internal research organization would have an independent legal and compliance function, and an independent auditor to certify that all the applicable rules were being followed. Analysts' compensation would be set based on the quality of research, not on any investment-banking relationships...Research-department management would have to determine which companies to cover. And there couldn't be any advance sharing with the company of draft reports or research ratings. However, there aren't yet any specified new limits on analysts' contact with companies doing initial public offerings of stock, mergers and other financing transactions...The plan comes after weeks of negotiations between Wall Street firms, the SEC and Mr. Spitzer's office. Regulators have suggested a number of ideas in recent weeks, including the creation of an independent research company that would provide stock analysis. Regulators also looked at a modest separation of research and investment banking so analysts would no longer be pressured by bankers to provide hyped ratings on stocks so the firm can win lucrative underwriting assignments...But in recent days, Mr. Spitzer spearheaded an alternative proposal. Not only will firms be required to build fire walls between banking and research, but brokerage firms would also be required to provide small investors with alternatives to in-house research reports in the form of stock analysis from companies that do no banking work...SEC Chairman Harvey Pitt, preoccupied with staffing a separate accounting board, didn't attend the meeting, suggesting to some on Wall Street that the broad parameters of the plan still could ch a nge...SEC's Pitt Faces Public Battle Over Nominee for Audit Panel,,SB1035496183677670471,00.html?mod=home_whats_news_us
Choice of Webster Is Expected to Prevail, But Democratic Biggs-Backers Plan Fight

WASHINGTON -- The Securities and Exchange Commission is likely to approve William Webster as head of a new board overseeing the much-criticized accounting industry but only after a public, partisan fight that appears likely to bloody both the former FBI director and embattled SEC Chairman Harvey Pitt...In an unusual move, Harvey Goldschmid, one of two Democrats on the five-member SEC, demanded an open meeting Friday afternoon to vote on the nominees. Mr. Goldschmid is expected to put forward John Biggs, head of TIAA-CREF, the big college teachers' pension fund, for board chairman...Mr. Pitt, who is backing Mr. Webster, is likely to prevail by a vote of 3-2, but the public controversy is further tarnishing Mr. Pitt's image and reinforcing a widespread view in Washington that he is politically inept...Prompted by several accounting scandals, Congress established the new Public Company Accounting Oversight Board to govern the standards used by public accountants as well as to examine public audit firms and to discipline accountants who violate securities laws. Formation of the board was part of the Sarbanes-Oxley Act, passed in July. The law requires the vote of a majority of the SEC commissioners to fill the accounting board seats. It also requires that the SEC consult with Treasury Secretary Paul O'Neill and Federal Reserve Chairman Alan Greenspan in making the selections...With Monday's deadline to name the board looming, the SEC's other Democrat, Roel Campos, is supporting Mr. Biggs, as are Democratic congressional leaders and former SEC Chairman Arthur Levitt. Much of the accounting industry and some Republican congressional leaders, however, oppose Mr. Biggs, who was regarded as tough on outside auditors who worked for TIAA-CREF...Mr. Webster's lack of accounting expertise, and the controversy surrounding his selection, has heightened the importance of the other four appointments to the accounting board...For those other spots, Mr. Pitt is expected to support Kayla Gillan, former general counsel of the Califo r nia Public Employees' Retirement System; Charles Niemeier, currently chief accountant for the SEC's enforcement division; Daniel Goelzer, an accountant and former SEC general counsel who is now a partner at Baker & McKenzie; and Willis Gradison, a former GOP member of Congress from Ohio, former head of the Health Insurance Association of America and now a lobbyist at the Washington firm of Patton & Boggs...While supporters of Mr. Biggs likely will be critical of any slate offered by Mr. Pitt, the proposed board members have strong credentials. Messrs. Niemeier and Goelzer, both accountants and lawyers with SEC experience, are seen as tough enforcers. Ms. Gillan has a reputation as an advocate for corporate-governance reforms at Calpers and Mr. Gradison brings strong Washington experience.

Mr. Webster, 78 years old, is a Washington fixture. Now at the law firm of Milbank, Tweed, Hadley & McCloy, he has served as director of the FBI, director of the Central Intelligence Agency, a federal judge and one of the federally appointed overseers of the Teamsters. He has the backing of the Fed's Mr. Greenspan, who meets with Mr. Webster for lunch every year to celebrate their common birthday, March 6. Mr. Webster called Mr. Greenspan Wednesday, a Fed spokesman said...Mr. Webster met Tuesday with SEC commissioners and subsequently told Mr. Pitt that he was interested in the job. Annual salaries are expected to be in the $400,000 range...The new accounting board was approved in an effort to restore confidence following Enron Corp.'s collapse as well as several accounting scandals and earnings restatements at other big corporations. With the backing of the Bush administration, the SEC early this year first proposed a private board intended to replace an ineffective self-policing entity that was funded by the accounting firms. That board, which was disbanded, had few weapons in its enforcement arsenal and little ability to impose penalties. In the Sarbanes-Oxley Act, lawmakers mandated for the first time a new accounting regulatory body that has the power to discipline auditors, examine accounting firms' auditing procedures and draw up new standards...Earlier this month -- after former Fed Chairman Paul Volcker said he wasn't interested in the accounting job -- Mr. Biggs was the favorite for the post. He was seen as a strong reform-minded candidate because of the auditing policies he adopted at TIAA-CREF, such as rotating audit firms and banning audit firms from providing consulting services to its audit clients...In recommending Mr. Webster for the board's top job, SEC Commissioner Paul Atkins, a Republican, has said he thinks the board chairman should have experience in law enforcement and running a big organization...Mr. Pitt's critics assert that he initially supported Mr. Biggs, and then succumbed to p r essure from GOP lawmakers and accountants who believe Mr. Biggs would impose accounting changes beyond those called for in the legislation. Mr. Pitt denies that.

Since he was named SEC chairman 15 months ago, Mr. Pitt has battled accusations that his past representation of big accounting firms presents so many conflicts of interest that he can't do the job well. Mr. Pitt, who has resisted calls from some lawmakers that he step down, has been criticized for a series of miscues, including meeting with some top executives of firms the SEC was investigating and his handling of the oversight board selection...On Thursday, consumer groups intensified their push for Mr. Biggs, who they contend has more experience on accounting matters and called on Mr. Webster to withdraw from consideration and support his rival..."It isn't clear that [Mr. Webster] has the detailed immersion in these issues that Biggs would bring to the chairmanship," said Barbara Roper, an official at the Consumer Federation of America...Because of the controversy over the chairman's slot, there is a risk that the board will appear tainted. "Given that it's turned so political, investor groups will be watching the board with a microscope," said Lynn Turner, chief accountant under former SEC Chairman Levitt.

Elinda Fishman Kiss
Rutgers Univ. Business School-Newark & New Brunswick,

From SmartPros on October 21, 2002 --- 

Effective Dates Reminder
The following is a summary of the effective dates of certain recent FASB, AcSEC and EITF standards:

Financial Accounting Standards Board:

FAS 141, Business Combinations, effective for all business combinations initiated after June 30, 2001.  The provisions also are applicable to all business combinations accounted for by the purchase method (regardless of the date initiated) for which the acquisition date is July 1, 2001, or later.  However, for combinations of mutual enterprises, the effective date is deferred until additional interpretive guidance related to the application of the purchase methods to business combinations of mutual enterprises is issued.

FAS 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001, except for mutual enterprises and not-for-profit organizations.  However, certain provisions are applicable to goodwill and intangible assets acquired in transactions completed after June 30, 2001.

FAS 143, Accounting for Asset Retirement Obligations, effective for financial statements issued for fiscal years beginning after June 15, 2002.

FAS 144, Accounting for the Impairment or Disposal of Long-lived Assets,  effective for financial statements issued for fiscal years beginning after December 15, 2001, and interim periods with those fiscal years.

FAS 145, Rescission of FASB Statements No. 4,44, and 64, Amendment of FASB Statement 13, and Technical Corrections, the provisions of Statement 145 related to the rescission of Statement 4 are effective for financial statements issued for fiscal years beginning after May 15, 2002. Any gain or loss on extinguishment of debt that was classified as an extraordinary item in prior periods presented that does not meet the criteria in APB 30 for classification as an extraordinary item should be reclassified.  Certain provisions of this Statement related to Statement 13 are effective for transactions occurring after May 15, 2002.  All other provisions of this Statement will be effective for financial statements issued on or after May 15, 2002.

FAS 146, Accounting for Costs Associated with Exit or Disposal Activities, the provisions of Statement 145 are effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged.

FAS 147,  Acquisitions of Certain Financial Institutions, the provisions of Statement 147 are effective October 1, 2002.   It should be noted that the provisions of Statement 72, as amended by Statement 147, continue to apply to transactions between financial institutions that are mutual enterprises.


SOP 00-3, Accounting by Insurance Enterprises for Demutualizations and Formations of Mutual Insurance Holding Companies and for Certain Long-Duration Participating Contracts, entities must apply the SOP to financial statements no later than the end of the fiscal year that begins after December 15, 2000.

SOP 01-1, Amendment to Scope of Statement of Position 95-2, Financial Reporting by Nonpublic Investment Partnerships, to Include Commodity Pools, effective for financial statements issued for periods ending after December 15, 2001.

SOP 01-5, Amendments to Specific AICPA Pronouncements for Changes Related to the NAIC Codification, effective for annual financial statements for fiscal years ending on or after December 15, 2001, and complete sets of interim financial statements for periods beginning on or after that date and audits of those financial statements.  Retroactive application is not permitted.

SOP 01-6, Accounting by Certain Entities (Including Entities With Trade Receivables) That Lend to or Finance the Activities of Others, effective for financial statements issued for fiscal years beginning after December 15, 2001.


EITF issue consensuses should be applied prospectively unless otherwise indicated.  Following is a list of EITF consensuses reached this year and their applicable effective dates:

EITF 87-24 - "Allocation of Interest to Discontinued Operations" - new consensus reached June 20, 2002 - the revised provisions of this consensus are applicable to discontinued operations related to disposal activities initiated by an entity’s commitment to a plan after June 2002. Additionally, companies would be permitted to apply this consensus to discontinued operations initiated in the fiscal year that includes the date of the consensus.

EITF 90-19 - "Convertible Bonds with Issuer Options to Settle for Cash Upon Conversion" - new consensus reached January 2002 - the new consensuses on Issues 90-19 and 00-19 are applicable to instruments issued after January 24, 2002.

EITF 95-23 - "The Treatment of Certain Site Restoration/Environmental Exit Costs When Testing a Long-Lived Asset for Impairment" - new consensus reached June 20, 2002 - the revised consensus is to be applied prospectively from date of issuance.

EITF 00-19 - "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock" - at the March 21, 2002 meeting, the EITF clarified how the disclosure requirements of FAS 129 and FAS 133 apply to freestanding contracts that are within the scope of 00-19.  The EITF noted that although the FAS 129/FAS 133 disclosures are required for annual financial statements, SEC registrants should consider the adequacy of their disclosures in their previous Form 10-K and evaluate the need for additional disclosures in their next filing on Form 10-Q.

EITF 00-23 - "Issues Related to the Accounting for Stock Compensation under APB Opinion No. 25, Accounting for Stock Issued to Employees, and FASB Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation" - various consensuses reached during the January and March meetings.

EITF 01-3 - "Accounting in a Purchase Business Combination for Deferred Revenue of an Acquiree" - the consensus reached March 21, 2000 should  be applied prospectively.

EITF 01-7 - "Creditor's Accounting for a Modification or Exchange of Debt Instruments" - the consensus reached at the January 24, 2002 meeting should be applied prospectively.

EITF 01-12 - "The Impact of the Requirements of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, on Residual Value Guarantees in Connection With a Lease" - the consensus reached at the March 20-21, 2002 meeting should be applied prospectively.  

EITF 02-3 - "Accounting for Contracts Involved in Energy Trading and Risk Management Activities" - certain consensuses were reached June 2002 - The consensuses reached will require:

1) All mark-to-market gains and losses arising from energy trading contracts (whether realized or unrealized) to be shown net in the income statement beginning in the first interim or annual period ending after July 15, 2002 (3Q 10-Q for calendar year companies)  with reclassification required for all comparable historical periods presented (early adoption would be allowed).

2) Disclosure of energy trading information similar to the types of disclosures outlined by the SEC in FR-61, "Commission Statement about Management's Discussion and Analysis of Financial Condition and Results of Operations" beginning in annual periods ending after July 15, 2002.

EITF 02-4 - "Debtor’s Accounting for a Modification or an Exchange of Marketable Debt Instruments" - the consensus reached March 21, 2002 should be applied prospectively.  For further information about the consensus, please access the EITF infobase on EY/AART.

EITF 02-6 - "Classification in the Statement of Cash Flows of Payment Made to Settle an Asset Retirement Obligation Within the Scope of FASB Statement No. 143, Accounting for Asset Retirement Obligations" - the consensus reached March 21, 2002 should be applied prospectively. FAS 143, Accounting for Asset Retirement Obligations, is effective for financial statements issued for fiscal years beginning after June 15, 2002.

EITF 02-7 - "Unit of Measure for Evaluating Impairment of Intangible Assets That Have Indefinite Lives" - consensus reached in March 2002 is effective upon the initial application of Statement 142.  However, for entities that early applied Statement 142— the consensus is effective after March 21, 2002.  For further information about the consensus, please access the EITF infobase on EY/AART.

EITF 02-11 - "Accounting for Reverse Spinoffs" - the consensus reached  at the September 11-12, 2002 meeting should be applied prospectively.

EITF 02-13 - "Deferred Income Tax Considerations in Applying the Goodwill Impairment Test under FAS 142" - the consensus reached at the September 11-12, 2002 meeting is applicable prospectively beginning with the first occasion when a company performs either Step 1 or Step 2 of the goodwill impairment test after the date of the consensus.

EITF 02-15 - "Determining Whether Certain Conversions of Convertible Debt to Equity Securities Are Within the Scope of FASB Statement No. 84, Induced Conversions of Convertible Debt" -  the consensus reached at the September 11-12, 2002 meeting must be applied prospectively to all applicable inducements that close after the date of the consensus.


Oct. 7, 2002

Financial Accounting Standards Board (FASB)

FASB Holds Roundtable Discussion on SPE Consolidation
On September 30, 2002, the FASB Board members and staff held two roundtables with more than 30 representatives from industry, including E&Y, to discuss certain provisions of the Proposed Interpretation, Consolidation of Certain Special-Purpose Entities, an interpretation of ARB No. 51 (the Exposure Draft).  The meeting was educational in nature and no decisions were reached.  The Board sponsored those discussions to provide it with additional feedback before it begins its final redeliberations on the Exposure Draft.

Regarding transition and effective date, the FASB Board members appeared to indicate that a final Interpretation would be issued by year-end and that there would not likely be any delays in the final Interpretation’s effective date.  It is expected that the FASB will continue to redeliberate the provisions of the Exposure Draft over the next few months.   

The FASB expects to discuss certain aspects of the Exposure Draft again on October 2, 2002 at a non-decision-making open education session.   

FASB Releases Statement No. 147, Acquisitions of Financial Institutions
The FASB has issued FASB Statement No. 147, Acquisitions of Certain Financial Institutions. The Statement provides guidance on the accounting for the acquisition of a financial institution, which had previously been addressed in FASB Statement No. 72, Accounting for Certain Acquisitions of Banking or Thrift Institutions. The provisions of Statement 147 are effective October 1, 2002, so we encourage affected companies to review the final Statement as soon as possible to assess the impact of the new rules. It should be noted that the provisions of Statement 72, as amended by Statement 147, continue to apply to transactions between financial institutions that are mutual enterprises. 

FASB Issues Exposure Draft on Proposed Amendment to Statement 123
Today the FASB issued an Exposure Draft (PDF), Accounting for Stock-Based Compensation—Transition and Disclosure, that would amend FASB Statement No. 123, Accounting for Stock-Based Compensation. Comments on the ED are due November 4, 2002.

The proposed changes would provide three methods of transition for companies that voluntarily adopt the fair value method of recording expenses relating to employee stock options as follows:

  • The existing transition provisions under Statement 123 (prospective application only to new awards)
  • Prospective application to all new awards and the unvested portion of existing awards 
  • Retroactive restatement of all periods presented.

In addition, the ED proposes clearer and more prominent disclosures about the cost of stock-based employee compensation and an increase in the frequency of those disclosures to include publication in quarterly financial statements. Currently, companies are not required to present stock option disclosures in interim financial statements.

The FASB plans to issue the amendment to Statement 123 by the end of this year and its provisions would be effective immediately upon issuance.

The proposed disclosures to be provided in annual financial statements would be required for fiscal years ending after December 15, 2002. The proposed disclosures to be provided in interim financial information would be required as of the first interim period of the first fiscal year beginning after December 15, 2002, with earlier application encouraged. 

FASB to Add Project on Convergence of U.S. and International Accounting Standards
The Board unanimously approved adding a project to its agenda related to convergence of accounting standards in the United States with accounting standards issued by the International Accounting Standards Board (IASB). The convergence project will be conducted in two parts, a short-term convergence project and a longer-term research project. The short-term, limited scope project will be undertaken jointly with the IASB to resolve differences between U.S. and international standards that are narrow in scope and for which it appears that the Boards will be able to agree on a high-quality solution in a relatively short timeframe (before December 31, 2003).  Specific convergence issues to be addressed in the short-term project will be identified by the FASB and IASB staffs in consultation with the SEC staff. Differences related to issues requiring comprehensive reconsideration by either Board would be deferred to the longer-term research project. 

Emerging Issues Task Force (EITF)

EITF Requests Comments on Proposed Draft Abstract for Issue 00-21
At its September 11-12, 2002 meeting, the FASB’s Emerging Issues Task Force reached a tentative conclusion on EITF Issue No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” Issue 00-21 addresses when arrangements that involve the delivery or performance of multiple products, services, and/or rights to use assets should be divided into separate units of accounting and, if separation is appropriate, how the arrangement consideration should be allocated to the identified accounting units. The Task Force plans to ratify its tentative conclusion at a special EITF meeting scheduled for October 25, 2002. A final consensus is expected to be applicable to transactions completed in fiscal years beginning after December 15, 2002.
If a consensus on Issue 00-21 is reached, it could result in a significant change in practice in accounting for arrangements that involve the delivery or performance of multiple products and services. The model in the proposed draft abstract represents a significant change from the approaches taken by the Task Force in prior discussions on Issue 00-21, which began over two years ago.

While issues addressed by the Task Force typically are not subject to the same due process as are FASB pronouncements, the Task Force has specifically requested interested parties to comment on the proposed draft abstract for Issue 00-21 prior to its October 25, 2002 meeting. A copy of the EITF’s request for comments and the proposed draft abstract is available on the FASB's Web site. We encourage executives of companies with arrangements involving multiple deliverables to read the proposed draft abstract carefully and provide comments to the Task Force before the special October 25, 2002 meeting. To be timely, the Task Force has requested that comments be submitted by electronic mail to by October 18, 2002. Refer to the FASB’s Web site for further details:

Sept. 30, 2002 

Financial Accounting Standards Board

FASB Continues Preliminary Discussions in Advance of September 30 Roundtable on SPE Consolidation
At the September 25, 2002 meeting, the FASB continued its preliminary discussions of certain provisions of the Proposed Interpretation, Consolidation of Certain Special-Purpose Entities, an interpretation of ARB No. 51 (the Exposure Draft).  Those preliminary discussions were on how administrators to multi-party SPEs should assess their variable interests.  That is, whether those administrators should assess their variable interests in relation to each “silo” individually or for the SPE as a whole.  No formal decisions or conclusions were reached.  On September 30, 2002, the FASB will hold a public roundtable meeting to discuss the Exposure Draft.  Ernst & Young representatives will attend that meeting.

FASB, SEC Work on Principles-Based Approach to Standard Setting
At the September 25, 2002 FASB meeting, the FASB decided to issue for public comment a proposal on a principles-based approach to standard setting.  The proposal is part of the Board's joint efforts with the SEC to study the feasibility of a principles-based approach to standard setting and would require significant changes by all participants in the financial reporting process. 

The following would apply under a principles-based approach to accounting standards:

  • General principles would be set forth for the fundamental recognition, measurement and reporting requirements, derived from the conceptual framework, designed to establish accounting and reporting objectives based on the economic substance of the transactions covered by the standards.
  • Exceptions to mitigate the effects of applying the general principles would be rare.
  • Guidance for applying the general principles would be limited to situations typically covered by the standards; professional judgment in other more specific situations would be encouraged.

FASB Discusses Scope, Noncontrolling Interests, Measurement Dates
At the September 25, 2002 FASB meeting, the Board continued its redeliberations on its  purchase-method procedure project. 

The Board redeliberated the fair value hierarchy and its application to the initial fair values of identifiable assets acquired and liabilities assumed at the acquisition date in a business combination.  The Board instructed the staff to clarify the hierarchy to provide clear, objective guidance to reduce the subjectivity in fair value measures. The Board noted additional guidance is needed in situations where more than one disposition price exists.  The Board also noted subsequent projects will rely on this hierarchy were inappropriate.

The Board decided to reconsider whether to include the following items in the project's scope:

(1) amendments to postemployment benefit plans that are a condition of the business combination;
(2) intended changes by the acquirer to employee benefits and other postretirement benefit plans;
(3) employee benefit payments triggered by a business combination;
(4) constructive obligations; and
(5) in-process research and development.

Also as part of the discussion, the Board decided to combine issues related to noncontrolling interests under a single project in order to address them in a more efficient manner.  Currently those issues are addressed in this project as well as in Financial Instruments: Liabilities and Equity.

The Board noted that the International Accounting Standards Board (IASB) reversed its previous conclusion regarding the measurement date for equity instruments issued as consideration in a business combination. As a result, both the IASB and FASB have concluded the acquisition date (the date in which the acquiring entity obtains control over the acquiree) should be used to measure those equity instruments.

The FASB plans to issue an Exposure Draft on purchase-method procedures by the end of 2002.

FASB Discusses Three Issues to Limited-Scope Statement
At the September 25, 2002 FASB meeting, the Board discussed the following three issues related to its limited-scope Statement:

Disclosure: The Board tentatively agreed the Statement should include the first three disclosure requirements found in EITF Issue No. 00-19 Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock.

Transition:  The Board decided the Statement should be applied as a cumulative effect of a change in accounting principle.

Effective Date: The Board decided the proposed limited-scope Statement would be effective: (1) upon issuance for new contracts entered into after the issuance date; and (2) as of the beginning of the fiscal quarter beginning after March 15, 2003, for any contracts that remain outstanding as of that date.

FASB Clears AcSEC Proposed SOP for Issuance
At the September 25, 2002 FASB meeting, the Board met with representatives of the Accounting Standards Executive Committee (AcSEC) and considered the clearance of an exposure draft (ED) of a proposed AICPA Statement of Position (SOP), Clarification of the Scope of the Investment Companies Audit and Accounting Guide and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies. The Board cleared the ED for issuance pending one change in paragraph 1.7(e) regarding the requirement that for an entity to qualify as an investment company its investees must be separate autonomous business. It is expected that the ED will be released by AcSEC in the next few weeks.

Sept. 23, 2002 

Financial Accounting Standards Board

FASB Agrees to Issue ED on FAS 123 Transition and Other 123 Issues
At the September 11, 2002 meeting, the FASB reconsidered the following issues that arose in drafting the proposed amendment to the transition and disclosure provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation:

  • Effective date for quarterly disclosures.
  • Whether to permit three alternative transition approaches.
  • Content of disclosures required in Summary of Significant Accounting Policies. 

At the August 7th meeting, in response to constituent requests, the FASB decided to undertake a limited scope project to reconsider the transition and disclosure provisions of Statement 123.  The proposed amendment does not require companies to adopt the fair value recognition provisions of Statement 123.  Rather, it proposes to provide optional transition methods for those entities that decide voluntarily to adopt the fair value recognition provisions of Statement 123.  It also proposes to modify the disclosure requirements of Statement 123.

Further Discussion of FASB/IASB Convergence Issues
At the September 18, 2002 meeting, the FASB and representatives from the International Accounting Standards Board (IASB)  discussed the overall strategies for achieving greater convergence. Although no formal decisions were made at the meeting, they agreed to work toward improving harmonization to eliminate the major differences between their respective rules. The boards agreed to create a joint working group that will focus on the resolution of the more significant differences between US GAAP and IFRS.
All agreed that the timing of this project will be critical to its success. The joint working group will initially focus on smaller, "quick-fix" differences. As the working group allocates responsibilities for individual projects, they agreed that those projects should be led by experienced staff members from both organizations in order to accelerate the overall process. 

The IASB affirmed its attempt to align its major projects with those of the FASB in order to achieve greater harmonization. Prospectively, the boards agreed to meet quarterly to discuss matters of mutual interest.

FASB/IASB on Purchase Method Procedures
At the September 18, 2002 meeting, the FASB, with IASB representatives, discussed their respective projects on purchase method procedures when accounting for business combinations. Initially, the two groups discussed their views about fair value guidance for the initial measurement of identifiable assets acquired and liabilities assumed in a purchase business combination. Previously, the FASB had tentatively agreed to adopt a fair value hierarchy for the initial measurement of identifiable assets acquired and liabilities assumed in a business combination. The staff proposed that the measurement of identifiable assets and liabilities initially recorded at fair value by the acquirer in a business combination should be determined under that hierarchy. The boards discussed whether detailed implementation guidance should be provided. A majority believed that an approach based upon broad principles was preferable.

Differences Between FASB, IASB Proposals on Financial Performance Reporting
At the September 18, 2002 meeting, the FASB, with representatives from the IASB, held discussions on their efforts to issue accounting standards on financial performance reporting by business enterprises.  The discussion focused on the proposed statement of comprehensive income being considered by both organizations. Specifically, the two groups touched on:

  • the distinction between "operating" activities versus "financing" activities
  • the distinction between "initial recognition" and "remeasurement"
  • displaying discontinued operations and income taxes

FASB, IASB Discuss Revenue Recognition
At the September 18, 2002 meeting, representatives of the FASB and IASB discussed their parallel projects on revenue and gain recognition. They noted concerns raised by certain constituents about the scope of the FASB’s current project on Revenue and Liability Recognition and the application of any new standard to a variety of industries. 

The boards also discussed the conceptual differences between the “realization and earnings approach” and the “asset and liability approach” and their application in any new revenue recognition model.  The FASB staff noted that an Exposure Draft is not expected to be issued until the third quarter of 2003.

Securities and Exchange Commission (SEC)

E&Y Interpretive Guidance on Management Certifications Now Available
Ernst & Young has released a summary of the SEC’s recent final rule, Certification of Disclosure in Companies’ Quarterly and Annual Reports, now available in the EY/A&A Developments Database. 

On August 27, 2002, as required by Section 302(a) of the Sarbanes-Oxley Act of 2002 (the “Act”), the SEC adopted final rules requiring a company’s CEO and CFO to certify each quarterly and annual report. This CEO and CFO certification is in addition to that under Section 906(a) of the Act, Certification of Periodic Financial Reports, which is required to “accompany” each periodic report that includes financial statements. 

In addition, the new SEC rules require registrants to maintain “disclosure controls and procedures” sufficient to ensure that the financial and non-financial information required to be disclosed in SEC reports is recorded, processed, summarized and reported within the specified time periods. The new rules also require registrants to conduct an evaluation of the effectiveness of the design and operation of their disclosure controls and procedures within 90 days prior to the filing date of each quarterly or annual report. Registrants must disclose in those reports the conclusions of the CEO and CFO about the effectiveness of disclosure controls, as well as whether or not there were any significant changes in internal controls subsequent to the date of the evaluation.

It should be noted that the new SEC rules also are in addition to the internal control reporting called for under Section 404 of the Act.  There, the SEC must issue additional new rules requiring annual reports to contain an internal control report from management with an assessment, as of the end of the most recent fiscal year, of the effectiveness of the issuer’s internal control structure and procedures for financial reporting. The issuer’s independent auditor also will be required to attest to and report on management’s assessment.  Although it is uncertain when the new internal control reporting rules for Section 404, and the related standards for independent auditors called for by Section 103(a), will become effective, it is clear that the earliest those rules will become effective is an issuer’s fiscal year end in 2003, and perhaps later.  

E&Y Issues Supplemental Guidance on Management Certification
Ernst & Young has issued a supplement to its summary on the SEC’s recent rule requiring CEO and CFO certifications in each quarterly and annual report.  The supplement, Implementation Considerations for the Certification of Disclosure Controls and Procedures, is now available in the EY/A&A Developments Database on Ernst & Young Online

The supplement clarifies the definition and scope of “disclosure controls and procedures.”  In addition, the supplement discusses the types of controls and procedures required by the new SEC rules that go beyond existing internal controls over financial reporting.  The supplement also discusses considerations for the quarterly evaluation of the effectiveness of disclosure controls and procedures.  Finally, the supplement includes an Appendix that provides a list of implementation considerations for CEOs and CFOs.

The new CEO and CFO certifications as to control-related matters are required in annual and quarterly reports for periods ending after August 29, 2002.   The SEC adopted these certifications as required by Section 302(a) of the Sarbanes-Oxley Act of 2002 (the “Act”).

These new management certifications are in addition to the certification required by Section 906(a) of the Act, Certification of Periodic Financial Reports, which is required to “accompany” each periodic report that includes financial statements. Section 906(a) certifications became effective for reports filed after July 30, 2002. 

It also should be noted that the new SEC rules also are in addition to the internal control reporting called for under Section 404 of the Act.  There, the SEC must issue additional new rules requiring annual reports to contain an internal control report from management with an assessment, as of the end of the most recent fiscal year, of the effectiveness of the issuer’s internal control structure and procedures for financial reporting. The issuer’s independent auditor also will be required to attest to and report on management’s assessment.  Although it is uncertain when the new internal control reporting rules for Section 404, and the related standards for independent auditors called for by Section 103(a), will become effective, it is clear that the earliest those rules will become effective is an issuer’s fiscal year end in 2003, and perhaps later.

E&Y Summary of Accelerated Exchange Act Reporting Now Available
Ernst & Young has prepared a summary of the SEC’s recent final rule, Acceleration of Periodic Report Filing Dates and Disclosure Concerning Website Access to Reports.

On August 27, the SEC adopted amendments that reduce the deadlines for larger U.S. public companies to file their annual and quarterly reports.  The final rule creates a new class of public companies known as “accelerated filers,” who are seasoned issuers with a public float exceeding $75 million.  Accelerated filers are required to file their annual reports on Form 10-K within 60 days of their fiscal year-ends and their quarterly reports on Form 10-Q within 35 days of their quarter-ends subject to a three-year phase-in period.

The phase-in period for accelerated reporting commences with the Form 10-K for the first fiscal year ending on or after December 15, 2002; however, there is no change in the reporting deadlines for the first year. Thus, for a calendar year company the first reduction in the annual report deadline will affect the December 31, 2003 Form 10-K and the first reduction in the quarterly report deadline will affect the March 31, 2004 Form 10-Q.  Despite the delayed transition, companies should begin planning now for the shorter filing deadlines and consider the need for any changes to existing processes, schedules and infrastructure.

Accounting Standards Executive Committee (AcSEC)

AcSEC Discusses Proposed SOP On Cost Capitalization
At its September 18 and 19, 2002 meeting, AcSEC continued discussion of a proposed SOP, Capitalization of Certain Costs Related to Property, Plant, and Equipment. 

AcSEC continued its discussion regarding the concept of component accounting.  AcSEC reaffirmed its prior consensus reached at the July 25, 2002 meeting that the proposed SOP should not mandate the degree of component accounting.  Rather, the degree of componentization should be left to management’s discretion.  If an entity expects to capitalize certain parts or portions of the total PP&E asset upon replacement, the entity should apply component accounting to those parts or portions.  In this way, the component part would be depreciated over its separate useful life and the replaced item would be fully amortized when the replacement item is capitalized

AcSEC also agreed that if a company subsequently lowers its level of component accounting in order to capitalize future replacements/improvements, it is deemed to have made a change in accounting principle under APB Opinion No. 20, Accounting Changes, rather than a change in accounting estimate.  The change would need to satisfy the preferability criterion of that Opinion and the cumulative catch-up adjustment would need to be determined.  However, if a company changes the useful life assumption for a given component based upon new facts and/or circumstances, the change is deemed to be a change in accounting estimate.

AcSEC Votes to Approve Proposed DAC SOP for Exposure
At its September 18, 2002 meeting, AcSEC voted to approve for exposure the SOP, Accounting by Insurance Enterprises for Deferred Acquisition Costs (DACs) on Internal Replacements other than those Specifically Described in FASB Statement No. 97, subject to negative clearance by AcSEC members.  The ED is targeted to be presented for FASB clearance in the fourth quarter.  AcSEC advised the Task Force on specific changes to be made to the ED that are intended to clarify which contract modifications are not considered to be internal replacements, as well as to expand on product examples included with the body of the SOP.

AcSEC Approves SOP on NFP Health Care Derivative Accounting
At its September 19, 2002 meeting, AcSEC approved for final issuance the SOP, Accounting for Derivative Instruments and Hedging Activities by Not-for-Profit Health Care Organizations, and Clarification of the Performance Indicator, subject to chairman’s clearance.  The final SOP will be presented for FASB clearance in the fourth quarter.

The following changes were made to the SOP based on the comment letters received.

  • AcSEC voted (13 to 2) to eliminate the need for not-for-profit health care organizations that reported derivative gains or losses in a manner inconsistent with the provisions of the proposed SOP to disclose in the notes to the financial statements:  (a) what the performance indicator reported in the year of adoption would have been if the reporting practices followed before adoption of the proposed SOP had continued to be applied, and (b) partial-year effects of the change if the SOP is early adopted.  This suggestion was responsive to the E&Y comment letter.
  • The effective date will be for fiscal years beginning after June 15, 2003.  Companies will be permitted to early adopt the SOP and the wording regarding early adoption is expected to mirror that of paragraph 48 of FASB Statement No. 133.

Audit Committee Materials

Audit Committee Toolkit Content Updated
The content in Ernst & Young's Audit Committee Toolkit has been updated to consider the corporate governance reforms from the Sarbanes-Oxley Act of 2002 and the proposed new listing standards of the major stock exchanges and associations. Specifically, the Toolkit now contains our new Corporate Governance Reform Preparation Checklist and revised versions of the:

· Example Audit Committee Charter
· Example Audit Committee Meeting Planner
· Independence Questionnaire for Audit Committee Members
· Self-Assessment Tool

In addition, the "Reference Materials" section of the Toolkit has been refreshed to include recent content on corporate governance reforms.

The revised Toolkit materials should be used in conjunction with our new publication, Corporate Reform: Implications for Audit Committees, which provides additional content to assist audit committees.  The Audit Committee Toolkit and the corporate reform document are available in the Audit Committee Library on Ernst & Young Online

Sept. 16, 2002 

Emerging Issues Task Force (EITF)

Recap of the September 2002 Meeting
The following is a listing of the Issues deliberated at the EITF’s September 11 and 12, 2002 meeting.  The final minutes are expected to be issued on or after September 26, 2002.

EITF Consensuses

  • Issue 02-11-Accounting for Reverse Spinoffs
  • Issue 02-13-Deferred Income Tax Considerations Applying FAS 142 Goodwill Impairment Test
  • Issue 02-15-Are Certain Conversions of Convertible Debt to Equity Securities Within Scope of FAS 84

EITF Tentative Conclusions

  • Issue 00-21-"Accounting for Revenue Arrangements with Multiple-Deliverables"
  • Issue 02-17-Recognition of Customer Relationship Intangible Assets Acquired in a Business Combination

Other EITF Issues Discussed

  • Issue 01-08-Determining Whether an Arrangement is a Lease
  • Issue 02-03-Gains/Losses on Energy Trading Contracts
  • Issue 02-09-Transferor Regaining Control of Financial Assets Sold
  • Issue 02-10- Whether Debtor is Released as Primary Obligor when Debtor Becomes Secondarily Liable
  • Issue 02-12-Permitted Activities of QSPE in Issuing Beneficial Interests per FAS 140
  • Issue 02-14-Equity Method When Investor With No Voting Stock Has Significant Influence by Other Means
  • Issue 02-16-Accounting by a Reseller for Cash Consideration Received from a Vendor

Financial Accounting Standards Board

Direction Changes in Amending Statement 133 on Derivatives and Hedging
At the Sept. 11, 2002 meeting, as part of its redeliberation of the amendment to Statement 133, the FASB decided to abandon its proposed revision of paragraph 6(b).  The revision was attempting to re-define as a derivative (a) a non-option-based contract if it required an initial net investment that was less than 5 percent of the fully prepaid amount, and (b) an option-based contract if it required an initial net investment equal to the fair value of the option component.  The FASB  recognized (due to input from constituent comments) that its attempt to draw a bright line between (a) contracts that were hybrid instruments comprised of debt hosts with embedded derivatives and (b) contracts that were freestanding derivatives was not operational.  The FASB agreed, however, to proceed with other aspects of the amendment affecting short-cut eligible hedges of prepayable debt and eligibility of financial guarantees for exemption from Statement 133.  There was no discussion with regard to the timing of this project or whether the proposed original effective date (the first day of the first fiscal quarter beginning after November 15, 2002) would be changed.   However, a change as fundamental as revising the definition of a derivative would seem to require a second exposure period.   It is still possible that other portions of the amendment, the less controversial ones of a "technical correction nature", will move forward.  More constituent comments will be addressed at a future meeting, including comments on loan commitments. 

Preliminary Discussions Begin on Proposed SPE Consolidation Interpretation
At the September 11, 2002 meeting, the FASB discussed certain provisions of the Proposed Interpretation, Consolidation of Certain Special-Purpose Entities, an interpretation of ARB No. 51 (the Exposure Draft), in preparation for formal redeliberations that are scheduled to begin on September 30, 2002.  The FASB noted that commenters have indicated that the Exposure Draft does not provide clear guidance for determining whether an entity is an SPE, and whether that SPE is in the scope of the Exposure Draft.

The Board had a general discussion about (1) how to define a substantive operating enterprise (SOE) and special-purpose entity (SPE), and (2) the scope exception that provides that no enterprise shall be deemed the primary beneficiary of a subsidiary, division, department, branch, or other portion of an SOE.  Various views on each topic were discussed. 

The purpose of the meeting was to informally discuss these issues prior to formal redeliberations in an effort to expedite the redeliberation process.  No formal decisions or conclusions were reached.  The Board is planning to informally discuss the Exposure Draft’s "siloing" provisions and their implications to multi-seller conduit entities at its September 25, 2002 Board meeting.  On September 30, 2002, the FASB will hold a public roundtable meeting to discuss the Exposure Draft. 

Sept. 9, 2002 

Securities and Exchange Commission (SEC)

SEC Final Rules on Management Certifications Clarify Transition
The SEC recently published their final rules on Management Certification of Quarterly and Annual Reports. The final rules clarify the transition provisions for the management certifications that must now be provided by all public companies.

The basic CEO and CFO certification (i.e., that they have reviewed the report, and that to their knowledge the report is true and complete in all material respects and the financial statements and other financial information are fairly presented) must be provided in annual and quarterly reports filed after August 29, 2002. The CEO and CFO certification also must include representations on certain internal control matters in annual and quarterly reports for periods ending after August 29, 2002.

Financial Accounting Standards Board (FASB)

FASB to Amend FAS 141 and 142 to Include Mutual Enterprises
At the September 4, 2002 meeting, the FASB discussed: (1) certain issues related to the application of the purchase method to mutual enterprise combinations, (2) the effective date and transition provisions to be included in the Exposure Draft, and (3) whether guidance in FASB Statement No. 72, (FAS 72), Accounting for Certain Acquisitions of Banking or Thrift Institutions, and FASB Interpretation No. 9 (FIN 9), Applying APB Opinions No. 16 and 17 When a Savings and Loan Association or a Similar Institution Is Acquired in a Business Combination Accounted for by the Purchase Method, as it relates to combinations between mutual enterprises, should be rescinded. The FASB decided that its decisions regarding combinations of mutual enterprises would not be addressed in a separate Statement. Instead, FAS 141 and FAS 142 would be amended. 

FASB Agrees to Issue Limited Scope Statement Re-Liabilities and Equity Project
At the September 4, 2002 meeting, as part of its redeliberations of the Exposure Draft on liabilities and equity, the FASB agreed to scope out certain financial instruments with characteristics of liabilities or equity and issue a limited-scope Statement that would include the following financial instruments:

  • Derivative financial instruments that are indexed to and potentially settled in an entity’s own stock
  • Financial instruments not containing derivative features that embody obligations that require (or permit at the issuer’s discretion) settlement by issuance of the issuer’s equity shares (i.e., obligations consisting of a fixed monetary value that could be settled by a variable number of an entity’ s own equity shares).

In addition, the FASB indicated that there was an immediate need for guidance to properly classify certain mandatorily redeemable securities and agreed that the proposed limited-scope Statement would address only those mandatorily redeemable instruments that are required to be redeemed at a specified or determinable date or upon an event certain to occur. The second phase of the project would look at the accounting for mandatorily redeemable instruments with conditional elements or economic compulsion.

As a result, the limited-scope Statement would address the accounting for written put options and forward purchase contracts that are indexed to an entity’s own stock, as well as obligations that are fixed in value and settled by a variable number of an entity’s own shares. However, it would not:

  • change the basic expense recognition criteria for stock compensation arrangements.
  • address the timing of recognition of financial instruments issued as contingent consideration in a business combination.
  • address convertible debt instruments or compound instruments.

Sept. 3, 2002 

Securities and Exchange Commission (SEC)

SEC Accelerates Reporting, Requires Management Certification
On Tuesday, August 27, 2002, the SEC adopted final rules to accelerate the financial reporting deadlines for quarterly and annual reports for larger public companies over a three-year implementation period. The Form 10-K annual report deadline will remain at 90 days for the first year, change to 75 days in year two and change to 60 days for year three and thereafter. The Form 10-Q quarterly report deadline will remain at 45 days for the first year, change to 40 days for year two, and change to 35 days for year three and thereafter.  The first reductions in filing deadlines will occur for accelerated filers with fiscal years ending on or after December 15, 2003. 

In addition, the SEC adopted final rules, as required by Section 302 of the Sarbanes-Oxley Act (the "Act"), to require management certifications in quarterly and annual reports. The SEC also adopted final rules, as required by Section 403 of the Act, to require reporting of securities transactions by insiders within two business days. For the SEC press release announcing the rules please click here.

Just a reminder: Don't miss the original May 22, 2002 Thought Center Webcast on this topic, Full Speed Ahead: Accelerating the Reporting and Disclosure System. Visit the archive to view. 

Financial Accounting Standards Board (FASB)

FASB Continues to Discuss Purchase Method Procedures
At the August 28, 2002 Board meeting, as part of its efforts to develop an Exposure Draft on purchase method procedures, the FASB discussed (a) the initial measurement of assets acquired and liabilities assumed in a purchase business combination that will be sold or abandoned as a condition of the business combination, and (b) in-process research and development acquired in a business combination.

The FASB tentatively concluded that assets acquired in a purchase business combination should be initially measured at fair value less cost to sell if those assets meet the held-for-sale criteria of Statement 144 at the acquisition date (or within three months of the acquisition date). However, the Board noted the three month time frame is not an open door to identify what assets were acquired and which ones, if any, will be sold – the acquirer must know what assets are being sold at the acquisition date.

The FASB tentatively agreed not to provide additional guidance in this project for applying the fair value measurement guidance in the initial measurement of in-process research and development acquired in a business combination.  This project also will not address subsequent accounting for in-process research and development acquired in a business combination. Thus, the Board does not anticipate making changes to Statement 2 and Interpretation 4 at this time. Several Board members indicated IPR&D should be addressed in a much broader project encompassing all R&D issues at a later date (after completion of the intangible asset disclosure project).  The FASB also decided that this project would not address the subsequent accounting for receivables and loans.

The FASB plans to issue an Exposure Draft early in 2003.

FASB Looks at Ways to Accelerate Replacement of Statement 107 re FV Disclosures
At the August 28, 2002 meeting, the FASB discussed alternative approaches to accelerate the project to replace Statement 107, Disclosures about Fair Value of Financial Instruments. The FASB agreed that it will begin research and deliberations on the presentation issues of this project next month and issue an Exposure Draft to amend Statement 107 to reflect the Board’s prior decisions on measurement and presentation. Subsequent to the issuance of the Exposure Draft, the Board then will address scope issues. The FASB reiterated its goal to have an amendment to Statement 107 effective for fiscal years ending in December 2003.

FASB Discusses Reporting and Classification of Certain Items
At the August 28, 2002 meeting, as part of its project to develop an Exposure Draft on financial reporting by business enterprises, the FASB reached the following tentative conclusions: 

  • income tax expense/benefit should be presented as a separate classification on the face of the statement of comprehensive income below all other functional classifications. However, exceptions to this general rule will be made (e.g., discontinued operations) as the Board continues deliberations on this project.
  • decided to retain the current classification of discontinued operations. Thus, the effects of discontinued operations will continue to be presented as a separate classification on the face of the statement of comprehensive income as a net amount after income tax effects. The Board asked the staff to develop recommendations regarding the allocation of interest expense to discontinued operations.
  • the effects of extraordinary, unusual and infrequently occurring events and transactions should be included within each functional classification affected by the event, thereby eliminating extraordinary items. However, companies will be permitted to include sub-captions below the functional captions on the face of the statement of comprehensive income.

The FASB plans to issue an Exposure Draft in 2003.

Corporate Governance Issues

Developments Related to the NYSE and NASDAQ Proposed Listing Standards
The New York Stock Exchange (NYSE) Board of Directors approved changes to its listing standards related to corporate governance. The NYSE has recently filed those proposed rule changes with the Securities and Exchange Commission. 

The NASDAQ Stock Market, Inc. (NASDAQ) Board of Directors also approved changes to its listing standards related to corporate governance and a summary of those proposals was added to the Audit Committee Library database. On August 21, 2002, the Executive Committee of the NASDAQ Board of Directors approved modifications to those previously announced corporate governance reforms. The majority of these changes were designed to take into account provisions contained in the Sarbanes-Oxley Act of 2002. While the most recent changes still require approval from the NASD Board of Governors, which is expected shortly, NASDAQ is now in the process of submitting rule filings with the Securities and Exchange Commission to effectuate its proposals. A revised summary of NASDAQ corporate governance proposals as well as a copy of the NYSE rule filing have been added to the Audit Committee Library, on Ernst & Young Online.


My new and updated documents the recent accounting and investment scandals are at the following sites:

Bob Jensen's threads on the Enron/Andersen scandals are at  
Bob Jensen's SPE threads are at  
Bob Jensen's threads on accounting theory are at  

Bob Jensen's Summary of Suggested Reforms --- 

Bob Jensen's Bottom Line Commentary --- 

The Virginia Tech Overview:  What Can We Learn From Enron? --- 



In March 2000, Forbes named as the Best Website on the Web ---
Some top accountancy links ---


For accounting news, I prefer AccountingWeb at 


Another leading accounting site is at 


Paul Pacter maintains the best international accounting standards and news Website at

How stuff works --- 


Bob Jensen's video helpers for MS Excel, MS Access, and other helper videos are at 
Accompanying documentation can be found at and 


Professor Robert E. Jensen (Bob)
Jesse H. Jones Distinguished Professor of Business Administration
Trinity University, San Antonio, TX 78212-7200
Voice: 210-999-7347 Fax: 210-999-8134  Email: